Form 20-F
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
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Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934 |
or
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þ |
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2010
or
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o |
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
or
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Shell company report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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Date of event requiring this shell company report __________ |
Commission file number: 001-33853
CTRIP.COM INTERNATIONAL, LTD.
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrants name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
99 Fu Quan Road
Shanghai 200335
Peoples Republic of China
(Address of principal executive offices)
Min Fan, President and Chief Executive Officer
Telephone: +(8621) 3406-4880
Facsimile: +(8621) 5251-0000
99 Fu Quan Road
Shanghai 200335
Peoples Republic of China
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Title of Each Class |
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Name of Each Exchange on Which Registered |
Ordinary shares, par value US$0.01 per ordinary share
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The NASDAQ Stock Market LLC* |
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(The NASDAQ Global Select Market) |
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* |
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Not for trading but only in connection with the listing on the NASDAQ Global Select Market of
American depositary shares, each representing 0.25 of an ordinary share. |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the Issuers classes of capital or common
stock as of the close of the period covered by the annual report. 35,885,163 ordinary shares, par
value $0.01 per ordinary share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes þ No o
If this report is an annual or transition report, indicate by check mark if the registrant is
not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934. Yes o No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o |
Indicate by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:
U.S. GAAP þ
International Financial Reporting Standards as issued by the International Accounting
Standards Board o
Other o
If Other has been checked in response to the previous question, indicate by check mark which
financial statement item the registrant has elected to follow.
Item 17 o
Item 18 o
If this is an annual report, indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS.)
Indicate by check mark whether the registrant has filed all documents and reports required to
be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. Yes o No o
INTRODUCTION
In this annual report, unless otherwise indicated,
(1) the terms we, us, our company, our and Ctrip refer to Ctrip.com International,
Ltd., its predecessor entities and subsidiaries, and, in the context of describing our operations
and consolidated financial information, also include its consolidated affiliated Chinese entities;
(2) shares and ordinary shares refer to our ordinary shares, par value of US$0.01 per
ordinary share;
(3) ADSs refers to our American depositary shares, each of which represents 0.25 of an
ordinary share;
(4) China and PRC refer to the Peoples Republic of China, and solely for the purpose of
this annual report, exclude Taiwan, Hong Kong and Macau, and Greater China refers to the Peoples
Republic of China, Taiwan, Hong Kong and Macau; and
(5) all references to RMB and Renminbi are to the legal currency of China and all
references to U.S. dollars, US$, dollars and $ are to the legal currency of the United
States.
Any discrepancies in any table between the amounts identified as total amounts and the sum of
the amounts listed therein are due to rounding.
This annual report on Form 20-F includes our audited consolidated financial statements for the
years ended December 31, 2008, 2009 and 2010.
On April 11, 2006, we effected a change of the ratio of our ADSs to ordinary shares from one
(1) ADS representing two (2) ordinary shares to one (1) ADS representing one ordinary share. On
July 31, 2007, we effected a change of the ratio of our ADSs to ordinary shares from one (1) ADS
representing one ordinary share to two (2) ADSs representing one ordinary share. On January 21,
2010, we effected a change of the ratio of our ADSs to ordinary shares from two (2) ADSs
representing one ordinary share to four (4) ADSs representing one ordinary share. Unless otherwise
indicated, ADSs and per ADS amount in this annual report have been retroactively adjusted to
reflect the changes in ratio for all periods presented.
FORWARD-LOOKING INFORMATION
This annual report on Form 20-F contains forward-looking statements that reflect our current
expectations and views of future events. These statements are made under the safe harbor
provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these
forward-looking statements by terminology such as may, will, expect, anticipate, future,
intend, plan, believe, estimate, is/are likely to or other similar expressions. We have
based these forward-looking statements largely on our current expectations and projections about
future events and financial trends that we believe may affect our financial condition, results of
operations, business strategy and financial needs. These forward-looking statements include, among
other things:
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our anticipated growth strategies; |
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our future business development, results of operations and financial condition; |
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our ability to continue to control costs and maintain profitability; and |
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the expected growth of and change in the travel and online commerce industries in
China. |
3
The forward-looking statements included in this annual report on Form 20-F are subject to
risks, uncertainties and assumptions about our company. Our actual results of operations may differ
materially from the forward-looking statements as a result of the risk factors described under
Item 3.D. Risk Factors, included elsewhere in this annual report on Form 20-F, including the
following risks:
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slow-down of economic growth in China and the global economic downturn could have a
material and adverse effect on our business, and may materially and adversely affect our
business growth and profitability; |
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general declines or disruptions in the travel industry may materially and adversely
affect our business and results of operations; |
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the trading price of our ADSs has been volatile historically and may continue to be
volatile regardless of our operating performance; |
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if we are unable to maintain existing relationships with travel suppliers and
strategic alliances, or establish new arrangements with travel suppliers and strategic
alliances similar to those we currently have, our business may suffer; |
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if we fail to further increase our brand recognition, we may face difficulty in
obtaining new business partners and customers, and our business may be harmed; |
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if we do not compete successfully against new and existing competitors, we may lose
our market share, and our profitability may be adversely affected; |
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our business could suffer if we do not successfully manage current growth and
potential future growth; |
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our strategy to acquire or invest in complementary businesses and assets involves
significant risks and uncertainty that may prevent us from achieving our objectives and
harm our financial condition and results of operations; |
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our quarterly results are likely to fluctuate because of seasonality in the travel
industry in Greater China; |
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our business may be harmed if our infrastructure and technology are damaged or
otherwise fail or become obsolete; |
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our business depends substantially on the continuing efforts of our key executives,
and our business may be severely disrupted if we lose their services.; |
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inflation in China may disrupt our business and have an adverse effect on our
financial condition and results of operations.; and |
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if the ownership structure of our affiliated Chinese entities and the contractual
arrangements among us, our consolidated affiliated Chinese entities and their
shareholders are found to be in violation of any PRC laws or regulations, we and/or our
affiliated Chinese entities may be subject to fines and other penalties, which may
adversely affect our business and results of operations. |
These risks are not exhaustive. Other sections of this annual report include additional
factors that could adversely impact our business and financial performance. You should read these
statements in conjunction with the risk factors disclosed in Item 3.D. of this annual report,
Risk Factors, and other risks outlined in our other filings with the Securities and Exchange
Commission. Moreover, we operate in an emerging and evolving environment. New risk factors may
emerge from time to time, and it is not possible for our management to predict all risk factors,
nor can we assess the impact of all factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those contained in any
forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. We
undertake no obligation to update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
4
PART I
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ITEM 1. |
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IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
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ITEM 2. |
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OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
A. Selected Financial Data
The following table presents the selected consolidated financial information for our business.
You should read the following information in conjunction with Item 5. Operating and Financial
Review and Prospects, below. The selected consolidated statement of operations data for the years
ended December 31, 2008, 2009 and 2010 and the selected consolidated balance sheet data as of
December 31, 2009 and 2010 have been derived from our audited consolidated financial statements and
should be read in conjunction with those statements, which are included in this annual report
beginning on page F-1. The selected consolidated statement of operations data for the years ended
December 31, 2006 and 2007 and the selected consolidated balance sheet data as of December 31,
2006, 2007 and 2008 have been derived from our audited consolidated financial statements for these
periods, which are not included in this annual report.
Certain prior year amounts have been reclassified with no effect on net income or retained
earnings to conform to the presentation of 2010 financial information presentation. Additionally,
all ADS data have been retroactively adjusted to reflect the current ADS to ordinary share ratio
for all periods presented.
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For the Year Ended December 31, |
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2006 |
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2007 |
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2008 |
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2009 |
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2010 |
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2010 |
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RMB |
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RMB |
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RMB |
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RMB |
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RMB |
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US$(2) |
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(in thousands, except for per ordinary share data) |
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Consolidated Statement of Operation Data |
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Net revenues |
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779,952 |
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1,199,111 |
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1,482,004 |
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1,988,007 |
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2,881,233 |
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436,551 |
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Cost of revenues |
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(153,132 |
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(236,226 |
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(326,610 |
) |
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(450,603 |
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(625,261 |
) |
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(94,737 |
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Gross profit |
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626,820 |
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962,885 |
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1,155,394 |
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1,537,404 |
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2,255,972 |
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341,814 |
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Operating expenses |
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Product development(1) |
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(105,938 |
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(177,302 |
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(235,800 |
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(308,452 |
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(453,853 |
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(68,766 |
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Sales and marketing(1) |
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(172,492 |
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(243,314 |
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(286,693 |
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(345,289 |
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(453,293 |
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(68,681 |
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General and administrative(1) |
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(93,174 |
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(137,944 |
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(171,694 |
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(196,297 |
) |
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(294,701 |
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(44,652 |
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Total operating expenses |
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(371,604 |
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(558,560 |
) |
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(694,187 |
) |
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(850,038 |
) |
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(1,201,847 |
) |
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(182,099 |
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Income from operations |
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255,216 |
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404,325 |
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461,207 |
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687,366 |
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1,054,125 |
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159,715 |
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Net interest income and other income |
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26,846 |
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52,001 |
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86,045 |
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78,194 |
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136,712 |
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20,714 |
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Income before income tax expense equity in income
of affiliates and noncontrolling interest |
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282,062 |
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456,326 |
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547,252 |
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765,560 |
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1,190,837 |
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180,429 |
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Income tax expense |
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(41,277 |
) |
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(58,006 |
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(102,914 |
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(131,658 |
) |
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(205,017 |
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(31,063 |
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Equity in income of affiliates |
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32,869 |
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66,172 |
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10,026 |
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Net income |
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240,785 |
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398,320 |
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444,338 |
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666,771 |
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1,051,992 |
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159,392 |
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Less: Net loss / (income) attributable to
noncontrolling interests |
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(221 |
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4 |
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(230 |
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(7,797 |
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(3,922 |
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(594 |
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Net income attributable to Ctrips shareholders |
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240,564 |
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398,324 |
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444,108 |
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658,974 |
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1,048,070 |
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158,798 |
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Earnings Per Ordinary Share Data: |
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Net income attributable to Ctrips shareholders |
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240,564 |
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398,324 |
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444,108 |
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658,974 |
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1,048,070 |
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158,798 |
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Earnings per ordinary share(3), basic |
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7.44 |
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12.10 |
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13.32 |
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19.62 |
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29.62 |
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4.49 |
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Earnings per ordinary share(3), diluted |
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7.23 |
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11.67 |
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12.90 |
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18.69 |
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27.89 |
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4.23 |
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Cash dividends per ordinary share paid(4) |
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2.04 |
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2.11 |
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3.38 |
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5
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As of December 31, |
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2006 |
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2007 |
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2008 |
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2009 |
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2010 |
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2010 |
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RMB |
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RMB |
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RMB |
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RMB |
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RMB |
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US$(2) |
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(in thousands) |
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Consolidated Balance Sheet Data: |
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Cash and cash equivalents |
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844,393 |
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1,064,418 |
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1,069,827 |
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1,434,618 |
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2,153,935 |
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326,354 |
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Restricted cash |
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6,600 |
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6,600 |
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6,600 |
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113,150 |
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224,179 |
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33,967 |
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Short-term investment |
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141,174 |
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176,586 |
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180,184 |
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1,178,278 |
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178,527 |
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Accounts receivable, net |
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136,688 |
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260,684 |
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274,302 |
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420,579 |
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621,549 |
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94,174 |
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Other current assets |
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65,787 |
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74,765 |
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103,992 |
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157,764 |
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392,967 |
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59,540 |
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Non-current assets |
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398,385 |
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577,303 |
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1,010,142 |
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1,850,465 |
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3,545,296 |
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537,166 |
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Total assets |
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1,451,853 |
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2,124,944 |
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2,641,449 |
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4,156,760 |
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8,116,204 |
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1,229,728 |
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Current liabilities |
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421,045 |
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672,041 |
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626,037 |
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1,158,542 |
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1,880,898 |
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284,985 |
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Other non-current liabilities |
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2,438 |
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1,625 |
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|
813 |
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11,510 |
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45,383 |
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6,876 |
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Total Ctrips shareholders equity |
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1,027,697 |
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1,450,119 |
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2,011,971 |
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2,925,048 |
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6,103,693 |
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924,802 |
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Noncontrolling interests |
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673 |
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1,159 |
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2,628 |
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61,660 |
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86,230 |
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13,065 |
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Total shareholders equity |
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1,028,370 |
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1,451,278 |
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2,014,599 |
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2,986,708 |
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6,189,923 |
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937,867 |
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(1) |
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Share-based compensation was included in the related operating expense categories as follows: |
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For the Year Ended December 31, |
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2006 |
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2007 |
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2008 |
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2009 |
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2010 |
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2010 |
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RMB |
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RMB |
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RMB |
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RMB |
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RMB |
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US$(2) |
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(in thousands) |
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Product development |
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13,694 |
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22,708 |
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32,666 |
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33,863 |
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64,254 |
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9,735 |
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Sales and marketing |
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8,558 |
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13,649 |
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18,816 |
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18,864 |
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33,203 |
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5,031 |
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General and administrative |
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32,430 |
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50,557 |
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77,035 |
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77,802 |
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145,104 |
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21,986 |
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(2) |
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Translation from RMB amounts into U.S. dollars was made at a rate of RMB6.6000 to US$1.00.
See Exchange Rate Information. |
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(3) |
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Each ADS represents 0.25 of an ordinary share. |
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(4) |
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On July 14, 2006, we distributed dividends in the aggregate amount of RMB67 million to our
shareholders of record as of June 30, 2006, at a dividend rate of RMB2.04, or US$0.255, per
ordinary share. On July 6, 2007, we distributed dividends in the aggregate amount of RMB72
million to our shareholders of record as of June 29, 2007, at a dividend rate of RMB2.11, or
US$0.277, per ordinary share. On July 7, 2008, we distributed dividends in the aggregate
amount of RMB112 million to our shareholders of record as of June 12, 2008, at a dividend rate
of RMB3.38, or US$0.488, per ordinary share. The above U.S. dollar amounts were translated
using the then prevailing exchange rate. We did not distribute any dividends to our
shareholders in 2009 and 2010. |
Exchange Rate Information
We have published our financial statements in RMB. Our business is primarily conducted in
China in RMB. The conversion of RMB into U.S. dollars in this annual report is based on the
certified exchange rate published by the Federal Reserve Board. For your convenience, this annual
report contains translations of some RMB or U.S. dollar amounts for 2010 at US$1.00 : RMB6.6000,
which was the certified exchange rate in effect as of December 30, 2010. The certified exchange
rate on March 25, 2011 was US$1.00 : RMB6.5568. We make no representation that any RMB or U.S.
dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may
be, at any particular rate, the rates stated below, or at all. The PRC government imposes control
over its foreign currency reserves in part through direct regulation of the conversion of RMB into
foreign exchange.
6
The following table sets forth information concerning exchange rates between the RMB and the
U.S. dollar for the periods indicated. For all dates and periods through December 31, 2008, the
conversion of RMB into U.S. dollars in this annual report is based on the noon buying rate in The
City of New York for cable transfers of RMB as certified for customs purposes by the Federal
Reserve Bank of New York. For January 1, 2009 and all later dates and periods, the exchange rate
refers to the exchange rate as set forth in the H.10 statistical release of the Federal Reserve
Board. These rates are provided solely for your convenience and are not necessarily the exchange
rates that we used in this annual report or will use in the preparation of our periodic reports or
any other information to be provided to you. The source of these rates is the Federal Reserve
Statistical Release.
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Certified Exchange Rate |
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Period-End |
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Average(1) |
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Low |
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High |
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Period |
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(RMB per U.S. Dollar) |
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2006 |
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7.8041 |
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7.9579 |
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8.0702 |
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7.8041 |
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2007 |
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7.2946 |
|
|
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7.5806 |
|
|
|
7.8127 |
|
|
|
7.2946 |
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2008 |
|
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6.8225 |
|
|
|
6.9193 |
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|
|
7.2946 |
|
|
|
6.7800 |
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2009 |
|
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6.8259 |
|
|
|
6.8295 |
|
|
|
6.8470 |
|
|
|
6.8176 |
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2010 |
|
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6.6000 |
|
|
|
6.7689 |
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6.8330 |
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6.6000 |
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September |
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6.6905 |
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6.7396 |
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6.8102 |
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6.6869 |
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October |
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6.6705 |
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6.6675 |
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|
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6.6912 |
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6.6397 |
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November |
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6.6670 |
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6.6538 |
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6.6892 |
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6.6330 |
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December |
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6.6000 |
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|
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6.6497 |
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6.6745 |
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6.6000 |
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2011 |
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January |
|
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6.6017 |
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|
|
6.5964 |
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|
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6.6364 |
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6.5809 |
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February |
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6.5713 |
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6.5761 |
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6.5965 |
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6.5520 |
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March (through March 25, 2011) |
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6.5568 |
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6.5660 |
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6.5743 |
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6.5510 |
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(1) |
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Annual averages are calculated using the average of month-end rates of the relevant year.
Monthly averages are calculated using the average of the daily rates during the relevant
period. |
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Risks Related to Our Company
Slow-down of economic growth in China and the global economic downturn could have a material and
adverse effect on our business, and may materially and adversely affect our business growth and
profitability.
Our business and operations are primarily based in China and the majority of our revenues are
derived from our operations in China. Accordingly, our financial results have been, and are
expected to continue to be, affected by the economy and travel industry in China. Although the
economy in China has grown significantly in the past decades, any slow-down of economic growth in
China could reduce expenditures for travel, which in turn may adversely affect our operating
results and financial condition.
The global financial markets have experienced significant disruptions since 2008, and most of
the worlds major economies have entered into recession. Chinas economy has slowed down
significantly since the second half of 2008. Although the Chinese economy has recovered in 2010, it
is uncertain whether such recovery will continue into the rest of 2011 and beyond. Since we derive
the majority of our revenues from hotel reservation, air-ticketing and packaged-tour services in
China, the economic slow-down in China negatively affected our operating results in the second half
of 2008. Any persistent slow-down in Chinas economy or the recurrence of any financial disruptions
may materially and adversely affect our business, operating results and financial condition in a
number of ways. For example, the weakness in the economy could erode consumer confidence which, in
turn, could result in changes to consumer spending patterns relating to travel products and
services. If consumer demand for travel products and services we offer decreases, our revenues may
decline. Furthermore, any financial turmoil affecting the financial markets and banking system may
significantly restrict our ability to obtain financing in the capital markets or from financial
institutions on commercially reasonable terms, or at all. Any slow-down in the Chinese economy or
the recurrence of any financial crisis may have a material and adverse effect on our business,
results of operations and profitability.
7
General declines or disruptions in the travel industry may materially and adversely affect our
business and results of operations.
Our business is significantly affected by the trends that occur in the travel industry in
China, including the hotel, air ticketing and packaged-tour sectors. As the travel industry is
highly sensitive to business and personal discretionary spending levels, it tends to decline during
general economic downturns. The recent worldwide recession has led to a weakening in the demand for
travel services. Other trends or events that tend to reduce travel and are likely to reduce our
revenues include:
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an outbreak of H1N1 influenza, avian flu, severe acute respiratory syndrome, or SARS, or
any other serious contagious diseases; |
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increased prices in the hotel, air-ticketing, or other travel-related sectors; |
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increased occurrence of travel-related accidents; |
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natural disasters or poor weather conditions; |
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terrorist attacks or threats of terrorist attacks or wars; and |
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any travel restrictions or other security procedures implemented in connection with any
major events in China. |
We could be severely and adversely affected by declines or disruptions in the travel industry
and, in many cases, have little or no control over the occurrence of such events. Such events could
result in a decrease in demand for our travel services. This decrease in demand, depending on the
scope and duration, could significantly and adversely affect our business and financial performance
over the short and long term.
The trading price of our ADSs has been volatile historically and may continue to be volatile
regardless of our operating performance.
The trading price of our ADSs has been and may continue to be subject to wide fluctuations. In
2010, the trading prices of our ADSs on the Nasdaq Global Select Market ranged from US$29.90 to
US$53.16 per ADS, and the closing price on March 28, 2011 was US$39.69 per ADS. The price of
our ADSs may fluctuate in response to a number of events and factors, including the following:
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actual or anticipated fluctuations in our quarterly operating results; |
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changes in financial estimates by securities analysts; |
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conditions in the Internet, online commerce or travel industries; |
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changes in the economic performance or market valuations of other Internet, online
commerce or travel companies; |
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changes in the economic performance or market valuations of other companies that focus on
the China market; |
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announcements by us or our competitors of new products or services, significant
acquisitions, strategic partnerships, joint ventures or capital commitments; |
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additions or departures of key personnel; |
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potential litigation; and |
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market and volume fluctuations in the stock market in general. |
8
In addition, market prices for Internet-related companies and companies with operations in
China in particular have experienced volatility that often has been unrelated to the operating
performance of such companies. These broad market and industry fluctuations may adversely affect
the price of our ADSs, regardless of our operating performance. Additionally, volatility or a lack
of positive performance in our stock price may adversely affect our ability to retain key
employees, all of whom have been granted share-based awards.
If we are unable to maintain existing relationships with travel suppliers and strategic alliances,
or establish new arrangements with travel suppliers and strategic alliances similar to those we
currently have, our business may suffer.
If we are unable to maintain satisfactory relationships with our existing hotel suppliers, or
if our hotel suppliers establish similar or more favorable relationships with our competitors, or
if our hotel suppliers increase their competition with us through their direct sales, our operating
results and our business would be harmed, because we would not have the necessary supply of hotel
rooms or hotel rooms at satisfactory rates to meet the needs of our customers, or because of
reduced demand for our services. Our business depends significantly upon our ability to contract
with hotels in advance for the guaranteed availability of certain hotel rooms. We rely on hotel
suppliers to provide us with rooms at discounted prices. However, our contracts with our hotel
suppliers are not exclusive and most of the contracts must be renewed semi-annually or annually. We
cannot assure you that our hotel suppliers will renew our contracts in the future on terms similar
to those we currently have agreed. Furthermore, in order to maintain and grow our business, we will
need to establish new arrangements with hotels in our existing markets and in new markets. We
cannot assure you that we will be able to identify appropriate hotels or enter into arrangements
with those hotels on favorable terms, if at all. This failure could harm the growth of our business
and adversely affect our operating results and financial condition, which consequently will impact
the price of our ADSs.
We derive revenues and other significant benefits from our arrangements with major domestic
airlines in China and international airlines operating flights originating from China. Our airline
ticket suppliers allow us to book and sell tickets on their behalf and collect commissions on
tickets booked and sold through us. Although we currently have supply relationships with these
airlines, they also compete with us for ticket bookings and have entered into similar arrangements
with many of our competitors and may continue to do so in the future. Such arrangements may be on
better terms than we have. We cannot assure you that any of these airlines will continue to have
supplier relationships with us. The loss of these supplier relationships would impair our operating
results and financial condition as we would lose an increasingly significant source of our
revenues.
Part of the revenues that we derive from our hotel suppliers, airline ticket suppliers and
other travel service providers are obtained through our strategic alliances with various third
parties. We cannot assure you, however, that we will be able to successfully establish and maintain
strategic alliances with third parties which are effective and beneficial for our business. Our
inability to do so could have a material adverse effect on our market penetration, revenue growth
and profitability.
If we fail to further increase our brand recognition, we may face difficulty in obtaining new
business partners and customers, and our business may be harmed.
We believe that maintaining and enhancing the Ctrip brand is a critical aspect of our efforts
to grow our customer base and obtain new business partners. Some of our potential competitors
already have well-established brands in the travel industry. The successful promotion of our brand
will depend largely on our ability to maintain a sizeable and active customer base, provide
high-quality customer service and organize effective marketing and advertising programs. If our
customer base significantly declines, or the quality of our customer services substantially
deteriorates, we may not be able to cost-effectively maintain and promote our brand, and our
business, operating results and financial condition may be materially and adversely affected.
If we do not compete successfully against new and existing competitors, we may lose our market
share, and our business may be materially and adversely affected.
We compete primarily with other consolidators of hotel accommodations and flight reservation
services based in China, such as eLong, Inc., and Mangocity.com. We also compete with traditional
travel agencies and new internet travel search websites, such as Qunar.com and Taobao.com. In the
future, we may also face competition from new players in the hotel consolidation market in China
and abroad that may enter China.
We may face more competition from hotels and airlines as they enter the discount rate market
directly or through alliances with other travel consolidators. In addition, international travelers
have become an increasingly important customer base. Competitors that have strategic alliances with
consolidators abroad may have more effective channels to direct on-line booking requests to their
websites for travel needs in China. Furthermore, like all other consolidators, we do not have
exclusive arrangements with our travel suppliers. The combination of these two factors means that
potential entrants to our industry face relatively low entry barriers.
9
Increased competition could reduce our operating margins and profitability and result in loss
of market share. Some of our existing and potential competitors may have competitive advantages,
such as significantly greater financial, marketing and strategic relationships and alliances or
other resources or name recognition, and may be able to imitate and adopt our business model. We
cannot assure you that we will be able to successfully compete against new or existing competitors.
In the event we are not able to compete successfully, our business will be materially and adversely
affected.
Our business could suffer if we do not successfully manage current growth and potential future
growth.
Our business has grown rapidly during the past several years, both as a result of organic
growth of existing operations and acquisitions. We have significantly expanded our operations and
anticipate further expansion of our operations and workforce. Our growth to date has placed, and
our anticipated future operations will continue to place, a significant strain on our management,
systems and resources. In addition to training and managing our workforce, we will need to continue
to improve and develop our financial and managerial controls and our reporting systems and
procedures. We cannot assure you that we will be able to efficiently or effectively manage the
growth of our operations, and any failure to do so may limit our future growth and hamper our
business strategy.
Our strategy to acquire or invest in complementary businesses and assets and establish strategic
alliances involves significant risk and uncertainty that may prevent us from achieving our
objectives and harm our financial condition and results of operations.
As part of our plan to expand our product and service offerings, we have made and intend to
make strategic acquisitions or investments in the highly fragmented travel service industries in
mainland China, Taiwan, Hong Kong and overseas. Our strategic acquisitions and investments could
subject us to uncertainties and risks, including:
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high acquisition and financing costs; |
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potential ongoing financial obligations and unforeseen or hidden liabilities; |
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failure to achieve our intended objectives, benefits or revenue-enhancing
opportunities; |
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cost of, and difficulties in, integrating acquired businesses and managing a larger
business; |
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potential claims or litigation regarding our boards exercise of its duty of care
and other duties required under applicable law in connection with any of our significant
acquisitions or investments approved by the board; and |
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diversion of our resources and management attention. |
Our failure to address these uncertainties and risks may have a material adverse effect on our
financial condition and results of operations. In addition, we establish strategic alliances with
various third parties to further our business purpose from time to time. Strategic alliances with
third parties could subject us to a number of risks, including risks associated with sharing
proprietary information, non-performance by the counter-party, and an increase in expenses incurred
in establishing new strategic alliances, any of which may materially and adversely affect our
business.
We have invested through open market purchases and in a private placement transaction a total
of US$92 million in approximately 18% stake in Home Inns & Hotels Management Inc., or Home Inns, a
leading economy hotel chain in China. The purchase prices were determined based on the trading
prices of Home Inns ADSs on the Nasdaq Global Market at the time of each open market purchase or
the average closing prices of Home Inns ADSs as stipulated in the relevant purchase agreement. If
Home Inns experiences a net loss in the future, we would share the net loss of Home Inns
proportionate to our equity interest. In March 2010, we invested a total of US$67.5 million in
approximately 9% stake in China Lodging Group, Limited, or Hanting, a leading economy hotel chain
in China, through private placement transactions and purchases in Hantings initial public
offering. The purchase prices for shares acquired in both private placement transactions and the
initial public offering equal to Hantings initial public offering price. If the ADS price of Home
Inns or Hanting declines and becomes lower than our share purchase price, we could incur impairment
loss under U.S. GAAP, which in turn would adversely affect our financial results for the relevant
periods.
In March 2010, we entered into an agreement with Hong Kong Polaris Hotels Limited, or Polaris,
pursuant to which we purchased from Polaris a 15% equity interest in BTG-Jianguo, a hotel
management company in China, for a total consideration of RMB10.2 million, with an option to
acquire another 10% within one year after the closing.
In May 2010, we acquired 90% of the issued share capital of Wing On Travels travel service
segment (operated through Wing On Travels subsidiary, HKWOT (BVI) Limited), for a total
consideration of approximately US$88 million in cash, and began to
consolidate its financials since then. In November 2010, we made a minority investment in
Dining Secretary China Ltd., a leading provider of free online and offline restaurant reservations,
for a cash consideration of US$10 million. We cannot assure you that we will be able to achieve the
benefits we expected from such acquisitions or investments. Any actual or perceived failure to
realize the benefits we expected from these acquisitions or investments may cause the trading price
of our ADSs to decline.
10
Our quarterly results are likely to fluctuate because of seasonality in the travel industry in
Greater China.
Our business experiences fluctuations, reflecting seasonal variations in demand for travel
services. For example, the first quarter of each year generally contributes the lowest portion of
our annual net revenues primarily due to a slowdown in business activity around and during the
Chinese New Year holiday, which occurs during the period. Consequently, our results of operations
may fluctuate from quarter to quarter.
Our business may be harmed if our infrastructure and technology are damaged or otherwise fail or
become obsolete.
Substantially all of our computer and communications systems are located at two customer
service centers, including one in Shanghai and the other one in Nantong, China. Therefore our
computer and communication systems are vulnerable to damage or interruption from human error,
computer viruses, fire, flood, power loss, telecommunications failure, physical or electronic
break-ins, sabotage, vandalism, natural disasters and other similar events. We do not carry
business interruption insurance to compensate us for losses that may occur.
We use an internally developed booking software system that supports nearly all aspects of our
booking transactions. Our business may be harmed if we are unable to upgrade our systems and
infrastructure quickly enough to accommodate future traffic levels, avoid obsolescence or
successfully integrate any newly developed or purchased technology with our existing system.
Capacity constraints could cause unanticipated system disruptions, slower response times, poor
customer service, impaired quality and speed of reservations and confirmations and delays in
reporting accurate financial and operating information. These factors could cause us to lose
customers and suppliers, which would have a material adverse effect on our results of operations
and financial condition.
Our business depends substantially on the continuing efforts of our key executives, and our
business may be severely disrupted if we lose their services.
Our future success depends heavily upon the continued services of our key executives. We rely
on their expertise in business operations, finance and travel services and on their relationships
with our suppliers, shareholders, and business partners. We do not maintain key-man life insurance
for any of our key executives. If one or more of our key executives are unable or unwilling to
continue in their present positions, we may not be able to easily replace them. In that case, our
business may be severely disrupted, we may incur additional expenses to recruit and train personnel
and our financial condition and results of operations may be materially and adversely affected.
In addition, if any of these key executives joins a competitor or forms a competing company,
we may lose customers and suppliers. Each of our executive officers has entered into an employment
agreement with us that contains confidentiality and non-competition provisions. If any disputes
arise between our executive officers and us, we cannot assure you of the extent to which any of
these agreements would be enforced in China, where most of these executive officers reside and hold
most of their assets, in light of the uncertainties with Chinas legal system. See Risks Related
to Doing Business in ChinaUncertainties with respect to the PRC legal system could adversely
affect us.
If we are unable to attract, train and retain key individuals and highly skilled employees, our
business may be adversely affected.
If our business continues to expand, we will need to hire additional employees, including
travel supplier management personnel to maintain and expand our travel supplier network,
information technology and engineering personnel to maintain and expand our websites, customer
service centers and systems, and customer service representatives to serve an increasing number of
customers. If we are unable to identify, attract, hire, train and retain sufficient employees in
these areas, users of our websites and customer service centers may have negative experiences and
turn to our competitors, which could adversely affect our business and results of operations.
11
The PRC government regulates the air-ticketing, travel agency, advertising and Internet industries.
If we fail to obtain or maintain all pertinent permits and approvals or if the PRC government
imposes more restrictions on these industries, our business may be adversely affected.
The PRC government regulates the air-ticketing, travel agency, advertising and Internet
industries. We are required to obtain applicable permits or approvals from different regulatory
authorities to conduct our business, including separate licenses for value-added
telecommunications, air-ticketing, advertising and travel agency activities. If we fail to obtain
or maintain any of the required permits or approvals in the future, we may be subject to various
penalties, such as fines or suspension of operations in these regulated businesses, which could
severely disrupt our business operations. As a result, our financial condition and results of
operations may be adversely affected.
In particular, the Civil Aviation Administration of China, or CAAC, together with National
Development and Reform Commission, or NDRC, regulates pricing of air tickets. CAAC also supervises
commissions payable to air-ticketing agencies together with China National Aviation Transportation
Association, or CNATA. If restrictive policies are adopted by CAAC, NDRC, or CNATA, or any of their
regional branches, our air-ticketing revenues may be adversely affected.
We may not be able to prevent others from using our intellectual property, which may harm our
business and expose us to litigation.
We regard our domain names, trade names, trademarks and similar intellectual property as
critical to our success. We try to protect our intellectual property rights by relying on trademark
protection and confidentiality laws and contracts. Trademark and confidentiality protection in
China may not be as effective as that in the United States. Policing unauthorized use of
proprietary technology is difficult and expensive.
The steps we have taken may be inadequate to prevent the misappropriation of our proprietary
technology. Any misappropriation could have a negative effect on our business and operating
results. Furthermore, we may need to go to court to enforce our intellectual property rights.
Litigation relating to our intellectual property might result in substantial costs and diversion of
resources and management attention. See Risks Related to Doing Business in ChinaUncertainties
with respect to the PRC legal system could adversely affect us.
We rely on services from third parties to carry out our business and to deliver our products to
customers, and if there is any interruption or deterioration in the quality of these services, our
customers may not continue using our services.
We rely on third-party computer systems to host our websites, as well as third-party licenses
for some of the software underlying our technology platform. In addition, we rely on third-party
air-ticketing agencies to issue air tickets and travel insurance products, confirmations and
deliveries in some cities in Greater China. We also rely on third party local operators to deliver
on-site services to our packaged-tour customers. Any interruption in our ability to obtain the
products or services of these or other third parties or deterioration in their performance could
impair the timing and quality of our own service. If our service providers fail to provide high
quality services in a timely manner to our customers or violate any applicable rules and
regulations, our services will not meet the expectations of our customers and our reputation and
brand will be damaged. Furthermore, if our arrangement with any of these third parties is
terminated, we may not find an alternative source of support on a timely basis or on favorable
terms to us.
If our hotel suppliers or customers provide us with untrue information regarding our customers
stay, we may not be able to recognize and collect revenues to which we are entitled.
A substantial portion of our revenues are represented by commissions which hotels pay us for
room nights booked through us. Generally, we do not receive payment from our customers on behalf of
our hotel suppliers, as our customers pay hotels directly. To confirm whether a customer adheres to
the booked itinerary, we routinely make inquiries with the hotel and, occasionally, with the
customer. We rely on the hotel and the customer to provide us truthful information regarding the
customers check-in and check-out dates, which forms the basis for calculating the commission we
are entitled to receive from the hotel. If our hotel suppliers or customers provide us with untrue
information with respect to our customers length of stay at the hotels, we would not be able to
collect revenues to which we are entitled. In addition, using such untrue information may lead to
inaccurate business projections and plans, which may adversely affect our business planning and
strategy.
We may suffer losses if we are unable to predict the amount of inventory we will need to purchase
during the peak holiday seasons.
During the peak holiday seasons in China, we establish limited merchant business relationships
with selected travel service suppliers, particularly for our packaged-tour products, in order to
secure adequate supplies for our customers. In the merchant business relationship, we buy hotel
rooms and/or air tickets before selling them to our customers and thereby incur inventory risk. If
we are unable to correctly predict demand for hotel rooms and air tickets that we are committed to
purchase, we would be responsible for
covering the cost of the hotel rooms and air tickets we are unable to sell, and our financial
condition and results of operations would be adversely affected.
12
The recurrence of SARS and other similar outbreaks such as H1N1 influenza (swine flu) or avian flu
as well as natural disasters may materially and adversely affect our business and operating
results.
In early 2003, several regions in Asia, including Hong Kong and China, were affected by the
outbreak of SARS. The travel industry in China, Hong Kong and some other parts of Asia suffered
tremendously as a result of the outbreak. Furthermore, in early 2008, severe snowstorms hit many
areas of China and particularly affected southern China. The travel industry was severely and
adversely affected during and after the snowstorms. Additionally, in May 2008, a major earthquake
struck Chinas populous Sichuan Province, causing great loss of life, numerous injuries, property
loss and disruption to the local economy. The earthquake had an immediate impact on our business as
a result of the sharp decrease in travel in the relevant earthquake affected areas in Sichuan
Province. Finally, in April 2009, an outbreak of H1N1 influenza (swine flu) occurred in Mexico and
the United States and human cases of swine flu were and continue to be discovered in China and Hong
Kong. Our business and operating results were adversely affected in all cases.
Any future outbreak of SARS, avian flu or similar adverse public health development or an
increase in the severity of H1N1 influenza or other contagious diseases, extreme unexpected bad
weather or severe natural disasters would adversely affect our business and operating results.
Ongoing concerns regarding contagious disease or natural disasters, particularly its effect on
travel, could negatively impact our China-based customers desire to travel. If there is a
recurrence of an outbreak of certain contagious diseases or natural disasters, travel to and from
affected regions could be curtailed. Government advice regarding, or restrictions on, travel to and
from these and other regions on account of an outbreak of any contagious disease or occurrence of
natural disasters could have a material adverse effect on our business and operating results.
If tax benefits available to our subsidiaries in China are reduced or repealed, our results of
operations could suffer.
Under the PRC Enterprise Income Tax Law, or the EIT Law, effective on January 1, 2008, foreign
invested enterprises, or FIEs, and domestic enterprises are subject to EIT at a uniform rate of
25%. Certain enterprises will benefit from a preferential tax rate of 15% under the EIT Law if they
qualify as high and new technology enterprises, subject to certain general restrictions described
in the EIT Law and the related regulations.
In December 2008, our PRC subsidiaries, Ctrip Computer Technology, Ctrip Travel Information,
Ctrip Travel Network and Software Hotel Information were each designated by relevant local
authorities as a high and new technology enterprise under the EIT Law with an effective period
for three years. Therefore, these entities are entitled to enjoy a preferential tax rate of 15%,
effective retroactively as of January 1, 2008, as long as they maintain their qualifications for
high and new technology enterprises, which are subject to review every three years. These four
entities will reapply for this qualification after the effective period in 2011. We cannot assure
you that our subsidiaries will continue to qualify as high and new technology enterprises when they
are subject to reevaluation in the future. In the event that the preferential tax treatment for
them is discontinued, these entities will become subject to the standard tax rate at 25%, which
would materially increase our tax obligations.
We have sustained losses in the past and may experience earnings declines or net losses in the
future.
We sustained net losses in the periods prior to 2002. We cannot assure you that we can sustain
profitability or avoid net losses in the future. We expect that our operating expenses will
increase and the degree of increase in these expenses is largely based on anticipated
organizational growth and revenue trends. As a result, any decrease or delay in generating
additional sales volume and revenues could result in substantial operating losses.
We may be subject to litigation regarding information provided on our websites, which may be
time-consuming to defend.
Our websites contain information about hotels, flights, popular vacation destinations and
other travel-related topics. It is possible that if any information accessible on our websites
contains errors or false or misleading information, third parties could take action against us for
losses incurred in connection with the use of such information. Any such claims, with or without
merit, could be time-consuming and costly to defend, result in litigation and divert managements
attention and resources.
We could be liable for breaches of security on our websites and fraudulent transactions by users of
our websites.
We conduct a portion of our transactions through our websites. In such transactions, secured
transmission of confidential information (such as customers itineraries, hotel and other
reservation information, credit card information, personal information and
billing addresses) over public networks is essential to maintain consumer and supplier
confidence. Our current security measures may not be adequate. Security breaches could expose us to
litigation and possible liability for failing to secure confidential customer or supplier
information and could harm our reputation and ability to attract customers.
13
We have limited business insurance coverage in Greater China.
Insurance companies in Greater China offer limited business insurance products and generally
do not, to our knowledge, offer business liability insurance. Business disruption insurance is
available to a limited extent in Greater China, but we have determined that the risks of
disruption, the cost of such insurance and the difficulties associated with acquiring such
insurance make it impractical for us to have such insurance. We do not maintain insurance coverage
for any kinds of business liabilities or disruptions and would have to bear the costs and expenses
associated with any such events out of our own resources.
We face a greater risk of doubtful accounts as our corporate travel business increases in scale.
Since we began providing travel booking services to corporate customers who generally request
credit terms, our accounts receivable have increased. We cannot assure you that we will be able to
collect payment fully and in a timely manner on our outstanding accounts receivable from our
corporate travel service customers. As a result, we may face a greater risk of non-payment of our
accounts receivable and, as our corporate travel business grows in scale, we may need to make
increased provisions for doubtful accounts. Our operating results and financial condition may be
materially and adversely affected if we are unable to successfully manage our accounts receivable.
As we have commenced accounting for employee share options using the fair value method beginning
from 2006, such accounting treatment could continue to significantly reduce our net income.
Since 2006, we have accounted for share-based compensation in accordance with ASC 718 Stock
Compensation, or ASC 718, which requires a public company to recognize, as an expense, the fair
value of share options and other share-based compensation to employees based on the requisite
service period of the share-based awards. Prior to 2006, we recorded share-based compensation to
the extent that the fair value of the shares on the date of grant exceeded the exercise price of
the option. Our board of directors has the discretion to change terms of any previously issued
share options and any such change may significantly increase the amount of our share-based
compensation expenses for the period that the change takes effect as well as those for any future
periods. In February 2009, our board of directors approved to reduce the exercise price of all
outstanding unvested options that were granted by us in 2007 and 2008 under our 2007 Plan to the
then fair market value of our ordinary shares underlying such options and, in December 2009, our
board of directors approved to extend the expiration dates of all stock options granted in 2005 and
2006 to eight years after the respective original grant dates of these options. As a result of such
changes, our share-based compensation expense of 2009 reduced our diluted earnings per ADS by
approximately US$0.14. The application of ASC 718 will continue to have a significant impact on our
net income. In addition, future changes to various assumptions used to determine the fair value of
awards issued or the amount and type of equity awards granted may also create uncertainty as to the
amount of future share-based compensation expense.
Failure to maintain effective internal control over financial reporting could result in errors in
our published financial statements, which in turn could have a material adverse effect on the
trading price of our ADSs.
We are subject to the reporting obligations under the U.S. securities laws. The Securities and
Exchange Commission, or the SEC, as required under Section 404 of the Sarbanes-Oxley Act of 2002,
has adopted rules requiring public companies to include a report of management on the effectiveness
of such companies internal control over financial reporting in its annual report. In addition, an
independent registered public accounting firm for a public company must issue an attestation report
on the effectiveness of the companys internal control over financial reporting. Our management
conducted an evaluation of the effectiveness of our internal control over financial reporting and
concluded that our internal control over financial reporting was effective as of December 31, 2010.
In addition, our independent registered public accounting firm attested the effectiveness of our
internal control and reported that our internal control over financial reporting was effective as
of December 31, 2010. If we fail to maintain the effectiveness of our internal control over
financial reporting, we may not be able to conclude on an ongoing basis that we have effective
internal control over financial reporting in accordance with the Sarbanes-Oxley Act. Moreover,
effective internal control over financial reporting is necessary for us to produce reliable
financial reports. As a result, any failure to maintain effective internal control over financial
reporting could result in the loss of investor confidence in the reliability of our financial
statements, which in turn could negatively impact the trading price of our ADSs. Furthermore, we
may need to incur additional costs and use additional management and other resources in an effort
to comply with Section 404 of the Sarbanes-Oxley Act and other requirements going forward.
14
We may need additional capital and we may not be able to obtain it.
We believe that our current cash and cash equivalents, short-term investments, our cash flow
from operations and proceeds from our financing activities will be sufficient to meet our
anticipated cash needs for the foreseeable future. We may, however, require additional cash
resources due to changed business conditions or other future developments, including any
investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy
our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit
facility. The sale of additional equity securities could result in additional dilution to our
shareholders. The incurrence of indebtedness would result in increased debt service obligations and
could result in operating and financing covenants that would restrict our operations. We cannot
assure you that financing will be available in amounts or on terms acceptable to us, if at all. In
particular, the recent financial turmoil affecting the financial markets and banking system may
significantly restrict our ability to obtain financing in the capital markets or from financial
institutions on commercially reasonable terms, or at all.
Risks Related to Our Corporate Structure
PRC laws and regulations restrict foreign investment in the air-ticketing, travel agency,
advertising and value-added telecommunications businesses, and substantial uncertainties exist with
respect to the application and implementation of PRC laws and regulations.
We are a Cayman Islands incorporated company and a foreign person under PRC law. Due to
foreign ownership restrictions in the air-ticketing, travel agency, advertising and value-added
telecommunications industries, we conduct part of our business through contractual arrangements
with our affiliated Chinese entities. These entities hold the licenses and approvals that are
essential for our business operations.
In the opinion of our PRC counsel, Commerce & Finance Law Offices, our current ownership
structure, the ownership structure of our subsidiaries and our affiliated Chinese entities, the
contractual arrangements among us, our subsidiaries, our affiliated Chinese entities and their
shareholders and our business operations, as described in this annual report, are in compliance
with existing PRC laws, rules and regulations. There are, however, substantial uncertainties
regarding the interpretation and application of current or future PRC laws and regulations.
Accordingly, we cannot assure you that PRC government authorities will not ultimately take a view
contrary to the opinion of our PRC legal counsel.
If we and our affiliated Chinese entities are found to be in violation of any existing or
future PRC laws or regulations, the relevant governmental authorities would have broad discretion
in dealing with such violation, including, without limitation, levying fines, confiscating our
income or the income of our affiliated Chinese entities, revoking our business licenses or the
business licenses of our affiliated Chinese entities, requiring us and our affiliated Chinese
entities to restructure our ownership structure or operations and requiring us or our affiliated
Chinese entities to discontinue any portion or all of our value-added telecommunications,
air-ticketing, travel agency or advertising businesses. Any of these actions could cause
significant disruption to our business operations, and may materially and adversely affect our
business, financial condition and results of operations.
Under the equity pledge agreements between our subsidiaries and the shareholders of our
affiliated Chinese entities, the shareholders of our affiliated Chinese entities pledged their
respective equity interests in these entities to our subsidiaries. Such pledges were duly created
by recording the pledge in the relevant affiliated Chinese entities register of shareholders in
accordance with the PRC Collateral Law. However, according to the PRC Property Rights Law,
effective as of October 1, 2007, and the Measures for the Registration of Equity Pledge with the
Administration for Industry and Commerce, effective as of October 1, 2008, the effectiveness of the
pledges will be denied if the pledges are not registered with the relevant administration for
industry and commerce. Some of our affiliated Chinese entities and our subsidiaries are in the
process of preparing the application forms and relevant documents for registration pursuant to the
Measures for the Registration of Equity Pledge. Before such registration procedures are completed,
we cannot assure you that the effectiveness of the pledges will be recognized by PRC courts if
disputes arise on certain pledged equity interests or that our subsidiaries interests as pledgees
will prevail over those of third parties.
If our affiliated Chinese entities violate our contractual arrangements with them, our business
could be disrupted, our reputation may be harmed and we may have to resort to litigation to enforce
our rights, which may be time-consuming and expensive.
As the PRC government restricts foreign ownership of value-added telecommunications,
air-ticketing, travel agency and advertising businesses in China, we depend on our affiliated
Chinese entities, in which we have no ownership interest, to conduct part of our non-hotel
reservation business activities through a series of contractual arrangements, which are intended to
provide us with effective control over these entities and allow us to obtain economic benefits from
them. Although we have been advised by our PRC
counsel, Commerce & Finance Law Offices, that these contractual arrangements are valid,
binding and enforceable under current PRC laws, these arrangements are not as effective in
providing control as direct ownership of these businesses. For example, our affiliated Chinese
entities could violate our contractual arrangements with them by, among other things, failing to
operate our air-ticketing, packaged-tour or advertising business in an acceptable manner or pay us
for our consulting or other services. In any such event, we would have to rely on the PRC legal
system for the enforcement of those agreements, which could have uncertain results. Any legal
proceeding could result in the disruption of our business, damage to our reputation, diversion of
our resources and incurrence of substantial costs. See Risks Related to Doing Business in
ChinaUncertainties with respect to the PRC legal system could adversely affect us.
15
The principal shareholders of our affiliated Chinese entities have potential conflicts of interest
with us, which may adversely affect our business.
Our director, chief executive officer and president, Min Fan, our officers, Jianmin Zhu, Tao
Yang and Gangyi Yan and a family member of a senior officer, Fengying Zhang were also the principal
shareholders of our consolidated affiliated Chinese entities as of December 31, 2010. Thus,
conflicts of interest between their duties to our company and our affiliated Chinese entities may
arise. We cannot assure you that when conflicts of interest arise, these persons will act entirely
in our interests or that the conflicts of interest will be resolved in our favor. In addition,
these persons could violate their non-competition or employment agreements with us or their legal
duties by diverting business opportunities from us to others, resulting in our loss of corporate
opportunities. In any such event, we would have to rely on the PRC legal system for the enforcement
of these agreements, which could have uncertain results. Any legal proceeding could result in the
disruption of our business, diversion of our resources and incurrence of substantial costs. See
Risks Related to Doing Business in ChinaUncertainties with respect to the PRC legal system
could adversely affect us.
Our contractual arrangements with our affiliated Chinese entities may result in adverse tax
consequences to us.
As a result of our corporate structure and the contractual arrangements between us and our
affiliated Chinese entities, we are effectively subject to the 5% PRC business tax on both revenues
generated by our affiliated Chinese entities operations in China and revenues derived from our
contractual arrangements with our affiliated Chinese entities. We may be subject to adverse tax
consequences if the PRC tax authorities were to determine that the contracts between us and our
affiliated Chinese entities were not made on an arms length basis and therefore constitute
favorable transfer pricing arrangements. If this occurs, the PRC tax authorities could request that
our affiliated Chinese entities adjust their taxable income upward for PRC tax purposes. Such a
pricing adjustment could adversely affect us by increasing our affiliated Chinese entities tax
expenses without reducing our tax expenses, which could subject our affiliated Chinese entities to
late payment fees and other penalties for underpayment of taxes, and/or result in the loss of the
tax benefits available to our subsidiaries in China. The EIT Law requires every enterprise in China
to submit its annual enterprise income tax return together with a report on transactions with its
affiliates to the relevant tax authorities. The tax authorities may impose reasonable adjustments
on taxation if they have identified any related party transactions that are inconsistent with arms
length principles. As a result, our contractual arrangements with our affiliated Chinese entities
may result in adverse tax consequences to us.
Our subsidiaries and affiliated Chinese entities in China are subject to restrictions on paying
dividends or making other payments to us, which may restrict our ability to satisfy our liquidity
requirements.
We are a holding company incorporated in the Cayman Islands. We rely on dividends from our
subsidiaries in China and consulting and other fees paid to us by our affiliated Chinese entities.
Current PRC regulations permit our subsidiaries to pay dividends to us only out of their
accumulated profits, if any, determined in accordance with Chinese accounting standards and
regulations. In addition, our subsidiaries in China are required to set aside at least 10% of their
respective accumulated profits each year, if any, to fund certain reserve funds unless these
reserves have reached 50% of the subsidiaries registered capital. These reserves are not
distributable as cash dividends. Furthermore, if our subsidiaries and affiliated Chinese entities
in China incur debt on their own behalf in the future, the instruments governing the debt may
restrict their ability to pay dividends or make other payments to us, which may restrict our
ability to satisfy our liquidity requirements.
Pursuant to the EIT Law and a circular issued by the PRC Ministry of Finance and the PRC State
Administration of Taxation, or the SAT, in February 2008, the dividends declared out of the profits
earned after January 1, 2008 by an FIE to its immediate holding company outside China would be
subject to a 10% withholding tax unless any such foreign investors jurisdiction of incorporation
has a tax treaty with China that provides for a different withholding arrangement, and certain
supplementary requirements and procedures stipulated by SAT for such tax treaty are met and
observed. Our subsidiaries in China are considered FIEs and are directly held by our subsidiary in
Hong Kong. According to the currently effective tax treaty between China and Hong Kong, dividends
payable by an FIE
16
in China to a company in Hong Kong which directly holds at least 25% of the
equity interests in the FIE will be subject to a withholding tax of 5%. In February 2009, the SAT issued a new notice, or Notice No. 81.
According to Notice No. 81, in order to enjoy the preferential treatment on dividend withholding
tax rates, an enterprise must be the beneficial owner of the relevant dividend income, and no
enterprise is entitled to enjoy preferential treatment pursuant to any tax treaties if such
enterprise qualifies for such preferential tax rates through any transaction or arrangement, the
major purpose of which is to obtain such preferential tax treatment. The tax authority in charge
has the right to make adjustments to the applicable tax rates, if it determines that any taxpayer
has enjoyed preferential treatment under tax treaties as a result of such transaction or
arrangement. In October 2009, the SAT issued another notice on this matter, or Notice No. 601, to
provide guidance on the criteria to determine whether an enterprise qualifies as the beneficial
owner of the PRC sourced income for the purpose of obtaining preferential treatment under tax
treaties. Pursuant to Notice No. 601, the PRC tax authorities will review and grant tax
preferential treatment on a case-by-case basis and adopt the substance over form principle in the
review. Notice 601 specifies that a beneficial owner should generally carry out substantial
business activities and own and have control over the income, the assets or other rights generating
the income. Therefore, an agent or a conduit company will not be regarded as a beneficial owner of
such income. Since the two notices were issued, it has remained unclear how the PRC tax authorities
will implement them in practice and to what extent they will affect the dividend withholding tax
rates for dividends distributed by our subsidiaries in China to our Hong Kong subsidiary. If the
relevant tax authority determines that our Hong Kong subsidiary is a conduit company and does not
qualify as the beneficial owner of the dividend income it receives from our PRC subsidiaries, the
higher 10% withholding tax rate may apply to such dividends.
Under the EIT Law, an enterprise established outside of China with its de facto management
body within China is considered a resident enterprise and will be subject to enterprise income tax
at the rate of 25% on its worldwide income. The de facto management body is defined as the
organizational body that effectively exercises overall management and control over production and
business operations, personnel, finance and accounting, and properties of the enterprise. It
remains unclear how the PRC tax authorities will interpret such a broad definition. If the PRC tax
authorities determine that we should be classified as a resident enterprise, our global income will
be subject to income tax at a uniform rate of 25%, which may have a material adverse effect on our
financial condition and results of operations. Notwithstanding the foregoing provision, the EIT Law
also provides that, if a resident enterprise directly invests in another resident enterprise, the
dividends received by the investing resident enterprise from the invested enterprise are exempted
from income tax, subject to certain conditions. However, it remains unclear how the PRC tax
authorities will interpret the PRC tax resident treatment of an offshore company, like us, having
indirect ownership interests in PRC enterprises through intermediary holding vehicles.
Moreover, under the EIT Law, foreign ADS holders may be subject to a 10% withholding tax upon
dividends payable by a Chinese entity and gains realized on the sale or other disposition of ADSs
or ordinary shares, if such income is considered as income derived from within China. Any such tax
will reduce the returns on your investment in our ADSs.
Risks Related to Doing Business in China
Adverse changes in economic and political policies of the PRC government could have a material
adverse effect on the overall economic growth of China, which could adversely affect our business.
The majority of our business operations are conducted in mainland China. Accordingly, our
results of operations, financial condition and prospects are subject to a significant degree to
economic, political and legal developments in China. Chinas economy differs from the economies of
most developed countries in many respects, including with respect to the amount of government
involvement, level of development, growth rate, control of foreign exchange and allocation of
resources. While the PRC economy has experienced significant growth in the past decades, growth has
been uneven across different regions and among various economic sectors of China. The PRC
government has implemented various measures to encourage economic development and guide the
allocation of resources. Some of these measures benefit the overall PRC economy, but may also have
a negative effect on us. For example, our financial condition and results of operations may be
adversely affected by government control over capital investments or changes in tax regulations
that are applicable to us. In addition, future measures to control the pace of economic growth may
cause a decrease in the level of economic activity in China, which in turn could adversely affect
our results of operations and financial condition.
Inflation in China may disrupt our business and have an adverse effect on our financial condition
and results of operations.
Recently, the Chinese economy has experienced rapid expansion together with rising rates of
inflation. Inflation may erode disposable incomes and consumer spending, which may have an adverse
effect on the Chinese economy and lead to a reduction in business and leisure travel as the travel
industry is highly sensitive to business and personal discretionary spending levels. This in turn
could adversely impact our business, financial condition and results of operations.
17
Future movements in exchange rates between the U.S. dollar and the RMB may adversely affect the
value of our ADSs.
The value of the RMB against the U.S. dollar and other currencies may fluctuate and is
affected by, among other things, changes in political and economic conditions. The conversion of
the RMB into foreign currencies, including the U.S. dollar, has been based on rates set by the
Peoples Bank of China. On July 21, 2005, the PRC government changed its decade-old policy of
pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to
fluctuate within a narrow and managed band against a basket of certain foreign currencies.
Following the removal of the U.S. dollar peg, the Renminbi appreciated approximately 21.5% against
the U.S. dollar over the following three years. Since reaching a high against the U.S. dollar in
July 2008, the Renminbi has traded within a narrow range against the U.S. dollar. As a consequence,
the Renminbi has fluctuated significantly since July 2008 against other freely traded currencies,
in tandem with the U.S. dollar. On June 20, 2010, the Peoples Bank of China announced that the PRC
government will further reform the Renminbi exchange rate regime and enhance the Renminbi exchange
rate flexibility. It is difficult to predict how this new policy may impact the Renminbi exchange
rate going forward. There remains significant international pressure on the PRC government to adopt
a more flexible currency policy, which could result in a further and more significant appreciation
of the Renminbi against the U.S. dollar.
The majority of our revenues and costs are denominated in RMB, while a portion of our
financial assets and our dividend payments are denominated in U.S. dollars. We have not used any
forward contracts or currency borrowings to hedge our exposure to foreign currency risk. Any
significant revaluation of the RMB or the U.S. dollar may adversely affect our cash flows, earnings
and financial position, and the value of, and any dividends payable on, our ADSs. For example, an
appreciation of the RMB against the U.S. dollar would make any new RMB-denominated investments or
expenditures more costly to us, to the extent that we need to convert U.S. dollars into RMB for
such purposes. An appreciation of the RMB against the U.S. dollar would also result in foreign
currency translation losses for financial reporting purposes when we translate our U.S.
dollar-denominated financial assets into RMB, our reporting currency.
Restrictions on currency exchange may limit our ability to receive and use our revenues
effectively.
Because the majority of our revenues are in the form of RMB, any restrictions on currency
exchange may limit our ability to use revenues generated in RMB to fund our business activities
outside China or to make dividend payments in U.S. dollars. The principal regulation governing
foreign currency exchange in China is the Foreign Currency Administration Rules, as amended, or the
Rules. Under the Rules, RMB is freely convertible for trade and service-related foreign exchange
transactions, but not for direct investment, loan or investment in securities outside China unless
the prior approval of the State Administration of Foreign Exchange, or SAFE, is obtained. Although
the PRC government regulations now allow greater convertibility of RMB for current account
transactions, significant restrictions still remain. For example, foreign exchange transactions
under our subsidiaries capital account, including principal payments in respect of foreign
currency-denominated obligations, remain subject to significant foreign exchange controls and the
approval of SAFE. These limitations could affect our ability to obtain foreign exchange for capital
expenditures. We cannot be certain that the PRC regulatory authorities will not impose more
stringent restrictions on the convertibility of RMB, especially with respect to foreign exchange
transactions.
PRC regulations relating to the establishment of offshore special purpose companies by PRC
residents and the grant of employee stock options by overseas-listed companies may subject our PRC
resident shareholders to personal liability and limit our ability to inject capital into our PRC
subsidiaries, limit our subsidiaries ability to distribute profits to us, or otherwise adversely
affect us.
SAFE issued a public notice, or Notice 75, in October 2005 requiring PRC residents to register
with the local SAFE branch before establishing or controlling any company outside of China for the
purpose of capital financing with assets or equity interests in any onshore enterprise located in
China, referred to in the notice as a special purpose company. On May 29, 2007, SAFE further
promulgated the guideline for Notice 75, or Guideline 106, which clarifies certain implementation
questions of Notice 75. According to Notice 75 and Guideline 106, any PRC resident who is a direct
or indirect shareholder of a special purpose company is also required to file or update the
registration with the local branch of SAFE, with respect to that special purpose company for any
material change involving its round-trip investment, capital variation, such as an increase or
decrease in capital, transfer or swap of shares, merger, division, long-term equity or debt
investment or the creation of any security interest. Moreover, the PRC subsidiaries of that special
purpose company are required to urge the PRC resident shareholders to update their SAFE
registration with the local branch of SAFE when such updates are required under applicable SAFE
regulations.
We have notified holders of ordinary shares of our company who we know are PRC residents to
register with the local SAFE branch as required under the SAFE notice. The failure or inability of
our shareholders resident in China to comply with the registration
procedures set forth therein may subject them to fines and legal sanctions and may also limit
our ability to contribute additional capital into our PRC subsidiaries, limit our PRC subsidiaries
ability to distribute profits to our company or otherwise adversely affect our business.
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In addition, on March 28, 2007, SAFE promulgated the Application Procedure of Foreign Exchange
Administration for Domestic Individuals Participating in an Employee Stock Holding Plan or Stock
Option Plan of an Overseas-Listed Company, or the Stock Option Rule. Under the Stock Option Rule,
PRC citizens who are granted stock options by an overseas publicly listed company are required,
through a PRC agent or PRC subsidiary of such overseas publicly listed company, to register with
SAFE and complete certain other procedures. We and our PRC employees who have been granted stock
options are subject to the Stock Option Rule. If we or our PRC optionees fail to comply with these
regulations, we or our PRC optionees may be subject to fines and legal sanctions.
Online payment systems in China are at an early stage of development and may restrict our ability
to expand our online commerce business.
Online payment systems in China are at an early stage of development. Although major Chinese
banks are instituting online payment systems, these systems are not as widely acceptable to
consumers in China as in the United States and other developed countries. The lack of wide
acceptance of online payment systems and concerns regarding the adequacy of system security may
limit the number of online commercial transactions that we can service. If online payment services
and their security capabilities are not significantly enhanced, our ability to grow our online
commerce business may be limited.
The Internet market has not been proven as an effective commercial medium in China. The market
for Internet products and services in China has only recently begun to develop. The Internet
penetration rate in China is lower than those in the United States and other developed countries.
Since the Internet is an unproven medium for commerce in China, our future operating results from
online services will depend substantially upon the increased use and acceptance of the Internet for
distribution of products and services and facilitation of commerce in China.
The Internet may not become a viable commercial marketplace in China for various reasons in
the foreseeable future. More salient impediments to Internet development in China include:
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consumer dependence on traditional means of commerce; |
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inexperience with the Internet as a sales and distribution channel; |
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inadequate development of the necessary infrastructure to facilitate online commerce; |
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concerns about security, reliability, cost, ease of deployment, administration and
quality of service associated with conducting business and settling payment over the
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inexperience with credit card usage or with other means of electronic payment; and |
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limited use of personal computers. |
If the Internet is not widely accepted as a medium for online commerce in China, our ability
to grow our online business would be impeded.
Uncertainties with respect to the PRC legal system could adversely affect us.
We conduct our business primarily through our wholly owned subsidiaries incorporated in China.
Our subsidiaries are generally subject to laws and regulations applicable to foreign investment in
China and, in particular, laws applicable to wholly foreign owned enterprises. In addition, we
depend on several affiliated Chinese entities in China to honor their service agreements with us.
Almost all of these agreements are governed by PRC law and disputes arising out of these agreements
are expected to be decided by arbitration in China. The PRC legal system is based on written
statutes. Prior court decisions may be cited for reference but have limited precedential value.
Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to
various forms of foreign investments in China. However, since the PRC legal system is still
evolving, the interpretations of many laws, regulations and rules are not always uniform and
enforcement of these laws, regulations and rules involve uncertainties, which may limit remedies
available to us. In addition, any litigation in China may be protracted and result in substantial
costs and diversion of resources and management attention.
19
We have attempted to comply with the PRC government regulations regarding licensing requirements by
entering into a series of agreements with our affiliated Chinese entities. If the PRC laws and
regulations change, our business in China may be adversely affected.
To comply with the PRC government regulations regarding licensing requirements, we have
entered into a series of agreements with our affiliated Chinese entities to exert our operational
control over them and secure consulting fees and other payments from them. Although we have been
advised by our PRC counsel, Commerce & Finance Law Offices, that our arrangements with our
affiliated Chinese entities are valid under current PRC law and regulations, we cannot assure you
that we will not be required to restructure our organizational structure and operations in China to
comply with changing and new PRC laws and regulations. Restructuring of our operations may result
in disruption of our business, diversion of management attention and the incurrence of substantial
costs.
The continued growth of the Chinese Internet market depends on the establishment of an adequate
telecommunications infrastructure.
Although private sector Internet service providers currently exist in China, almost all access
to the Internet is maintained through state-owned telecommunication operations under the
administrative control and regulatory supervision of Chinas Ministry of Industry and Information
Technology. In addition, the national networks in China connect to the Internet through
government-controlled international gateways. These international gateways are the only channels
through which a domestic Chinese user can connect to the international Internet network. We rely on
this infrastructure, primarily China Telecom and China Unicom, to provide data communications
capacity. Although the government has announced plans to aggressively develop the national
information infrastructure, we cannot assure you that this infrastructure will be developed. In
addition, we will have no access to alternative networks and services, on a timely basis if at all,
in the event of any infrastructure disruption or failure. The Internet infrastructure in China may
not support the demands associated with continued growth in Internet usage.
Risks Related to Our Ordinary Shares and ADSs
The future sales by our existing shareholders of a substantial number of our ADSs in the public
market could adversely affect the price of our ADSs.
If our existing shareholders sell substantial amounts of our ADSs, including those issued upon
the exercise of outstanding options, in the public market, the market price of our ADSs could fall.
Such sales also might make it more difficult for us to sell equity or equity-related securities in
the future at a time and price that we deem appropriate. Any future sales of a substantial number
of our ADSs in the public market could adversely affect the price of our ADSs.
You may face difficulties in protecting your interests, and our ability to protect our rights
through the U.S. federal courts may be limited, because we are incorporated under Cayman Islands
law.
Our corporate affairs are governed by our memorandum and articles of association and by the
Companies Law (2010 Revision) and common law of the Cayman Islands. The rights of our shareholders
and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly
established as they would be under statutes or judicial precedents in some jurisdictions in the
United States. In particular, the Cayman Islands has a less developed body of securities laws as
compared to the United States. Therefore, our public shareholders may have more difficulties in
protecting their interests in the face of actions by our management, directors or controlling
shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United
States.
Your ability to bring an action against us or against our directors and officers, or to enforce a
judgment against us or them, may be limited because we are incorporated in the Cayman Islands, and
because we conduct the majority of our operations in China and because the majority of our
directors and officers reside outside of the United States.
We are incorporated in the Cayman Islands, and we conduct the majority of our operations in
China through our wholly owned subsidiaries and several affiliated Chinese entities in China. Most
of our directors and officers reside outside of the United States and most of the assets of those
persons are located outside of the United States. As a result, it may be difficult for you to bring
an action in the United States upon these persons. It may also be difficult for you to enforce in
United States courts judgments obtained in United States courts based on the civil liability
provisions of the United States federal securities laws against us and our officers and directors,
most of whom are not residents in the United States and the substantial majority of whose assets
are located outside of the United States. Even if you are successful in bringing an action of this
kind, the laws of the Cayman Islands or China may render you unable to enforce a judgment against
our assets or the assets of our directors and officers.
20
You may not be able to exercise your right to vote.
As a holder of ADSs, you may instruct the depositary of our ADSs to vote the shares underlying
your ADSs. Otherwise, you will not be able to exercise your right to vote unless you withdraw the
ordinary shares. However, you may not know about the meeting enough in advance to withdraw the
ordinary shares. If we ask for your instructions, the depositary will notify you of the upcoming
vote and arrange to deliver our voting materials to you. We cannot assure you that you will receive
the voting materials in time to ensure that you can instruct the depositary to vote your shares. In
addition, the depositary and its agents are not responsible for failing to carry out voting
instructions or for the manner of carrying out voting instructions. This means that you may not be
able to exercise your right to vote and there may be nothing you can do if the shares underlying
your ADSs are not voted as you requested.
Under our deposit agreement, the depositary will give us a discretionary proxy to vote the
ordinary shares underlying your ADSs at shareholders meetings if you do not vote, unless we have
instructed the depositary that we do not wish a discretionary proxy to be given or any of the other
situations specified under the deposit agreement takes place. The effect of this discretionary
proxy is that you cannot prevent ordinary shares underlying your ADSs from being voted, absent the
situations described above, and it may make it more difficult for shareholders to influence the
management of our company. Holders of our ordinary shares are not subject to this discretionary
proxy.
Your right to participate in any future rights offerings may be limited, which may cause dilution
to your holdings.
We may from time to time distribute rights to our shareholders, including rights to acquire
our securities. However, we cannot make rights available to you in the United States unless we
register the rights and the securities to which the rights relate under the Securities Act of 1933,
as amended, or the Securities Act, or an exemption from the registration requirements is available.
Also, under the deposit agreement, the depositary bank will not make those rights available to you
unless the distribution to ADS holders of both the rights and any related securities are either
registered under the Securities Act, or exempt from registration under the Securities Act. We are
under no obligation to file a registration statement with respect to any such rights or securities
or to endeavor to cause such a registration statement to be declared effective. Moreover, we may
not be able to establish an exemption from registration under the Securities Act. Accordingly, you
may be unable to participate in our rights offerings and may experience dilution in your holdings.
You may not receive distributions on ordinary shares or any value for them if it is illegal or
impractical to make them available to you.
The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions
it or the custodian receives on ordinary shares or other deposited securities after deducting its
fees and expenses. You will receive these distributions in proportion to the number of ordinary
shares your ADSs represent. However, the depositary is not responsible if it decides that it is
unlawful or impractical to make a distribution available to any holders of ADSs. We have no
obligation to register ADSs, ordinary shares, rights or other securities under U.S. securities
laws. We also have no obligation to take any other action to permit the distribution of ADSs,
ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive
the distribution we make on our ordinary shares or any value for them if it is illegal or
impractical for us to make them available to you. These restrictions may have a material adverse
effect on the value of your ADSs.
You may be subject to limitations on transfer of your ADSs.
Your ADSs represented by the ADRs are transferable on the books of the depositary. However,
the depositary may close its transfer books at any time or from time to time when it deems
expedient in connection with the performance of its duties. In addition, the depositary may refuse
to deliver, transfer or register transfers of ADSs generally when our books or the books of the
depositary are closed, or at any time if we or the depositary thinks it advisable to do so because
of any requirement of law or of any government or governmental body, or under any provision of the
deposit agreement, or for any other reason.
Provisions of our shareholder rights plan could delay or prevent an acquisition of our company,
even if the acquisition would be beneficial to our shareholders.
In November 2007, we adopted a shareholder rights plan. Although the rights plan will not
prevent a takeover, it is intended to encourage anyone seeking to acquire our company to negotiate
with our board of directors prior to attempting a takeover by potentially significantly diluting an
acquirers ownership interest in our outstanding capital stock. The existence of the rights plan
may also discourage transactions that otherwise could involve payment of a premium over prevailing
market prices for our ADSs.
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ITEM 4. |
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INFORMATION ON THE COMPANY |
A. History and Development of the Company
We commenced our business in June 1999. In March 2000, we established a new holding company,
Ctrip.com International, Ltd., in the Cayman Islands as an exempted company with limited liability
under the Companies Law of the Cayman Islands, and soon thereafter, all of the shareholders of
Ctrip.com (Hong Kong) Limited transferred their shares to our Cayman Islands holding company in
exchange for shares of our Cayman Islands holding company and Ctrip.com (Hong Kong) Limited became
our wholly owned subsidiary.
Since our inception, we have conducted the majority of our operations in China and expanded
our operations overseas in 2009. As of December 31, 2010, we mainly operated our business through
the following significant subsidiaries:
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C-Travel International Limited; |
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Ctrip.com (Hong Kong) Limited; |
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Ctrip Computer Technology (Shanghai) Co., Ltd., or Ctrip Computer Technology; |
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Ctrip Travel Information Technology (Shanghai) Co., Ltd., or Ctrip Travel
Information; |
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Ctrip Travel Network Technology (Shanghai) Co., Ltd., or Ctrip Travel Network; and |
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Ctrip Information Technology (Nantong) Co., Ltd., or Ctrip Information Technology. |
We also conduct part of our business in China primarily through the following significant
affiliated Chinese entities:
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Shanghai Ctrip Commerce Co., Ltd., or Ctrip Commerce, which holds value-added
telecommunications business license; |
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Shanghai Huacheng Southwest Travel Agency Co., Ltd., or Shanghai Huacheng, which
holds domestic travel agency and air transport sales agency licenses; and |
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Shanghai Ctrip International Travel Agency Co., Ltd., or Shanghai Ctrip, formerly
known as Shanghai Ctrip Charming International Travel Agency Co., Ltd., which holds
domestic and cross-border travel agency and air transport sales agency licenses. |
We formed Home Inns & Hotels Management (Hong Kong) Limited, or Home Inns Hong Kong, in 2001
to expand our business to include the hotel management service. We spun off all of our interest in
Home Inns Hong Kong in August 2003. Home Inns Hong Kong became a wholly owned subsidiary of Home
Inns in June 2006. Home Inns undertook an initial public offering and its ADSs were listed on the
Nasdaq Global Market in October 2006. During the period from September 12, 2008 to March 31, 2009,
we purchased ADSs of Home Inns on the open market representing approximately 10% of the then total
outstanding ordinary shares of Home Inns. In May 2009, we entered into a purchase agreement with
Home Inns to acquire additional equity interest in Home Inns through a private placement of its
ordinary shares for $50 million in cash. In connection with this private placement, we have also
obtained certain demand, piggyback and Form F-3 registration rights from Home Inns. Our aggregate
equity interest in Home Inns was approximately 18% of the total outstanding ordinary shares of Home
Inns as of December 31, 2010.
In March 2006, we formed a wholly owned subsidiary, C-Travel International Limited, an
exempted company with limited liability incorporated in the Cayman Islands, in connection with our
investment in a minority stake in ezTravel Co., Ltd., or ezTravel, an online travel service
provider in Taiwan that offers packaged tours as well as hotel and airline ticket reservation
services. In 2009, we consolidated ezTravels operating results as we had a controlling financial
interest of ezTravel. The financial results of ezTravel are not significant to our company in the
year ended December 31, 2010.
In April 2007, we formed a new wholly owned subsidiary, Ctrip Information Technology, in the
PRC, in connection with the construction of our second toll-free customer service center in
Nantong, Jiangsu Province, in anticipation of future business expansion.
In March 2010, we entered into a subscription agreement with China Lodging Group and a share
purchase agreement with certain selling shareholders of China Lodging Group, pursuant to which we
acquired an aggregate of 18,849,446 shares of China Lodging Group at a purchase price of $3.0625
per share, or a total consideration of $57.7 million in cash. In connection with this private
placement, we have also obtained certain demand, piggyback and Form F-3 registration rights
from China Lodging Group. In addition, in the same month we purchased 800,000 ADSs representing
3,200,000 shares of China Lodging Group in its initial public offering at a purchase price of
$3.0625 per share, or a total purchase price of $9.8 million.
In March 2010, we entered into an agreement with Hong Kong Polaris Hotels Limited, pursuant to
which we acquired 15% equity interest in BTG-Jianguo for a total consideration of RMB10.2 million
with an option to acquire another 10% within one year after the closing. The total purchase price
is RMB10.2 million.
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In May 2010, pursuant to a sale and purchase agreement dated February 3, 2010 among Wing On
Travel (Holdings) Limited, C-Travel International Limited and Ctrip. com International, Ltd., we
acquired 90% of the issued share capital of Wing On Travels travel service segment (operated
through Wing On Travels subsidiary, HKWOT (BVI) Limited), for a total consideration of
approximately US$88 million in cash, and began to consolidate its financial results since then. The
financial results of Wing On Travel were not significant to our company in the year ended December
31, 2010.
In November 2010, we made a minority investment in Dining Secretary China Ltd. for a
consideration of US$10 million in cash.
Our principal executive offices are located at 99 Fu Quan Road, Shanghai 200335, Peoples
Republic of China, and our telephone number is (86-21) 3406-4880. Our principal website address is
www.ctrip.com. The information on our websites should not be deemed to be part of this annual
report.
B. Business Overview
We are a leading travel service provider for hotel accommodations, airline tickets and
packaged tours in China. We aggregate information on hotels and flights and enable our customers to
make informed and cost-effective hotel and flight bookings. We also sell packaged tours that
include transportation and accommodations, as well as guided tours in some instances. Since
commencing operations in 1999, we have become one of the best-known travel brands in China. We
pioneered the development of a reservation and fulfillment infrastructure that enables our
customers to:
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choose and reserve hotel rooms in cities throughout China and selected cities
abroad; |
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book and purchase air tickets for domestic flights and international flights
originating in China; and |
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choose and reserve packaged tours that include transportation and accommodations,
as well as guided tours in some instances. |
We target our services primarily at business and leisure travelers in China who do not travel
in groups. These types of travelers, who are referred to in the travel industry as FITs (frequent
independent travelers) and whom we refer to as independent travelers in this annual report, form a
traditionally under-served yet fast-growing segment of the China travel market. We act as an agent
in substantially all of our transactions and generally do not take inventory risks with respect to
the hotel rooms and airline tickets booked through us. We derive our hotel reservation,
air-ticketing and packaged-tour revenues mainly through commissions from our travel suppliers,
primarily based on the transaction value of the rooms, airline tickets and packaged-tour products,
respectively, booked through our services.
We believe that we are the largest consolidator of hotel accommodations in China in terms of
the number of room nights booked. As of December 31, 2010, we had secured room supply relationships
with approximately 17,000 hotels in China and approximately 20,000 hotels abroad, which cover a
broad range of hotels in terms of price and geographical location. As of December 31, 2010, we had
guaranteed room allotments, which allow us to sell hotel rooms to our customers even during peak
seasons and provide instant confirmation, with approximately 70% of the hotels in China with whom
we have a supply relationship. Rooms booked in hotels with guaranteed allotment arrangement
accounted for approximately 90% of our hotel transactions for the year ended December 31, 2010. The
quality and depth of our hotel supplier network enable us to offer our customers a wide selection
of hotel accommodations. We believe our ability to offer reservations at highly rated hotels is
particularly appealing to our customers. Revenues from our bookings for three-, four-, five-star
and equivalent hotels comprised approximately 75% of our revenues from our hotel reservation business in 2010.
We believe that we are the largest consolidator of airline tickets in China in terms of the
total number of airline tickets booked and sold. Our airline ticket suppliers include all major
Chinese airlines and many international airlines that operate flights originating in China. We are
among the few airline ticket consolidators in China that maintain a centralized reservation system
and ticket fulfillment
infrastructure covering substantially all of the economically prosperous regions of China. Our
customers can make flight reservations on their chosen routes and arrange ticket payment and
delivery through our ticketing offices and third-party agencies located in over 60 major cities in
China.
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We also offer independent leisure travelers bundled packaged-tour products, which include
transportation and accommodation, as well as guided tours in some instances. Our packaged-tour
products cover a variety of domestic and international destinations.
We offer our services to customers through an advanced transaction and service platform
consisting of our centralized toll-free, 24-hour customer service centers and bilingual websites.
In 2010, transactions effected through our customer service centers accounted for approximately
two-thirds of our transaction volume, while our websites accounted for the balance.
Our revenues are primarily generated from the hotel reservation, air-ticketing and
packaged-tour services. For information on revenues attributable to our different products, see
Item 5.A. Operating Results.
Products and Services
We began offering hotel reservation and air-ticketing services in October 1999. In 2010, we
derived approximately 42% of our revenues from the hotel reservation business and 39% of our
revenues from the air-ticketing business. In addition, we offer other products and services
including packaged tours, mostly bundled by us, that cover hotel, air tickets and transportation.
Hotel Reservations. We act as an agent in substantially all of our hotel-related transactions.
Our customers receive confirmed bookings and generally pay the hotels directly upon completion of
their stays. In general, we pay no penalty to the hotels if our customers do not check in. For some
of our hotel suppliers, we earn pre-negotiated fixed commissions on hotel rooms we sell. For other
hotels, we have commission arrangements that we refer to as the ratchet system, whereby our
commission rate per room night is adjusted upward with the increase in the volume of room nights we
sell for such hotel during such month.
We contract with hotels for rooms under two agency models, the guaranteed allotment model
and the on-request model. Under our agreements with our hotel suppliers, hotels are generally
required to offer us prices that are equal to or lower than their published prices, and notify us
in advance if they have promotional sales, so that we can lower our prices accordingly.
In addition to the agreements that we enter into with all of our hotel suppliers, we enter
into a supplemental agreement with each of the hotel suppliers with which we have a guaranteed
allotment arrangement. Pursuant to this agreement, a hotel guarantees us a specified number of
available rooms every day, allowing us to provide instant confirmations on such rooms to our
customers before notifying the hotel. The hotel is required to notify us in advance if it will not
be able to make the guaranteed rooms available to our customers due to reasons beyond its control.
As of December 31, 2010, we had contracted with approximately 17,000 hotels in China, of which
approximately 12,500 hotels have guaranteed room allotments, allowing us to sell rooms to our
customers even during peak seasons and provide instant confirmation. Rooms booked in hotels with
which we have a guaranteed allotment arrangement currently account for a majority of our total
hotel room transaction volume. With the remaining hotel suppliers, we book rooms on an on-request
basis, meaning our ability to secure hotel rooms for our customers is subject to room availability
at the time of booking. Our business development team continues to try to increase guaranteed room
allotment arrangements with our hotel suppliers.
Air-ticketing. We sell air tickets as an agent for all major domestic Chinese airlines, such
as Air China, China Eastern Airlines, China Southern Airlines and Hainan Airlines and many
international airlines operating flights that originate from cities in China, such as Dragon Air,
Singapore Airlines, United Airlines, Lufthansa, Emirates Airlines, Qantas Airways, Air France-KLM
and Delta Air Lines. We also provide other related service to our customers, such as sales of
aviation insurance and air-ticket delivery services.
In air-ticketing transactions, a customer can pay for the airline tickets to the ticket
delivery agent upon delivery of the ticket or make electronic payment through our websites and
toll-free customer service centers when booking the ticket. The customer also has the option of
picking up a ticket at the ticketing office or obtaining an electronic ticket. Generally, the
customer pays a penalty to the airline if he or she cancels the ticket for the flight. In 2006,
China began to operate on a large scale an electronic ticketing, or E-ticketing, system for air
travel within China and abroad. We believe that E-ticketing allows our consumers to book air
tickets and complete their trips more conveniently. In addition, we believe that E-ticketing allows
us to execute air-ticketing transactions more efficiently. E-ticketing also makes our business
expansion into second-tier cities easier and more efficient. The airline industry, including
airline ticket pricing, is regulated by CAAC. Therefore, we have no discretion in offering
discounts on the air tickets we sell.
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Packaged tour. We also offer independent leisure travelers bundled package-tour products,
which include transportation and accommodations, as well as guided tours in some instance. Our
package-tour products cover a variety of domestic and international destinations.
Corporate Travel. We provide air ticket booking, hotel reservation and packaged-tour services
to our corporate clients to help them plan business travels in a cost-efficient way. In addition,
we also provide our corporate clients with travel data collection and analysis, industry benchmark,
cost saving analysis and travel management solutions. We have independently developed the Corporate
Travel Management Systems, which is a comprehensive online platform integrating information
maintenance, online booking, online authorization, online enquiry and travel report system.
Other Products and Services. Our other products and services include the sale of Property
Management System or PMS, and related maintenance service. We also offer advertising services,
which principally represent the sale of banners or sponsorship on our websites. Other products and
services accounted for a small portion of our total revenues in 2010.
Strategic Investments and Acquisitions
To maintain and strengthen our leading market position in China and to become a major travel
service provider in the Greater China market, we constantly evaluate opportunities for strategic
investments in, and acquisitions of, complementary businesses, assets and technologies and have
made such investments and acquisitions from time to time. For example, in 2008 and 2009, we
acquired an aggregate of approximately 18% of the total outstanding ordinary shares of Home Inns, a
leading economy hotel chain in China. In 2009, we had a controlling financial interest in ezTravel.
In March 2010, we entered into an agreement with Hong Kong Polaris Hotels Limited, or Polaris,
pursuant to which we acquired from Polaris a 15% equity interest in BTG-Jianguo, a hotel management
company in China, with an option to acquire another 10% within one year after the closing. In
March 2010, we acquired approximately 9% of the total equity interest in Hanting, a leading economy
hotel chain in China. In May 2010, we acquired 90% of the issued share capital of Wing On Travels
travel service segment (operated through Wing On Travels subsidiary, HKWOT (BVI) Limited). In
November 2010, we made a minority investment in Dining Secretary China Ltd., a leading provider of
free online and offline restaurant reservations. We intend to continue to make investments and
acquisitions that we believe will help us achieve our strategic objectives.
Seasonality
Our business experiences fluctuations, reflecting seasonal variations in demand for travel
services. See Item 5.A. Operating Results, for a discussion of seasonality in the travel
industry.
Transaction and Service Platform
Our customers can reach us for their travel-related needs through either our toll-free
customer service centers or our bilingual websites located at www.ctrip.com and english.ctrip.com.
In 2010, transactions executed through our websites accounted for more than 35% of our total
transactions, increased slightly compared with 2009.
Customer Service Centers. Our first toll-free customer service center is located in Shanghai,
China and is operated 24 hours a day, seven days a week. Our second customer service center is
located in Nantong, China, which we began to use in May 2010. Customers can call our nationwide
toll free number to consult with our customer service representatives, receive comprehensive,
real-time hotel, flight and packaged-tour information and make travel bookings.
As of December 31, 2010, we employed approximately 7,500 customer service representatives, as
compared with approximately 5,700 as of December 31, 2009. All of our customer service
representatives participated in a formal training program before commencing work. Unlike some
companies in the United States that outsource their customer service to third-party call centers,
our customer service representatives are in-house travel specialists.
At our technically advanced Shanghai facility, we have implemented comprehensive performance
measures to monitor our calls to ensure that our customers will receive quality service. We believe
we have sufficient capacity to meet the currently anticipated increases in call volume.
Nevertheless, if we exceed this capacity, we believe we can add, within reasonable time and at a
reasonable cost, additional phone lines, computer systems and customer service representatives to
handle increasing call volumes without the need to significantly redesign the system currently in
operation at our company.
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Internet Websites. We have a Chinese-language website located at www.ctrip.com and an
English-language website located at english.ctrip.com. Our proprietary booking software is
integrated with our websites, allowing a customer to complete a booking within minutes. In
addition, our customers can use our editorial content for researching destinations and travel tips.
In January 2011, we
launched Lvping.com, a website that consolidates travel-related information for travelers,
including hotel reviews, travel blogs and forums.
Marketing and Brand Awareness
Through advertising, on-site promotions, cross-marketing, online marketing and our customer
rewards program, we have created a strong Ctrip brand that is commonly associated in China with
value travel products and services and superior customer service. We will continue to use our
focused marketing strategy to further enhance awareness of our brand and acquire new customers.
Advertising. We advertise on top tier newspapers and radio stations and also conduct public
relations activities in the major cities in China where we have a sales team. Based on our
experience, these are effective advertising methods for increasing brand awareness and attracting
new customers.
On-Site Promotions. We have on-site promotion staff in approximately 50 major cities in China.
Our staff introduces and promotes Ctrips services by distributing membership cards and
introductory brochures as well as by providing on-site registration for new customers through the
use of PDA devices at various locations including airports and train and bus stations. To date, our
on-site promotions have proven to be an effective marketing channel for us.
Cross-Marketing. We have entered into cross-marketing relationships with major Chinese
domestic airlines, financial institutions, telecommunications service providers and other
corporations.
Our airline partners recommend our products and services to their mileage program members, and
allow their members to accumulate miles by staying at hotels booked through us. Our financial
institution partners recommend our products and services to their debit or credit card holders, and
we allow their card holders to use their cards to settle their payments for travel products
purchased from us. In September 2004, we and China Merchants Bank jointly launched a dual-currency
travel credit card through which holders of the credit card may book hotels, air tickets and
packaged-tour products with us, and settle the payments in either RMB or U.S. dollars. Card holders
are also entitled to certain VIP membership privileges with us. The total number of holders of this
dual-currency travel credit card exceeded 2.4 million as of December 31, 2010. This credit card is
one of the leading co-branded credit cards in terms of number of holders in China and was honored
as the Most Popular Credit Card in 2006 by VISA. In May 2007, we and Bank of China together with
MasterCard International Organization jointly launched a dual-currency travel credit card through
which holders of the credit card may book hotels, air tickets and packaged-tour products with us,
and settle the payments in either RMB or U.S. dollars. Card holders are also entitled to high
insurance coverage upon settlement of payments for our air tickets and packaged-tour products. As
of December 31, 2010, the number of holders of this credit card exceeded 1 million. In August 2009,
we and Ping An Bank launched a credit card through which holders of the credit cards may book
hotels, air tickets and packaged-tour products with us. In addition, this credit card allows
automatic conversion of all payments made by this card into Ctrips points, which is the first of
its kind that we launched in China. As of December 31, 2010, the number of holders of this credit
card exceeded 770 thousand.
Online Marketing. We have paid many of the leading Internet search engines in China to
prominently feature our websites and have cooperated with online companies to promote our services,
as well as conducting public relations activities.
Customer Rewards Program. To secure our customers loyalty and further promote our Ctrip
brand, we provide our customers with a customer rewards program. This program allows our customers
to accumulate membership points calculated according to the services purchased by the customers.
Our membership points have a fixed validity term and, before expiry, our customers may redeem these
points for travel awards and other gifts.
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Supplier Relationship Management
We have cultivated and maintained good relationships with our travel suppliers since our
inception. We have a team of employees dedicated to enhance our relationship with existing travel
suppliers and develop relationships with prospective travel suppliers.
Furthermore, we have developed an electronic confirmation system that enables participating
hotel suppliers to receive our customers reservation information and confirm such reservation
through our online interface with the hotel supplier. We believe that the electronic confirmation
system is a cost-effective and convenient way for hotels to interface with us. We have not had any
material disputes with our travel suppliers with respect to the amount of commissions to which we
were entitled.
Technology and Infrastructure
We believe that the quality of our technology differentiates us from our competitors in China.
Our goal has been to build a reliable, scalable, updated and secure infrastructure to fully support
our customer service centers and website operations.
Since inception, we have supported substantial growth in our offline and online traffic and
transactions with our present architecture. Our proprietary booking software is integrated with our
websites and customer service center operations. Our hardware platform for the Internet consists of
Hewlett-Packard servers. We have contracted with Avaya Inc., Hewlett-Packard Company and Dell Inc.
for warranty services for our hardware platform. We maintain our databases on HP Superdome, HP
RX4640, HP DL740, HP DL580, HP DL585, and conduct daily backup functions for off-site storage. We
access the Internet backbone via two 150 megabit ethernet lines for load balance and backup. Our
customer service center operations are managed by Avaya S8700 media servers. We maintain all of our
servers at our premises in Shanghai.
Competition
In the hotel consolidation market, we compete primarily with other consolidators of hotel
accommodations, such as eLong, Inc., which is controlled by IAC/InterActiveCorp, which owns several
online travel businesses, including Expedia, Hotels.com, Hotwire and the WWTE private label, and
Mangocity.com. We also compete with traditional travel agencies. We believe that the hotel room
booking volume from FITs of our main competitors is significantly lower than ours. However, as the
travel business in China continues to grow, we may face competition from new players in the hotel
consolidation market in China and foreign travel consolidators that may enter the China market.
In the air-ticketing market, we compete primarily with other consolidators of air tickets with
a multi-province airline ticket sales and fulfillment infrastructure in China, including eLong,
Inc. and Mangocity.com. We also compete with new online travel platforms. In the markets where we
face local competition, our competitors generally conduct ticketing transactions in person, and not
over the Internet or through customer service centers. Many local air-ticketing agencies are
primarily involved in the wholesale business and do not directly serve individual travelers, who
are our targeted customers. However, as the airline ticket distribution business continues to grow
in China, we believe that more companies involved in the travel services industry may develop their
services that compete with our air-ticketing business. We also compete with airlines, which in
recent years have made efforts to improve their direct sales.
Intellectual Property
Our intellectual property rights include trademarks and domain names associated with the name
Ctrip and copyright and other rights associated with our websites, technology platform, booking
software and other aspects of our business. We regard our intellectual property as a factor
contributing to our success, although we are not dependent on any patents, intellectual property
related contracts or licenses other than some commercial software licenses available to the general
public. We rely on trademark and copyright law, trade secret protection, non-competition and
confidentiality agreements with our employees to protect our intellectual property rights. We
require our employees to enter into agreements to keep confidential all information relating to our
customers, methods, business and trade secrets during and after their employment with us. Our
employees are required to acknowledge and recognize that all inventions, trade secrets, works of
authorship, developments and other processes made by them during their employment are our property.
We have registered our domain names www.ctrip.com and www.gotochina.com with www.register.com
and www.opensrs.net, respectively, and the domain name www.ctrip.com.cn with China Internet Network
Information Center, a domain name registration service in China, and have full legal rights over
these domain names. We conduct our business under the Ctrip brand name and logo. We have registered
the trademarks Ctrip and
with the Trademark Office of the PRC State General Administration
for Industry and Commerce, or SAIC. We have registered the trademark Ctrip and
with the
Registrar of Trademarks in Hong Kong. We have also registered the trademark Ctrip with the Untied
States Patent and Trademark Office. In 2009, we registered the trademark
CTRIP with the
Taiwan Intellectual Property Office and with Direcção dos Serviços de Economia of Macau.
27
In 2007, we were selected by Forbes as one of the Top 100 Companies with Great Potential in
China, and elected by Fortune China as one of the Best Employers of 2007 in China. In early 2008,
CTRIP was also recognized as a Famous Chinese Trademark, which is the highest recognition
for consumer brands granted by the SAIC. With these recognitions, we believe our
trademark will be rigorously and actively protected by Industrial and Commercial Bureaus at
both local and national levels. In early 2009,
CTRIP was recognized as a Shanghai
Well-known Brand, which is also a high recognition for consumer brands granted by the Shanghai
municipal government.
PRC Government Regulations
Current PRC laws and regulations impose substantial restrictions on foreign ownership of the
air-ticketing, travel agency, advertising and value-added telecommunications businesses in China.
As a result, we conduct these businesses in China through contractual arrangements with our
affiliated PRC entities as well as certain independent air-ticketing agencies and travel agencies.
Our director, chief executive officer and president, Min Fan, our officers, Jianmin Zhu, Tao Yang
and Gangyi Yan, and a family member of a senior officer, Fengying Zhang, all of whom are PRC
citizens, directly or indirectly own all or most of the equity interests in our affiliated Chinese
entities as of December 31, 2010.
According to our PRC counsel, Commerce & Finance Law Offices, the ownership structures,
businesses and operations of our subsidiaries and affiliated Chinese entities in China, as
described in this annual report, comply with all existing PRC laws, rules and regulations.
Restrictions on Foreign Ownership
Air-ticketing. According to the Rules on Cognizance of Qualification for Civil Aviation
Transporting Marketing Agencies (2006) and relevant foreign investment regulations regarding civil
aviation business, a foreign investor currently cannot own 100% of an air- ticketing agency in
China, except for Hong Kong and Macau aviation marketing agencies. In addition, foreign-invested
air-ticketing agencies are not permitted to sell airline tickets for domestic flights in China.
Travel Agency. On August 10, 2007, the National Tourism Administration and Ministry of
Commerce jointly promulgated a notice on the establishment and operation of travel agencies owned
by Hong Kong or Macau investors, which became effective on January 1, 2008. Currently, qualified
foreign investors have been permitted to establish or own a travel agency upon the approval of the
PRC government, subject to considerable restrictions as to its scope of business. For example, only
travel agencies invested by Hong Kong or Macau investors that are located in the Guangxi, Hunan,
Hainan, Fujian, Jiangxi, Yunnan, Guizhou and Sichuan regions are permitted to arrange travel for
the residents in these regions from mainland China to Hong Kong and Macau, while other
foreign-invested travel agencies cannot arrange travel for persons from mainland China to Hong
Kong, Macau, Taiwan or any other country. On February 20, 2009, the State Council promulgated the
Travel Agency Regulations, which became effective on May 1, 2009. Pursuant to the Travel Agency
Regulations, foreign investors are permitted to establish travel agencies in China in the form of
joint ventures or wholly foreign-owned enterprises. The new regulations lift the operating history
and financial requirements on the foreign investors of foreign invested travel agencies as well as
the restrictions on foreign invested travel agencies ability to set up branches in China, both of
which were required under the previously effective PRC laws and regulations.
Online Advertising. The principal regulations governing foreign ownership of advertising
agencies in China are the Foreign Investment Industrial Guidance Catalogue (2007) and the
Administrative Regulations Concerning Foreign Invested Advertising Enterprises (2008 Revision).
Under these regulations, foreign investors are allowed to own 100% of an advertising agency in
China subject to certain qualification requirements. However, for those advertising agencies that
provide online advertising service, foreign ownership restrictions on the value-added
telecommunications business are still applicable.
Value-added Telecommunications Business License. The principal regulations governing foreign
ownership of the value-added telecommunications service provision business in China include:
|
|
|
Administrative Rules for Foreign Investments in Telecommunications Enterprises
(2008 Revision); and |
|
|
|
|
Foreign Investment Industrial Guidance Catalogue (2007). |
Under these regulations, a foreign entity is prohibited from owning more than 50% of a PRC
entity that provides value-added telecommunications services.
28
In July 2006, the Ministry of Industry and Information Technology (formerly known as the
Ministry of Information Industry) issued the Circular on Intensifying the Administration of Foreign
Investment in Value-added Telecommunication Business which states that a domestic company that
holds an value-added telecommunications business license is prohibited from leasing, transferring
or selling the license to foreign investors in any form, and from providing any assistance in forms
of resources, sites or facilities to foreign investors that conduct value-added telecommunications
business illegally in China. Furthermore, the relevant trademarks and domain names used in the
value-added telecommunications business shall be owned by the local value-added telecommunications
license holder. Due to the lack of further necessary interpretation from the regulator, it
remains unclear what impact the above circular will have on us or other Chinese Internet companies
that have adopted the same or similar corporate and contractual structures as ours.
General Regulation of Businesses
Air-ticketing. The air-ticketing business is subject to the supervision of China National
Aviation Transportation Association, or CNATA, and its regional branches. Currently the principal
regulation governing air-ticketing in China is the Rules on Cognizance of Qualification for Civil
Aviation Transporting Marketing Agencies (2006) which became effective on March 31, 2006.
Under this regulation, any entity that intends to conduct air-ticketing business in China must
apply for an air-ticketing license from CNATA.
Travel Agency. The travel industry is subject to the supervision of the China National Tourism
Administration and local tourism administrations. The principal regulations governing travel
agencies in China include:
|
|
|
Travel Agency Regulations, effective as of May 1, 2009; and |
|
|
|
|
Implementing Rules of Travel Agency Regulations, effective as of May 3, 2009. |
Under these regulations, a travel agency must obtain a license from the China National Tourism
Administration to conduct cross-border travel business, and a license from the provincial-level
tourism administration to conduct domestic travel agency business.
Advertising. The SAIC is responsible for regulating advertising activities in China. The
principal regulations governing advertising (including online advertising) in China include:
|
|
|
Advertising Law (1994); |
|
|
|
|
Administration of Advertising Regulations (1987); and |
|
|
|
|
Implementing rules of the Administration of Advertising Regulations (2004). |
Under these regulations, any entity conducting advertising activities must obtain an
advertising permit from the local Administration of Industry and Commerce.
Value-added Telecommunications Business and Online Commerce. Our provision of travel-related
content on our websites is subject to PRC laws and regulations relating to the telecommunications
industry and Internet, and regulated by various government authorities, including the Ministry of
Industry and Information Technology and the SAIC. The principal regulations governing the
telecommunications industry and Internet include:
|
|
|
Telecommunications Regulations (2000); |
|
|
|
|
The Administrative Measures for Telecommunications Business Operating Licenses,
effective as of April 10, 2009; and |
|
|
|
|
The Internet Information Services Administrative Measures (2000). |
Under these regulations, Internet content provision services are classified as value-added
telecommunications businesses, and a commercial operator of such services must obtain a value-added
telecommunications business license from the appropriate telecommunications authorities to conduct
any commercial value-added telecommunications operations in China.
With respect to online commerce, there are no specific PRC laws at the national level
governing online commerce or defining online commerce activities, and no government authority has
been designated to regulate online commerce. There are existing regulations governing retail
business that require companies to obtain licenses to engage in the business. However, it is
unclear whether these existing regulations will be applied to online commerce.
29
Regulation of Foreign Currency Exchange and Dividend Distribution
Foreign Currency Exchange. The principal regulation governing foreign currency exchange in
China is the Foreign Currency Administration Rules (2008 revision). Under these Rules, the RMB is
freely convertible for trade and service-related foreign exchange
transactions, but not for direct investment, loan or investment in securities outside China
unless the prior approval of the State Administration for Foreign Exchange of the PRC, or SAFE is
obtained.
Pursuant to the Foreign Currency Administration Rules, foreign investment enterprises in China
may purchase foreign currency without the approval of SAFE for trade and service-related foreign
exchange transactions by providing commercial documents evidencing these transactions. They may
also retain foreign exchange (subject to a cap approved by the SAFE) to satisfy foreign exchange
liabilities or to pay dividends. In addition, if a foreign company acquires a company in China, the
acquired company will also become a foreign investment enterprise. However, the relevant PRC
government authorities may limit or eliminate the ability of foreign investment enterprises to
purchase and retain foreign currencies in the future. In addition, foreign exchange transactions
for direct investment, loan and investment in securities outside China are still subject to
limitations and require approvals from SAFE.
Dividend Distribution. The principal regulations governing distribution of dividends of wholly
foreign-owned companies include:
|
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|
The Foreign Investment Enterprise Law (1986), as amended in October 2000; |
|
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|
Administrative Rules under the Foreign Investment Enterprise Law (2001); |
|
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|
Company Law of the PRC (2005); and |
|
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|
Enterprise Income Tax Law and its Implementation Rules (2007). |
Under these regulations, foreign investment enterprises in China may pay dividends only out of
their accumulated profits, if any, determined in accordance with PRC accounting standards and
regulations. In addition, wholly foreign-owned enterprises in China are required to set aside at
least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds,
unless such reserve funds have reached 50% of their respective registered capital. These reserves
are not distributable as cash dividends.
Under the EIT Law, dividends, interests, rent, royalties and gains on transfers of property
payable by a foreign-invested enterprise in the PRC to its foreign investor which is a non-resident
enterprise will be subject to a 10% withholding tax, unless such non-resident enterprises
jurisdiction of incorporation has a tax treaty with the PRC that provides for a reduced rate of
withholding tax. According to Mainland and Hong Kong Special Administrative Region Arrangement on
Avoiding Double Taxation or Evasion of Taxation on Income agreed between mainland China and Hong
Kong Special Administrative Region in August 2006, dividends payable by an FIE in China to a
company in Hong Kong which directly holds at least 25% of the equity interests in the FIE will be
subject to a reduced withholding tax rate of 5%.
Under the EIT Law, an enterprise established outside the PRC with its de facto management
body within the PRC is considered a resident enterprise and will be subject to the enterprise
income tax at the rate of 25% on its worldwide income. The de facto management body is defined as
the organizational body that effectively exercises overall management and control over production
and business operations, personnel, finance and accounting, and properties of the enterprise. It
remains unclear how the PRC tax authorities will interpret such a board definition. Notwithstanding
the foregoing provision, the EIT Law also provides that, if a resident enterprise directly invests
in another resident enterprise, the dividends received by the investing resident enterprise from
the invested enterprise are exempted from income tax, subject to certain conditions. However, it
remains unclear how the PRC tax authorities will interpret the PRC tax resident treatment of an
offshore company, like us, having indirect ownership interests in PRC enterprises through
intermediary holding vehicles.
Moreover, under the EIT Law, foreign ADS holders may be subject to a 10% withholding tax upon
dividends payable by a Chinese entity and gains realized on the sale or other disposition of ADSs
or ordinary shares, if such income is considered as income deriving from within the PRC and if we
are classified as a PRC resident enterprise.
Regulation of Income Taxes and Financial Subsidies. See Item 5. Operating and Financial
Review and ProspectsIncome Taxes and Financial Subsidies.
30
C. Organizational Structure
The following table sets out the details of our significant subsidiaries as of December 31,
2010:
|
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|
|
|
|
|
|
|
Country of |
|
|
|
Name |
|
Incorporation |
|
Ownership Interest |
|
C-Travel International Limited |
|
Cayman Islands |
|
|
100 |
% |
Ctrip.com (Hong Kong) Limited |
|
Hong Kong |
|
|
100 |
% |
Ctrip Computer Technology (Shanghai) Co., Ltd. |
|
China |
|
|
100 |
% |
Ctrip Travel Information Technology (Shanghai) Co., Ltd. |
|
China |
|
|
100 |
% |
Ctrip Travel Network Technology (Shanghai) Co., Ltd. |
|
China |
|
|
100 |
% |
Ctrip Information Technology (Nantong) Co., Ltd. |
|
China |
|
|
100 |
% |
We conduct a majority of our business through our wholly owned subsidiaries in China. Due to
the current restrictions on foreign ownership of air-ticketing, travel agency, online advertising
and value-added telecommunications businesses in China, we have conducted part of our operations in
these businesses through a series of contractual arrangements between our PRC subsidiaries and our
consolidated affiliated Chinese entities. Our significant consolidated affiliated Chinese entities
included Ctrip Commerce, Shanghai Huacheng and Shanghai Ctrip as of December 31, 2010.
As of December 31, 2010, Min Fan, our co-founder, shareholder, director, chief executive
officer and president, Jianmin Zhu, our senior vice president, Tao Yang, our senior vice president,
Gangyi Yan, our senior executive officer, and Fengying Zhang, a family member of a senior executive
officer, were principal record owners of our affiliated Chinese entities. Each of them has signed
an irrevocable power of attorney to appoint our chief financial officer, Jane Jie Sun, as
attorney-in-fact to vote on all matters of our affiliated Chinese entities for a period of ten
years ending in 2016.
D. Property, Plants and Equipment
Our first customer service center and principal sales, marketing and development facilities
and administrative offices are located on owned premises comprising approximately 39,000 square
meters in an economic development park in Shanghai, China. Our second customer service center is
located in our owned premises in Nantong, China, comprising approximately 80,000 square meters. We
have offices in Hong Kong, Beijing, Guangzhou, Shenzhen, Chengdu, Qingdao, Shenyang, Xiamen,
Hangzhou, Wuhan, Nanjing, Sanya and Lijiang. We also maintain a sales network in approximately 50
cities in China. We believe that we will be able to obtain adequate facilities, principally through
the leasing of appropriate properties, to accommodate our expansion plans in the near future.
To support our anticipated future business expansion, we have acquired the land use right to a
piece of land in Nantong, Jiangsu Province in early 2008 for approximately RMB49 million. Nantong
is approximately 110 kilometers north of Shanghai. In September 2008, we announced the commencement
of construction of the Nantong customer service center. In December 2008, we entered into a
construction agreement with Shanghai No. 1 Construction Co., Ltd. to construct the Nantong customer
service center. The total contract value of the construction agreement was approximately RMB296
million. The aggregate investment for the Nantong customer service center including land costs,
construction costs and other improvement costs is expected to be approximately RMB457 million.
Approximately RMB342 million (US$52 million) was paid as of December 31, 2010, with the remainder
expected to be paid in 2011. Nantong customer service center began operations in May 2010.
|
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ITEM 4A. |
|
UNRESOLVED STAFF COMMENTS |
None.
|
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ITEM 5. |
|
OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
The following discussion of our financial condition and results of operations is based upon
and should be read in conjunction with our consolidated financial statements and their related
notes included in this annual report on Form 20-F. This annual report contains forward-looking
statements. See IntroductionForward-Looking Information. In evaluating our business, you should
carefully consider the information provided under the caption Risk Factors in this annual report.
We caution you that our businesses and financial performance are subject to substantial risks and
uncertainties.
31
A. Operating Results
We are a leading consolidator of hotel accommodations and airline tickets in China. We
aggregate information on hotels and flights and enable our customers to make informed and
cost-effective hotel and flight bookings. We also offer packaged-tour products and other products
and services.
In 2010, we derived 42%,39%,12%, 4% and 3% of our total revenues from our hotel reservation,
air ticketing, packaged tour, corporate travel and other products and services, respectively.
Major Factors Affecting the Travel Industry
A variety of factors affect the travel industry in China, and hence our results of operations
and financial condition, including:
Growth in the Overall Economy and Demand for Travel Services in China. We expect that our
financial results will continue to be affected by the overall growth of the economy and demand for
travel services in China and the rest of the world. According to the statistical report published
on the website of National Bureau of Statistics of China on February 25, 2010, the gross domestic
product, or GDP, of China grew from RMB18.5 trillion (US$2.8 trillion) in 2005 to RMB33.5 trillion
(US$5.1 trillion) in 2009, representing a compound annual growth rate of 16.0%. GDP per capita in
the same period rose from RMB14,144 (US$2,143) to RMB25,125 (US$3,807), representing a 15.5%
compound annual growth rate. This growth led to a significant increase in the demand for travel
services.
According to the statistical report published on the website of National Bureau of Statistics
of China on February 25, 2010, domestic tourism spending grew from RMB528.6 billion (US$80.1
billion) in 2005 to RMB1,018.4 billion (US$154.3 billion) in 2009, representing a compound annual
growth of 17.8%. We anticipate that demand for travel services in China will continue to increase
in the foreseeable future as the economy in China continues to grow. However, any adverse changes
in economic conditions of China and the rest of the world, such as the current global financial
crisis and economic downturn, could have a material adverse effect on the travel industry in China,
which in turn would harm our business.
Seasonality in the Travel Service Industry. The travel service industry is characterized by
seasonal fluctuations and accordingly our revenues may vary from quarter to quarter. To date, the
revenues generated during the summer season of each year generally are higher than those generated
during the winter season, mainly because the summer season coincides with the peak business and
leisure travel season, while the winter season of each year includes the Chinese New Year holiday,
during which our customers reduce their business activities. These seasonality trends are difficult
to discern in our historical results because our revenues have grown substantially since inception.
However, our future results may be affected by seasonal fluctuations in the use of our services by
our customers.
Disruptions in the Travel Industry. Individual travelers tend to modify their travel plans
based on the
occurrence of events such as:
|
|
|
the outbreak of HIN1 influenza, avian flu, SARS or any other serious contagious
diseases; |
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|
|
increased prices in the hotel, airline or other travel-related industries; |
|
|
|
|
increased occurrence of travel-related accidents; |
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|
|
natural disasters or poor weather conditions; |
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|
|
terrorist attacks or threats of terrorist attacks or war; |
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|
any travel restrictions or security procedures implemented in connection with major
events in China; and |
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|
|
|
general economic downturns. |
In early 2003, several regions in Asia, including Hong Kong and China, were affected by the
outbreak of SARS. The travel industry in China, Hong Kong and some other parts of Asia suffered
tremendously as a result of the outbreak of SARS. Furthermore, in early 2008, severe snowstorms hit
many areas of China and particularly affected southern China. The travel industry was severely and
adversely affected during and after the snowstorms. Additionally, in May 2008, a major earthquake
struck Chinas populous Sichuan Province, causing great loss of life, numerous injuries, property
loss and disruption to the local economy. The earthquake had an immediate impact on our business as
a result of the sharp decrease in travel in the relevant earthquake-affected areas in Sichuan
Province. In 2009, an outbreak of H1N1 influenza (swine flu) occurred in Mexico and the United
States and human cases of the swine flu were discovered in China and Hong Kong. Our business and
operating results were adversely affected in all cases.
32
Any future outbreak of SARS, avian flu, H1N1 influenza or other contagious diseases or similar
adverse public health developments, extreme unexpected bad weather or severe natural disasters
would affect our business and operating results. Ongoing concerns regarding contagious disease or
natural disasters, particularly its effect on travel, could negatively impact our China-based
customers desire to travel. If there is a recurrence of an outbreak of certain contagious diseases
or natural disasters, travel to and from affected regions could be curtailed. Government advice
regarding, or restrictions, on travel to and from these and other regions on account of an outbreak
of any contagious disease or occurrence of natural disasters could have a material adverse effect
on our business and operating results.
Major Factors Affecting Our Results of Operations
Revenues
Revenues Composition and Sources of Revenue Growth. We have experienced significant revenue
growth since we commenced operations in 1999. Our total revenues grew from RMB834 million in 2006
to RMB3.1 billion (US$465 million) in 2010, representing a compound annual growth rate of 44%.
We generate our revenues primarily from the hotel reservation and air-ticketing businesses.
The table below sets forth the revenues from our principal lines of business as a percentage of our
revenues for the periods indicated.
|
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|
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|
Year-Ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Hotel reservation |
|
|
48 |
% |
|
|
44 |
% |
|
|
42 |
% |
Air ticketing |
|
|
41 |
% |
|
|
41 |
% |
|
|
39 |
% |
Packaged-tour* |
|
|
7 |
% |
|
|
8 |
% |
|
|
12 |
% |
Corporate travel |
|
|
3 |
% |
|
|
4 |
% |
|
|
4 |
% |
Others |
|
|
1 |
% |
|
|
3 |
% |
|
|
3 |
% |
Total revenues |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
* |
|
Certain of our packaged-tour revenues were recorded on a gross basis. See Major Factors
Affecting Our Results of Operations Revenues Packaged-tour. |
As we generally do not take ownership of the products and services being sold and act as an
agent in substantially all of our transactions, our risk of loss due to obligations for cancelled
hotel and airline ticket reservations is minimal. Accordingly, we recognize revenues primarily
based on commissions earned rather than transaction value.
Since current PRC laws and regulations impose substantial restrictions on foreign ownership of
air-ticketing, travel agency, advertising and value-added telecommunications businesses in China,
we conduct part of our air-ticketing and packaged-tour businesses through our affiliated Chinese
entities. Historically, we generated a portion of our revenues from fees charged to these entities.
See Arrangements with Affiliated Chinese Entities for a description of our relationship with
these entities.
Hotel Reservation. Revenues from our hotel reservation business have been our primary source
of revenues since our inception. In 2008, 2009 and 2010, revenues from our hotel reservation
business accounted for RMB756 million, RMB941 million and RMB1.3 billion (US$194 million),
respectively, or 48%, 44% and 42%, respectively, of our total revenues.
We derive our hotel reservation revenues through commissions from hotels, primarily based on
the room rates paid by our customers. We recognize revenues when we receive confirmation from a
hotel that a customer who booked the hotel through us has stayed and checked out from the hotel.
While we generally agree in advance on fixed commissions with a particular hotel, we also enter
into a commission arrangement with many of our hotel suppliers that we refer to as the ratchet
system. Under the ratchet system, our commission per room night for a given hotel increases for
the month if we sell in excess of a pre-agreed number of room nights with such hotel within the
month.
33
Air-Ticketing. Since early 2002, our air-ticketing business has been growing rapidly. In 2008,
2009 and 2010, revenues from our air-ticketing business accounted for RMB645 million, RMB868
million and RMB1.2 billion (US$183 million), respectively, or 41%, 41% and 39% respectively, of our
total revenues.
We conduct our air-ticketing business through our consolidated affiliated Chinese entities, as
well as a network of independent air-ticketing service companies. Commissions from air-ticketing
services rendered are recognized after air tickets are issued.
Packaged-tour. Our packaged-tour business has grown rapidly in the past three years. In 2008,
2009 and 2010, revenues from our packaged-tour business accounted for RMB109 million, RMB176
million and RMB380 million (US$58 million), respectively. We conduct our packaged-tour business
mainly through our consolidated affiliated Chinese entities, which bundle the packaged-tour
products and receive referral fees from different travel suppliers for different components and
services of the packaged tours sold through our transaction and service platform. Referral fees are
recognized as net revenues after the packaged-tour services are rendered. Our consolidated
affiliated entities also, from time to time, act as principal in connection with the packaged-tour
services provided by them. When they act as principal, they recognize gross amounts received from
customers as revenues after the packaged-tour services are rendered.
Corporate Travel. Corporate travel revenues primarily include commissions from air ticket
booking, hotel reservation and packaged-tour services rendered to corporate clients. In 2008, 2009
and 2010, revenues from our corporate travel services accounted for RMB56 million, RMB83 million
and RMB130 million (US$20 million), respectively. Commissions from air-ticketing services rendered
are recognized after air tickets are issued. Commissions from hotel reservation services rendered
are recognized after hotel customers have completed their stay at the applicable hotel and upon
confirmation of pending payment of the commissions by the hotel. Commissions from tour package
services rendered are recognized on a net basis after the packaged-tour service are rendered and
collections are reasonably assured.
Other Products and Services. Our other products and services primarily consist of
Internet-related advertising services, the sale of PMS and related maintenance service, the sales
of aviation casualty insurance, air-ticket delivery services and the sale of travel guidebooks, and
VIP membership cards. We place our customers advertisements on our websites and in our
introductory brochures. We conduct the advertising business through Ctrip Commerce, and we
recognize revenues when Ctrip Commerce renders advertising services. We conduct PMS sale and
maintenance business through Software Hotel Information. The sale of PMS is recognized upon
customers acceptance. Maintenance service revenue is recognized ratably over the term of the
maintenance contract on a straight-line basis. We sell VIP membership cards that allow cardholders
to enjoy certain priority in obtaining our services and receive discounts from many restaurants,
clubs and bars in various cities in China. Revenues from the sale of travel guidebooks and VIP
membership cards are recognized when the products are sold, provided that we do not have any
significant outstanding obligations.
Cost of Revenues
Cost of revenues are costs directly attributable to rendering our revenues, which consist
primarily of payroll compensation, telecommunication expenses, credit card charges and other direct
expenses incurred in connection with our transaction and service platform. Payroll compensation
accounted for 61%, 62% and 60% of our cost of revenues in 2008, 2009 and 2010, respectively.
Telecommunication expenses accounted for 14%, 12% and 10% of our cost of revenues in 2008, 2009 and
2010, respectively. Credit card charges accounted for 15%, 16% and 19% of our cost of revenues in
2008, 2009 and 2010, respectively.
Cost of revenues accounted for 22%, 23% and 22% of our net revenues in 2008, 2009 and 2010,
respectively. We believe our relatively low ratio of cost of revenues to revenues is primarily due
to competitive labor costs in China and high efficiency of our customer service system. Our cost
efficiency was further enhanced by our website operations, which require significantly fewer
service staff to operate and maintain. The decrease of percentage of cost of revenues over net
revenues in 2010 was largely due to the increased efficiency of our customer service.
34
Operating Expenses
Operating expenses consist primarily of product development expenses, sales and marketing
expenses, general and administrative expenses, all of which include share-based compensation
expense. In 2010, we recorded RMB243 million (US$37 million) of share-based compensation expense
compared to RMB129 million and RMB131 million for 2008 and 2009, respectively. Share-based
compensation expense is included in the same income statement category as the cash compensation
paid to the recipient of the share-based award.
Product development expenses primarily include expenses we incur to develop our travel
suppliers network and expenses we incur to develop, maintain and monitor our transaction and
service platform. Product development expenses accounted for 16%, 16% and 16% of our net revenues
in 2008, 2009 and 2010, respectively. The product development expenses as a percentage of net
revenues in 2010 remained consistent with that in 2009.
Sales and marketing expenses primarily comprise payroll compensation and benefits for our
sales and marketing personnel, advertising expenses, commissions for our marketing partners for
referring customers to us, and production costs of marketing materials and membership cards. Our
sales and marketing expenses accounted for 19%, 17% and 16% of our net revenues in 2008, 2009 and
2010, respectively. The decrease of sales and market expenses as a percentage of net revenues in
2010 was primarily due to our increased efficiently in the use of our sales and marketing
resources.
General and administrative expenses consist primarily of payroll compensation, benefits and
travel expenses for our administrative staff, professional service fees, as well as administrative
office expenses. Our general and administrative expenses accounted for 12%, 10% and 10% of our net
revenues in 2008, 2009 and 2010, respectively. The general and administrative expenses as a
percentage of net revenues in 2010 remained consistent with that in 2009.
Foreign Exchange Risk
We are exposed to foreign exchange risk arising from various currency exposures. See Item 11.
Quantitative and Qualitative Disclosure About Market Risk.
Income Taxes and Financial Subsidies
Income Taxes. Our effective income tax rate was 19%, 17% and 17% for 2008, 2009 and 2010,
respectively. Prior to December 31, 2007, pursuant to the applicable tax laws in China, companies
established in China were generally subject to EIT at a statutory rate of 33%. The 33% EIT rate
applied to our subsidiaries and affiliated Chinese entities established in China, except for our
subsidiaries, Ctrip Computer Technology, Ctrip Travel Information, Ctrip Travel Network and
Software Hotel Information, and our consolidated affiliated Chinese entity, Shenzhen Ctrip Travel
Agency Co., Ltd., or Shenzhen Ctrip, as discussed below.
On March 16, 2007, the National Peoples Congress, the Chinese legislature, passed the new EIT
Law, which became effective on January 1, 2008. The EIT Law applies a uniform 25% enterprise income
tax rate to both foreign-invested enterprises and domestic enterprises. Under the EIT Law,
enterprises that were established before March 16, 2007 and already enjoy preferential tax
treatments will (i) in the case of preferential tax rates, continue to enjoy the tax rates which
will be gradually increased to the new tax rates within five years from January 1, 2008 or (ii) in
the case of preferential tax exemption or reduction for a specified term, continue to enjoy the
preferential tax holiday until the expiration of such term. For certain enterprises established in
special economic zones, including Pudong New Area, a transitional preferential income tax rate of
18%, 20%, 22%, 24% and 25% for the respective five-year transition period is allowed. The decrease
in the effective tax rate for 2009 from 2008 was primarily due to the decrease in the amount of non
tax-deductible share-based compensation as a percentage to our income as a whole. The effective tax
rate for 2010 remained consistent with that in 2009
On April 14, 2008, the Ministry of Science and Technology and the Ministry of Finance and the
SAT jointly issued Guokefahuo (2008) No.127, Administrative Measures for Assessment of High and
New Technology Enterprises, or the Measures, and Catalogue of High and New Technology Domains
Strongly Supported by the State, or the Catalogue, each of which is retroactively effective as of
January 1, 2008. The Measures mainly set forth general guidelines regarding criteria as well as
application procedures for qualification as a high and new technology enterprise under the EIT
Law.
35
Pursuant to the EIT Law, companies established in China were generally subject to EIT at a
statutory rate of 25%. The 25% EIT rate applies to our subsidiaries and affiliated Chinese entities
established in China, except for Ctrip Computer Technology, Ctrip Travel Information, Ctrip Travel
Network and Software Hotel Information, which are our subsidiaries, and Shenzhen Ctrip, which is
our consolidated affiliated Chinese entity.
|
|
|
In 2008, Ctrip Computer Technology was designated as a high and new technology
enterprise by the relevant PRC government authorities and thus was entitled to a
preferential EIT rate of 15% from 2008 to 2010. |
|
|
|
|
Ctrip Travel Information historically enjoyed a preferential income tax rate of 15%
as it is registered in Pudong New District, Shanghai. During the fourth quarter of 2004,
Ctrip Travel Information was designated as a Software Development Company and thus
obtained from the relevant tax bureau a full exemption of income tax for 2004 and a 50%
reduction of the income tax statutory rate for the period from 2005 to 2007. In 2008,
Ctrip Travel Information was designated as a high
and new technology enterprise by the relevant PRC government authorities and thus was
entitled to a preferential EIT rate of 15% from 2008 to 2010. |
|
|
|
|
In the fourth quarter of 2007, Ctrip Travel Network was designated as a software
development company and thus obtained from the relevant tax bureau a 50% reduction of
its statutory and local income tax rate from 2007 to 2009. In 2008, Ctrip Travel Network
was designated as a high and new technology enterprise by the relevant PRC government
authorities. As a result, Ctrip Travel Network was entitled to a preferential EIT rate of
12.5% for 2008 and 2009 and 15% for 2010. |
|
|
|
|
In 2008, Software Hotel Information was designated as a high and new technology
enterprise by the relevant PRC government authorities and thus was entitled to a
preferential EIT rate of 15% from 2008 to 2010. |
|
|
|
|
Shenzhen Ctrip enjoyed a preferential tax rate of 15% before 2008 as it is
registered in Shenzhen, a special economic zone of China. Under the current EIT law,
Shenzhen Ctrip is entitled to a transitional tax rate which will gradually increase to
25% from 2008 to 2012. The applicable tax rate for Shenzhen Ctrip in 2008, 2009 and 2010
was 18%, 20% and 22%, respectively. |
Financial Subsidies. In 2008, 2009 and 2010, our subsidiaries in China received business tax
rebates in the form of financial subsidies from the government authorities in Shanghai in the
amount of approximately RMB24 million, RMB54 million and RMB64 million (US$10 million),
respectively, which we recorded as other income on a cash basis. Such financial subsidies were
granted to us at the sole discretion of the government authorities. We cannot assure you that our
subsidiaries will continue to receive business tax rebates or other financial subsidies in the
future.
Critical Accounting Policies
We prepare financial statements in conformity with U.S. GAAP, which requires us to make
estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities on the date of the financial statements and the reported amounts
of revenues and expenses during the financial reporting period. We continually evaluate these
estimates and assumptions based on the most recently available information, our own historical
experiences and various other assumptions that are believed to be reasonable under the
circumstances, which together form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Since the use of estimates
is an integral component of the financial reporting process, actual results could differ from those
estimates. Some of our accounting policies require higher degrees of judgment than others in their
application. We consider the policies discussed below to be critical to an understanding of our
financial statements as their application places the most significant demands on managements
judgment.
Revenue Recognition. We describe our revenue recognition policies in our consolidated
financial statements. We apply ASC 605 Revenue Recognition to our policies for revenue
recognition and presentation of consolidated statement of income and comprehensive income. The
factors we have considered include whether we are able to achieve the pre-determined specific
performance targets by travel suppliers for recognition of the incentive commissions in addition to
the fixed-rate and our risk of loss due to obligations for cancelled hotel and airline ticket
reservations. As we operate primarily as an agent to the travel suppliers and our risk of loss due
to obligations for cancelled hotel and airline ticket reservations is minimal, we recognize
commissions on a net basis.
Business Combination. We apply ASC 805 Business Combination, which requires that all
business combinations be accounted for under the purchase method. The cost of an acquisition is
measured as the aggregate of fair values at the date of exchange of assets given, liabilities
incurred and equity instruments issued. The costs directly attributable to an acquisition are
expensed as incurred. Identifiable assets, liabilities and contingent liabilities acquired or
assumed are measured separately at their fair value as of the acquisition date, irrespective of the
extent of any noncontrolling interests. The excess of (i) the total of cost of acquisition, fair
value of noncontrolling interests and acquisition date fair value of any previously held equity
interest in an acquiree over (ii) the fair value of identifiable net assets of an acquiree is
recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of a
subsidiary acquired, the difference is recognized directly in the income statement.
36
Investment. We apply the ASC 323 InvestmentsEquity Method and Joint Ventures, in
accounting for our investments. The equity method is used for investments in entities in which we
have the ability to exercise significant influence but do not own a majority equity interest or
otherwise control. The cost method is used for investments over which we do not have the ability to
exercise significant influence. For other investment, we apply ASC 320 InvestmentsDebt and
Equity Securities, which requires that debt and equity securities be classified into one of three
categories and accounted for as follows: (i) those held to maturity are reported at amortized
cost; (ii) trading securities with unrealized holding gains and losses are included in earnings;
and (iii) debt and equity securities not classified as held to maturity or as trading securities
are classified as available for sale and reported at fair value. Unrealized gains and losses on
available for sale securities are excluded from earnings and reported as accumulated other
comprehensive income (loss), net of tax. We monitor our investments for other-than-temporary
impairment by considering factors including, but not limited to, current economic and market
conditions, the operating performance of the companies including current earnings trends and other
company-specific information.
Goodwill, Intangible Assets and Long-Lived Assets. In addition to the original cost of
goodwill, intangible assets and long-lived assets, the recorded value of these assets is impacted
by a number of policy elections, including estimated useful lives, residual values and impairment
charges. ASC 350 IntangiblesGoodwill and Other, provides that intangible assets that have
indefinite useful lives and goodwill will not be amortized but rather will be tested at least
annually for impairment. ASC 350 also requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable from its undiscounted future cash flow. For 2008, 2009 and 2010, we did not
recognize any impairment charges for goodwill, intangible assets or long-lived assets based on the
expanding and prospective business of our subsidiaries and affiliated Chinese entities. As of
December 31, 2008, 2009 and 2010, there were no circumstances or events that indicated that the
assets may be impaired. If different judgments or estimates had been utilized, material differences
could have resulted in the amount and timing of the impairment charge.
Customer Rewards Program. We offer a customer rewards program that allows customers to receive
travel awards and other gifts based on accumulated membership points that vary depending on the
products and services purchased by the customers. Because we have an obligation to provide such
travel awards and other gifts, we recognize liabilities and corresponding expenses for the related
future obligations. As of December 31, 2008, 2009 and 2010, our accrued balance for the customer
rewards program were approximately RMB58 million, RMB88 million and RMB121 million (US$18 million),
respectively. Our expenses for the customer rewards program were approximately RMB55 million, RMB76
million and RMB94 million (US$14 million) for the years ended December 31, 2008, 2009 and 2010. We
estimate our liabilities under our customer rewards program based on accumulated membership points
and our estimate of probability of redemption. If actual redemption differs significantly from our
estimate, it will result in an adjustment to our liability and the corresponding expense.
Share-Based Compensation. We follow ASC 718 Stock Compensation, using the modified
prospective method. Under the fair value recognition provisions of ASC 718, we recognize
share-based compensation net of an estimated forfeiture rate and therefore only recognize
compensation cost for those shares expected to vest over the service period of the award.
Under ASC 718, we applied the Black-Scholes valuation model in determining the fair value of
options granted, which requires the input of highly subjective assumptions, including the expected
life of the stock option, stock price volatility, and the pre-vesting option forfeiture rate.
Expected life is based on historical exercise patterns, which we believe are representative of
future behavior, or calculated by using the simplified method. We estimate expected volatility at
the date of grant based on historical volatility. The assumptions used in calculating the fair
value of stock options represent our best estimates, but these estimates involve inherent
uncertainties and the application of management judgment. As a result, if factors change and we use
different assumptions, our share-based compensation expense could be materially different in the
future. In addition, we are required to estimate the expected forfeiture rate and only recognize
expense for those shares expected to vest. We estimate the forfeiture rate based on historical
patterns of our stock options granted, exercised and forfeited. If our actual forfeiture rate is
materially different from our estimate, the share-based compensation expense could be significantly
different from what we have recorded in the current period. See Note 2Share-based compensation
in the consolidated financial statements for additional information. According to ASC 718, a change
in any of the terms or conditions of stock options shall be accounted for as a modification of the
plan. Therefore, the Company calculates incremental compensation cost of a modification as the
excess of the fair value of the modified option over the fair value of the original option
immediately before its terms are modified, measured based on the share price and other pertinent
factors at the modification date. For vested options, the Company would recognize incremental
compensation cost in the period the modification occurs and for unvested options, the Company would
recognize, over the remaining requisite service period, the sum of the incremental compensation
cost and the remaining unrecognized compensation cost for the original award on the modification
date.
37
Deferred Tax Valuation Allowances. We provide a valuation allowance on our deferred tax assets
to the extent we consider it to be more likely than not that we will be unable to realize all or
part of such assets. Our future realization of our deferred tax assets depends on many factors,
including our ability to generate taxable income within the period during which temporary
differences reverse or before our tax loss carry-forwards expire, the outlook for the Chinese
economy and overall outlook for our industry. We consider these factors at each balance sheet date
and determine whether valuation allowances are necessary. As of December 31, 2008, 2009 and 2010,
we recorded deferred tax assets of RMB9 million, RMB23 million and RMB37 million (US$6 million),
respectively. If, however, unexpected events occur in the future that would prevent us from
realizing all or a portion of our net deferred tax assets, an adjustment would result in a charge
to income in the period in which such determination was made. As of December 31, 2009 and 2010, it
is more likely than not that the deferred tax assets resulting from the net operating losses of
certain subsidiary will not be
realized. Hence, we recorded valuation allowance against our gross deferred tax assets in
order to reduce the deferred tax assets to the amount that is more likely than not to be realized.
If events were to occur in the future that would allow us to realize more of our deferred tax
assets than the presently recorded net amount, an adjustment would be made to the deferred tax
assets that would increase income for the period when those events occurred.
Allowance for doubtful accounts. Accounts receivable are recorded at the invoiced amount and
do not bear interest. We provide a general provision for doubtful accounts for the outstanding
trade receivable balances based on historical experience and information available. Additionally,
we make specific bad debt provisions based on (i) our specific assessment of the collectibility of
all significant accounts; and (ii) any specific knowledge we have acquired that might indicate that
an account is uncollectible. The facts and circumstances of each account may require us to use
substantial judgment in assessing its collectibility. As of the end of December 31, 2008, 2009 and
2010, the allowance for doubtful accounts was RMB12 thousand, RMB3.6 million and RMB5.7 million
(US$0.9 million), respectively.
Results of Operations
The following table sets forth a summary of our consolidated statements of operations for the
periods indicated both in amount and as a percentage of net revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
RMB |
|
|
|
|
|
|
RMB |
|
|
|
|
|
|
RMB |
|
|
US$ |
|
|
|
|
|
|
(in thousands) |
|
|
% |
|
|
(in thousands) |
|
|
% |
|
|
(in thousands) |
|
|
(in thousands) |
|
|
% |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel reservation |
|
|
755,733 |
|
|
|
51 |
|
|
|
940,682 |
|
|
|
47 |
|
|
|
1,278,044 |
|
|
|
193,643 |
|
|
|
44 |
|
Air ticketing |
|
|
645,489 |
|
|
|
44 |
|
|
|
868,379 |
|
|
|
44 |
|
|
|
1,206,921 |
|
|
|
182,867 |
|
|
|
42 |
|
Packaged-tour(1) |
|
|
109,245 |
|
|
|
7 |
|
|
|
175,867 |
|
|
|
9 |
|
|
|
380,307 |
|
|
|
57,622 |
|
|
|
13 |
|
Corporate travel |
|
|
56,149 |
|
|
|
4 |
|
|
|
83,137 |
|
|
|
4 |
|
|
|
129,658 |
|
|
|
19,645 |
|
|
|
5 |
|
Others |
|
|
21,723 |
|
|
|
1 |
|
|
|
54,497 |
|
|
|
3 |
|
|
|
71,783 |
|
|
|
10,876 |
|
|
|
2 |
|
Total revenues(2) |
|
|
1,588,339 |
|
|
|
107 |
|
|
|
2,122,562 |
|
|
|
107 |
|
|
|
3,066,713 |
|
|
|
464,653 |
|
|
|
106 |
|
Less: Business tax and related surcharges |
|
|
(106,335 |
) |
|
|
(7 |
) |
|
|
(134,555 |
) |
|
|
(7 |
) |
|
|
(185,480 |
) |
|
|
(28,103 |
) |
|
|
(6 |
) |
Net revenues |
|
|
1,482,004 |
|
|
|
100 |
|
|
|
1,988,007 |
|
|
|
100 |
|
|
|
2,881,233 |
|
|
|
436,550 |
|
|
|
100 |
|
Cost of revenues |
|
|
(326,610 |
) |
|
|
(22 |
) |
|
|
(450,603 |
) |
|
|
(23 |
) |
|
|
(625,261 |
) |
|
|
(94,737 |
) |
|
|
(22 |
) |
Gross profit |
|
|
1,155,394 |
|
|
|
78 |
|
|
|
1,537,404 |
|
|
|
77 |
|
|
|
2,255,972 |
|
|
|
341,813 |
|
|
|
78 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development(3) |
|
|
(235,800 |
) |
|
|
(16 |
) |
|
|
(308,452 |
) |
|
|
(16 |
) |
|
|
(453,853 |
) |
|
|
(68,766 |
) |
|
|
(16 |
) |
Sales and marketing(3) |
|
|
(286,693 |
) |
|
|
(19 |
) |
|
|
(345,289 |
) |
|
|
(17 |
) |
|
|
(453,293 |
) |
|
|
(68,681 |
) |
|
|
(16 |
) |
General and administrative(3) |
|
|
(171,694 |
) |
|
|
(12 |
) |
|
|
(196,297 |
) |
|
|
(10 |
) |
|
|
(294,701 |
) |
|
|
(44,652 |
) |
|
|
(10 |
) |
Total operating expenses |
|
|
(694,187 |
) |
|
|
(47 |
) |
|
|
(850,038 |
) |
|
|
(43 |
) |
|
|
(1,201,847 |
) |
|
|
(182,099 |
) |
|
|
(42 |
) |
Income from operations |
|
|
461,207 |
|
|
|
31 |
|
|
|
687,366 |
|
|
|
35 |
|
|
|
1,054,125 |
|
|
|
159,714 |
|
|
|
37 |
|
Interest income |
|
|
31,100 |
|
|
|
2 |
|
|
|
17,393 |
|
|
|
1 |
|
|
|
37,586 |
|
|
|
5,695 |
|
|
|
1 |
|
Other income |
|
|
54,945 |
|
|
|
4 |
|
|
|
60,801 |
|
|
|
3 |
|
|
|
99,126 |
|
|
|
15,019 |
|
|
|
3 |
|
Income before income tax expense equity in
income of affiliates and noncontrolling
interest |
|
|
547,252 |
|
|
|
37 |
|
|
|
765,560 |
|
|
|
39 |
|
|
|
1,190,837 |
|
|
|
180,428 |
|
|
|
41 |
|
Income tax expense |
|
|
(102,914 |
) |
|
|
(7 |
) |
|
|
(131,658 |
) |
|
|
(7 |
) |
|
|
(205,017 |
) |
|
|
(31,063 |
) |
|
|
(7 |
) |
Equity in income of affiliates |
|
|
|
|
|
|
|
|
|
|
32,869 |
|
|
|
2 |
|
|
|
66,172 |
|
|
|
10,026 |
|
|
|
2 |
|
Net Income |
|
|
444,338 |
|
|
|
30 |
|
|
|
666,771 |
|
|
|
34 |
|
|
|
1,051,992 |
|
|
|
159,391 |
|
|
|
37 |
|
Less: Net income attributable to
noncontrolling interests |
|
|
(230 |
) |
|
|
|
|
|
|
(7,797 |
) |
|
|
|
|
|
|
(3,922 |
) |
|
|
(594 |
) |
|
|
|
|
Net income attributable to Ctrips
shareholders |
|
|
444,108 |
|
|
|
30 |
|
|
|
658,974 |
|
|
|
33 |
|
|
|
1,048,070 |
|
|
|
158,797 |
|
|
|
36 |
|
|
|
|
(1) |
|
Certain of our packaged-tour revenues were booked on a gross basis. See Major Factors
Affecting Our Results of Operations Revenues Packaged-tour. |
|
(2) |
|
Certain prior year amounts have been reclassified with no effect on net income or retained
earnings to conform to the presentation of 2010 financial information. |
38
(3) |
|
Share-based compensation was included in the associated operating expense categories as
follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
RMB |
|
|
|
|
|
|
RMB |
|
|
|
|
|
|
RMB |
|
|
US$ |
|
|
|
|
|
|
(in thousands) |
|
|
% |
|
|
(in thousands) |
|
|
% |
|
|
(in thousands) |
|
|
(in thousands) |
|
|
% |
|
Product development |
|
|
(32,666 |
) |
|
|
(2 |
) |
|
|
(33,863 |
) |
|
|
(2 |
) |
|
|
(64,254 |
) |
|
|
(9,735 |
) |
|
|
(2 |
) |
Sales and marketing |
|
|
(18,816 |
) |
|
|
(1 |
) |
|
|
(18,864 |
) |
|
|
(1 |
) |
|
|
(33,203 |
) |
|
|
(5,031 |
) |
|
|
(1 |
) |
General and administrative |
|
|
(77,035 |
) |
|
|
(5 |
) |
|
|
(77,802 |
) |
|
|
(4 |
) |
|
|
(145,104 |
) |
|
|
(21,986 |
) |
|
|
(5 |
) |
Any discrepancies in the above table between the amounts/percentages identified as total
amounts/percentages and the sum of the amounts/percentages listed therein are due to rounding.
2010 compared to 2009
Revenues
Total revenues were RMB3.1 billion (US$465 million) in 2010, an increase of 44% over RMB2.1
billion in 2009. This revenues growth was principally driven by the substantial volume growth in
hotel room nights sold and air tickets sold in 2010.
Hotel Reservation. Revenues from our hotel reservation business increased by 36% to RMB1.3
billion (US$194 million) in 2010 from RMB941 million in 2009, primarily as a result of the
continued rapid growth in our hotel room nights sales volume and the increase in the average
commission per room night in 2010. The total number of hotel room nights sold in 2010 increased by
31% from 2009.
Air-Ticketing. Revenues from our air-ticketing business increased by 39% to RMB1.2 billion
(US$183 million) in 2010 from RMB868 million in 2009, primarily due to strong growth of air tickets
sales volume as we continued to significantly expand our air ticketing capabilities and the
increase in the average commission per airline ticket sold in 2010. The total number of air tickets
sold in 2010 increased by 28% from 2009.
Packaged-tour. Packaged-tour revenues increased by 116% to RMB380 million (US$58 million) in
2010 from RMB176 million in 2009, primarily due to the continued growth of our packaged-tour
business product and service offerings and the contribution of HKWOT (BVI) Limited after being
acquired by us in May 2010.
Corporate Travel. Corporate travel revenues increased by 56% to RMB130 million (US$20 million)
in 2010 from RMB83 million in 2009, primarily due to the increased corporate travel demand from our
corporate clients.
Other businesses. Revenues from other businesses increased by 32% to RMB72 million (US$11
million) in 2010 from RMB54 million in 2009, primarily due to the consolidation of the results of
operations of ezTravel since April 2009 and Wing On Travel since May 2010, and the increased
revenues from advertising services.
Business tax and related surcharges
Our business tax and related surcharges increased by 38% to RMB185 million (US$28 million) in
2010 from RMB135 million in 2009 as a result of the increases in revenues in all of our business
lines.
Cost of Revenues
Cost of revenues in 2010 increased by 39% to RMB625 million (US$95 million) from RMB451
million in 2009. This increase was primarily attributable to increased costs associated with the
rapid growth of air-ticketing and packaged-tour businesses and the expansion of our hotel
reservation business. Additionally, our customer service personnel increased to approximately 7,500
in 2010 from approximately 5,700 in 2009.
39
Operating Expenses
Operating expenses include product development expenses, sales and marketing expenses and
general and administrative expenses.
Product Development. Product development expenses increased by 47% to RMB454 million (US$69
million) in 2010 from RMB308 million in 2009, primarily due to an increase in product development
personnel to approximately 2,700 employees in 2010 from approximately 2,200 employees in 2009 as we
expanded our air ticketing and packaged-tour businesses.
Sales and Marketing. Sales and marketing expenses increased by 31% to RMB453 million (US$69
million) in 2010 from RMB345 million in 2009, primarily attributable to the increase in
advertisement expenses, marketing and promotion expenses, salary and benefit expenses of our sales
and marketing personnel in 2010.
General and Administrative. General and administrative expenses increased by 50% to RMB295
million (US$45 million) in 2010 from RMB196 million in 2009, primarily due to the increase in
general and administrative personnel compensation expenses.
Equity in income of affiliates
Equity in income of affiliates increased by 101% to RMB66 million (US$10 million) in 2010 from
RMB33 million in 2009 due to the increase in proportional equity pick-up of the investment in Home
Inns results of operations.
Interest Income
Interest income increased by 116% to RMB38 million (US$6 million) in 2010 from RMB17 million
in 2009 due to the increased cash generated from operations and cash received from our equity
offering in 2010.
Other Income
Other income increased by 63% to RMB99 million (US$15 million) in 2010 from RMB61 million in
2009, primarily due to increases in foreign exchange gain and subsidy income.
Income Tax Expense
Income tax expense was RMB205 million (US$31 million) in 2010, an increase of 56% over RMB132
million in 2009, primarily due to the increase in our taxable income. Our effective income tax rate
in 2010 was 17%, which remained consistent with that in 2009.
2009 compared to 2008
Revenues
Total revenues were RMB2.1 billion in 2009, an increase of 34% over RMB1.6 billion in 2008.
This revenues growth was principally driven by the substantial volume growth in hotel room nights
sold and air tickets sold in 2009.
Hotel Reservation. Revenues from our hotel reservation business increased by 24% to RMB941
million in 2009 from RMB756 million in 2008, primarily as a result of the continued rapid growth in
our hotel room nights sales volume, which was partially offset by a decrease in the average
commission per room night in 2009. The total number of hotel room nights sold in 2009 increased by
31% from 2008.
Air-Ticketing. Revenues from our air-ticketing business increased by 35% to RMB868 million in
2009 from RMB645 million in 2008, primarily due to strong growth of air tickets sales volume as we
continued to significantly expand our air ticketing capabilities, which was partially offset by a
decrease in the average commission per airline ticket sold in 2009. The total number of air tickets
sold in 2009 increased by 30% from 2008.
Packaged-tour. Packaged-tour revenues increased by 61% to RMB176 million in 2009 from RMB109
million in 2008, primarily due to the continued growth of our packaged-tour business product and
service offerings.
40
Corporate Travel. Corporate travel revenues increased by 48% to RMB83 million in 2009 from
RMB56 million in 2008, primarily due to the increased corporate travel demand from our corporate
clients.
Other businesses. Revenues from other businesses increased by 151% to RMB54 million in 2009
from RMB22 million in 2008, primarily due to the consolidation of the results of operations of
Software Hotel Information since late 2008 and the increased sales of aviation casualty insurance
and advertising services.
Business tax and related surcharges
Our business tax and related surcharges increased by 27% to RMB135 million in 2009 from RMB106
million in 2008 as a result of the increases in revenues in all of our business lines.
Cost of Revenues
Cost of revenues in 2009 increased by 38% to RMB451 million from RMB327 million in 2008. This
increase was primarily attributable to increased costs associated with the rapid growth of
air-ticketing and packaged-tour businesses and the expansion of our hotel reservation business.
Additionally, our customer service personnel increased to approximately 5,700 in 2009 from
approximately 5,000 in 2008.
Operating Expenses
Operating expenses include product development expenses, sales and marketing expenses and
general and administrative expenses.
Product Development. Product development expenses increased by 31% to RMB308 million in 2009
from RMB236 million in 2008, primarily due to an increase in product development personnel to
approximately 2,200 employees in 2009 from approximately 2,000 employees in 2008 as we expanded our
air ticketing and packaged-tour businesses.
Sales and Marketing. Sales and marketing expenses increased by 20% to RMB345 million in 2009
from RMB287 million in 2008, primarily attributable to the increase in advertisement expenses,
marketing and promotion expenses, salary and benefit expenses of our sales and marketing personnel
in 2009.
General and Administrative. General and administrative expenses increased by 14% to RMB196
million in 2009 from RMB172 million in 2008, primarily due to the increase in general and
administrative personnel compensation expenses.
Equity in income of affiliates
Equity in income of affiliates of RMB33 million in 2009 represents proportional equity pick-up
of the investment in Home Inns results of operations.
Interest Income
Interest income decreased by 44% to RMB17 million in 2009 from RMB31 million in 2008 due to
the significant decrease in interest rates.
Other Income
Other income increased by 11% to RMB61 million in 2009 from RMB55 million in 2008, primarily
due to increases in subsidy income.
Income Tax Expense
Income tax expense was RMB132 million in 2009, an increase of 28% over RMB103 million in 2008,
primarily due to the increase in our taxable income, which was offset by the decrease in our
effective income tax rate in 2009. Our effective income tax rate in 2009 was 17%, as compared to
19% in 2008, primarily due to a decrease in the amount of non tax-deductible share-based
compensation charges as a percentage to our income as a whole.
41
B. Liquidity and Capital Resources
Liquidity. The following table sets forth the summary of our cash flows for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
US $ |
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Net cash provided by operating activities |
|
|
590,879 |
|
|
|
1,027,588 |
|
|
|
1,550,218 |
|
|
|
234,881 |
|
Net cash used in investing activities |
|
|
(498,727 |
) |
|
|
(762,367 |
) |
|
|
(2,440,400 |
) |
|
|
(369,758 |
) |
Net cash (used in)/provided by financing activities |
|
|
(72,088 |
) |
|
|
96,858 |
|
|
|
1,625,348 |
|
|
|
246,265 |
|
Effect of foreign exchange rate changes on cash and cash equivalents |
|
|
(14,655 |
) |
|
|
2,712 |
|
|
|
(15,849 |
) |
|
|
(2,400 |
) |
Net increase in cash and cash equivalents |
|
|
5,409 |
|
|
|
364,791 |
|
|
|
719,317 |
|
|
|
108,988 |
|
Cash and cash equivalents at beginning of year |
|
|
1,064,418 |
|
|
|
1,069,827 |
|
|
|
1,434,618 |
|
|
|
217,366 |
|
Cash and cash equivalents at end of year |
|
|
1,069,827 |
|
|
|
1,434,618 |
|
|
|
2,153,935 |
|
|
|
326,354 |
|
Net cash provided by operating activities was RMB1.6 billion (US$235 million) in 2010,
compared to RMB1 billion in 2009 and RMB591 million in 2008, primarily due to the increase in our
net income resulting from our increased transaction volume.
Net cash used in investing activities amounted to RMB2.4 billion (US$370 million) in 2010,
compared to net cash used in investing activities of RMB762 million in 2009. This increase in 2010
was primarily due to our acquisition of new businesses and investment in Wing On Travel, China
Lodging Group, and other companies, and the cash used in connection with the construction of our
Nantong customer service center. Net cash used in investing activities amounted to RMB762 million
in 2009, compared to net cash used in investing activities of RMB499 million in 2008. This increase
in 2009 from 2008 was primarily due to our acquisition of new business and investment in Home Inns.
Net cash provided by financing activities amounted to RMB1.6 billion (US$246 million) in 2010,
compared to net cash provided by financing activities of RMB97 million in 2009 and net cash used in
financing activities of RMB72 million in 2008. Our cash used in financing activities in 2008
primarily related to the dividend that we paid in 2008, and we did not make any dividend payment in
2009 and 2010. The increase of net cash provided by financing activities in 2010 was mainly due to
cash received from issuance of ordinary shares and employees exercise of share options.
Capital Resources
As of December 31, 2010, our primary source of liquidity was RMB3.6 billion (US $539 million)
of cash, cash equivalents and short-term investment. Except as disclosed in this annual report, we
have no outstanding bank loans or financial guarantees or similar commitments to guarantee the
payment obligations of third parties. We believe that our current cash and cash equivalents, our
cash flow from operations and proceeds from our financing activities will be sufficient to meet our
anticipated cash needs, including our cash needs for working capital and capital expenditures, for
the foreseeable future. We may, however, require additional cash resources due to changing business
conditions or other future developments, including any investments or acquisitions we may decide to
pursue.
As of December 31, 2010, our primary capital commitment was RMB13.7 million (US$2.1 million)
in connection with capital expenditures of property, equipment and software.
C. Research and Development, Patents and Licenses, Etc.
Our research and development efforts consist of continuing to develop our proprietary
technology as well as incorporating new technologies from third parties. We intend to continue to
upgrade our proprietary booking, customer relationship management and yield management software to
keep up with the continued growth in our transaction volume and the rapidly evolving technological
conditions. We will also seek to continue to enhance our electronic confirmation system and promote
such system with more hotel suppliers, as we believe that the electronic confirmation system is a
cost-effective and convenient way for hotels to interface with us.
In addition, we have utilized and will continue to utilize the products and services of third
parties to support our technology platform.
42
D. Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any trends,
uncertainties, demands, commitments or events for the period from January 1, 2010 to December 31,
2010 that are reasonably likely to have a material effect on our net revenues, income,
profitability, liquidity or capital resources, or that caused the disclosed financial information
to be not necessarily indicative of future operating results or financial conditions.
E. Off-Balance Sheet Arrangements
In connection with our air ticketing business, we are required by the Civil Aviation
Administration of China, International Air Transport Association, and local airline companies to
pay deposits or to provide other guarantees in order to obtain blank air tickets. As of December
31, 2010, the amount under these guarantee arrangements was approximately RMB660 million (US$100
million).
Based on historical experience and information currently available, we do not believe that it
is probable that we will be required to pay any amount under these guarantee arrangements.
Therefore, we have not recorded any liability beyond what is required in connection with these
guarantee arrangements.
F. Tabular Disclosure of Contractual Obligations
The following sets forth our contractual obligations as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Less Than 1 |
|
|
1-3 |
|
|
3-5 |
|
|
More Than 5 |
|
|
|
Total |
|
|
Year |
|
|
Years |
|
|
Years |
|
|
Years |
|
|
|
(in RMB thousands) |
|
Operating lease obligations |
|
|
65,587 |
|
|
|
35,061 |
|
|
|
25,896 |
|
|
|
4,270 |
|
|
|
360 |
|
Purchase obligations |
|
|
133,810 |
|
|
|
130,313 |
|
|
|
3,497 |
|
|
|
|
|
|
|
|
|
Liabilities incurred for investment |
|
|
5,100 |
|
|
|
5,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
204,497 |
|
|
|
170,474 |
|
|
|
29,393 |
|
|
|
4,270 |
|
|
|
360 |
|
Operating lease obligations for the years 2011, 2012, 2013, 2014, 2015 and 2016 are RMB35.1
million, RMB18.4 million, RMB7.4 million, RMB3.4 million, RMB0.9 million and RMB0.4 million,
respectively. Rental expenses amounted to approximately RMB17 million, RMB26 million and RMB46
million (US$6.9 million) for the years ended December 31, 2008, 2009 and 2010, respectively. Rental
expense is charged to the statements of income when incurred.
We have outstanding purchase obligations totaling RMB134 million (US$20 million), which are
mainly related to the construction of our Nantong customer service center. While the table above
indicates our contractual obligations as of December 31, 2010, the actual amounts we are eventually
required to pay may be different in the event that any agreements are renegotiated, cancelled or
terminated.
G. Safe Harbor
This annual report on Form 20-F contains forward-looking statements that reflect our current
expectations and views of future events. These statements are made under the safe harbor
provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these
forward-looking statements by terminology such as may, will, expect, anticipate, future,
intend, plan, believe, estimate, is/are likely to or other similar expressions. We have
based these forward-looking statements largely on our current expectations and projections about
future events and financial trends that we believe may affect our financial condition, results of
operations, business strategy and financial needs. These forward-looking statements include, among
other things:
|
|
|
our anticipated growth strategies; |
|
|
|
|
our future business development, results of operations and financial condition; |
|
|
|
|
our ability to continue to control costs and maintain profitability; and |
|
|
|
|
the expected growth of and change in the travel and online commerce industries in
China. |
43
The forward-looking statements included in this annual report on Form 20-F are subject to
risks, uncertainties and assumptions about our company. Our actual results of operations may differ
materially from the forward-looking statements as a result of the risk factors described under
Item 3.D. Risk Factors, including the following risks:
|
|
|
slow-down of economic growth in China and the global economic downturn could have a
material and adverse effect on our business, and may materially and adversely affect our
business growth and profitability; |
|
|
|
|
general declines or disruptions in the travel industry may materially and adversely
affect our business and results of operations; |
|
|
|
|
the trading price of our ADSs has been volatile historically and may continue to be
volatile regardless of our operating performance; |
|
|
|
|
if we are unable to maintain existing relationships with travel suppliers and
strategic alliances, or establish new arrangements with travel suppliers and strategic
alliances similar to those we currently have, our business may suffer; |
|
|
|
|
if we fail to further increase our brand recognition, we may face difficulty in
obtaining new business partners and customers, and our business may be harmed; |
|
|
|
|
if we do not compete successfully against new and existing competitors, we may lose
our market share, and our profitability may be adversely affected; |
|
|
|
|
our business could suffer if we do not successfully manage current growth and
potential future growth; |
|
|
|
|
our strategy to acquire or invest in complementary businesses and assets involves
significant risks and uncertainty that may prevent us from achieving our objectives and
harm our financial condition and results of operations; |
|
|
|
|
our quarterly results are likely to fluctuate because of seasonality in the travel
industry in Greater China; |
|
|
|
|
our business may be harmed if our infrastructure and technology are damaged or
otherwise fail or become obsolete; |
|
|
|
|
our business depends substantially on the continuing efforts of our key executives,
and our business may be severely disrupted if we lose their services.; |
|
|
|
|
inflation in China may disrupt our business and have an adverse effect on our
financial condition and results of operations.; and |
|
|
|
|
if the ownership structure of our affiliated Chinese entities and the contractual
arrangements among us, our consolidated affiliated Chinese entities and their
shareholders are found to be in violation of any PRC laws or regulations, we and/or our
affiliated Chinese entities may be subject to fines and other penalties, which may
adversely affect our business and results of operations. |
These risks are not exhaustive. Other sections of this annual report include additional
factors that could adversely impact our business and financial performance. You should read these
statements in conjunction with the risk factors disclosed in Item 3.D. of this annual report,
Risk Factors, and other risks outlined in our other filings with the Securities and Exchange
Commission. Moreover, we operate in an emerging and evolving environment. New risk factors may
emerge from time to time, and it is not possible for our management to predict all risk factors,
nor can we assess the impact of all factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those contained in any
forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. We
undertake no obligation to update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
44
|
|
|
ITEM 6. |
|
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
A. Directors and Senior Management
The names of our current directors and senior management, their ages as of the date of this
annual report and the principal positions with Ctrip.com International, Ltd. held by them are as
follows:
|
|
|
|
|
Directors and Executive Officers |
|
Age |
|
Position/Title |
James Jianzhang Liang |
|
41 |
|
Co-founder; Chairman of the Board |
Min Fan |
|
46 |
|
Co-founder; President; Chief Executive Officer; Executive Director |
Jane Jie Sun |
|
42 |
|
Chief Financial Officer |
Neil Nanpeng Shen(1) |
|
43 |
|
Co-founder; Independent Director |
Qi Ji |
|
44 |
|
Co-founder; Independent Director |
Gabriel Li(1) |
|
43 |
|
Deputy Chairman of the Board, Independent Director |
JP Gan(1) (2) |
|
39 |
|
Independent Director |
Suyang Zhang(2) |
|
52 |
|
Independent Director |
Jianmin Zhu |
|
42 |
|
Senior Vice President |
Tao Yang |
|
35 |
|
Senior Vice President |
Maohua Sun |
|
39 |
|
Senior Vice President |
James Lan Tang |
|
43 |
|
Senior Vice President |
Shaw Xiaoliang Ding |
|
46 |
|
Vice President |
Cindy Xiaofan Wang |
|
36 |
|
Vice President |
Yuxiang Zhuang |
|
35 |
|
Vice President |
Dongjie Guo |
|
44 |
|
Vice President |
Hao Jiang |
|
37 |
|
Vice President |
|
|
|
(1) |
|
Member of the Audit Committee. |
|
(2) |
|
Member of the Compensation Committee. |
Pursuant to the current articles of association of our company, our board of directors shall
consist of no more than nine directors, including (i) three directors appointed by our co-founders
consisting of Messrs James Jianzhang Liang, Neil Nanpeng Shen, Qi Ji and Min Fan, subject to the
approval of a majority of our independent directors; and (ii) one director who is the then current
chief executive officer of our company. Each of our directors will hold office until such
directors successor is elected and duly qualified, or until such directors earlier death,
bankruptcy, insanity, resignation or removal. There are no family relationships among any of the
directors or executive officers of our company.
Biographical Information
James Jianzhang Liang is one of the co-founders of our company. Mr. Liang served as our chief
executive officer from 2000 to January 2006 and has served as a member of our board of directors
since our inception. He has been the chairman of our board since August 2003. Prior to founding our
company, Mr. Liang held a number of technical and managerial positions with Oracle Corporation from
1991 to 1999 in the United States and China, including the head of the ERP consulting division of
Oracle China from 1997 to 1999. Mr. Liang currently serves on the boards of Home Inns and 51job.com
Inc. listed on Nasdaq. Mr. Liang received his Masters and Bachelors degrees from Georgia
Institute of Technology. He also attended an undergraduate program at Fudan University.
Min Fan is one of the co-founders of our company and has served as the chief executive officer
of our company since January 2006, as our director since October 2006 and as our president since
February 2009. Mr. Fan served as our chief operating officer from November 2004 to January 2006.
Prior to that, he served as our executive vice president from 2000 to November 2004. From 1997 to
2000, Mr. Fan was the chief executive officer of Shanghai Travel Service Company, a leading
domestic travel agency in China. From 1990 to 1997, he served as the deputy general manager and in
a number of other senior positions at Shanghai New Asia Hotel Management Company, which was one of
the leading hotel management companies in China. Mr. Fan currently serves on the boards and
compensation committees of Perfectenergy International, Ltd., China Edu Corporation and Joyu
Tourism Operating Group. Mr. Fan obtained his Masters and Bachelors degrees from Shanghai Jiao
Tong University. He also studied at the Lausanne Hotel Management School of Switzerland in 1995.
Jane Jie Sun has served as our chief financial officer since December 2005. Ms. Sun has
extensive experience in SEC reporting, finance and accounting. Prior to joining us, Ms. Sun served
as the head of the SEC and external reporting division of Applied Materials, Inc., where she worked
from 1997 to 2005. Prior to joining Applied Materials, Inc., Ms. Sun worked with KPMG LLP in
Silicon Valley, California for five years. Ms. Sun is a member of the American Institute of
Certified Public Accountants and a member of the State of California Certified Public Accountants.
Ms. Sun currently serves on the board of TAL Education Group, a company
listed on the New York Stock Exchange. Ms. Sun received her Bachelors degree in Accounting
from University of Florida with High Honors. She also attended Beijing University Law School and
obtained an LLM degree.
45
Neil Nanpeng Shen is one of the co-founders of our company and has been our companys director
since our inception. Mr. Shen is the founding managing partner of Sequoia Capital China. Mr. Shen
served as our chief financial officer from 2000 to October 2005 and as president from August 2003
to October 2005. Prior to founding our company, Mr. Shen had worked for more than eight years in
the investment banking industry in New York and Hong Kong. Currently, Mr. Shen is the co-chairman
of Home Inns, an independent director of Focus Media Holding Limited, a Nasdaq-listed media
advertising company based in China, and a non-executive director of E-House (China) Holdings
Limited, a leading real estate services company based in China and listed in the New York Stock
Exchange, a non-executive director of China Real Estate Information Group, listed on Nasdaq, a
non-executive director of Peak Sports, a Hong Kong listed sports apparel company in China, a
non-executive director of China Nuokang Bio-Pharmaceutical, listed on Nasdaq, a non-executive
director of Le Gaga Holdings Limited listed on Nasdaq, a non-executive chairman of Mecox Lane
Limited listed on Nasdaq as well as an independent director of American Dairy Inc. an NYSE-listed
infant milk powder company in China. He was awarded Economic Figure of the Year by CCTV in 2006
and was voted as the Top Venture Capitalist in China by Zero2IPO, Forbes Magazine and Global
Entrepreneur Magazine. Mr. Shen received his Masters degree from the School of Management at Yale
University and his Bachelors degree from Shanghai Jiao Tong University.
Qi Ji is one of the co-founders of our company. He has served as our director since our
inception. Mr. Ji is the executive chairman of China Lodging
Group, Limited, or Hanting, a leading economy hotel chain in China. He was the chief executive officer of Home Inns from 2002 to January 2005. He
was the chief executive officer and the president of our company from 1999 to early 2002
consecutively. Prior to founding our company, he served as the chief executive officer of Shanghai
Sunflower High-Tech Group which he founded in 1997. He headed the East China Division of Beijing
Zhonghua Yinghua Intelligence System Co., Ltd. from 1995 to 1997. He received both his Masters and
Bachelors degrees from Shanghai Jiao Tong University.
Gabriel Li has served at different times on our board of directors since 2000. Mr. Li has been
deputy chairman of our board since August 2003. Mr. Li is the managing director and investment
committee member of Orchid Asia Group Management, a private equity firm focused on investment in
China and Asia for over the past 10 years. Prior to Orchid Asia, Mr. Li was a managing director at
the Carlyle Group in Hong Kong, overseeing Asian technology investments. From 1997 to 2000, he was
at Orchid Asias predecessor, where he made numerous investments in China and North Asia.
Previously, he was a management consultant at McKinsey & Co in Hong Kong and Los Angeles. Mr. Li is
also a director of a number of privately held companies. Mr. Li graduated summa cum laude from the
University of California at Berkeley, earned his Masters degree in Science from the Massachusetts
Institute of Technology and his Masters degree in Business Administration from Stanford Business
School.
JP Gan has served as our director since 2002. Mr. Gan is a managing director and a member of
investment committee of Qiming Venture Partners. From 2005 to 2006, Mr. Gan was the chief financial
officer of KongZhong corporation, a Nasdaq-listed wireless Internet company. Prior to joining
KongZhong, Mr. Gan was a director of The Carlyle Group responsible for venture capital investments
in the Greater China region from 2000 to 2005. Mr. Gan worked at the investment banking division of
Merrill Lynch, in Hong Kong from 1999 to 2000, and worked at Price Waterhouse in the United States
from 1994 to 1997. Mr. Gan is an independent director of Cogo Group, Inc, a Nasdaq-listed company.
Mr. Gan obtained his Masters of Business Administration from the University Of Chicago Graduate
School of Business and his Bachelor of Business Administration from the University of Iowa. He is a
Certified Public Accountant in the United States.
Suyang Zhang has served as our director since November 2004. He previously served as our
director from December 1999 to June 2004. Mr. Zhang is currently a vice president of IDG Capital
Investment Consultancy (Beijing) Co., Ltd., where he has worked since 1996, and the general manager
of Shanghai Pacific Technology Venture Fund Co., Ltd., where he has worked since 1994. Mr. Zhang
has led his firms investments in a number of high-tech projects in the areas of electronics,
telecommunications and software in recent years. He previously served as a division manager of
Shanghai Bell, deputy director of Shanghai Telephone Equipment Manufacturing Company, and general
manager of Shanghai Vantone Industrial Co. Ltd. He currently serves on the boards of several
privately held companies, including Baud Data Communications Co., Ltd. Mr. Zhang holds a Bachelor
of Electronics Engineering from Shanghai University and an Executive Masters of Business
Administration from China European International Business School.
Jianmin Zhu has served as our senior vice president since January 2008. He has served in a
number of managerial positions in our company since 2000. Prior to joining us, he worked with
several software and system integration companies, including Compaq and RPTI International Ltd. He
was a senior consultant at Compaq from 1999 to 2000 and technical director of RPTI International
Ltd. from 1995 to 1998. Mr. Zhu received his Bachelors degree from Shanghai Jiao Tong University.
46
Tao Yang has served as our senior vice president since January 2008. He has served in a number
of managerial positions in our company since 2000. From February 1999 to March 2000, Mr. Yang
served as sales manager of Global Sources Ltd., a worldwide trading information provider. Mr. Yang
holds a Bachelors degree in Mechanical Engineering from Shanghai Jiao Tong University.
Maohua Sun has served as our senior vice president since December 1, 2009. Ms. Sun joined us
in 2000 and has held a number of managerial positions at our company. Prior to joining us, Ms. Sun
worked at the Jinjiang Group, a hotel management company in China, from 1994 to 2000. Ms. Sun
received her Bachelors degree from Shanghai Jiao Tong University.
James Lan Tang has served as our vice president since April 2005 and was promoted to serve as
our senior vice president in January 2011. Prior to joining us, he worked as a marketing manager in
Perfetti Van Melle Co. Ltd. in Shanghai from 2000 to 2005. Prior to that, Mr. Tang worked as a
marketing manager and a financial analysis manager at YueSai KanCoty Cosmetics Inc. in Shanghai
from 1997 to 2000. Mr. Tang received his Bachelors degree from Shanghai Jiao Tong University and
Masters degree in Economics from Virginia Commonwealth University in the United States.
Shaw Xiaoliang Ding has served as our vice president since 2007. Prior to joining us, he was
general manager of Beijing Jianguo Hotel, one of the first joint-venture hotels in China, from late
2004 to February 2007. Previously, he was general manager of the marketing division of Beijing
Tourism Group, one of the largest tourism enterprises in China, from August 2001 to December 2004.
From 1994 to 2001, Mr. Ding held various senior positions at Beijing International Hotel, Hualong
International Hotel Management Company and Intel (China) Corporation. Mr. Ding received his
Masters degree from Business School of Rutgers University and his Bachelors degree from Beijing
Institute of International Politics.
Cindy Xiaofan Wang has served as our vice president since January 2008. Ms. Wang joined us in
2001 and has held a number of managerial positions at our company. Prior to joining us, she served
as finance manager in China eLabs, a venture capital firm from 2000 to 2001. Previously, Ms. Wang
worked with PricewaterhouseCoopers Zhong Tian CPAs Limited Company. Ms. Wang received her Masters
degree from Catholic University Leuven, Belgium and her Bachelors degree from Shanghai Jiao Tong
University.
Yuxiang Zhuang has served as our vice president since January 2008. He has served in a number
of managerial positions in our company since 2000. Prior to joining us, he worked as assistant
general manager in Shanghai Ba-shi Travel Agency from July 1998 to February 2000. Mr. Zhuang
received his Bachelors degree from Fudan University.
Dongjie Guo has served as our vice president since March 2008. Prior to joining us, he worked
as marketing director in Beijing Tourism Group, one of the largest tourism enterprises in China,
from September 2007 to March 2008. From July 1998 to August 2007, Mr. Guo served as vice president
and the president of China Comfort Travel Service Group consecutively. From 1988 to 1998, Mr. Guo
held various senior positions at China Youth Travel Service Group. Mr. Guo received his Masters
degree in Business Administration from Fordham University and his Bachelors degree in Literature
from Beijing University.
Hao Jiang has served as our vice president since July 2009. Mr. Jiang joined us in 1999 and
has held a number of managerial positions at our company. Prior to joining us, he served at several
software and system integration companies from 1996 to 1999. Previously, Mr. Jiang worked in a
scientific research institution. Mr. Jiang received his Bachelors degree from Shanghai Jiao Tong
University.
B. Compensation
We have entered into a standard form of director agreement with each of our directors. Under
these agreements, we paid cash compensation (inclusive of directors fees) to our directors in an
aggregate amount of US$552,894 in 2010. Directors are reimbursed for all expenses incurred in
connection with each Board of Directors meeting and when carrying out their duties as directors of
our company. See Employees Stock Option Plans for options granted to our directors in 2010.
We have entered into standard forms of employment agreements with our executive officers.
Under these agreements, we paid cash compensation to our executive officers in an aggregate amount
of US$1,116,894 in 2010. These agreements provide for terms of service, salary and additional cash
compensation arrangements, all of which have been reflected in the 2010 aggregate compensation
amount. See Employees Stock Option Plans for options granted to our executive officers in
2010.
47
Employees Share Incentive Plans
Our board of directors has adopted four share incentive plans, namely, the 2007 Share
Incentive Plan, or the 2007 Plan, the 2005 Employees Stock Option Plan, or the 2005 Plan, the 2003
Employees Option Plan, or the 2003 Plan, and the 2000 Employees Stock Option Plan, or the 2000
Plan. The terms of the 2005 Plan, the 2003 Plan and the 2000 Plan are substantially similar. The
purpose of the plans is to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to employees, officers and directors
and to promote the success of our business. Our board of directors believes that our companys
long-term success is dependent upon our ability to attract and retain superior individuals who, by
virtue of their ability and qualifications, make important contributions to our business.
As of February 28, 2011, the 2005 Plan, the 2003 Plan and the 2000 Plan have all terminated
and there were 1,348,610 options issued and outstanding under the 2005 Plan. Under the 2007 Plan,
the maximum aggregate number of ordinary shares which may be issued pursuant to awards was
5,000,000 as of the first business day of 2011, with annual increases of 1,000,000 ordinary shares
on the first business day of each subsequent calendar year until the termination of the plan. Under
the 2007 Plan, 3,053,627 options and 8,100 restricted share units were issued and outstanding as of
February 28, 2011.
On November 17, 2008, our board of directors amended our 2007 Plan. The main substantive
amendments relate to the addition of provisions that explicitly allow us to adjust the exercise
price per share of an option under the plan.
In February 2009, our board of directors approved to reduce the exercise price of all
outstanding unvested options that were granted by us in 2007 and 2008 under our 2007 Plan to the
then fair market value of our ordinary shares underlying such options. The then fair market value
was based on the closing price of our ADSs traded on the Nasdaq Global Select Market as of February
10, 2009, which was the last trading day prior to the board approval. In addition, our board of
directors approved to change the vesting commencement date of these unvested options to February
10, 2009 with a new vesting period. Other terms of the option grants remain unchanged. All option
grantees affected by such changes have entered into amendments to their original share option
agreements with us.
In December 2009, our board of directors approved to extend the expiration dates of all stock
options granted in 2005 and 2006 to eight years after the respective original grant dates of these
options.
In February 2010, our compensation committee approved an option modification to extend the
expiration dates of all stock options granted in and after 2007 to eight years after the respective
original grant dates of these options.
The following table summarizes, as of February 28, 2011, the outstanding options and
restricted share units granted under our 2005 and 2007 Plans to the individual executive officers
and directors named below, and to the other optionees in the aggregate. The table gives effect to
the amendments described above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary Shares |
|
|
|
|
|
|
|
|
|
|
Underlying Options |
|
|
Exercise Price |
|
|
|
|
|
|
|
Granted |
|
|
(US$/Share) |
|
|
Date of Grant |
|
Date of Expiration |
James Jianzhang Liang |
|
|
76,667 |
|
|
|
19.455 |
|
|
January 24, 2005 |
|
January 24, 2013 |
|
|
|
100,000 |
|
|
|
26.225 |
|
|
December 9, 2005 |
|
December 9, 2013 |
|
|
|
16,667 |
|
|
|
58.39 |
|
|
February 13, 2007 |
|
February 13, 2015 |
|
|
|
33,333 |
|
|
|
38.16 |
|
|
February 13, 2007 |
|
February 10, 2017 |
|
|
|
50,000 |
|
|
|
38.16 |
|
|
January 7, 2008 |
|
February 10, 2017 |
|
|
|
20,000 |
|
|
|
37.56 |
|
|
January 23, 2009 |
|
January 23, 2017 |
|
|
|
20,000 |
|
|
|
96.70 |
|
|
September 1, 2009 |
|
September 1, 2017 |
|
|
|
40,000 |
|
|
|
125.16 |
|
|
January 29, 2010 |
|
January 29, 2018 |
Qi Ji |
|
|
4,444 |
|
|
|
38.16 |
|
|
August 13, 2007 |
|
February 10, 2017 |
|
|
|
10,000 |
|
|
|
125.16 |
|
|
January 29, 2010 |
|
January 29, 2018 |
Neil Nanpeng Shen |
|
|
40,000 |
|
|
|
19.455 |
|
|
January 24, 2005 |
|
January 24, 2013 |
|
|
|
7,000 |
|
|
|
58.39 |
|
|
February 13, 2007 |
|
February 13, 2015 |
|
|
|
14,000 |
|
|
|
38.16 |
|
|
February 13, 2007 |
|
February 10, 2017 |
|
|
|
15,000 |
|
|
|
125.16 |
|
|
January 29, 2010 |
|
January 29, 2018 |
Min Fan |
|
|
100,000 |
|
|
|
26.225 |
|
|
December 9, 2005 |
|
December 9, 2013 |
|
|
|
66,667 |
|
|
|
58.39 |
|
|
February 13, 2007 |
|
February 13, 2015 |
|
|
|
133,333 |
|
|
|
38.16 |
|
|
February 13, 2007 |
|
February 10, 2017 |
|
|
|
250,000 |
|
|
|
38.16 |
|
|
January 7, 2008 |
|
February 10, 2017 |
|
|
|
100,000 |
|
|
|
37.56 |
|
|
January 23, 2009 |
|
January 23, 2017 |
|
|
|
100,000 |
|
|
|
96.70 |
|
|
September 1, 2009 |
|
September 1, 2017 |
|
|
|
200,000 |
|
|
|
125.16 |
|
|
January 29, 2010 |
|
January 29, 2018 |
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary Shares |
|
|
|
|
|
|
|
|
|
|
Underlying Options |
|
|
Exercise Price |
|
|
|
|
|
|
|
Granted |
|
|
(US$/Share) |
|
|
Date of Grant |
|
Date of Expiration |
Jane Jie Sun |
|
|
50,000 |
|
|
|
26.225 |
|
|
December 9, 2005 |
|
December 9, 2013 |
|
|
|
33,333 |
|
|
|
58.39 |
|
|
February 13, 2007 |
|
February 13, 2015 |
|
|
|
66,667 |
|
|
|
38.16 |
|
|
February 13, 2007 |
|
February 10, 2017 |
|
|
|
150,000 |
|
|
|
38.16 |
|
|
January 7, 2008 |
|
February 10, 2017 |
|
|
|
60,000 |
|
|
|
37.56 |
|
|
January 23, 2009 |
|
January 23, 2017 |
|
|
|
60,000 |
|
|
|
96.70 |
|
|
September 1, 2009 |
|
September 1, 2017 |
|
|
|
120,000 |
|
|
|
125.16 |
|
|
January 29, 2010 |
|
January 29, 2018 |
JP Gan |
|
|
14,000 |
|
|
|
38.16 |
|
|
February 13, 2007 |
|
February 10, 2017 |
|
|
|
15,000 |
|
|
|
125.16 |
|
|
January 29, 2010 |
|
January 29, 2018 |
Suyang Zhang |
|
|
7,000 |
|
|
|
58.39 |
|
|
February 13, 2007 |
|
February 13, 2015 |
|
|
|
14,000 |
|
|
|
38.16 |
|
|
February 13, 2007 |
|
February 10, 2017 |
|
|
|
15,000 |
|
|
|
125.16 |
|
|
January 29, 2010 |
|
January 29, 2018 |
Gabriel Li |
|
|
7,000 |
|
|
|
58.39 |
|
|
February 13, 2007 |
|
February 13, 2015 |
|
|
|
14,000 |
|
|
|
38.16 |
|
|
February 13, 2007 |
|
February 10, 2017 |
|
|
|
15,000 |
|
|
|
125.16 |
|
|
January 29, 2010 |
|
January 29, 2018 |
Other Employees |
|
|
2,372,226 |
|
|
From 19.455 to 154.56 |
|
|
From January 24, 2005 |
|
From January 24, 2013 |
|
|
|
|
|
|
|
|
|
|
to December 14, 2010 |
|
to December 14, 2018 |
Total |
|
|
4,410,337 |
|
|
|
|
|
|
|
|
|
As of February 28, 2011, no outstanding restricted share units under our 2007 Plan were
granted to the individual executive officers and directors, and the outstanding restricted share
units under our 2007 Plan granted to other individuals were 8,100.
The following paragraphs summarize the principal terms of our 2005 Plan.
Termination of Options. Where the option agreement permits the exercise or purchase of the
options granted for a certain period of time following the recipients termination of service with
us, or the recipients disability or death, the options will terminate to the extent not exercised
or purchased on the last day of the specified period or the last day of the original term of the
options, whichever occurs first.
Administration. Our stock option plans are administered by our board of directors or a
committee designated by our board of directors constituted to comply with applicable laws. In each
case, our board of directors or the committee it designates will determine the provisions, terms
and conditions of each option grant, including, but not limited to, the option vesting schedule,
repurchase provisions, rights of first refusal, forfeiture provisions, form of payment upon
settlement of the award, payment contingencies and satisfaction of any performance criteria.
Vesting Schedule. One-third of the options granted under our stock option plans vest 12 months
after a specified vesting commencement date; an additional one-third vest 24 months after the
specified vesting commencement date and the remaining one-third vest 36 months after the specified
vesting commencement date, subject to the optionee continuing to be a service provider on each of
such dates.
Option Agreement. Options granted under our stock option plans are evidenced by an option
agreement that contains, among other things, provisions concerning exercisability and forfeiture
upon termination of employment or consulting arrangement (by reason of death, disability or
otherwise), as determined by our board.
Transfer Restrictions. Options granted under any of our 2005 Plan may not be transferred in
any manner by the optionee other than by will or the laws of succession and are exercisable during
the lifetime of the optionee only by the optionee.
Option Exercise. The term of options granted under the 2005 Plan may not exceed ten years from
the date of grant. As of the date hereof, under the relevant option agreements, all the options
granted to our employees have the expiration term of five years from the date of grant thereof
except for stock options granted in 2005 and 2006, the term of which has been extended to eight
years from the date of grant. These share options are vested over a period of three years. The
consideration to be paid for our ordinary shares upon exercise of an option or purchase of shares
underlying the option will be determined by the stock option plan administrator and may include
cash, check, ordinary shares, a promissory note, consideration received by us under a cashless
exercise program implemented by us in connection with our stock option plans, or any combination of
the foregoing methods of payment.
Third-Party Acquisition. If a third party acquires us through the purchase of all or
substantially all of our assets, a merger or other business combination, all outstanding options or
share purchase rights will be assumed or equivalent options or rights substituted by the successor
corporation or parent or subsidiary of the successor corporation. In the event that the successor
corporation refuses to
assume or substitute for the options or share purchase rights, all options or share purchase
rights will become fully vested and exercisable immediately prior to such transaction and all
unexercised awards will terminate.
49
Termination or Amendment of Plans. The 2005 Plan terminated automatically in 2009.
The following paragraphs summarize the terms of our 2007 Plan, which was amended and restated
effective November 17, 2008:
Plan Administration. Our board of directors, or a committee designated by our board or
directors, will administer the plan. The committee or the full board of directors, as appropriate,
will determine the type or types of incentive share awards to be granted and provisions and terms
and conditions of each grant and may at their absolute discretion adjust the exercise price of an
option grant. The exercise price per share subject to an option may be reduced by the committee or
the full board of directors, without shareholder or option holder approval. The types of incentive
share awards pursuant to the 2007 Plan include, among other things, an option, a restricted share
award, a share appreciation right award and a restricted share unit award.
Award Agreements. Options and stock purchase rights granted under our plan are evidenced by a
stock option agreement or a stock purchase right agreement, as applicable, that sets forth the
terms, conditions and limitations for each grant.
Eligibility. We may grant awards to our employees, directors and consultants or any of our
related entities, which include our subsidiaries or any entities which are not subsidiaries but are
consolidated in our consolidated financial statements prepared under U.S. GAAP.
Acceleration of Options upon Corporate Transactions. The outstanding options will terminate
and accelerate upon occurrence of a change of control corporate transaction where the successor
entity does not assume our outstanding options under the plan. In such event, each outstanding
option will become fully vested and immediately exercisable, and the transfer restrictions on the
awards will be released and the repurchase or forfeiture rights will terminate immediately before
the date of the change of control transaction provided that the grantees continuous service with
us shall not be terminated before that date.
Term of the Options. The term of each option grant shall be stated in the stock option
agreement, provided that the term shall not exceed ten years from the date of the grant, and in the
case of incentive share options, five years from the date of the grant.
Vesting Schedule. In general, the plan administrator determines, or the stock option agreement
specifies, the vesting schedule. One-third of the options granted under our stock option plan vest
24 months after a specified vesting commencement date, an additional one-third vest 36 months after
the specified vesting commencement date and the remaining one-third vest 48 months after the
specified vesting commencement date, subject to other terms under the option plan.
Other Equity Awards. In addition to stock options, we may also grant to our employees,
directors and consultants or any of our related entities share appreciation rights, restricted
share awards, restricted share unit awards, deferred share awards, dividend equivalents and share
payment awards, with such terms and conditions as our board of directors (or, if applicable, the
compensation committee) may, subject to the terms of the plan, establish.
Transfer Restrictions. Options to purchase our ordinary shares may not be transferred in any
manner by the optionee other than by will or the laws of succession and may be exercised during the
lifetime of the optionee only by the optionee.
Termination or Amendment of the Plan. Unless terminated earlier, the plan will terminate
automatically in 2017. Our board of directors has the authority to amend or terminate the plan
subject to shareholder approval to the extent necessary to comply with applicable law, regulation
or stock exchange rule. We must also generally obtain approval of our shareholders to (i) increase
the number of shares available under the plan (other than any adjustment as described above), (ii)
permit the grant of options with an exercise price that is below fair market value on the date of
grant, (iii) extend the exercise period for an option beyond ten years from the date of grant, or
(iv) results in a material increase in benefits or a change in eligibility requirements.
C. Board Practices
In 2010, our directors held meetings or passed resolutions by unanimous written consent seven
times. No director participated in fewer than 75% of all the meetings of our board and its
committees on which he served. No director is entitled to any severance benefits upon termination
of his directorship with us. As of the date of this annual report, a majority of our directors meet
the independence definition under The Nasdaq Stock Market, Inc. Marketplace Rules, or the Nasdaq
Rules.
50
Committees of the Board of Directors
Audit Committee. Our audit committee reports to the board regarding the appointment of our
independent auditors, the scope and results of our annual audits, compliance with our accounting
and financial policies and managements procedures and policies relatively to the adequacy of our
internal accounting controls.
As of the date of this annual report, our audit committee consists of Messrs. Gan, Li and
Shen. All of these directors meet the audit committee independence standard under Rule 10A-3 under
the Securities Exchange Act of 1934, as amended, or the Exchange Act. The independence definition
under Rules 5605 of the Nasdaq Rules is met by Messrs. Gan, Li and Shen. In addition, all the
members of our audit committee qualify as audit committee financial experts as defined in the
relevant Nasdaq Rules. In 2010, our audit committee held meetings or passed resolutions by
unanimous written consent four times.
Compensation Committee. Our compensation committee reviews and evaluates and, if necessary,
revises the compensation policies adopted by the management. Our compensation committee also
determines all forms of compensation to be provided to our senior executive officers. In addition,
the compensation committee reviews all annual bonuses, long-term incentive compensation, share
options, employee pension and welfare benefit plans. Our chief executive officer may not be present
at any committee meeting during which his compensation is deliberated.
As of the date of this annual report, our compensation committee consists of Messrs. Zhang and
Gan, both of whom meet the independence definition under the Nasdaq Rules. In 2010, our
compensation committee held six meetings.
Duties of Directors
Under Cayman Islands law, our directors have a duty of loyalty to act honestly and in good
faith in the best interests of our company. Our directors also have a duty to exercise the skill
they actually possess and such care and diligence that a reasonably prudent person would exercise
in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure
compliance with our memorandum and articles of association. Our articles of association govern the
way our company is operated and the powers granted to the directors to manage the daily affairs of
our company.
Terms of Directors and Officers
All directors hold office until their successors have been duly elected and qualified unless
such office is vacated earlier in accordance with the articles of association. A director may only
be removed by the shareholders who appointed such director, except in the case of ordinary
directors, who may be removed by ordinary resolutions of the shareholders. Officers are elected by
and serve at the discretion of the board of directors.
D. Employees
As of December 31, 2010, we had approximately 12,600 employees, including approximately 700 in
management and administration, approximately 7,500 in our customer service centers, approximately
1,700 in sales and marketing, and approximately 2,700 in product development including supplier
management personnel and technical support personnel. Most of our employees are based in Shanghai,
Beijing, Guangzhou and Shenzhen, and we have certain on-site sales and marketing staffs in
approximately 50 major cities in China. We consider our relations with our employees to be good.
E. Share Ownership
As of February 28, 2011, 35,890,957 of our ordinary shares were issued and outstanding
(excluding the 1,287,909 ordinary shares that we reserved for issuance upon the exercise of our
outstanding options). As of the same date, there were 4,402,237 options and 8,100 restricted share
units issued and outstanding under our 2005 Plan and 2007 Plan, which, once vested, are exercisable
for the equivalent amount of our ordinary shares. Our shareholders are entitled to vote together as
a single class on all matters submitted to shareholders vote. No shareholder has different voting
rights from other shareholders. We are not aware of any arrangement that may, at a subsequent date,
result in a change of control of our company.
51
The following table sets forth information with respect to the beneficial ownership of our
ordinary shares, taking into account the aggregate number of ordinary shares underlying share
options that were outstanding as of, and exercisable within 60 days after,
February 28, 2011, by each of our directors and senior management. For information regarding
share options granted to our directors and senior executive officers, see Item 6.B. Compensation.
Except as otherwise noted, the address of each person listed in the table is c/o Ctrip.com
International, Ltd., 99 Fu Quan Road, Shanghai 200335, Peoples Republic of China.
|
|
|
|
|
|
|
|
|
|
|
Ordinary Shares |
|
|
|
Beneficially Owned(1) |
|
|
|
Number |
|
|
%(2) |
|
Directors and Senior Management: |
|
|
|
|
|
|
|
|
James Jianzhang Liang(3) |
|
|
672,222 |
|
|
|
1.9 |
% |
Min Fan(4) |
|
|
479,870 |
|
|
|
* |
|
Jane Jie Sun(5) |
|
|
197,778 |
|
|
|
* |
|
Neil Nanpeng Shen(6) |
|
|
188,583 |
|
|
|
* |
|
James Lan Tang(7) |
|
|
36,686 |
|
|
|
* |
|
Other directors and executive officers as a group, each of whom individually owns less than 0.1%(8) |
|
|
178,927 |
|
|
|
* |
|
All directors and officers as a group(9) |
|
|
1,754,067 |
|
|
|
4.8 |
% |
Principal Shareholders: |
|
|
|
|
|
|
|
|
FMR LLC and Edward Johnson 3rd(10) |
|
|
3,841,378 |
|
|
|
10.7 |
% |
T. Rowe Price Associates, Inc. (11) |
|
|
3,637,610 |
|
|
|
10.1 |
% |
Entities affiliated with Morgan Stanley(12) |
|
|
3,524,088 |
|
|
|
9.8 |
% |
Entities affiliated with Lone Spruce, L.P. (13) |
|
|
1,973,308 |
|
|
|
5.5 |
% |
Entities affiliated with Artisan Partners Holdings L.P. (14) |
|
|
1,916,377 |
|
|
|
5.3 |
% |
|
|
|
* |
|
Less than 1% of our total outstanding ordinary shares. |
|
Notes: |
|
(1) Beneficial ownership is determined in accordance with the
rules of the SEC, and includes voting or investment power
with respect to the securities. |
|
(2) |
|
For each person and group included in this table,
percentage ownership is calculated by dividing the number
of shares beneficially owned by such person or group by
the sum of 35,890,957, being the number of ordinary
shares outstanding as of February 28, 2011, and the
number of ordinary shares underlying share options held
by such person or group that were exercisable within 60
days after February 28, 2011. |
|
(3) |
|
Includes 433,333 ordinary shares held by Mr. Liang and
238,889 ordinary shares that were issuable upon exercise
of options exercisable within 60 days after February 28,
2011 held by Mr. Liang. |
|
(4) |
|
Includes 107,648 ordinary shares held by Perfectpoint
International Limited, a British Virgin Islands company
owned by Mr. Fan and 372,222 ordinary shares that were
issuable upon exercise of options exercisable within 60
days after February 28, 2011 held by Mr. Fan. |
|
(5) |
|
Includes 197,778 ordinary shares held by Ms. Sun that
were issuable upon exercise of options exercisable within
60 days after February 28, 2011. |
|
(6) |
|
Includes 132,250 ordinary shares held by Mr. Shen and
Smart Master International Limited, a British Virgin
Islands company owned by Mr. Shen and 56,333 ordinary
shares that were issuable upon exercise of options
exercisable within 60 days after December 31, 2010 held
by Mr. Shen. Mr. Shens business address is Suite 2215,
Two Pacific Place, 88 Queensway Road, Hong Kong. |
|
(7) |
|
Includes 17,425 ordinary shares held by Mr. Tang and
19,261 ordinary shares that were issuable upon exercise
of options exercisable within 60 days after February 28,
2011 held by Mr. Tang. |
|
(8) |
|
Includes 34,250 ordinary shares and 144,677 ordinary
shares that were issuable upon exercise of options
exercisable within 60 days after February 28, 2011 held
by twelve of our current directors and executive
officers, excluding Mr. Dongjie Guo, as a group. |
|
(9) |
|
Includes 724,906 ordinary shares and 1,029,161 ordinary
shares that were issuable upon exercise of options
exercisable within 60 days after February 28, 2011 held
by all of our current directors and executive officers,
other than Mr. Dongjie Guo, as a group. |
|
(10) |
|
Includes 3,841,378 ordinary shares held by FMR LLC and
Edward Johnson 3rd. Information regarding beneficial
ownership is reported as of December 31, 2010, based on
the information contained in the Schedule 13G/A filed by
FMR LLC and Edward Johnson 3rd with the SEC on February
14, 2010. Please see the Schedule 13G/A filed by FMR LLC
and Edward Johnson 3rd with the SEC on February 14, 2010
for information relating to FMR LLC and Edward Johnson
3rd. Their business address for FMR LLC is 82 Devonshire
Street, Boston, Massachusetts 02109, the United States of
America. |
52
|
|
|
(11) |
|
Includes 3,637,610 ordinary shares held by T. Rowe Price
Associates, Inc. Information regarding beneficial
ownership is reported as of December 31, 2010, based on
the information contained in the Schedule 13G filed by T.
Rowe Price Associates Inc. with the SEC on February 9,
2011. Please see the Schedule 13G filed by T. Rowe Price
Associates Inc. with the SEC on February 9, 2011 for
information relating to T. Rowe Price Associates, Inc.
The address for T. Rowe Price Associates, Inc. is 100 E.
Pratt Street, Baltimore, Maryland 21202, the United
States of America. |
|
(12) |
|
Includes 3,524,088 ordinary shares held by entities
affiliated with Morgan Stanley, which we refer to
collectively as Morgan Stanley. Information regarding
beneficial ownership is reported as of December 31, 2010,
based on the information contained in the Schedule 13G/A
filed by Morgan Stanley with the SEC on February 9, 2011.
Please see the Schedule 13G/A filed by Morgan Stanley
with the SEC on February 9, 2011 for information relating
to Morgan Stanley. The address for Morgan Stanley is 1585
Broadway, New York, NY 10036, the United States of
America. |
|
(13) |
|
Includes 1,973,308 ordinary shares held by entities
affiliated with Lone Spruce, L.P., which we refer to
collectively as Lone Spruce. Information regarding
beneficial ownership is reported as of February 14, 2011,
based on the information contained in the Schedule 13G
filed by Lone Spruce with the SEC on February 24, 2011.
Please see the Schedule 13G filed by Lone Spruce with the
SEC on February 24, 2011 for information relating to Lone
Spruce. The address for Lone Spruce is Two Greenwich
Plaza, Greenwich, Connecticut 06830, the United States of
America. |
|
(14) |
|
Includes 1,916,377 ordinary shares held by entities
affiliated with Artisan Partners Holdings L.P., which we
refer to collectively as Artisan Holdings. Information
regarding beneficial ownership is reported as of December
31, 2010, based on the information contained in the
Schedule 13G filed by Artisan Holdings with the SEC on
February 10, 2011. Please the Schedule 13G filed by
Artisan Holdings with the SEC on February 10, 2011 for
information relating to Artisan Holdings. The address for
Artisan Holdings is 875 East Wisconsin Avenue, Suite 800
Milwaukee, Wisconsin 53202, the United States of America. |
As of February 28, 2011, 35,890,957 of our ordinary shares were issued and outstanding. Based
on a review of the register of members maintained by our Cayman Islands registrar, we believe that
as of February 28, 2011, 35,831,274 ordinary shares, or 99.8% of our total outstanding ordinary
shares, were held by two record shareholders in the United States, including 35,417,621 ordinary
shares held of record by The Bank of New York Mellon, the depositary of our ADS program. The number
of beneficial owners of our ADSs in the United States is likely to be much larger than the number
of record holders of our ordinary shares in the United States.
|
|
|
ITEM 7. |
|
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
A. Major Shareholders
Please refer to Item 6. Share Ownership.
B. Related Party Transactions
Arrangements with Consolidated Affiliated Chinese Entities
Current PRC laws and regulations impose substantial restrictions on foreign ownership of the
air-ticketing, travel agency, advertising and value-added telecommunications businesses in China.
Therefore, we conduct part of our operations in our non-hotel reservation businesses through a
series of agreements between our PRC subsidiaries and our affiliated Chinese entities, which hold
the licenses and approvals for conducting the air-ticketing, travel agency, and value-added
telecommunications businesses in China. We do not hold any ownership interest in our affiliated
Chinese entities. As of December 31, 2010, our director, chief executive officer and president, Min
Fan, our officers, Jianmin Zhu, Tao Yang and Gangyi Yan and a family member of a senior officer,
Fengying Zhang, were the principal record owners of our affiliated Chinese entities. In 2008, Qi
Ji, a co-founder, shareholder and director of our company transferred all of his equity interests
in Ctrip Commerce, Beijing Ctrip International Travel Agency Co., Ltd., or Beijing Ctrip, and
Shanghai Huacheng to Tao Yang.
As of December 31, 2010:
|
|
|
Tao Yang and Ctrip Commerce owned 4% and 96%, respectively, of Beijing Ctrip. |
|
|
|
|
Tao Yang and Min Fan owned 10.2% and 89.8%, respectively, of Ctrip Commerce. |
|
|
|
|
Ctrip Commerce and Tao Yang owned 99.57% and 0.36% of Shanghai Huacheng,
respectively. |
|
|
|
|
Min Fan and Jianmin Zhu owned 90% and 10%, respectively, of Guangzhou Ctrip
International Travel Agency Co., Ltd., or Guangzhou Ctrip, as well as Shenzhen Ctrip. |
|
|
|
|
Min Fan and Gangyi Yan owned 89.8% and 8.4%, respectively, of Shanghai Ctrip
International Travel Agency Co., Ltd. (formerly Shanghai Ctrip Charming International
Travel Agency Co., Ltd.), or Shanghai Ctrip. |
|
|
|
|
Fengying Zhang owned 100% of the equity interest in Nantong Tongcheng Information
Technology Co., Ltd., or Nantong Tongcheng. |
53
In December 2010, Mr. Gangyi Yan agreed to enter into equity transfer agreement to transfer
the 8.4% equity interests in Shanghai Ctrip that he held to Mr. Min Fan upon our request. We are in
the process of completing the necessary documentation and registration to effect the equity
transfer.
We believe that the terms of these agreements are no less favorable than the terms that we
could obtain from disinterested third parties. The terms of the agreements with the same title
between us and our respective affiliated Chinese entities are almost identical except for the
amount of the business loans to the shareholders of each entity and the amount of service fees paid
by each entity. We believe that Messrs. Fan, Zhu, Yang and Yan and Ms. Zhang will not receive any
personal benefits from these agreements except as shareholders of our company. According to our PRC
counsel, Commerce & Finance Law Offices, these agreements are valid, binding and enforceable under
the current laws and regulations of China. The principal terms of these agreements are described
below.
Powers of Attorney. Each of Messrs. Fan, Zhu, Yang and Yan and Ms. Zhang has irrevocably
appointed our Chief Financial Officer, Jane Jie Sun, as attorney-in-fact to vote on their behalf on
all matters they are entitled to vote on, including matters relating to the transfer of any or all
of their respective equity interests in our affiliated Chinese entities and the appointment of the
chief executive officer of our affiliated Chinese entities. The appointment of Ms. Sun as the
attorney-in-fact will terminate if she is no longer employed by one of our subsidiaries in China.
The term of each of the powers of attorney is ten years.
Exclusive Technical Consulting and Services Agreements. Ctrip Computer Technology and Ctrip
Travel Network provide our affiliated Chinese entities with technical consulting and related
services and staff training and information services. We also maintain their network platforms. The
initial term of these agreements is ten years. In consideration for our services, our affiliated
Chinese entities agree to pay our service fees, which are subject to quarterly adjustment based on
their actual operating results. For 2010, our affiliated Chinese entities paid Ctrip Computer
Technology and Ctrip Travel Network a quarterly fee based on the number of air tickets sold and the
number of packaged-tour products sold in the quarter, at an average rate from RMB9 (US$1) to RMB41
(US$6) per ticket and from RMB155 (US$24) to RMB487 (US$74) per person per tour.
Share Pledge Agreements. Messrs. Fan, Zhu, Yang and Yan and Ms. Zhang have pledged their
respective equity interests in our affiliated Chinese entities as a guarantee for the payment by
our affiliated Chinese entities of technical and consulting services fees to us under the exclusive
technical consulting and services agreements described above. In the event any of our affiliated
Chinese entity breaches any of its obligations under the service agreement with us, we are entitled
to sell the equity interests held by Messrs. Fan, Zhu, Yang, Yan and/or, Ms. Zhang as the case may
be, and retain the proceeds from such sale or require any of them to transfer his or her equity
interest without consideration to the Chinese citizen(s) designated by us. We will endeavor to
enforce our rights in full under the share pledge agreement in the event that any affiliated
Chinese entity breaches its obligations under the exclusive technical consulting and services
agreement with us.
Business Loan Arrangements. Due to government restrictions on foreign ownership of
air-ticketing, travel agencies, and value-added telecommunications businesses in China, we have
made business loan arrangements with Messrs. Fan, Zhu Yang and Ms. Zhang with the sole and
exclusive purpose of providing funds necessary for the capitalization or acquisition of our
affiliated Chinese entities. These loan amounts were injected into the affiliated Chinese entities
as capitals and cannot be accessed for any personal uses. In the event that the PRC government
lifts its substantial restrictions on foreign ownership of the air-ticketing, travel agency, or
value-added telecommunications business in China, as applicable, we will exercise our exclusive
option to purchase all of the outstanding equity interests of our affiliated Chinese entities, as
described in the following paragraph, and the business loan arrangements will be cancelled in
connection with such purchase. However, it is uncertain when, if at all, the PRC government will
lift any or all of these restrictions.
54
The following table sets forth, as of December 31, 2010, the amount of each business loan
arrangement, the date the loan arrangement was entered into, the principal, interest, maturity date
and outstanding balance of the business loan, the borrower and the affiliated Chinese entity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of Loan |
|
|
|
Affiliated |
|
|
|
|
|
|
|
|
|
|
Agreement |
|
Borrower |
|
Chinese Entity |
|
Principal |
|
|
Interest |
|
Maturity Date |
|
Outstanding Balance |
|
|
|
|
|
|
|
(in thousands |
|
|
(in thousands |
|
|
|
|
|
|
(in thousands |
|
|
(in thousands |
|
|
|
|
|
|
|
of RMB) |
|
|
of US$) |
|
|
|
|
|
|
of RMB) |
|
|
of US$) |
|
September 10, 2003 |
|
Tao Yang* |
|
Beijing Ctrip |
|
|
1,549.5 |
|
|
|
234.8 |
|
|
None |
|
September 10, 2013 |
|
|
1,549.5 |
|
|
|
234.8 |
|
September 10, 2003 |
|
Min Fan |
|
Ctrip Commerce |
|
|
980.0 |
|
|
|
148.5 |
|
|
None |
|
September 10, 2013 |
|
|
980.0 |
|
|
|
148.5 |
|
September 10, 2003 |
|
Tao Yang* |
|
Ctrip Commerce |
|
|
1,020.0 |
|
|
|
154.5 |
|
|
None |
|
September 10, 2013 |
|
|
1,020.0 |
|
|
|
154.5 |
|
January 15, 2004 |
|
Min Fan |
|
Ctrip Commerce |
|
|
4,100.0 |
|
|
|
621.2 |
|
|
None |
|
January 15, 2014 |
|
|
4,100.0 |
|
|
|
621.2 |
|
October 11, 2006 |
|
Min Fan |
|
Ctrip Commerce |
|
|
3,900.0 |
|
|
|
590.9 |
|
|
None |
|
January 15, 2014 |
|
|
3,900.0 |
|
|
|
590.9 |
|
September 10, 2003 |
|
Min Fan |
|
Guangzhou Ctrip |
|
|
450.0 |
|
|
|
68.2 |
|
|
None |
|
September 10, 2013 |
|
|
450.0 |
|
|
|
68.2 |
|
March 1, 2004 |
|
Min Fan |
|
Guangzhou Ctrip |
|
|
1,350.0 |
|
|
|
204.5 |
|
|
None |
|
March 1, 2014 |
|
|
1,350.0 |
|
|
|
204.5 |
|
August 1, 2004 |
|
Jianmin Zhu |
|
Guangzhou Ctrip |
|
|
50.0 |
|
|
|
7.6 |
|
|
None |
|
August 1, 2014 |
|
|
50.0 |
|
|
|
7.6 |
|
August 1, 2004 |
|
Jianmin Zhu |
|
Guangzhou Ctrip |
|
|
150.0 |
|
|
|
22.7 |
|
|
None |
|
August 1, 2014 |
|
|
150.0 |
|
|
|
22.7 |
|
May 11, 2006 |
|
Jianmin Zhu |
|
Guangzhou Ctrip |
|
|
100.0 |
|
|
|
15.2 |
|
|
None |
|
August 1, 2014 |
|
|
100.0 |
|
|
|
15.2 |
|
May 11, 2006 |
|
Min Fan |
|
Guangzhou Ctrip |
|
|
900.0 |
|
|
|
136.4 |
|
|
None |
|
March 1, 2014 |
|
|
900.0 |
|
|
|
136.4 |
|
October 30, 2003 |
|
Min Fan |
|
Shanghai Ctrip |
|
|
4,290.0 |
|
|
|
650.0 |
|
|
None |
|
October 30, 2013 |
|
|
4,290.0 |
|
|
|
650.0 |
|
May 26, 2006 |
|
Min Fan |
|
Shanghai Ctrip |
|
|
1,190.0 |
|
|
|
180.3 |
|
|
None |
|
October 30, 2013 |
|
|
1,190.0 |
|
|
|
180.3 |
|
February 6, 2004 |
|
Min Fan |
|
Shenzhen Ctrip |
|
|
1,350.0 |
|
|
|
204.5 |
|
|
None |
|
February 6, 2014 |
|
|
1,350.0 |
|
|
|
204.5 |
|
August 1, 2004 |
|
Jianmin Zhu |
|
Shenzhen Ctrip |
|
|
150.0 |
|
|
|
22.7 |
|
|
None |
|
August 1, 2014 |
|
|
150.0 |
|
|
|
22.7 |
|
April 24, 2006 |
|
Min Fan |
|
Shenzhen Ctrip |
|
|
900.0 |
|
|
|
136.4 |
|
|
None |
|
February 6, 2014 |
|
|
900.0 |
|
|
|
136.4 |
|
April 24, 2006 |
|
Jianmin Zhu |
|
Shenzhen Ctrip |
|
|
100.0 |
|
|
|
15.2 |
|
|
None |
|
August 1, 2014 |
|
|
100.0 |
|
|
|
15.2 |
|
April 12, 2004 |
|
Tao Yang* |
|
Huacheng |
|
|
250.0 |
|
|
|
37.9 |
|
|
None |
|
April 12, 2014 |
|
|
250.0 |
|
|
|
37.9 |
|
March 7, 2008 |
|
Fengying Zhang |
|
Nantong Tongcheng |
|
|
10,000.0 |
|
|
|
1,515.2 |
|
|
None |
|
March 6, 2015 |
|
|
10,000.0 |
|
|
|
1,515.2 |
|
October 18, 2010 |
|
Min Fan |
|
Shanghai Quanlv |
|
|
4,500.0 |
|
|
|
681.8 |
|
|
None |
|
October 17, 2020 |
|
|
4,500.0 |
|
|
|
681.8 |
|
October 18, 2010 |
|
Tao Yang* |
|
Shanghai Quanlv |
|
|
500.0 |
|
|
|
75.8 |
|
|
None |
|
October 17, 2020 |
|
|
500.0 |
|
|
|
75.8 |
|
|
|
|
* |
|
In 2008, Mr. Tao Yang acquired from Mr. Qi Ji all of his equity interests in Ctrip Commerce,
Beijing Ctrip and Shanghai Huacheng. At the same time, Mr. Tao Yang also assumed all of the
outstanding business loans of Mr. Qi Ji. |
Exclusive Option Agreements. As consideration for our entering into the business loan
arrangements described above, each of Messrs. Fan, Zhu, Yang, Yan and Ms. Zhang has granted us an
exclusive, irrevocable option to purchase all of their equity interests in our affiliated Chinese
entities at any time we desire, subject to compliance with the applicable PRC laws and regulations.
If we exercise these options, we will cancel the outstanding business loans we extended to Messrs.
Fan, Yang, Zhu and Ms. Zhang to fund our affiliated Chinese entities.
Operating Agreements. We guarantee the performance by our affiliated Chinese entities of
contracts, agreements or transactions with third parties relating to the business operations of our
affiliated Chinese entities. As consideration for our entering into these performance guarantees,
our affiliated Chinese entities agree to pledge their accounts receivable and all of their assets
for our benefit.
In addition, our affiliated Chinese entities and their shareholders agree not to enter into
any transaction that would affect the assets, obligations, rights or operations of our affiliated
Chinese entities without our prior written consent. They also agree to accept our guidance with
respect to day-to-day operations, financial management systems and the appointment and dismissal of
key employees.
Share Incentive Grants
Please refer to Item 6.B. Compensation Employees Share Incentive Plans.
Commissions from Home Inns and its affiliates
As of December 31, 2010, we held approximately 18% stake in Home Inns, one of our hotel
suppliers, and have two directors in common with it. Home Inns and its affiliates have entered into
agreements with us to provide hotel rooms for our customers. Total commissions from Home Inns and
its affiliates amounted to RMB14.8 million, RMB20.9 million and RMB18.2 million (US$2.8 million)
for the years ended December 31, 2008, 2009 and 2010, respectively. These commissions were paid to
us in our ordinary course of business on terms substantially similar to those for our unrelated
hotel suppliers.
Registration Rights from Home Inns
In May 2009, we entered into a definitive purchase agreement with Home Inns to acquire
additional equity interest in Home Inns through a private placement of its ordinary shares for
US$50 million in cash. In connection with the private placement, we have obtained certain demand,
piggyback and Form F-3 registration rights from Home Inns. Home Inns has agreed to pay all expenses
incurred in connection with all eligible registrations. Such registration rights will terminate if
we cease to hold 15% of the ordinary shares we purchased or if our registrable securities may be
sold pursuant to Rule 144 under the Securities Act.
55
Commissions from Hanting and its affiliates
One of our hotel suppliers, Hanting, has a director in common with our company and a director who
is a family member of one of our officers. Hanting has entered into agreements with us to provide
hotel rooms for our customers. Total commissions Hanting paid us amounted to RMB7.5 million, RMB9.9
million and RMB9.5 million (US$1.4 million) for the years ended December 31, 2008, 2009 and 2010,
respectively. These commissions were paid to us in our ordinary course of business on terms
substantially similar to those for our unrelated hotel suppliers. In March 2010, we invested a
total of US$67.5 million in approximately 9% stake in China
Lodging Group Limited, or Hanting, through
private placement transactions and purchases in Hantings initial public offering. The purchase
prices for shares acquired in both private placement transactions and the initial public offering
equal to Hantings initial public offering price.
Advertisement purchase from Focus Media Holding Limited (Focus Media)
One of our advertisement service suppliers, Focus Media, has a director in common with our
company. We entered into agreements with affiliates of Focus Media to purchase advertisement
service. Total advertisement purchase from Focus Media for the year ended December 31, 2009 and
2010 is RMB425 thousand and RMB300 thousand (US$45 thousand), respectively. We did not purchase any
advertisement from Focus Media in 2008. The purchase was made in our ordinary course of business on
terms substantially similar to those for our unrelated advertisement suppliers.
Printing expense to Joyu Tourism Operating Group
We entered into printing agreements with TripTX Travel Media Group, one of the subsidiaries of
Joyu Tourism Operating Group. Joyu Tourism Operating Group has a director in common with our
company. Total editing expenses to Joyu Tourism Operating Group amounted to, RMB2.2 million, RMB2.2
million and RMB2.2 million (US$0.3 million) for the years ended December 31, 2008, 2009 and 2010,
respectively.
Purchase of tour package service from Ananda Travel Service (Aust.) Pty Limited (Ananda)
We purchased tour package service from Ananda, an association investment of HKWOT (BVI)
Limited. Tour package purchase from Ananda for the year ended December 31, 2010 amounted to RMB21
million (US$3.2 million).
C. Interests of Experts and Counsel
Not applicable.
|
|
|
ITEM 8. |
|
FINANCIAL INFORMATION |
A. Consolidated Statements and Other Financial Information
We have appended consolidated financial statements filed as part of this annual report.
Legal Proceedings
We are not currently a party to any pending material litigation or other legal proceeding and
are not aware of any pending or threatened litigation or other legal proceeding that may have a
material adverse impact on our business or operations. However, we may be subject to various legal
proceedings and claims that are incidental to our ordinary course of business.
Dividend Policy
Our board and shareholders approved a distribution of 30% of our audited net income for 2005
to our shareholders as dividends. On July 14, 2006, we distributed dividends in the aggregate
amount of US$8 million to our shareholders of record as of June 30, 2006, at a dividend rate of
RMB2.04, or US$0.255, per ordinary share.
In October 2006, our shareholders approved a distribution of 30% of our net income for 2006 to
our shareholders as dividends. On July 6, 2007, we distributed dividends in the aggregate amount of
RMB72 million (US$9.5 million) to our shareholders of record as of June 29, 2007, at a dividend
rate of RMB2.11, or US$0.277, per ordinary share.
56
On June 15, 2007, our shareholders approved the distribution of 30% of our net income for 2007
to our shareholders as dividends. On July 7, 2008, we distributed dividends in the aggregate amount
of RMB112 million (US$16 million) to our shareholders of record as of June 12, 2008, at a dividend
rate of RMB3.38, or US$0.488, per ordinary share.
On November 23, 2007, our board of directors declared a dividend of one ordinary share
purchase right for each of our ordinary shares outstanding as of the close of business on December
3, 2007. See Item 10. Additional InformationMemorandum and Articles of AssociationShareholder
Rights Plan.
We have received dividends from our subsidiaries, which have received consulting or other fees
from our affiliated Chinese entities. In accordance with current Chinese laws and regulations, our
subsidiaries and affiliated entities in China are required to allocate to their general reserves at
least 10% of their respective after-tax profits for the year determined in accordance with Chinese
accounting standards and regulations. Each of our subsidiaries and affiliated entities in China may
stop allocations to its general reserve if such reserve has reached 50% of its registered capital.
In addition, our subsidiaries in China, including Ctrip Computer Technology, Ctrip Travel
Information, Ctrip Travel Network and Ctrip Information Technology, are required to allocate
portions of their respective after-tax profits to their enterprise expansion funds and staff
welfare and bonus funds at the discretion of their boards of directors. Allocations to these
statutory reserves and funds can only be used for specific purposes and are not transferable to us
in the form of loans, advances, or cash dividends.
Our board of directors has complete discretion as to whether we will distribute dividends in
the future, subject to the approval of our shareholders. Even if our board of directors determines
to distribute dividends, the form, frequency and amount of our dividends will depend upon our
future operations and earnings, capital requirements and surplus, general financial condition,
contractual restrictions, potential tax implications and other factors as the board of directors
may deem relevant. Any dividend we declare will be paid to the holders of ADSs, subject to the
terms of the deposit agreement, to the same extent as holders of our ordinary shares, less the fees
and expenses payable under the deposit agreement. Any dividend we declare will be distributed by
the depositary bank to the holders of our ADSs. Cash dividends on our ordinary shares, including
those represented by the ADSs, if any, will be paid in U.S. dollars.
B. Significant Changes
We have not experienced any significant changes since the date of our audited consolidated
financial statements included in this annual report.
|
|
|
ITEM 9. |
|
THE OFFER AND LISTING |
A. |
|
Offering and Listing Details. |
Our ADSs have been listed on the Nasdaq Global Market since December 2003 and the Nasdaq
Global Select Market since July 2006. Our ADSs are traded under the symbol CTRP.
The following table provides the high and low trading prices for our ADSs on the Nasdaq Global
Market and the Nasdaq Global Select Market for the periods presented and all prices have been
retroactively adjusted to reflect the current ADS to ordinary share ratio of one ADS to 0.25 of an
ordinary share effective on January 21, 2010 for all periods presented. The closing price of our
ADSs on March 28, 2011 was US$39.69 per ADS.
|
|
|
|
|
|
|
|
|
|
|
Trading Price (US$) |
|
|
|
High |
|
|
Low |
|
2006 |
|
|
16.33 |
|
|
|
6.96 |
|
2007 |
|
|
31.62 |
|
|
|
13.77 |
|
2008 |
|
|
35.45 |
|
|
|
8.21 |
|
2009 |
|
|
39.30 |
|
|
|
9.20 |
|
First Quarter |
|
|
15.43 |
|
|
|
9.20 |
|
Second Quarter |
|
|
23.82 |
|
|
|
13.20 |
|
Third Quarter |
|
|
30.67 |
|
|
|
19.46 |
|
Fourth Quarter |
|
|
39.30 |
|
|
|
26.52 |
|
2010 |
|
|
53.16 |
|
|
|
29.9 |
|
First Quarter |
|
|
41.28 |
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29.9 |
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Second Quarter |
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47.01 |
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32.41 |
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Third Quarter |
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49.23 |
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31.35 |
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Fourth Quarter |
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53.16 |
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38.54 |
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Monthly Highs and Lows |
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September 2010 |
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49.23 |
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40.00 |
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October 2010 |
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52.90 |
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44.86 |
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November 2010 |
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53.16 |
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43.70 |
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December 2010 |
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46.88 |
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38.54 |
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January 2011 |
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47.03 |
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40.25 |
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February 2011 |
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43.66 |
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37.12 |
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March 2011 (through March 28, 2011) |
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40.18 |
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36.64 |
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57
B. Plan of Distribution
Not applicable.
C. Markets
Our ADSs have been listed on the Nasdaq Global Market since December 2003 and on the Nasdaq
Global Select Market since July 2006 under the symbol CTRP.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
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ITEM 10. |
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ADDITIONAL INFORMATION |
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
General. All of our outstanding ordinary shares are fully paid and non-assessable.
Certificates representing the ordinary shares are issued in registered form. Our shareholders who
are nonresidents of the Cayman Islands may freely hold and vote their shares.
Dividends. The holders of our ordinary shares are entitled to such dividends as may be
declared by our board of directors subject to the Companies Law.
Voting Rights. Each ordinary share is entitled to one vote on all matters upon which the
ordinary shares are entitled to vote. Voting at any meeting of shareholders is by show of hands
unless a poll is demanded. A poll may be demanded by the chairman of our board of directors or any
other shareholder present in person or by proxy and holding at least ten percent of the shares
giving a right to vote at the meeting.
A quorum required for a meeting of shareholders consists of at least two shareholders holding
at least one-third of the outstanding voting shares in our company, present or by proxy or, if a
corporation or other non-natural person, by its duly authorized representative. Shareholders
meetings are held annually and may be convened by our board of directors on its own initiative or
upon a request to the directors by shareholders holding in the aggregate ten percent or more of our
voting share capital. Advance notice of at least seven days is required for the convening of our
annual general shareholders meeting and other shareholders meetings.
58
An ordinary resolution to be passed by the shareholders requires the affirmative vote of a
simple majority of the votes attaching to the ordinary shares cast in a general meeting, while a
special resolution requires the affirmative vote of no less than two-thirds of the votes cast
attaching to the ordinary shares. A special resolution is required for matters such as a change of
name or amending the memorandum and articles of association. Holders of the ordinary shares may by
ordinary resolution, among other things, make changes in the amount of our authorized share capital
and consolidate and divide all or any of our share capital into shares of larger amount than our
existing share capital and cancel any shares.
Liquidation. On a return of capital on winding up or otherwise (other than on conversion,
redemption or purchase of shares), assets available for distribution among the holders of ordinary
shares shall be distributed among the holders of our ordinary shares on a pro rata basis. If our
assets available for distribution are insufficient to repay all of the paid-up capital, the assets
will be distributed so that the losses are borne by our shareholders proportionately.
Calls on Shares and Forfeiture of Shares. Our board of directors may from time to time make
calls upon shareholders for any amounts unpaid on their shares in a notice served to such
shareholders at least 14 days prior to the specified time and place of payment. The shares that
have been called upon and remain unpaid are subject to forfeiture.
Redemption of Shares. Subject to the provisions of the Companies Law, we may issue shares on
the terms that they are, or at our option or at the option of the holders are, subject to
redemption on such terms and in such manner as may be determined by special resolution.
Variations of Rights of Shares. All or any of the special rights attached to any class of
shares may, subject to the provisions of the Companies Law, be varied either with the consent in
writing of the holders of three-fourths of the issued shares of that class or with the sanction of
a special resolution passed at a general meeting of the holders of the shares of that class.
Shareholder Rights Plan
On November 23, 2007, our board of directors declared a dividend of one ordinary share
purchase right, or a Right, for each of our ordinary shares outstanding at the close of business on
December 3, 2007. As long as the Rights are attached to the ordinary shares, we will issue one
Right (subject to adjustment) with each new ordinary share so that all such ordinary shares will
have attached Rights. When exercisable, each Right will entitle the registered holder to purchase
from us one ordinary share at a price of $700 per ordinary share, subject to adjustment.
The Rights will expire on November 23, 2017, subject to our right to extend such date and are
exercisable upon the earlier of (i) 10 days following a public announcement that a person or group
of affiliated or associated persons has acquired, or obtained the right to acquire, beneficial
ownership of 20% or more of the voting securities of our company, or (ii) 10 business days
following the commencement or announcement of an intention to make a tender offer or exchange
offer, the consummation of which would result in the beneficial ownership by a person or group of
20% or more of the voting securities of our company. Upon exercise, all Rights holders except for
the potential acquirer will be entitled to acquire our ordinary shares at a discount. We are
entitled to redeem the Rights in whole at any time on or before the tenth day following acquisition
by a person or group of 20% or more of our voting securities (which for these purposes include ADSs
representing ordinary shares).
The Rights were not distributed in response to any specific effort to acquire control of our
company.
C. Material Contracts
Please refer to Item 4. Information on the Company A. History and Development of the
Company and Item 7 Major Shareholders and Related Party Transactions B. Related Party
Transactions for a summary of the following material contracts we have entered into during the two
years immediately preceding the date of this annual report: (i) a purchase agreement dated May 7,
2009 between Ctrip.com International, Ltd. and Home Inns & Hotels Management Inc.; (ii) a
registration rights agreement dated May 7, 2009 between Ctrip.com International, Ltd. and Home Inns
& Hotels Management Inc.; (iii) a sale and purchase agreement dated February 3, 2010 among Wing On
Travel (Holdings) Limited, C-Travel International Limited and Ctrip.com International, Ltd.; (iv) a
subscription agreement dated March 12, 2010 between Ctrip.com International, Ltd. and China Lodging
Group, Limited; (v) a share purchase agreement dated March 12, 2010 between Ctrip.com
International, Ltd. and certain selling shareholders of China Lodging Group, Limited; and (vi) an
investor and registration rights agreement dated March 12, 2010 between Ctrip.com International,
Ltd. and China Lodging Group, Limited. Other than these material contracts, we have not entered
into any material contracts other than in the ordinary course of business for the two years
immediately preceding the date of this annual report.
59
D. Exchange Controls
See Item 4. Information on the CompanyB. Business OverviewPRC Government
RegulationsRegulations of Foreign Currency Exchange and Dividend Distribution.
E. Taxation
The following summary of the material Cayman Islands and U.S. federal income tax consequences
of an investment in our ADSs or ordinary shares is based upon laws and relevant interpretations
thereof in effect as of the date of this annual report, all of which are subject to change. This
summary does not deal with all possible tax consequences relating to an investment in our ADSs or
ordinary shares, such as the tax consequences under state, local and other tax laws not addressed
herein.
Cayman Islands Taxation
According to Maples and Calder, the Cayman Islands currently levies no taxes on individuals or
corporations based upon profits, income, gains or appreciation and there is no taxation in the
nature of inheritance tax or estate duty. There are no other taxes likely to be material to us
levied by the government of the Cayman Islands except for stamp duties which may be applicable on
instruments executed in, or brought within the jurisdiction of the Cayman Islands. The Cayman
Islands is not party to any double tax treaties that are applicable to any payments made to or by
our company. There are no exchange control regulations or currency restrictions in the Cayman
Islands.
PRC Taxation
If the PRC tax authorities determine that our Cayman Islands holding company is a resident
enterprise for PRC enterprise income tax purposes, a withholding tax of 10% for our foreign ADS
holders may be imposed on dividends they receive from us and on gains realized on their sale or
other disposition of ADSs. See Risk factorsRisks Related to Our Corporate StructureOur
subsidiaries and affiliated Chinese entities in China are subject to restrictions on paying
dividends or making other payments to us, which may restrict our ability to satisfy our liquidity
requirements.
Certain U.S. Federal Income Tax Consequences
The following description generally summarizes certain U.S. federal income tax consequences
generally applicable to U.S. Holders (as defined below) under present law of ownership in and
disposition of the ADSs or ordinary shares. This description is based on the U.S. Treasury
regulations issued under the Internal Revenue Code of 1986, as amended, as well as judicial and
administrative interpretations available on the date hereof, all of which are subject to change,
possibly with retroactive effect. You should note that no rulings have been or are expected to be
sought from the U.S. Internal Revenue Service, or the IRS, with respect to any U.S. federal income
tax consequences described below, and we cannot assure you that the IRS or a court will not take
contrary positions.
The following discussion does not address all U.S. federal income tax consequences applicable
to any particular investor or to certain investors who may be subject to special terms (regardless
of whether or not such persons constitute U.S. Holders as defined below) such as banks, insurance
companies, broker dealers, dealers or traders in securities or commodities, tax-exempt entities,
persons liable for alternative minimum tax, U.S. expatriates, regulated investment companies or
real estate investment trusts, partnerships (including certain entities treated as partnerships for
U.S. federal income tax purposes) or persons holding ADSs or ordinary shares through partnerships
(including entities treated as partnerships for U.S. federal income tax purposes), S-corporations,
estates and trusts, persons holding an ADS or ordinary share as part of a straddle, hedging,
conversion or integrated transaction, investors whose functional currency is not the U.S.
dollars, holders that actually or constructively own 10% or more (by voting power or value) of all
classes of our outstanding capital stock, or persons who acquired ADSs or ordinary shares pursuant
to the exercise of any employee share option or otherwise as compensation. Please note this
description does not address (i) alternative minimum tax consequences or (ii) the indirect effects
on persons who hold equity interests as a holder.
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE APPLICATION OF THE
U.S. FEDERAL TAX RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE AND LOCAL AND FOREIGN
TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF ADSs OR ORDINARY SHARES.
60
As used in this section, U.S. Holder means a beneficial owner of ADSs or ordinary shares
that for U.S. federal income tax purposes is,
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an individual who is a citizen or resident of the United States; |
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a corporation (or other entity subject to tax as a corporation for U.S. federal income
tax purposes) organized under the laws of the United States, any state or the District of
Columbia; |
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an estate, the income of which is subject to U.S. federal income taxation regardless of
its source; or |
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a trust that (1) is subject to the primary supervision of a court within the United
States and the control of one or more U.S. persons for all substantial trust decisions or
(2) has a valid election in effect under applicable U.S. Treasury regulations to be treated
as a U.S. person. |
If you are a partner in a partnership or other entity taxable as a partnership that holds ADSs
or ordinary shares, your tax treatment will generally depend on your status and the activities of
the partnership. Partnerships holding the ADSs or ordinary shares, and partners in such
partnerships, should consult their tax advisors regarding the tax consequences of an investment in
the ADSs or ordinary shares.
The discussion below assumes that the representations contained in the deposit agreement are
true and that the obligations in the deposit agreement and any related agreement have been and will
be complied with in accordance with the terms. If you hold ADSs, you should be treated as the
holder of the underlying ordinary shares represented by those ADSs for U.S. federal income tax
purposes.
Taxation of Dividends and Other Distributions on the ADSs or Ordinary Shares
Subject to the description below under Passive Foreign Investment Company, the amount of
any distribution to you with respect to the ADSs or ordinary shares, before deduction for any taxes
imposed by the PRC, will be included in your gross income as dividend income on the date of receipt
by the depositary, in the case of ADSs, or by you, in the case of ordinary shares, but only to the
extent that the distribution is paid out of our current or accumulated earnings and profits (as
determined under U.S. federal income tax principles). To the extent that the amount of the
distribution exceeds our current and accumulated earnings and profits, such excess amount will be
treated first as a tax-free return of your tax basis in your ADSs or ordinary shares, and then, to
the extent such excess amount exceeds your tax basis, as capital gain. We do not intend to
calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S.
Holder should expect that a distribution will generally be reported as a dividend even if that
distribution would otherwise be treated as a non-taxable return of capital or as capital gain under
the rules described above. Any dividends we pay will not be eligible for the dividends-received
deduction allowed to corporations in respect of dividends received from other U.S. corporations.
With respect to non-corporate U.S. Holders (including individual U.S. Holders), for taxable
years beginning before January 1, 2013, dividends may be taxed at the lower capital gains rate
applicable to qualified dividend income, provided that (1) the ADSs or ordinary shares are
readily tradable on an established securities market in the United States or we are eligible for
the benefits of an income tax treaty with the United States that the U.S. Treasury has determined
satisfactory for purposes of the rules applicable to qualified dividends and that includes an
exchange of information program, (2) we are neither a passive foreign investment company, or PFIC,
nor treated as such with respect to you (as discussed below) for our taxable year in which the
dividend was paid or the preceding taxable year, and (3) certain holding period requirements are
met. U.S. Treasury guidance indicates that common or ordinary shares, or ADSs representing such
shares, are considered for the purpose of clause (1) above to be readily tradable on an established
securities market in the United States if they are listed on the Nasdaq Global Select Market, as
are our ADSs (but not our ordinary shares). If we are treated as a resident enterprise for PRC
tax purposes under its Enterprise Income Tax Law, or EIT Law, we may be eligible for the benefits
of the income tax treaty between the United States and the PRC. You should consult your tax
advisors regarding the availability of the lower capital gains rate applicable to qualified
dividend income for dividends paid with respect to our ADSs or ordinary shares and any possible
change in law relating to the availability of such lower rate for dividends paid by us.
Dividends will constitute foreign source income for foreign tax credit limitation purposes. If
the dividends are qualified dividend income (as discussed above), the amount of the dividend taken
into account for purposes of calculating the foreign tax credit limitation will in general be
limited to the gross amount of the dividend, multiplied by the reduced tax rate applicable to
qualified divided income and dividend by the highest tax rate normally applicable to dividends. The
limitation on foreign taxes eligible for credit is calculated separately with respect to specific
classes of income. For this purpose, dividends distributed by us with respect to the ADSs or
ordinary shares will be passive category income or, in the case of certain U.S. Holders, general
category income.
If PRC withholding taxes apply to dividends paid to you with respect to our ADSs or ordinary
shares, subject to certain conditions and limitations, such PRC withholding taxes may be treated as
foreign taxes eligible for credit against your U.S. federal income tax
liability. The rules relating to the determination of the foreign tax credit are complex and
you should consult your tax advisors regarding the availability of a foreign tax credit in your
particular circumstances.
61
Taxation of a Disposition of ADSs or Ordinary Shares
Subject to description below under Passive Foreign Investment Company, you will recognize
capital gain or loss on any sale, exchange or other taxable disposition of an ADS or ordinary share
equal to the difference between the amount realized for the ADS or ordinary share and your tax
basis in the ADS or ordinary share. Your tax basis in an ADS or ordinary share will generally be
equal to the cost of such ADS or ordinary share. The gain or loss will generally be capital gain or
loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the
ADS or ordinary share for more than one year, you generally will be eligible for reduced tax rates.
The deductibility of capital losses is subject to limitations. Any such gain or loss that you
recognize will generally be treated as U.S. source income or loss for foreign tax credit limitation
purposes, which will generally limit the availability of foreign tax credits. However, if we are
treated as a resident enterprise for PRC tax purposes, we may be eligible for the benefits of the
income tax treaty between the United States and the PRC. In such event, if PRC tax were to be
imposed on any gain from the disposition of the ADSs or ordinary shares, a U.S. Holder that is
eligible for the benefits of the income tax treaty between the United States and the PRC may elect
to treat the gain as PRC source income. You should consult your tax advisors regarding the proper
treatment of gain or loss recognized on a sale, exchange or other taxable disposition of the ADSs
or ordinary shares in your particular circumstances.
Passive Foreign Investment Company
Based on the market price of our ADSs, the value of our assets, and the composition of our
assets and income, we do not believe that we were a PFIC for U.S. federal income tax purposes for
the taxable year ended December 31, 2010. A non-U.S. corporation will be a PFIC for any taxable
year if either:
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at least 75% of its gross income is passive income; or |
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at least 50% of the value of its assets (based on an average of the quarterly values of
the assets) during such year is attributable to assets that produce passive income or are
held for the production of passive income (the asset test). |
We will be treated as owning our proportionate share of the assets and earning our
proportionate share of the income of any other corporation in which we own, directly or indirectly,
at least 25% (by value) of the stock. In applying this rule, however, it is not clear whether the
contractual arrangements between us and our affiliated Chinese entities will be treated as
ownership of stock.
We must make a separate determination after the close of each year as to whether we were a
PFIC for that year. Accordingly, we cannot assure you that we will not be a PFIC for our current
taxable year ending December 31, 2011 or any future taxable year. Because the value of our assets
for purposes of the asset test will generally be determined by reference to the market price of our
ADSs and ordinary shares, fluctuations in the market price of our ADSs or ordinary shares may cause
us to become a PFIC. If we are a PFIC for any year during which you hold ADSs or ordinary shares,
we will generally continue to be treated as a PFIC with respect to you for all succeeding years
during which you hold ADSs or ordinary shares, unless we cease to be a PFIC and you make a deemed
sale election with respect to the ADSs or ordinary shares, as applicable. If such election is made,
you will be deemed to have sold the ADSs or ordinary shares you hold at their fair market value and
any gain from such deemed sale would be subject to the consequences described below. After the
deemed sale election, your ADSs or ordinary shares with respect to which such election was made
will not be treated as shares in a PFIC unless we subsequently become a PFIC.
For each taxable year that we are treated as a PFIC with respect to you, you will be subject
to special tax rules with respect to any excess distribution that you receive and any gain you
realize from a sale or other disposition (including a pledge) of the ADSs or ordinary shares,
unless you make a mark-to-market election as discussed below. Under these special tax rules:
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the excess distribution or gain will be allocated ratably over your holding period for
the ADSs or ordinary shares; |
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the amount allocated to the current taxable year, and any taxable years in your holding
period prior to the first taxable year in which we became a PFIC, will be treated as
ordinary income; and |
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the amount allocated to each other year will be subject to the highest tax rate in effect
for individuals or corporations, as applicable, for each such year and the interest charge
generally applicable to underpayments of tax will be imposed on the resulting tax
attributable to each such year. |
62
A U.S. Holder of marketable stock (as defined below) in a PFIC may make a mark-to-market
election for such stock to elect out of the tax treatment discussed in the preceding paragraph. If
you make a valid mark-to-market election for our ADSs or ordinary shares, you will include in
income for each year that we are treated as a PFIC with respect to you an amount equal to the
excess, if any, of the fair market value of the ADSs or ordinary shares you hold as of the close of
the year over your adjusted basis in such ADSs or ordinary shares. You will be allowed a deduction
for the excess, if any, of the adjusted basis of the ADSs or ordinary shares over their fair market
value as of the close of the year. However, deductions will be allowable only to the extent of any
net mark-to-market gains on the ADSs or ordinary shares included in your income for prior taxable
years. Amounts included in your income under a mark-to-market election, as well as any gain on the
actual sale or other disposition of the ADSs or ordinary shares, will be treated as ordinary
income. The mark-to-market election is available only for marketable stock, which is stock that
is traded in other than de minimis quantities on at least 15 days during each calendar quarter
(regularly traded) on a qualified exchange or other market, as defined in applicable U.S.
Treasury regulations. Our ADSs are listed on the Nasdaq Global Select Market, which is a qualified
exchange or other market for these purposes. Consequently, if the ADSs continue to be listed on the
Nasdaq Global Select Market and are regularly traded, and you are a holder of ADSs, we expect that
the mark-to-market election would be available to you were we to be or become a PFIC. You should
consult your tax advisors as to the availability and desirability of a mark-to-market election.
Alternatively, if a non-U.S. corporation is a PFIC, a U.S. holder of shares in that
corporation may avoid taxation under the rules described above by making a qualified electing
fund election to include in income its share of the corporations income on a current basis.
However, you can make a qualified electing fund election with respect to your ADSs or ordinary
shares only if we agree to furnish you annually with certain tax information, and we currently do
not intend to prepare or provide such information. Therefore, U.S. Holders should assume that they
will not receive such information from us and would not be able to make a qualified electing fund
election.
You are urged to consult your tax advisor regarding the application of the PFIC rules to your
investment in ADSs or ordinary shares.
Information Reporting and Backup Withholding
Dividend payments with respect to ADSs or ordinary shares and proceeds from the sale, exchange
or redemption of ADSs or ordinary shares may be subject to information reporting to the IRS and
possible U.S. backup withholding at a current rate of 28%. Backup withholding will not apply,
however, to a U.S. Holder that furnishes a correct taxpayer identification number and makes any
other required certification or that is otherwise exempt from backup withholding. U.S. Holders that
are required to establish their exempt status generally must provide such certification on Internal
Revenue Service Form W-9. U.S. Holders should consult their tax advisors regarding the application
of the U.S. information reporting and backup withholding rules.
Pursuant to the Hiring Incentives to Restore Employment Act enacted on March 18, 2010, in tax
years beginning after the date of enactment, an individual U.S. Holder and certain entities may be
required to submit to the IRS certain information with respect to his or her beneficial ownership
of the ADSs or ordinary shares, if such ADSs or ordinary shares are not held on his or her behalf
by a U.S. financial institution. This new law also imposes penalties if an individual U.S. Holder
is required to submit such information to the IRS and fails to do so.
Backup withholding is not an additional tax. Amounts withheld as backup withholding can be
credited against your U.S. federal income tax liability, and you may obtain a refund of any excess
amounts withheld under the backup withholding rules by timely filing the appropriate claim for
refund with the Internal Revenue Service and furnishing any required information in a timely
manner.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
63
H. Documents on Display
We have previously filed with the SEC our registration statement on Form F-1, as amended and
prospectus under the Securities Act, with respect to our ordinary shares. We have also previously
filed with the SEC our registration statement on Form F-2, as amended, and prospectus under the
Securities Act, with respect to the sale of 1,914,000 ADSs by certain selling shareholders. We have
also previously filed with the SEC our registration statement on Form F-3 and prospectus under the
Securities Act, with respect to the sale of 13,290,000 ADSs by a selling shareholder. We have also
previously filed with the SEC our registration statement on Form F-3 with respect to the sale of
ADSs by our company and any selling shareholders on a continuous basis and a prospectus under the
Securities Act, and have issued and sold 5,700,000 ADSs of our company under this Form F-3.
We are subject to the periodic reporting and other informational requirements of the Exchange
Act. Under the Exchange Act, we are required to file reports and other information with the SEC.
Specifically, we are required to file annually a Form 20-F: (1) within six months after the end of
each fiscal year, which is December 31, for fiscal years ending before December 15, 2011; and (2)
within four months after the end of each fiscal year for fiscal years ending on or after December
15, 2011. Copies of reports and other information, when so filed, may be inspected without charge
and may be obtained at prescribed rates at the SECs public reference room located at Room 1580,
100F Street, NE, Washington, D.C. 20549. The public may obtain information regarding the
Washington, D.C. Public Reference Room by calling the Commission at 1-800-SEC-0330. The SEC also
maintains a website at www.sec.gov that contains reports, proxy and information statements, and
other information regarding registrants that make electronic filings with the SEC using its EDGAR
system. As a foreign private issuer, we are exempt from the rules under the Exchange Act
prescribing the furnishing and content of quarterly reports and proxy statements, and officers,
directors and principal shareholders are exempt from the reporting and short-swing profit recovery
provisions contained in Section 16 of the Exchange Act.
Our financial statements have been prepared in accordance with U.S. GAAP.
We will furnish our shareholders with annual reports, which will include a review of
operations and annual audited consolidated financial statements prepared in conformity with U.S.
GAAP.
I. Subsidiary Information
For a list of our subsidiaries, see Item 4.C. Organizational Structure.
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ITEM 11. |
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest Rate Risk. Our exposure to interest rate risk for changes in interest rates relates
primarily to the interest income generated by excess cash deposited in banks. We have not used any
derivative financial instruments to hedge interest rate risk. We have not been exposed nor do we
anticipate being exposed to material risks due to changes in interest rates. Based on our cash
balance as of December 31, 2010, a one basis point decrease in interest rates would result in
approximately a RMB376,000 decrease in our interest income on an annual basis. Our future interest
income may fluctuate in line with changes in interest rates. However, the risk associated with
fluctuating interest rates is principally confined to our interest-bearing cash deposits, and,
therefore, our exposure to interest rate risk is limited.
Foreign Exchange Risk. We are exposed to foreign exchange risk arising from various currency
exposures. Some of our expenses are denominated in foreign currencies while the majority of our
revenues are denominated in RMB. As we hold assets dominated in U.S. dollars, including our bank
deposits, any changes against our functional currencies could potentially result in a charge to our
income statement and a reduction in the value of our U.S. dollar-denominated assets. From 2009,
Ctrip.com International, Ltd., our listed company incorporated in the Cayman Islands, changed its
functional currency from RMB to U.S. dollars due to changes in its economic facts and
circumstances, including growth in our existing operations outside of mainland China and an active
plan to explore overseas markets. We have not used any forward contracts or currency borrowings to
hedge our exposure to foreign currency risk. For the year ended December 31, 2010, foreign exchange
gains accounted for approximately 3% of our net income. As of December 31, 2010, a 1%
strengthening/weakening of RMB against U.S. dollar would have increased/decreased our net income by
0.5%. See Risk FactorsRisks Related to Doing Business in China Future movements in exchange
rates between the U.S. dollar and RMB may adversely affect the value of our ADSs.
64
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ITEM 12. |
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DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
Fees paid by our ADS holders
The Bank of New York Mellon, the depositary of our ADS program, collects its fees for delivery
and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the
purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for
making distributions to investors by deducting those fees from the amounts distributed or by
selling a portion of distributable property to pay the fees. The depositary may collect its annual
fee for depositary services by deducting from cash distributions or by directly billing investors
or by charging the book-entry system accounts of participants acting for them. The depositary may
generally refuse to provide fee-attracting services until its fees for those services are paid.
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|
Persons depositing or withdrawing shares must pay: |
|
For: |
$5.00 (or less) per 100 ADSs (or portion of 100
ADSs)
|
|
Issuance of ADSs, including issuances resulting from a distribution of
shares or rights or other property |
|
|
|
|
|
Cancellation of ADSs for the purpose of withdrawal, including if the
deposit agreement terminates |
|
|
|
$0.02 (or less) per ADS
|
|
Any cash distribution to ADS registered holders |
|
|
|
A fee equivalent to the fee that would be payable if
securities distributed to you had been shares and
the shares had been deposited for issuance of ADSs
|
|
Distribution of securities distributed to holders of deposited
securities which are distributed by the depositary to ADS registered
holders |
|
|
|
$0.02 (or less) per ADSs per calendar year
|
|
Depositary services |
|
|
|
Registration or transfer fees
|
|
Transfer and registration of shares on our
share register to or from the name of the
depositary or its agent when you deposit
or withdraw shares |
|
|
|
Expenses of the depositary
|
|
Cable, telex and facsimile transmissions
(when expressly provided in the deposit
agreement) |
|
|
|
|
|
Converting foreign currency to U.S. dollars |
|
|
|
Taxes and other governmental charges the depositary
or the custodian have to pay on any ADS or share
underlying an ADS, for example, stock transfer taxes,
stamp duty or withholding taxes
|
|
As necessary |
|
|
|
Any charges incurred by the depositary or its agents
for servicing the deposited securities
|
|
As necessary |
Fees and Payments from the Depositary to Us
In January 2011, we received from the depositary a reimbursement of US$1,232,445, net of
withholding tax, for our continuing annual stock exchange listing fees and our expenses incurred in
connection with investor relationship programs for 2010. In addition, the depositary has agreed to
reimburse us annually for our expenses incurred in connection with investor relationship programs
in the future. The amount of such reimbursements is subject to certain limits.
PART II
|
|
|
ITEM 13. |
|
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
None.
|
|
|
ITEM 14. |
|
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
On July 31, 2007, we effected a change of the ratio of our ADSs to ordinary shares from one
(1) ADS representing one (1) ordinary share to one (1) ADS representing one-half (0.5) of an
ordinary share.
65
On November 23, 2007, our board of directors declared a dividend of one ordinary share
purchase right for each of our ordinary shares outstanding at the close of business on December 3,
2007. See Item 10. Memorandum and Articles of Association.
On January 21, 2010, we effected a change of the ratio of our ADSs to ordinary shares from one
(1) ADS representing one-half (0.5) of an ordinary share to one (1) ADS representing one-fourth
(0.25) of an ordinary share.
|
|
|
ITEM 15. |
|
CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Exchange Act, our management, including our chief
executive officer, Min Fan, and our chief financial officer, Jane Jie Sun, performed an evaluation
of the effectiveness of our disclosure controls and procedures, as that term is defined in Rules
13a-15(e) of the Exchange Act, as of the end of the period covered by this annual report. Based on
that evaluation, our management has concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this annual report.
Report of Management on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act
of 1934, as amended. Our internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of our financial reporting and the preparation of
financial statements for external purposes in accordance with Generally Accepted Accounting
Principles (GAAP) in the United States of America and includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of our company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of consolidated financial
statements in accordance with GAAP, and that receipts and expenditures of our company are being
made only in accordance with authorizations of our management and directors; and (3) provide
reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use
or disposition of our companys assets that could have a material effect on the consolidated
financial statements. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risks that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
Our management conducted an evaluation of the effectiveness of our companys internal control
over financial reporting as of December 31, 2010 based on the framework in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, our management concluded that our internal control over
financial reporting was effective as of December 31, 2010.
We excluded HKWOT (BVI) Limited
and its subsidiaries (Wing On Travel) from our assessment in respect of our internal control
over financial reporting as of December 31, 2010, as we only consolidated Wing On Travel into our
financial results since the end of May 2010 as our equity interest in Wing On Travel reached 90% then.
Wing On Travel, on a standalone basis, represented approximately 2% of the total assets and 4% of
the total revenues of our consolidated financial statements as of and for the year ended December 31, 2010.
PricewaterhouseCoopers Zhong Tian CPAs Limited Company, our independent registered public
accounting firm, audited the effectiveness of our companys internal control over financial
reporting as of December 31, 2010, as stated in its report, which appears on page F-2 of this Form
20-F.
Changes in Internal Control over Financial Reporting
As required by Rule 13a-15(d), under the Exchange Act, our management, including our chief
executive officer and our chief financial officer, also conducted an evaluation of our internal
control over financial reporting to determine whether any changes occurred during the period
covered by this report have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting. Based on that evaluation, it has been determined that
there has been no such change during the period covered by this annual report.
66
|
|
|
ITEM 16A. |
|
AUDIT COMMITTEE FINANCIAL EXPERT |
See Item 6.C. Board Practices.
Our board of directors has adopted a code of ethics that applies to our directors, officers,
employees and agents, including certain provisions that specifically apply to our chief executive
officer, chief financial officer, financial controller, vice presidents and any other persons who
perform similar functions for us. We have filed our code of business conduct and ethics as an
exhibit to our annual report on Form 20-F for our fiscal year 2003, and posted the code on our
investor relations website at ir.ctrip.com. On March 3, 2009, our board of directors approved
amendments to our code of ethics. We filed our amended code of business conduct and ethics as
Exhibit 11.1 to our annual report on Form 20-F for the year ended December 31, 2008 that was
originally filed with the SEC on May 26, 2009. You can also find the amended code of business
conduct and ethics on our investor relations website at ir.ctrip.com.
|
|
|
ITEM 16C. |
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The following table sets forth the aggregate fees by categories specified below in connection
with certain professional services rendered by PricewaterhouseCoopers Zhong Tian CPAs Limited
Company, our principal external auditors, for the periods indicated. We did not pay any tax related
or other fees to our auditors during the periods indicated below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
RMB |
|
|
RMB |
|
|
US$ |
|
Audit fees(1) |
|
|
5,598,939 |
|
|
|
7,334,198 |
|
|
|
1,111,242 |
|
|
|
|
(1) |
|
Audit fees means the aggregate fees for professional services rendered by our principal
external auditors for the interim review of quarterly financial statements and the audit of
our annual financial statements, the audit of our annual financial statements and statutory
audits required internationally. They also include fees billed for those services that are
normally provided by the independent accountants in connection with statutory and regulatory
filings. |
Our audit committee pre-approves all audit and permissible non-audit services provided by the
independent registered public accounting firm. These services may include audit services,
audit-related services and tax services, as well as, to a very limited extent, specifically
designated non-audit services which, in the opinion of the audit committee, will not impair the
independence of the registered public accounting firm. The independent registered public accounting
firm and our management are required to report to the audit committee on the quarterly basis
regarding the extent of services provided by the independent registered public accounting firm in
accordance with this pre-approval.
|
|
|
ITEM 16D. |
|
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
Not applicable.
|
|
|
ITEM 16E. |
|
PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
On July 30, 2008 and September 30, 2008, our board of directors and shareholders respectively
approved a share repurchase plan, pursuant to which we were authorized to purchase our own ADSs
with an aggregate value of US$15 million by a repurchase of corresponding ordinary shares from the
depositary, to be funded out of our capital. Under the plan, Mr. Min Fan and Ms. Jane Jie Sun and
any person specifically nominated in writing by either of them for such purpose was authorized to
effect a share repurchase on the open market at prevailing market prices and/or in negotiated
transactions off the market from time to time as market conditions, in the their judgment, warrant,
in accordance with all applicable requirements of Rule 10b-18 under the Securities Exchange Act of
1934, as amended, and on the terms set out in the resolutions of our board of directors approving
such share repurchase. As of the date of this annual report on Form 20-F, we have not purchased any
of our ADSs under this share repurchase plan.
|
|
|
ITEM 16F. |
|
CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT |
Not applicable.
|
|
|
ITEM 16G. |
|
CORPORATE GOVERNANCE |
67
Rule 5635(c) of the Nasdaq Rules requires a Nasdaq-listed company to obtain its shareholders
approval of all equity compensation plans, including stock plans, and any material amendments to
such plans. Rule 5615 of the Nasdaq Rules permits a foreign private issuer like our company to
follow home country practice in certain corporate governance matters. Pursuant to board approval
obtained on November 17, 2008, we amended our 2007 Plan. We believe that some of the amendments are
material changes to the then existing plan. Our Cayman Islands counsel has provided a letter to
Nasdaq dated November 17, 2008 certifying that under Cayman Islands law, we are not required to
obtain shareholders approval for amendments to our existing equity incentive plan. Nasdaq has
acknowledged the receipt of such letter and our home country practice with respect to approval for
amendments to our equity incentive plan.
Other than the home country practices described above, we are not aware of any significant
ways in which our corporate governance practices differ from those followed by U.S. domestic
companies under the Nasdaq Rules.
PART III
|
|
|
ITEM 17. |
|
FINANCIAL STATEMENTS |
We have elected to provide financial statements pursuant to Item 18.
|
|
|
ITEM 18. |
|
FINANCIAL STATEMENTS |
The consolidated financial statements for Ctrip.com International, Ltd. and its subsidiaries
are included at the end of this annual report.
ITEM 19. EXHIBITS
|
|
|
|
|
Exhibit |
|
|
Number |
|
Document |
|
1.1 |
|
|
Amended and Restated Memorandum and Articles of Association of Ctrip.com International, Ltd.
(incorporated by reference to Exhibit 3.2 from our Registration Statement on Form F-1 (file
no. 333-110455) filed with the Securities and Exchange Commission on November 25, 2003), as
amended (amendment incorporated by reference to Exhibit 99.2 to our Report of Foreign Private
Issuer on Form 6-K filed with the Securities and Exchange Commission on October 17, 2006) |
|
|
|
|
|
|
2.1 |
|
|
Specimen American Depositary Receipt of Ctrip.com International, Ltd. (incorporated by
reference to the prospectus dated January 25, 2010 as part of the Registration Statement on
Form F-6 (file no. 333-145167) filed with the Securities and Exchange Commission on August 6,
2007) |
|
|
|
|
|
|
2.2 |
|
|
Specimen Stock Certificate of Ctrip.com International, Ltd. (incorporated by reference to
Exhibit 4.2 from our Registration Statement on Form F-1 (file no. 333-110455) filed with the
Securities and Exchange Commission on November 25, 2003) |
|
|
|
|
|
|
2.3 |
|
|
Rights Agreement dated as of November 23, 2007 between Ctrip.com International, Ltd. and The
Bank of New York, as Rights Agent (incorporated by reference to Exhibit 4.1 from our Report of
Foreign Private Issuer on Form 6-K filed with the Securities and Exchange Commission on
November 23, 2007) |
|
|
|
|
|
|
2.4 |
|
|
Deposit Agreement dated as of December 8, 2003, as amended and restated as of August 11, 2006,
and as further amended and restated as of December 3, 2007, among Ctrip.com International,
Ltd., The Bank of New York as Depositary, and all Owners and Beneficial from time to time of
American Depositary Shares issued thereunder (incorporated by reference to Exhibit 2.4 from
our Annual Report on Form 20-F (file no. 001-33853) filed with the Securities and Exchange
Commission on April 29, 2008) |
|
|
|
|
|
|
4.1 |
|
|
Form of Ctrip.com International, Ltd. Stock Option Plans (incorporated by reference to Exhibit
10.1 from our Registration Statement on Form F-1 (file no. 333-110455) and Exhibit 10.23 from
our Registration Statement on Form F-2 (file no. 333-121080) filed with the Securities and
Exchange Commission on November 13, 2003 and December 8, 2004, respectively) |
|
|
|
|
|
|
4.2 |
|
|
Form of Indemnification Agreement with the Registrants directors and executive officers
(incorporated by reference to Exhibit 10.2 from our Registration Statement on Form F-1 (file
no. 333-110455) filed with the Securities and Exchange Commission on November 13, 2003) |
68
|
|
|
|
|
Exhibit |
|
|
Number |
|
Document |
|
4.3 |
|
|
Translation of Form of Labor Contract for Employees of the Registrants subsidiaries in China
(incorporated by reference to Exhibit 10.3 from our Registration Statement on Form F-1 (file
no. 333-110455) filed with the Securities and Exchange Commission on November 13, 2003) |
|
|
|
|
|
|
4.4 |
|
|
Employment Agreement between the Registrant and James Jianzhang Liang (incorporated by
reference to Exhibit 10.4 from our Registration Statement on Form F-1 (file no. 333-110455)
filed with the Securities and Exchange Commission on November 13, 2003) |
|
|
|
|
|
|
4.5 |
|
|
Employment and Confidentiality Agreement between the Registrant and Jane Jie Sun (incorporated
by reference to Exhibit 4.5 from our Annual Report on Form 20-F (file no. 000-50483) filed
with the Securities and Exchange Commission on June 26, 2006) |
|
|
|
|
|
|
4.6 |
|
|
Employment Agreement, between the Registrant and Min Fan (incorporated by reference to Exhibit
10.6 from our Registration Statement on Form F-1 (file no. 333-110455) filed with the
Securities and Exchange Commission on November 13, 2003) |
|
|
|
|
|
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4.7 |
|
|
Translation of Form of Consulting and Services Agreement between Ctrip Computer Technology
(Shanghai) Co., Ltd. and an Affiliated Chinese Entity of the Registrant, as currently in
effect (incorporated by reference to Exhibit 10.7 from our Registration Statement on Form F-1
(file no. 333-110455) filed with the Securities and Exchange Commission on November 13, 2003) |
|
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4.8 |
|
|
Translation of Form of Business Loan Agreement between Ctrip.com (Hong Kong) Limited and a
Shareholder of an Affiliated Chinese Entity of the Registrant, as currently in effect
(incorporated by reference to Exhibit 10.8 from our Registration Statement on Form F-1 (file
no. 333-110455) filed with the Securities and Exchange Commission on November 13, 2003) |
|
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4.9 |
|
|
Translation of Form of Exclusive Option Agreement among Ctrip.com (Hong Kong) Limited, an
Affiliated Chinese Entity of the Registrant and the Shareholder of the Entity, as currently in
effect (incorporated by reference to Exhibit 10.9 from our Registration Statement on Form F-1
(file no. 333-110455) filed with the Securities and Exchange Commission on November 13, 2003) |
|
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|
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|
|
4.10 |
|
|
Translation of Form of Share Pledge Agreement among Ctrip Computer Technology (Shanghai) Co.,
Ltd. and a Shareholder of an Affiliated Chinese Entity of the Registrant, as currently in
effect (incorporated by reference to Exhibit 10.10 from our Registration Statement on Form F-1
(file no. 333-110455) filed with the Securities and Exchange Commission on November 13, 2003) |
|
|
|
|
|
|
4.11 |
|
|
Translation of Form of Operating Agreement between Ctrip Computer Technology (Shanghai) Co.,
Ltd. and an Affiliated Chinese Entity of the Registrant, as currently in effect (incorporated
by reference to Exhibit 10.13 from our Registration Statement on Form F-1 (file no.
333-110455) filed with the Securities and Exchange Commission on November 13, 2003) |
|
|
|
|
|
|
4.12 |
|
|
Translation of Lease Agreement dated May 1, 2003 between Ctrip Travel Information Technology
(Shanghai) Co., Ltd. and Yu Zhong (Shanghai) Consulting Co., Ltd. (incorporated by reference
to Exhibit 10.14 from our Registration Statement on Form F-1 (file no. 333-110455) filed with
the Securities and Exchange Commission on November 13, 2003) |
|
|
|
|
|
|
4.13 |
|
|
Translation of Form of Power of Attorney by a shareholder of an Affiliated Chinese Entity of
the Registrant, as currently in effect (incorporated by reference to Exhibit 10.15 from our
Registration Statement on Form F-1 (file no. 333-110455) filed with the Securities and
Exchange Commission on November 13, 2003) |
|
|
|
|
|
|
4.14 |
|
|
Confidentiality and Non-Competition Agreement, effective as of September 10, 2003, between the
Registrant and Qi Ji (incorporated by reference to Exhibit 10.16 from our Registration
Statement on Form F-1 (file no. 333-110455) filed with the Securities and Exchange Commission
on November 13, 2003) |
|
|
|
|
|
|
4.15 |
|
|
Form of Director Agreement between the Registrant and its director (incorporated by reference
to Exhibit 4.20 from our Annual Report on Form 20-F filed with the Securities and Exchange
Commission on May 11, 2004) |
69
|
|
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|
|
Exhibit |
|
|
Number |
|
Document |
|
4.16 |
|
|
Translation of Land Early Development Cost Compensation Agreement dated February 3, 2005
between Shanghai Hong Qiao Lin Kong Economic Development Park Co., Ltd. and Ctrip Travel
Information Technology (Shanghai) Co., Ltd. (incorporated by reference to Exhibit 4.18 from
our Annual Report on Form 20-F (file no. 000-50483) filed with the Securities and Exchange
Commission on June 22, 2005) |
|
|
|
|
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4.17 |
|
|
Translation of Construction Agreement dated February 13, 2006 between Shanghai No. 1
Construction Co., Ltd. and Ctrip Travel Network Technology (Shanghai) Co., Ltd. (incorporated
by reference to Exhibit 4.5 from our Annual Report on Form 20-F (file no. 000-50483) filed
with the Securities and Exchange Commission on June 26, 2006) |
|
|
|
|
|
|
4.18 |
|
|
Translation of State Land Use Right Assignment Contract dated February 25, 2008 between
Nantong Land Resource Bureau and Ctrip Information Technology (Nantong) Co., Ltd.
(incorporated by reference to Exhibit 4.21 from our Annual Report on Form 20-F (file no.
001-33853) filed with the Securities and Exchange Commission on April 29, 2008) |
|
|
|
|
|
|
4.19 |
|
|
Ctrip.com International, Ltd. 2007 Share Incentive Plan, as amended and restated as of
November 17, 2008 (incorporated by reference to Exhibit 4.21 from our Annual Report on Form
20-F (file no. 001-33853) filed with the Securities and Exchange Commission on May 26, 2009) |
|
|
|
|
|
|
4.20 |
|
|
Summary of key terms of the form revolving credit facility agreement between each of Ctrip
Computer Technology (Shanghai) Co., Ltd., Ctrip Travel Information Technology (Shanghai) Co.,
Ltd. and Ctrip Travel Network Technology (Shanghai) Co., Ltd. and our consolidated affiliated
Chinese entity, Shanghai Huacheng Southwest Travel Agency Co., Ltd., and China Merchants Bank,
Shanghai Branch (incorporated by reference to Exhibit 4.22 from our Annual Report on Form 20-F
(file no. 001-33853) filed with the Securities and Exchange Commission on May 26, 2009) |
|
|
|
|
|
|
4.21 |
|
|
Purchase Agreement dated May 7, 2009 between Ctrip.com International, Ltd. and Home Inns &
Hotels Management Inc. (incorporated by reference to Exhibit 99.(B) from our General Statement
of Acquisition of Beneficial Ownership on Schedule 13D (file no. 005-82520) filed with the
Securities and Exchange Commission on May 21, 2009) |
|
|
|
|
|
|
4.22 |
|
|
Registration Rights Agreement dated May 7, 2009 between Ctrip.com International, Ltd. and Home
Inns & Hotels Management Inc. (incorporated by reference to Exhibit 99.(C) from our General
Statement of Acquisition of Beneficial Ownership on Schedule 13D (file no. 005-82520) filed
with the Securities and Exchange Commission on May 21, 2009) |
|
|
|
|
|
|
4.23 |
|
|
Sale and Purchase Agreement dated February 3, 2010 among Wing On Travel (Holdings) Limited,
C-Travel International Limited and Ctrip.com International, Ltd. (incorporated by reference to
Exhibit 10.1 from our Registration Statement on Form F-3 (file no. 333-165150) filed with the
Securities and Exchange Commission on March 2, 2010) |
|
|
|
|
|
|
4.24 |
|
|
Subscription Agreement dated March 12, 2010 between Ctrip.com International, Ltd. and China
Lodging Group, Limited (incorporated by reference to Exhibit 99.(A) from our General Statement
of Acquisition of Beneficial Ownership on Schedule 13D (file no. 005-85408) filed with the
Securities and Exchange Commission on April 9, 2010) |
|
|
|
|
|
|
4.25 |
|
|
Share Purchase Agreement dated March 12, 2010 between Ctrip.com International, Ltd. and the
selling shareholders named therein (incorporated by reference to Exhibit 99.(B) from our
General Statement of Acquisition of Beneficial Ownership on Schedule 13D (file no. 005-85408)
filed with the Securities and Exchange Commission on April 9, 2010) |
|
|
|
|
|
|
4.26 |
|
|
Investor and Registration Rights Agreement dated March 12 2010 between Ctrip.com
International, Ltd. and China Lodging Group, Limited (incorporated by reference to Exhibit
99.(C) from our General Statement of Acquisition of Beneficial Ownership on Schedule 13D (file
no. 005-85408) filed with the Securities and Exchange Commission on April 9, 2010) |
|
|
|
|
|
|
8.1 |
|
|
Consolidated Entities of the Registrant |
|
|
|
|
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|
11.1 |
|
|
Code of Business Conduct and Ethics of the Registrant, as amended and restated as of March 3,
2009 (incorporated by reference to Exhibit 8.1 from our Annual Report on Form 20-F (file no.
001-33853) filed with the Securities and Exchange Commission on May 26, 2009) |
|
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|
|
|
12.1 |
|
|
Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
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12.2 |
|
|
Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
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|
13.1 |
|
|
Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
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|
13.2 |
|
|
Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
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|
15.1 |
|
|
Consent of Maples and Calder |
|
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15.2 |
|
|
Consent of Commerce & Finance Law Offices |
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15.3 |
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|
Consent of PricewaterhouseCoopers Zhong Tian CPAs Limited Company |
70
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing its annual
report on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual
report on its behalf.
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CTRIP.COM INTERNATIONAL, LTD.
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By: |
/S/ Min Fan
|
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Name: |
Min Fan |
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Title: |
President and Chief Executive Officer |
|
Date: March 31, 2011
71
CTRIP.COM INTERNATIONAL, LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Page |
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F-2 |
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F-3 |
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F-4 |
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F-5 |
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F-6 |
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F-7 |
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11th Floor |
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PricewaterhouseCoopers Center |
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2 Corporate Avenue |
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202 Hu Bin Road, Luwan District |
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Shanghai 200021, PRC |
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Telephone +86 (21) 2323 8888 |
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Facsimile +86 (21) 2323 8800 |
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pwccn.com |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Ctrip.com International, Ltd.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of income and comprehensive income, of shareholders equity and of cash flows present
fairly, in all material respects, the financial position of Ctrip.com International, Ltd. (the
Company) and its subsidiaries as of December 31, 2010 and 2009, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2010,
in conformity with accounting principles generally accepted in the United States of America. Also
in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2010, based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Companys management is responsible for these financial statements, for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in Managements Report on Internal Control over
Financial Reporting appearing in item 15 of the accompanying Form 20-F. Our responsibility is to
express opinions on these financial statements and on the Companys internal control over financial
reporting based on our integrated audits. We conducted our audits in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement and whether effective internal control over financial reporting
was maintained in all material respects. Our audits of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (iii) provide reasonable
assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
As described in Managements
Report on Internal Control over Financial Reporting appearing under Item 15, management has
excluded HKWOT (BVI) Limited and its subsidiaries (Wing On Travel) from its assessment of
internal control over financial reporting as of December 31, 2010 because Wing On Travel was
acquired by the Company in a purchase business combination in May 2010. We have also excluded Wing On Travel
from our audit of internal control over financial reporting. The stand alone financial statements
of Wing On Travel constitute approximately 2% of the total assets and 4% of the total revenues of
the Companys consolidated financial statement amounts as of and for the year ended
December 31, 2010.
/s/ PricewaterhouseCoopers Zhong Tian CPAs Limited Company
PricewaterhouseCoopers Zhong Tian CPAs Limited Company
Shanghai, the Peoples Republic of China
March 31, 2011
F-2
CTRIP.COM INTERNATIONAL, LTD.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
US$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel reservation |
|
|
755,733,152 |
|
|
|
940,682,312 |
|
|
|
1,278,043,673 |
|
|
|
193,642,981 |
|
Air-ticketing |
|
|
645,489,443 |
|
|
|
868,379,184 |
|
|
|
1,206,921,479 |
|
|
|
182,866,891 |
|
Packaged-tour |
|
|
109,244,749 |
|
|
|
175,867,386 |
|
|
|
380,307,487 |
|
|
|
57,622,347 |
|
Corporate travel |
|
|
56,149,335 |
|
|
|
83,136,519 |
|
|
|
129,658,427 |
|
|
|
19,645,216 |
|
Others |
|
|
21,722,117 |
|
|
|
54,496,575 |
|
|
|
71,781,955 |
|
|
|
10,876,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
1,588,338,796 |
|
|
|
2,122,561,976 |
|
|
|
3,066,713,021 |
|
|
|
464,653,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: business tax and related surcharges |
|
|
(106,334,164 |
) |
|
|
(134,555,018 |
) |
|
|
(185,479,524 |
) |
|
|
(28,102,958 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
1,482,004,632 |
|
|
|
1,988,006,958 |
|
|
|
2,881,233,497 |
|
|
|
436,550,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
(326,610,463 |
) |
|
|
(450,602,773 |
) |
|
|
(625,261,342 |
) |
|
|
(94,736,567 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
1,155,394,169 |
|
|
|
1,537,404,185 |
|
|
|
2,255,972,155 |
|
|
|
341,813,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development |
|
|
(235,800,504 |
) |
|
|
(308,451,348 |
) |
|
|
(453,853,000 |
) |
|
|
(68,765,606 |
) |
Sales and marketing |
|
|
(286,693,188 |
) |
|
|
(345,289,299 |
) |
|
|
(453,292,701 |
) |
|
|
(68,680,712 |
) |
General and administrative |
|
|
(171,693,601 |
) |
|
|
(196,297,316 |
) |
|
|
(294,701,167 |
) |
|
|
(44,651,692 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
(694,187,293 |
) |
|
|
(850,037,963 |
) |
|
|
(1,201,846,868 |
) |
|
|
(182,098,010 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
461,206,876 |
|
|
|
687,366,222 |
|
|
|
1,054,125,287 |
|
|
|
159,715,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
31,100,097 |
|
|
|
17,392,472 |
|
|
|
37,585,865 |
|
|
|
5,694,828 |
|
Other income |
|
|
54,944,595 |
|
|
|
60,801,280 |
|
|
|
99,125,516 |
|
|
|
15,019,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense, equity in income of affiliates
and noncontrolling interests |
|
|
547,251,568 |
|
|
|
765,559,974 |
|
|
|
1,190,836,668 |
|
|
|
180,429,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
(102,913,404 |
) |
|
|
(131,658,085 |
) |
|
|
(205,016,961 |
) |
|
|
(31,063,176 |
) |
Equity in income of affiliates |
|
|
|
|
|
|
32,869,419 |
|
|
|
66,171,992 |
|
|
|
10,026,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
444,338,164 |
|
|
|
666,771,308 |
|
|
|
1,051,991,699 |
|
|
|
159,392,683 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to noncontrolling interests |
|
|
(230,291 |
) |
|
|
(7,797,686 |
) |
|
|
(3,921,959 |
) |
|
|
(594,236 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Ctrips shareholders |
|
|
444,107,873 |
|
|
|
658,973,622 |
|
|
|
1,048,069,740 |
|
|
|
158,798,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
444,338,164 |
|
|
|
666,771,308 |
|
|
|
1,051,991,699 |
|
|
|
159,392,683 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(41,382,067 |
) |
|
|
1,652,997 |
|
|
|
(70,001,987 |
) |
|
|
(10,606,362 |
) |
Unrealized securities holding gains / (losses) |
|
|
(17,243,654 |
) |
|
|
17,243,654 |
|
|
|
346,716,514 |
|
|
|
52,532,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
385,712,443 |
|
|
|
685,667,959 |
|
|
|
1,328,706,226 |
|
|
|
201,319,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Comprehensive income attributable to noncontrolling interests |
|
|
(230,291 |
) |
|
|
(9,390,353 |
) |
|
|
(3,921,959 |
) |
|
|
(594,236 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Ctrips shareholders |
|
|
385,482,152 |
|
|
|
676,277,606 |
|
|
|
1,324,784,267 |
|
|
|
200,724,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per ordinary share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
13.32 |
|
|
|
19.62 |
|
|
|
29.62 |
|
|
|
4.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
12.90 |
|
|
|
18.69 |
|
|
|
27.89 |
|
|
|
4.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per ADS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
3.33 |
|
|
|
4.90 |
|
|
|
7.40 |
|
|
|
1.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
3.23 |
|
|
|
4.67 |
|
|
|
6.97 |
|
|
|
1.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares |
|
|
33,352,845 |
|
|
|
33,592,334 |
|
|
|
35,385,451 |
|
|
|
35,385,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares |
|
|
34,424,549 |
|
|
|
35,250,335 |
|
|
|
37,577,056 |
|
|
|
37,577,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation included in Operating expense above is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development |
|
|
(32,666,099 |
) |
|
|
(33,862,928 |
) |
|
|
(64,254,080 |
) |
|
|
(9,735,467 |
) |
Sales and marketing |
|
|
(18,815,878 |
) |
|
|
(18,864,102 |
) |
|
|
(33,202,984 |
) |
|
|
(5,030,755 |
) |
General and administrative |
|
|
(77,035,498 |
) |
|
|
(77,801,797 |
) |
|
|
(145,104,394 |
) |
|
|
(21,985,514 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
CTRIP.COM INTERNATIONAL, LTD.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2009 AND 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
RMB |
|
|
RMB |
|
|
US$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
1,434,618,382 |
|
|
|
2,153,935,111 |
|
|
|
326,353,805 |
|
Restricted cash |
|
|
113,150,289 |
|
|
|
224,179,126 |
|
|
|
33,966,534 |
|
Short-term investment |
|
|
180,183,917 |
|
|
|
1,178,278,063 |
|
|
|
178,526,979 |
|
Accounts receivable, net |
|
|
420,579,005 |
|
|
|
621,548,849 |
|
|
|
94,174,068 |
|
Due from related parties |
|
|
2,287,965 |
|
|
|
3,216,628 |
|
|
|
487,368 |
|
Prepayments and other current assets |
|
|
132,030,199 |
|
|
|
352,614,489 |
|
|
|
53,426,438 |
|
Deferred tax assets, current |
|
|
23,446,059 |
|
|
|
37,136,184 |
|
|
|
5,626,695 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
2,306,295,816 |
|
|
|
4,570,908,450 |
|
|
|
692,561,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term deposits |
|
|
143,195,191 |
|
|
|
155,856,622 |
|
|
|
23,614,640 |
|
Land use rights |
|
|
108,922,018 |
|
|
|
106,333,805 |
|
|
|
16,111,183 |
|
Property, equipment and software |
|
|
550,506,595 |
|
|
|
653,678,980 |
|
|
|
99,042,270 |
|
Investments |
|
|
658,051,285 |
|
|
|
1,574,230,623 |
|
|
|
238,519,791 |
|
Goodwill |
|
|
322,936,838 |
|
|
|
758,231,441 |
|
|
|
114,883,552 |
|
Intangible assets |
|
|
66,851,954 |
|
|
|
296,964,092 |
|
|
|
44,994,559 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
4,156,759,697 |
|
|
|
8,116,204,013 |
|
|
|
1,229,727,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
291,045,743 |
|
|
|
595,283,281 |
|
|
|
90,194,437 |
|
Due to related parties |
|
|
465,082 |
|
|
|
11,866,285 |
|
|
|
1,797,922 |
|
Salary and welfare payable |
|
|
130,539,660 |
|
|
|
159,258,508 |
|
|
|
24,130,077 |
|
Taxes payable |
|
|
142,256,695 |
|
|
|
161,772,241 |
|
|
|
24,510,946 |
|
Advances from customers |
|
|
276,792,049 |
|
|
|
595,737,152 |
|
|
|
90,263,205 |
|
Accrued liability for customer reward program |
|
|
88,254,996 |
|
|
|
121,319,301 |
|
|
|
18,381,712 |
|
Other payables and accruals |
|
|
229,187,237 |
|
|
|
235,661,747 |
|
|
|
35,706,327 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,158,541,462 |
|
|
|
1,880,898,515 |
|
|
|
284,984,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities, non-current |
|
|
11,509,937 |
|
|
|
45,382,710 |
|
|
|
6,876,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,170,051,399 |
|
|
|
1,926,281,225 |
|
|
|
291,860,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 16) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
Share capital (US$0.01 par value; 100,000,000 shares authorized,
34,054,944 and 35,885,163 share issued and outstanding as of
December 31, 2009 and 2010, respectively.) |
|
|
2,801,334 |
|
|
|
2,926,132 |
|
|
|
443,353 |
|
Additional paid-in capital |
|
|
1,219,815,250 |
|
|
|
3,073,551,037 |
|
|
|
465,689,551 |
|
Statutory reserves |
|
|
72,489,182 |
|
|
|
93,384,908 |
|
|
|
14,149,228 |
|
Accumulated other comprehensive income/(loss) |
|
|
(77,742,443 |
) |
|
|
198,972,084 |
|
|
|
30,147,285 |
|
Retained earnings |
|
|
1,707,684,596 |
|
|
|
2,734,858,610 |
|
|
|
414,372,517 |
|
|
|
|
|
|
|
|
|
|
|
Total Ctrips shareholders equity |
|
|
2,925,047,919 |
|
|
|
6,103,692,771 |
|
|
|
924,801,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests |
|
|
61,660,379 |
|
|
|
86,230,017 |
|
|
|
13,065,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
2,986,708,298 |
|
|
|
6,189,922,788 |
|
|
|
937,867,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
|
4,156,759,697 |
|
|
|
8,116,204,013 |
|
|
|
1,229,727,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
CTRIP.COM INTERNATIONAL, LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(US$0.01 par value) |
|
|
Additional |
|
|
|
|
|
|
cumulative |
|
|
|
|
|
|
Total Ctrips |
|
|
|
|
|
|
Total |
|
|
|
Number |
|
|
Par |
|
|
paid-in |
|
|
Statutory |
|
|
comprehensive |
|
|
Retained |
|
|
shareholders |
|
|
Noncontrolling |
|
|
shareholders |
|
|
|
of shares |
|
|
Value |
|
|
capital |
|
|
reserves |
|
|
income/(loss) |
|
|
earnings |
|
|
equity |
|
|
interests |
|
|
equity |
|
|
|
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007 |
|
|
33,193,693 |
|
|
|
2,742,210 |
|
|
|
791,336,910 |
|
|
|
60,869,845 |
|
|
|
(36,420,706 |
) |
|
|
631,590,838 |
|
|
|
1,450,119,097 |
|
|
|
1,158,767 |
|
|
|
1,451,277,864 |
|
Exercise of share option |
|
|
274,330 |
|
|
|
19,049 |
|
|
|
47,833,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,852,436 |
|
|
|
|
|
|
|
47,852,436 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
128,517,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128,517,475 |
|
|
|
|
|
|
|
128,517,475 |
|
Appropriations to statutory reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,078,453 |
|
|
|
|
|
|
|
(15,078,453 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41,382,067 |
) |
|
|
|
|
|
|
(41,382,067 |
) |
|
|
|
|
|
|
(41,382,067 |
) |
Unrealized securities holding losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,243,654 |
) |
|
|
|
|
|
|
(17,243,654 |
) |
|
|
|
|
|
|
(17,243,654 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
444,107,873 |
|
|
|
444,107,873 |
|
|
|
230,291 |
|
|
|
444,338,164 |
|
Acquisition of a subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,239,035 |
|
|
|
1,239,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008 |
|
|
33,468,023 |
|
|
|
2,761,259 |
|
|
|
967,687,772 |
|
|
|
75,948,298 |
|
|
|
(95,046,427 |
) |
|
|
1,060,620,258 |
|
|
|
2,011,971,160 |
|
|
|
2,628,093 |
|
|
|
2,014,599,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of share option |
|
|
586,921 |
|
|
|
40,075 |
|
|
|
107,739,657 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,779,732 |
|
|
|
|
|
|
|
107,779,732 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
130,528,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,528,827 |
|
|
|
|
|
|
|
130,528,827 |
|
Capitalization of statutory reserves |
|
|
|
|
|
|
|
|
|
|
15,368,400 |
|
|
|
(15,368,400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appropriations to statutory reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,909,284 |
|
|
|
|
|
|
|
(11,909,284 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,330 |
|
|
|
|
|
|
|
60,330 |
|
|
|
1,592,667 |
|
|
|
1,652,997 |
|
Transfer of unrealized securities holding losses on obtaining control in the investee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,243,654 |
|
|
|
|
|
|
|
17,243,654 |
|
|
|
|
|
|
|
17,243,654 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
658,973,622 |
|
|
|
658,973,622 |
|
|
|
7,797,686 |
|
|
|
666,771,308 |
|
Acquisition of a subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158,479,081 |
|
|
|
158,479,081 |
|
Acquisition of additional stake in a subsidiary |
|
|
|
|
|
|
|
|
|
|
(1,509,406 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,509,406 |
) |
|
|
(108,347,148 |
) |
|
|
(109,856,554 |
) |
Disposal of a subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(490,000 |
) |
|
|
(490,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009 |
|
|
34,054,944 |
|
|
|
2,801,334 |
|
|
|
1,219,815,250 |
|
|
|
72,489,182 |
|
|
|
(77,742,443 |
) |
|
|
1,707,684,596 |
|
|
|
2,925,047,919 |
|
|
|
61,660,379 |
|
|
|
2,986,708,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of share option |
|
|
191,469 |
|
|
|
12,940 |
|
|
|
49,508,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,521,314 |
|
|
|
|
|
|
|
49,521,314 |
|
Transaction offering |
|
|
1,638,750 |
|
|
|
111,858 |
|
|
|
1,564,091,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,564,203,741 |
|
|
|
|
|
|
|
1,564,203,741 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
242,561,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
242,561,458 |
|
|
|
|
|
|
|
242,561,458 |
|
Appropriations to statutory reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,895,726 |
|
|
|
|
|
|
|
(20,895,726 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70,001,987 |
) |
|
|
|
|
|
|
(70,001,987 |
) |
|
|
|
|
|
|
(70,001,987 |
) |
Unrealized securities holding gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
346,716,514 |
|
|
|
|
|
|
|
346,716,514 |
|
|
|
|
|
|
|
346,716,514 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,048,069,740 |
|
|
|
1,048,069,740 |
|
|
|
3,921,959 |
|
|
|
1,051,991,699 |
|
Acquisition of a subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,338,913 |
|
|
|
40,338,913 |
|
Establishment of a variable interest entity (VIE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000 |
|
|
|
150,000 |
|
Acquisition of additional stake in a subsidiary |
|
|
|
|
|
|
|
|
|
|
(2,425,928 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,425,928 |
) |
|
|
(19,841,234 |
) |
|
|
(22,267,162 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010 |
|
|
35,885,163 |
|
|
|
2,926,132 |
|
|
|
3,073,551,037 |
|
|
|
93,384,908 |
|
|
|
198,972,084 |
|
|
|
2,734,858,610 |
|
|
|
6,103,692,771 |
|
|
|
86,230,017 |
|
|
|
6,189,922,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
CTRIP.COM INTERNATIONAL, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
US$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
444,338,164 |
|
|
|
666,771,308 |
|
|
|
1,051,991,699 |
|
|
|
159,392,683 |
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain not related to operating expense |
|
|
(16,773,145 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
128,517,475 |
|
|
|
130,528,827 |
|
|
|
242,561,458 |
|
|
|
36,751,736 |
|
Equity in gain of affiliates |
|
|
|
|
|
|
(32,869,419 |
) |
|
|
(66,171,992 |
) |
|
|
(10,026,059 |
) |
Provision for doubtful accounts |
|
|
126,608 |
|
|
|
3,929,035 |
|
|
|
2,522,077 |
|
|
|
382,133 |
|
Depreciation of property, equipment and software |
|
|
35,574,685 |
|
|
|
45,196,678 |
|
|
|
62,929,541 |
|
|
|
9,534,779 |
|
Amortization of intangible assets and land use rights |
|
|
2,625,968 |
|
|
|
8,135,635 |
|
|
|
9,742,475 |
|
|
|
1,476,132 |
|
Deferred income tax (benefit) provision |
|
|
2,802,900 |
|
|
|
(14,343,474 |
) |
|
|
(18,127,580 |
) |
|
|
(2,746,603 |
) |
Loss from disposal of property, equipment and software |
|
|
369,589 |
|
|
|
461,358 |
|
|
|
1,534,119 |
|
|
|
232,442 |
|
Changes in current assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in accounts receivable |
|
|
(9,784,687 |
) |
|
|
(143,175,414 |
) |
|
|
(179,508,575 |
) |
|
|
(27,198,269 |
) |
Increase in due from related parties |
|
|
(873,076 |
) |
|
|
724,058 |
|
|
|
1,216,410 |
|
|
|
184,305 |
|
Increase in prepayments and other current assets |
|
|
(18,836,059 |
) |
|
|
(13,532,621 |
) |
|
|
(61,770,468 |
) |
|
|
(9,359,162 |
) |
(Increase) Decrease in long-term deposits |
|
|
1,592,988 |
|
|
|
7,546,116 |
|
|
|
(12,583,994 |
) |
|
|
(1,906,666 |
) |
Increase (Decrease) in accounts payable |
|
|
(92,578,544 |
) |
|
|
111,326,932 |
|
|
|
186,294,824 |
|
|
|
28,226,489 |
|
Decrease in due to related parties |
|
|
|
|
|
|
215,172 |
|
|
|
8,376,634 |
|
|
|
1,269,187 |
|
Increase (Decrease) in salary and welfare payable |
|
|
(2,585,217 |
) |
|
|
57,185,869 |
|
|
|
5,602,497 |
|
|
|
848,863 |
|
Increase in taxes payable |
|
|
4,739,538 |
|
|
|
84,356,470 |
|
|
|
14,903,513 |
|
|
|
2,258,108 |
|
Increase in advances from customers |
|
|
83,892,010 |
|
|
|
51,780,875 |
|
|
|
232,192,281 |
|
|
|
35,180,649 |
|
Increase in accrued liability for customer reward program |
|
|
13,386,405 |
|
|
|
28,529,276 |
|
|
|
33,064,306 |
|
|
|
5,009,743 |
|
Increase in other payables and accruals |
|
|
14,343,270 |
|
|
|
34,821,502 |
|
|
|
35,448,607 |
|
|
|
5,370,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
590,878,872 |
|
|
|
1,027,588,183 |
|
|
|
1,550,217,832 |
|
|
|
234,881,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, equipment and software |
|
|
(115,372,416 |
) |
|
|
(175,946,816 |
) |
|
|
(162,378,845 |
) |
|
|
(24,602,855 |
) |
Purchase of land use right |
|
|
(48,912,729 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for investments |
|
|
(265,655,797 |
) |
|
|
(358,215,242 |
) |
|
|
(533,009,269 |
) |
|
|
(80,758,980 |
) |
Cash paid for acquisition, net of cash acquired |
|
|
(32,374,181 |
) |
|
|
(177,666,916 |
) |
|
|
(636,643,782 |
) |
|
|
(96,461,179 |
) |
Purchase of intangible assets |
|
|
(1,000,000 |
) |
|
|
(2,200,000 |
) |
|
|
(3,583,200 |
) |
|
|
(542,909 |
) |
Increase in restricted cash |
|
|
|
|
|
|
(56,971,348 |
) |
|
|
(104,698,534 |
) |
|
|
(15,863,414 |
) |
(Increase) Decrease in short-term investment |
|
|
(35,411,814 |
) |
|
|
9,123,201 |
|
|
|
(1,000,086,864 |
) |
|
|
(151,528,313 |
) |
Disposal of a subsidiary |
|
|
|
|
|
|
(490,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(498,726,937 |
) |
|
|
(762,367,121 |
) |
|
|
(2,440,400,494 |
) |
|
|
(369,757,650 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received from issuance of common stock |
|
|
|
|
|
|
|
|
|
|
1,564,203,741 |
|
|
|
237,000,567 |
|
Proceeds from exercise of share option |
|
|
40,178,626 |
|
|
|
96,857,641 |
|
|
|
60,994,078 |
|
|
|
9,241,527 |
|
Cash received from noncontrolling investors |
|
|
|
|
|
|
|
|
|
|
150,000 |
|
|
|
22,727 |
|
Dividends paid |
|
|
(112,266,834 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(72,088,208 |
) |
|
|
96,857,641 |
|
|
|
1,625,347,819 |
|
|
|
246,264,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash and cash equivalents |
|
|
(14,654,641 |
) |
|
|
2,712,315 |
|
|
|
(15,848,428 |
) |
|
|
(2,401,277 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
5,409,086 |
|
|
|
364,791,018 |
|
|
|
719,316,729 |
|
|
|
108,987,383 |
|
Cash and cash equivalents, beginning of year |
|
|
1,064,418,278 |
|
|
|
1,069,827,364 |
|
|
|
1,434,618,382 |
|
|
|
217,366,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
|
1,069,827,364 |
|
|
|
1,434,618,382 |
|
|
|
2,153,935,111 |
|
|
|
326,353,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for income taxes |
|
|
90,079,204 |
|
|
|
93,302,980 |
|
|
|
184,863,797 |
|
|
|
28,009,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing and financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruals related to purchase of property, equipment and software |
|
|
(23,785,033 |
) |
|
|
(99,836,309 |
) |
|
|
(120,067,060 |
) |
|
|
(18,191,979 |
) |
Liabilities incurred for acquisitions and investments |
|
|
(42,600,000 |
) |
|
|
(28,114,780 |
) |
|
|
(5,100,000 |
) |
|
|
(772,727 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
CTRIP.COM INTERNATIONAL, LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in RENMINBI(RMB) unless otherwise stated)
1. ORGANIZATION AND NATURE OF OPERATIONS
The accompanying consolidated financial statements include the financial statements of
Ctrip.com International, Ltd. (the Company), its subsidiaries and certain VIE. The Company, its
subsidiaries and the consolidated VIEs are collectively referred to as the Group.
The Group is principally engaged in the provision of travel related services including hotel
reservation, air-ticketing, packaged-tour, corporate travel management services, as well as, to a
much lesser extent, Internet-related advertising and other related services.
2. PRINCIPAL ACCOUNTING POLICIES
Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America (US GAAP).
The preparation of financial statements in conformity with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures
of contingent assets and liabilities at the balance sheet dates and the reported amounts of
revenues and expenses during the reporting periods. Actual results could materially differ from
those estimates.
Consolidation
The consolidated financial statements include the financial statements of the Company, its
subsidiaries and certain VIEs. All significant transactions and balances between the Company, its
subsidiaries and certain VIEs have been eliminated upon consolidation.
A subsidiary is an entity in which the Company, directly or indirectly, controls more than one
half of the voting power; has the power to appoint or remove the majority of the members of the
board of directors; to cast a majority of votes at the meeting of the board of directors or to
govern the financial and operating policies of the investee under a statute or agreement among the
shareholders or equity holders.
The Company has adopted Financial Accounting Standard Board (FASB) guidance on accounting
for VIEs, which requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity. A VIE is an entity with one or more of the following characteristics:
(a) the total equity investment at risk is not sufficient to permit the entity to finance its
activities without additional financial support; (b) as a group, the holders of the equity
investment at risk lack the ability to make certain decisions, the obligation to absorb expected
losses or the right to receive expected residual returns, or (c) an equity investor has voting
rights that are disproportionate to its economic interest and substantially all of the entitys
activities are on behalf of the investor. Accordingly, the financial statements of the following
VIEs are consolidated into the Companys financial statements since July 1, 2003 or their
respective date of establishment/acquisition, whichever is later:
The following is a summary of the Companys major VIEs:
|
|
|
Name of VIE |
|
Date of establishment/acquisition |
|
|
|
|
Beijing Ctrip International Travel Agency Co., Ltd. (Beijing Ctrip)
|
|
Acquired on January 15, 2002 |
Shanghai Ctrip Commerce Co., Ltd. (Shanghai Ctrip Commerce)
|
|
Established on July 18, 2000 |
Shanghai Huacheng Southwest Travel Agency Co., Ltd. (Shanghai Huacheng)
|
|
Established on March 13, 2001 |
Guangzhou Ctrip International Travel Agency Co., Ltd. (Guangzhou Ctrip)
|
|
Established on April 28, 2003 |
Shanghai Ctrip International Travel Agency Co., Ltd. (Shanghai Ctrip
formerly Shanghai Ctrip Charming International Travel Agency Co., Ltd.)
|
|
Acquired on September 23, 2003 |
Shenzhen Ctrip Travel Agency Co., Ltd. (Shenzhen Ctrip)
|
|
Established on April 13, 2004 |
Nantong Tongcheng Information Technology Co., Ltd. (Nantong Tongcheng)
|
|
Established on April 16, 2007 |
F-7
For the years ended December 31, 2008, 2009 and 2010, the Company would be considered the
primary beneficiary of a VIE and consolidated the VIE if the Company had variable interests, that
will absorb the entitys expected losses, receive the entitys expected residual returns, or both.
In December 2009, the FASB issued ConsolidationsImprovements to Financial Reporting by
Enterprises Involved with VIEs which replaced the quantitative-based risks and rewards
calculation for determining which reporting entity, if any, has a controlling financial
interest in a variable interest entity with an approach focused on identifying which reporting
entity has 1) the power to direct the activities of a variable interest entity that most
significantly impact the entitys economic performance and 2) the obligation to absorb losses
from or the right to receive benefits of the variable interest entity that could potentially be
significant to the VIE. The Company adopted the new requirements effective January 1, 2010 and
the adoption did not have a material impact on the Companys audit consolidated financial
statements for the period ended December 31, 2010.
Major variable interest entities
As of December 31, 2010, the Company conducts a part of its operations through a series of
agreements with certain VIEs as stated in above. These VIEs are used solely to facilitate the
Groups participation in Internet content provision, advertising business, travel agency and
air-ticketing services in the Peoples Republic of China (PRC) where foreign ownership is
restricted.
Shanghai Ctrip Commerce is a domestic company incorporated in Shanghai, the PRC. Shanghai
Ctrip Commerce holds a value-added telecommunications business license and is primarily engaged in
the provision of advertising business on the Internet website. Two senior officers of the Company
collectively hold 100% of the equity interest in Shanghai Ctrip Commerce. The registered capital of
Shanghai Ctrip Commerce was RMB10,000,000 as of December 31, 2010.
Shanghai Huacheng is a domestic company incorporated in Shanghai, the PRC. Shanghai Huacheng
holds a domestic travel agency license and an air transport sales agency license and mainly
provides domestic tour services and air-ticketing services. Shanghai Ctrip Commerce and a senior
officer of the Company collectively hold 99.93% of the equity interest in Shanghai Huacheng. The
registered capital of Shanghai Huacheng was RMB70,000,000 as of December 31, 2010.
Beijing Ctrip is a domestic company incorporated in Beijing, the PRC. Beijing Ctrip holds an
air transport sales agency license, domestic and cross-border travel agency license and is mainly
engaged in the provision of air-ticketing services and packaged tour services. A senior officer of
the Company and Shanghai Ctrip Commerce collectively hold 100% of the equity interest in Beijing
Ctrip. The registered capital of Beijing Ctrip was RMB40,000,000 as of December 31, 2010.
Guangzhou Ctrip is a domestic company incorporated in Guangzhou, the PRC. Guangzhou Ctrip
holds air transport sales agency license, domestic and cross-border travel agency license and is
mainly engaged in the provision of air-ticketing services and packaged tour services. Two senior
officers of the Company collectively hold 100% of the equity interest in Guangzhou Ctrip. The
registered capital of Guangzhou Ctrip was RMB3,000,000 as of December 31, 2010.
Shanghai Ctrip is a domestic company incorporated in Shanghai, the PRC. Shanghai Ctrip holds
domestic and cross-border travel agency licenses, air transport sales agency license and mainly
provides domestic and cross-border tour services. Two senior officers of the Company collectively
control 98.2% of the equity interest in Shanghai Ctrip. The registered capital of Shanghai Ctrip
was RMB5,000,000 as of December 31, 2010.
Shenzhen Ctrip is a domestic company incorporated in Shenzhen, the PRC. Shenzhen Ctrip holds
air transport sales agency license and domestic travel agency license and is engaged in the
provision of air-ticketing service. Two senior officers of the Company collectively hold 100% of
the equity interest in Shenzhen Ctrip. The registered capital of Shenzhen Ctrip was RMB2,500,000 as
of December 31, 2010.
Nantong Tongcheng is a domestic company incorporated in Nantong, the PRC. Nantong Tongcheng
was established in April 2007. Nantong Tongcheng holds a value-added telecommunications business
license. A family member of senior officer holds 100% of the equity interest in Nantong Tongcheng.
The registered capital of Nantong Tongcheng was RMB10,000,000 as of December 31, 2010.
The capital injected by senior officers or senior officers family member are funded by the
Company and are recorded as long-term business loans to related parties. The Company does not have
any ownership interest in these VIEs.
As of December 31, 2010, the Company has various agreements with its consolidated VIEs,
including loan agreements, exclusive technical consulting and services agreements, share pledge
agreements, exclusive option agreements and other operating agreements.
F-8
Details of certain key agreements with the VIEs are as follows:
Powers of Attorney: The equity owners of the VIEs irrevocably appointed the Companys officers
to vote on their behalf on all matters they are entitled to vote on, including matters relating to
the transfer of any or all of their respective equity interests in VIEs and the appointment of the
chief officer of the VIEs.
Share Pledge Agreements: The equity owners pledge their respective equity interests in the
VIEs as a guarantee for the payment by the VIEs of technical and consulting services fees under the
exclusive technical consulting and services agreements.
Exclusive Technical Consulting and Services Agreements: The Company provides the VIEs with
technical consulting and related services and information services. The Company is the exclusive
provider of these services. The initial term of these agreements is ten years. In consideration for
those services, the VIEs agree to pay the Company service fees. The service fees are eliminated
upon consolidation.
Business Loan Agreement: Loans were granted to certain directors and officers with the sole
and exclusive purpose of providing funds necessary for the capitalization and acquisition of the
VIEs. As soon as the Chinese government lifts its substantial restrictions on foreign ownership of
the air-ticketing, travel agency, advertising, or Internet content provision business in the PRC,
as applicable, the Company will exercise its exclusive option to purchase all outstanding equity
interest of the VIEs and the Business Loan Agreements will be cancelled.
Pursuant to the contractual arrangements with the VIEs, the Company has the power to direct activities
of the VIEs, and can have assets transferred freely out of the VIEs without any restrictions. Therefore the
Company considers that there is no asset of a consolidated VIE that can be used only to settle
obligations of the VIE, except for registered capital and PRC statutory reserves of the VIEs amounting to
a total of Rmb 662 million as of December 31, 2010. As all the consolidated VIEs are incorporated as
limited liability companies under the PRC Company Law, creditors of the VIEs do not have recourse to
the general credit of the Company for any of the liabilities of the consolidated VIEs, which consisted of
accounts payable of RMB427 million, due to related parties of RMB0.2 million, salary and welfare
payable RMB39 million, taxes payable of RMB26 million, advance from customers of RMB391 million
and other payables and accruals of RMB28 million. Currently there is no contractual arrangement that
could require the Company to provide additional financial support to the consolidated VIEs. As the
Company is conducting certain business in the PRC mainly through the VIEs, the Company may provide
such support on a discretionary basis in the future, which could expose the Company to a loss.
Foreign currencies
The Groups reporting currency is RMB. The Companys subsidiaries and VIEs, with an exception
of Ctrip.com (Hong Kong) Limited, C-Travel International Limited (C-Travel), Starway Hotels (Hong
Kong) Limited (Starway Hong Kong), ezTravel Co., Ltd. (ezTravel) and HKWOT (BVI) Limited (Wing
On Travel), use RMB as their functional currency. Ctrip.com (Hong Kong) Limited, Starway Hong Kong
and Wing On Travel operate primarily using the Hong Kong dollar (HK$), C-Travel operates
primarily using the United States dollars (US$), and ezTravel operates primarily using the Taiwan
dollar (NT$) and therefore, the HK$, US$ and NT$ have been determined to be the functional
currency for the subsidiaries, respectively. From 2009, Ctrip.com International, Ltd., our listed
Company incorporated in Cayman Islands, changed its functional currency from RMB to US$ due to
changes in its economic facts and circumstances, including growth in existing operations outside of
mainland China and an active plan to explore overseas markets. The impact of such change is
immaterial to the financial results of the Group for the year ended December 31, 2009.
Transactions denominated in currencies other than functional currencies are translated at the
exchange rates quoted by the Peoples Bank of China (the PBOC), The Hong Kong and Shanghai
Banking Corporation Limited (the HSBC) or major Taiwan banks, prevailing or averaged at the
dates of the transaction for PRC and Hong Kong subsidiaries and ezTravel respectively. Gains and
losses resulting from foreign currency transactions are included in the consolidated statements of
income and comprehensive income. Monetary assets and liabilities denominated in foreign currencies
are translated using the applicable exchange rates quoted by the PBOC, HSBC or banks located in
Taiwan at the balance sheet dates. All such exchange gains and losses are included in the
statements of income.
Assets and liabilities of the group companies are translated from their respective functional
currencies to the reporting currency at the exchange rates at the balance sheet dates, equity
accounts are translated at historical exchange rates and revenues and expenses are translated at
the average exchange rates in effect during the reporting period. The exchange differences for the
translation of group companies with non-RMB functional currency into the RMB functional currency
are included in foreign currency translation adjustments, which is a separate component of
shareholders equity on the consolidated financial statements.
Translations of amounts from RMB into US$ are solely for the convenience of the reader and
were calculated at the rate of US$1.00 = RMB6.60 on December 30, 2010, representing the
certificated exchange rate published by the Federal Reserve Board. No representation is intended to
imply that the RMB amounts could have been, or could be, converted, realized or settled into US$ at
that rate on December 30, 2010, or at any other rate.
F-9
Stock Split
On January 8, 2010, the Company announced a change in the ratio of its ADSs to ordinary shares
from two ADS representing one ordinary share to four ADSs representing one ordinary share,
effective on January 21, 2010. For Ctrips ADS holders, this ratio change had the same effect as a
two-for-one ADS split.
All shares and per share amount in these consolidated financial statements and related notes
have been retroactively adjusted to reflect the change in ratio for all periods presented.
Cash and cash equivalents
Cash includes currency on hand and deposits held by financial institutions that can be added
to or withdrawn without limitation. Cash equivalents represent short-term, highly liquid
investments that are readily convertible to known amounts of cash and with original maturities from
the date of purchase of generally three months or less.
Restricted cash
Restricted cash represents cash that cannot be withdrawn without the permission of third
parties. The Groups restricted cash is substantially cash balance on deposit required by its
business partners.
Short-term investment
Short-term investment represents bank certificates of deposit placed with banks or other
financial institutions with original maturities from the date of purchase of more than three
months.
Land use rights
Land use rights represent the prepayments for usage of the parcels of land where the office
buildings are located, are recorded at cost, and are amortized over their respective lease periods
(usually over 40 to 50 years).
Property, equipment and software
Property, equipment and software are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using the straight-line method over the
following estimated useful lives, taking into account any estimated residual value:
|
|
|
Building
|
|
20-30 years |
Leasehold improvements
|
|
Lesser of the term of the lease or the estimated
useful lives of the assets |
Website-related equipment
|
|
5 years |
Computer equipment
|
|
3-5 years |
Furniture and fixtures
|
|
3-5 years |
Software
|
|
3-5 years |
Construction in progress is stated at cost. Construction in progress mainly refers to costs
associated with the Nantong customer service center before the buildings are put into service. All
direct costs related to the new buildings are capitalized as construction in progress until it is
substantially completed and available for use.
Investments
The Company investments include equity method investments and available-for-sale investments
in certain publicly traded companies and privately-held companies.
The Company applies equity method in accounting for our investments in entities in which the
Company has the ability to exercise significant influence but does not own a majority equity
interest or otherwise controls. Cost method is used for investments over which the Company does not
have the ability to exercise significant influence. On May 21, 2009, the Company acquired
additional equity interest in Home Inns & Hotels Management Inc. (Home Inns), resulting in the
Company possessing the ability to exercise significant influence and meeting requirement to apply
equity method of accounting (Note 7). Under this method, the Companys share of the
post-acquisition profits or losses of an affiliated entity is recognized in the consolidated
statements of income and comprehensive income. Unrealized gains on transactions between the Company
and the affiliated entity are eliminated to the extent of the Companys interest in the affiliated
entity; unrealized losses are also eliminated unless the transaction provides evidence of an
impairment of the asset transferred. When the Companys share of losses in the affiliated entity
equals or exceeds its interest in the affiliated entity, the Company does not recognize further
losses, unless the Company has incurred obligations or made
payments on behalf of the affiliated entity.
F-10
The Company classifies its investments in debt and equity securities into one of three
categories and accounts for these as follows: (i) debt securities that the Company has the positive
intent and the ability to hold to maturity are classified as held to maturity and reported at
amortized cost; (ii) debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading securities with unrealized
holding gains and losses included in earnings; (iii) debt and equity securities not classified as
held to maturity or as trading securities are classified as available for sale and reported at
fair value. The Company has designated its investment in commons shares of China Lodging Group,
Limited (Hanting) as available-for-sale equity securities and its convertible redeemable
preferred shares (Preferred Share) of Dining Secretary China Limited ( Dining Secretary) as
available-for-sale debt securities in accordance with Accounting Standard Codification (ASC)
320-10, respectively. Unrealized gains and losses on available for sale securities are excluded
from earnings and reported as accumulated other comprehensive income (loss), net of tax. Realized
gains or losses are charged to earnings during the period in which the gain or loss is realized.
The Company monitors its investments for other-than-temporary impairment by considering
factors including, but not limited to, current economic and market conditions, the operating
performance of the companies including current earnings trends and other company-specific
information.
Fair value measurement of financial instruments
The Company adopted ASC 820 Fair value measurements and disclosures on January 1, 2008. This
guidance defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date
(an exit price). The guidance outlines a valuation framework and creates a fair value hierarchy in
order to increase the consistency and comparability of fair value measurements and the related
disclosures. Under GAAP, certain assets and liabilities must be measured at fair value, and the
guidance details the disclosures that are required for items measured at fair value.
ASC 820-10 describes three main approaches to measuring the fair value of assets and
liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach
uses prices and other relevant information generated from market transactions that involve
identical or comparable assets or liabilities. The income approach uses valuation techniques to
convert future amounts to a single present value amount. The measurement is based on the value
indicated by current market expectations about the future amount. The cost approach is based on the
amount that would currently be required to replace an asset.
Financial instruments of the Group primarily comprise of cash and cash equivalents, restricted
cash, short-term investment, accounts receivable, due from related parties, available-for-sale
investments, accounts payable, due to related parties, advances from customers and other payables.
As of December 31, 2009 and 2010, carrying values of these financial instruments except for
available-for-sale investments approximated their fair values because of their generally short
maturities. The Company reports available-for-sale investments at fair value at each balance sheet
date and includes any unrealized gains and losses (change in fair value that is considered
temporary) in stockholders equity or in the statement of income (change in fair value that is
considered other-than-temporary).
The Company does not have any financial liabilities which must be measured at fair value on a
recurring basis.
We measure our financial assets using inputs from the following three levels of the fair value
hierarchy. The three levels are as follows:
Level 1 inputs are unadjusted quoted prices in active markets for identical assets that the
management has the ability to access at the measurement date.
Level 2 inputs include quoted prices for similar assets in active markets, quoted prices for
identical or similar assets in markets that are not active, inputs other than quoted prices that
are observable for the asset (i.e., interest rates, yield curves, etc.), and inputs that are
derived principally from or corroborated by observable market data by correlation or other means
(market corroborated inputs).
Level 3 includes unobservable inputs that reflect the managements assumptions about the
assumptions that market participants would use in pricing the asset. The management develops these
inputs based on the best information available, including the own data.
F-11
Business combinations
U.S. GAAP requires that all business combinations be accounted for under the purchase method.
From January 1, 2009, the Group adopted ASC 805 (formerly referred to as SFAS No. 141 (revised
2007), Business combinations. Following this adoption, the cost of an acquisition is measured as
the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred,
and equity instruments issued. The costs directly attributable to the acquisition are expensed as
incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at
their fair value as of the acquisition date, irrespective of the extent of any non controlling
interests. The excess of the (i) the total of cost of acquisition, fair value of the non
controlling interests and acquisition date fair value of any previously held equity interest in the
acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as
goodwill. If the cost of acquisition is less than the fair value of the net assets of the
subsidiary acquired, the difference is recognized directly in the income statement.
The determination and allocation of fair values to the identifiable assets acquired and
liabilities assumed is based on various assumptions and valuation methodologies requiring
considerable management judgment. The most significant variables in these valuations are discount
rates, terminal values, the number of years on which to base the cash flow projections, as well as
the assumptions and estimates used to determine the cash inflows and outflows. Management
determines discount rates to be used based on the risk inherent in the related activitys current
business model and industry comparisons. Terminal values are based on the expected life of products
and forecasted life cycle and forecasted cash flows over that period. Although we believe that the
assumptions applied in the determination are reasonable based on information available at the date
of acquisition, actual results may differ from the forecasted amounts and the difference could be
material.
From January 1, 2009, following the adoption of ASC 810 ( formerly referred to as SFAS No.160,
Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No.51.), the
Company also renamed the minority interests to noncontrolling interests and reclassified it on the
consolidated balance sheet from the mezzanine section between liabilities and equity to a separate
line item in equity. The Company has applied the presentation and disclosure requirements
retrospectively for all period presented.
Acquisitions
Wing On Travel
In May 2010, to develop and expand our overseas business, our wholly-owned subsidiary
C-Travel, a Cayman Island company, successfully completed the transaction to acquire 90% of the
issued share capital of Wing On Travels travel service segment, a Hong Kong based travel service
provider that offers packaged-tours as well as air tickets and hotel reservation services. We
obtained control over Wing On Travel and have consolidated its financial statements since then. The
total purchase price for the transaction is approximately RMB598 million (US$88 million).
The cash payment is approximately RMB454 million (approximately US$68 million) after the
Company assumed net current liability of Wing On Travel as of acquisition date. Based on the
Companys assessment, financial results of Wing On Travel is not considered material to the Group
for the year ended December 31, 2010.
F-12
Purchase Price Allocation
Under business combination accounting rules, the total purchase price was allocated to Wing On
Travels net tangible and identifiable intangible assets based on their estimated fair values as
set forth below. The excess of the (i) the total of cost of acquisition, fair value of the non
controlling interests and acquisition date fair value of previously held equity interest in Wing On
Travel over (ii) the fair value of the identifiable net assets of Wing On Travel is recorded as
goodwill. The Company makes estimates and judgments in determining the fair value of the acquired
assets and liabilities, based on independent appraisal reports as well as its experience with
similar assets and liabilities in similar industries. The final purchase price allocation results
as of May 27, 2010 are extracted and set out below, which is designated as the acquisition date:
|
|
|
|
|
|
|
Fair Value |
|
|
|
RMB |
|
|
|
|
|
|
Cash and cash equivalents |
|
|
11,289,928 |
|
Restricted cash |
|
|
10,585,433 |
|
Accounts receivable |
|
|
23,583,536 |
|
Amount due from affiliate |
|
|
455,665 |
|
Receivables due from related parties |
|
|
1,745,930 |
|
Prepayments and other current assets |
|
|
33,194,634 |
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
80,855,126 |
|
|
|
|
|
|
|
|
|
|
Intangible assets |
|
|
232,183,200 |
|
Property, equipment and software |
|
|
7,858,060 |
|
Long-term deposits |
|
|
77,438 |
|
Investments in affiliates |
|
|
2,315,208 |
|
|
|
|
|
|
|
|
|
|
Non-current assets |
|
|
242,433,906 |
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
(119,074,454 |
) |
Due to related parties |
|
|
(5,750,730 |
) |
Salary and welfare payable |
|
|
(4,052,475 |
) |
Taxes payable |
|
|
(3,931,719 |
) |
Advances from customers |
|
|
(83,465,919 |
) |
Other payables and accruals |
|
|
(9,732,729 |
) |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
(226,008,026 |
) |
|
|
|
|
|
|
|
|
|
Other long-term payables |
|
|
(113,694 |
) |
Deferred tax liabilities, non-current |
|
|
(38,310,228 |
) |
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
(38,423,922 |
) |
|
|
|
|
|
|
|
|
|
Fair value of net assets acquired (a) |
|
|
58,857,084 |
|
|
|
|
|
|
|
|
|
|
Purchase price (b) |
|
|
453,812,774 |
|
|
|
|
|
|
|
|
|
|
Non-controlling interest (c) |
|
|
40,338,913 |
|
|
|
|
|
|
|
|
|
|
Goodwill (b + c - a) |
|
|
435,294,603 |
|
|
|
|
|
Goodwill represents the expected synergies from combining operations of the Company and Wing
On Travel, which are complementary in a way to each other, and any other intangible benefits that
would accrue to the Company that do not qualify for separate recognition. In accordance with ASC
805, goodwill is not amortized but is tested for impairment and is not deductible for tax purpose.
The fair value of non-controlling interest was measured proportionally based on the purchase
price of 90% of its equity interest, taking into consideration of 20% non-controlling interest
discount.
In performing the purchase price allocation, the Company considered the analyses of historical
financial performance and estimates of future performance of Wing On Travels business. The fair
value of intangible assets was measured by income approach and major components of intangible
assets associated with the Wing On Travel acquisition were set out below:
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
|
Useful lives |
|
|
|
RMB |
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer list |
|
|
6,087,200 |
|
|
3 years |
|
Trademark |
|
|
226,096,000 |
|
|
Indefinite |
|
|
|
|
|
|
|
|
|
|
|
|
232,183,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer list has been identified as an intangible asset as Wing On Travel has approximately
700 thousand registered users on its website, on which they could book air tickets, hotel rooms and
tour packages. The amortization period of 3 years was based on the estimated useful life of the
customer list.
F-13
Trademark refers to the trademark of Wing On Travel and logos used. It was registered in
Hong Kong, PRC, Macau, Australia, Canada and Japan with different expiration date starting from
2011 to 2020 and can be renewed with minimal costs. Wing On Travel is a well recognized branding
with over 45 years history in Hong Kong. It has been awarded the honor of Best Travel Agency in
Hong Kong for 2010, the 5th consecutive year dating back to 2006. The useful life of the trademark
is indefinite.
ezTravel
To develop and expand overseas business, in 2006, a wholly-owned subsidiary C-Travel, a Cayman
Island company, made a minority investment in ezTravel, an online travel service provider in Taiwan
that offers packaged tours as well as hotel and air tickets reservation services. In 2009, the
Company consolidated ezTravels financial statements as it acquired controlling financial interest
of ezTravel since then. The financial results of ezTravel were not significant for the Group for
the year ended December 31, 2009.
Purchase Price Allocation
Under business combination accounting rules, the total purchase price was allocated to
ezTravels net tangible and identifiable intangible assets based on their estimated fair values as
set forth below. The excess of the (i) the total of cost of acquisition, fair value of the non
controlling interests and acquisition date fair value of previously held equity interest in
ezTravel over (ii) the fair value of the identifiable net assets of ezTravel is recorded as
goodwill. The Company makes estimates and judgments in determining the fair value of the acquired
assets and liabilities, based on independent appraisal reports as well as its experience with
similar assets and liabilities in similar industries. The final purchase price allocation results
as of acquisition date were set out below:
|
|
|
|
|
|
|
Fair Value |
|
|
|
RMB |
|
|
|
|
|
|
Cash and cash equivalents |
|
|
72,580,989 |
|
Restricted cash |
|
|
45,727,507 |
|
Short-term investment |
|
|
7,285,023 |
|
Accounts receivable |
|
|
5,208,390 |
|
Prepayments and other current assets |
|
|
14,584,018 |
|
Deferred tax assets, current |
|
|
177,030 |
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
145,562,957 |
|
|
|
|
|
|
|
|
|
|
Intangible assets |
|
|
45,700,613 |
|
Property, equipment and software |
|
|
2,752,425 |
|
Long-term deposits |
|
|
5,241,305 |
|
Other long-term assets |
|
|
50,039 |
|
|
|
|
|
|
|
|
|
|
Non-current assets |
|
|
53,744,382 |
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
(39,204,510 |
) |
Salary and welfare payable |
|
|
(7,763,640 |
) |
Taxes payable |
|
|
(3,154,539 |
) |
Advances from customers |
|
|
(32,844,573 |
) |
Other payables and accruals |
|
|
(4,214,892 |
) |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
(87,182,154 |
) |
|
|
|
|
|
|
|
|
|
Deferred tax liabilities, non-current |
|
|
(11,425,153 |
) |
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
(11,425,153 |
) |
|
|
|
|
|
|
|
|
|
Fair value of net assets acquired (a) |
|
|
100,700,032 |
|
|
|
|
|
|
|
|
|
|
Cumulative considerations (b) |
|
|
191,468,053 |
|
|
|
|
|
|
|
|
|
|
Non-controlling interest at fair value (c) |
|
|
158,479,081 |
|
|
|
|
|
|
|
|
|
|
Goodwill (b + c - a) |
|
|
249,247,102 |
|
|
|
|
|
Goodwill represents the expected synergies from combining operations of the Company and
ezTravel, which are complementary in a way to each other, and any other intangible benefits that
would accrue to the Company that do not qualify for separate recognition. In accordance with ASC
805, goodwill is not amortized but is tested for impairment and is not deductible for tax purpose.
F-14
The fair value of non-controlling interest has been determined with regards to the prices in
recent share transactions made at arms length close to the acquisition date, taking into
consideration other factors, as appropriate.
In performing the purchase price allocation, the Company considered the analyses of historical
financial performance and estimates of future performance of ezTravels business. The fair value of
intangible assets was measured by income approach and major components of intangible assets
associated with the ezTravel acquisition were set out below:
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
|
Useful lives |
|
|
|
RMB |
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer list |
|
|
5,055,378 |
|
|
3 years |
|
Trademark |
|
|
40,645,235 |
|
|
Indefinite |
|
|
|
|
|
|
|
|
|
|
|
|
45,700,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer list has been identified as an intangible asset as ezTravel has approximately 500
thousand registered users on its website, on which they could book air tickets, hotel rooms and
tour packages. The amortization period of 3 years was based on the estimated useful life of the
customer list.
Trademark represents the trademark, ezTravel, which was registered in PRC and Taiwan with
different expiration date starting from 2011 to 2020 and can be renewed with minimal costs for 10
years; and domain name, which is updated every two years. The trademark is an intangible asset that
relates to the name recognition of a company and its products or services. Trademark is
increasingly a focus of corporate value for an entity as stronger, well-known names typically
command premium pricing and generate excess earnings. The useful life of the trademark is
indefinite.
China Software Hotel Information System Co., Ltd (Software Hotel Information)
In July 2008, the Company reached agreement to purchase 90% equity of Software Hotel
Information, a leading hotel management system provider in China, to support the Groups hotel
services and develop and expand its travel related business. Total purchase price for this
acquisition amounted to RMB80 million, with up to RMB10 million in additional contingent
consideration. In April 2009, RMB90 million was agreed and determined as the final purchase price
of this acquisition. The financial results of Software Hotel Information were not significant for
the Group for the year ended December 31, 2009.
The excess of the purchase price over the net tangible and identifiable intangible assets was
recorded as goodwill by RMB48 million as at December 31, 2008, and further increased to RMB58
million in April 2009 according to the final purchase price.
There is only one reporting unit in the Group. The goodwill arose from the acquisitions
discussed above have been allocated to this reporting unit. None of the goodwill acquired is
expected to be deductible for income tax purposes.
Goodwill and other intangible assets
Goodwill represents the excess of the purchase price over the fair value of the identifiable
assets and liabilities acquired as a result of the Companys acquisitions of interests in its
subsidiaries and consolidated VIEs.
Goodwill is not amortized but is reviewed at least annually for impairment or earlier, if an
indication of impairment exists. Recoverability of goodwill is evaluated using a two-step process.
In the first step, the fair value of a reporting unit is compared to its carrying value. If the
fair value of a reporting unit exceeds the carrying value of the net assets assigned to a reporting
unit, goodwill is considered not impaired and no further testing is required. If the carrying value
of the net assets assigned to a reporting unit exceeds the fair value of a reporting unit, the
second step of the impairment test is performed in order to determine the implied fair value of a
reporting units goodwill. Determining the implied fair value of goodwill requires valuation of a
reporting units tangible and intangible assets and liabilities in a manner similar to the
allocation of purchase price in a business combination. If the carrying value of a reporting units
goodwill exceeds its implied fair value, goodwill is deemed impaired and is written down to the
extent of the difference. The Company estimates total fair value of the reporting unit using
discounted cash flow analysis, and makes assumptions regarding future revenue, gross margins,
working capital levels, investments in new products, capital spending, tax, cash flows, and the
terminal value of the reporting unit.
Separately identifiable intangible assets that have determinable lives continue to be
amortized and consist primarily of non-compete agreements, customer list, technology patent and a
cross-border travel agency license as of December 31, 2009 and 2010. The Company amortizes
intangible assets on a straight-line basis over their estimated useful lives, which is three to
eight years. The estimated life of amortized intangibles is reassessed if circumstances occur that
indicate the life has changed. Other intangible assets that have indefinite useful life primarily
include trademark and domain names as of December 31, 2009 and 2010. The Company evaluates
indefinite-lived intangible assets each reporting period to determine whether events and
circumstances continue to support an indefinite useful life. If an intangible asset that is not
being amortized is subsequently determined to have a finite useful life, the asset is tested for impairment.
F-15
The Company reviews intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of these assets may not be recoverable, and also
reviews intangible assets with indefinite lives annually for impairment.
No impairment on goodwill and other intangible assets was recognized for the years ended
December 31, 2008, 2009 and 2010.
Impairment of long-lived assets
Long-lived assets (including intangible with definite lives) are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Reviews are performed to determine whether the carrying value of asset group is
impaired, based on comparison to undiscounted expected future cash flows. If this comparison
indicates that there is impairment, the Group recognizes impairment of long-lived assets to the
extent the carrying amount of such assets exceeds the fair value.
No impairment of long-lived assets was recognized for the years ended December 31, 2008, 2009,
and 2010.
Accrued liability for customer reward program
The Groups customers participate in a reward program, which provides travel awards and other
gifts to members based on accumulated membership points that vary depending on the services
rendered and fees paid. The estimated incremental costs to provide free travel and other gifts are
recognized as sales and marketing expense in the statements of income and comprehensive income and
accrued for as a current liability as members accumulate points. As members redeem awards or their
entitlements expire, the accrued liability is reduced correspondingly. As of December 31, 2009, and
2010, the Groups accrued liability for its customer reward program amounted to RMB88,254,996 and
RMB121,319,301, respectively, based on the estimated liabilities under the customer reward program.
Revenue recognition
The Group conducts its principal businesses in Great China Area primarily through Ctrip
Computer Technology (Shanghai) Co., Ltd. (Ctrip Computer Technology), Ctrip Travel Information
Technology (Shanghai) Co., Ltd. (Ctrip Travel Information), Ctrip Travel Network Technology
(Shanghai) Co., Ltd. (Ctrip Travel Network), ezTravel and Wing On Travel. Some of the operations
of Ctrip Computer Technology and Ctrip Travel Network are conducted through a series of services
and other agreements with the VIEs.
Ctrip Computer Technology, Ctrip Travel Information, Ctrip Travel Network, Ctrip Information
Technology, Starway Shanghai and the VIEs are subject to business tax and related surcharges on the
services provided in the PRC. In the statements of income and comprehensive income, business tax
and related surcharges are deducted from revenues to arrive at net revenues.
Hotel reservation services
The Group receives commissions from travel suppliers for hotel room reservations through the
Groups transaction and service platform. Commissions from hotel reservation services rendered are
recognized after hotel customers have completed their stay at the applicable hotel and upon
confirmation of pending payment of the commissions by the hotel. Contracts with certain travel
suppliers contain incentive commissions typically subject to achieving specific performance targets
and such incentive commissions are recognized when it is reasonably assured that the Group is
entitled to such incentive commissions. The Group generally receives incentive commissions from
monthly arrangements with hotels based on the number of hotel room reservations where customers
have completed their stay. The Group presents revenues from such transactions on a net basis in
the statements of income and comprehensive income as the Group, generally, does not assume
inventory risks and has no obligations for cancelled hotel reservations.
Air-ticketing services
Air-ticketing revenues primarily include commissions from air ticket booking and related
services, including sales of aviation casualty insurance, and revenue generated from air-ticket
delivery services. The Group receives commissions from travel suppliers for air-ticketing services
through the Groups transaction and service platform under various services agreements. Commissions
from air-ticketing services rendered are recognized after air tickets are issued. The Group
presents revenues from such transactions on a net basis in the statements of income as the Group,
generally, does not assume inventory risks and has no obligations for cancelled airline ticket
reservations. Loss due to obligations for cancelled airline ticket reservations is minimal in the
past.
F-16
Packaged-tour
The Group receives referral fees from travel product providers for packaged-tour products and
services through the Groups transaction and service platform. Referral fees are recognized as commissions on a net basis
after the packaged-tour service are rendered and collections are reasonably assured.
Shanghai Ctrip, Beijing Ctrip, Guangzhou Ctrip, Shenzhen Ctrip and Wing On Travel conduct
domestic and cross-border travel tour services. Revenues, mainly referral fees, are recognized as
commissions on a net basis after the services are rendered. In cases where these entities
undertake the majority of the business risks and acts as principal related to the travel tour
services provided, revenues are recognized at gross amounts received from customers after the
services are rendered. Loss due to obligations from cancelled travel services of such principal
arrangement is minimal in the past.
Corporate travel
Corporate travel management revenues primarily include commissions from air ticket booking,
hotel reservation and packaged-tour services rendered to corporate clients. The Group contracts
with corporate clients based on service fee model. Travel reservations are made via on-line and
off-line services for air tickets, hotel and package-tour. Revenue is recognized on a net basis
after the services are rendered, e.g. air tickets are issued, hotel stays or packaged-tour are
completed, and collections are reasonably assured.
Other businesses
Other businesses comprise primarily of Internet-related advertising services, the sale of
Property Management System (PMS), and related maintenance service, commissions from train tickets
booking and money exchange transaction services.
Shanghai Ctrip Commerce receives advertising revenues, which principally represent the sale of
banners or sponsorship on the website from customers. Advertising revenues are recognized ratably
over the fixed term of the agreement as services are provided.
Software Hotel Information conducts sale of PMS and related maintenance service. The sale of
PMS is recognized upon customer acceptance. Maintenance service is recognized ratably over the term
of the maintenance contract on a straight-line basis.
Allowance for doubtful accounts
Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company
provides a general provision for doubtful accounts for the outstanding trade receivable balances
based on historical experience and information available. Additionally, we make specific bad debt
provisions based on (i) our specific assessment of the collectibility of all significant accounts;
and (ii) any specific knowledge we have acquired that might indicate that an account is
uncollectible. The facts and circumstances of each account may require us to use substantial
judgment in assessing its collectibility. The following table summarized the details of the
Companys allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
Balance at beginning of year |
|
|
3,002,114 |
|
|
|
12,388 |
|
|
|
3,630,012 |
|
Provision for doubtful accounts |
|
|
126,608 |
|
|
|
3,929,035 |
|
|
|
2,522,077 |
|
Write-offs |
|
|
(3,116,334 |
) |
|
|
(311,411 |
) |
|
|
(433,347 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
|
12,388 |
|
|
|
3,630,012 |
|
|
|
5,718,742 |
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
Cost of revenues consists primarily of payroll compensation of customer service center
personnel, telecommunication expenses, credit card service fee, direct cost of principal travel
tour services, depreciation, rentals and related expenses incurred by the Groups transaction and
service platform which are directly attributable to the rendering of the Groups travel related
services and other businesses.
Product development
Product development expenses include expenses incurred by the Group to develop the Groups
travel supplier networks as well as to maintain, monitor and manage the Groups transaction and
service platform. The Group recognizes website and software development costs in accordance with
ASC 350-50 Website development costs and ASC 350-40 Software internal use software
respectively. The Group expenses all costs that are incurred in connection with the planning and
implementation phases of development and costs that are associated with repair or maintenance of
the existing websites or the development of software for internal use and websites content.
F-17
Sales and marketing
Sales and marketing expenses consist primarily of costs of payroll and related compensation
for the Companys sales and marketing personnel, advertising expenses, and other related marketing and promotion
expenses. Advertising expenses, amounting to RMB49,033,162, RMB56,007,644 and RMB98,489,080
for the years ended December 31, 2008, 2009 and 2010 respectively, are charged to the statements of
income as incurred.
Share-based compensation
The Company has followed ASC 718 Stock Compensation since January 1, 2006, using the
modified prospective approach. In accordance with the guidance, all grants of stock options are
recognized in the consolidated financial statements based on their grant date fair values. The
valuation provisions of the statement apply to new awards, to awards granted to employees before
the adoption whose related requisite services had not been provided, and to awards which were
subsequently modified or cancelled. The Company has applied the provisions of ASC 718-10S99
regarding the use of the simplified method in developing estimates of the expected lives of share
options. We will continue to use the simplified method until we have the historical data necessary
to provide reasonable estimates of expected lives for certain options granted after 2008.
ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary,
in subsequent periods if actual forfeitures differ from initial estimates. Share-based compensation
expense was recorded net of estimated forfeitures such that expense was recorded only for those
share-based awards that are expected to vest.
Under ASC 718, the Company applied the Black-Scholes valuation model in determining the fair
value of options granted. Risk-free interest rates are based on US Treasury yield for the terms
consistent with the expected life of award at the time of grant. Expected life is based on
historical exercise patterns, for options granted before 2008 which the Company has historical data
of and believes are representative of future behavior. For options granted since 2008, the Company
used simplified method to estimate its expected life, as there are no historical data for options
which follow four year vesting period (all options granted before 2008 had three year vesting
period). Expected dividend yield is determined in view of the Companys historical dividend payout
rate and future business plan. The Company estimates expected volatility at the date of grant based
on historical volatilities. The Company recognizes compensation expense on all share-based awards
on a straight-line basis over the requisite service period. Forfeiture rate is estimated based on
historical forfeiture patterns and adjusted to reflect future change in circumstances and facts, if
any. If actual forfeitures differ from those estimates, we may need to revise those estimates used
in subsequent periods.
According to ASC 718, a change in any of the terms or conditions of stock options shall be
accounted for as a modification of the plan. Therefore, the Company calculates incremental
compensation cost of a modification as the excess of the fair value of the modified option over the
fair value of the original option immediately before its terms are modified, measured based on the
share price and other pertinent factors at the modification date. For vested options, the Company
would recognize incremental compensation cost in the period the modification occurs and for
unvested options, the Company would recognize, over the remaining requisite service period, the sum
of the incremental compensation cost and the remaining unrecognized compensation cost for the
original award on the modification date.
Share incentive plans
On November 5, 2004, the Companys board of directors adopted a 2005 Employees Stock Option
Plan (2005 Option Plan). The 2005 Option Plan was approved by the shareholders of the Company in
October 2005. The Company has reserved 3,000,000 ordinary shares for future issuances of options
under the 2005 Option Plan. The terms of the 2005 Option Plan are substantially similar to the
Companys 2003 Option Plan. As of December 31, 2010, 1,351,140 options were outstanding under the
2005 Option Plan.
On October 17, 2007, the Company adopted a 2007 Share Incentive Plan (2007 Incentive Plan),
which was approved by the shareholders of the Company on June 15, 2007. Under the 2007 Incentive
Plan, the maximum aggregate number of shares, which may be issued pursuant to all share-based
awards (including Incentive Share Options), is one million ordinary shares as of the first business
day of 2007, plus an annual increase of one million shares to be added on the first business day of
each calendar year beginning in 2008 to 2016. Under the 2007 Incentive Plan, the directors may, at
their discretion, grant any employees, officers, directors and consultants of the Company and/or
its subsidiaries such share-based awards. Shares options granted under 2007 Incentive Plan are
vested over a period of 4 years. As of December 31, 2010, 3,063,341 options were outstanding under
the 2007 Incentive Plan.
Option modification
In February 2009, the Board of Directors approved an option modification to reduce the
exercise price of all outstanding unvested options that were granted by the Company in 2007 and
2008 to the then fair market value of ordinary shares underlying such options with a new vesting
period ranging from three years to four years. The then fair market value was based on the closing
price of our ADSs traded on the Nasdaq as of February 10, 2009, which was the last trading day
prior to the board approval. Other terms of the option grants remain unchanged. Total options
modified amount to 1.6 million. All eligible option grantees affected by such changes had entered
into amendments to their original share option agreements with the Company. The Company expects to
take a modification charge for the incremental compensation cost of approximately US$15 million
over the remaining vesting periods of three years to four years of the modified options.
F-18
In December 2009, the Board of Directors approved an option modification to extend the
expiration dates of all stock options granted in 2005 and 2006 to eight years after the respective
original grant dates of these options. Other terms of the option grants remain unchanged. Total
options modified amount to 0.6 million, which were fully vested. The Company had taken a
modification charge for the incremental compensation cost of US$2.6 million in 2009, the period in
which the modification occurred.
In February 2010, the compensation committee approved an option modification to extend the
expiration dates of all stock options granted in and after 2007 to eight years after the respective
original grant dates of these options. Other terms of the option grants remain unchanged. Total
options modified amount to 2.8 million, which includes 2.3 million related to the unvested options
and 0.5 million related to the vested options. The Company has taken a modification charge for the
incremental compensation cost of US$2.2 million in 2010 for fully vested options and expects to
take approximately US$2.7 million incremental cost for unvested options over their respective
remaining vesting period.
A summary of option activity under the share option plans
The following table summarized the Companys share option activity under all the option plans
(in US$, except shares):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Remaining |
|
|
Aggregate |
|
|
|
Number of |
|
|
Average |
|
|
Contractual Life |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Exercise Price |
|
|
(Years) |
|
|
Value |
|
Outstanding at December 31, 2007 |
|
|
2,414,749 |
|
|
|
39.66 |
|
|
|
3.24 |
|
|
|
181,788,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
1,009,900 |
|
|
|
106.13 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(274,330 |
) |
|
|
25.13 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(52,030 |
) |
|
|
79.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008 |
|
|
3,098,289 |
|
|
|
61.94 |
|
|
|
2.90 |
|
|
|
25,470,062 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
947,366 |
|
|
|
59.94 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(586,921 |
) |
|
|
26.89 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(66,562 |
) |
|
|
47.66 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
(4,762 |
) |
|
|
63.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009 |
|
|
3,387,410 |
|
|
|
43.84 |
* |
|
|
3.97 |
|
|
|
338,334,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
1,264,625 |
|
|
|
128.27 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(191,469 |
) |
|
|
38.28 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(46,085 |
) |
|
|
97.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010 |
|
|
4,414,481 |
|
|
|
67.71 |
|
|
|
5.98 |
** |
|
|
415,360,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expect to vest at December 31, 2010 |
|
|
4,131,561 |
|
|
|
67.18 |
|
|
|
5.95 |
** |
|
|
390,927,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2010 |
|
|
877,979 |
|
|
|
36.57 |
|
|
|
3.77 |
** |
|
|
109,951,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
It includes the impact of stock modification in February 2009. |
|
** |
|
It includes the impact of stock modification in December 2009 and February 2010. |
The Companys current practice is to issue new shares to satisfy share option exercises.
The expected-to-vest options are the result of applying the pre-vesting forfeiture rate
assumptions of 8% to total unvested options.
The aggregate intrinsic value in the table above represents the total intrinsic value (the
aggregate difference between the Companys closing stock price of US$161.80 as of December 31, 2010
and the exercise price for in-the-money options) that would have been received by the option
holders if all in-the-money options had been exercised on December 31, 2010.
The total intrinsic value of options exercised during the year ended December 31, 2008, 2009
and 2010 were US$19 million US$46 million and US$24 million, respectively.
F-19
The following table summarizes information related to outstanding and exercisable options as
of December 31, 2010 (in US$, except shares):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
Exercisable |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average |
|
|
|
|
|
|
|
|
|
|
Weighted-average |
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
Remaining |
|
Range of |
|
Number of |
|
|
Weighted-Average |
|
|
Contractual |
|
|
Number of |
|
|
Weighted-Average |
|
|
Contractual |
|
Exercise Prices |
|
shares |
|
|
Exercise Price |
|
|
Life (Years) |
|
|
shares |
|
|
Exercise Price |
|
|
Life (Years) |
|
17.00-22.99 |
|
|
129,092 |
|
|
|
19.56 |
|
|
|
2.09 |
|
|
|
129,092 |
|
|
|
19.56 |
|
|
|
2.09 |
|
23.00-34.99 |
|
|
318,268 |
|
|
|
26.29 |
|
|
|
2.94 |
|
|
|
318,268 |
|
|
|
26.29 |
|
|
|
2.94 |
|
35.00-44.99 |
|
|
2,160,886 |
|
|
|
38.11 |
|
|
|
6.05 |
|
|
|
216,009 |
|
|
|
39.24 |
|
|
|
5.62 |
|
45.00-58.99 |
|
|
203,526 |
|
|
|
58.39 |
|
|
|
4.12 |
|
|
|
203,526 |
|
|
|
58.29 |
|
|
|
4.12 |
|
59.00-77.99 |
|
|
11,084 |
|
|
|
77.02 |
|
|
|
4.62 |
|
|
|
11,084 |
|
|
|
77.02 |
|
|
|
4.62 |
|
78.00-96.99 |
|
|
352,550 |
|
|
|
96.70 |
|
|
|
6.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
97.00-129.99 |
|
|
1,012,025 |
|
|
|
125.16 |
|
|
|
7.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
130.00-159.99 |
|
|
227,050 |
|
|
|
141.64 |
|
|
|
7.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,414,481 |
|
|
|
|
|
|
|
|
|
|
|
877,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average fair value of options granted during the years ended December 31, 2008,
2009 and 2010 was US$40.25, US$25.34 and US$61.02 per share, respectively.
As of December 31, 2010, there was US$93.9 million of total unrecognized compensation cost,
net of estimated forfeitures, related to unvested share options which are expected to be recognized
over a weighted average period of 2.5 year. Total unrecognized compensation cost may be adjusted
for future changes in estimated forfeitures. For the twelve months ended December 31, 2010, total
cash received from the exercise of share options amounted to RMB60,994,078 (approximately US$9
million).
The Company calculated the estimated fair value of share options on the date of grant using
the Black-Scholes pricing model with the following assumptions for the year ended December 31,
2008, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Risk-free interest rate |
|
|
2.64% - 2.96 |
% |
|
|
1.16% - 1.89 |
% |
|
|
1.76% - 2.41 |
% |
Expected life (years) |
|
|
4 |
|
|
|
2.8-4.0 |
|
|
|
5.0 |
|
Expected dividend yield |
|
|
0%-0.42 |
% |
|
|
0 |
% |
|
|
0 |
% |
Volatility |
|
|
44% - 46 |
% |
|
|
51% - 55 |
% |
|
|
52% - 53 |
% |
Fair value of options at grant date per share |
|
from US$33.57 |
|
|
from US$13.80 |
|
|
from US$57.24 |
|
|
|
to US$42.82 |
|
|
to US$41.98 |
|
|
to US$73.59 |
|
In 2010, the Company granted 8,600 restricted share units to employees under 2007 Incentive
Plan with total share-based compensation cost amounted to US$1.2 million. As of December 31, 2010,
there was US$1.1 million unrecognized compensation cost, net of estimated forfeitures, related to
unvested restricted shares, which are to be recognized over a weighted average vesting period of
3.8 years. Total unrecognized compensation cost may be adjusted for future changes in estimated
forfeitures.
Operating leases
Leases where substantially all the rewards and risks of ownership of assets remain with the
leasing company are accounted for as operating leases. Payments made under operating leases net of
any incentives received by the Group from the leasing company are charged to the statements of
income on a straight-line basis over the lease periods.
Taxation
Deferred income taxes are provided using the balance sheet liability method. Under this
method, deferred income taxes are recognized for the tax consequences of significant temporary
differences by applying enacted statutory rates applicable to future years to differences between
the financial statement carrying amounts and the tax bases of existing assets and liabilities. The
tax base of an asset or liability is the amount attributed to that asset or liability for tax
purposes. The effect on deferred taxes of a change in tax rates is recognized in income in the
period enacted. A valuation allowance is provided to reduce the amount of deferred tax assets if
it is considered unlikely that some portion of, or all of, the deferred tax assets will not be
realized.
Effective January 1, 2007, the Company adopted ASC 740-10-25 (formerly FIN 48 Accounting for
Uncertainty in Income Taxes an Interpretation of FASB Statement No. 109). It clarifies the
accounting for uncertainty in income taxes recognized in the Companys financial statements and
prescribes a more likely than not threshold for financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. It also provides guidance on
derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and
liabilities, accounting for interest and penalties associated with tax positions, accounting for
income taxes in interim periods, and income tax disclosures.
F-20
As of December 31, 2010, the Company did not record any liability for uncertain tax positions.
The Companys policy is to recognize, if any, tax related interest as interest expenses and
penalties as general and administrative expenses. For 2010, the Company did not have any interest
and penalties associated with tax positions.
Other income
Other income primarily consists of financial subsidies and foreign exchange gains. Financial
subsidies from local PRC government authority were recorded as other income in the consolidated
statements of income. There are no defined rules and regulations to govern the criteria necessary
for companies to enjoy such benefits and the amount of financial subsidy are determined at the
discretion of the relevant government authority. Financial subsidies are recognized as other
income when received. Components of other income for the year ended December 31, 2008, 2009 and
2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
Financial subsidies |
|
|
24,185,723 |
|
|
|
53,951,319 |
|
|
|
64,016,045 |
|
Foreign exchange gains |
|
|
30,710,828 |
|
|
|
849,075 |
|
|
|
34,142,139 |
|
Reimbursement from the depository |
|
|
|
|
|
|
4,380,180 |
|
|
|
|
|
Others |
|
|
48,044 |
|
|
|
1,620,706 |
|
|
|
967,332 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
54,944,595 |
|
|
|
60,801,280 |
|
|
|
99,125,516 |
|
|
|
|
|
|
|
|
|
|
|
Statutory reserves
The Companys PRC subsidiaries and the VIEs are required to allocate at least 10% of their
after-tax profit to the general reserve in accordance with the PRC accounting standards and
regulations. The allocation to the general reserve can be stopped if such reserve has reached 50%
of the registered capital of each company. Appropriations to the enterprise expansion fund, staff
welfare and bonus fund are at the discretion of the board of directors of Ctrip Computer
Technology, Ctrip Travel Information, Ctrip Travel Network, Ctrip Information Technology, Software
Hotel Information and Starway Shanghai, the subsidiaries of the Company. Appropriations to
discretionary surplus reserve are at the discretion of the board of directors of the VIEs. These
reserves can only be used for specific purposes and are not transferable to the Company in form of
loans, advances, or cash dividends. During the years ended December 31, 2008, 2009, and 2010,
appropriations to statutory reserves have been made of RMB15,078,453, RMB11,909,284, and
RMB19,325,938, respectively. The Companys subsidiary in Taiwan, ezTravel, is required to allocate
10% of its after-tax profit to the statutory reserve in accordance with the Taiwan regulations. In
2010, appropriations to statutory reserves equivalent to RMB1,569,788 have been made. There is no
such regulation of providing statutory reserve in Hong Kong.
Dividends
Dividends are recognized when declared.
PRC regulations currently permit payment of dividends only out of accumulated profits as
determined in accordance with PRC accounting standards and regulations. The Companys PRC
subsidiaries can only distribute dividends after they have met the PRC requirements for
appropriation to statutory reserves. Additionally, as the Company does not have any direct
ownership in the VIEs, the VIEs cannot directly distribute dividends to the Company. The PRC
government imposes control over its foreign currency reserves in part through direct regulation of
the conversion of RMB into foreign exchange and through restrictions on foreign trade. As
substantially all of our revenues are in RMB, any restrictions on currency exchange may limit our
ability to use revenue generated in RMB to fund our business activities outside China or to make
dividend payments in U.S. dollars. Restricted net assets of the Companys PRC subsidiaries
and VIEs not distributable in the form of dividends to the parent as a result of the aforesaid PRC
regulations and other restrictions were RMB662 million as of December 31, 2010. This amount is
composed of share capital and statutory reserves of the Companys PRC subsidiaries and VIEs
described above.
As a result of the aforementioned PRC regulation and the Companys organizational structure,
accumulated profits of the subsidiaries in PRC distributable in the form of dividends to the parent
as of December 31, 2008, 2009 and 2010 were RMB 885 million, RMB1.0 billion and RMB2.0
billion, respectively. The Companys PRC subsidiaries and VIEs are able to enter into royalty and
trademark license agreements or certain other contractual arrangements at the discretion of the
Company without third party consent, for which the compensatory element of the arrangement is
excluded from the accumulated profits.
On June 15, 2007, the Company announced that the shareholders have adopted a resolution to
approve the Companys proposed distribution of 30% of its net income for 2007 to the shareholders
of the Company as dividends, subject to determination of the record date by the Companys Board of
Directors. The Board of Directors had also approved such proposed dividend distribution. The
Company accrued dividend payable of RMB119,497,083 for the year ended December 31, 2007. On July 7,
2008, the Company distributed the dividends to its shareholders of record as of June 12, 2008, at a
dividend rate of RMB3.38 (US$0.488), per ordinary share. The translation gain arising between December 2007 and July 2008 (date of payment)
amount to RMB7,230,249 is included in foreign exchange gain for the year ended December 31, 2008.
F-21
Effective January 1, 2008, current CIT Law imposes a 10% withholding income tax for dividends
distributed by foreign invested enterprises to their immediate holding companies outside mainland
China. A lower withholding tax rate will be applied if there is a tax treaty arrangement between
mainland China and the jurisdiction of the foreign holding company. Distributions to holding
companies in Hong Kong that satisfy certain requirements specified by PRC tax authorities, for
example, will be subject to a 5% withholding tax rate.
As of December 31, 2010, the Company did not record any withholding tax on the retained
earnings of its foreign invested enterprises in the PRC, since the Company intends to reinvest all
of its earnings to further expand its business in mainland China.
Earnings per share
In accordance with Computation of Earnings Per Share, basic earnings per share is computed
by dividing net income attributable to common shareholders by the weighted average number of common
shares outstanding during the year. Diluted earnings per share is calculated by dividing net
income attributable to common shareholders as adjusted for the effect of dilutive ordinary
equivalent shares, if any, by the weighted average number of ordinary and dilutive ordinary
equivalent shares outstanding during the year. Dilutive ordinary equivalent shares consist of
ordinary shares issuable upon the exercise of outstanding share options (using the treasury stock
method).
Segment reporting
The Company operates and manages its business as a single segment. In accordance with
Disclosures about Segment of an Enterprise and Related Information, the Companys chief operating
decision-maker has been identified as the CEO, who reviews operating results to make decisions
about allocating resources and assessing performance for the entire company. Since the Company
operates in one reportable segment, all financial segment and product information required by this
statement can be found in the Consolidated Statements.
The Company primarily generates its revenues from customers in Great China Area, and assets of
the Company are also located in Great China Area. Accordingly, no geographical segments are
presented.
Recent accounting pronouncements
In December 2009, the FASB issued ASU No. 2009-17, Consolidations (Topic 810): Improvements
to Financial Reporting by Enterprises Involved with Variable Interest Entities. The amendments in
this update are the result of FASB Statement No. 167 Amendments to FASB Interpretation No. 46
(R), which is now codified as FASB ASC 810-10-50-2A Consolidation Overall Disclosure
Variable Interest Entities and is effective for the interim and annual periods ending after
December 15, 2009. The adoption of ASU No. 2009-17 did not have a material impact on the Companys
financial position, results of operations and cash flows.
In January 2010, the FASB issued a final Accounting Standards Update (ASU) that sets forth
additional requirements and guidance regarding disclosures of fair value measurements. ASU
2010-06, Improving Disclosures about Fair Value Measurements, amends the FASB Codification to
require gross presentation of activity within the Level 3 fair value measurement roll forward and
details of transfers in and out of Level 1 and 2 fair value measurements. It also clarifies two
existing disclosure requirements of ASC 820-10, Fair Value Measurements and Disclosures Overall,
on the level of disaggregation of fair value measurements and disclosures on inputs and valuation
techniques. There was a significant change in the final guidance as compared to the proposed ASU
issued in August 2009. The final ASU does not require a sensitivity analysis for Level 3
measurements. The new requirements and guidance are effective for interim and annual periods
beginning after December 15, 2009, except for the Level 3 roll forward which is effective for
fiscal years beginning after December 15, 2010 (including interim periods within those fiscal
years). The adoption of ASU 2010-06 has no material effect on the Groups consolidated results of
operations and financial condition.
In February 2010, the FASB issued ASU 2010-09, Subsequent Events Amendments to Certain
Recognition and Disclosure Requirements. The ASU amends the guidance on subsequent events in the
FASB Accounting Standards Codification to address potential conflicts with current SEC guidance and
other issues that were brought to the FASBs attention through the comment letter process. As a
result of the amended guidance, (1) SEC filers must still evaluate subsequent events through the
issuance date of their financial statements, however, they are not required to disclose that date
in their financial statements, (2) an entity that is a conduit bond obligor for conduit debt
securities that are traded in a public market (i.e., over-the-counter market) must evaluate
subsequent events through the date of issuance of its financial statements and must disclose that
date, and (3) all other entities will continue evaluating subsequent events through the date the
financial statements are available to be issued and must disclose that date in their financial
statements. In addition, the scope of the disclosure requirements for reissued financial
statements has been refined to apply only to revised financial statements. For entities, other
than conduit bond obligors, the provisions of the ASU are effective upon issuance. Conduit bond obligors will be required to apply the ASUs requirements in fiscal
periods ending after June 15, 2010. The adoption of ASU 2010-09 has no material effect on the
Groups consolidated results of operations and financial condition.
F-22
In April 2010, the FASB has issued ASU 2010-13, Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security
Trades. The ASU updates the guidance in ASC 718, CompensationStock Compensation, to clarify that
share-based payment awards with an exercise price denominated in the currency of a market in which
a substantial portion of the underlying equity security trades should not be considered to meet the
criteria requiring classification as a liability. The updated guidance is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after December 15, 2010.
Early adoption is permitted. We do not expect ASU 2010-13 to have any impact on the Groups
consolidated results of operations and financial condition.
In April 2010, the FASB issued ASU 2010-17, Milestone Method of Revenue Recognition, which
amends ASC 605, Revenue Recognition, to include guidance on defining a milestone and determining
when it may be appropriate to apply the milestone method of revenue recognition for research or
development transactions. The ASU is effective for fiscal years beginning on or after June 15,
2010, with early adoption permitted. The adoption of ASU 2010-17 has no material effect on the
Groups consolidated results of operations and financial condition.
On July 2010, the FASB Issued Accounting Standards Update 2010-20, Receivables (Topic 310)
Disclosures about the Credit Quality of Financial Receivables and the Allowance for Credit Losses
(the ASU). In the aftermath of the global economic crisis, transparent financial reporting has
become the subject of worldwide attention, with a focus on improving accounting standards in a
number of areas, including financial instruments. The new ASU requires disclosure of additional
information to assist financial statement users understand more clearly an entitys credit risk
exposures to finance receivables and the related allowance for credit losses. For public
companies, the ASU is effective for interim and annual reporting periods ending on or after
December 15, 2010 with specific items, such as the allowance rollforward and modification
disclosures effective for periods beginning after December 15, 2010. Nonpublic entities are
required to apply the disclosure requirements for annual reporting periods ending on or after
December 15, 2011. The adoption of ASU 2010-20 has no material effect on the Groups consolidated
results of operations and financial condition.
In December 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-28, Intangibles
Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts. This ASU contains the final consensus
reached by the EITF meeting on November 19, 2010. The EITF consensus affects all entities that have
recognized goodwill and have one or more reporting units whose carrying amount for purposes of
performing Step 1 of the goodwill impairment test is zero or negative. The EITF decided to amend
Step 1 of the goodwill impairment test so that for those reporting units, an entity is required to
perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill
impairment exists. For public entities, the amendments in this Update are effective for fiscal
years, and interim periods within those years, beginning after December 15, 2010. Early adoption is
not permitted. For nonpublic entities, the amendments are effective for fiscal years, and interim
periods within those years, beginning after December 15, 2011. Nonpublic entities may early adopt
the amendments using the effective date for public entities. The adoption of ASU 2010-28 has no
material effect on the Groups consolidated results of operations and financial condition.
In December 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-29, Business
Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business
Combinations. This ASU contains the final consensus reached by the EITF meeting on November 19,
2010. The EITF consensus addresses diversity in practice in applying pro forma revenue and earnings
disclosure requirements for business combinations. The EITF concluded that if a public entity
presents comparative financial statements, the entity should disclose revenue and earnings of the
combined entity as though the business combination(s) that occurred during the current year had
occurred as of the beginning of the comparable prior annual reporting period only. The amendments
also expand the supplemental pro forma disclosures to include a description of the nature and
amount of material, nonrecurring pro forma adjustments directly attributable to the business
combination included in the reported pro forma revenue and earnings. The amendments in this Update
are effective prospectively for business combinations for which the acquisition date is on or after
the beginning of the first annual reporting period beginning on or after December 15, 2010, with
early adoption permitted. The Company does not expect ASU 2010-29 to have any impact on the Groups
consolidated results of operations and financial condition.
Certain risks and concentration
Financial instruments that potentially subject the Company to significant concentrations of
credit risk consist primarily of cash and cash equivalents, restricted cash, short-term investment,
accounts receivable, amounts due from related parties, prepayments and other current assets. As of
December 31, 2008, 2009 and 2010, substantially all of the Companys cash and cash equivalents,
restricted cash and short-term investment were held in major financial institutions located in the
PRC and in Hong Kong, which management considers to be of high credit quality. Accounts receivable
are generally unsecured and denominated in RMB, and are derived from revenues earned from
operations arising primarily in the PRC.
No individual customer accounted for more than 10% of net revenues for the years ended
December 31, 2008, 2009 and 2010.
No individual customer accounted for more than 10% of accounts receivable as of December 31,
2009 and 2010.
F-23
3. PREPAYMENTS AND OTHER CURRENT ASSETS
Components of prepayments and other current assets as of December 31, 2009 and 2010 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
|
RMB |
|
|
RMB |
|
Prepayments and deposits to vendors |
|
|
95,925,094 |
|
|
|
307,475,952 |
|
Interest receivable |
|
|
5,337,719 |
|
|
|
19,463,944 |
|
Receivables from financial institution |
|
|
16,780,052 |
|
|
|
12,118,618 |
|
Employee advances |
|
|
2,935,454 |
|
|
|
3,182,906 |
|
Prepayments for property and equipment |
|
|
4,932,225 |
|
|
|
2,070,608 |
|
Others |
|
|
6,119,655 |
|
|
|
8,302,461 |
|
|
|
|
|
|
|
|
Total |
|
|
132,030,199 |
|
|
|
352,614,489 |
|
|
|
|
|
|
|
|
4. LONG-TERM DEPOSITS
The Groups subsidiaries and VIEs are required to pay certain amounts of deposit to airline
companies to obtain blank air tickets for sales to customers. The subsidiaries and VIEs are also
required to pay deposit to local travel bureau as pledge for insurance of travelers safety.
Components of long-term deposit as of December 31, 2009 and 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
|
RMB |
|
|
RMB |
|
Deposits paid to airline suppliers |
|
|
130,611,314 |
|
|
|
130,547,730 |
|
Deposit paid to lessor |
|
|
9,080,233 |
|
|
|
15,399,710 |
|
Deposit paid to travel bureau |
|
|
140,000 |
|
|
|
60,000 |
|
Others |
|
|
3,363,644 |
|
|
|
9,849,182 |
|
|
|
|
|
|
|
|
Total |
|
|
143,195,191 |
|
|
|
155,856,622 |
|
|
|
|
|
|
|
|
5. LAND USE RIGHTS
The Companys land use rights are related to the payment to acquire two land use rights, one
of total cost RMB68,269,734 for approximately 17,000 square meters of land in Shanghai, on which
the Group has built an information and technology center, the other of total cost RMB48,912,729 for
approximately 19,500 square meters of land in Nantong, the construction of which has been completed
as of December 31, 2010. According to land use right policy in the PRC, the Company has a 50-year
use right over the land in Shanghai and 40-year use right over the land in Nantong, which are used
as the basis for amortization, respectively. Amortization expense for the years ended December 31,
2008, 2009 and 2010 was RMB2,486,312, RMB2,588,213 and RMB2,588,213, respectively. As of December
31, 2009 and 2010, the net book value was RMB108,922,018 and RMB106,333,805, respectively.
6. PROPERTY, EQUIPMENT AND SOFTWARE
Property, equipment and software and its related accumulated depreciation and amortization as
of December 31, 2009 and 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
|
RMB |
|
|
RMB |
|
Buildings |
|
|
147,248,314 |
|
|
|
509,340,453 |
|
Computer equipment |
|
|
134,905,979 |
|
|
|
156,657,586 |
|
Website-related equipment |
|
|
50,881,277 |
|
|
|
86,678,382 |
|
Furniture and fixtures |
|
|
33,293,324 |
|
|
|
47,858,178 |
|
Software |
|
|
20,691,306 |
|
|
|
26,389,221 |
|
Leasehold improvements |
|
|
9,169,515 |
|
|
|
15,555,405 |
|
Construction in progress |
|
|
293,914,287 |
|
|
|
|
|
Less: accumulated depreciation and amortization |
|
|
(139,597,407 |
) |
|
|
(188,800,245 |
) |
|
|
|
|
|
|
|
Total net book value |
|
|
550,506,595 |
|
|
|
653,678,980 |
|
|
|
|
|
|
|
|
From 2008, the Company started to build its second customer service center in Nantong, all
direct cost related to the customer service center has been recorded in construction in progress.
In May 2010, the Company started to put Nantong customer service center into use and began
depreciating. All direct costs of the new customer service center were originally capitalized as
construction in progress, and were reclassified to property and equipment, when the building was
completed and available for use.
Depreciation expense for the years ended December 31, 2008, 2009 and 2010 was approximately
RMB35,574,685, RMB45,196,678 and RMB62,929,541, respectively.
F-24
7. INVESTMENTS
Investment as of December 31, 2009 and 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
|
RMB |
|
|
RMB |
|
Hanting (available for sale) |
|
|
|
|
|
|
792,390,941 |
|
Home Inns (equity method) |
|
|
658,051,285 |
|
|
|
702,697,522 |
|
Dining Secretary (available for sale) |
|
|
|
|
|
|
66,000,000 |
|
Others |
|
|
|
|
|
|
13,142,160 |
|
|
|
|
|
|
|
|
Total net book value |
|
|
658,051,285 |
|
|
|
1,574,230,623 |
|
|
|
|
|
|
|
|
China Lodging Group, Limited (Hanting)
On March 31, 2010, the Company purchased newly issued 7,202,482 Shares from Hanting in a
private placement. On the same day, the Company purchased an aggregate of 11,646,964 Shares of
Hanting from the then shareholders. In addition, on March 31, 2010, the Company purchased 800,000
ADSs representing 3,200,000 Shares of Hanting in its initial public offering (IPO). All
transactions were made at a purchase price of US$12.25 per ADS, or US$3.0625 per Share, which is
the then IPO price. The total purchase cost is US$67.5 million (approximately RMB461 million). Upon
the closing of the transactions described above, the Company holds an aggregate of 22,049,446
shares of Hanting (including 3,200,000 shares represented by ADSs), representing approximately 9%
of Hantings total outstanding shares as of March 31, 2010.
Given the level of investment, the Company applies ASC-320-25 to account for its investment in
Hanting. The Company classified the investment as available for sale and measured the fair value
at every period end (Note 8). Unrealized holding gains and losses for available-for-sale securities
are reported in other comprehensive income until realized.
The closing price of Hanting as of December 31, 2010 is US$21.78 per ADS. As of December 31
2010, the Company recorded the investment in Hanting at a fair value of RMB792 million
(approximately US$120 million), with RMB347 million increase in fair value of the investment
credited to other comprehensive income.
Home Inns & Hotels Management Inc. (Home Inns)
During the period from September 2008 to March 2009, the Company purchased ADSs of Home Inns
from time to time through the open market, holding around 10% of the total outstanding shares of
Home Inns as of March 31, 2009, and was accounted for as available for sale investment. The
investment was previously reported as available for sale securities at fair value with an
unrealized holding loss of RMB80,882,962 being reported as other comprehensive income for the year
ended December 31, 2008.
In May 2009, the Company entered into a definitive purchase agreement with Home Inns to
acquire additional equity interest in Home Inns through a private placement of its ordinary shares
for US$50 million in cash. This transaction closed on May 21, 2009. As a result, the Companys
aggregate equity interest in Home Inns has increased to approximately 18% of the total outstanding
shares of Home Inns (an aggregate of 14,400,765 shares). Given the level of investment and the
common directors on Board of both the companies, the Company applied equity method of accounting
since then. As a result, as required by ASC 323-10-35-33, the Company has retroactively applied the
equity method of accounting to account for approximately 9% investment in Home Inns for the year
ended December 31, 2008. The impact of applying equity method for approximately 9% investment of
2008 was immaterial to 2008 and 2009 earnings and as such was recorded in 2009. Additionally, the
change resulted in RMB80,882,962 reclassification crediting from other comprehensive income within
equity to the debiting balance sheet Investment account as of December 31, 2008.
The Company calculated equity in income or losses of investment in Home Inns on one quarter
lag basis, as allowed, as the financial statements of Home Inns were not available within a
sufficient time period.
F-25
The carrying amount and unrealized securities holding profit for investment as of December 31,
2009 and 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
|
RMB |
|
|
RMB |
|
Investment cost |
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
266,173,740 |
|
|
|
625,181,868 |
|
Addition of investment |
|
|
359,215,242 |
|
|
|
|
|
Foreign currency translation |
|
|
(207,114 |
) |
|
|
(21,525,755 |
) |
|
|
|
|
|
|
|
Total investment cost |
|
|
625,181,868 |
|
|
|
603,656,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value booked under equity method |
|
|
|
|
|
|
|
|
Share of profit on affiliated companies investments |
|
|
35,264,799 |
|
|
|
105,543,246 |
|
Amortization of identifiable intangible assets, net of tax |
|
|
(2,395,382 |
) |
|
|
(6,501,837 |
) |
|
|
|
|
|
|
|
Total booked value under equity method |
|
|
32,869,417 |
|
|
|
99,041,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value |
|
|
658,051,285 |
|
|
|
702,697,522 |
|
|
|
|
|
|
|
|
In performing the purchase price allocation for acquisition of additional stake in May 2009,
the Company considered, among other factors, analyses of historical financial performance and
estimates of future performance of Home Inns business. The Company makes estimates and judgments
in determining the fair value of acquired assets and liabilities, based on independent appraisal
reports and managements experience with similar assets and liabilities.
The purchase price of Home Inns was allocated as follows:
|
|
|
|
|
|
|
Fair Value |
|
|
|
RMB |
|
|
|
|
|
|
Fair value of proportional of share of 18% of net assets acquired |
|
|
247,029,670 |
|
Identified intangible assets |
|
|
304,332,935 |
|
Deferred tax liabilities arising from the acquisition |
|
|
(76,083,234 |
) |
Goodwill |
|
|
149,591,668 |
|
|
|
|
|
Total purchase price |
|
|
624,871,039 |
|
|
|
|
|
Identified intangible assets acquired were as follows:
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
|
Useful lives |
|
|
|
RMB |
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademark |
|
|
255,435,317 |
|
|
Indefinite |
Franchised relationships |
|
|
25,543,532 |
|
|
8 years |
Customer list |
|
|
1,459,630 |
|
|
5 years |
Leasehold interest |
|
|
21,894,456 |
|
|
11 years |
|
|
|
|
|
|
|
|
|
|
|
304,332,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The financial information of Home Inns as of and for the twelve months ended September 30,
2010 is as follows:
|
|
|
|
|
|
|
RMB |
|
|
|
000 |
|
|
|
|
|
|
Current assets |
|
|
1,337,168 |
|
Non-current assets |
|
|
2,551,724 |
|
Current liability |
|
|
909,183 |
|
Non-current liabilities |
|
|
283,431 |
|
Retain earnings |
|
|
725,672 |
|
Total revenues |
|
|
3,068,313 |
|
Income from operations |
|
|
512,909 |
|
Net income |
|
|
402,116 |
|
The closing price of Home Inns as of December 31, 2010 is US$40.96 per ADS, the aggregate
market value of the Companys investment in Home Inns is approximately RMB1.9 billion (US$295
million).
Dining Secretary China Limited (Dining Secretary)
F-26
In November 2010, the Company entered into agreements to acquire a minority stake of Dining
Secretarys Series B convertible preferred shares with total consideration of US$10 million. The
transaction was closed on November 24, 2010. Headquartered in Shanghai, Dining Secretary is a leading provider of free online and offline restaurant
reservations for diners. Dining Secretary operates in many cities in China, serving diners and
restaurants with a call center and the website www.95171.cn.
The Company recorded this investment as an available-for-sale debt security. Subsequent to
initial recognition, the available-for-sale debt security is measured at fair value at every period
end (Note 8). Unrealized holding gains and losses for available-for-sale securities are reported in
other comprehensive income until realized. There is no significant change in fair value of the
investment from the initial investment day to the December 31, 2010.
Other investments included equity investments in BTG-Jianguo Hotels & Resorts Management Co.,
Ltd.(BTG-Jianguo) and certain privately-held companies. The investment of BTG-Jianguo was closed
in December 2010, with a total consideration of RMB10.2 million. The Company accounts for equity
investments in entities in which the Company exercises significant influence but does not own a
majority equity interest or otherwise control using the equity method.
It has been concluded that the fair value of all investments above is greater than or equal to
original cost, as a result, no impairments have been recorded for these investments.
8. FAIR VALUE MEASUREMENT
In accordance with ASC 820-10, the Company measures available-for-sale investments at fair
value. Available-for-sale investments classified within Level 1 are valued using quoted market
prices that currently available on a securities exchange registered with the Securities and
Exchange Commission (SEC). The available-for-sale investments classified within Level 3 is valued
based on a model utilizing unobservable inputs which require significant management judgment and
estimation.
Assets measured at fail value on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at |
|
|
|
|
|
|
December 31, 2010 Using |
|
|
|
|
|
|
Quoted Prices |
|
|
|
|
|
|
|
|
|
|
|
|
in Active |
|
|
|
|
|
|
|
|
|
|
|
|
Market for |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
|
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
inputs |
|
|
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Fair Value at December 31, 2010 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
US$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanting |
|
|
792,390,941 |
|
|
|
|
|
|
|
|
|
|
|
792,390,941 |
|
|
|
120,059,233 |
|
Dining Secretary |
|
|
|
|
|
|
|
|
|
|
66,000,000 |
|
|
|
66,000,000 |
|
|
|
10,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
792,390,941 |
|
|
|
|
|
|
|
66,000,000 |
|
|
|
858,390,941 |
|
|
|
130,059,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no such investments as at December 31, 2009.
There were no significant transfers between Level 1 and Level 2 investment during 2010 and the
roll forward of Level 3 investment is as following:
|
|
|
|
|
|
|
Amount |
|
|
|
RMB |
|
|
|
|
|
|
Fair value of available-for-sale (Level 3) investment as at December 31, 2008 and 2009 |
|
|
|
|
Investment in Series B Preferred Shares of Dining Secretary |
|
|
66,670,000 |
|
Transfer in and/or out of Level 3 |
|
|
|
|
Effect of exchange rate change |
|
|
(670,000 |
) |
Fair value of available-for-sale (Level 3) investment as at December 31, 2010 |
|
|
66,000,000 |
|
|
|
|
|
|
|
|
|
|
Fair value of available-for-sale investment (Level 3) as at December 31, 2010 (US$) |
|
|
10,000,000 |
|
|
|
|
|
The Company determined the fair value of their investment holding in Dining Secretary by using
an income approach concluding on the overall investees equity value and allocating this value to
the various classes of preferred and common shares by using an option-pricing method. The Company
used independent appraisal report, based on estimates, judgments and information of other
comparable public companies, to determine its fair value.
F-27
9. GOODWILL
The changes in the carrying amount of goodwill for the years ended December 31, 2009 and 2010
were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
|
RMB |
|
|
RMB |
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
|
63,689,736 |
|
|
|
322,936,838 |
|
Acquisition of Software Hotel Information |
|
|
10,000,000 |
|
|
|
|
|
Acquisition of ezTravel |
|
|
249,247,102 |
|
|
|
|
|
Acquisition of Wing On Travel |
|
|
|
|
|
|
435,294,603 |
|
|
|
|
|
|
|
|
Balance at end of period |
|
|
322,936,838 |
|
|
|
758,231,441 |
|
|
|
|
|
|
|
|
In December 2008, the Company purchased 90% equity of Software Hotel Information at
preliminary purchase price of RMB80 million. Goodwill of RMB48 million was recognized from this
acquisition. In April 2009, RMB90 million was agreed and determined as the final purchase price of
this acquisition. Thus the goodwill from acquisition of Software Hotel Information increased by 10
million.
In 2009, the Company consolidated ezTravels financial statements as it had a controlling
financial interest of ezTravel since then, goodwill of RMB249 million was recognized from this
acquisition (Note 2).
In May 2010, the Company purchased 90% equity interest of Wing On Travel. Goodwill of RMB435
million was recognized from this acquisition (Note 2).
Goodwill arose from the business combination completed in the year ended December 31, 2010 has
been allocated to the single reporting unit of the Group. Goodwill represents the synergy effects
of the business combination.
The Company performed goodwill impairment tests in year 2009 and 2010, and the results of
these tests indicated that the Companys goodwill was not impaired.
F-28
10. INTANGIBLE ASSETS
Intangible assets as of December 31, 2009 and 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
|
RMB |
|
|
RMB |
|
Intangible assets |
|
|
|
|
|
|
|
|
Intangible assets to be amortized |
|
|
|
|
|
|
|
|
Non-compete agreements |
|
|
11,479,610 |
|
|
|
11,479,610 |
|
Customer list |
|
|
5,055,378 |
|
|
|
11,142,578 |
|
Technology patent |
|
|
9,240,000 |
|
|
|
9,240,000 |
|
Cross-border travel agency license |
|
|
1,117,277 |
|
|
|
1,117,277 |
|
Intangible assets not subject to amortization |
|
|
|
|
|
|
|
|
Trade mark |
|
|
41,645,235 |
|
|
|
267,741,235 |
|
Golf membership certificate |
|
|
4,200,000 |
|
|
|
4,200,000 |
|
Others |
|
|
395,071 |
|
|
|
5,478,271 |
|
|
|
|
|
|
|
|
|
|
|
73,132,571 |
|
|
|
310,398,971 |
|
|
|
|
|
|
|
|
Less: accumulated amortization |
|
|
|
|
|
|
|
|
Intangible assets to be amortized |
|
|
|
|
|
|
|
|
Non-compete agreements |
|
|
(2,295,922 |
) |
|
|
(4,591,844 |
) |
Customer list |
|
|
(1,263,844 |
) |
|
|
(4,134,527 |
) |
Technology patent |
|
|
(1,848,000 |
) |
|
|
(3,696,000 |
) |
Cross-border travel agency license |
|
|
(872,851 |
) |
|
|
(1,012,508 |
) |
Intangible assets not subject to amortization |
|
|
|
|
|
|
|
|
Trade mark |
|
|
|
|
|
|
|
|
Golf membership certificate |
|
|
|
|
|
|
|
|
Others |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,280,617 |
) |
|
|
(13,434,879 |
) |
|
|
|
|
|
|
|
Net book value |
|
|
|
|
|
|
|
|
Intangible assets to be amortized |
|
|
|
|
|
|
|
|
Non-compete agreements |
|
|
9,183,688 |
|
|
|
6,887,766 |
|
Customer list |
|
|
3,791,534 |
|
|
|
7,008,051 |
|
Technology patent |
|
|
7,392,000 |
|
|
|
5,544,000 |
|
Cross-border travel agency license |
|
|
244,426 |
|
|
|
104,769 |
|
Intangible assets not subject to amortization |
|
|
|
|
|
|
|
|
Trade mark |
|
|
41,645,235 |
|
|
|
267,741,235 |
|
Golf membership certificate |
|
|
4,200,000 |
|
|
|
4,200,000 |
|
Others |
|
|
395,071 |
|
|
|
5,478,271 |
|
|
|
|
|
|
|
|
|
|
|
66,851,954 |
|
|
|
296,964,092 |
|
|
|
|
|
|
|
|
Amortization expense for the years ended December 31, 2008, 2009 and 2010 was approximately
RMB139,656, RMB5,547,422 and RMB7,154,262 respectively.
The annual estimated amortization expense for intangible assets subject to amortization for
the five succeeding years is as follows:
|
|
|
|
|
|
|
Amortization |
|
|
|
RMB |
|
|
|
|
|
|
2011 |
|
|
7,960,950 |
|
2012 |
|
|
6,594,270 |
|
2013 |
|
|
4,989,366 |
|
2014 |
|
|
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,544,586 |
|
|
|
|
|
F-29
11. TAXATION
Cayman Islands
Under the current laws of Cayman Islands, the Company is not subject to tax on income or
capital gain. In addition, upon payments of dividends by the Company to its shareholders, no
Cayman Islands withholding tax will be imposed.
Hong Kong
The Companys subsidiaries registered in the Hong Kong are subject to Hong Kong Profits Tax
(CIT) on the taxable income as reported in their respective statutory financial statements
adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate is 16.5% in Hong
Kong.
Taiwan
The Companys consolidated entities registered in the Taiwan are subject to Taiwan Enterprise
Income Tax (CIT) on the taxable income as reported in their respective statutory financial
statements adjusted in accordance with relevant Taiwan income tax laws. In the first half of the
year 2010, announced by local authority, general enterprise income tax rate of Taiwan was reduced
from 25% to 17%. The application tax rate for the Companys subsidiary in Taiwan is 17%, which was
effective retroactively as of January 1, 2010.
China
The Companys subsidiaries and VIEs registered in the PRC are subject to PRC Corporate Income
Tax (CIT) on the taxable income as reported in their respective statutory financial statements
adjusted in accordance with relevant PRC income tax laws.
In 2007, the National Peoples Congress passed new PRC CIT Law and Detailed Implementation
Rules of China CIT Law. The CIT laws were effective on January 1, 2008. The CIT laws apply a
general enterprise income tax rate of 25% to both foreign-invested enterprises and domestic
enterprises. Preferential tax treatments will continue to be granted to enterprises, which conduct
business in certain encouraged sectors and to enterprises otherwise classified as a high and new
technology enterprise. In December 2008, the Companys subsidiaries, Ctrip Computer Technology,
Ctrip Travel Information, Ctrip Travel Network and Software Hotel Information obtained approval for
the High New Tech Enterprises status. The applicable tax rate for High New Tech Enterprise is 15%,
which was effective retroactively as of January 1, 2008. The High New Tech Enterprises
qualification has a three-year effective period which expires on December 31, 2010. These four
entities will reapply for the qualification in 2011.
Additionally, the Companys subsidiary, Ctrip Travel Network obtained approval from relevant
tax bureau for a 50% reduction upon statutory income tax rate for 2008 and 2009 as it obtained the
status of software company. The application tax rate of 2008, 2009 and 2010 for Ctrip Travel
Network was 12.5%, 12.5% and 15%, respectively.
Shenzhen Ctrip is registered in the city of Shenzhen in China, which was a special economic
zone entitled to a preferential tax rate of 15% before 2008. Under the current CIT law, Shcnzhen
Ctrip is entitled to a transitional tax rate which is gradually increased to 25% from 2008 to 2012.
The applicable CIT rates from 2008 to 2012 are 18%, 20%, 22%, 24% and 25%, respectively. Starting
from 2012, Shenzhen Ctrip would be subjected to the general CIT rate of 25%.
In 2010, in accordance with CIT Law, the applicable CIT rates are 25%, except for
aforementioned three subsidiaries qualified for High New Tech Enterprises and Shenzhen Ctrip.
Pursuant to the CIT Law and Circular Caishui [2008]No.1 issued by Ministry of Finance of China
on February 22, 2008, the dividends declared out of the profits earned after January 1, 2008 by a
foreign invested enterprise(FIE) to its immediate holding company outside mainland China would be
subject to withholding taxes. A favorable withholding tax rate will be applied if there is a tax
treaty arrangement between Mainland China and the jurisdiction of the foreign holding company and
other supplementary guidance/requirements stipulated by State Administration of Taxation (SAT)
and tax treaty are met and proper procedures have been gone through. The Companys subsidiaries,
Ctrip Computer Technology, Ctrip Travel Information, Ctrip Travel Network, Ctrip Information
Technology and Starway Shanghai are considered FIEs and are directly held by our subsidiaries in
Hong Kong. According to double tax arrangement between Mainland and Hong Kong Special
Administrative Region, dividends payable by an FIE in mainland China to the company in Hong Kong
will be subject to 5% withholding tax, subject to approval of the tax authority. All of these
foreign invested enterprises will be subject to the withholding tax for their earnings generated
after January 1, 2008. The Company expects to reinvest undistributed earnings generated after
January 1, 2008 in the onshore PRC entities. As a result, no deferred tax liability was provided on
the outside basis difference from undistributed earnings after January 1, 2008.
Composition of income tax expense
The current and deferred portion of income tax expense included in the consolidated statements
of income for the years ended December 31, 2008, 2009 and 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
Current income tax expense |
|
|
(100,478,409 |
) |
|
|
(146,001,559 |
) |
|
|
(223,144,541 |
) |
Adjustments to deferred tax
assets/liabilities for enacted
CIT rate change |
|
|
(4,510,307 |
) |
|
|
|
|
|
|
3,656,049 |
|
Deferred tax benefit |
|
|
2,075,312 |
|
|
|
14,343,474 |
|
|
|
14,471,531 |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
(102,913,404 |
) |
|
|
(131,658,085 |
) |
|
|
(205,016,961 |
) |
|
|
|
|
|
|
|
|
|
|
F-30
Reconciliation of the differences between statutory tax rate and the effective tax rate
A reconciliation between the statutory CIT rate and the Groups effective tax rate for the
years ended December 31, 2008, 2009 and 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Statutory CIT rate |
|
|
25 |
% |
|
|
25 |
% |
|
|
25 |
% |
Tax differential from statutory rate applicable to
Subsidiaries in the PRC |
|
|
(11 |
)% |
|
|
(12 |
)% |
|
|
(11 |
)% |
Non-deductible expenses incurred |
|
|
4 |
% |
|
|
6 |
% |
|
|
4 |
% |
Others |
|
|
1 |
% |
|
|
(2 |
)% |
|
|
(1 |
)% |
|
|
|
|
|
|
|
|
|
|
Effective CIT rate |
|
|
19 |
% |
|
|
17 |
% |
|
|
17 |
% |
|
|
|
|
|
|
|
|
|
|
Significant components of deferred tax assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
|
RMB |
|
|
RMB |
|
|
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Accrued liability for customer reward program and e-coupons |
|
|
12,939,013 |
|
|
|
17,819,817 |
|
Accrued staff salary |
|
|
8,752,382 |
|
|
|
16,884,937 |
|
Loss carry forward |
|
|
6,349,296 |
|
|
|
12,733,226 |
|
Deferred tax liabilities |
|
|
(390,000 |
) |
|
|
(390,000 |
) |
Others |
|
|
1,202,871 |
|
|
|
2,821,430 |
|
Less: Allowance of deferred tax assets |
|
|
(5,407,503 |
) |
|
|
(12,733,226 |
) |
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
23,446,059 |
|
|
|
37,136,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities, non-current: |
|
|
|
|
|
|
|
|
Recognition of intangible assets |
|
|
(11,509,937 |
) |
|
|
(45,382,710 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets/(liabilities) |
|
|
11,936,122 |
|
|
|
(8,246,526 |
) |
|
|
|
|
|
|
|
As of December 31, 2009 and 2010, valuation allowance of RMB5.4 million and RMB12.7 million
was provided for operating loss carry forwards related to certain subsidiary based on then
assessment where it is more likely than not that such deferred tax assets will not be realized. If
events were to occur in the future that would allow us to realize more of our deferred tax assets
than the presently recorded net amount, an adjustment would be made to the deferred tax assets that
would increase income for the period when those events occurred.
As of December 31, 2010, the Group had net operating tax loss carry forwards amounted to
RMB50.9 million which will expire from 2014 to 2015 if not used.
The provisions for income taxes for the years ended December 31, 2008, 2009 and 2010 differ
from the amounts computed by applying the CIT primarily due to preferential tax rate enjoyed by
certain of the Companys subsidiaries and VIEs in the PRC.
The following table sets forth the effect of preferential tax on China operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
Tax holiday effect |
|
|
59,618,875 |
|
|
|
92,146,741 |
|
|
|
125,981,081 |
|
Basic net income per share effect |
|
|
0.45 |
|
|
|
0.69 |
|
|
|
0.89 |
|
Diluted net income per share effect |
|
|
0.43 |
|
|
|
0.65 |
|
|
|
0.84 |
|
12. EMPLOYEE BENEFITS
The Groups employee benefit primarily related to the full-time employees of the PRC
subsidiaries and the VIEs, including medical care, welfare subsidies, unemployment insurance and
pension benefits. The full-time employees in the PRC subsidiaries and the VIEs are required to
accrue for these benefits based on certain percentages of the employees salaries in accordance
with the relevant PRC regulations and make contributions to the state-sponsored pension and medical
plans out of the amounts accrued for medical and pension benefits. The PRC government is
responsible for the medical benefits and ultimate pension liability to these employees. The total
expenses recorded for such employee benefits amounted to RMB90,029,054, RMB117,927,376 and
RMB158,641,293 for the year ended December 31, 2008, 2009 and 2010 respectively.
F-31
13. RELATED PARTY TRANSACTIONS
During the years ended December 31, 2008, 2009 and 2010 significant related party transactions
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
Commissions from Home Inns |
|
|
14,766,676 |
|
|
|
20,941,782 |
|
|
|
18,190,563 |
|
Commissions from Hanting |
|
|
7,515,618 |
|
|
|
9,949,158 |
|
|
|
9,509,062 |
|
Purchase of tour package from Ananda Travel Service (Aust.) Pty
Limited (Ananda) |
|
|
|
|
|
|
|
|
|
|
21,010,558 |
|
Printing expenses to Joyu Tourism Operating Group |
|
|
2,160,000 |
|
|
|
2,160,000 |
|
|
|
2,160,000 |
|
Advertisement purchase from Focus Media Holding Limited (Focus Media) |
|
|
|
|
|
|
425,172 |
|
|
|
299,925 |
|
Purchase of Shares of Hanting |
|
|
|
|
|
|
|
|
|
|
461,239,269 |
|
Purchase of Shares of Home Inns |
|
|
265,655,797 |
|
|
|
359,215,242 |
|
|
|
|
|
The Companys hotel supplier, Home Inns has two directors in common with our company. Another
hotel supplier, Hanting, has a director in common with our company and a director who is a family
member of one of our officers. Home Inns and Hanting have entered into agreements with us,
respectively, to provide hotel rooms for our customers. Commissions from Home Inns and Hanting for
the years ended December 31, 2008, 2009 and 2010 are presented as above.
The Companys tour package supplier, Ananda is an association investment of Wing On Travel.
Tour package purchase from Ananda for the year ended December 31, 2010 is presented as above.
The Company entered into printing agreements with TripTX Travel Media Group, one of the
subsidiaries of Joyu Tourism Operating Group. Joyu Tourism Operating Group has a director in common
with the Company. Total printing expense to Joyu Tourism Operating Group for the year ended
December 31, 2008, 2009 and 2010 are presented as above.
The Companys advertisement service supplier, Focus Media, has a director in common with our
company. The company entered into agreements with affiliates of Focus Media to purchase
advertisement service. Advertisement purchase from Focus Media for the year ended December 31, 2010
is presented as above.
Up to December 31,2010, the Company purchased 22,049,446 shares of Hanting at unit cost of
US$3.0625, representing approximately 9% of Hantings total outstanding shares. Total cost of
investment was RMB461 million (approximately US$67.5 million) then.
Up to December 31, 2010, the Company purchased 7,200,383 ADS of Home Inns at average unit cost
of approximately US$13, representing approximately 18% of Home Inns total share in aggregate.
Total cost of investment was RMB625 million (approximately US$92 million) then.
As of December 31, 2009 and 2010, significant balances with related parties were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
|
RMB |
|
|
RMB |
|
Due from related parties: |
|
|
|
|
|
|
|
|
Due from Home Inns |
|
|
1,360,381 |
|
|
|
1,421,153 |
|
Due from Hanting |
|
|
927,584 |
|
|
|
871,619 |
|
Others |
|
|
|
|
|
|
923,856 |
|
|
|
|
|
|
|
|
|
|
|
2,287,965 |
|
|
|
3,216,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to related parties: |
|
|
|
|
|
|
|
|
Due to Ananda |
|
|
|
|
|
|
11,616,375 |
|
Due to related parties of a VIE |
|
|
249,910 |
|
|
|
249,910 |
|
Due to Focus Media |
|
|
215,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
465,082 |
|
|
|
11,866,285 |
|
|
|
|
|
|
|
|
The amounts due from and due to related parties as of December 31, 2009 and 2010 primarily
resulted from the transactions disclosed above and revenue received and expenses paid on behalf of
each other. They are not collateralized, interest-free and have normal business payment terms.
F-32
14. OTHER PAYABLES AND ACCRUALS
Components of other payables and accruals as of December 31, 2009 and 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
|
RMB |
|
|
RMB |
|
Accruals for property and equipment |
|
|
99,836,309 |
|
|
|
120,067,060 |
|
Accrued operating expenses |
|
|
46,470,146 |
|
|
|
80,280,117 |
|
Deposits received from suppliers and packaged-tour customers |
|
|
10,554,456 |
|
|
|
8,991,812 |
|
Due to employees for stock option proceeds received on their behalf |
|
|
30,024,387 |
|
|
|
8,571,592 |
|
Payable for acquisition |
|
|
28,114,780 |
|
|
|
5,100,000 |
|
Liability incurred for noncontrolling interest in a VIE |
|
|
1,412,500 |
|
|
|
|
|
Others |
|
|
12,774,659 |
|
|
|
12,651,166 |
|
|
|
|
|
|
|
|
Total |
|
|
229,187,237 |
|
|
|
235,661,747 |
|
|
|
|
|
|
|
|
15. EARNINGS PER SHARE
Basic earnings per share and diluted earnings per share were calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Ctrips shareholders |
|
|
444,107,873 |
|
|
|
658,973,622 |
|
|
|
1,048,069,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per ordinary share |
|
|
|
|
|
|
|
|
|
|
|
|
weighted average ordinary shares outstanding |
|
|
33,352,845 |
|
|
|
33,592,334 |
|
|
|
35,385,451 |
|
Dilutive effect of share options |
|
|
1,071,704 |
|
|
|
1,658,001 |
|
|
|
2,191,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per ordinary share |
|
|
34,424,549 |
|
|
|
35,250,335 |
|
|
|
37,577,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per ordinary share |
|
|
13.32 |
|
|
|
19.62 |
|
|
|
29.62 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per ordinary share |
|
|
12.90 |
|
|
|
18.69 |
|
|
|
27.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per ADS |
|
|
3.33 |
|
|
|
4.90 |
|
|
|
7.40 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per ADS |
|
|
3.23 |
|
|
|
4.67 |
|
|
|
6.97 |
|
|
|
|
|
|
|
|
|
|
|
16. COMMITMENTS AND CONTINGENCIES
Operating lease commitments
The Company has entered into leasing arrangements relating to office premises that are
classified as operating leases for the periods from 2011 to 2015. Future minimum lease payments for
non-cancelable operating leases are as follows:
|
|
|
|
|
|
|
Office Premises |
|
|
|
RMB |
|
2011 |
|
|
35,061,329 |
|
2012 |
|
|
18,457,823 |
|
2013 |
|
|
7,437,758 |
|
2014 |
|
|
3,369,671 |
|
2015 |
|
|
900,277 |
|
Thereafter |
|
|
359,560 |
|
|
|
|
|
|
|
|
65,586,418 |
|
|
|
|
|
Rental expense amounted to RMB16,932,038, RMB25,704,016 and RMB45,744,187 for the years ended
December 31, 2008, 2009 and 2010, respectively. Rental expense is charged to the statements of
income and comprehensive income when incurred.
Capital commitments
As of December 31, 2010, the Company had outstanding capital commitments totaling RMB13.7
million, which consisted of capital expenditures of property, equipment and software.
F-33
Guarantee
In connection with our air ticketing business, the Group is required by the Civil Aviation
Administration of China, International Air Transport Association, and local airline companies to
pay deposits in order to or to provide other guarantees obtain blank air tickets. As of December
31, 2010, the amount under these guarantee arrangements was approximately RMB660 million.
Based on historical experience and information currently available, we do not believe that it
is probable that we will be required to pay any amount under these guarantee arrangements.
Therefore, we have not recorded any liability beyond what is required in connection with these
guarantee arrangements.
Bank credit limit
In March 2009, the Company obtained credit limit from one domestic bank with total amount of
RMB200 million in order to supply daily operating cash needs, which was expired in April 2010.
During the year 2009 and 2010, the Company did not apply for funds under the credit limit.
Contingencies
The Company is not currently a party to any pending material litigation or other legal
proceeding or claims.
The Company is incorporated in Cayman Islands and is considered as a foreign entity under PRC
laws. Due to the restrictions on foreign ownership of the air-ticketing, travel agency,
advertising and internet content provision businesses, the Company conducts these businesses partly
through various VIEs. These VIEs hold the licenses and approvals that are essential for the
Companys business operations. In the opinion of the Companys PRC legal counsel, the current
ownership structures and the contractual arrangements with these VIEs and their shareholders as
well as the operations of these VIEs are in compliance with all existing PRC laws, rules and
regulations. However, there may be changes and other developments in PRC laws and regulations.
Accordingly, the Company cannot be assured that PRC government authorities will not take a view in
the future contrary to the opinion of the Companys PRC legal counsel. If the current ownership
structures of the Company and its contractual arrangements with VIEs were found to be in violation
of any existing or future PRC laws or regulations, the Company may be required to restructure its
ownership structure and operations in China to comply with changing and new Chinese laws and
regulations.
17. SUBSEQUENT EVENTS
As of the date of this report, the Company does not have significant subsequent event to be
disclosed.
F-34
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
Number |
|
Document |
|
1.1 |
|
|
Amended and Restated Memorandum and Articles of Association of Ctrip.com International, Ltd.
(incorporated by reference to Exhibit 3.2 from our Registration Statement on Form F-1 (file
no. 333-110455) filed with the Securities and Exchange Commission on November 25, 2003), as
amended (amendment incorporated by reference to Exhibit 99.2 to our Report of Foreign Private
Issuer on Form 6-K filed with the Commission on October 17, 2006) |
|
|
|
|
|
|
2.1 |
|
|
Specimen American Depositary Receipt of Ctrip.com International, Ltd. (incorporated by
reference to the prospectus dated January 25, 2010 as part of the Registration Statement on
Form F-6 (file no. 333-145167) filed with the Securities and Exchange Commission on August 6,
2007) |
|
|
|
|
|
|
2.2 |
|
|
Specimen Stock Certificate of Ctrip.com International, Ltd. (incorporated by reference to
Exhibit 4.2 from our Registration Statement on Form F-1 (file no. 333-110455) filed with the
Securities and Exchange Commission on November 25, 2003) |
|
|
|
|
|
|
2.3 |
|
|
Rights Agreement dated as of November 23, 2007 between Ctrip.com International, Ltd. and The
Bank of New York, as Rights Agent (incorporated by reference to Exhibit 4.1 from our Report of
Foreign Private Issuer on Form 6-K filed with the Securities and Exchange Commission on
November 23, 2007) |
|
|
|
|
|
|
2.4 |
|
|
Deposit Agreement dated as of December 8, 2003, as amended and restated as of August 11, 2006,
and as further amended and restated as of December 3, 2007, among Ctrip.com International,
Ltd., The Bank of New York as Depositary, and all Owners and Beneficial from time to time of
American Depositary Shares issued thereunder (incorporated by reference to Exhibit 2.4 from
our Annual Report on Form 20-F (file no. 001-33853) filed with the Securities and Exchange
Commission on April 29, 2008) |
|
|
|
|
|
|
4.1 |
|
|
Form of Ctrip.com International, Ltd. Stock Option Plans (incorporated by reference to Exhibit
10.1 from our Registration Statement on Form F-1 (file no. 333-110455) and Exhibit 10.23 from
our Registration Statement on Form F-2 (file no. 333-121080) filed with the Securities and
Exchange Commission on November 13, 2003 and December 8, 2004, respectively) |
|
|
|
|
|
|
4.2 |
|
|
Form of Indemnification Agreement with the Registrants directors and executive officers
(incorporated by reference to Exhibit 10.2 from our Registration Statement on Form F-1 (file
no. 333-110455) filed with the Securities and Exchange Commission on November 13, 2003) |
|
|
|
|
|
|
4.3 |
|
|
Translation of Form of Labor Contract for Employees of the Registrants subsidiaries in China
(incorporated by reference to Exhibit 10.3 from our Registration Statement on Form F-1 (file
no. 333-110455) filed with the Securities and Exchange Commission on November 13, 2003) |
|
|
|
|
|
|
4.4 |
|
|
Employment Agreement between the Registrant and James Jianzhang Liang (incorporated by
reference to Exhibit 10.4 from our Registration Statement on Form F-1 (file no. 333-110455)
filed with the Securities and Exchange Commission on November 13, 2003) |
|
|
|
|
|
|
4.5 |
|
|
Employment and Confidentiality Agreement between the Registrant and Jane Jie Sun (incorporated
by reference to Exhibit 4.5 from our Annual Report on Form 20-F (file no. 000-50483) filed
with the Securities and Exchange Commission on June 26, 2006) |
|
|
|
|
|
|
4.6 |
|
|
Employment Agreement, between the Registrant and Min Fan (incorporated by reference to Exhibit
10.6 from our Registration Statement on Form F-1 (file no. 333-110455) filed with the
Securities and Exchange Commission on November 13, 2003) |
|
|
|
|
|
|
4.7 |
|
|
Translation of Form of Consulting and Services Agreement between Ctrip Computer Technology
(Shanghai) Co., Ltd. and an Affiliated Chinese Entity of the Registrant, as currently in
effect (incorporated by reference to Exhibit 10.7 from our Registration Statement on Form F-1
(file no. 333-110455) filed with the Securities and Exchange Commission on November 13, 2003) |
72
|
|
|
|
|
Exhibit |
|
|
Number |
|
Document |
|
4.8 |
|
|
Translation of Form of Business Loan Agreement between Ctrip.com (Hong Kong) Limited and a
Shareholder of an Affiliated Chinese Entity of the Registrant, as currently in effect
(incorporated by reference to Exhibit 10.8 from our Registration Statement on Form F-1 (file
no. 333-110455) filed with the Securities and Exchange Commission on November 13, 2003) |
|
|
|
|
|
|
4.9 |
|
|
Translation of Form of Exclusive Option Agreement among Ctrip.com (Hong Kong) Limited, an
Affiliated Chinese Entity of the Registrant and the Shareholder of the Entity, as currently in
effect (incorporated by reference to Exhibit 10.9 from our Registration Statement on Form F-1
(file no. 333-110455) filed with the Securities and Exchange Commission on November 13, 2003) |
|
|
|
|
|
|
4.10 |
|
|
Translation of Form of Share Pledge Agreement among Ctrip Computer Technology (Shanghai) Co.,
Ltd. and a Shareholder of an Affiliated Chinese Entity of the Registrant, as currently in
effect (incorporated by reference to Exhibit 10.10 from our Registration Statement on Form F-1
(file no. 333-110455) filed with the Securities and Exchange Commission on November 13, 2003) |
|
|
|
|
|
|
4.11 |
|
|
Translation of Form of Operating Agreement between Ctrip Computer Technology (Shanghai) Co.,
Ltd. and an Affiliated Chinese Entity of the Registrant, as currently in effect (incorporated
by reference to Exhibit 10.13 from our Registration Statement on Form F-1 (file no.
333-110455) filed with the Securities and Exchange Commission on November 13, 2003) |
|
|
|
|
|
|
4.12 |
|
|
Translation of Lease Agreement dated May 1, 2003 between Ctrip Travel Information Technology
(Shanghai) Co., Ltd. and Yu Zhong (Shanghai) Consulting Co., Ltd. (incorporated by reference
to Exhibit 10.14 from our Registration Statement on Form F-1 (file no. 333-110455) filed with
the Securities and Exchange Commission on November 13, 2003) |
|
|
|
|
|
|
4.13 |
|
|
Translation of Form of Power of Attorney by a shareholder of an Affiliated Chinese Entity of
the Registrant, as currently in effect (incorporated by reference to Exhibit 10.15 from our
Registration Statement on Form F-1 (file no. 333-110455) filed with the Securities and
Exchange Commission on November 13, 2003) |
|
|
|
|
|
|
4.14 |
|
|
Confidentiality and Non-Competition Agreement, effective as of September 10, 2003, between the
Registrant and Qi Ji (incorporated by reference to Exhibit 10.16 from our Registration
Statement on Form F-1 (file no. 333-110455) filed with the Securities and Exchange Commission
on November 13, 2003) |
|
|
|
|
|
|
4.15 |
|
|
Form of Director Agreement between the Registrant and its director (incorporated by reference
to Exhibit 4.20 from our Annual Report on Form 20-F filed with the Securities and Exchange
Commission on May 11, 2004) |
|
|
|
|
|
|
4.16 |
|
|
Translation of Land Early Development Cost Compensation Agreement dated February 3, 2005
between Shanghai Hong Qiao Lin Kong Economic Development Park Co., Ltd. and Ctrip Travel
Information Technology (Shanghai) Co., Ltd. (incorporated by reference to Exhibit 4.18 from
our Annual Report on Form 20-F (file no. 000-50483) filed with the Securities and Exchange
Commission on June 22, 2005) |
|
|
|
|
|
|
4.17 |
|
|
Translation of Construction Agreement dated February 13, 2006 between Shanghai No. 1
Construction Co., Ltd. and Ctrip Travel Network Technology (Shanghai) Co., Ltd. (incorporated
by reference to Exhibit 4.5 from our Annual Report on Form 20-F (file no. 000-50483) filed
with the Securities and Exchange Commission on June 26, 2006) |
|
|
|
|
|
|
4.18 |
|
|
Translation of State Land Use Right Assignment Contract dated February 25, 2008 between
Nantong Land Resource Bureau and Ctrip Information Technology (Nantong) Co., Ltd.
(incorporated by reference to Exhibit 4.21 from our Annual Report on Form 20-F (file no.
001-33853) filed with the Securities and Exchange Commission on April 29, 2008) |
|
|
|
|
|
|
4.19 |
|
|
Ctrip.com International, Ltd. 2007 Share Incentive Plan, as amended and restated as of
November 17, 2008 (incorporated by reference to Exhibit 4.21 from our Annual Report on Form
20-F (file no. 001-33853) filed with the Securities and Exchange Commission on May 26, 2009) |
|
|
|
|
|
|
4.20 |
|
|
Summary of key terms of the form revolving credit facility agreement between each of Ctrip
Computer Technology (Shanghai) Co., Ltd., Ctrip Travel Information Technology (Shanghai) Co.,
Ltd. and Ctrip Travel Network Technology (Shanghai) Co., Ltd. and our consolidated affiliated
Chinese entity, Shanghai Huacheng Southwest Travel Agency Co., Ltd., and China Merchants Bank,
Shanghai Branch (incorporated by reference to Exhibit 4.22 from our Annual Report on Form 20-F
(file no. 001-33853) filed with the Securities and Exchange Commission on May 26, 2009) |
73
|
|
|
|
|
Exhibit |
|
|
Number |
|
Document |
|
4.21 |
|
|
Purchase Agreement dated May 7, 2009 between Ctrip.com International, Ltd. and Home Inns &
Hotels Management Inc. (incorporated by reference to Exhibit 99.(B) from our General Statement
of Acquisition of Beneficial Ownership on Schedule 13D (file no. 005-82520) filed with the
Securities and Exchange Commission on May 21, 2009) |
|
|
|
|
|
|
4.22 |
|
|
Registration Rights Agreement dated May 7, 2009 between Ctrip.com International, Ltd. and Home
Inns & Hotels Management Inc. (incorporated by reference to Exhibit 99.(C) from our General
Statement of Acquisition of Beneficial Ownership on Schedule 13D (file no. 005-82520) filed
with the Securities and Exchange Commission on May 21, 2009) |
|
|
|
|
|
|
4.23 |
|
|
Sale and Purchase Agreement dated February 3, 2010 among Wing On Travel (Holdings) Limited,
C-Travel International Limited and Ctrip.com International, Ltd. (incorporated by reference to
Exhibit 10.1 from our Registration Statement on Form F-3 (file no. 333-165150) filed with the
Securities and Exchange Commission on March 2, 2010) |
|
|
|
|
|
|
4.24 |
|
|
Subscription Agreement dated March 12, 2010 between Ctrip.com International, Ltd. and China
Lodging Group, Limited (incorporated by reference to Exhibit 99.(A) from our General Statement
of Acquisition of Beneficial Ownership on Schedule 13D (file no. 005-85408) filed with the
Securities and Exchange Commission on April 9, 2010) |
|
|
|
|
|
|
4.25 |
|
|
Share Purchase Agreement dated March 12, 2010 between Ctrip.com International, Ltd. and the
selling shareholders named therein (incorporated by reference to Exhibit 99.(B) from our
General Statement of Acquisition of Beneficial Ownership on Schedule 13D (file no. 005-85408)
filed with the Securities and Exchange Commission on April 9, 2010) |
|
|
|
|
|
|
4.26 |
|
|
Investor and Registration Rights Agreement dated March 12, 2010 between Ctrip.com
International, Ltd. and China Lodging Group, Limited (incorporated by reference to Exhibit
99.(C) from our General Statement of Acquisition of Beneficial Ownership on Schedule 13D (file
no. 005-85408) filed with the Securities and Exchange Commission on April 9, 2010) |
|
|
|
|
|
|
8.1 |
* |
|
Consolidated Entities of the Registrant |
|
|
|
|
|
|
11.1 |
|
|
Code of Business Conduct and Ethics of the Registrant, as amended and restated as of March 3,
2009 (incorporated by reference to Exhibit 8.1 from our Annual Report on Form 20-F (file no.
001-33853) filed with the Securities and Exchange Commission on May 26, 2009) |
|
|
|
|
|
|
12.1 |
* |
|
Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
12.2 |
* |
|
Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
13.1 |
* |
|
Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
13.2 |
* |
|
Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
15.1 |
* |
|
Consent of Maples and Calder |
|
|
|
|
|
|
15.2 |
* |
|
Consent of Commerce & Finance Law Offices |
|
|
|
|
|
|
15.3 |
* |
|
Consent of PricewaterhouseCoopers Zhong Tian CPAs Limited Company |
* |
|
Filed with this annual report on Form 20-F. |
74
Exhibit 8.1
Exhibit 8.1
Ctrip.com International, Ltd.
List of Consolidated Entities
C-Travel International Limited, a Cayman Islands company
Ctrip.com (Hong Kong) Limited, a Hong Kong company
Starway Hotels (Hong Kong) Limited, a Hong Kong company
Ctrip Computer Technology (Shanghai) Co., Ltd., a PRC company
Ctrip Travel Information Technology (Shanghai) Co., Ltd., a PRC company
Ctrip Travel Network Technology (Shanghai) Co., Ltd., a PRC company
Ctrip Information Technology (Nantong) Co., Ltd., a PRC company
China Software Hotel Information System Co., Ltd., a PRC company
Starway Hotels (Shanghai) Co., Ltd., a PRC company
ezTravel Co., Ltd., a Taiwan company
HKWOT (BVI) Limited, a BVI company
Beijing Ctrip International Travel Agency Co., Ltd., a PRC company
Shanghai Ctrip Commerce Co., Ltd., a PRC company
Guangzhou Ctrip Travel Agency Co., Ltd., a PRC company
Shanghai Huacheng Southwest Travel Agency Co., Ltd., a PRC company
Shanghai Ctrip International Travel Agency Co., Ltd. (formerly Shanghai Ctrip Charming
International Travel Agency Co., Ltd.), a PRC company
Shenzhen Ctrip Travel Agency Co., Ltd., a PRC company
Nantong Tongcheng Information Technology Co., Ltd., a PRC company
* Other consolidated entities of Ctrip.com International, Ltd. have been omitted from this list
since, considered in the aggregate as a single entity, they would not constitute a significant
subsidiary.
Exhibit 12.1
EXHIBIT 12.1
Certification by the Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Min Fan, certify that:
1. |
|
I have reviewed this annual report on Form 20-F of Ctrip.com International, Ltd. (the
Company); |
|
2. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the Company as of, and for, the periods presented in this report; |
|
4. |
|
The Companys other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the Company and have: |
|
(a) |
|
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the Company, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which
this report is being prepared; |
|
|
(b) |
|
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
|
|
(c) |
|
Evaluated the effectiveness of the Companys disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on
such evaluation; and |
|
(d) |
|
Disclosed in this report any change in the Companys internal control over
financial reporting that occurred during the period covered by the annual report that
has materially affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting; and |
5. |
|
The Companys other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the Companys auditors and the
audit committee of the Companys board of directors (or persons performing the equivalent
functions): |
|
(a) |
|
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the Companys ability to record, process, summarize and report financial
information; and
|
|
(b) |
|
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the Companys internal control over financial reporting. |
Date: March 31, 2011
|
|
|
|
|
By:
|
|
/S/ Min Fan
Name: Min Fan
|
|
|
|
|
Title: President and Chief Executive Officer |
|
|
Exhibit 12.2
EXHIBIT 12.2
Certification by the Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Jane Jie Sun, certify that:
6. |
|
I have reviewed this annual report on Form 20-F of Ctrip.com International, Ltd. (the
Company); |
|
7. |
|
Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
8. |
|
Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the Company as of, and for, the periods presented in this report; |
|
9. |
|
The Companys other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the Company and have: |
|
(a) |
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Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the Company, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which
this report is being prepared; |
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(b) |
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Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally
accepted accounting principles; |
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(c) |
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Evaluated the effectiveness of the Companys disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on
such evaluation; and |
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(d) |
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Disclosed in this report any change in the Companys internal control over
financial reporting that occurred during the period covered by the annual report that
has materially affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting; and |
10. |
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The Companys other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the Companys auditors and the
audit committee of the Companys board of directors (or persons performing the equivalent
functions): |
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(a) |
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All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely
affect the Companys ability to record, process, summarize and report financial
information; and |
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(b) |
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Any fraud, whether or not material, that involves management or other employees
who have a significant role in the Companys internal control over financial reporting. |
Date: March 31, 2011
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By:
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/S/ Jane Jie Sun
Name: Jane Jie Sun
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Title: Chief Financial Officer |
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Exhibit 13.1
EXHIBIT 13.1
Certification by the Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of Ctrip.com International, Ltd. (the Company) on Form
20-F for the year ended December 31, 2010 as filed with the Securities and Exchange Commission on
the date hereof (the Report), I, Min Fan, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Date: March 31, 2011
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By:
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/S/ Min Fan
Name: Min Fan
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Title: President and Chief Executive Officer |
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Exhibit 13.2
EXHIBIT 13.2
Certification by the Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of Ctrip.com International, Ltd. (the Company) on Form
20-F for the year ended December 31, 2010 as filed with the Securities and Exchange Commission on
the date hereof (the Report), I, Jane Jie Sun, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Date: March 31, 2011
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By:
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/S/ Jane Jie Sun
Name: Jane Jie Sun
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Title: Chief Financial Officer |
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Exhibit 15.1
EXHIBIT 15.1
[Maples and Calder letterhead]
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Our ref
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AEO\302248\3701903v2 |
Direct tel
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+852 2971 3081 |
Email
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alice.ooi@maplesandcalder.com |
Ctrip.com International, Ltd.
No. 99 Fu Quan Road
Shanghai 200335
Peoples Republic of China
March 31, 2011
Dear Sirs
Ctrip.com International, Ltd. (the Company)
We consent to the reference to our firm under the heading Taxation in the Companys Annual
Report on Form 20-F for the year ended 31 December 2010, which will be filed with the Securities
and Exchange Commission in the month of March, 2011.
Yours faithfully,
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/S/ Maples and Calder
Maples and Calder
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Exhibit 15.2
EXHIBIT 15.2
[Letterhead of Commerce & Finance Law Offices]
March 31, 2011
Ctrip.com International, Ltd.
No. 99 Fu Quan Road
Shanghai 200335, Peoples Republic of China
Dear Sirs:
We consent to the reference to our firm under the headings Key Information Risk Factors,
Information on the Company Business Overview PRC Government Regulations and Major
Shareholders and Related Party Transactions Related Party Transactions in Ctrip.com
International, Ltd.s Annual Report on Form 20-F for the year ended December 31, 2010, which will
be filed with the Securities and Exchange Commission in the month of March, 2011.
Yours faithfully,
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/S/ Commerce & Finance Law Offices
Commerce & Finance Law Offices
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Exhibit 15.3
EXHIBIT 15.3
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8
(No. 333-136264, No.333-116567 and No. 333-146761) and Form F-3 (No. 333-145161 and No. 333-165150)
of Ctrip.com International, Ltd. of our report dated March 31, 2011 relating to the financial
statements and the effectiveness of internal control over financial reporting, which appears in
this Form 20-F.
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/S/ PricewaterhouseCoopers Zhong Tian CPAs Limited Company
PricewaterhouseCoopers Zhong Tian CPAs Limited Company
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Shanghai, PRC
March 31, 2011