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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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2008.
or
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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 |
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, 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 |
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American Depositary Shares, each representing
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The NASDAQ Stock Market LLC |
0.5 ordinary shares, par value US$0.01 per |
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ordinary share |
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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. 33,468,023 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 o 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$0.01 per
ordinary share;
(3) ADSs refers to our American depositary shares, each of which represents 0.5 ordinary
shares;
(4) China and PRC refer to the Peoples Republic of China, and solely for the purpose of
this annual report, excluding Taiwan, Hong Kong and Macau; and
(5) all references to RMB and Renminbi are to the legal currency of China and all
references to U.S. dollars, US$, 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, 2006, 2007 and 2008.
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 (1) 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 (1) ordinary share to one (1) ADS representing one-half (0.5) of an 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.
1
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 and 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. |
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 risk factors described under
Item 3.D of this annual report, Risk Factors, included elsewhere in this annual report on Form
20-F, including the following risks:
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the slow-down of economic growth in China and the global economic downturn may
materially and adversely affect our 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 quarterly results are likely to fluctuate because of seasonality in the travel industry
in 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 may be severely disrupted if we lose the services of our key executives; |
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inflation in China and in other countries may disrupt our business and have an
adverse effect on our financial condition and results of operations; |
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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; 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.
2
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
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, 2006, 2007 and 2008 and the selected consolidated balance sheet data as of
December 31, 2007 and 2008 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, 2004 and 2005 and the selected consolidated balance sheet data as of December 31,
2004, 2005 and 2006 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 2008 financial statement 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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2004 |
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2005 |
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2006 |
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2007 |
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2008 |
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2008 |
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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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335,042 |
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524,183 |
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779,952 |
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1,199,111 |
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1,482,004 |
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217,223 |
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Cost of revenues |
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(51,637 |
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(88,627 |
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(153,132 |
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(236,226 |
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(326,610 |
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(47,872 |
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Gross profit |
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283,405 |
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435,556 |
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626,820 |
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962,885 |
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1,155,394 |
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169,351 |
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Operating expenses |
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Product development(1) |
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(38,510 |
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(57,913 |
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(105,938 |
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(177,302 |
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(235,800 |
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(34,562 |
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Sales and marketing(1) |
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(73,051 |
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(112,532 |
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(172,492 |
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(243,314 |
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(286,693 |
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(42,022 |
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General and administrative(1) |
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(38,114 |
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(42,651 |
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(93,174 |
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(137,944 |
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(171,694 |
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(25,166 |
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Total operating expenses |
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(149,675 |
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(213,096 |
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(371,604 |
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(558,560 |
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(694,187 |
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(101,750 |
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Income from operations |
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133,730 |
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222,460 |
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255,216 |
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404,325 |
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461,207 |
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67,601 |
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Net interest income and other income |
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11,952 |
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32,632 |
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26,846 |
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52,001 |
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86,045 |
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12,612 |
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Income before income tax expense and minority interests |
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145,682 |
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255,092 |
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282,062 |
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456,326 |
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547,252 |
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80,213 |
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Income tax expense |
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(12,517 |
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(30,577 |
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(41,277 |
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(58,006 |
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(102,914 |
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(15,084 |
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Minority interests |
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(39 |
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(269 |
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(221 |
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4 |
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(230 |
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(34 |
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Net income |
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133,126 |
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224,246 |
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240,564 |
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398,324 |
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444,108 |
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65,095 |
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Earnings Per Ordinary Share Data: |
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Net income attributable to ordinary shareholders |
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133,126 |
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224,246 |
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240,564 |
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398,324 |
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444,108 |
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65,095 |
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Earnings per ordinary share(4), basic |
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4.33 |
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7.06 |
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7.44 |
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12.10 |
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13.32 |
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1.95 |
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Earnings per ordinary share(4), diluted |
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4.23 |
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6.91 |
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7.23 |
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11.67 |
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12.90 |
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1.89 |
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Cash dividends per ordinary share paid(5) |
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1.26 |
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2.04 |
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2.11 |
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3.38 |
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0.488 |
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3
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As of December 31, |
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2004 |
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2005 |
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2006 |
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2007 |
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2008 |
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2008 |
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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 Balan ce Sheet Data: |
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Cash and cash equivalents |
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615,875 |
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735,062 |
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844,393 |
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1,064,418 |
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1,069,827 |
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156,809 |
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Short-term investment |
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141,174 |
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176,586 |
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25,883 |
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Accounts receivable, net |
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35,418 |
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63,392 |
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136,688 |
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260,684 |
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274,302 |
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40,205 |
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Other current assets |
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19,573 |
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52,861 |
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72,387 |
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81,365 |
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110,592 |
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16,210 |
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Non-current assets |
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69,852 |
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184,586 |
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398,385 |
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577,303 |
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929,259 |
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136,205 |
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Total assets |
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740,718 |
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1,035,901 |
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1,451,853 |
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2,124,944 |
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2,560,566 |
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375,312 |
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Current liabilities |
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138,744 |
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270,314 |
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421,045 |
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672,041 |
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626,037 |
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91,761 |
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Other long-term payables |
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2,438 |
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1,625 |
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813 |
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119 |
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Minority interests |
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603 |
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871 |
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673 |
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1,159 |
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2,628 |
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385 |
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Total shareholders equity |
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601,371 |
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764,716 |
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1,027,697 |
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1,450,119 |
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1,931,088 |
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283,047 |
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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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2004 |
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2005 |
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2006 |
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2007 |
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2008 |
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2008 |
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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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550 |
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403 |
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13,694 |
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22,708 |
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32,666 |
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4,788 |
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Sales and marketing |
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188 |
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258 |
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8,558 |
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13,649 |
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18,816 |
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2,758 |
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General and administrative |
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1,220 |
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1,116 |
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32,430 |
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50,557 |
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77,035 |
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11,291 |
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(2) |
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Translation from RMB amounts into U.S. dollars was made at a rate of RMB6.8225 to US$1.00.
See Exchange Rate Information. |
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(3) |
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Each ADS represents 0.5 ordinary shares. |
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(4) |
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On July 8, 2005, we distributed dividends in the aggregate amount of RMB40 million to our
shareholders of record as of June 30, 2005, at a dividend rate of RMB1.26, or US$0.1525, per
ordinary share. 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. |
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 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 your convenience, this annual report contains
translations of some RMB or U.S. dollar amounts for 2008 at US$1.00 : RMB6.8225, which was the
noon buying rate in effect as of December 31, 2008. The
prevailing rate on May 15, 2009 was
US$1.00 : RMB6.8225. 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.
4
The following table sets forth information concerning exchange rates between the RMB and the
U.S. dollar for the periods indicated. 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 Bank of New York.
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Noon Buying Rate |
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Period |
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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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(RMB per U.S. Dollar) |
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2004 |
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8.2765 |
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8.2768 |
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8.2774 |
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8.2764 |
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2005 |
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8.0702 |
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8.1826 |
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|
|
8.2765 |
|
|
|
8.0702 |
|
2006 |
|
|
7.8041 |
|
|
|
7.9579 |
|
|
|
8.0702 |
|
|
|
7.8041 |
|
2007 |
|
|
7.2946 |
|
|
|
7.5806 |
|
|
|
7.8127 |
|
|
|
7.2946 |
|
2008 |
|
|
6.8225 |
|
|
|
6.9193 |
|
|
|
7.2946 |
|
|
|
6.7800 |
|
December |
|
|
6.8225 |
|
|
|
6.8539 |
|
|
|
6.8842 |
|
|
|
6.8225 |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January |
|
|
6.8392 |
|
|
|
6.8360 |
|
|
|
6.8403 |
|
|
|
6.8225 |
|
February |
|
|
6.8395 |
|
|
|
6.8363 |
|
|
|
6.8470 |
|
|
|
6.8241 |
|
March |
|
|
6.8329 |
|
|
|
6.8360 |
|
|
|
6.8438 |
|
|
|
6.8240 |
|
April |
|
|
6.8180 |
|
|
|
6.8304 |
|
|
|
6.8361 |
|
|
|
6.8180 |
|
May (through
May 15, 2009) |
|
|
6.8225 |
|
|
|
6.8210 |
|
|
|
6.8248 |
|
|
|
6.8176 |
|
|
|
|
(1) |
|
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
The slow-down of economic growth in China and the global economic downturn have adversely affected
our business, and may materially and adversely affect our growth and profitability.
Our business and operations are primarily based in China and almost all 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 recently, and most of
the worlds major economies have entered into recession. Chinas economy has slowed down
significantly since the second half of 2008 and this trend may continue into the rest of 2009 and
beyond. Since we derive most of our revenues from hotel reservation, air-ticketing and
packaged-tour services in China, the recent economic slow-down in China has negatively affected
our operating results since the second half of 2008. Any persistent slow-down in Chinas economy
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, the current 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. Although we are uncertain
about the extent to which the recent global financial and economic crisis and slow-down of the
Chinese economy may affect our business and their impact on our
business in the short term and
long term, there is a risk that our business, results of operations and prospects would be
materially and adversely affected by the continuing global economic downturn and slow-down of the
Chinese economy.
5
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
fundamental demand for travel services. Other trends or events that tend to reduce travel and are
likely to reduce our revenues include:
|
|
|
an outbreak of H1N1 flu, avian flu, severe acute respiratory syndrome, or
SARS, or any other serious contagious diseases; |
|
|
|
|
increased prices in the hotel, air-ticketing, or other travel-related sectors; |
|
|
|
|
increased occurrence of travel-related accidents; |
|
|
|
|
natural disasters or poor weather conditions; and |
|
|
|
|
terrorist attacks or threats of terrorist attacks or wars. |
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 2008, the trading prices of our ADSs on the Nasdaq Global Market ranged from US$16.41 to
US$70.89 per ADS, and the closing price on May 22, 2009 was
US$37.04 per ADS. The price of our ADSs
may fluctuate in response to a number of events and factors, including the following:
|
|
|
actual or anticipated fluctuations in our quarterly operating results; |
|
|
|
|
changes in financial estimates by securities analysts; |
|
|
|
|
conditions in the Internet, online commerce or travel industries; |
|
|
|
|
changes in the economic performance or market valuations of other Internet, online commerce
or travel companies; |
|
|
|
|
changes in the economic performance or market valuations of other companies that focus on
the China market; |
|
|
|
|
announcements by us or our competitors of new products or services,
significant acquisitions, strategic partnerships, joint ventures or capital
commitments; |
|
|
|
|
additions or departures of key personnel; |
|
|
|
|
potential litigation; and |
|
|
|
|
market and volume fluctuations in the stock market in general. |
In particular, in 2008, the trading prices of shares and ADSs listed on major U.S. stock
exchanges experienced wide fluctuations, due in part to worldwide financial and economic turmoil.
The trading price of our ADSs was also subject to wide fluctuation during the period.
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.
6
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,
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. 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.
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
additionally 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.
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.
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 quarterly results are likely to fluctuate because of seasonality in the travel industry in
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.
7
Our business may be harmed if our infrastructure and technology are damaged or otherwise fail or
become obsolete.
Our first customer service center and substantially all of our computer and communications
systems are located at a single facility in Shanghai. Our second customer service center is
currently under construction 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 China Uncertainties 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 center 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 center may have negative experiences and
turn to our competitors, which could adversely affect our business and results of operations.
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 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 parts 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.
8
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. 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.
The principal shareholders of our affiliated Chinese entities have potential conflicts of interest
with us, which may adversely affect our business.
Our director, 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, 2008. 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 a
favorable transfer pricing. 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 new PRC Enterprise Income Tax Law, or the EIT
Law, effective on January 1, 2008, 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.
9
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.
Dividend payments derived from income earned prior to January 1, 2008 to foreign investors
made by foreign-invested enterprises, or FIEs, were exempt from PRC withholding tax under PRC tax
law. Pursuant to the EIT 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 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. Our subsidiaries in China are considered FIEs and
are directly held by our subsidiary in Hong Kong. According to the Mainland and Hong Kong Special
Administrative Region Arrangement on Avoiding Double Taxation or Evasion of Taxation on Income
agreed between the 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 withholding tax of 5%. On February 20, 2009,
the State Administration of Taxation promulgated the Notice on Relevant Issues of Implementing
Dividend Clauses under Tax Treaties, or the 2009 Notice. According to the 2009 Notice, no
enterprise is entitled to enjoy preferential treatment on dividend withholding tax rates 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. Since the 2009 Notice is newly issued, it remains
unclear how the PRC tax authorities will implement it in practice and to what extent it 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 was
set up for the purpose of taking advantage of the preferential tax rates on dividends, the higher
10% withholding tax rate may apply to such dividends.
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 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 sourced from within the PRC. It remains unclear whether the
dividends payable by a Chinese entity or the gains our foreign ADS holders may realize will be
regarded as income from sources within the PRC if we are classified as a PRC resident enterprise.
Any such tax will reduce the returns on your investment in our ADSs.
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, 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, regulates pricing of air
tickets as well as commissions payable to air-ticketing agencies. If restrictive policies are
adopted by CAAC or any of its regional branches, our air-ticketing revenues may be adversely
affected.
10
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 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.
Our business could suffer if we do not successfully manage current growth and potential future
growth.
Our business has grown rapidly during the last several years. We have rapidly 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 conditions and result 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 industry in
China. 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;
and |
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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 an 18.25% stake in Home Inns & Hotels Management Inc., 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 Home Inns. In addition, if the ADS price of Home Inns
declines and becomes lower than our share purchase price in the long term, we would incur
impairment loss under U.S. GAAP, which in turn would adversely affect our financial results for the
relevant periods.
11
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 China. 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, our services will not meet the expectations of our
customers and our reputation and brand will be damaged. In December 2008, one of our customers
purchased two aviation insurance policies from one of our local third-party air-ticketing agencies.
Such insurance policies turned out to be counterfeit. In March 2009, the customer filed a civil
lawsuit against us in a local court in Kunming, Yunnan province, claiming economic compensation of
approximately RMB100,000 (US$14,657). The court dismissed the case on jurisdictional grounds. This
incident has triggered significant negative media coverage of our company in China. If similar
incidents happen in the future and we are unable to deal with them properly, our public image may
suffer and our customers may cease to use our services, which would have a material and adverse
effect on our business and results of operation.
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 give 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
recognize 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.
If tax benefits available to our subsidiaries in China are reduced or repealed, our results of
operations could suffer.
Under the EIT law, 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 strongly supported by the State, 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
and Ctrip Travel Network were each designated by relevant local authorities in Shanghai as a high
and new technology enterprise under the EIT Law. Therefore, these entities are entitled to enjoy a
preferential tax rate of 15% as long as they maintain their qualification for high and new
technology enterprise, which is subject to reevaluation in three years. 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 25% EIT rate, which could
materially increase our tax obligations.
We may be subject to additional business tax for our hotel reservation services.
Some
of our hotel reservation services customers prepay for their expected
hotel stays with the entire amount of hotel charges before checking in. As a result, we issue them invoices
representing the entire amount of their expected hotel charges. Although we only recognize
commissions on such hotel reservations as revenues, we cannot assure that, in these cases, the PRC
tax authorities will not deem the entire invoiced amount as our revenue and impose business tax on
such amount. Payment of business tax on the full amounts represented by these invoices may have a
material adverse effect on our financial condition and results of operations.
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.
12
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.
Inflation in China may disrupt our business and have an adverse effect on our financial condition
and results of operations
Historically, China has experienced significant inflation and we cannot assure you that
further inflation will not occur in the future. If inflation recurs, the scope and the extent of
inflation could adversely affect the Chinese economy and both business and personal travel
behavior. If inflation leads to a reduction in business and leisure travel, our business,
financial condition and results of operations would be adversely impacted. Furthermore, we cannot
assure you that, under competitive pressure, we will be able to implement price increases, which
could adversely impact our business, financial condition and results of operations.
The recurrence of SARS and other similar outbreaks such as H1N1 flu (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 and was felt across much of the country, 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 flu (swine flu)
occurred in Mexico and the United States and human cases of swine flu
were discovered in China
and Hong Kong. Our business and operating results were adversely affected in all cases.
A recurrence of an outbreak of SARS, avian flu, swine flu or other contagious diseases,
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 outbreak of any contagious disease or occurrence of
natural disasters could have a material adverse effect on our business and operating results.
We have limited business insurance coverage in China.
Insurance companies in 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 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-payments in our
accounts receivable and, when 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.
13
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 FASB Statement
No. 123R, Share-Based Payment, or FAS No. 123R, 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. In 2008, share-based compensation expense reduced our diluted
earnings per ADS by approximately US$0.27. The adoption of SFAS No.123R may 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 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, 2008.
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, 2008. 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.
We may need additional capital and we may not be able to obtain it.
We believe that our current cash and cash equivalents and cash flow from operations 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 our existing 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 current 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 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.
Substantially all of our business operations are conducted in 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.
14
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. This
change in policy has resulted in a greater fluctuation range between the RMB and the U.S. dollar
and caused the RMB to appreciate approximately 21.5% against the U.S. dollar over the following
three years. On May 19, 2007, the Peoples Bank of China announced a policy to expand the maximum
daily floating range of the RMB trading prices against the U.S. dollar in the inter-bank spot
foreign exchange market from 0.3% to 0.5%. With this increased floating range, the RMBs value may
appreciate or depreciate significantly against the U.S. dollar or other foreign currencies in the
long term, depending on the fluctuation of the basket of currencies against which it is currently
valued. For example, the RMB appreciated approximately 27% against the Euro between July 2008 and
November 2008. It is difficult to predict how long the current situation may last and when and how
it may change again.
Our revenues and costs are mostly 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 substantially all 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 (1996), as amended,
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 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
the PRC, 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, 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 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 the PRC 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.
15
Online payment systems in China are at an early stage of development and may restrict our ability
to expand our online commerce service 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 commerce 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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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
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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.
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 organization 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, China Telecom and China Netcom to provide data communications capacity
primarily. 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.
16
Risks Related to the 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 (2007 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 the United States. In
particular, the Cayman Islands has a less developed body of securities laws as compared to the
United States, and provides significantly less protection to investors. 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. In addition, Cayman Islands companies may not
have standing to initiate a shareholder derivative action before the federal courts of the United
States. As a result, we may not be able to protect our interests if we are harmed in a manner that
would otherwise enable us to sue in a United States federal court.
Your ability to bring an action against us or against our directors and officers, or to enforce a
judgment against us or them, will be limited because we are incorporated in the Cayman Islands,
because we conduct a substantial portion 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 a substantial portion 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
or impossible for you to bring an action against us or against these individuals in the Cayman
Islands or in China in the event that you believe that your rights have been infringed under the
securities laws or otherwise. Even if you are successful in bringing an action of this kind, the
laws of the Cayman Islands and of China may render you unable to enforce a judgment against our
assets or the assets of our directors and officers.
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 but only if we ask the depositary to ask for your instructions. Otherwise, you will not
be able to exercise your right to vote unless you withdraw the shares. However, you may not know
about the meeting enough in advance to withdraw the 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 our
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 Securities Act, or an exemption from the registration requirements is available.
Also, under the deposit agreement, the depositary bank will not make rights available to you those
rights 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.
17
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.
The sale, deposit, cancellation and transfer of the ADSs issued after exercise of rights may be
restricted.
If we offer holders of our ordinary shares any rights to subscribe for additional shares or
any other rights, the depositary may make these rights available to you. However, the depositary
may allow rights that are not distributed or sold to lapse. In that case, you will receive no value
for them. In addition, U.S. securities laws may restrict the sale, deposit, cancellation and
transfer of the ADSs issued after exercise of rights. 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 or an exemption from the registration requirements is available.
Also, under the deposit agreement, the depositary will not distribute rights to holders of ADSs
unless the distribution and sale of rights and the securities to which these rights relate are
either exempt from registration under the Securities Act with respect to all holders of ADSs, or
are registered under the provisions of the Securities Act. We can give no assurance that we can
establish an exemption from registration under the Securities Act, and we are under no obligation
to file a registration statement with respect to these rights or underlying securities or to
endeavor to have a registration statement declared effective. Accordingly, you may be unable to
participate in our rights offerings and may experience dilution of your holdings as a result.
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.
ITEM 4. 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 Cayman Islands Companies Law, and soon thereafter, all of the shareholders of Ctrip.com
(Hong Kong) Limited transferred their shares to the holding company in exchange for shares of the
holding company and Ctrip.com (Hong Kong) Limited became our wholly-owned subsidiary.
Since our inception, we have conducted substantially all of our operations in China. As of
December 31, 2008, we operated as a foreign investment enterprise in China through the following
subsidiaries:
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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; |
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Ctrip Information Technology (Nantong) Co., Ltd., or Ctrip Information Technology; |
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Starway Hotels (Shanghai) Co., Ltd., or Starway Shanghai; and |
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China Software Hotel Information System Co., Ltd., or Software Hotel Information. |
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We also conduct part of our business in China through the following consolidated affiliated
Chinese entities:
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Beijing Ctrip International Travel Agency Co., Ltd., or Beijing Ctrip, which holds
domestic and cross-border travel agency license and air transport sales agency licenses; |
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Shanghai Ctrip Commerce Co., Ltd., or Ctrip Commerce, which holds value-added
telecommunications business license; |
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Guangzhou Ctrip International Travel Agency Co., Ltd., or Guangzhou Ctrip, which
holds domestic and cross-border travel agency and air transport sales agency licenses; |
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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; |
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Shanghai Ctrip International Travel Agency Co., Ltd. (formerly Shanghai Ctrip
Charming International Travel Agency Co., Ltd.), or Shanghai Ctrip, which holds domestic
and cross-border travel agency licenses and air transport sales agency license; |
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Shenzhen Ctrip Travel Agency Co., Ltd., or Shenzhen Ctrip, which holds air
transport sales agency and domestic travel agency licenses; and |
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Nantong Tongcheng Information Technology Co., Ltd., or Nantong
Tongcheng, which holds value-added telecommunications business license. |
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 & Hotels Management Inc., or Home Inns, in June 2006. Home Inns went public and its ADSs were
listed on the Nasdaq Global Market in October 2006. During the period from September 12, 2008 to
December 31, 2008, we purchased ADSs of Home Inns on the open market representing 9% of the total
outstanding shares of Home Inns as of December 31, 2008. 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 $50 million in cash. This transaction closed on May
21, 2009. As a result, our aggregate equity interest in Home Inns has increased to 18.25% of the
total outstanding shares of Home Inns as of May 21, 2009.
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., an online
travel service provider in Taiwan that offers packaged-tours as well as hotel and airline tickets
reservation services. 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 anticipation of future business expansion.
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.
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 and international flights originating from 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 (free
individual 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 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.
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We believe that we are the largest consolidator of hotel accommodations in China in terms of
the number of hotel room nights booked. As of December 31, 2008, we had secured room supply
relationships with approximately 7,700 hotels in China and approximately 16,000 hotels abroad,
which cover a broad range of hotels in terms of price and geographical location. As of December 31,
2008, 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 67% of the hotels in China
with whom we have a supply relationship. Rooms booked in guaranteed allotment hotels accounted for
approximately 85% of our hotel transactions for the year ended December 31, 2008. 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- and five-star hotels
comprised approximately 80% of our revenues from our hotel reservation business in 2008.
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 from 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 50 major cities in China.
We also offer independent leisure travelers bundled package-tour products, which include
transportation and accommodations, as well as guided tours in some instances. Our package-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 center and bilingual websites. In
2008, transactions effected through our customer service center accounted for approximately 70% 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 2008, we
derived 48% of our revenues from the hotel reservation business and 42% 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 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, and 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 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, 2008, we had contracted with approximately 7,700 hotels in China, of which
approximately 5,200 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 travel suppliers.
Air-ticketing. We sell air tickets for all major domestic Chinese airlines, including Air
China, China Eastern Airlines, China Southern Airlines and Shanghai Airlines and many international
airlines operating flights that originate from cities in China, such as United Airlines, Northwest
Airlines, Air Canada, DragonAir and Lufthansa.
In air-ticketing transactions, a customer generally pays the ticket delivery agent upon
delivery of 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.
Other Products and Services. We offer travel-related businesses and other third parties the
opportunity to advertise on our websites. We sell travel guidebooks, which provide useful
information for independent travelers. We provide air-ticket delivery and insurance services to our
customers. We sell VIP membership cards that allow cardholders to enjoy certain priority in
obtaining our services and receiving discounts from many restaurants, clubs and bars in various
cities in China. We also offer these membership cards free of charge
to select customers who
have purchased a certain amount of travel services from us. Other products and services accounted
for a small portion of our total revenues in 2008.
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 center or our bilingual websites located at www.ctrip.com and english.ctrip.com.
In 2008, transactions executed through our customer service center and websites account for
approximately 70% and 30%, respectively, of our total transactions.
Customer Service Center. Our centralized toll-free customer service center is located in
Shanghai, China and is operated 24 hours a day, seven days a week. 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, 2008, we employed approximately 4,700 customer service representatives, as
compared with 3,700 customer service representatives as of December 31, 2007. 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 a 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 undertake system redesign to our existing
systems. In September 2008, we announced the construction of a new customer service center in
Nantong, China, which would further increase our customer service capacity.
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.
Marketing and Brand Awareness
Through on-site promotions, cross-marketing, online marketing, advertising and our customer
reward 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.
On-Site Promotions. We have on-site promotion staff in more than 45 major cities in China. Our
staff distributes membership cards and introductory brochures 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, telecommunications service providers, financial
institutions and other
corporations.
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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
telecommunications service provider partners direct their subscribers requesting travel information
to our customer service center through automatic call forwarding, or to our websites through an
Internet link on their websites. In addition, our bank 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.
Total number of holders of this dual-currency travel credit card exceeded 150 million as of
February 28, 2009. This credit card is one of the leading joint-launching 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 April 30, 2009, the number of holders of this credit card
exceeded 400,000.
Online Marketing. We have paid many of the leading Internet search engines and portals in
China to prominently feature our websites.
Advertising. We advertise in top tier newspapers, radio broadcasting and traffic hubs in
Chinas major cities where we have a sales team. Based on our experience, this is an effective
advertising method for increasing brand awareness and attracting new customers.
Customer Reward Program. To secure our customers loyalty and further promote our Ctrip brand,
we provide our customers with a customer reward program. This program allows our customers to
accumulate membership points calculated according to the services purchased by the customers. Our
customers may then redeem these points for travel awards and other gifts.
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 center 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 an Avaya S8700 media server. 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. 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.
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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
![(CHINESE CHARACTERS)](https://cdn.kscope.io/081756194e1db41f6a99cd0f3ea1c90b-c85975c8597502.gif)
with the Trademark Office of the PRC State General Administration
for Industry and Commerce, or SAIC. We have registered the trademark Ctrip and
![(CHINESE CHARACTERS)](https://cdn.kscope.io/081756194e1db41f6a99cd0f3ea1c90b-c85975c8597503.gif)
with the
Registrar of Trademarks in Hong Kong. We have also registered the trademark Ctrip with the Untied
States Patent and Trademark Office.
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 State Industrial and Commercial Bureau. 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, 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 in our affiliated Chinese entities as of December 31, 2008.
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 passenger 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,
other than travel agencies with investments from Hong Kong or Macau investors in the Guangxi,
Hunan, Hainan, Fujian, Jiangxi, Yunnan, Guizhou and Sichuan regions being permitted to arrange for
the travel of residents in the aforementioned regions from mainland China to Hong Kong and Macau,
foreign travel agencies cannot arrange for the travel of 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.
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Value-added Telecommunications Business License. The principal regulations governing foreign
ownership of the telecommunications related value-added service provision business in China
include:
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Administrative Rules for Foreign Investments in Telecommunications Enterprises (2008
Revision); and |
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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.
In July 2006, 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. Prior to March 31, 2006,
the principal regulation governing air-ticketing in China is the Administration on Civil Aviation
Transporting Marketing Agency Business Regulations (1993). The said regulation was abolished by PRC
government on January 24, 2008. 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 these regulations, starting from May 19, 2005, any entity that wishes to conduct
air-ticketing business in China must apply for an air-ticketing permit from CNATA. The regulations
provide for a transitional grace period for air-ticketing agencies that have obtained a valid
license from CAAC or its regional branch prior to the promulgation of the new rules. These agencies
are permitted to use their original licenses until such licenses expire.
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:
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Travel Agency Regulations, effective as of May 1, 2009; and |
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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:
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Advertising Law (1994); |
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Administration of Advertising Regulations (1987); and |
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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
Information Industry and the SAIC. The principal regulations governing the telecommunications
industry and Internet include:
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Telecommunications Regulations (2000); |
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The Administrative Measures for Telecommunications Business Operating Licenses, effective as
of April 10, 2009; and |
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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.
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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.
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; |
|
|
|
|
Administrative Rules under the Foreign Investment Enterprise Law (2001); |
|
|
|
|
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 withholding tax 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 sourced from within the PRC and 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.
25
C. Organizational Structure
The following table sets out the details of our subsidiaries as of December 31, 2008:
|
|
|
|
|
|
|
|
|
Name |
|
Country of Incorporation |
|
|
Ownership Interest |
|
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 |
% |
China Software Hotel Information System Co., Ltd. |
|
China |
|
|
90 |
% |
Starway Hotels (Shanghai) Co., Ltd. |
|
China |
|
|
100 |
% |
Ctrip.com (Hong Kong) Limited |
|
Hong Kong |
|
|
100 |
% |
Starway Hotels (Hong Kong) Limited |
|
Hong Kong |
|
|
100 |
% |
C-Travel International Limited |
|
The Cayman Islands |
|
|
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, including:
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|
Beijing Ctrip; |
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|
|
|
Ctrip Commerce; |
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|
|
|
Guangzhou Ctrip; |
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|
|
|
Shanghai Huacheng; |
|
|
|
|
Shanghai Ctrip; |
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|
|
|
Shenzhen Ctrip; and |
|
|
|
|
Nantong Tongcheng. |
As of December 31, 2008, Min Fan, our co-founder, shareholder, director and chief executive
officer, Jianmin Zhu, our senior vice president, Tao Yang, our senior executive, Gangyi Yan, our
senior executive, and Fengying Zhang, a family member of a senior 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 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. We have branch offices in Hong Kong, Beijing,
Guangzhou, Shenzhen, Chengdu, Qingdao, Shenyang, Xiamen, Hangzhou, Wuhan, Nanjing and Sanya. We
also maintain a sales network in more than 45 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 January 2008 for approximately RMB49 million (US$7.2
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 RMB450 million (US$66 million) to
RMB500 million (US$73 million). Approximately RMB108 million was paid in 2008, with the remainder
expected to be paid in next three years. The first phase of the
Nantong customer service center is expected to
go into operation in 2010.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
26
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.
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 2008, we derived 48%, 42%, 7% and 3% of our revenues from our hotel reservation, air
ticketing, packaged-tour 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 26, 2009, the gross domestic
product, or GDP, of China grew from RMB16.0 trillion (US$2.3 trillion) in 2004 to RMB30.1 trillion
(US$4.4 trillion) in 2008, representing a compound annual growth rate of 17%. GDP per capita in
the same period rose from RMB12,336 (US$1,808) to RMB22,640 (US$3,318), representing a 16%
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 26, 2009, domestic tourism spending grew from RMB471.1 billion (US$69.0
billion) in 2004 to RMB874.9 billion (US$128.2 billion) in 2008, representing a compound annual
growth of 17%. 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 and
economic crisis, 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:
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|
the outbreak of SARS, avian flu, H1N1 flu (swine flu) or any other serious contagious
diseases; |
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increased prices in the hotel, airline or other travel-related industries. |
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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 war; 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 and was felt across much of the country, 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 flu (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.
27
A recurrence of an outbreak of SARS, avian flu, swine flu or other contagious diseases,
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 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 revenues grew from RMB354 million in 2004 to
RMB1.6 billion (US$233 million) in 2008, representing a compound annual growth rate of 46%.
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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|
|
|
Year-Ended December 31, |
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Hotel reservation |
|
|
57 |
% |
|
|
53 |
% |
|
|
48 |
% |
Air ticketing |
|
|
35 |
% |
|
|
39 |
% |
|
|
42 |
% |
Packaged-tour* |
|
|
5 |
% |
|
|
6 |
% |
|
|
7 |
% |
Others |
|
|
3 |
% |
|
|
2 |
% |
|
|
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
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 2006, 2007 and 2008, revenues from our hotel reservation
business accounted for RMB476 million, RMB677 million and RMB764 million (US$112 million),
respectively, or 57%, 53% and 48%, 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.
Air-Ticketing. Since early 2002, our air-ticketing business has been growing rapidly. In 2006,
2007 and 2008, revenues from our air-ticketing business accounted for RMB293 million, RMB503
million and RMB659 million (US$97 million), respectively, or 35%, 39% and 42% 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. We generally receive a higher
commission rate per ticket as the total number of tickets we sell for an airline increases, subject
to any applicable regulatory restrictions.
Packaged-tour. Our packaged-tour business has grown rapidly in the past three years. In 2006,
2007 and 2008, revenues from our packaged-tour business accounted for RMB42 million, RMB71 million
and RMB109 million (US$16 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 Chinese
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.
28
Other Products and Services. Our other products and services primarily consist of
Internet-related advertising services and 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 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 63%, 64% and 61% of our cost of revenues in 2006, 2007 and 2008, respectively.
Telecommunication expenses remained unchanged at 14% of our cost of revenues from 2006 to 2008.
Credit card charges accounted for 11%, 15% and 15% of our cost of revenues in 2006, 2007 and 2008,
respectively.
Cost of revenues accounted for 20%, 20% and 22% of our net revenues in 2006, 2007 and 2008,
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 increase of percentage of cost of revenues over net
revenues in 2008 was largely due to the relatively higher cost of revenues as a result of increased
revenue contribution from air-ticketing services and packaged tours, which was partially offset by
our efforts to increase efficiency of customer service.
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 2008, we recorded RMB129 million (US$19 million) of share-based compensation expense
compared to RMB55 million and RMB87 million for 2006 and 2007, 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 as a percentage of net revenues increased from 15%
in 2007 to 16% in 2008, primarily due to the increased share-based compensation expenses and
product development personnel.
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 as a percentage of net revenues decreased from 20% in 2007 to 19% in
2008, primarily due to a decrease in commission expenses.
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. General and administrative expenses as a percentage of net revenues remained
consistent at 12% from 2006 to 2008.
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 15%, 13% and 19% for 2006, 2007 and 2008,
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 and Ctrip Travel Network, and our
consolidated affiliated Chinese entity, Shenzhen Ctrip, as discussed below.
29
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 2007 from 2006 was primarily due to an increase in deferred tax
benefit resulting from the application of the tax rate of 25% under the EIT Law as of December 31,
2007, as required by applicable accounting guidelines. The increase in the effective tax rate for
2008 from 2007 was primarily due to changes to preferential tax treatment received under the new
EIT Law.
On April 14, 2008, the Ministry of Science and Technology and the Ministry of Finance and
State Administration of Taxation 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.
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 our subsidiaries, Ctrip Computer Technology, Ctrip
Travel Information and Ctrip Travel Network, and our consolidated affiliated Chinese entity,
Shenzhen Ctrip.
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|
|
In 2007 and 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 15%
EIT rate. |
|
|
|
|
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 15% EIT rate. |
|
|
|
|
During 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 for 2007. Ctrip Travel Networks qualification for the above
preferential EIT rate was terminated in 2008 due to the promulgation of the EIT Law. In 2008,
Ctrip Travel Network was designated as a high and new technology enterprise by the relevant PRC
government authorities and thus was entitled to a preferential 15% EIT rate. |
|
|
|
|
Shenzhen Ctrip was entitled to a preferential tax rate of 18% as granted by the local tax
bureau based on its registration in the city of Shenzhen in China in 2008. Shenzhen Ctrip is
entitled to a transitional preferential tax rate of 20% for 2009. |
Financial Subsidies. In 2006, 2007 and 2008, 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 RMB11 million, RMB21 million and RMB24 million (US$4 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 Staff Accounting Bulletin No. 104, Revenue Recognition in
Financial Statements and Emerging Issues Task Force 99-19 Reporting Revenue Gross as a Principal
versus Net as an Agent to our policies for revenue recognition and presentation of statement of
operations. 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.
30
Investment. We apply the Accounting Principles Board No. 18, The Equity Method of Accounting
for Investments in Common Stock, or APB No. 18, in accounting for our investments. Under APB No.
18, 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 Statement of Financial Accounting Standards No. 115,
Accounting for Certain Debt and Equity Securities, or SFAS No. 115. SFAS No. 115 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.
Business Combination. We apply Statement of Financial Accounting Standards No. 141, Business
Combination , or SFAS No. 141, which requires that all business combinations be accounted for
under the purchase method. 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, equity instruments
issued, and costs directly attributable to the acquisition. Identifiable assets, liabilities and
contingent liabilities acquired or assumed are measured separately at their fair value as of the
acquisition date. The excess of the cost of the acquisition over our interest in the fair value of
the identifiable net assets acquired is recorded as goodwill.
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. Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets, 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. Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-lived Assets
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 2007 and 2008, 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. Throughout the past year, 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 Reward Program. We offer a customer reward 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, 2007 and 2008, our accrued balance for the customer reward
program were approximately RMB45 million and RMB58 million (US$9 million), respectively. Our
expenses for the customer reward program were approximately RMB42 million and RMB55
million (US$8 million) for the years ended December 31, 2007 and 2008. We estimate our
liabilities under our customer reward 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. In January 2006 we adopted Statement of Financial Accounting
Standards No.123R, or SFAS No. 123R, using the modified prospective method and therefore have not
restated prior periods results. Under the fair value recognition provisions of SFAS No.123R, 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.
Prior to our adoption of SFAS No. 123R, we accounted for share-based payments under APB No. 25 and
accordingly, recognized share-based compensation expense related to stock options with intrinsic
value approach with required disclosures and accounted for forfeitures as they occurred.
Under SFAS No. 123R, 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. 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.
31
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, 2007 and 2008, we
recorded deferred tax assets of RMB11.3 million and RMB8.8 million (US$1.3 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, 2007 and 2008, we did not record
any valuation allowances to reduce our deferred tax assets, as we believed that our deferred tax
asset amounts were more likely than not to be realized based on our estimate of future taxable
income.
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, 2007 and 2008,
the allowance for doubtful accounts was RMB3 million and RMB12,388 (US$1,816), respectively.
Results of Operations
The following table sets forth a summary of our consolidated statements of operations for the
periods indicated both in amount and as a percentage of net revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
|
RMB |
|
|
|
|
|
|
RMB |
|
|
|
|
|
|
RMB |
|
|
US$ |
|
|
|
|
|
|
(in thousands) |
|
|
% |
|
|
(in thousands) |
|
|
% |
|
|
(in thousands) |
|
|
(in thousands) |
|
|
% |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel reservation |
|
|
476,495 |
|
|
|
61 |
|
|
|
676,511 |
|
|
|
56 |
|
|
|
763,727 |
|
|
|
111,942 |
|
|
|
52 |
|
Air ticketing |
|
|
292,701 |
|
|
|
38 |
|
|
|
503,453 |
|
|
|
42 |
|
|
|
659,398 |
|
|
|
96,651 |
|
|
|
44 |
|
Packaged-tour(1) |
|
|
41,702 |
|
|
|
5 |
|
|
|
71,496 |
|
|
|
6 |
|
|
|
109,245 |
|
|
|
16,012 |
|
|
|
7 |
|
Others |
|
|
23,129 |
|
|
|
3 |
|
|
|
35,818 |
|
|
|
3 |
|
|
|
55,969 |
|
|
|
8,204 |
|
|
|
4 |
|
Total revenues |
|
|
834,027 |
|
|
|
107 |
|
|
|
1,287,278 |
|
|
|
107 |
|
|
|
1,588,339 |
|
|
|
232,809 |
|
|
|
107 |
|
Less: Business tax and related surcharges |
|
|
(54,075 |
) |
|
|
(7 |
) |
|
|
(88,167 |
) |
|
|
(7 |
) |
|
|
(106,335 |
) |
|
|
(15,586 |
) |
|
|
(7 |
) |
Net revenues |
|
|
779,952 |
|
|
|
100 |
|
|
|
1,199,111 |
|
|
|
100 |
|
|
|
1,482,004 |
|
|
|
217,223 |
|
|
|
100 |
|
Cost of revenues |
|
|
(153,132 |
) |
|
|
(20 |
) |
|
|
(236,226 |
) |
|
|
(20 |
) |
|
|
(326,610 |
) |
|
|
(47,872 |
) |
|
|
(22 |
) |
Gross profit |
|
|
626,820 |
|
|
|
80 |
|
|
|
962,885 |
|
|
|
80 |
|
|
|
1,155,394 |
|
|
|
169,351 |
|
|
|
78 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development(2) |
|
|
(105,938 |
) |
|
|
(14 |
) |
|
|
(177,302 |
) |
|
|
(15 |
) |
|
|
(235,800 |
) |
|
|
(34,562 |
) |
|
|
(16 |
) |
Sales and marketing(2) |
|
|
(172,492 |
) |
|
|
(22 |
) |
|
|
(243,314 |
) |
|
|
(20 |
) |
|
|
(286,693 |
) |
|
|
(42,022 |
) |
|
|
(19 |
) |
General and administrative(2) |
|
|
(93,174 |
) |
|
|
(12 |
) |
|
|
(137,944 |
) |
|
|
(12 |
) |
|
|
(171,694 |
) |
|
|
(25,166 |
) |
|
|
(12 |
) |
Total operating expenses |
|
|
(371,604 |
) |
|
|
(48 |
) |
|
|
(558,560 |
) |
|
|
(47 |
) |
|
|
(694,187 |
) |
|
|
(101,750 |
) |
|
|
(47 |
) |
Income from operations |
|
|
255,216 |
|
|
|
33 |
|
|
|
404,325 |
|
|
|
34 |
|
|
|
461,207 |
|
|
|
67,601 |
|
|
|
31 |
|
Interest income |
|
|
15,632 |
|
|
|
2 |
|
|
|
16,704 |
|
|
|
1 |
|
|
|
31,100 |
|
|
|
4,559 |
|
|
|
2 |
|
Other income |
|
|
11,214 |
|
|
|
1 |
|
|
|
35,297 |
|
|
|
3 |
|
|
|
54,945 |
|
|
|
8,053 |
|
|
|
4 |
|
Income before income tax expense and minority interests |
|
|
282,062 |
|
|
|
36 |
|
|
|
456,326 |
|
|
|
38 |
|
|
|
547,252 |
|
|
|
80,213 |
|
|
|
37 |
|
Income tax expense |
|
|
(41,277 |
) |
|
|
(5 |
) |
|
|
(58,006 |
) |
|
|
(5 |
) |
|
|
(102,914 |
) |
|
|
(15,084 |
) |
|
|
(7 |
) |
Minority interests |
|
|
(221 |
) |
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
(230 |
) |
|
|
(34 |
) |
|
|
|
|
Net income |
|
|
240,564 |
|
|
|
31 |
|
|
|
398,324 |
|
|
|
33 |
|
|
|
444,108 |
|
|
|
65,095 |
|
|
|
30 |
|
|
|
|
(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) |
|
Share-based compensation was included in the associated operating expense categories as
follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
|
RMB |
|
|
|
|
|
|
RMB |
|
|
|
|
|
|
RMB |
|
|
US$ |
|
|
|
|
|
|
(in thousands) |
|
|
% |
|
|
(in thousands) |
|
|
% |
|
|
(in thousands) |
|
|
(in thousands) |
|
|
% |
|
Product development |
|
|
(13,694 |
) |
|
|
(2 |
) |
|
|
(22,708 |
) |
|
|
(2 |
) |
|
|
(32,666 |
) |
|
|
(4,788 |
) |
|
|
(2 |
) |
Sales and marketing |
|
|
(8,558 |
) |
|
|
(1 |
) |
|
|
(13,649 |
) |
|
|
(1 |
) |
|
|
(18,816 |
) |
|
|
(2,758 |
) |
|
|
(1 |
) |
General and administrative |
|
|
(32,430 |
) |
|
|
(4 |
) |
|
|
(50,557 |
) |
|
|
(4 |
) |
|
|
(77,035 |
) |
|
|
(11,291 |
) |
|
|
(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.
32
2008 compared to 2007
Revenues
Total revenues were RMB1.6 billion (US$233 million) in 2008, an increase of 23% over RMB1.3
billion in 2007. This revenues growth was principally driven by the substantial volume growth in
hotel room nights sold and air tickets sold in 2008.
Hotel Reservation. Revenues from our hotel reservation business increased by 13% to RMB764
million (US$112 million) in 2008 from RMB677 million in 2007, primarily as a result of the
continued rapid growth in our hotel room nights sales volume. The total number of hotel room nights
sold in 2008 increased by 14% from 2007. In 2008, the average commission per room night remained
substantially unchanged as compared with that in 2007.
Air-Ticketing. Revenues from our air-ticketing business increased by 31% to RMB659 million
(US$97 million) in 2008 from RMB503 million in 2007, primarily due to strong growth of air tickets
sales volume as we continued to significantly expand our air ticketing capabilities. The total
number of air tickets sold in 2008 increased by 41% from 2007. In 2008, the average commission per
ticket sold decreased by 6% from 2007, which was caused by a decrease in per ticket sales price of
air tickets.
Packaged-tour. Packaged-tour revenues increased by 53% from RMB71 million in 2007 to RMB109
million (US$16 million) in 2008, as we continued growing our packaged-tour business product and
service offerings.
Other businesses. Revenues from other businesses increased by 56% from RMB36 million in 2007
to RMB56 million (US$8 million) in 2008 primarily due to increased sales of air-ticket insurance
and advertising services.
Business tax and related surcharges
Our business tax and related surcharges increased by 21% from RMB88 million in 2007 to RMB106
million (US$16 million) in 2008 as a result of increased revenues in all of our business lines.
Cost of Revenues
Cost of revenues in 2008 increased by 38% to RMB327 million (US$48 million) from RMB236
million in 2007. This increase was primarily attributable to increased costs associated with our
rapidly growing air-ticketing and packaged-tour businesses and, to a less extent, the expansion of
our hotel reservation business. Additionally, our customer service personnel increased to 4,700 in
2008 from 3,700 in 2007.
Operating Expenses
Operating expenses include product development expenses, sales and marketing expenses and
general and administrative expenses.
Product Development. Product development expenses increased by 33% to RMB236 million (US$35
million) in 2008 from RMB177 million in 2007, primarily due to an increase in product development
personnel to 2,000 employees in 2008 from 1,500 employees in 2007 as we expanded our air ticketing
and packaged-tour businesses and an increase of RMB10 million (US$1.5 million) in share-based
compensation expenses from 2007 to 2008.
Sales and Marketing. Sales and marketing expenses increased by 18% to RMB287 million (US$42
million) in 2008 from RMB243 million in 2007, primarily attributable to the increased salary and
benefit expenses as we increased our sales and marketing staff to 1,450 employees in 2008 from
1,200 employees in 2007, an increase in advertisement expenses and marketing and promotion
expenses, as well as an increase in share-based compensation expenses from 2007 to 2008.
General and Administrative. General and administrative expenses increased by 24% to RMB172
million (US$25 million) in 2008 from RMB138 million in 2007, primarily due to an increase of RMB26
million (US$4 million) in share-based compensation expenses and an increase in general and
administrative personnel to 600 in 2008 from 500 in 2007.
Interest Income
Interest income increased by 86% to RMB31 million (US$5 million) in 2008 from RMB17 million in
2007 due to the increased cash generated from operations.
Other Income
Other income increased by 56% to RMB55 million (US$8 million) in 2008 from RMB35 million in
2007, primarily due to increases in foreign exchange gains and subsidy income.
Income Tax Expense
Income tax expense was RMB103 million (US$15 million) in 2008, an increase of 77% over RMB58
million in 2007, primarily due to the increase of our taxable income as well as the increase of our
effective income tax rate in 2008. Our effective income tax rate in 2008 was 19%, as compared to
13% in 2007, primarily due to changes of preferential tax treatment that we received under the EIT
Law.
33
2007 compared to 2006
Revenues
Total revenues were RMB1,287 million in 2007, an increase of 54% over RMB834 million in 2006.
This revenue growth was principally driven by the substantial volume growth in hotel room nights
booked and air tickets sold in 2007.
Hotel Reservation. Revenues from our hotel reservation business increased by 42% to RMB677
million in 2007 from RMB476 million in 2006, primarily as a result of the continued rapid growth in
our hotel room nights sales volume. The total number of hotel room nights booked in 2007 was
approximately 9.6 million compared to over 6.8 million in 2006. In 2007, the average commission per
room night was approximately RMB70, remain consistent with 2006.
Air-Ticketing. Revenues from our air-ticketing business increased by 72% to RMB503 million in
2007 from RMB293 million in 2006, primarily due to strong growth of air tickets sales volume as we
continued to expand our air ticketing capabilities significantly. The total number of air tickets
sold in 2007 was approximately 10.7 million, compared to approximately 6.4 million in 2006. In
2007, the average commission per ticket sold increased to RMB47 from RMB46 in 2006.
Packaged-tour. Packaged-tour revenues increased by 71% from RMB42 million in 2006 to RMB71
million in 2007, as we continued growing our packaged-tour business.
Other businesses. Revenues from other businesses increased by 55% from RMB23 million in 2006
to RMB36 million in 2007 primarily due to increased sales of air-ticket insurance and advertising
service.
Business tax and related surcharges
Our business tax and related surcharges increased by 63% from RMB54 million in 2006 to RMB88
million in 2007 as a result of our increased revenues in all of our business lines.
Cost of Revenues
Cost of revenues in 2007 increased by 54% to RMB236 million from RMB153 million in 2006. This
increase was primarily attributable to increased costs associated with our air-ticketing and
packaged-tour businesses and, to a less extent, the expansion of our hotel reservation business.
Operating Expenses
Operating expenses include product development expenses, sales and marketing expenses and
general and administrative expenses.
Product Development. Product development expenses increased by 67% to RMB177 million in 2007
from RMB106 million in 2006, primarily due to increase of product development personnel in 2006 as
we expanded our air ticketing and packaged-tour businesses and an increase of RMB9 million in
share-based compensation expenses from 2006 to 2007.
Sales and Marketing. Sales and marketing expenses increased by 41% to RMB243 million in 2007
from RMB172 million in 2006, primarily attributable to increased salary and benefit expenses due to
an increase in sales and marketing staff, advertisements expenses and marketing and promotion
expenses, as well as an increase of RMB5 million in share-based compensation expenses from 2006 to
2007.
General and Administrative. General and administrative expenses increased by 48% to RMB138
million in 2007 from RMB93 million in 2006, primarily due to an increase of RMB18 million in
share-based compensation charges and an increase in general and administrative personnel.
Interest Income
Interest income increased to RMB17 million in 2007 from RMB16 million in 2006 due to the
increased cash generated from operations.
Other Income
Other income increased by 215% to RMB35 million in 2007 from RMB11 million in 2006, primarily
due to increase of foreign exchange gains and subsidy income.
Income Tax Expense
Income tax expense was RMB58 million in 2007, an increase of 41% over RMB41 million in 2006,
primarily due to the increase of our taxable income in 2007. Our effective income tax rate in 2007
was 13%, as compared to 15% in 2006, primarily due to an increase in deferred tax benefit resulting
from the application of the tax rate of 25% under the EIT Law as of December 31, 2007, as required
by applicable accounting guidelines.
34
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, |
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
US$ |
|
|
|
(in thousands) |
|
Net cash provided by operating activities |
|
|
347,892 |
|
|
|
485,581 |
|
|
|
590,879 |
|
|
|
86,607 |
|
Net cash used in investing activities |
|
|
(206,973 |
) |
|
|
(269,583 |
) |
|
|
(498,727 |
) |
|
|
(73,100 |
) |
Net cash (used in)/provided by financing activities |
|
|
(27,130 |
) |
|
|
16,367 |
|
|
|
(72,088 |
) |
|
|
(10,566 |
) |
Net increase in cash and cash equivalents |
|
|
109,331 |
|
|
|
220,025 |
|
|
|
5,409 |
|
|
|
793 |
|
Cash and cash equivalents at beginning of year |
|
|
735,062 |
|
|
|
844,393 |
|
|
|
1,064,418 |
|
|
|
156,016 |
|
Cash and cash equivalents at end of year |
|
|
844,393 |
|
|
|
1,064,418 |
|
|
|
1,069,827 |
|
|
|
156,809 |
|
Net cash provided by operating activities was RMB591 million (US$87 million) in 2008, compared
to RMB486 million in 2007 and RMB348 million in 2006, primarily due to the increase in our net
income resulting from our increased transaction volume.
Net cash used in investing activities amounted to RMB499 million (US$73 million) in 2008,
compared to net cash used in investing activities of RMB270 million in 2007. This increase in 2008
from 2007 was primarily due to our RMB266 million (US$39 million) investment in Home Inns, the
RMB31 million (US$5 million) used in our acquisition of Software Hotel Information and the RMB49
million (US$7 million) used in our acquisition of land use rights in connection with the Nantong
customer service center, partially offset by the RMB106 million (US$16 million) decrease in cash outflow of
short-term investments. Net cash used in investing activities amounted to RMB270 million in 2007,
compared to net cash used in investing activities of RMB207 million in 2006. This increase in 2007
from 2006 was primarily due to our investment in time deposits, construction of our new facilities
and purchase of additional servers, workstations, computers, computer software and other items
related to our network infrastructure.
Net cash used in financing activities amounted to RMB72 million (US$11 million) in 2008,
compared to net cash provided by financing activities of RMB16 million in 2007 and net cash used in
financing activities of RMB27 million in 2006. This change in 2008 was primarily due to RMB112
million (US$16 million) of dividends paid to our shareholders in 2008, which were offset by the
RMB40 million (US$6 million) we received from employees exercise of share options. The change in
2007 from 2006 was primarily due to proceeds of RMB88 million from the exercise of share options,
which were offset by RMB72 million of dividends paid to shareholders.
Capital Resources
As of December 31, 2008, our primary source of liquidity was RMB1,070 million (US$157 million)
of cash. 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 and cash flow from operations 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, 2008, our primary capital commitment was RMB269 million (US$39 million) in
connection with our Nantong customer service center. The aggregate
investment for the Nantong customer service center,
including land costs, construction costs and other improvement costs, is expected to be
approximately RMB450 million (US$66 million) to RMB500 million (US$73 million).
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.
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, 2008 to December 31,
2008 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.
35
E. Off-Balance Sheet Arrangements
In connection with our air-ticketing business, we, on behalf of our affiliated Chinese
entities, are required by CAAC to provide guarantees for tickets obtained from various airlines. As
of December 31, 2008, the amount under these guarantee arrangements was approximately RMB617
million (US$90 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, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
31,213 |
|
|
|
23,298 |
|
|
|
7,915 |
|
|
|
|
|
|
|
|
|
Purchase obligations |
|
|
295,646 |
|
|
|
228,379 |
|
|
|
67,267 |
|
|
|
|
|
|
|
|
|
Liabilities incurred for purchase a subsidiary |
|
|
42,000 |
|
|
|
42,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities incurred for minority interest in
a variable interest entity |
|
|
2,375 |
|
|
|
1,562 |
|
|
|
813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
371,234 |
|
|
|
295,239 |
|
|
|
75,995 |
|
|
|
|
|
|
|
|
|
Operating lease obligations for the years 2009, 2010 and 2011 are RMB23 million, RMB6 million
and RMB2 million, respectively. Rental expenses amounted to approximately RMB17 million, RMB25
million and RMB17 million (US$2.5 million) for the years ended December 31, 2006, 2007 and 2008,
respectively. Rental expense is charged to the statements of income when incurred.
We have outstanding purchase obligations totaling RMB296 (US$43 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, 2008, 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 and 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. |
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 risk factors described under Risk
Factors included elsewhere in this annual report on Form 20-F, including the following risks:
|
|
|
the slow-down of economic growth in China and the global
economic downturn may materially and adversely affect our 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 quarterly results are likely to fluctuate because of
seasonality in the travel industry in China; |
|
|
|
|
our business may be harmed if our infrastructure and technology are damaged or otherwise
fail or become obsolete; |
|
|
|
|
our business may be severely disrupted if we lose the services
of our key executives; |
|
|
|
|
inflation in China and in other countries may disrupt our
business and have an adverse effect on our financial condition and
results of operations; |
|
|
|
|
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; 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. |
36
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, 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.
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 |
|
39 |
|
Co-founder; Chairman of the Board |
Min Fan |
|
44 |
|
Co-founder; Chief Executive Officer; Executive Director |
Jane Jie Sun |
|
40 |
|
Chief Financial Officer |
Neil Nanpeng Shen(1) |
|
41 |
|
Co-founder; Independent Director |
Qi Ji |
|
42 |
|
Co-founder; Independent Director |
Gabriel Li(1) |
|
41 |
|
Deputy Chairman of the Board, Independent Director |
JP Gan(1) (2) |
|
37 |
|
Independent Director |
Suyang Zhang(2) |
|
50 |
|
Independent Director |
Jianmin Zhu |
|
40 |
|
Senior Vice President |
Tao Yang |
|
33 |
|
Senior Vice President |
Maohua Sun |
|
37 |
|
Vice President |
James Lan Tang |
|
41 |
|
Vice President |
Shaw Xiaoliang Ding |
|
44 |
|
Vice President |
Cindy Xiaofan Wang |
|
34 |
|
Vice President |
Yuxiang Zhuang |
|
33 |
|
Vice President |
Dongjie Guo |
|
42 |
|
Vice President |
|
|
|
(1) |
|
Member of Audit Committee. |
|
(2) |
|
Member of Compensation Committee. |
Each of the foregoing 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 board of Home Inns. 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 and as our director since October 2006. 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. and China Edu Corporation. 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.
37
Jane Jie Sun has served as our chief financial officer since December 2005. Ms. Sun has
extensive experience in U.S. Securities and Exchange Commission, or the 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 American Institute of Certified Public Accountants and a member of State of
California Certified Public Accountant. Ms. Sun received her Bachelors Degree from the Business
School of University of Florida with High Honors. She also attended the undergraduate program at
the Beijing University Law School.
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. 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. Other than performing his duties as a director of our company, Mr. Ji is not involved
in our daily operations and business affairs. Mr. Ji is the chief executive officer of Powerhill
Holdings Ltd, and both chief executive officer and a director of Hanting
Hotels, Inc.. 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 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 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 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
Technology Venture Investment Inc., where he has worked since 1996, and 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
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. 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.
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 vice president since January 2005. 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.
38
James Lan Tang has served as our vice president since April 2005. 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, a very first joint-ventured hotel in China, from late
2004 to February 2007. Previously, he was general manager of 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 Zhongtian CPAs Company Limited. 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.
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$459,446 in 2008. 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 2008.
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$772,892 in 2008. These agreements provide for terms of service, salary and additional cash
compensation arrangements, all of which have been reflected in the 2008 aggregate compensation
amount. See Employees Stock Option Plans for options granted to our executive officers in 2008.
Employees Stock Option Plans
Our board of directors has adopted four stock option 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.
We have granted options to purchase our ordinary shares under the 2000 Plan, all of which were
exercised as of April 30, 2009. We have not granted any options under the 2000 Plan since April
2003 and will not issue any additional options under the 2000 Plan.
We have reserved an aggregate of 1,187,510 of our ordinary shares for issuance under the 2003
Plan, under which 7,251 options were issued and outstanding as of April 30, 2009. All of the
outstanding options under the 2003 Plan are held by employees who are not senior executives or
directors. The 2003 Plan terminated automatically in 2008.
We have reserved an aggregate of 3,000,000 ordinary shares for issuance under the 2005 Plan,
under which 2,063,502 options were issued and outstanding as of April 30, 2009.
Under the 2007 Plan, the maximum aggregate number of ordinary shares which may be issued
pursuant to awards was 3,000,000 as of the first business day of 2009, 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, 1,489,766 options were issued and outstanding as of
April 30, 2009.
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.
39
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 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. As of the date of this annual
report on Form 20-F, all option grantees affected by such changes have entered into amendments to their
original share option agreements with us.
The following table summarizes, as of April 30, 2009, the outstanding options 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, 2010 |
|
|
|
100,000 |
|
|
26.225 |
|
December 9, 2005 |
|
December 9, 2010 |
|
|
|
16,667 |
|
|
58.39 |
|
February 13, 2007 |
|
February 13, 2012 |
|
|
|
33,333 |
|
|
38.16 |
|
February 13, 2007 |
|
February 10, 2014 |
|
|
|
50,000 |
|
|
38.16 |
|
January 7, 2008 |
|
February 10, 2014 |
|
|
|
20,000 |
|
|
37.56 |
|
January 23, 2009 |
|
January 23, 2014 |
Qi Ji |
|
|
3,333 |
|
|
77.02 |
|
August 13, 2007 |
|
August 13, 2012 |
|
|
|
6,667 |
|
|
38.16 |
|
August 13, 2007 |
|
February 10, 2014 |
Neil Nanpeng Shen |
|
|
40,000 |
|
|
19.455 |
|
January 24, 2005 |
|
January 24, 2010 |
|
|
|
7,000 |
|
|
58.39 |
|
February 13, 2007 |
|
February 13, 2012 |
|
|
|
14,000 |
|
|
38.16 |
|
February 13, 2007 |
|
February 10, 2014 |
Min Fan |
|
|
120,000 |
|
|
19.455 |
|
January 24, 2005 |
|
January 24, 2010 |
|
|
|
100,000 |
|
|
26.225 |
|
December 9, 2005 |
|
December 9, 2010 |
|
|
|
66,667 |
|
|
58.39 |
|
February 13, 2007 |
|
February 13, 2012 |
|
|
|
133,333 |
|
|
38.16 |
|
February 13, 2007 |
|
February 10, 2014 |
|
|
|
250,000 |
|
|
38.16 |
|
January 7, 2008 |
|
February 10, 2014 |
|
|
|
100,000 |
|
|
37.56 |
|
January 23, 2009 |
|
January 23, 2014 |
Jane Jie Sun |
|
|
70,000 |
|
|
26.225 |
|
December 9, 2005 |
|
December 9, 2010 |
|
|
|
33,333 |
|
|
58.39 |
|
February 13, 2007 |
|
February 13, 2012 |
|
|
|
66,667 |
|
|
38.16 |
|
February 13, 2007 |
|
February 10, 2014 |
|
|
|
150,000 |
|
|
38.16 |
|
January 7, 2008 |
|
February 10, 2014 |
|
|
|
60,000 |
|
|
37.56 |
|
January 23, 2009 |
|
January 23, 2014 |
JP Gan |
|
|
10,000 |
|
|
22.56 |
|
May 13, 2005 |
|
May 13, 2010 |
|
|
|
7,000 |
|
|
58.39 |
|
February 13, 2007 |
|
February 13, 2012 |
|
|
|
14,000 |
|
|
38.16 |
|
February 13, 2007 |
|
February 10, 2014 |
Suyang Zhang |
|
|
20,000 |
|
|
19.455 |
|
January 24, 2005 |
|
January 24, 2010 |
|
|
|
7,000 |
|
|
58.39 |
|
February 13, 2007 |
|
February 13, 2012 |
|
|
|
14,000 |
|
|
38.16 |
|
February 13, 2007 |
|
February 10, 2014 |
Gabriel Li |
|
|
7,000 |
|
|
58.39 |
|
February 13, 2007 |
|
February 13, 2012 |
|
|
|
14,000 |
|
|
38.16 |
|
February 13, 2007 |
|
February 10, 2014 |
Other Employees |
|
|
1,942,601 |
|
|
From 19.455 to 77.02 |
|
From January 24, 2005 to |
|
From January 24, 2010 to |
|
|
|
|
|
|
|
|
January 23, 2009 |
|
February 10, 2014 |
Total |
|
|
3,553,268 |
|
|
|
|
|
|
|
The following paragraphs summarize the principal terms of our 2000, 2003 and 2005 Plans.
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.
40
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 2000, 2003 and 2005 Plans 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 2000 Plan may not exceed ten years from
the date of grant. The term of options granted under the 2003 Plan may not exceed five years from
the date of grant. 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.
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.
Termination or Amendment of Plans. The 2003 Plan terminated automatically in 2008. Unless
terminated earlier, 2000 and 2005 Plans will terminate automatically in 2009. Our board of
directors has the authority to amend or terminate our stock option plans subject to shareholder
approval to the extent necessary to comply with applicable law. However, no such action may (i)
impair the rights of any optionee unless agreed by the optionee and the stock option plan
administrator, or (ii) affect the stock option plan administrators ability to exercise the powers
granted to it under our stock option plans.
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 provisions and terms and conditions of each option 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.
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
plans 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.
41
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 2008, our directors held meetings or passed resolutions by unanimous written consent 15
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.
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 2008, our audit committee held meetings or passed resolutions by
unanimous written consent five 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 2008, our
compensation committee held three 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. We have the right to take legal action
if a duty owed by our directors is breached.
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, 2008, we had approximately 9,050 employees, including 600 in management
and administration, 5,000 in our customer service center, 1,450 in sales and marketing, and 2,000
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 over 45 major cities in China. We consider our relations
with our employees to be good.
E. Share Ownership
As of April 30, 2009, 33,545,267 of our ordinary shares were outstanding, excluding shares
issuable upon exercise of outstanding options. 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.
42
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, April 30, 2009, 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 of Directors and Executive
Officer. 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) |
|
|
606,987 |
|
|
|
1.8 |
% |
Min Fan(4) |
|
|
398,071 |
|
|
|
1.2 |
% |
Neil Nanpeng Shen(5) |
|
|
167,000 |
|
|
|
|
* |
Jane Jie Sun(6) |
|
|
103,334 |
|
|
|
|
* |
Other directors and executive officers as a group, each of whom individually owns less than 0.1%(7) |
|
|
195,005 |
|
|
|
|
* |
All directors and officers as a group(8) |
|
|
1,470,397 |
|
|
|
4.3 |
% |
|
|
|
|
|
|
|
|
|
Principal Shareholders: |
|
|
|
|
|
|
|
|
Entities affiliated with Lone Spruce, L.P. (9) |
|
|
4,224,811 |
|
|
|
12.6 |
% |
Credit Suisse(10) |
|
|
2,511,160 |
|
|
|
7.5 |
% |
Schroeder Investment Management North America Inc.(11) |
|
|
1,956,044 |
|
|
|
5.8 |
% |
Entities affiliated with Morgan Stanley(12) |
|
|
1,661,700 |
|
|
|
5.0 |
% |
|
|
|
* |
|
Less than 1% of our total outstanding 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 33,545,267, being the number of ordinary shares outstanding as of April
30, 2009, and the number of ordinary shares underlying share options held by such person
or group that were exercisable within 60 days after April 30, 2009. |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
Includes 413,653 ordinary shares held by Mr. Liang and 193,334 ordinary
shares that were issuable upon exercise of options exercisable within 60 days after
April 30, 2009 held by Mr. Liang. |
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
Includes 111,404 ordinary shares held by Perfectpoint International Limited,
a British Virgin Islands company owned by Mr. Fan and 286,667 ordinary shares that were
issuable upon exercise of options exercisable within 60 days after April 30, 2009 held
by Mr. Fan. |
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
Includes 120,000 ordinary shares held by Mr. Shen and Smart Master
International Limited, a British Virgin Islands company owned by Mr. Shen and 47,000
ordinary shares that were issuable upon exercise of options exercisable within 60 days
after April 30, 2009 held by Mr. Shen. Mr. Shens business address is Suite 2215, Two
Pacific Place, 88 Queensway Road, Hong Kong. |
|
|
|
|
|
|
|
|
|
|
(6 |
) |
|
Includes 103,334 ordinary shares held by Ms. Sun that were issuable upon
exercise of options exercisable within 60 days after April 30, 2009. |
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
Includes 73,854 ordinary shares and
121,151 ordinary shares that were issuable upon
exercise of options exercisable within 60 days after April 30, 2009 held by twelve of our
current directors and executive officers as a group. |
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
Includes 718,911 ordinary shares and 751,486 ordinary shares that were issuable
upon exercise of options exercisable within 60 days after April 30, 2009 held by all of
our current directors and executive officers as a group. |
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
Includes 4,224,811 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 March 3, 2009, based on the information contained
in the Schedule 13G filed by Lone Spruce with the SEC on March 13, 2009. Please see this Schedule 13G for
information relating to Lone Spruce. The address for Lone Spruce is Two Greenwich Plaza,
Greenwich, Connecticut 06830, the United States of America. |
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
Information regarding beneficial ownership is reported as of December 31, 2008,
based on the information contained in the Schedule 13G filed by Credit Suisse with the
SEC on February 18, 2009. Please see this Schedule 13G filed by Credit Suisse on February 18, 2009 for
information relating to Credit Suisse. The address of Credit Suisse is Uetlibergstrasse
231, P.O. Box 900, CH 8070 Zurich, Switzerland. |
|
|
|
|
|
|
|
|
|
|
(11 |
) |
|
Information regarding beneficial ownership is reported as of December 31, 2008,
based on the information contained in the Schedule 13G filed by Schroeder Investment
Management North America Inc., or Schroeder, with the SEC on February 13, 2009. Please see this Schedule
13G filed by Schroeder on February 13, 2009 for information relating to Schroeder. The
address for Schroeder is 875 Third Avenue, 21st Floor, New York, NY 10022, the
United States of America. |
|
|
|
|
|
|
|
|
|
|
(12 |
) |
|
Includes 1,661,700 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 April 1, 2009, based on the information contained
in the Schedule 13G filed by Morgan Stanley with the SEC on April 7, 2009. Please see this Schedule 13G for
information relating to Morgan Stanley. The address for Morgan Stanley is 1585 Broadway,
New York, NY 10036, the United States of America. |
43
As of December 31, 2008, 33,468,023 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 December 31, 2008, 33,418,418 ordinary shares, or 99.9% of our total outstanding ordinary shares, were
held by two record shareholders in the United States, including 33,066,781 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, 2008, our director and chief executive officer, 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 interests in Ctrip
Commerce, Beijing Ctrip and Shanghai Huacheng to Tao Yang.
As of December 31, 2008:
|
|
|
Tao Yang and Ctrip Commerce owned 35.56% and 64.44%, 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 90% and 8.33% of Shanghai Huacheng, respectively. |
|
|
|
|
Min Fan and Jianmin Zhu owned 90% and 10%, respectively, of Guangzhou Ctrip as well as
Shenzhen Ctrip. |
|
|
|
|
Min Fan and Gangyi Yan owned 89.8% and 8.4%, respectively, of Shanghai Ctrip. |
|
|
|
|
Fengying Zhang owned 100% of the equity interest in Nantong Tongcheng. |
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 2008, Ctrip Commerce paid Ctrip Computer
Technology an average quarterly fee of RMB752,000 (US$110,250) based on the volume of services
provided; Beijing Ctrip 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 of RMB41 (US$6) per ticket and RMB213 (US$31) per person per tour;
Shanghai Huacheng paid Ctrip Computer Technology and Ctrip Travel Network a quarterly fee based on
the number of air tickets sold in the quarter, at an average rate of RMB41 (US$6) per ticket;
Guangzhou Ctrip 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 of RMB26 (US$4) per ticket and RMB10 (US$1) per person per tour; Shanghai Ctrip paid
Ctrip
Computer Technology 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 of RMB29 (US$4) per ticket and
RMB208 (US$31) per person per tour; Shenzhen Ctrip paid Ctrip Computer Technology and Ctrip Travel
Network a quarterly fee based on the number of air tickets sold in the quarter, at an average rate
of RMB8 (US$1) per ticket; and Chengdu Ctrip paid Ctrip Computer Technology and Ctrip Travel
Network a quarterly fee based on the number of air tickets sold in the quarter, at an average rate
of RMB19 (US$3) per ticket.
44
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.
Trademark License Agreements. We grant certain of our affiliated Chinese entities licenses
to use our registered trademarks on their websites for a license fee of RMB3,000 (US$411) per
year, if necessary. These agreements were terminated in 2008.
Software License Agreements. We grant our affiliated Chinese entities the right to use our
software for a royalty fee of RMB3,000 (US$411) per year. These agreements were terminated in
2008.
Business Loan Arrangements. Due to government restrictions on foreign ownership of
air-ticketing, travel agencies, and value-added telecommunications businesses in China, we have
made business loan arrangements with Messrs. Fan, Zhu Yang and Ms. Zhang with the sole and
exclusive purpose of providing funds necessary for the capitalization or acquisition of our
affiliated Chinese entities. These loan amounts were injected into the affiliated Chinese entities
as capitals and cannot be accessed for any personal uses. In the event that the PRC government
lifts its substantial restrictions on foreign ownership of the air-ticketing, travel agency, or
value-added telecommunications business in China, as applicable, we will exercise our exclusive
option to purchase all of the outstanding equity interests of our affiliated Chinese entities, as
described in the following paragraph, and the business loan arrangements will be cancelled in
connection with such purchase. However, it is uncertain when, if at all, the PRC government will
lift any or all of these restrictions.
The following table sets forth, as of December 31, 2008, the amount of each business loan
arrangement, the date the loan arrangement was entered into, the principal, interest, maturity
date and outstanding balance of the business loan, the borrower and the affiliated Chinese entity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of Loan |
|
|
|
|
|
Affiliated |
|
|
|
|
|
|
|
|
|
|
|
|
Agreement |
|
Borrower |
|
|
Chinese Entity |
|
Principal |
|
|
Interest |
|
|
Maturity Date |
|
Outstanding Balance |
|
|
|
|
|
|
|
|
|
|
|
(in thousands |
|
|
(in thousands |
|
|
|
|
|
|
|
|
|
|
(in thousands |
|
|
(in thousands |
|
|
|
|
|
|
|
|
|
|
|
of RMB) |
|
|
of US$) |
|
|
|
|
|
|
|
|
|
|
of RMB) |
|
|
of US$) |
|
September 10, 2003 |
|
Tao Yang* |
|
Beijing Ctrip |
|
|
1,549.5 |
|
|
|
227.1 |
|
|
None |
|
September 10, 2013 |
|
|
1,549.5 |
|
|
|
227.1 |
|
September 10, 2003 |
|
Min Fan |
|
Ctrip Commerce |
|
|
980.0 |
|
|
|
143.6 |
|
|
None |
|
September 10, 2013 |
|
|
980.0 |
|
|
|
143.6 |
|
September 10, 2003 |
|
Tao Yang* |
|
Ctrip Commerce |
|
|
1,020.0 |
|
|
|
149.5 |
|
|
None |
|
September 10, 2013 |
|
|
1,020.0 |
|
|
|
149.5 |
|
January 15, 2004 |
|
Min Fan |
|
Ctrip Commerce |
|
|
4,100.0 |
|
|
|
601.0 |
|
|
None |
|
January 15, 2014 |
|
|
4,100.0 |
|
|
|
601.0 |
|
October 11, 2006 |
|
Min Fan |
|
Ctrip Commerce |
|
|
3,900.0 |
|
|
|
571.6 |
|
|
None |
|
January 15, 2014 |
|
|
3,900.0 |
|
|
|
571.6 |
|
September 10, 2003 |
|
Min Fan |
|
Guangzhou Ctrip |
|
|
450.0 |
|
|
|
66.0 |
|
|
None |
|
September 10, 2013 |
|
|
450.0 |
|
|
|
66.0 |
|
March 1, 2004 |
|
Min Fan |
|
Guangzhou Ctrip |
|
|
1,350.0 |
|
|
|
197.9 |
|
|
None |
|
March 1, 2014 |
|
|
1,350.0 |
|
|
|
197.9 |
|
August 1, 2004 |
|
Jianmin Zhu |
|
Guangzhou Ctrip |
|
|
50.0 |
|
|
|
7.3 |
|
|
None |
|
August 1, 2014 |
|
|
50.0 |
|
|
|
7.3 |
|
August 1, 2004 |
|
Jianmin Zhu |
|
Guangzhou Ctrip |
|
|
150.0 |
|
|
|
22.0 |
|
|
None |
|
August 1, 2014 |
|
|
150.0 |
|
|
|
22.0 |
|
May 11, 2006 |
|
Jianmin Zhu |
|
Guangzhou Ctrip |
|
|
100.0 |
|
|
|
14.7 |
|
|
None |
|
August 1, 2014 |
|
|
100.0 |
|
|
|
14.7 |
|
May 11, 2006 |
|
Min Fan |
|
Guangzhou Ctrip |
|
|
900.0 |
|
|
|
131.9 |
|
|
None |
|
March 1, 2014 |
|
|
900.0 |
|
|
|
131.9 |
|
October 30, 2003 |
|
Min Fan |
|
Shanghai Ctrip |
|
|
4,290.0 |
|
|
|
628.8 |
|
|
None |
|
October 30, 2013 |
|
|
4,290.0 |
|
|
|
628.8 |
|
May 26, 2006 |
|
Min Fan |
|
Shanghai Ctrip |
|
|
1,190.0 |
|
|
|
174.4 |
|
|
None |
|
October 30, 2013 |
|
|
1,190.0 |
|
|
|
174.4 |
|
February 6, 2004 |
|
Min Fan |
|
Shenzhen Ctrip |
|
|
1,350.0 |
|
|
|
197.9 |
|
|
None |
|
February 6, 2014 |
|
|
1,350.0 |
|
|
|
197.9 |
|
August 1, 2004 |
|
Jianmin Zhu |
|
Shenzhen Ctrip |
|
|
150.0 |
|
|
|
22.0 |
|
|
None |
|
August 1, 2014 |
|
|
150.0 |
|
|
|
22.0 |
|
April 24, 2006 |
|
Min Fan |
|
Shenzhen Ctrip |
|
|
900.0 |
|
|
|
131.9 |
|
|
None |
|
February 6, 2014 |
|
|
900.0 |
|
|
|
131.9 |
|
April 24, 2006 |
|
Jianmin Zhu |
|
Shenzhen Ctrip |
|
|
100.0 |
|
|
|
14.7 |
|
|
None |
|
August 1, 2014 |
|
|
100.0 |
|
|
|
14.7 |
|
April 12, 2004 |
|
Tao Yang* |
|
Huacheng |
|
|
250.0 |
|
|
|
36.6 |
|
|
None |
|
April 12, 2014 |
|
|
250.0 |
|
|
|
36.6 |
|
March 7, 2008 |
|
Fengying Zhang |
|
Nantong Tongcheng |
|
|
10,000.0 |
|
|
|
1,465.7 |
|
|
None |
|
March 6, 2015 |
|
|
10,000.0 |
|
|
|
1,465.7 |
|
|
|
|
* |
|
In 2008, Mr. Tao Yang acquired from Mr. Qi Ji all of his 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. |
45
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.
Stock Option Grants
Please refer to Item 6, Employees Stock Option Plans.
Purchase of Shares of Home Inns
We have two directors in common with Home Inns. During the period from September 12 to
December 31, 2008, we purchased on the open market ADSs of Home Inns representing an aggregate of
6,324,980 of Home Inns ordinary shares, or a 9% stake in Home Inns for RMB266 million (US$39
million).
Commissions from Home Inns and its affiliates
As of December 31, 2008, we held approximately a 9% stake in Home Inns, one of our hotel
suppliers, and have two directors in common with it. We have recently
acquired additional stake in Home Inns in a private placement
transaction, increasing our ownership to approximately 18.25%. 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 RMB6.3 million, RMB8.9 million and RMB14.8 million
(US$2.2 million) for the years ended December 31, 2006, 2007 and 2008, respectively. These
commissions were paid to us in our ordinary course of business on terms substantially similar to
those for our unrelated hotel suppliers.
Commissions from Hanting Hotels Inc. and its affiliates (collectively, Hanting)
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 RMB1.4
million, RMB5.6 million and RMB7.5 million (US$1.1 million) for the years ended December 31, 2006,
2007 and 2008, respectively. These commissions were paid to us in our ordinary course of business
on terms substantially similar to those for our unrelated hotel suppliers.
Advertising expenses to Focus Media Holding Ltd.
One of our advertising suppliers, Focus Media Holding Ltd., has a director in common with our
company. Focus Media Holding Ltd. has entered into agreements with us to provide certain
advertising services for us. Total advertising expenses to Focus Media Holding Ltd. amounted to
RMB1.5 million, zero and zero for the years ended December 31, 2006, 2007 and 2008, respectively.
These advertising expenses were incurred by us in our ordinary course of business on terms
substantially similar to those for unrelated advertising suppliers.
Certain Leased Property in Shanghai
We lease 1,223 square meters of our premises in Shanghai from a company controlled by a
family member of one of our directors. Total rental expenses for the leased property amounted to
RMB550,000, RMB281,650 and zero for the years ended December 31, 2006, 2007 and 2008,
respectively.
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 zero, zero and RMB2.2 million (US$0.3 million) for the
years ended December 31, 2006, 2007 and 2008.
C. Interests of Experts and Counsel
Not applicable.
46
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 2004
to our shareholders as dividends. On July 8, 2005, we distributed dividends in the aggregate
amount of US$5 million to our shareholders of record as of June 30, 2005, at a dividend rate of
RMB1.26, or US$0.1525, per ordinary share.
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.
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 PRC laws and regulations,
our subsidiaries and affiliated Chinese 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 Chinese entities in China may stop allocations to its general reserve if such reserve
has reached 50% of its registered capital. In addition, 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 forms of loans, advances, or cash dividends.
Our board of directors has complete discretion as to whether we will distribute dividends in
the future. 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, tax exposure 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.
47
ITEM 9. THE OFFER AND LISTING
A. Offering and Listing Details.
Our ADSs have been listed on the Nasdaq Global Market since December 9, 2003. 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 for the periods presented and all prices have been retroactively adjusted to reflect
the change in ratio effective on July 31, 2007 for all periods presented.
|
|
|
|
|
|
|
|
|
|
|
Sales Price (US$) |
|
|
|
High |
|
|
Low |
|
2004 |
|
|
14.23 |
|
|
|
5.66 |
|
2005 |
|
|
16.68 |
|
|
|
9.04 |
|
2006 |
|
|
32.66 |
|
|
|
13.91 |
|
2007 |
|
|
63.24 |
|
|
|
27.53 |
|
First Quarter |
|
|
37.34 |
|
|
|
27.53 |
|
Second Quarter |
|
|
41.05 |
|
|
|
33.27 |
|
Third Quarter |
|
|
52.89 |
|
|
|
35.91 |
|
Fourth Quarter |
|
|
63.24 |
|
|
|
45.56 |
|
2008 |
|
|
70.89 |
|
|
|
16.41 |
|
First Quarter |
|
|
63.00 |
|
|
|
40.04 |
|
Second Quarter |
|
|
70.89 |
|
|
|
45.36 |
|
Third Quarter |
|
|
54.87 |
|
|
|
34.26 |
|
Fourth Quarter |
|
|
40.88 |
|
|
|
16.41 |
|
|
|
|
|
|
|
|
|
|
Monthly Highs and Lows |
|
|
|
|
|
|
|
|
November 2008 |
|
|
34.17 |
|
|
|
16.41 |
|
December 2008 |
|
|
24.03 |
|
|
|
18.92 |
|
January 2009 |
|
|
24.80 |
|
|
|
18.50 |
|
February 2009 |
|
|
23.46 |
|
|
|
18.39 |
|
March 2009 |
|
|
30.86 |
|
|
|
19.00 |
|
April 2009 |
|
|
32.00 |
|
|
|
26.40 |
|
May 2009 (through May 22, 2009) |
|
|
43.51 |
|
|
|
30.51 |
|
B. Plan of Distribution
Not applicable.
C. Markets
Our ADSs, have been listed on the Nasdaq Global Market since December 9, 2003 under the symbol
CTRP.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
48
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
The following are summaries of material provisions of our amended and restated 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 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 10.0% 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.
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 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.
49
C. 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 and other than those
described in Item 4, Information on the Company, or elsewhere in this annual report on Form
20-F.
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
In the opinion of our Cayman Islands counsel, 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. There are no exchange
control regulations or currency restrictions in the Cayman Islands.
U.S. Federal Income Taxation
The following discussion describes the material U.S. federal income tax consequences to U.S.
Holders (as defined below) under present law of an investment in the ADSs or ordinary shares. This
summary applies only to U.S. Holders that hold the ADSs or ordinary shares as capital assets and
that have the U.S. dollar as their functional currency. This discussion is based on the tax laws
of the United States as in effect on the date of this annual report and on U.S. Treasury
regulations in effect or, in some cases, proposed, as of the date of this annual report, as well
as judicial and administrative interpretations thereof available on or before such date. All of
the foregoing authorities are subject to change, which change could apply retroactively and could
affect the tax consequences described below.
The following discussion does not deal with the tax consequences to any particular investor
or to persons in special tax situations such as:
|
|
|
banks; |
|
|
|
|
insurance companies; |
|
|
|
|
broker dealers; |
|
|
|
|
traders that elect to mark to market; |
|
|
|
|
tax-exempt entities; |
|
|
|
|
persons liable for alternative minimum tax; |
|
|
|
|
U.S. expatriates; |
|
|
|
|
regulated investment companies or real estate investment trusts; |
|
|
|
|
persons holding an ADS or ordinary share as part of a straddle, hedging, conversion or
integrated transaction; |
|
|
|
|
holders that actually or constructively own 10% or more of the total combined voting power
of all classes of our voting stock; |
|
|
|
|
persons holding ADSs or ordinary shares through partnerships or other pass-through
entities; or |
|
|
|
|
persons who acquired ADSs or ordinary shares pursuant to the exercise of any employee share
option or otherwise as compensation. |
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS ABOUT THE APPLICATION OF THE U.S. FEDERAL
TAX RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF ADSs OR ORDINARY SHARES.
The discussion below of the U.S. federal income tax consequences to U.S. Holders will apply
to you if you are a beneficial owner of ADSs or ordinary shares and you are, for U.S. federal
income tax purposes,
|
|
|
an individual who is a citizen or resident of the United States; |
|
|
|
|
a corporation (or other entity taxable as a corporation for U.S. federal income tax
purposes) organized under the laws of the United States, any State thereof or the District of
Columbia; |
50
|
|
|
an estate, the income of which is subject to U.S. federal income taxation regardless of its
source; or |
|
|
|
|
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 generally will depend on your status and the
activities of the partnership.
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 their 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.
The U.S. Treasury has expressed concerns that parties to whom ADSs are pre-released may be
taking actions that are inconsistent with the claiming, by U.S. Holders of ADSs, of foreign tax
credits for U.S. federal income tax purposes. Such actions would also be inconsistent with the
claiming of the reduced rate of tax applicable to dividends received by certain non-corporate U.S.
Holders, as described below. Accordingly, the availability of the reduced tax rate for dividends
received by certain non-corporate U.S. Holders could be affected by future actions that may be
taken by the U.S. Treasury or parties to whom ADSs are pre-released.
Taxation of Dividends and Other Distributions on the ADSs or Ordinary Shares
Subject to the passive foreign investment company rules discussed below, the gross amount of
all our distributions to you with respect to the ADSs or ordinary shares generally 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 treated 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 certain non-corporate U.S. Holders (including individual U.S. Holders), for
taxable years beginning before January 1, 2011, 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 a qualifying income tax treaty with the United States that includes an exchange of
information program; (2) we are neither a passive foreign investment company nor treated as such
with respect to you (as discussed below) for our taxable year in which the dividend was paid and
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 Market, as are our ADSs (but
not our ordinary shares). If we are treated as a resident enterprise for PRC tax purposes under
the EIT Law, we may be eligible for the benefits of the income tax treaty between the United
States and the PRC. For more information regarding the EIT Law, see Item 3, Key
InformationRisk FactorsRisks Related to Our CompanyOur 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. 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 dividend income and divided 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. For more
information, see Item 3, Key InformationRisk FactorsRisks Related to Our CompanyOur
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. 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.
51
Taxation of Disposition of ADSs or Ordinary Shares
Subject to the passive foreign investment company rules discussed below, you will recognize
taxable 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 generally will
be equal to the cost of such ADS or ordinary share. The gain or loss generally will 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 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. 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. For more
information, see Item 3, Key InformationRisk FactorsRisks Related to Our CompanyOur
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. You should consult your tax advisors regarding the proper treatment of gain or loss
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 passive foreign investment company, or PFIC,
for U.S. federal income tax purposes for the taxable year ended December 31, 2008. 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 for such year 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, 2009 or any future taxable year. Because the value of our assets
for purposes of the asset test generally will 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 generally will 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. |
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 Market, which is a qualified exchange or other market for these purposes. Consequently, if
the ADSs continue to be listed on the Nasdaq Global 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.
52
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.
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
Internal Revenue Service 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.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may 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 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.
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 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.
53
ITEM 11. 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, 2008, a one basis point decrease in interest rates would result in
approximately RMB310,000 decreases 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 almost all 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. We have
not used any forward contracts or currency borrowings to hedge our exposure to foreign currency
risk. 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.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
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.
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.
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.
54
Our management conducted an evaluation of the effectiveness of our companys internal control
over financial reporting as of December 31, 2008 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, 2008.
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, 2008, 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.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
See Item 6.C, Board Practices.
ITEM 16B. CODE OF ETHICS
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
www.ctrip.com website. On March 3, 2009, our board of directors approved amendments to our code of
ethics. We have filed our amended code of business conduct and ethics as Exhibit 11.1 to this
annual report on Form 20-F. We hereby undertake to provide to any person without charge, a copy of
our code of business conduct and ethics within ten working days after we receive such persons
written request.
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.
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For the Year Ended December 31, |
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2007 |
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2008 |
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2008 |
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RMB |
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RMB |
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US$ |
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Audit fees(1) |
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6,339,639 |
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6,218,715 |
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911,501 |
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All other fees(2) |
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1,298,396 |
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(1) |
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Audit fees means the aggregate fees for professional services rendered by our principal
auditors for the interim review of quarterly financial statements and the audit of our annual
financial statements in 2007 and 2008. |
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(2) |
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All other fees means the aggregate fees for
services rendered in connection with our filing of the Form F-3 in 2007. |
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
We are in compliance with Rule 10A-3 under the Exchange Act and The Nasdaq Stock Market, Inc.
Marketplace Rules, or Nasdaq Marketplace Rules, with respect to the audit committee.
55
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, Messr. 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 own ADSs under this share repurchase plan.
ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G. CORPORATE GOVERNANCE
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. Upon board approval, 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 11, 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.
Rule 5605(c)(2)(A) of the Nasdaq Rules require a Nasdaq listed company to have an audit
committee of at least three members, each of whom must be independent as defined under Rule
5605(a)(2). Mr. Neil Nanpeng Shen, a member of our audit committee, was our chief financial
officer until October 2005 and therefore was not considered an independent director under Rule
5605. Rule 5615 of the Nasdaq Rules permits foreign private issuers like our company to follow
home country practice in certain corporate governance matters. Our Cayman Islands counsel has
provided a letter to Nasdaq certifying that under Cayman Islands law, we are not required to
establish or maintain an audit committee, and Cayman Islands law contains no requirement with
respect to the independence of directors or the constitution of any audit committee that may be
created. Nasdaq has acknowledged the receipt of such letter and our home country practice with
respect to the audit committee. On May 20, 2009, our board of directors determined that Mr. Shen,
as of December 31, 2008, satisfied and, as of the date of this annual report, satisfy the
independence requirements under the Nasdaq Rules.
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 Market 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.
56
ITEM 19. EXHIBITS
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Exhibit |
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Number |
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Document |
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1.1 |
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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) |
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2.1 |
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Specimen American Depositary Receipt of Ctrip.com International, Ltd. (incorporated by
reference to Exhibit 4.1 from our Registration Statement on Form F-1 (file no. 333-110455)
filed with the Securities and Exchange Commission on November 25, 2003) |
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2.2 |
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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) |
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2.3 |
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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) |
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2.4 |
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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 Receipts 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) |
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4.1 |
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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) |
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4.2 |
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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) |
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4.3 |
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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) |
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4.4 |
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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) |
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4.5 |
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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) |
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4.6 |
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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 |
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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 |
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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 |
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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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4.10 |
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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) |
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Exhibit |
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Number |
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Document |
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4.11 |
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Translation of Form of Trademark License 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 10.11 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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4.12 |
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Translation of Form of Software License 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 10.12 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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4.13 |
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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) |
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4.14 |
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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) |
|
|
|
|
|
|
4.15 |
|
|
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) |
|
|
|
|
|
|
4.16 |
|
|
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) |
|
|
|
|
|
|
4.17 |
|
|
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) |
|
|
|
|
|
|
4.18 |
|
|
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) |
|
|
|
|
|
|
4.19 |
|
|
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) |
|
|
|
|
|
|
4.20 |
|
|
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) |
|
|
|
|
|
|
4.21 |
* |
|
Ctrip.com International, Ltd. 2007 Share Incentive Plan, as amended and restated as of
November 17, 2008 |
|
|
|
|
|
|
4.22 |
* |
|
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 |
|
|
|
|
|
|
4.23 |
|
|
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 Exchange Commission on May 21, 2009) |
|
|
|
|
|
|
4.24 |
|
|
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 Exchange Commission on May 21, 2009) |
|
|
|
|
|
|
8.1 |
* |
|
Subsidiaries
and Variable Interest Entities of the Registrant |
|
|
|
|
|
|
11.1 |
* |
|
Code of Business Conduct and Ethics of the Registrant, as amended and restated as of March 3, 2009 |
58
|
|
|
|
|
Exhibit |
|
|
Number |
|
Document |
|
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. |
59
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.
|
|
|
|
|
|
CTRIP.COM INTERNATIONAL, LTD.
|
|
|
By |
/s/ Min Fan
|
|
|
|
Name: |
Min Fan |
|
|
|
Title: |
Chief Executive Officer |
|
Date: May 26, 2009
60
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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F-1
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11th Floor |
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PricewaterhouseCoopers Center |
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202 Hu Bin Road |
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Shanghai 200021, P.R.C. |
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Telephone +86 (21) 2323 8888 |
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Facsimile +86 (21) 2323 8800 |
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|
www.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 operations, 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, 2008 and 2007, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2008, 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, 2008, 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.
/s/ PricewaterhouseCoopers Zhong Tian CPAs Limited Company
PricewaterhouseCoopers Zhong Tian CPAs Limited Company
Shanghai, the Peoples Republic of China
May 26, 2009
F-2
CTRIP.COM INTERNATIONAL, LTD.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2008 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
US$ |
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel reservation |
|
|
476,494,606 |
|
|
|
676,511,238 |
|
|
|
763,726,817 |
|
|
|
111,942,369 |
|
Air-ticketing |
|
|
292,701,199 |
|
|
|
503,453,383 |
|
|
|
659,398,301 |
|
|
|
96,650,539 |
|
Packaged-tour |
|
|
41,702,488 |
|
|
|
71,495,585 |
|
|
|
109,244,749 |
|
|
|
16,012,422 |
|
Others |
|
|
23,128,346 |
|
|
|
35,818,022 |
|
|
|
55,968,929 |
|
|
|
8,203,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
834,026,639 |
|
|
|
1,287,278,228 |
|
|
|
1,588,338,796 |
|
|
|
232,808,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: business tax and related surcharges |
|
|
(54,075,096 |
) |
|
|
(88,167,081 |
) |
|
|
(106,334,164 |
) |
|
|
(15,585,806 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
779,951,543 |
|
|
|
1,199,111,147 |
|
|
|
1,482,004,632 |
|
|
|
217,223,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
(153,131,864 |
) |
|
|
(236,226,063 |
) |
|
|
(326,610,463 |
) |
|
|
(47,872,549 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
626,819,679 |
|
|
|
962,885,084 |
|
|
|
1,155,394,169 |
|
|
|
169,350,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development |
|
|
(105,938,184 |
) |
|
|
(177,301,995 |
) |
|
|
(235,800,504 |
) |
|
|
(34,562,185 |
) |
Sales and marketing |
|
|
(172,491,625 |
) |
|
|
(243,314,529 |
) |
|
|
(286,693,188 |
) |
|
|
(42,021,720 |
) |
General and administrative |
|
|
(93,173,911 |
) |
|
|
(137,943,756 |
) |
|
|
(171,693,601 |
) |
|
|
(25,165,790 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
(371,603,720 |
) |
|
|
(558,560,280 |
) |
|
|
(694,187,293 |
) |
|
|
(101,749,695 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
255,215,959 |
|
|
|
404,324,804 |
|
|
|
461,206,876 |
|
|
|
67,600,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
15,632,481 |
|
|
|
16,703,553 |
|
|
|
31,100,097 |
|
|
|
4,558,461 |
|
Other income |
|
|
11,213,801 |
|
|
|
35,297,223 |
|
|
|
54,944,595 |
|
|
|
8,053,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense and minority interests |
|
|
282,062,241 |
|
|
|
456,325,580 |
|
|
|
547,251,568 |
|
|
|
80,212,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
(41,277,020 |
) |
|
|
(58,005,983 |
) |
|
|
(102,913,404 |
) |
|
|
(15,084,412 |
) |
Minority interests |
|
|
(221,374 |
) |
|
|
4,013 |
|
|
|
(230,291 |
) |
|
|
(33,755 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
240,563,847 |
|
|
|
398,323,610 |
|
|
|
444,107,873 |
|
|
|
65,094,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(8,459,660 |
) |
|
|
(20,321,443 |
) |
|
|
(41,382,067 |
) |
|
|
(6,065,528 |
) |
Unrealized securities holding losses |
|
|
|
|
|
|
|
|
|
|
(98,126,616 |
) |
|
|
(14,382,795 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
232,104,187 |
|
|
|
378,002,167 |
|
|
|
304,599,190 |
|
|
|
44,646,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per ordinary share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
7.44 |
|
|
|
12.10 |
|
|
|
13.32 |
|
|
|
1.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
7.23 |
|
|
|
11.67 |
|
|
|
12.90 |
|
|
|
1.89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per ADS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
3.72 |
|
|
|
6.05 |
|
|
|
6.66 |
|
|
|
0.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
3.62 |
|
|
|
5.84 |
|
|
|
6.45 |
|
|
|
0.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares |
|
|
32,342,998 |
|
|
|
32,927,454 |
|
|
|
33,352,845 |
|
|
|
33,352,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares |
|
|
33,268,220 |
|
|
|
34,121,390 |
|
|
|
34,424,549 |
|
|
|
34,424,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation included in
operating expense above is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development |
|
|
(13,694,058 |
) |
|
|
(22,707,705 |
) |
|
|
(32,666,099 |
) |
|
|
(4,787,995 |
) |
Sales and marketing |
|
|
(8,557,942 |
) |
|
|
(13,648,562 |
) |
|
|
(18,815,878 |
) |
|
|
(2,757,915 |
) |
General and administrative |
|
|
(32,430,027 |
) |
|
|
(50,557,618 |
) |
|
|
(77,035,498 |
) |
|
|
(11,291,388 |
) |
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, 2007 AND 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
2008 |
|
|
|
RMB |
|
|
RMB |
|
|
US$ |
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
1,064,418,278 |
|
|
|
1,069,827,364 |
|
|
|
156,808,701 |
|
Restricted cash |
|
|
6,600,000 |
|
|
|
6,600,000 |
|
|
|
967,387 |
|
Short-term investment |
|
|
141,174,094 |
|
|
|
176,585,908 |
|
|
|
25,882,874 |
|
Accounts receivable, net |
|
|
260,683,770 |
|
|
|
274,302,454 |
|
|
|
40,205,563 |
|
Due from related parties |
|
|
2,138,947 |
|
|
|
3,012,023 |
|
|
|
441,484 |
|
Prepayments and other current assets |
|
|
61,350,652 |
|
|
|
92,138,483 |
|
|
|
13,505,091 |
|
Deferred tax assets, current |
|
|
11,275,767 |
|
|
|
8,840,772 |
|
|
|
1,295,826 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,547,641,508 |
|
|
|
1,631,307,004 |
|
|
|
239,106,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term deposits |
|
|
147,092,990 |
|
|
|
145,500,002 |
|
|
|
21,326,494 |
|
Land use rights |
|
|
65,083,814 |
|
|
|
111,510,231 |
|
|
|
16,344,482 |
|
Property, equipment and software |
|
|
267,194,788 |
|
|
|
346,117,083 |
|
|
|
50,731,709 |
|
Investments |
|
|
80,416,250 |
|
|
|
237,943,497 |
|
|
|
34,876,291 |
|
Goodwill |
|
|
14,595,849 |
|
|
|
63,689,736 |
|
|
|
9,335,249 |
|
Intangible assets |
|
|
2,918,809 |
|
|
|
24,498,763 |
|
|
|
3,590,878 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
2,124,944,008 |
|
|
|
2,560,566,316 |
|
|
|
375,312,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
230,904,562 |
|
|
|
138,657,593 |
|
|
|
20,323,576 |
|
Due to related parties |
|
|
249,910 |
|
|
|
249,910 |
|
|
|
36,630 |
|
Salary and welfare payable |
|
|
65,497,142 |
|
|
|
65,590,151 |
|
|
|
9,613,800 |
|
Taxes payable |
|
|
49,079,149 |
|
|
|
54,745,686 |
|
|
|
8,024,285 |
|
Advances from customers |
|
|
96,672,341 |
|
|
|
187,576,416 |
|
|
|
27,493,795 |
|
Accrued liability for customer reward program |
|
|
44,659,657 |
|
|
|
58,046,062 |
|
|
|
8,508,034 |
|
Dividend payable |
|
|
119,497,083 |
|
|
|
|
|
|
|
|
|
Other payables and accruals |
|
|
65,481,300 |
|
|
|
121,171,707 |
|
|
|
17,760,602 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
672,041,144 |
|
|
|
626,037,525 |
|
|
|
91,760,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term payables |
|
|
1,625,000 |
|
|
|
812,500 |
|
|
|
119,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
673,666,144 |
|
|
|
626,850,025 |
|
|
|
91,879,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests |
|
|
1,158,767 |
|
|
|
2,628,093 |
|
|
|
385,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (note 16) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
Share capital (US$0.01 par value; 100,000,000 shares authorized,
33,193,693 and 33,468,023 share issued and outstanding as of
December 31, 2007 and 2008, respectively.) |
|
|
2,742,210 |
|
|
|
2,761,259 |
|
|
|
404,728 |
|
Additional paid-in capital |
|
|
791,336,910 |
|
|
|
967,687,772 |
|
|
|
141,837,709 |
|
Statutory reserves |
|
|
60,869,845 |
|
|
|
75,948,298 |
|
|
|
11,132,033 |
|
Accumulated other comprehensive loss |
|
|
(36,420,706 |
) |
|
|
(175,929,389 |
) |
|
|
(25,786,645 |
) |
Retained earnings |
|
|
631,590,838 |
|
|
|
1,060,620,258 |
|
|
|
155,459,181 |
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
1,450,119,097 |
|
|
|
1,931,088,198 |
|
|
|
283,047,006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
|
2,124,944,008 |
|
|
|
2,560,566,316 |
|
|
|
375,312,029 |
|
|
|
|
|
|
|
|
|
|
|
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, 2006, 2007 AND 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
(US$0.01 par value) |
|
|
Additional |
|
|
|
|
|
|
Deferred |
|
|
cumulative |
|
|
|
|
|
|
Total |
|
|
|
Number |
|
|
Par |
|
|
paid-in |
|
|
Statutory |
|
|
share-based |
|
|
comprehensive |
|
|
Retained |
|
|
shareholders |
|
|
|
of shares |
|
|
Value |
|
|
capital |
|
|
reserves |
|
|
compensation |
|
|
income |
|
|
earnings |
|
|
equity |
|
|
|
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
Balance as of December 31, 2005 |
|
|
32,037,609 |
|
|
|
2,652,142 |
|
|
|
524,928,856 |
|
|
|
41,769,481 |
|
|
|
(465,255 |
) |
|
|
(7,639,603 |
) |
|
|
203,469,983 |
|
|
|
764,715,604 |
|
Exercise of share option |
|
|
612,144 |
|
|
|
48,747 |
|
|
|
48,315,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,364,287 |
|
Adoption of SFAS No. 123R |
|
|
|
|
|
|
|
|
|
|
(465,255 |
) |
|
|
|
|
|
|
465,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
54,682,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,682,027 |
|
Appropriations to statutory reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,018,430 |
|
|
|
|
|
|
|
|
|
|
|
(12,018,430 |
) |
|
|
|
|
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(72,169,155 |
) |
|
|
(72,169,155 |
) |
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,459,660 |
) |
|
|
|
|
|
|
(8,459,660 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240,563,847 |
|
|
|
240,563,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006 |
|
|
32,649,753 |
|
|
|
2,700,889 |
|
|
|
627,461,168 |
|
|
|
53,787,911 |
|
|
|
|
|
|
|
(16,099,263 |
) |
|
|
359,846,245 |
|
|
|
1,027,696,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of share option |
|
|
543,940 |
|
|
|
41,321 |
|
|
|
76,961,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,003,178 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
86,913,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,913,885 |
|
Appropriations to statutory reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,081,934 |
|
|
|
|
|
|
|
|
|
|
|
(7,081,934 |
) |
|
|
|
|
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(119,497,083 |
) |
|
|
(119,497,083 |
) |
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,321,443 |
) |
|
|
|
|
|
|
(20,321,443 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
398,323,610 |
|
|
|
398,323,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of share option |
|
|
274,330 |
|
|
|
19,049 |
|
|
|
47,833,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,852,436 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
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 |
) |
Unrealized securities holding losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(98,126,616 |
) |
|
|
|
|
|
|
(98,126,616 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
444,107,873 |
|
|
|
444,107,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008 |
|
|
33,468,023 |
|
|
|
2,761,259 |
|
|
|
967,687,772 |
|
|
|
75,948,298 |
|
|
|
|
|
|
|
(175,929,389 |
) |
|
|
1,060,620,258 |
|
|
|
1,931,088,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2006, 2007 AND 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2008 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
US$ |
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
240,563,847 |
|
|
|
398,323,610 |
|
|
|
444,107,873 |
|
|
|
65,094,595 |
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain not related to operating expense |
|
|
|
|
|
|
|
|
|
|
(16,773,145 |
) |
|
|
(2,458,504 |
) |
Share-based compensation |
|
|
54,682,027 |
|
|
|
86,913,885 |
|
|
|
128,517,475 |
|
|
|
18,837,298 |
|
Provision for doubtful accounts |
|
|
141,462 |
|
|
|
3,643,214 |
|
|
|
126,608 |
|
|
|
18,557 |
|
Depreciation of property, equipment and software |
|
|
12,254,080 |
|
|
|
24,773,735 |
|
|
|
35,574,685 |
|
|
|
5,214,318 |
|
Amortization of intangible assets and land use rights |
|
|
1,960,182 |
|
|
|
1,505,050 |
|
|
|
2,625,968 |
|
|
|
384,898 |
|
Minority interests |
|
|
221,374 |
|
|
|
(4,013 |
) |
|
|
230,291 |
|
|
|
33,755 |
|
Deferred income tax (benefit) provision |
|
|
(780,980 |
) |
|
|
(8,359,616 |
) |
|
|
2,802,900 |
|
|
|
410,832 |
|
Loss from disposal of property, equipment and software |
|
|
680,494 |
|
|
|
1,164,610 |
|
|
|
369,589 |
|
|
|
54,172 |
|
Changes in current assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in accounts receivable |
|
|
(77,556,256 |
) |
|
|
(137,176,380 |
) |
|
|
(9,784,687 |
) |
|
|
(1,434,179 |
) |
Increase in due from related parties |
|
|
(288,751 |
) |
|
|
(1,199,947 |
) |
|
|
(873,076 |
) |
|
|
(127,970 |
) |
Increase in prepayments and other current assets |
|
|
(14,526,301 |
) |
|
|
(18,098,226 |
) |
|
|
(18,836,059 |
) |
|
|
(2,760,873 |
) |
(Increase) Decrease in long-term deposits |
|
|
(25,890,183 |
) |
|
|
(66,918,006 |
) |
|
|
1,592,988 |
|
|
|
233,490 |
|
Increase in accounts payable |
|
|
79,054,806 |
|
|
|
79,496,364 |
|
|
|
(92,578,544 |
) |
|
|
(13,569,592 |
) |
Decrease in due to related parties |
|
|
(683,344 |
) |
|
|
(157,218 |
) |
|
|
|
|
|
|
|
|
Increase (Decrease) in salary and welfare payable |
|
|
11,434,209 |
|
|
|
32,719,032 |
|
|
|
(2,585,217 |
) |
|
|
(378,925 |
) |
Increase in taxes payable |
|
|
18,863,360 |
|
|
|
14,165,757 |
|
|
|
4,739,538 |
|
|
|
694,692 |
|
Increase in advances from customers |
|
|
10,861,282 |
|
|
|
58,493,475 |
|
|
|
83,892,010 |
|
|
|
12,296,374 |
|
Increase in accrued liability for customer reward program |
|
|
9,790,519 |
|
|
|
15,092,945 |
|
|
|
13,386,405 |
|
|
|
1,962,097 |
|
Increase in other payables and accruals |
|
|
27,110,163 |
|
|
|
1,202,469 |
|
|
|
14,343,270 |
|
|
|
2,102,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
347,891,990 |
|
|
|
485,580,740 |
|
|
|
590,878,872 |
|
|
|
86,607,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, equipment and software |
|
|
(96,572,815 |
) |
|
|
(126,846,348 |
) |
|
|
(115,372,416 |
) |
|
|
(16,910,578 |
) |
Purchase of land use right |
|
|
(26,839,219 |
) |
|
|
|
|
|
|
(48,912,729 |
) |
|
|
(7,169,326 |
) |
Cash paid for new investments and acquisition |
|
|
(81,166,250 |
) |
|
|
(142,736,594 |
) |
|
|
(333,441,792 |
) |
|
|
(48,873,843 |
) |
Purchase of intangible assets |
|
|
(2,395,071 |
) |
|
|
|
|
|
|
(1,000,000 |
) |
|
|
(146,574 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(206,973,355 |
) |
|
|
(269,582,942 |
) |
|
|
(498,726,937 |
) |
|
|
(73,100,321 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of share option |
|
|
40,143,700 |
|
|
|
88,045,825 |
|
|
|
40,178,626 |
|
|
|
5,889,135 |
|
Cash received from minority investors |
|
|
|
|
|
|
490,000 |
|
|
|
|
|
|
|
|
|
Dividends paid |
|
|
(67,273,747 |
) |
|
|
(72,169,155 |
) |
|
|
(112,266,834 |
) |
|
|
(16,455,380 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(27,130,047 |
) |
|
|
16,366,670 |
|
|
|
(72,088,208 |
) |
|
|
(10,566,245 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash and cash equivalents |
|
|
(4,457,882 |
) |
|
|
(12,338,794 |
) |
|
|
(14,654,641 |
) |
|
|
(2,147,987 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
109,330,706 |
|
|
|
220,025,674 |
|
|
|
5,409,086 |
|
|
|
792,830 |
|
Cash and cash equivalents, beginning of year |
|
|
735,061,898 |
|
|
|
844,392,604 |
|
|
|
1,064,418,278 |
|
|
|
156,015,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
|
844,392,604 |
|
|
|
1,064,418,278 |
|
|
|
1,069,827,364 |
|
|
|
156,808,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for income taxes |
|
|
33,822,731 |
|
|
|
52,918,146 |
|
|
|
90,079,204 |
|
|
|
13,203,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing and financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accruals related to purchase of property, equipment and software |
|
|
(17,470,657 |
) |
|
|
(26,301,297 |
) |
|
|
(23,785,033 |
) |
|
|
(3,486,264 |
) |
Liabilities incurred for acquisitions |
|
|
|
|
|
|
|
|
|
|
(42,600,000 |
) |
|
|
(6,244,045 |
) |
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 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 variable interest
entities (VIE or VIEs). 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 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 adopts Financial Accounting Standards Board (FASB) Interpretation No. 46 -
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, as amended, (FIN
46R). FIN 46R requires certain VIEs to be consolidated by the primary beneficiary of the entity
if the equity investors in the entity do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. 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:
|
|
|
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
The Company has voting control over the above VIEs based on the irrevocable powers of attorney
and other related agreements between the Company and the principal shareholders of the VIEs, which
consist of four senior officers and a family member of a senior officer of the Company. Such
officers and a family member of a senior officer collectively own a 100% equity interest in all of
the VIEs except for Shanghai Huacheng and Shanghai Ctrip which are 1.67% and 1.8% owned by third
parties, respectively.
Variable interest entities
As of December 31, 2008, 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 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 as of December 31, 2008 was RMB10,000,000.
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 98.33% of the equity interest in Shanghai Huacheng. The
registered capital of Shanghai Huacheng as of December 31, 2008 was RMB3,000,000. In March 2009,
the registered capital of Shanghai Huacheng increased to RMB70,000,000.
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 as of December 31, 2008 was RMB4,500,000. In March
2009, the registered capital of Beijing Ctrip increased to RMB40,000,000.
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 as of December 31, 2008 was RMB3,000,000.
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
as of December 31, 2008 was RMB5,000,000.
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 as of December
31, 2008 was RMB2,500,000.
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 as of December 31, 2008 was RMB10,000,000.
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, 2008, 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.
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.
F-8
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.
Foreign currencies
The Companys reporting currency is the Renminbi (RMB). The Company, and its subsidiaries
and VIEs, with an exception of the subsidiaries Ctrip.com (Hong Kong) Limited, C-Travel
International Limited (C-Travel) and Starway Hotels (Hong Kong) Limited (Starway Hong Kong),
use RMB as their functional currency. The Companys functional currency is the currency of the
primary economic environment in which it operates, which is RMB for most of the Companys
subsidiaries and VIEs. The Companys subsidiaries Ctrip.com (Hong Kong) Limited and Starway Hong
Kong operate primarily using the Hong Kong dollar (HK$), and C-Travel operates primarily using
the United States dollars (US$), and therefore, the HK$ and US$ have been determined to be the
functional currency for the subsidiaries, respectively.
Transactions denominated in currencies other than functional currencies are translated at the
exchange rates quoted by the Peoples Bank of China (the PBOC) or The Hong Kong and Shanghai
Banking Corporation Limited (the HSBC) prevailing at the dates of the transaction for PRC and
Hong Kong subsidiaries respectively. Gains and losses resulting from foreign currency transactions
are included in the consolidated statements of income. Monetary assets and liabilities denominated
in foreign currencies are translated using the applicable exchange rates quoted by the PBOC or HSBC
at the balance sheet dates. All such exchange gains and losses are included in the statements of
income. The exchange differences for the translation of group companies balances 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$1.00 = RMB6.8225, on December 31, 2008, representing the noon
buying rate in the City of New York for cable transfers of RMB, as certified for customs purposes
by the Federal Reserve Bank of New York. No representation is intended to imply that the RMB
amounts could have been, or could be, converted, realized or settled into US$ at that rate on
December 31, 2008, or at any other rate.
Stock Split
On March 31, 2006, the Company announced a change in the ratio of its ADSs to ordinary shares
from one ADS representing two ordinary shares to one ADS representing one ordinary share, effective
on April 11, 2006. For Ctrips ADS holders, this ratio change had the same effect as a two-for-one
ADS split.
On July 12, 2007, the Company announced a change in the ratio of its ADSs to ordinary shares
from one ADS representing one ordinary shares to two ADSs representing one ordinary share,
effective on July 30, 2007. 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 this 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. Our cash and cash equivalents represent
cash on hand and demand deposits placed with banks or other financial institutions.
Restricted cash
Restricted cash represents cash that cannot be withdrawn without the permission of a third
party. The Groups restricted cash is substantially cash balance on deposit required by one of its
business partners.
F-9
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.
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
|
|
5 years |
Construction in progress is stated at cost. Construction in progress 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 applies the Accounting Principles Board (APB) No. 18, The Equity Method of
Accounting for Investments in Common Stock (APB No. 18) in accounting for our investments. Under
APB No. 18, equity method is used for 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.
The Company applies Statement of Financial Accounting Standards (SFAS) No. 115, Accounting
for Certain Debt and Equity Securities. (SFAS No. 115). SFAS No. 115 requires that debt and
equity securities be classified into one of three categories and accounted for 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. Unrealized gains and losses on
available for sale securities are excluded from earnings and reported as accumulated other
comprehensive income (loss), net of tax.
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
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 157, Fair value
measurement (SFAS No. 157) on January 1, 2008. SFAS No.157 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 standard 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 SFAS No. 157 details the disclosures that are
required for items measured at fair value.
F-10
The available-for-sale investments must be measured under SFAS No. 157. 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.
Business combinations
Statement of Financial Accounting Standards No. 141, Business Combination (SFAS No. 141)
requires that all business combinations be accounted for under the purchase method. 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, equity instruments issued, and costs directly attributable to the
acquisition. Identifiable assets, liabilities and contingent liabilities acquired or assumed are
measured separately at their fair value as of the acquisition date. The excess of the cost of the
acquisition over our interest in the fair value of the identifiable net assets acquired is recorded
as goodwill.
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.
Acquisitions
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 comprehensive travel related business. Total purchase price for
this acquisition amounted to RMB80 million, with up to RMB10 million in additional contingent
consideration, which is determined by a multiple applied to the averaged net profit for year 2007
and 2008 determined in accordance with PRC accounting regulations. RMB38 million has been paid by
the end of 2008, and the remaining amount will be paid in 2009 on quarterly basis. In April 2009,
RMB90 million was agreed and determined as the final purchase price of this acquisition.
As the Company obtained effective control over the Board and operation of Software Hotel
Information at the end of December 2008, the Company designated December 31, 2008 as the
acquisition date. The balance sheet of Software Hotel Information is consolidated in the Groups
balance sheet and no income statement is consolidated. Software Hotel Informations results are
not material to any periods included in this filing.
F-11
Purchase Price Allocation
Under business combination accounting, the total purchase price was allocated to Software
Hotel Informations net tangible and identifiable intangible assets based on their estimated fair
values as set forth below. The excess of the purchase price over the net tangible and identifiable
intangible assets was recorded as goodwill. The following preliminary purchase price allocation as
set out below is based on management preliminary estimates as of December 31, 2008.
|
|
|
|
|
|
|
Fair Value |
|
|
|
RMB |
|
|
Cash and cash equivalents |
|
|
6,842,192 |
|
Accounts receivable |
|
|
3,605,050 |
|
Prepayments and other current assets |
|
|
12,678,254 |
|
Deferred tax assets |
|
|
367,905 |
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
23,493,401 |
|
|
|
|
|
|
|
|
|
|
Intangible assets |
|
|
20,719,610 |
|
Property, equipment and software |
|
|
1,414,912 |
|
Investment |
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
Non current assets |
|
|
23,134,522 |
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
(331,575 |
) |
Salary and welfare payable |
|
|
(2,678,226 |
) |
Taxes payable |
|
|
(921,643 |
) |
Advances from customers |
|
|
(7,012,065 |
) |
Other payables and accruals |
|
|
(2,574,457 |
) |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
(13,517,966 |
) |
|
|
|
|
|
|
|
|
|
Minority interest |
|
|
(1,239,035 |
) |
|
|
|
|
|
|
|
|
|
Net assets acquired |
|
|
31,870,922 |
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
48,129,078 |
|
|
|
|
|
|
Total purchase price |
|
|
80,000,000 |
|
|
|
|
|
In performing the preliminary purchase price allocation, the Company considered, among other
factors, the intention for future use of acquired assets, analyses of historical financial
performance and estimates of future performance of Software Hotel Informations products. The fair
value of intangible assets was determined on a reasonable valuation prepared by the Company by
using an income approach and estimates and assumptions provided by management. The following table
sets forth the components of intangible assets associated with the Software Hotel Information
acquisition:
|
|
|
|
|
|
|
|
|
|
|
Fair value |
|
|
Useful lives |
|
|
|
RMB |
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology patent |
|
|
9,240,000 |
|
|
5 years |
Non-compete agreements |
|
|
11,479,610 |
|
|
5 years |
|
|
|
|
|
|
|
|
|
|
|
20,719,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology patent represents a combination of software patents and trade secrets related to
the design and development of its software products. The Company determines the amortization period
of 5 years based on the estimated useful life of the technology patent.
Non-compete agreements were signed between Software Hotel Information and its key executives
and employees. These agreements prohibit the key employees work for any existing or potential
competitors for 5 years after they leave Software Hotel Information.
There is only one reporting unit in the Group. The goodwill arose from this acquisition has
been allocated to this reporting unit. None of the goodwill acquired is expected to be deductible
for income tax purposes.
F-12
Goodwill and other intangible assets
Statement of Financial Accounting Standards No. 141, Business Combination (SFAS No. 141)
requires that all business combinations be accounted for under the purchase method and that certain
acquired intangible assets in a business combination be recognized as assets apart from goodwill.
Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
(SFAS No. 142) requires that ratable amortization of goodwill be replaced with tests of the
goodwills impairment performed at least annually and that identifiable intangible assets other
than goodwill be amortized over their estimated useful lives.
Separately identifiable intangible assets that have determinable lives continued to be
amortized and consisted primarily of a cross-border travel agency license, non-compete agreements
and technology patent as of December 31, 2008. As required under SFAS No. 142, the Company
amortizes intangible assets on a straight-line basis over their estimated useful lives, which is
five 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 a golf membership certificate and a domain name as of December 31, 2008. 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.
The Company reviews goodwill and 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 goodwill and intangibles with indefinite lives annually for impairment. No impairment on
goodwill and other intangible assets was recognized for the years ended December 31, 2006, 2007 and
2008 in accordance with SFAS No. 142.
Impairment of long-lived assets
The Group applies provisions of SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which addresses the financial accounting and reporting for the recognition and
measurement of impairment losses for long-lived assets. In accordance with these standards,
long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Group recognizes impairment of
long-lived assets in the event that the carrying amount of such assets exceeds the fair value.
No impairment of long-lived assets was recognized for the years ended December 31, 2006, 2007,
and 2008.
Financial instruments
Financial instruments of the Group primarily comprise of cash and cash equivalents, restricted
cash, short-term investment, accounts receivable, due from related parties, accounts payable, due
to related parties, advances from customers and other payables. As of December 31, 2007 and 2008,
their carrying values approximated their fair values.
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 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, 2007 and 2008, the Groups accrued
liability for its customer reward program amounted to RMB44,659,657 and RMB58,046,062,
respectively, based on the estimated liabilities under the customer reward program.
Revenue recognition
The Group conducts its principal businesses 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). 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, business tax and related surcharges are
deducted from revenues to arrive at net revenues.
F-13
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 as the Group, generally, does not assume inventory risks and has no
obligations for cancelled hotel reservations.
Air-ticketing 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.
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 and Shenzhen Ctrip 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.
Other businesses
Other businesses comprise primarily of Internet-related advertising services, the sale of
insurance, air-ticket delivery services and the sale of travel guidebooks and VIP membership cards.
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.
Revenues from the sale of travel guidebooks and VIP membership cards are recognized when the
products are sold, provided that no significant obligations remained with the Group.
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. The following table summarized the details of the Companys allowance for doubtful
accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
Balance at beginning of year |
|
|
|
|
|
|
8,469 |
|
|
|
3,002,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts |
|
|
141,462 |
|
|
|
3,643,214 |
|
|
|
126,608 |
|
Write-offs |
|
|
(132,993 |
) |
|
|
(649,569 |
) |
|
|
(3,116,334 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
|
8,469 |
|
|
|
3,002,114 |
|
|
|
12,388 |
|
|
|
|
|
|
|
|
|
|
|
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.
F-14
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
Statement of Position (SOP) No. 98-1 Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use. As such, 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 and websites
content.
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 RMB25,230,545, RMB35,658,739 and
RMB49,033,162 for the years ended December 31, 2006, 2007 and 2008, respectively, are charged to
the statements of income as incurred.
Share-based compensation
Adoption of SFAS No. 123R, Share-Based Payment (SFAS No. 123R)
Effective January 1, 2006 the Company has adopted SFAS No. 123R, which replaced SFAS No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123) and superseded APB No. 25, Accounting
for Stock Issued to Employees(APB No. 25). The Company adopted SFAS No. 123R using the modified
prospective approach and accordingly prior periods have not been restated to reflect the impact of
SFAS No. 123R. In accordance with SFAS No. 123R, all grants of stock options are recognized in the
financial statements based on their grant date fair values. The valuation provisions of SFAS No.
123R apply to new awards, to awards granted to employees before the adoption of SFAS No. 123R whose
related requisite services had not been provided, and to awards which were subsequently modified or
cancelled. In March 2005, the SEC issued Staff Accounting Bulletin (SAB) No. 107 (SAB No. 107)
relating to SFAS No. 123R. The Company has applied the provisions of SAB No. 107 in its adoption of
SFAS No. 123R. Staff Accounting Bulletin No. 110 (SAB No.110) issued by the U.S. Securities and
Exchange Commission (SEC) was effective for the Company beginning in the first quarter of 2008. SAB
110 amends the SECs views discussed in SAB No. 107 regarding the use of the simplified method in
developing estimates of the expected lives of share options in accordance with SFAS No. 123(R). The
amendment, in part, allowed the continued use, subject to specific criteria, of the simplified
method in estimating the expected lives of share options granted after December 31, 2007. 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 in accordance with
SAB No. 107, as amended by SAB No. 110.
SFAS No. 123R requires that the deferred share-based compensation on the consolidated balance
sheet on the date of adoption be netted against additional paid-in capital. As of January 1, 2006,
there was a balance of RMB465,255 of deferred share-based compensation that was netted against
additional paid-in capital.
SFAS No. 123R 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 SFAS No. 123R, 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 during 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.
F-15
Share option plans
On April 15, 2003, the Company adopted a 2003 share option plan that provides for the issuance
of up to 1,187,510 ordinary shares (2003 Option Plan). Under this share option plan, the
directors may, at their discretion, grant any employees, officers and directors of the Company
and/or its subsidiaries to take up share options to subscribe for shares. These share options are
vested over a period of 3 years and can be exercised within 5 years from the date of grant. As of
December 31, 2008, 28,500 options were outstanding under the 2003 Option Plan.
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, 2008, 2,089,389 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 and directors 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 and can be exercised within 5 years from the date of grant. As of December
31, 2008, 980,400 options were outstanding under the 2007 Incentive Plan.
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 January 1, 2006 |
|
|
2,402,164 |
|
|
|
17.98 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
220,300 |
|
|
|
41.03 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(612,144 |
) |
|
|
9.98 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(50,370 |
) |
|
|
27.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006 |
|
|
1,959,950 |
|
|
|
22.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
1,054,900 |
|
|
|
60.30 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(543,940 |
) |
|
|
18.65 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(56,161 |
) |
|
|
43.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
2,414,749 |
|
|
|
39.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expect to vest at December 31, 2008 |
|
|
2,959,274 |
|
|
|
60.84 |
|
|
|
2.87 |
|
|
|
25,414,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2008 |
|
|
1,360,608 |
|
|
|
32.19 |
|
|
|
1.94 |
|
|
|
24,778,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 closing stock price of the Companys closing stock price of
US$47.60 as of December 31, 2008 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,
2008.
The total intrinsic value of options exercised during the year ended December 31, 2006, 2007
and 2008 were US$24 million, US$33 million and US$19 million, respectively.
F-16
The following table summarized information related to outstanding and exercisable options as
of December 31, 2008 (in US$, 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) |
|
$10.00-$16.99 |
|
|
28,500 |
|
|
|
12.95 |
|
|
|
0.44 |
|
|
|
28,500 |
|
|
|
12.95 |
|
|
|
0.44 |
|
$17.00-$22.99 |
|
|
456,039 |
|
|
|
19.67 |
|
|
|
1.12 |
|
|
|
448,706 |
|
|
|
19.67 |
|
|
|
1.12 |
|
$23.00-$34.99 |
|
|
533,659 |
|
|
|
26.42 |
|
|
|
1.95 |
|
|
|
516,936 |
|
|
|
26.32 |
|
|
|
1.94 |
|
$35.00-$44.99 |
|
|
118,154 |
|
|
|
43.85 |
|
|
|
2.61 |
|
|
|
69,487 |
|
|
|
43.85 |
|
|
|
2.61 |
|
$45.00-$58.99 |
|
|
882,803 |
|
|
|
58.39 |
|
|
|
3.12 |
|
|
|
264,334 |
|
|
|
58.39 |
|
|
|
3.12 |
|
$59.00-$77.99 |
|
|
98,734 |
|
|
|
77.02 |
|
|
|
3.62 |
|
|
|
32,645 |
|
|
|
77.02 |
|
|
|
3.62 |
|
$78.00-$89.99 |
|
|
71,000 |
|
|
|
89.64 |
|
|
|
4.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$90.00-$106.99 |
|
|
816,400 |
|
|
|
106.66 |
|
|
|
4.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$107.00-$114.99 |
|
|
93,000 |
|
|
|
114.96 |
|
|
|
4.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,098,289 |
|
|
|
|
|
|
|
|
|
|
|
1,360,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average fair value of options granted during the years ended December 31, 2006,
2007 and 2008 was US$12.9369, US$18.2969, and US$40.2458 per share, respectively.
As of December 31, 2008, there was US$36 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 2.4 year. Total unrecognized compensation cost may be adjusted
for future changes in estimated forfeitures. For the year ended December 31, 2008, total cash
received from the exercise of share options amounted to RMB40,178,626 (approximately US$6 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,
2006, 2007 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
Risk-free interest rate |
|
|
4.66% 4.93% |
|
|
|
4.49% 4.85% |
|
|
|
2.64% 2.96% |
|
Expected life (years) |
|
|
2.5 |
|
|
|
2.5 |
|
|
|
4 |
|
Expected dividend yield |
|
|
0.89% |
|
|
|
0.45% |
|
|
|
0%-0.42% |
|
Volatility |
|
|
45% 54% |
|
|
|
39% 44% |
|
|
|
44% 46% |
|
Fair value of options at grant date per share |
|
from US$10.82 |
|
from US$17.92 |
|
from US$33.57 |
|
|
to US$13.50 |
|
to US$21.62 |
|
to US$42.82 |
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 FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an Interpretation of FASB Statement No. 109 (FIN 48). FIN 48
clarifies the accounting for uncertainty in income taxes recognized in the Companys financial
statements in accordance with FASB Statement 109, Accounting for Income Taxes, 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. This Interpretation 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-17
The Company did not have any adjustment to the opening balance of retained earnings as of
January 1, 2007 as a result of the implementation of FIN 48. As of December 31, 2008, 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 the year ended December 31, 2008, 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, 2006, 2007 and
2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
Foreign exchange gains |
|
|
2,041,201 |
|
|
|
16,746,827 |
|
|
|
30,710,828 |
|
Financial subsidies |
|
|
10,700,687 |
|
|
|
21,174,612 |
|
|
|
24,185,723 |
|
Others |
|
|
(1,528,087 |
) |
|
|
(2,624,216 |
) |
|
|
48,044 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
11,213,801 |
|
|
|
35,297,223 |
|
|
|
54,944,595 |
|
|
|
|
|
|
|
|
|
|
|
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 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, 2006, 2007 and 2008, appropriations to statutory
reserves have been made of RMB12,018,430, RMB7,081,934 and RMB15,078,453, respectively.
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. Because
substantial part 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.
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, 2006, 2007 and 2008 were RMB552 million, RMB696 million and RMB 885 million,
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 October 21, 2005, the Company announced that the shareholders have adopted a resolution to
approve the Companys proposed distribution of 30% of its net income for 2005 (as determined in
accordance with the US GAAP and reported in the audited consolidated financial statements for the
year ended December 31, 2005) as dividends to shareholders of record as of June 30, 2006. The Board
of Directors had also approved such proposed dividend distribution. The Company accrued
RMB67,273,747 dividend payable for the year ended December 31, 2005. On July 14, 2006, the Company
distributed the dividend to its shareholders of record as of June 30, 2006, at a dividend rate of
RMB2.04 (US$0.255) per ordinary share.
F-18
On October 17, 2006, the Company announced that the shareholders have adopted a resolution to
approve the Companys proposed distribution of 30% of its net income for 2006 (as determined in
accordance with the US GAAP and reported in the audited consolidated financial statements of the
Company for the year ended December 31, 2006) 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 RMB72,169,155 for the year ended December 31, 2006. On July 6, 2007, the Company
distributed the dividends to its shareholders of record as of June 29, 2007, at a divided rate of
RMB2.11 (US$0.277), per ordinary share.
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 (as determined in
accordance with the US GAAP and reported in the audited consolidated financial statements of the
Company for the year ended December 31, 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.
Earnings per share
In accordance with SFAS No. 128, Computation of Earnings Per Share (SFAS No. 128), 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 SFAS
No. 131, Disclosures about Segment of an Enterprise and Related Information (SFAS No. 131), 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 SFAS No. 131 can be found in the Consolidated Statements.
The Company primarily generates its revenues from customers in China. Accordingly, no
geographical segments are presented.
Recent accounting pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS No.157). This
statement defines fair value, establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about fair value measurements. The
statement was effective in the fiscal first quarter of 2008 except for non-financial assets and
liabilities recognized or disclosed at fair value on a recurring basis, for which the effective
date is for fiscal years beginning after November 15, 2008. The Company adopted SFAS No. 157 in the
fiscal first quarter of 2008, the impact of which is discussed in Note 2.
In February 2007, the FASB issued SFAS No. 159, Fair Value Option for Financial Assets and
Financial Liabilities (SFAS No.159), which permits an entity to measure certain financial assets
and financial liabilities at fair value. SFAS No. 159 was effective for fiscal year 2008 and the
Company adopted it in the fiscal first quarter of 2008. The adoption of SFAS No. 159 did not impact
the Companys results of operations, cash flows or financial position.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements an Amendment of ARB No. 51 (SFAS No. 160), which clarifies the presentation
of a noncontrolling interest in consolidated financial statements, establishes a single method of
accounting for changes in a parents ownership interest and expands disclosure requirements. SFAS
No. 160 will be effective for the Company on January 1, 2009. The Company is currently evaluating
the impact of adopting SFAS No. 160 on its financial position, cash flows, and results of
operations.
F-19
In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business combinations (SFAS
No. 141R), which replaces SFAS 141. SFAS No. 141R establishes principles and requirements for how
an acquirer in a business combination recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, and any controlling interest; recognizes and
measures the goodwill acquired in the business combination or a gain from a bargain purchase; and
determines what information to disclose to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. SFAS No. 141R will be effective for the
Company on January 1, 2009. The Company is currently evaluating the impact of adopting SFAS No.
141R on its financial position, cash flows, and results of operations.
In February 2008, the FASB issued FSP 157-2, which delayed the effective date of SFAS No. 157
for all non-financial assets and non-financial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at least annually), until
the beginning of the first quarter of fiscal year 2009. The Company is currently evaluating the
impact that FSP 157-2 will have on our financial statements.
In April 2008, the FASB issued FASB Staff Positions (FSP) SFAS No. 142-3, Determination of
the Useful Life of Intangible Assets (FSP FAS 142-3), which amends the factors an entity should
consider in developing renewal or extension assumptions used in determining the useful life of
recognized intangible assets under SFAS No. 142, Goodwill and Other Intangible Assets This
guidance for determining the useful life of a recognized intangible asset applies prospectively to
intangible assets acquired individually or with a group of other assets in either an asset
acquisition or business combination. FSP FAS 142-3 is effective for the Companys financial
statements for the year beginning on January 1, 2009. The Company is currently evaluating the
impact that FSP FAS 142-3 will have on our financial statements.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS No. 162), which defines the order in which accounting principles that are
generally accepted should be followed. SFAS No. 162 is effective 60 days following the SECs
approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning
of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company is
currently evaluating the impact of adopting SFAS No. 162 on its financial position, cash flows, and
results of operations.
In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities (FSP 03-6-1), which defines
unvested share-based payment awards that contain nonforfeitable rights to dividends as
participating securities that should be included in computing earnings per share (EPS) using the
two-class method under SFAS No. 128, Earnings per Share. FSP 03-6-1 is effective for the
Companys financial statements for the year beginning on January 1, 2009. Additionally, all
prior-period EPS data shall be adjusted retrospectively. The Company is currently evaluating the
impact that FSP 03-6-1 will have on our financial statements.
In October 2008, the FASB issued FSP No. 157-3, Determining the Fair Value of a Financial
Asset When the Market for That Asset Is Not Active (FSP 157-3). FSP 157-3 clarifies how SFAS No.
157 Fair Value Measurements (SFAS 157) should be applied when valuing securities in markets that
are not active. FSP 157-3 was effective for fiscal year 2008 and the Company adopted it in the
fiscal third quarter of 2008. The adoption of FSP 157-3 did not impact the Companys results of
operations, cash flows or financial position.
In December 2008, the FASB issued FSP No. FAS 140-4 and FIN 46(R)-8, Disclosures by Public
Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest
Entities (FSP FAS 140-4 and FIN 46(R)-8), which amends Statement of Financial Accounting
Standards (SFAS) No. 140 Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities a replacement of FASB Statement No. 125 (SFAS 140) to require
public entities to provide additional disclosures about transferors continuing involvements with
transferred financial assets and amends FASB Interpretation (FIN) No. 46 (revised December 2003)
Consolidation of Variable Interest Entities an interpretation of ARB No. 51 (FIN 46R) to
require public enterprises, including sponsors that have a variable interest in a VIE, to provide
additional disclosures about their involvement with VIEs. FSP FAS 140-4 and FIN 46(R)-8 is
effective for the Companys financial statements for the year ended December 31, 2008.The adoption
of FSP FAS 140-4 and FIN 46(R)-8 did not impact the Companys results of operations, cash flows or
financial position.
On January 12, 2009, the FASB issued FASB Staff Position (FSP) No. Emerging Issues Task Force
(EITF) 99-20-1, Amendments to the Impairment and Interest Income Measurement Guidance of EITF
Issue No. 99-20 (FSP EITF 99-20-1). FSP EITF 99-20-1 changed the guidance for the determination of
whether an impairment of certain non-investment grade, beneficial interests in securitized
financial assets is considered other-than-temporary. FSP EITF 99-20-1 is effective for the
Companys financial statements for the year ended December 31, 2008. The adoption of FSP EITF
99-20-1did not impact the Companys results of operations, cash flows or financial position.
F-20
On April 9, 2009, the FASB issued FSP No. 115-2 and FSP 124-2, Recognition and Presentation
of Other-Than-Temporary Impairments, which amends the other-than-temporary impairment guidance in
U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation
and disclosure of other-than-temporary impairments on debt and equity securities in the financial
statements. This FSP does not amend existing recognition and measurement guidance related to
other-than-temporary impairments of equity securities. The Company is currently evaluating the
impact of adopting FSP No. 115-2 and FSP No. 124-2 on its financial position, cash flows, and
results of operations.
On April 13, 2009, the SEC issued Staff Accounting Bulletin No. 111 on Other Than Temporary
Impairment of Certain Investments in Debt and Equity Securities (SAB 111), which maintains the
staffs previous views related to equity securities. It also amends Topic 5.M. to exclude debt
securities from its scope. The Company is currently evaluating the impact of adopting SAB No. 111
on its financial position, cash flows, and results of operations.
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, 2006, 2007 and 2008, 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, 2006, 2007 and 2008. No individual customer accounted for more than 10% of accounts
receivable as of December 31, 2007 and 2008.
3. PREPAYMENTS AND OTHER CURRENT ASSETS
Components of prepayments and other current assets as of December 31, 2007 and 2008 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
|
RMB |
|
|
RMB |
|
Prepayments and deposits to vendors |
|
|
46,016,315 |
|
|
|
61,562,698 |
|
Loans to minor shareholders |
|
|
|
|
|
|
9,448,965 |
|
Receivables from financial institution |
|
|
9,368,713 |
|
|
|
8,628,947 |
|
Interest receivable |
|
|
2,722,534 |
|
|
|
6,831,181 |
|
Employee advances |
|
|
1,306,161 |
|
|
|
1,104,596 |
|
Others |
|
|
1,936,929 |
|
|
|
4,562,096 |
|
|
|
|
|
|
|
|
Total |
|
|
61,350,652 |
|
|
|
92,138,483 |
|
|
|
|
|
|
|
|
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, 2007 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
|
RMB |
|
|
RMB |
|
Deposits paid to airline suppliers |
|
|
136,681,643 |
|
|
|
130,948,830 |
|
Deposit paid to travel bureau |
|
|
4,800,000 |
|
|
|
7,430,000 |
|
Others |
|
|
5,611,347 |
|
|
|
7,121,172 |
|
|
|
|
|
|
|
|
Total |
|
|
147,092,990 |
|
|
|
145,500,002 |
|
|
|
|
|
|
|
|
5. LAND USE RIGHTS
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, on which the Group is
current building its Nantong customer service
center. 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 is used as the basis for
amortization. Amortization expense for the years ended December 31, 2006, 2007 and 2008 was
RMB1,820,526, RMB1,365,394 and RMB2,486,312, respectively. As of December 31, 2007 and 2008, the
net book value was RMB65,083,814 and RMB111,510,231, respectively.
F-21
6. PROPERTY, EQUIPMENT AND SOFTWARE
Property, equipment and software and its related accumulated depreciation and amortization as
of December 31, 2007 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
|
RMB |
|
|
RMB |
|
Building |
|
|
147,832,241 |
|
|
|
147,248,314 |
|
Computer equipment |
|
|
102,528,527 |
|
|
|
121,413,515 |
|
Website-related equipment |
|
|
23,649,926 |
|
|
|
46,018,225 |
|
Furniture and fixtures |
|
|
26,934,863 |
|
|
|
29,886,368 |
|
Software |
|
|
10,739,845 |
|
|
|
15,511,066 |
|
Leasehold improvements |
|
|
6,971,075 |
|
|
|
7,733,543 |
|
Construction in progress |
|
|
471,000 |
|
|
|
66,605,760 |
|
Less: accumulated depreciation and amortization |
|
|
(51,932,689 |
) |
|
|
(88,299,708 |
) |
|
|
|
|
|
|
|
Total net book value |
|
|
267,194,788 |
|
|
|
346,117,083 |
|
|
|
|
|
|
|
|
In 2007, the Company completed the construction of an information and technology center in
Shanghai. This new building now serves as our headquarters, 24-hour customer service and call
center, production development center and administrative and support facilities. All direct costs
of the new information and technology center in Shanghai were originally capitalized as
construction in progress, and were reclassified to property and equipment, when the building was
completed and available for use.
In
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.
Depreciation expense for the years ended December 31, 2006, 2007 and 2008 was approximately
RMB12,254,080, RMB24,773,735 and RMB35,574,685, respectively.
7. INVESTMENTS
ezTravel Co., Ltd. (ezTravel)
On March 12, 2006, our 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 airline tickets reservation services. The Company accounted
for the investment in ezTravel using the cost method of accounting as the Company could not
exercise significant influence over ezTravel. Total amount paid for this acquisition was
approximately US$10 million, equivalent to approximately RMB80 million.
In 2007, shares of ezTravel were made available to public on Xyn Gui, the Taiwanese national
stock exchange for pre-IPO companies. The Company applied SFAS 115 and the investment in ezTravel
was classified as available for sale and stated at fair value. In the middle of August 2008,
ezTravel was delisted from Xyn Gui and became a private company.
The Company used the closing price of ezTravel as of delisted date to determine the fair value
of ezTravel, at which time the company reverted to cost method of accounting for ezTravel in
accordance with APB No.18. The gross carrying value of our cost method investment in ezTravel is
RMB80,416,250 as of December 31, 2008 and 2007. The foreign currency translation adjustment for
ezTravel is RMB(11,519,877) as of December 31, 2008. There is a RMB17,243,654 unrealised securities
holding loss recorded within other comprehensive income during the time this investment was
accounted for under FAS 115, resulting in a net investment balance of RMB51,652,719 recorded under
the cost method at December 31, 2008.
Home Inns & Hotels Management Inc. (Home Inns)
During the year ended December 31, 2008, the Group made a minority investment in Home Inns, a
company listed in Nasdaq, at average unit cost of approximately US$12. The total cost of this
investment was approximately US$39 million, equivalent to approximately RMB266 million, which
accounted for approximately 9% of its total outstanding shares.
The Company applies SFAS 115 to account for the investment in Home Inns as available for sale
securities and used closing price of Home Inns as of December 31, 2008 to determine the fair value
of investment.
F-22
The carrying amount and unrealized securities holding loss for investment as of December 31,
2007 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
|
RMB |
|
|
RMB |
|
Cost: |
|
|
|
|
|
|
|
|
Home Inns |
|
|
|
|
|
|
265,655,797 |
|
ezTravel |
|
|
80,416,250 |
|
|
|
80,416,250 |
|
Treasury bonds |
|
|
|
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
Total |
|
|
80,416,250 |
|
|
|
347,072,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation: |
|
|
|
|
|
|
|
|
Home Inns |
|
|
|
|
|
|
517,943 |
|
ezTravel |
|
|
|
|
|
|
(11,519,877 |
) |
Treasury bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
(11,001,934 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized securities holding losses: |
|
|
|
|
|
|
|
|
Home Inns |
|
|
|
|
|
|
(80,882,962 |
) |
ezTravel |
|
|
|
|
|
|
(17,243,654 |
) |
Treasury bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
(98,126,616 |
) |
|
|
|
|
|
|
|
|
Total net book value |
|
|
80,416,250 |
|
|
|
237,943,497 |
|
|
|
|
|
|
|
|
The Company has assessed the decline in fair value of both investments and determined such
decline to be temporary, as a result, no impairments have been recorded for these investments.
8. GOODWILL
The changes in the carrying amount of goodwill for the years ended December 31, 2007 and 2008
were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
|
RMB |
|
|
RMB |
|
Balance at beginning of year |
|
|
14,595,849 |
|
|
|
14,595,849 |
|
Acquisition of Software Hotel Information |
|
|
|
|
|
|
48,129,078 |
|
Acquisition of Sanya Ctrip Travel Agency Co., Ltd. |
|
|
|
|
|
|
964,809 |
|
|
|
|
|
|
|
|
Balance at ending of year |
|
|
14,595,849 |
|
|
|
63,689,736 |
|
|
|
|
|
|
|
|
In July 2008, the Company purchased 100% equity of Sanya Ctrip Travel Agency Co., Ltd., a
travel agent established in Sanya. Total purchase price for this acquisition amounted to RMB1.5
million, of which RMB900,000 was paid in September 2008, RMB600,000 were recorded as liabilities
and will be paid by the end of year 2009. Goodwill of RMB964,809 was recognized from this
acquisition.
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.
Both goodwill arose from the business combination completed in year 2008 has been allocated to
the single reporting unit of the Group. Goodwill represents the synergy effects of the business
combination.
Goodwill is not amortized but is reviewed annually for impairment according to SFAS No. 142.
The Company performed goodwill impairment tests in year 2007 and 2008, and the results of these
tests indicated that the Companys goodwill assets were not impaired.
F-23
9. INTANGIBLE ASSETS
Intangible assets as of December 31, 2007 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
|
RMB |
|
|
RMB |
|
Intangible assets |
|
|
|
|
|
|
|
|
Non-compete agreements |
|
|
|
|
|
|
11,479,610 |
|
Technology patent |
|
|
|
|
|
|
9,240,000 |
|
Golf membership certificate |
|
|
2,000,000 |
|
|
|
2,000,000 |
|
Cross-border travel agency license |
|
|
1,117,277 |
|
|
|
1,117,277 |
|
Others |
|
|
395,071 |
|
|
|
1,395,071 |
|
|
|
|
|
|
|
|
|
|
|
3,512,348 |
|
|
|
25,231,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated amortization |
|
|
|
|
|
|
|
|
Technology patent |
|
|
|
|
|
|
|
|
Non-compete agreements |
|
|
|
|
|
|
|
|
Cross-border travel agency license |
|
|
(593,539 |
) |
|
|
(733,195 |
) |
Golf membership certificate |
|
|
|
|
|
|
|
|
Others |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(593,539 |
) |
|
|
(733,195 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value |
|
|
2,918,809 |
|
|
|
24,498,763 |
|
|
|
|
|
|
|
|
Amortization expense for the years ended December 31, 2006, 2007 and 2008 was approximately
RMB139,656, RMB139,656, and RMB139,656, respectively.
The annual estimated amortization expense for intangible assets subject to amortization for
the following years is as follows:
|
|
|
|
|
|
|
Amortization |
|
|
|
RMB |
|
2009 |
|
|
4,283,578 |
|
2010 |
|
|
4,283,578 |
|
2011 |
|
|
4,248,692 |
|
2012 |
|
|
4,143,922 |
|
2013 |
|
|
4,143,922 |
|
|
|
|
|
|
|
|
21,103,692 |
|
|
|
|
|
10. 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 did not have assessable profits that were earned in or derived from
Hong Kong during the years ended December 31, 2006, 2007 and 2008. Accordingly, no Hong Kong
profit tax has been provided for.
China
The Companys subsidiaries and VIEs registered in the PRC are subject to PRC Enterprise Income
Tax (EIT) 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 EIT Law and Detailed Implementation
Rules of China EIT Law. The EIT laws take effect on January 1, 2008. The EIT 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 and Ctrip Travel Network obtained approval for the High New Tech Enterprises status.
The application tax rate for High New Tech Enterprise is 15%, which effective retroactively as of
January 1, 2008.
F-24
Shenzhen Ctrip was entitled to a transitional preferential tax rate of 18% as it is registered
in the city of Shenzhen in China in 2008. The transitional preferential income tax rate for next
four years is 20%, 22%, 24% and 25%, respectively.
In 2008, in accordance with EIT Law, the applicable EIT rates are 25%, except for
aforementioned three subsidiaries qualified for High New Tech Enterprises and Shenzhen Ctrip.
Pursuant to the EIT 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 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. The
Companys subsidiaries, Ctrip Computer Technology, Ctrip Travel Information, Ctrip Travel Network
and Ctrip Information Technology are considered FIEs and are directly held by our subsidiary in
Hong Kong. According to tax treaty between Mainland and Hong Kong Special Administrative Region,
dividends payable by an FIE in China to the company in Hong Kong will be subject to 5% withholding
tax. 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, 2006, 2007 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
Current income tax expense |
|
|
(42,058,000 |
) |
|
|
(66,365,599 |
) |
|
|
(100,478,409 |
) |
Adjustments to deferred asset for enacted EIT rate change |
|
|
|
|
|
|
6,312,229 |
|
|
|
(4,510,307 |
) |
Deferred tax benefit (expense) |
|
|
780,980 |
|
|
|
2,047,387 |
|
|
|
2,075,312 |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
(41,277,020 |
) |
|
|
(58,005,983 |
) |
|
|
(102,913,404 |
) |
|
|
|
|
|
|
|
|
|
|
Reconciliation of the differences between statutory tax rate and the effective tax rate
A reconciliation between the statutory EIT rate and the Groups effective tax rate for the
years ended December 31, 2006, 2007 and 2008 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
Statutory EIT rate |
|
|
33 |
% |
|
|
33 |
% |
|
|
25 |
% |
Tax differential from statutory rate applicable to
Subsidiaries in the PRC |
|
|
(25 |
)% |
|
|
(25 |
)% |
|
|
(11 |
)% |
Enacted EIT rate change |
|
|
|
|
|
|
(1 |
)% |
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-deductible expenses incurred |
|
|
7 |
% |
|
|
6 |
% |
|
|
4 |
% |
|
|
|
|
|
|
|
|
|
|
Effective EIT rate |
|
|
15 |
% |
|
|
13 |
% |
|
|
19 |
% |
|
|
|
|
|
|
|
|
|
|
Significant components of deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
|
RMB |
|
|
RMB |
|
Accrued liability for customer reward program and e-coupons |
|
|
11,925,767 |
|
|
|
9,230,772 |
|
Deferred tax liabilities |
|
|
(650,000 |
) |
|
|
(390,000 |
) |
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
11,275,767 |
|
|
|
8,840,772 |
|
|
|
|
|
|
|
|
We did not record any valuation allowances to reduce our deferred tax assets, as we believed
that our deferred tax asset amounts were more likely than not to be realized based on our estimate
of future taxable income.
11. EMPLOYEE BENEFITS
The full-time employees of Ctrip Computer Technology, Ctrip Travel Information, Ctrip Travel
Network, Ctrip Information Technology and the VIEs, which were established in the PRC, are entitled
to staff welfare benefits including medical care, welfare subsidies, unemployment insurance and
pension benefits. Ctrip Computer Technology, Ctrip Travel Information, Ctrip Travel Network, Ctrip
Information Technology 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 total expenses recorded for such employee benefits amounted to
RMB41,332,075, RMB67,048,322 and RMB90,029,054 for the year ended December 31, 2006, 2007 and 2008
respectively. The PRC government is responsible for the medical benefits and ultimate pension
liability to these employees.
F-25
12. RELATED PARTY TRANSACTIONS
During the years ended December 31, 2006, 2007 and 2008 significant related party transactions
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
Commissions from Home Inns |
|
|
6,272,966 |
|
|
|
8,936,554 |
|
|
|
14,766,676 |
|
Commissions from Hanting Hotels Inc. and its
affiliates (collectively, Hanting) |
|
|
1,427,512 |
|
|
|
5,569,353 |
|
|
|
7,515,618 |
|
Advertising expenses to Focus Media Holding Ltd. |
|
|
1,543,900 |
|
|
|
|
|
|
|
|
|
Marketing expenses to Alibaba-Yahoo! China |
|
|
800,000 |
|
|
|
|
|
|
|
|
|
Rental expense to a family member of a director |
|
|
550,000 |
|
|
|
281,650 |
|
|
|
|
|
Purchase of Shares of Home Inns |
|
|
|
|
|
|
|
|
|
|
265,655,797 |
|
Printing expenses to Joyu Tourism Operating Group |
|
|
|
|
|
|
|
|
|
|
2,160,000 |
|
Our 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, 2006, 2007 and 2008 are presented as above.
Two of our advertising suppliers, Focus Media Holding Ltd. and Alibaba -Yahoo! China had
entered into agreements with us to provide certain advertising services for us. Focus Media Holding
Ltd. has a director in common with our company. Alibaba -Yahoo! China is affiliated with a family
member of one of our officers as of December 31, 2006 and 2007. Total advertising expenses to Focus
Media Holding Ltd. and Alibaba -Yahoo! China for the years ended December 31, 2006, 2007 and 2008
are presented as above.
We lease approximately 1,223 square meters of our office premises in Shanghai from a company
controlled by a family member of one of our directors. Rental expenses for the years ended December
31, 2006 and 2007 are presented as above.
Up to December 2008, the Company purchased 3,162,490 ADS of Home Inns at average unit cost of
approximately US$12. The acquisition is approximately 9% of Home Inns total share in aggregate.
Total cost is RMB266 million (US$39 million), while unrealized holding loss was RMB81 million
(US$12 million) which has been recorded in other comprehensive income.
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 printing expense to Joyu Tourism Operating Group for the year ended December 31,
2006, 2007 and 2008 are presented as above.
As of December 31, 2007 and 2008, significant balances with related parties were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
|
RMB |
|
|
RMB |
|
Due from related parties: |
|
|
|
|
|
|
|
|
Due from Home Inns |
|
|
1,298,362 |
|
|
|
1,503,163 |
|
Due from Hanting |
|
|
840,585 |
|
|
|
1,508,860 |
|
|
|
|
|
|
|
|
|
|
|
2,138,947 |
|
|
|
3,012,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to related parties: |
|
|
|
|
|
|
|
|
Due to related parties of a VIE |
|
|
249,910 |
|
|
|
249,910 |
|
The amounts due from and due to related parties as of December 31, 2007 and 2008 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 no fixed repayment terms.
F-26
13. OTHER PAYABLES AND ACCRUALS
Components of other payables and accruals as of December 31, 2007 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2008 |
|
|
|
RMB |
|
|
RMB |
|
Payable for acquisition of Information Software Hotel |
|
|
|
|
|
|
42,000,000 |
|
Accrued operating expenses |
|
|
22,423,539 |
|
|
|
37,870,029 |
|
Accruals for property and equipment |
|
|
26,301,297 |
|
|
|
23,785,033 |
|
Deposits received from suppliers and packaged-tour customers |
|
|
4,883,206 |
|
|
|
5,293,102 |
|
Due to employees for stock option proceeds received on their behalf |
|
|
5,506,208 |
|
|
|
2,261,876 |
|
Liability incurred for minority interest in a VIE |
|
|
1,562,500 |
|
|
|
2,162,500 |
|
Others |
|
|
4,804,550 |
|
|
|
7,799,167 |
|
|
|
|
|
|
|
|
Total |
|
|
65,481,300 |
|
|
|
121,171,707 |
|
|
|
|
|
|
|
|
14. EARNINGS PER SHARE
Basic earnings per share and diluted earnings per share were calculated in accordance with
SFAS No. 128 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
240,563,847 |
|
|
|
398,323,610 |
|
|
|
444,107,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per ordinary share
weighted average ordinary shares outstanding |
|
|
32,342,998 |
|
|
|
32,927,454 |
|
|
|
33,352,845 |
|
Dilutive effect of share options |
|
|
925,222 |
|
|
|
1,193,936 |
|
|
|
1,071,704 |
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per ordinary share |
|
|
33,268,220 |
|
|
|
34,121,390 |
|
|
|
34,424,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per ordinary share |
|
|
7.44 |
|
|
|
12.10 |
|
|
|
13.32 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per ordinary share |
|
|
7.23 |
|
|
|
11.67 |
|
|
|
12.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per ADS |
|
|
3.72 |
|
|
|
6.05 |
|
|
|
6.66 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per ADS |
|
|
3.62 |
|
|
|
5.84 |
|
|
|
6.45 |
|
|
|
|
|
|
|
|
|
|
|
15. 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 2009 to 2011. Future minimum lease payments for
non-cancelable operating leases are as follows:
|
|
|
|
|
|
|
Office Premises |
|
|
|
RMB |
|
2009 |
|
|
23,298,273 |
|
2010 |
|
|
6,152,779 |
|
2011 |
|
|
1,762,016 |
|
|
|
|
|
|
|
|
31,213,068 |
|
|
|
|
|
Rental expense amounted to RMB16,813,230, RMB24,771,180 and RMB16,932,038 for the years ended
December 31, 2006, 2007 and 2008, respectively. Rental expense is charged to the statements of
income when incurred.
Purchase commitments
As of December 31, 2008, the Company had outstanding purchase commitments totaling
RMB271,861,167, which mainly relates to the construction of Nantong customer service center.
F-27
Guarantee
In connection with our air-ticketing business, the Company, on behalf of its VIEs, is required
by the Civil Aviation Administration of China to provide guarantees for tickets obtained from
various airlines. As of December 31, 2008, the amount under these guarantee arrangements was
approximately RMB617 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.
Contingencies
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.
16. SUBSEQUENT EVENTS
Option modifications
Our Board of Directors has approved an option modification plan to revise the price of all
outstanding unvested options granted by the Company in 2007 and 2008 based on the closing price of
the ADR on Nasdaq as of February 10, 2009. Under the modification plan, all affected options would
be subject to a new vesting schedule which starts on February 10, 2009, with other terms
substantially unchanged.
We expect all eligible option grantees would participate in the modification plan.
We expect to take a modification charge estimated to be approximately US$15 million over the
vesting periods of the modified options. These vesting periods range from three years to four
years.
Bank credit limit
In March 2009, the Company has obtained credit limit from one domestic bank with total amount
of RMB200 million. The purpose of the credit limit is mainly to supply daily operating cash needs.
Signing of definitive agreement for purchase of Home Inns shares
On May 7, 2009, the Company entered into a definitive purchase agreement to acquire an
additional 7,514,503 shares of Home Inns through a private placement, increasing our ownership to
approximately 18.25%.
The transaction has been closed on May 21, 2009. The Company has paid US$20 million at closing
and the remaining US$30 million is expected to be paid within 30 days of closing.
F-28
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) |
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2.1 |
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Specimen American Depositary Receipt of Ctrip.com International, Ltd. (incorporated by
reference to Exhibit 4.1 from our Registration Statement on Form F-1 (file no. 333-110455)
filed with the Securities and Exchange Commission on November 25, 2003) |
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2.2 |
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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) |
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2.3 |
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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) |
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2.4 |
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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 Receipts 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) |
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4.1 |
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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) |
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4.2 |
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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) |
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4.3 |
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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) |
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4.4 |
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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) |
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4.5 |
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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) |
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4.6 |
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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 |
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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 |
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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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Exhibit |
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Number |
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Document |
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4.9 |
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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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4.10 |
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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) |
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4.11 |
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Translation of Form of Trademark License 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 10.11 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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4.12 |
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Translation of Form of Software License 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 10.12 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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4.13 |
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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) |
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4.14 |
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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) |
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4.15 |
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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) |
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4.16 |
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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) |
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4.17 |
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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) |
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4.18 |
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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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4.19 |
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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) |
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4.20 |
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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) |
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4.21 |
* |
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Ctrip.com International, Ltd. 2007 Share Incentive Plan, as amended and restated as of
November 17, 2008 |
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4.22 |
* |
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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 |
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Exhibit |
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Number |
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Document |
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4.23 |
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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 Exchange Commission on May 21, 2009) |
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4.24 |
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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 Exchange Commission on May 21, 2009) |
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8.1 |
* |
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Subsidiaries
and Variable Interest Entities of the Registrant |
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11.1 |
* |
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Code of Business Conduct and Ethics of the Registrant, as amended and restated as of March 3, 2009 |
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12.1 |
* |
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Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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12.2 |
* |
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Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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13.1 |
* |
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Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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13.2 |
* |
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Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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15.1 |
* |
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Consent of Maples and Calder |
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15.2 |
* |
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Consent of Commerce & Finance Law Offices |
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15.3 |
* |
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Consent of PricewaterhouseCoopers Zhong Tian CPAs Limited Company |
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* |
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Filed with this annual report on Form 20-F. |
Exhibit 4.21
Exhibit 4.21
CTRIP.COM INTERNATIONAL, LTD.
2007 SHARE INCENTIVE PLAN, AS AMENDED AND RESTATED AS OF
NOVEMBER 17, 2008
ARTICLE 1
PURPOSE
The purpose of this 2007 Share Incentive Plan, as amended and restated as of November 17, 2008
(the Plan) is to promote the success and enhance the value of Ctrip.com International, Ltd., an
exempted company formed under the laws of the Cayman Islands (the Company) by linking the
personal interests of the members of the Board, Employees, and Consultants to those of the Company
shareholders and by providing such individuals with an incentive for outstanding performance to
generate superior returns to the Company shareholders. The Plan is further intended to provide
flexibility to the Company in its ability to motivate, attract, and retain the services of members
of the Board, Employees, and Consultants upon whose judgment, interest, and special effort the
successful conduct of the Companys operation is largely dependent.
ARTICLE 2
DEFINITIONS AND CONSTRUCTION
Wherever the following terms are used in the Plan they shall have the meanings specified
below, unless the context clearly indicates otherwise. The singular pronoun shall include the
plural where the context so indicates.
2.1 Applicable Laws means the legal requirements relating to the Plan and the Awards
under applicable provisions of the corporate and securities laws of the Cayman Islands, the Code,
the PRC tax laws, rules, regulations and government orders, the rules of any applicable Share
exchange or national market system, and the laws and the rules of any jurisdiction applicable to
Awards granted to residents therein.
2.2 Award means an Option, a Restricted Share award, a Share Appreciation Right
award, a Dividend Equivalents award, a Share Payment award, a Deferred Share award, or a Restricted
Share Unit award granted to a Participant pursuant to the Plan.
2.3 Award Agreement means any written agreement, contract, or other instrument or
document evidencing an Award, including through electronic medium.
2.4 Board means the Board of Directors of the Company.
2.5 Board Adoption Date shall have the meaning set forth in Section 12.1.
1
2.6 Change in Control means a change in ownership or control of the Company effected
through either of the following transactions:
(a) the direct or indirect acquisition by any person or related group of persons (other than
an acquisition from or by the Company or by a Company-sponsored employee benefit plan or by a
person that directly or indirectly controls, is controlled by, or is under common control with, the
Company) of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of
securities possessing more than fifty percent (50%) of the total combined voting power of the
Companys outstanding securities pursuant to a tender or exchange offer made directly to the
Companys shareholders which a majority of the Incumbent Board (as defined below) who are not
affiliates or associates of the offeror under Rule 12b-2 promulgated under the Exchange Act do not
recommend such shareholders accept, or
(b) the individuals who, as of the Effective Date, are members of the Board (the Incumbent
Board), cease for any reason to constitute at least fifty percent (50%) of the Board; provided
that if the election, or nomination for election by the Companys shareholders, of any new member
of the Board is approved by a vote of at least fifty percent (50%) of the Incumbent Board, such new
member of the Board shall be considered as a member of the Incumbent Board.
2.7 Code means the Internal Revenue Code of 1986 of the United States, as amended.
2.8 Committee means the committee of the Board described in Article 11.
2.9 Consultant means any consultant or adviser if: (a) the consultant or adviser
renders bona fide services to a Service Recipient; (b) the services rendered by the consultant or
adviser are not in connection with the offer or sale of securities in a capital-raising transaction
and do not directly or indirectly promote or maintain a market for the Companys securities; and
(c) the consultant or adviser is a natural person who has contracted directly with the Service
Recipient to render such services.
2.10 Corporate Transaction means any of the following transactions, provided,
however, that the Committee shall determine under (d) and (e) whether multiple transactions are
related, and its determination shall be final, binding and conclusive:
(a) an amalgamation, arrangement or consolidation in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change the jurisdiction in
which the Company is incorporated;
(b) the sale, transfer or other disposition of all or substantially all of the assets of the
Company;
(c) the complete liquidation or dissolution of the Company;
(d) any reverse takeover or series of related transactions culminating in a reverse takeover
(including, but not limited to, a tender offer followed by a reverse takeover) in which the Company
is the surviving entity but (A) the Ordinary Shares outstanding immediately prior to such takeover
are converted or exchanged by virtue of the takeover into other property, whether in the form of
securities, cash or otherwise, or (B) in which securities possessing more than fifty percent (50%)
of the total combined voting power of the Companys outstanding securities are transferred to a
person or persons different from those who held such securities immediately prior to such takeover
or the initial transaction culminating in such takeover, but excluding any such transaction or
series of related transactions that the Committee determines shall not be a Corporate Transaction;
or
2
(e) acquisition in a single or series of related transactions by any person or related group
of persons (other than the Company or by a Company-sponsored employee benefit plan) of beneficial
ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than
fifty percent (50%) of the total combined voting power of the Companys outstanding securities but
excluding any such transaction or series of related transactions that the Committee determines
shall not be a Corporate Transaction.
2.11 Deferred Share means a right to receive a specified number of Shares during
specified time periods pursuant to Article 8.
2.12 Disability means that the Participant qualifies to receive long-term disability
payments under the Service Recipients long-term disability insurance program, as it may be
amended from time to time, to which the Participant provides services regardless of whether the
Participant is covered by such policy. If the Service Recipient to which the Participant provides
service does not have a long-term disability plan in place, Disability means that a Participant
is unable to carry out the responsibilities and functions of the position held by the Participant
by reason of any medically determinable physical or mental impairment for a period of not less than
ninety (90) consecutive days. A Participant will not be considered to have incurred a Disability
unless he or she furnishes proof of such impairment sufficient to satisfy the Committee in its
discretion.
2.13 Dividend Equivalents means a right granted to a Participant pursuant to Article
8 to receive the equivalent value (in cash or Share) of dividends paid on Share.
2.14 Effective Date shall have the meaning set forth in Section 12.1.
2.15 Employee means any person, including an officer or member of the Board of the
Company, any Parent or Subsidiary of the Company, who is in the employ of a Service Recipient,
subject to the control and direction of the Service Recipient as to both the work to be performed
and the manner and method of performance. The payment of a directors fee by a Service Recipient
shall not be sufficient to constitute employment by the Service Recipient.
2.16 Exchange Act means the Securities Exchange Act of 1934 of the United States, as
amended.
2.17 Fair Market Value means, as of any date, the value of Shares determined as
follows:
(a) If the Shares are listed on one or more established Share exchanges or national market
systems, including without limitation, The NASDAQ Global Select Market, The NASDAQ Global Market
and NASDAQ Capital Market of The NASDAQ Stock Market, its Fair Market Value shall be the closing
sales price for such shares (or the closing bid, if no sales were reported) as quoted on the
principal exchange or system on which the Shares are listed (as determined by the Committee) on the
date of determination (or, if no closing sales price or closing bid was reported on that date, as
applicable, on the last trading date such closing sales price or closing bid was reported), as
reported in The Wall Street Journal or such other source as the Committee deems reliable;
3
(b) If the Shares are regularly quoted on an automated quotation system (including the OTC
Bulletin Board) or by a recognized securities dealer, its Fair Market Value shall be the closing
sales price for such shares as quoted on such system or by such securities dealer on the date of
determination, but if selling prices are not reported, the Fair Market Value of an Ordinary Share
shall be the mean between the high bid and low asked prices for the Ordinary Shares on the date of
determination (or, if no such prices were reported on that date, on the last date such prices were
reported), as reported in The Wall Street Journal or such other source as the Committee deems
reliable; or
(c) In the absence of an established market for the Shares of the type described in (i) and
(ii), above, the Fair Market Value thereof shall be determined by the Committee in good faith by
reference to the placing price of the latest private placement of the Shares and the development of
the Companys business operations and the general economic and market conditions since such latest
private placement.
2.18 Incentive Share Option means an Option that is intended to meet the
requirements of Section 422 of the Code or any successor provision thereto.
2.19 Independent Director means a member of the Board who is not an Employee of the
Company.
2.20 Non-Employee Director means a member of the Board who qualifies as a
Non-Employee Director as defined in Rule 16b-3(b)(3) of the Exchange Act, or any successor
definition adopted by the Board.
2.21 Non-Qualified Share Option means an Option that is not intended to be an
Incentive Share Option.
2.22 Option means a right granted to a Participant pursuant to Article 5 of the Plan
to purchase a specified number of Shares at a specified price during specified time periods. An
Option may be either an Incentive Share Option or a Non-Qualified Share Option.
2.23 Participant means a person who, as a member of the Board, Consultant or
Employee, has been granted an Award pursuant to the Plan.
2.24 Parent means a parent corporation under Section 424(e) of the Code.
2.25 Plan means this 2007 Share Incentive Plan, as amended from time to time.
2.26 PRC means the Peoples Republic of China
2.27 Related Entity means any business, corporation, partnership, limited liability
company or other entity which is not a Subsidiary but is consolidated in the Companys consolidated
financial statements prepared under the United States generally accepted accounting principles.
4
2.28 Restricted Share means a Share awarded to a Participant pursuant to Article 6
that is subject to certain restrictions and may be subject to risk of forfeiture.
2.29 Restricted Share Unit means an Award granted pursuant to Section 8.4.
2.30 Securities Act means the Securities Act of 1933 of the United States, as
amended.
2.31 Service Recipient means the Company, any Parent or Subsidiary of the Company
and any Related Entity to which a Participant provides services as an Employee, Consultant or as a
Director.
2.32 Share means the ordinary share of the Company, par value US$0.01 per share, and
such other securities of the Company that may be substituted for Shares pursuant to Article 10.
2.33 Share Appreciation Right or SAR means a right granted pursuant to
Article 7 to receive a payment equal to the excess of the Fair Market Value of a specified number
of Shares on the date the SAR is exercised over the Fair Market Value on the date the SAR was
granted as set forth in the applicable Award Agreement.
2.34 Share Payment means (a) a payment in the form of Shares, or (b) an option or
other right to purchase Shares, as part of any bonus, deferred compensation or other arrangement,
made in lieu of all or any portion of the compensation, granted pursuant to Article 8.
2.35 Subsidiary means any corporation or other entity of which a majority of the
outstanding voting shares or voting power is beneficially owned directly or indirectly by the
Company.
2.36 Trading Date means the closing of the first sale to the general public of the
Shares pursuant to a registration statement filed with and declared effective by the U.S.
Securities and Exchange Commission under the Securities Act.
ARTICLE 3
SHARES SUBJECT TO THE PLAN
3.1 Number of Shares.
(a) Subject to the provisions of Article 10 and Section 3.1(b), the maximum aggregate number
of Shares which may be issued pursuant to all Awards (including Incentive Share Options) is one (1)
million Shares as of the first business day of 2007, plus an annual increase of one (1) million
Shares to be added on the first business day of each calendar year beginning in 2008.
5
(b) To the extent that an Award terminates, expires, or lapses for any reason, any Shares
subject to the Award shall again be available for the grant of an Award pursuant to the Plan. To
the extent permitted by Applicable Law or any exchange rule, Shares issued in assumption of, or in
substitution for, any outstanding awards of any entity acquired in any form or combination by the
Company or any Parent or Subsidiary of the Company shall not be counted against Shares available
for grant pursuant to the Plan. Shares delivered by the Participant or withheld by the Company
upon the exercise of any Award under the Plan, in payment of the exercise price thereof or tax
withholding thereon, may again be optioned, granted or awarded hereunder, subject to the
limitations of Section 3.1(a), If any Restricted Shares are forfeited by the Participant or
repurchased by the Company, such Shares may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 3.1(a). Notwithstanding the provisions of this Section
3.1(b), no Shares may again be optioned, granted or awarded if such action would cause an Incentive
Share Option to fail to qualify as an incentive share option under Section 422 of the Code.
3.2 Shares Distributed. Any Shares distributed pursuant to an Award may consist, in
whole or in part, of authorized and unissued Shares, treasury or Shares purchased on the open
market. Additionally, in the discretion of the Committee, American Depository Shares in an amount
equal to the number of Shares which otherwise would be distributed pursuant to an Award may be
distributed in lieu of Shares in settlement of any Award. If the number of Shares represented by
an American Depository Share is other than on a one-to-one basis, the limitations of Section 3.1
shall be adjusted to reflect the distribution of American Depository Shares in lieu of Shares.
ARTICLE 4
ELIGIBILITY AND PARTICIPATION
4.1 Eligibility. Persons eligible to participate in this Plan include Employees,
Consultants, and all members of the Board, as determined by the Committee.
4.2 Participation. Subject to the provisions of the Plan, the Committee may, from
time to time, select from among all eligible individuals, those to whom Awards shall be granted and
shall determine the nature and amount of each Award. No individual shall have any right to be
granted an Award pursuant to this Plan.
4.3 Jurisdictions. In order to assure the viability of Awards granted to Participants
employed in various jurisdictions, the Committee may provide for such special terms as it may
consider necessary or appropriate to accommodate differences in local law, tax policy, or custom
applicable in the jurisdiction in which the Participant resides or is employed. Moreover, the
Committee may approve such supplements to, or amendments, restatements, or alternative versions of,
the Plan as it may consider necessary or appropriate for such purposes without thereby affecting
the terms of the Plan as in effect for any other purpose; provided, however, that no such
supplements, amendments, restatements, or alternative versions shall increase the share limitations
contained in Section 3.1 of the Plan. Notwithstanding the foregoing, the Committee may not take any
actions hereunder, and no Awards shall be granted, that would violate any Applicable Laws.
6
ARTICLE 5
OPTIONS
5.1 General. The Committee is authorized to grant Options to Participants on the
following terms and conditions:
(a) Exercise Price. The exercise price per Share subject to an Option shall be
determined by the Committee and set forth in the Award Agreement which may be a fixed or variable
price related to the Fair Market Value of the Shares; provided, however, that no Option may be
granted to an individual subject to taxation in the United States at less than the Fair Market
Value on the date of grant. The exercise price per Share subject to an Option may be adjusted in
the absolute discretion of the Committee, the determination of which shall be final, binding and
conclusive. For the avoidance of doubt, to the extent not prohibited by Applicable Law or any
exchange rule, a repricing of Options mentioned in the preceding sentence shall be effective
without the approval of the Companys shareholders or the approval of the Participants.
Notwithstanding the foregoing, the exercise price per Share subject to an Option shall not be
increased without the approval of the Participants.
(b) Time and Conditions of Exercise. The Committee shall determine the time or times
at which an Option may be exercised in whole or in part, including exercise prior to vesting;
provided that the term of any Option granted under the Plan shall not exceed ten years, except as
provided in Section 9.2. The Committee shall also determine any conditions, if any, that must be
satisfied before all or part of an Option may be exercised.
(c) Payment. The Committee shall determine the methods by which the exercise price of
an Option may be paid, the form of payment, including, without limitation (i) cash or check
denominated in U.S. Dollars, (ii) cash or check in Chinese Renminbi, (iii) cash or check
denominated in any other local currency as approved by the Committee, (iv) Shares held for such
period of time as may be required by the Committee in order to avoid adverse financial accounting
consequences and having a Fair Market Value on the date of delivery equal to the aggregate exercise
price of the Option or exercised portion thereof, (v) after the Trading Date the delivery of a
notice that the Participant has placed a market sell order with a broker with respect to Shares
then issuable upon exercise of the Option, and that the broker has been directed to pay a
sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option
exercise price; provided that payment of such proceeds is then made to the Company upon settlement
of such sale, and the methods by which Shares shall be delivered or deemed to be delivered to
Participants, (vi) other property acceptable to the Committee with a Fair Market Value equal to the
exercise price, or (vii) any combination of the foregoing. Notwithstanding any other provision of
the Plan to the contrary, no Participant who is a member of the Board or an executive officer of
the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to pay the
exercise price of an Option in any method which would violate Section 13(k) of the Exchange Act.
(d) Evidence of Grant. All Options shall be evidenced by an Award Agreement between
the Company and the Participant. The Award Agreement shall include such additional provisions as
may be specified by the Committee.
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5.2 Incentive Share Options. Incentive Share Options shall be granted only to
Employees of the Company, a Parent or Subsidiary of the Company. Incentive Share Options may not
be granted to Employees of a Related Entity. The terms of any Incentive Share Options granted
pursuant to the Plan, in addition to the requirements of Section 5.1, must comply with the
following additional provisions of this Section 5.2:
(a) Expiration of Option. An Incentive Share Option may not be exercised to any
extent by anyone after the first to occur of the following events:
(i) Five years from the date it is granted, unless an earlier time is set in the Award
Agreement;
(ii) Three months after the Participants termination of employment as an Employee; and
(iii) One year after the date of the Participants termination of employment or service on
account of Disability or death. Upon the Participants Disability or death, any Incentive Share
Options exercisable at the Participants Disability or death may be exercised by the Participants
legal representative or representatives, by the person or persons entitled to do so pursuant to the
Participants last will and testament, or, if the Participant fails to make testamentary
disposition of such Incentive Share Option or dies intestate, by the person or persons entitled to
receive the Incentive Share Option pursuant to the applicable laws of descent and distribution.
(b) Individual Dollar Limitation. The aggregate Fair Market Value (determined as of
the time the Option is granted) of all Shares with respect to which Incentive Share Options are
first exercisable by a Participant in any calendar year may not exceed US$100,000 or such other
limitation as imposed by Section 422(d) of the Code, or any successor provision. To the extent
that Incentive Share Options are first exercisable by a Participant in excess of such limitation,
the excess shall be considered Non-Qualified Share Options.
(c) Ten Percent Owners. An Incentive Share Option shall be granted to any individual
who, at the date of grant, owns Shares possessing more than ten percent of the total combined
voting power of all classes of shares of the Company only if such Option is granted at a price that
is not less than 110% of Fair Market Value on the date of grant and the Option is exercisable for
no more than five years from the date of grant.
(d) Transfer Restriction. The Participant shall give the Company prompt notice of any
disposition of Shares acquired by exercise of an Incentive Share Option within (i) two years from
the date of grant of such Incentive Share Option or (ii) one year after the transfer of such Shares
to the Participant.
(e) Expiration of Incentive Share Options. No Award of an Incentive Share Option may
be made pursuant to this Plan after the fifth anniversary of the Effective Date.
(f) Right to Exercise. During a Participants lifetime, an Incentive Share Option may
be exercised only by the Participant.
5.3 Substitution of Share Appreciation Rights. The Committee may provide in the Award
Agreement evidencing the grant of an Option that the Committee, in its sole discretion, shall have
to right to substitute a Share Appreciation Right for such Option at any time prior to or upon
exercise of such Option, provided that such Share Appreciation Right shall be exercisable for the
same number of shares of Share as such substituted Option would have been exercisable for.
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ARTICLE 6
RESTRICTED SHARES
6.1 Grant of Restricted Shares. The Committee is authorized to make Awards of
Restricted Shares to any Participant selected by the Committee in such amounts and subject to such
terms and conditions as determined by the Committee. All Awards of Restricted Shares shall be
evidenced by an Award Agreement.
6.2 Issuance and Restrictions. Restricted Shares shall be subject to such
restrictions on transferability and other restrictions as the Committee may impose (including,
without limitation, limitations on the right to vote Restricted Shares or the right to receive
dividends on the Restricted Share). These restrictions may lapse separately or in combination at
such times, pursuant to such circumstances, in such installments, or otherwise, as the Committee
determines at the time of the grant of the Award or thereafter.
6.3 Forfeiture. Except as otherwise determined by the Committee at the time of the
grant of the Award or thereafter, upon termination of employment or service during the applicable
restriction period, Restricted Shares that are at that time subject to restrictions shall be
forfeited; provided, however, that the Committee may (a) provide in any Restricted Share Award
Agreement that restrictions or forfeiture conditions relating to Restricted Shares will be waived
in whole or in part in the event of terminations resulting from specified causes, and (b) in other
cases waive in whole or in part restrictions or forfeiture conditions relating to Restricted
Shares.
6.4 Certificates for Restricted Shares. Restricted Shares granted pursuant to the
Plan may be evidenced in such manner as the Committee shall determine. If certificates
representing Restricted Shares are registered in the name of the Participant, certificates must
bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such
Restricted Shares, and the Company may, at its discretion, retain physical possession of the
certificate until such time as all applicable restrictions lapse.
ARTICLE 7
SHARE APPRECIATION RIGHTS
7.1 Grant of Share Appreciation Rights.
(a) A Share Appreciation Right may be granted to any Participant selected by the Committee. A
Share Appreciation Right shall be subject to such terms and conditions not inconsistent with the
Plan as the Committee shall impose and shall be evidenced by an Award Agreement.
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(b) A Share Appreciation Right shall entitle the Participant (or other person entitled to
exercise the Share Appreciation Right pursuant to the Plan) to exercise all or a specified portion
of the Share Appreciation Right (to the extent then exercisable pursuant to its terms) and to
receive from the Company an amount determined by multiplying the difference obtained by subtracting
the exercise price per share of the Share Appreciation Right from the Fair Market Value of a Share
on the date of exercise of the Share Appreciation Right by the number of Shares with respect to
which the Share Appreciation Right shall have been exercised, subject to any limitations the
Committee may impose.
7.2 Payment and Limitations on Exercise.
(a) Payment of the amounts determined under Section 7.1(b) above shall be in cash, in Shares
(based on its Fair Market Value as of the date the Share Appreciation Right is exercised) or a
combination of both, as determined by the Committee in the Award Agreement.
(b) To the extent payment for a Share Appreciation Right is to be made in cash the Award
Agreements shall to the extent necessary to comply with the requirements to Section 409A of the
Code, specify the date of payment which may be different than the date of exercise of the Share
Appreciation right. If the date of payment for a Share Appreciation Right is later than the date
of exercise, the Award Agreement may specify that the Participant be entitled to earnings on such
amount until paid.
(c) To the extent any payment under Section 7.1(b) is effected in Shares it shall be made
subject to satisfaction of all provisions of Article 5 above pertaining to Options.
ARTICLE 8
OTHER TYPES OF AWARDS
8.1 Dividend Equivalents. Any Participant selected by the Committee may be granted
Dividend Equivalents based on the dividends declared on the Shares that are subject to any Award,
to be credited as of dividend payment dates, during the period between the date the Award is
granted and the date the Award is exercised, vests or expires, as determined by the Committee.
Such Dividend Equivalents shall be converted to cash or additional Shares by such formula and at
such time and subject to such limitations as may be determined by the Committee.
8.2 Share Payments. Any Participant selected by the Committee may receive Share
Payments in the manner determined from time to time by the Committee; provided, that unless
otherwise determined by the Committee such Share Payments shall be made in lieu of base salary,
bonus, or other cash compensation otherwise payable to such Participant. The number of shares
shall be determined by the Committee and may be based upon the Performance Criteria or other
specific criteria determined appropriate by the Committee, determined on the date such Share
Payment is made or on any date thereafter.
8.3 Deferred Shares. Any Participant selected by the Committee may be granted an
award of Deferred Shares in the manner determined from time to time by the Committee. The number
of shares of Deferred Shares shall be determined by the Committee and may be linked to such
specific criteria determined to be appropriate by the Committee, in each case on a specified date
or dates or over any period or periods determined by the Committee. Shares underlying a Deferred
Share award will not be issued until the Deferred Share award has vested, pursuant to a vesting
schedule or criteria set by the Committee. Unless otherwise provided by the Committee, a
Participant awarded Deferred Shares shall have no rights as a Company shareholder with respect to
such Deferred Shares until such time as the Deferred Share Award has vested and the Shares
underlying the Deferred Share Award has been issued.
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8.4 Restricted Share Units. The Committee is authorized to make Awards of Restricted
Share Units to any Participant selected by the Committee in such amounts and subject to such terms
and conditions as determined by the Committee. At the time of grant, the Committee shall specify
the date or dates on which the Restricted Share Units shall become fully vested and nonforfeitable,
and may specify such conditions to vesting as it deems appropriate. At the time of grant, the
Committee shall specify the maturity date applicable to each grant of Restricted Share Units which
shall be no earlier than the vesting date or dates of the Award and may be determined at the
election of the grantee. On the maturity date, the Company shall transfer to the Participant one
unrestricted, fully transferable Share for each Restricted Share Unit scheduled to be paid out on
such date and not previously forfeited. The Committee shall specify the purchase price, if any, to
be paid by the grantee to the Company for such Shares.
8.5 Term. Except as otherwise provided herein, the term of any Award of Dividend
Equivalents, Share Payments, Deferred Share, or Restricted Share Units shall be set by the
Committee in its discretion.
8.6 Exercise or Purchase Price. The Committee may establish the exercise or purchase
price, if any, of any Award of Deferred Share, Share Payments or Restricted Share Units; provided,
however, that such price shall not be less than the par value of a Share, unless otherwise
permitted by Applicable Law.
8.7 Exercise Upon Termination of Employment or Service. An Award of Dividend
Equivalents, Deferred Share, Share Payments, and Restricted Share Units shall only be exercisable
or payable while the Participant is an Employee, Consultant or a member of the Board, as
applicable; provided, however, that the Committee in its sole and absolute discretion may provide
that an Award of Dividend Equivalents, Share Payments, Deferred Share, or Restricted Share Units
may be exercised or paid subsequent to a termination of employment or service, as applicable, or
following a Change of Control of the Company, or because of the Participants retirement, death or
Disability, or otherwise.
8.8 Form of Payment. Payments with respect to any Awards granted under this Article
8 shall be made in cash, in Shares or a combination of both, as determined by the Committee.
8.9 Award Agreement. All Awards under this Article 8 shall be subject to such
additional terms and conditions as determined by the Committee and shall be evidenced by an Award
Agreement.
ARTICLE 9
PROVISIONS APPLICABLE TO AWARDS
9.1 Stand-Alone and Tandem Awards. Awards granted pursuant to the Plan may, in the
discretion of the Committee, be granted either alone, in addition to, or in tandem with, any other
Award granted pursuant to the Plan. Awards granted in addition to or in tandem with other Awards
may be granted either at the same time as or at a different time from the grant of such other
Awards.
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9.2 Award Agreement. Awards under the Plan shall be evidenced by Award Agreements
that set forth the terms, conditions and limitations for each Award which may include the term of
an Award, the provisions applicable in the event the Participants employment or service
terminates, and the Companys authority to unilaterally or bilaterally amend, modify, suspend,
cancel or rescind an Award.
9.3 Limits on Transfer. No right or interest of a Participant in any Award may be
pledged, encumbered, or hypothecated to or in favor of any party other than the Company or a
Subsidiary, or shall be subject to any lien, obligation, or liability of such Participant to any
other party other than the Company or a Subsidiary. Except as otherwise provided by the Committee,
no Award shall be assigned, transferred, or otherwise disposed of by a Participant other than by
will or the laws of descent and distribution. The Committee by express provision in the Award or
an amendment thereto may permit an Award (other than an Incentive Share Option) to be transferred
to, exercised by and paid to certain persons or entities related to the Participant, including but
not limited to members of the Participants family, charitable institutions, or trusts or other
entities whose beneficiaries or beneficial owners are members of the Participants family and/or
charitable institutions, or to such other persons or entities as may be expressly approved by the
Committee, pursuant to such conditions and procedures as the Committee may establish. Any
permitted transfer shall be subject to the condition that the Committee receive evidence
satisfactory to it that the transfer is being made for estate and/or tax planning purposes (or to a
blind trust in connection with the Participants termination of employment or service with the
Company or a Subsidiary to assume a position with a governmental, charitable, educational or
similar non-profit institution) and on a basis consistent with the Companys lawful issue of
securities.
9.4 Beneficiaries. Notwithstanding Section 9.3, a Participant may, in the manner
determined by the Committee, designate a beneficiary to exercise the rights of the Participant and
to receive any distribution with respect to any Award upon the Participants death. A beneficiary,
legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is
subject to all terms and conditions of the Plan and any Award Agreement applicable to the
Participant, except to the extent the Plan and Award Agreement otherwise provide, and to any
additional restrictions deemed necessary or appropriate by the Committee. If the Participant is
married and resides in a community property state, a designation of a person other than the
Participants spouse as his or her beneficiary with respect to more than 50% of the Participants
interest in the Award shall not be effective without the prior written consent of the Participants
spouse. If no beneficiary has been designated or survives the Participant, payment shall be made
to the person entitled thereto pursuant to the Participants will or the laws of descent and
distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a
Participant at any time provided the change or revocation is filed with the Committee.
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9.5 Share Certificates.
(a) Notwithstanding anything herein to the contrary, the Company shall not be required to
issue or deliver any certificates evidencing shares of Share pursuant to the exercise of any Award,
unless and until the Board has determined, with advice of counsel, that the issuance and delivery
of such certificates is in compliance with all Applicable Laws, regulations of governmental
authorities and, if applicable, the requirements of any exchange on which the Shares are listed or
traded. All Share certificates delivered pursuant to the Plan are subject to any stop-transfer
orders and other restrictions as the Committee deems necessary or advisable to comply with federal,
state, or foreign jurisdiction, securities or other laws, rules and regulations and the rules of
any national securities exchange or automated quotation system on which the Shares are listed,
quoted, or traded. The Committee may place legends on any Share certificate to reference
restrictions applicable to the Share. In addition to the terms and conditions provided herein, the
Board may require that a Participant make such reasonable covenants, agreements, and
representations as the Board, in its discretion, deems advisable in order to comply with any such
laws, regulations, or requirements. The Committee shall have the right to require any Participant
to comply with any timing or other restrictions with respect to the settlement or exercise of any
Award, including a window-period limitation, as may be imposed in the discretion of the Committee.
(b) Notwithstanding any other provision of the Plan, unless otherwise determined by the
Committee or required by Applicable Laws, the Company shall not deliver to any Participant
certificates evidencing Shares issued in connection with any Award and instead such Shares shall be
recorded on the books of the Company or, as applicable, its transfer agent or share plan
administrator.
9.6 Paperless Administration. Subject to Applicable Laws, the Committee may make
Awards, provide applicable disclosure and procedures for exercise of Awards by an internet website
or interactive voice response system for the paperless administration of Awards.
9.7 Foreign Currency. A Participant may be required to provide evidence that any
currency used to pay the exercise price of any Award was acquired and taken out of the jurisdiction
in which the Participant resides in accordance with Applicable Laws, including foreign exchange
control laws and regulations. In the event the exercise price for an Award is paid in Chinese
Renminbi or other foreign currency, as permitted by the Committee, the amount payable will be
determined by conversion from U.S. dollars at the official rate promulgated by the Peoples Bank of
China for Chinese Renminbi, or for jurisdictions other than the PRC, the exchange rate as selected
by the Committee on the date of exercise.
ARTICLE 10
CHANGES IN CAPITAL STRUCTURE
10.1 Adjustments. In the event of any dividend, share split, combination or exchange
of Shares, amalgamation, arrangement or consolidation, spin-off, recapitalization or other
distribution (other than normal cash dividends) of Company assets to its shareholders, or any other
change affecting the shares of Shares or the share price of a Share, the Committee shall make such
proportionate adjustments, if any, as necessary to reflect such change with respect to (a) the
aggregate number and type of shares that may be issued under the Plan (including, but not limited
to, adjustments of the limitations in Section 3.1); (b) the terms and conditions of any outstanding
Awards (including, without limitation, any applicable performance targets or criteria with respect
thereto); and (c) the grant or exercise price per share for any outstanding Awards under the Plan.
13
10.2 Acceleration upon a Change of Control. Except as may otherwise be provided in
any Award Agreement or any other written agreement entered into by and between the Company and a
Participant, if a Change of Control occurs and a Participants Options, Restricted Share or Share
Appreciation Rights settled in Shares are not converted, assumed, or replaced by a successor, such
Awards shall become fully exercisable and all forfeiture restrictions on such Awards shall lapse;
and provided such Change of Control is a change in the ownership or effective control of the
Company or in the ownership of or a substantial portion of the assets of the Company within the
meaning of Section 409A of the Code, then all Restricted Share Units, Deferred Share and
Performance Share shall become deliverable upon the Change of Control. Upon, or in anticipation
of, a Change of Control, the Committee may in its sole discretion provide for (i) any and all
Awards outstanding hereunder to terminate at a specific time in the future and shall give each
Participant the right to exercise such Awards during a period of time as the Committee shall
determine, (ii) either the purchase of any Award for an amount of cash equal to the amount that
could have been attained upon the exercise of such Award or realization of the Participants rights
had such Award been currently exercisable or payable or fully vested (and, for the avoidance of
doubt, if as of such date the Committee determines in good faith that no amount would have been
attained upon the exercise of such Award or realization of the Participants rights, then such
Award may be terminated by the Company without payment), (iii) the replacement of such Award with
other rights or property selected by the Committee in its sole discretion the assumption of or
substitution of such Award by the successor or surviving corporation, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kind of Shares and prices, or (iv)
provide for payment of Awards in cash based on the value of Shares on the date of the Change of
Control plus reasonable interest on the Award through the date such Award would otherwise be vested
or have been paid in accordance with its original terms, if necessary to comply with Section 409A
of the Code.
10.3 Outstanding Awards Corporate Transactions. In the event of a Corporate
Transaction, each Award will terminate upon the consummation of the Corporate Transaction, unless
the Award is assumed by the successor entity or Parent thereof in connection with the Corporate
Transaction. Except as provided otherwise in an individual Award Agreement, in the event of a
Corporate Transaction and:
(a) the Award either is (x) assumed by the successor entity or Parent thereof or replaced
with a comparable Award (as determined by the Committee) with respect to shares of the capital
stock of the successor entity or Parent thereof or (y) replaced with a cash incentive program of
the successor entity which preserves the compensation element of such Award existing at the time of
the Corporate Transaction and provides for subsequent payout in accordance with the same vesting
schedule applicable to such Award, then such Award (if assumed), the replacement Award (if
replaced), or the cash incentive program automatically shall become fully vested, exercisable and
payable and be released from any restrictions on transfer (other than transfer restrictions
applicable to Options) and repurchase or forfeiture rights, immediately upon termination of the
Participants employment or service with all Service Recipient within twelve (12) months of the
Corporate Transaction without cause; and
(b) For each Award that is neither assumed nor replaced, such portion of the Award shall
automatically become fully vested and exercisable and be released from any repurchase or forfeiture
rights (other than repurchase rights exercisable at Fair Market Value) for all of the Shares at the
time represented by such portion of the Award, immediately prior to the specified effective date of
such Corporate Transaction, provided that the Participant remains an Employee, Consultant or
Director on the effective date of the Corporate Transaction.
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10.4 Outstanding Awards Other Changes. In the event of any other change in the
capitalization of the Company or corporate change other than those specifically referred to in this
Article 10, the Committee may, in its absolute discretion, make such adjustments in the number and
class of shares subject to Awards outstanding on the date on which such change occurs and in the
per share grant or exercise price of each Award as the Committee may consider appropriate to
prevent dilution or enlargement of rights.
10.5 No Other Rights. Except as expressly provided in the Plan, no Participant shall
have any rights by reason of any subdivision or consolidation of Shares of any class, the payment
of any dividend, any increase or decrease in the number of shares of any class or any dissolution,
liquidation, merger, or consolidation of the Company or any other corporation. Except as expressly
provided in the Plan or pursuant to action of the Committee under the Plan, no issuance by the
Company of shares of any class, or securities convertible into shares of any class, shall affect,
and no adjustment by reason thereof shall be made with respect to, the number of shares subject to
an Award or the grant or exercise price of any Award.
ARTICLE 11
ADMINISTRATION
11.1 Committee. The Plan shall be administered by the Compensation Committee of the
Board; provided, however that the Compensation Committee may delegate to a committee the authority
to grant or amend Awards to Participants other than Independent Directors and executive officers of
the Company (such committee being the Committee). The Committee shall consist of two or more
individuals who are officers and/or directors of the Company. Reference to the Committee shall
refer to the Board if the Compensation Committee ceases to exist and the Board does not appoint a
successor Committee. Notwithstanding the foregoing, the full Board, acting by majority of its
members in office shall conduct the general administration of the Plan if required by Applicable
Law, and with respect to Awards granted to Independent Directors and executive officers of the
Company and for purposes of such Awards the term Committee as used in the Plan shall be deemed to
refer to the Board.
11.2 Action by the Committee. A majority of the Committee shall constitute a quorum.
The acts of a majority of the members present at any meeting at which a quorum is present, and acts
approved in writing by a majority of the Committee in lieu of a meeting, shall be deemed the acts
of the Committee. Each member of the Committee is entitled to, in good faith, rely or act upon any
report or other information furnished to that member by any officer or other employee of the
Company or any Subsidiary, the Companys independent certified public accountants, or any executive
compensation consultant or other professional retained by the Company to assist in the
administration of the Plan.
15
11.3 Authority of Committee. Subject to any specific designation in the Plan, the
Committee has the exclusive power, authority and discretion to:
(a) Designate Participants to receive Awards;
(b) Determine the type or types of Awards to be granted to each Participant;
(c) Determine the number of Awards to be granted and the number of Shares to which an Award
will relate;
(d) Determine the terms and conditions of any Award granted pursuant to the Plan, including,
but not limited to, the exercise price, grant price, or purchase price, any restrictions or
limitations on the Award, any schedule for lapse of forfeiture restrictions or restrictions on the
exercisability of an Award, and accelerations or waivers thereof, any provisions related to
non-competition and recapture of gain on an Award, based in each case on such considerations as the
Committee in its sole discretion determines;
(e) Determine whether, to what extent, and pursuant to what circumstances an Award may be
settled in, or the exercise price of an Award may be paid in, cash, Shares, other Awards, or other
property, or an Award may be canceled, forfeited, or surrendered;
(f) Prescribe the form of each Award Agreement, which need not be identical for each
Participant;
(g) Decide all other matters that must be determined in connection with an Award;
(h) Establish, adopt, or revise any rules and regulations as it may deem necessary or
advisable to administer the Plan;
(i) Interpret the terms of, and any matter arising pursuant to, the Plan or any Award
Agreement;
(j) Reduce the exercise price per Share subject to an Option; and
(k) Make all other decisions and determinations that may be required pursuant to the Plan or
as the Committee deems necessary or advisable to administer the Plan.
11.4 Decisions Binding. The Committees interpretation of the Plan, any Awards
granted pursuant to the Plan, any Award Agreement and all decisions and determinations by the
Committee with respect to the Plan are final, binding, and conclusive on all parties.
ARTICLE 12
EFFECTIVE AND EXPIRATION DATE
12.1 Effective Date. The Plan is effective as of the date the Plan is approved by the
Companys shareholders (the Effective Date). The Plan will be deemed to be approved by
the shareholders if it receives the affirmative vote of the holders of a majority of the share
capital of the Company present or represented and entitled to vote at a meeting duly held in
accordance with the applicable provisions of the Companys Memorandum of Association and Articles
of Association. Notwithstanding the foregoing, the Effective Date shall not be later than the
first anniversary of the date on which the Board adopts the Plan (the Board Adoption Date).
Between the Board Adoption Date and the Effective Date, the Committee may grant Options to any
persons pursuant to the terms of the Plan, provided that none of such persons shall be allowed to
exercise the Options prior to the Effective Date.
12.2 Expiration Date. The Plan will expire on, and no Award may be granted pursuant
to the Plan after, the tenth anniversary of the Effective Date. Any Awards that are outstanding on
the tenth anniversary of the Effective Date shall remain in force according to the terms of the
Plan and the applicable Award Agreement.
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ARTICLE 13
AMENDMENT, MODIFICATION, AND TERMINATION
13.1 Amendment, Modification, And Termination. With the approval of the Board, at any
time and from time to time, the Committee may terminate, amend or modify the Plan; provided,
however, that (a) to the extent necessary and desirable to comply with any applicable law,
regulation, or stock exchange rule, the Company shall obtain shareholder approval of any Plan
amendment in such a manner and to such a degree as required, and (b) shareholder approval is
required for any amendment to the Plan that (i) increases the number of Shares available under the
Plan (other than any adjustment as provided by Article 10), (ii) permits the Committee to grant
Options with an exercise price that is below Fair Market Value on the date of grant, (iii) permits
the Committee to 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.
13.2 Awards Previously Granted. Except with respect to amendments made pursuant to
Section 13.1, no termination, amendment, or modification of the Plan shall adversely affect in any
material way any Award previously granted pursuant to the Plan without the prior written consent of
the Participant.
ARTICLE 14
GENERAL PROVISIONS
14.1 No Rights to Awards. No Participant, employee, or other person shall have any
claim to be granted any Award pursuant to the Plan, and neither the Company nor the Committee is
obligated to treat Participants, employees, and other persons uniformly.
14.2 No Shareholders Rights. No Award gives the Participant any of the rights of a
Shareholder of the Company unless and until Shares are in fact issued to such person in connection
with such Award.
14.3 Taxes. No Shares shall be delivered under the Plan to any Participant until such
Participant has made arrangements acceptable to the Committee for the satisfaction of any income
and employment tax withholding obligations under Applicable Laws, including without limitation the
PRC tax laws, rules, regulations and government orders or the U.S. Federal, state or local tax
laws, as applicable. The Company or any Subsidiary shall have the authority and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to
satisfy federal, state, local and foreign taxes (including the Participants payroll tax
obligations) required by law to be withheld with respect to any taxable event concerning a
Participant arising as a result of this Plan. The Committee may in its discretion and in
satisfaction of the foregoing requirement allow a Participant to elect to have the Company withhold
Shares otherwise issuable under an Award (or allow the return of Shares) having a Fair Market Value
equal to the sums required to be withheld. Notwithstanding any other provision of the Plan, the
number of Shares which may be withheld with respect to the issuance, vesting, exercise or payment
of any Award (or which may be repurchased from the Participant of such Award after such Shares were
acquired by the Participant from the Company) in order to satisfy the Participants federal, state,
local and foreign income and payroll tax liabilities with respect to the issuance, vesting,
exercise or payment of the Award shall, unless specifically approved by the Committee, be limited
to the number of Shares which have a Fair Market Value on the date of withholding or repurchase
equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates
for federal, state, local and foreign income tax and payroll tax purposes that are applicable to
such supplemental taxable income.
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14.4 No Right to Employment or Services. Nothing in the Plan or any Award Agreement
shall interfere with or limit in any way the right of the Service Recipient to terminate any
Participants employment or services at any time, nor confer upon any Participant any right to
continue in the employ or service of any Service Recipient.
14.5 Unfunded Status of Awards. The Plan is intended to be an unfunded plan for
incentive compensation. With respect to any payments not yet made to a Participant pursuant to an
Award, nothing contained in the Plan or any Award Agreement shall give the Participant any rights
that are greater than those of a general creditor of the Company or any Subsidiary.
14.6 Indemnification. To the extent allowable pursuant to applicable law, each member
of the Committee or of the Board shall be indemnified and held harmless by the Company from any
loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in
connection with or resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action or failure to act pursuant to
the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in
such action, suit, or proceeding against him or her; provided he or she gives the Company an
opportunity, at its own expense, to handle and defend the same before he or she undertakes to
handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may be entitled pursuant to
the Companys Memorandum of Association and Articles of Association, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them harmless.
14.7 Relationship to other Benefits. No payment pursuant to the Plan shall be taken
into account in determining any benefits pursuant to any pension, retirement, savings, profit
sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary except to
the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.
18
14.8 Expenses. The expenses of administering the Plan shall be borne by the Company
and its Subsidiaries.
14.9 Titles and Headings. The titles and headings of the Sections in the Plan are for
convenience of reference only and, in the event of any conflict, the text of the Plan, rather than
such titles or headings, shall control.
14.10 Fractional Shares. If an exercise of any Award shall result in the creation of
a fractional Share under the Award, the Committee may determine, in its discretion, whether (i)
such fractional Share shall be issued, or (ii) cash (in the amount equal to the product of such
fraction multiplied by the Fair Market Value of a Share on the date the fractional Share otherwise
would have been issued) shall be given in lieu of such fractional Share, or (iii) such fractional
Share shall be eliminated by rounding up or down as appropriate.
14.11 Government and Other Regulations. The obligation of the Company to make payment
of awards in Share or otherwise shall be subject to all Applicable Laws, rules, and regulations,
and to such approvals by government agencies as may be required. The Company shall be under no
obligation to register any of the Shares paid pursuant to the Plan under the Securities Act or any
other similar law in any applicable jurisdiction. If the Shares paid pursuant to the Plan may in
certain circumstances be exempt from registration pursuant to the Securities Act or other
Applicable Laws the Company may restrict the transfer of such shares in such manner as it deems
advisable to ensure the availability of any such exemption.
14.12 Governing Law. The Plan and all Award Agreements shall be construed in
accordance with and governed by the laws of the Cayman Islands.
14.13 Section 409A. To the extent that the Committee determines that any Award
granted under the Plan is or may become subject to Section 409A of the Code, the Award Agreement
evidencing such Award shall incorporate the terms and conditions required by Section 409A of the
Code. To the extent applicable, the Plan and the Award Agreements shall be interpreted in
accordance with Section 409A of the Code and the U.S. Department of Treasury regulations and other
interpretative guidance issued thereunder, including without limitation any such regulation or
other guidance that may be issued after the Effective Date. Notwithstanding any provision of the
Plan to the contrary, in the event that following the Effective Date the Committee determines that
any Award may be subject to Section 409A of the Code and related Department of Treasury guidance
(including such Department of Treasury guidance as may be issued after the Effective Date), the
Committee may adopt such amendments to the Plan and the applicable Award agreement or adopt other
policies and procedures (including amendments, policies and procedures with retroactive effect), or
take any other actions, that the Committee determines is necessary or appropriate to (a) exempt the
Award from Section 409A of the Code and /or preserve the intended tax treatment of the benefits
provided with respect to the Award, or (b) comply with the requirements of Section 409A of the Code
and related U.S. Department of Treasury guidance.
19
14.14 Appendices. The Committee may approve such supplements, amendments or
appendices to the Plan as it may consider necessary or appropriate for purposes of compliance with
applicable laws or otherwise and such supplements, amendments or appendices shall be considered a
part of the Plan; provided, however, that no such supplements shall increase the share limitations
contained in Sections 3.1 of the Plan.
* * * * *
I hereby certify that the foregoing Plan was duly (i) adopted by the Board of Directors of
Ctrip.com International, Ltd. on March 28, 2007, (ii) approved by the shareholders of Ctrip.com
International, Ltd. on June 15, 2007, and (iii) amended and restated by the Board of Directors of
Ctrip.com International, Ltd. on November 17, 2008.
* * * * *
Executed on November 17, 2008.
20
Exhibit 4.22
Exhibit 4.22
Summary of Form Revolving Credit Facility Agreement
In 2008, our wholly-owned subsidiaries 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., or the Ctrip Borrowers, each entered into substantially identical agreements with
China Merchants Bank, Shanghai Branch, or the Lender, for revolving credit facilities of RMB50
million.
The revolving credit facilities are valid from April 16, 2009 through April 15, 2010. Loans
made to each of the Ctrip Borrowers under the facilities by the Borrower and interests, penalties
and additional costs incurred by the Lender to enforce its rights and privileges are jointly
guaranteed in full by other Ctrip Borrowers. The Ctrip Borrowers may not transfer debt incurred
under the facilities to third parties without the consent of the Lender and must inform and take
measures to preserve the rights and privileges of the Lender in the case of corporate
restructuring, significant and material financial losses and other material events that may impact
the ability of the Ctrip Borrowers to repay the outstanding debt incurred under the facilities.
The facilities are governed by laws of the Peoples Republic of China, and disputes occurring
over the facilities shall be adjudicated by the local peoples court at the Lenders location.
Exhibit 8.1
Exhibit 8.1
List of Subsidiaries And Variable Interest Entities
Subsidiaries:
Ctrip.com (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
C-Travel International Limited, a Cayman Islands company
Ctrip Information Technology (Nantong) Co., Ltd., a PRC company
China Software Hotel Information System Co., Ltd., a PRC company
Starway Hotels (Hong Kong) Limited, a Hong Kong company
Starway Hotels (Shanghai) Co., Ltd., a PRC company
Consolidated Variable Interest Entities:
Beijing Ctrip International Travel Agency Co., Ltd.
Shanghai Ctrip Commerce Co., Ltd.
Guangzhou Ctrip Travel Agency Co., Ltd.
Shanghai Huacheng Southwest Travel Agency Co., Ltd.
Shanghai Ctrip International Travel Agency Co., Ltd. (formerly Shanghai Ctrip Charming
International Travel Agency Co., Ltd.)
Shenzhen Ctrip Travel Agency Co., Ltd.
Nantong Tongcheng Information Technology Co., Ltd.
Exhibit 11.1
Exhibit 11.1
Ctrip.com International, Ltd.
Amended Code of Business Conduct and Ethics
Purpose
This Amended Code of Business Conduct and Ethics (the Code) contains general
guidelines for conducting the business of Ctrip.com International, Ltd. (the Company or
Ctrip) consistent with the highest standards of business ethics, and is intended to
qualify as a code of ethics within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002
and the rules promulgated thereunder. To the extent this Code requires a higher standard than
required by commercial practice or applicable laws, rules or regulations, we adhere to these higher
standards.
This Code is designed to deter wrongdoing and to promote:
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honest and ethical conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional relationships; |
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full, fair, accurate, timely, and understandable disclosure in reports and
documents that Ctrip files with, or submits to, the U.S. Securities and Exchange
Commission (the SEC) and in other public communications made by Ctrip; |
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compliance with applicable governmental laws, rules and regulations; |
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prompt internal reporting of violations of the Code; and |
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accountability for adherence to the Code. |
Applicability
This Code applies to all of the directors, officers, employees and agents of Ctrip, whether
they work for Ctrip on a full-time, part-time, consultative, or temporary basis (each an employee
and collectively, the employees). Certain provisions of the Code apply specifically to
our chief executive officer, chief financial officer, senior finance officer, controller, vice
presidents and any other persons who perform similar functions for Ctrip (each, a senior
officer, and collectively, senior officers).
The Board of Directors of Ctrip (the Board) has appointed Cindy Xiaofan Wang, the Companys
Vice President of Finance, as the Compliance Officer for the Company. If you have any questions
regarding the Code or would like to report any violation of the Code, please call the Compliance
Officer at 8621-34064880 extension 12202 or e-mail her at xfwang@ctrip.com.
This Code was originally adopted by the Board on April 23, 2004 and amended by the Board and
became effective on March 3, 2009.
1
Conflicts of Interest
Identifying Conflicts of Interest
A conflict of interest occurs when an employees private interest interferes, or appears to
interfere, in any way with the interests of Ctrip as a whole. You should actively avoid any
private interest that may influence your ability to act in the interests of Ctrip or that may make
it difficult to perform your work objectively and effectively. In general, the following should be
considered conflicts of interest:
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Competing Business. No employee may be employed by a business that
competes with Ctrip or deprives it of any business. |
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Corporate Opportunity. No employee should use corporate property,
information or his or her position with Ctrip to secure a business opportunity that
would otherwise be available to Ctrip. If you discover a business opportunity that
is in Ctrips line of business, through the use of Ctrips property, information or
position, you must first present the business opportunity to Ctrip before pursuing
the opportunity in your individual capacity. |
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Financial Interests. |
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No employee may have any financial interest (ownership or
otherwise), either directly or indirectly through a spouse or other family
member, in any other business or entity if such interest adversely affects
the employees performance of duties or responsibilities to Ctrip, or
requires the employee to devote certain time during such employees working
hours at Ctrip; |
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No employee may hold any ownership interest in a
privately-held company that is in competition with Ctrip; |
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An employee may hold up to but no more than 5% ownership
interest in a publicly traded company that is in competition with Ctrip; |
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No employee may hold any ownership interest in a company
that has a business relationship with Ctrip if such employees duties at
Ctrip include managing or supervising Ctrips business relations with that
company; |
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Notwithstanding other provisions of this Code, |
(a) a director or an immediate family member of such director (collectively
for the director and her/his family member(s), Director Affiliates)
or a senior officer or an immediate family member of such senior officer
(collectively for the senior officer and her/his family member(s),
Officer Affiliates) may continue to hold his/her/its investment or
other financial interest in a business or entity (an Interested
Business) that:
(1) was made or obtained either (x) before Ctrip invested in or otherwise
became interested in such business or entity; or (y) before the director or
senior officer joined Ctrip (for the avoidance of doubt, regardless of whether
Ctrip had or had not already invested in or otherwise become interested in
such business or entity at the time the director or senior officer joined
Ctrip); or
(2) may in the future be made or obtained by the director or senior
officer, provided that at the time such investment or other financial interest
is made or obtained, Ctrip has not yet invested in or otherwise become
interested in such business or entity;
provided that such director or senior officer shall disclose such investment
or other financial interest to the Board;
(b) an interested director or senior officer shall refrain from participating
in any discussion among senior officers of Ctrip relating to an Interested
Business and shall not be involved in any proposed transaction between Ctrip
and an Interested Business; and
(c) before any Director Affiliate or Officer Affiliate (i) invests, or
otherwise acquires any equity or other financial interest, in a business or
entity that is in competition with Ctrip; or (ii) enters into any transaction
with Ctrip, the related director or senior officer shall obtain advance
approval from the Audit Committee of the Board.
If an employees ownership interest in a business entity described in clause (iii)
above increases to more than 5%, the employee must immediately report such ownership to
the Compliance Officer.
For purposes of this Code, a company or entity is deemed to be in competition with
Ctrip if it competes with Ctrips business in the hotel reservation, air ticketing,
packaged-tour, corporate travel and/or any other business in which Ctrip is engaged.
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Loans or Other Financial Transactions. No employee may obtain loans or
guarantees of personal obligations from, or enter into any other personal financial
transaction with, any company that is a material customer, supplier or competitor of
Ctrip. This guideline does not prohibit arms-length transactions with recognized
banks or other financial institutions. |
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Service on Boards and Committees. No employee should serve on a board of
directors or trustees or on a committee of any entity (whether profit or
not-for-profit) whose interests reasonably could be expected to conflict with those
of Ctrip. Employees must obtain prior approval from the Board before accepting any
such board or committee position. Ctrip may revisit its approval of any such
position at any time to determine whether service in such position is still
appropriate. |
3
It is difficult to list all of the ways in which a conflict of interest may arise, and we have
provided only a few, limited examples. If you are faced with a difficult business decision that is
not addressed above, ask yourself the following questions:
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Is it legal? |
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Is it honest and fair? |
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Is it in the best interests of Ctrip? |
Disclosure of Conflicts of Interest
Ctrip requires that employees fully disclose any situations that reasonably could be expected
to give rise to a conflict of interest. If you suspect that you have a conflict of interest, or
something that others could reasonably perceive as a conflict of interest, you must report it
immediately to the Compliance Officer. Conflicts of interest may only be waived by the Board, or
the appropriate committee of the Board, and will be promptly disclosed to the public to the extent
required by law.
Family Members and Work
The actions of family members outside the workplace may also give rise to conflicts of
interest because they may influence an employees objectivity in making decisions on behalf of
Ctrip. If a member of an employees family is interested in doing business with Ctrip, the
criteria as to whether to enter into or continue the business relationship, and the terms and
conditions of the relationship, must be no less favorable to Ctrip compared with those that would
apply to a non-relative seeking to do business with Ctrip under similar circumstances.
Employees should report any situation involving family members that could reasonably be
expected to give rise to a conflict of interest to their supervisor or the Compliance Officer. For
purposes of this Code, family members or members of your family include your spouse, brothers,
sisters and parents, in-laws and children.
Gifts and Entertainment
The giving and receiving of gifts is common business practice. Appropriate business gifts and
entertainment are welcome courtesies designed to build relationships and understanding among
business partners. However, gifts and entertainment should never compromise, or appear to
compromise, your ability to make objective and fair business decisions.
It is the responsibility of employees to use good judgment in this area. As a general rule,
employees may give or receive gifts or entertainment to or from customers or suppliers only if the
gift or entertainment could not be viewed as an inducement to any particular business decision.
All gifts and entertainment expenses made on behalf of Ctrip must be properly accounted for on
expense reports.
4
Employees may only accept appropriate gifts. We encourage employees to submit gifts received
to the Company. While it is not mandatory to submit small gifts, gifts of over RMB200 must be
submitted immediately to the administration department of the Company.
Ctrips business conduct is founded on the principle of fair transaction. Therefore, no
employee may receive kickbacks, bribe others, or secretly receive commissions or any other personal
benefits.
Protection and Use of Company Assets
Employees should protect Ctrips assets and ensure their efficient use for legitimate business
purposes only. Theft, carelessness and waste have a direct impact on Ctrips profitability. The
use of the funds or assets of the Company, whether for personal gain or not, for any unlawful or
improper purpose is strictly prohibited.
To ensure the protection and proper use of Ctrips assets, each employee should:
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Exercise reasonable care to prevent theft, damage or misuse of Company property; |
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Promptly report the actual or suspected theft, damage or misuse of Company
property; |
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Safeguard all electronic programs, data, communications and written materials from
inadvertent access by others; and |
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Use Company property only for legitimate business purposes. |
Intellectual Property and Confidentiality
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All inventions, creative works, computer software, and technical or trade secrets
developed by an employee in the course of performing the employees duties or
primarily through the use of the Companys materials and technical resources while
working at the Company, shall be the property of the Company. |
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The Company maintains a strict confidentiality policy. During an employees term
of employment, the employee shall comply with any and all written or unwritten rules
and policies concerning confidentiality and shall fulfill the duties and
responsibilities concerning confidentiality applicable to the employee. |
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In addition to fulfilling the responsibilities associated with his position in the
Company, an employee shall not, without first obtaining approval from the Company,
disclose, announce or publish trade secrets or other confidential business
information of the Company, nor shall an employee use such confidential information
outside the course of his duties to the Company. |
5
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Even outside the work environment, an employee must maintain vigilance and refrain
from disclosing important information regarding the Company or its business,
customers or employees. |
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An employees duty of confidentiality with respect to the confidential information
of the Company survives the termination of such employees employment with the
Company for any reason until such time as the Company discloses such information
publicly or the information otherwise becomes available in the public sphere through
no fault of the employee. |
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Upon termination of employment, or at such time as the Company requests, an
employee must return to the Company all of its property without exception, including
all forms of medium containing confidential information, and may not retain duplicate
materials. |
Accuracy of Financial Reports and Other Public Communications
Ctrip is a public company and is required to report its financial results and other material
information about its business to the public and the SEC. It is Ctrips policy to promptly
disclose accurate and complete information regarding its business, financial condition and results
of operations. Employees must strictly comply with all applicable standards, laws, regulations and
policies for accounting and financial reporting of transactions, estimates and forecasts.
Inaccurate, incomplete or untimely reporting will not be tolerated and can severely damage Ctrip
and result in legal liability.
Employees should be on guard for, and promptly report, any possibility of inaccurate or
incomplete financial reporting. Particular attention should be paid to:
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Financial results that seem inconsistent with the performance of the underlying
business; |
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Transactions that do not seem to have an obvious business purpose; and |
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Requests to circumvent ordinary review and approval procedures. |
Ctrips senior financial officers and other employees working in the [Accounting Department]
have a special responsibility to ensure that all of Ctrips financial disclosures are full, fair,
accurate, timely and understandable. Any practice or situation that might undermine this objective
should be reported to the Compliance Officer.
6
Company Records
Accurate and reliable records are crucial to the Companys business and form the basis of its
earnings statements, financial reports and other disclosures to the public. The Companys records
are the source of essential data that guides business decision-making and strategic planning.
Company records include, but are not limited to, booking information, payroll, timecards, travel
and expense reports, e-mails, accounting and financial data, measurement and performance records,
electronic data files and all other records maintained in the ordinary course of our business.
All Company records must be complete, accurate and reliable in all material respects. There
is never an acceptable reason to make false or misleading entries. Undisclosed or unrecorded
funds, payments or receipts are strictly prohibited. You are responsible for understanding and
complying with the Companys record keeping policy. Contact the Compliance Officer if you have any
questions regarding the record keeping policy.
Compliance with Laws and Regulations
Each employee has an obligation to comply with all laws, rules and regulations applicable to
Ctrip. This includes, without limitation, laws covering commercial bribery and kickbacks,
copyrights, trademarks and trade secrets, information privacy, insider trading, offering or
receiving gratuities, employment harassment, occupational health and safety, false or misleading
financial information or misuse of corporate assets. Employees are expected to understand and
comply with all laws, rules and regulations that apply to your job position at Ctrip. If any doubt
exists about whether a course of action is lawful, you should seek advice immediately from the
Compliance Officer.
Compliance with Insider Trading Policy
Each employee has an obligation to comply with Ctrips Insider Trading Policy dated December
30, 2003, a copy of which has been provided to each employee.
Violations of the Code
All employees have a duty to report any known or suspected violation of this Code, including
any violation of laws, rules, regulations or policies that apply to the Company. Reporting a known
or suspected violation of this Code by others will not be considered an act of disloyalty, but an
action to safeguard the reputation and integrity of Ctrip and its employees.
If you know of or suspect a violation of this Code, it is your responsibility to immediately
report the violation to the Compliance Officer, who will work with you to investigate your concern.
All questions and reports of known or suspected violations of this Code will be treated with
sensitivity and discretion. The Compliance Officer and the Company will protect your
confidentiality to the extent possible, consistent with the law and the Companys need to
investigate your concern.
It is Ctrips policy that any employee who violates this Code will be subject to appropriate
discipline, including termination of employment, based upon the facts and circumstances of each
particular situation. Your conduct as an employee of Ctrip, if it does not comply with the law or
with this Code, can result in serious consequences for both you and Ctrip.
7
Ctrip strictly prohibits retaliation against an employee who, in good faith, seeks help or
reports known or suspected violations. An employee inflicting reprisal or retaliation against
another employee for reporting a known or suspected violation, will be subject to disciplinary
action up to and including termination of employment.
Waivers of the Code
Waivers of this Code will be granted on a case-by-case basis and only in extraordinary
circumstances. Waivers of this Code may be made only by the Board, or the appropriate committee of
the Board, and will be promptly disclosed to the public.
Conclusion
This Code contains general guidelines for conducting the business of Ctrip consistent with the
highest standards of business ethics. If you have any questions about these guidelines, please
contact the Compliance Officer. We expect all employees to adhere to these standards. Each
employee is separately responsible for his or her actions. Conduct that violates the law or this
Code cannot be justified by claiming that it was ordered by a supervisor or someone in higher
management. If you engage in conduct prohibited by the law or this Code, you will be deemed to
have acted outside the scope of your employment. Such conduct will subject you to disciplinary
action, including termination of employment.
Each subsidiary and affiliate of Ctrip shall prepare comprehensive and concrete rules to implement
this Code based on its own situations and needs.
* * * * * * * * * * * * *
8
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:
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I have reviewed this annual report on Form 20-F of Ctrip.com International, Ltd. (the
Company); |
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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; |
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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; |
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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: |
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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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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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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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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 |
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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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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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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: May 26, 2009
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By: |
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/s/ Min Fan |
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Name:
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Min Fan |
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Title:
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Chief Executive Officer |
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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:
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I have reviewed this annual report on Form 20-F of Ctrip.com International, Ltd. (the
Company); |
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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; |
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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; |
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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: |
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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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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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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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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 |
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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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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: May 26, 2009
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By: |
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/s/ Jane Jie Sun |
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Name:
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Jane Jie Sun |
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Title:
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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, 2008 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: May 26, 2009
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By: |
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/s/ Min Fan |
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Name:
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Min Fan |
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Title:
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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, 2008 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: May 26, 2009
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By: |
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/s/ Jane Jie Sun |
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Name:
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Jane Jie Sun |
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Title:
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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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RDS/302248/14162659v1 |
Direct tel
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+852 2971 3046 |
Email
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richard.spooner@maplesandcalder.com |
Ctrip.com International, Ltd.
No. 99 Fu Quan Road
Shanghai 200335, Peoples Republic of China
May 26, 2009
Dear Sirs,
Re: 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 December 31, 2008, which will be filed with the Securities
and Exchange Commission in the month of May 2009.
Yours faithfully,
Exhibit 15.2
EXHIBIT 15.2
[Letterhead of Commerce & Finance Law Offices]
May 26, 2009
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, 2008, which will be filed with the Securities and
Exchange Commission in the month of May 2009.
Yours faithfully,
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/s/ Commerce & Finance Law Offices
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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) of Ctrip.com
International, Ltd. of our report dated May 26, 2009 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
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Shanghai, PRC |
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May 26, 2009 |
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