##### Table of Contents



UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 20-F
 (Mark One)
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT
OF 1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2009.
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 OR
 o
    
    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: 001-33082
 HOME INNS & HOTELS MANAGEMENT INC.
 (Exact Name of Registrant as Specified in Its Charter)
 N/A
(Translation of Registrants Name Into English)
Cayman Islands
(Jurisdiction of Incorporation or Organization)
No. 124 Caobao Road
Xuhui District
Shanghai 200235
Peoples Republic of China
(Address of Principal Executive Offices)
David Jian Sun, Chief Executive Officer
No. 124 Caobao Road
Xuhui District
Shanghai 200235
Peoples Republic of China
Phone: +(86 21) 3401-9898
Fax: +(86 21) 6483-5661
 (Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange On Which RegisteredAmerican Depositary Shares,
each representing two ordinary
shares, par value $0.005 per share
    
    Nasdaq Global Market
 Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
 80,303,510 ordinary shares, par
value US$0.005 per share, as of December 31, 2009.
 Yes
þ No
o
 o þ
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
  þ
 o  o
 o o
 o þ
  Yes
o No
o




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##### 



TABLE OF CONTENTS
 PageINTRODUCTION
    
    
    1PART I
    
    
    2ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    
    2ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    2ITEM 3. KEY INFORMATION
    
    
    2ITEM 4. INFORMATION ON THE COMPANY
    
    
    20ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    38ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    54ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    64ITEM 8. FINANCIAL INFORMATION
    
    
    65ITEM 9. THE OFFER AND LISTING
    
    
    66ITEM 10. ADDITIONAL INFORMATION
    
    
    67ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    74ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    75PART II
    
    
    77ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    77ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
    
    
    77ITEM 15. CONTROLS AND PROCEDURES
    
    
    77ITEM 16A .AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    78ITEM 16B. CODE OF ETHICS
    
    
    78ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    78ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    78ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
    
    
    78ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
    
    
    79ITEM 16G. CORPORATE GOVERNANCE
    
    
    79PART III
    
    
    79ITEM 17. FINANCIAL STATEMENTS
    
    
    79ITEM 18. FINANCIAL STATEMENTS
    
    
    80ITEM 19. EXHIBITS
    
    
    80SIGNATURES
    
    
    81Exhibit 4.4Exhibit 4.5Exhibit 8.1Exhibit 11.1Exhibit 12.1Exhibit 12.2Exhibit 13.1Exhibit 13.2Exhibit 23.1Exhibit 23.2
   i




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INTRODUCTION
  
    
    we, us, our company, our and Home Inns refer to Home Inns & Hotels
Management Inc., a Cayman Islands company, and its predecessor entities and
subsidiaries;
 
    
    China or PRC refers to the Peoples Republic of China, excluding solely for the
purpose of this report Taiwan, Hong Kong and Macau;
 
    
    Top Star refers, collectively, to Hong Kong Ai Home Hotel Investment Limited,
Shanghai Chuwen Investment Holding Co., Ltd. and their subsidiaries, which we acquired
in 2007;
 
    
    our hotels refers, collectively, to our leased-and-operated and
franchised-and-managed hotels;
 
    
    average daily rate refers to total hotel room revenues divided by the total number
of occupied rooms in a given period;
 
    
    occupancy rate refers to the total number of occupied rooms divided by the total
number of available rooms in a given period;
 
    
    RevPAR represents revenue per available room, which is calculated by dividing
total hotel room revenues by the total number of available rooms in a given period, or
by multiplying average daily rates and occupancy rates in a given period;
 
    
    shares or ordinary shares refers to our ordinary shares;
 
    
    ADSs refers to our American depositary shares, each of which represents two
ordinary shares; and
 
    
    RMB or Renminbi refers to the legal currency of China; $, dollars, US$ or
U.S. dollars refers to the legal currency of the United States; and HK$ refers to
the legal currency of Hong Kong.
  FORWARD-LOOKING STATEMENTS
   
    
    our anticipated growth strategies;
 
    
    our future business development, results of operations and financial condition;
 
    
    expected changes in our revenues and certain cost or expense items;
 
    
    our ability to attract customers, leverage our brand and provide high-quality
services to our customers;
 
    
    trends and competition in the lodging industry; and
 
    
    our ability to develop new hotels at desirable locations in a timely and
cost-effective manner.
   1




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PART
I
 
 ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3. KEY INFORMATION
 Selected Financial Data
 Our Selected Consolidated Financial Data
    2




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For the Year Ended December 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in thousands, except share, per share and per ADS data)Consolidated Statement of Operations DataRevenues:Leased-and-operated hotels
    
    
    279,948
    
    
    
    567,895
    
    
    
    963,050
    
    
    
    1,771,762
    
    
    
    2,453,105
    
    
    
    359,382Franchised-and-managed hotels
    
    
    5,913
    
    
    
    20,605
    
    
    
    46,266
    
    
    
    99,779
    
    
    
    147,535
    
    
    
    21,614Total revenues
    
    
    285,861
    
    
    
    588,500
    
    
    
    1,009,316
    
    
    
    1,871,541
    
    
    
    2,600,640
    
    
    
    380,996Less: Business tax and related surcharges
    
    
    (16,830
    )
    
    
    (33,977
    )
    
    
    (60,302
    )
    
    
    (111,870
    )
    
    
    (158,975
    )
    
    
    (23,290
    )Net revenues
    
    
    269,031
    
    
    
    554,523
    
    
    
    949,014
    
    
    
    1,759,671
    
    
    
    2,441,665
    
    
    
    357,706Operating costs and expenses(1):Leased-and-operated hotel costs:Rents and utilities
    
    
    (94,784
    )
    
    
    (171,576
    )
    
    
    (299,792
    )
    
    
    (643,694
    )
    
    
    (797,944
    )
    
    
    (116,899
    )Personnel costs
    
    
    (41,225
    )
    
    
    (87,981
    )
    
    
    (155,611
    )
    
    
    (337,837
    )
    
    
    (461,949
    )
    
    
    (67,676
    )Depreciation and amortization
    
    
    (23,335
    )
    
    
    (44,619
    )
    
    
    (85,600
    )
    
    
    (190,698
    )
    
    
    (281,543
    )
    
    
    (41,246
    )Consumables, food and beverage
    
    
    (20,765
    )
    
    
    (43,482
    )
    
    
    (84,053
    )
    
    
    (143,555
    )
    
    
    (172,467
    )
    
    
    (25,267
    )Others
    
    
    (26,100
    )
    
    
    (56,019
    )
    
    
    (98,644
    )
    
    
    (182,284
    )
    
    
    (275,186
    )
    
    
    (40,315
    )Total leased-and-operated hotel costs
    
    
    (206,209
    )
    
    
    (403,677
    )
    
    
    (723,700
    )
    
    
    (1,498,068
    )
    
    
    (1,989,089
    )
    
    
    (291,403
    )Sales and marketing expenses
    
    
    (7,691
    )
    
    
    (11,488
    )
    
    
    (19,632
    )
    
    
    (27,161
    )
    
    
    (30,462
    )
    
    
    (4,463
    )General and administrative expenses
    
    
    (24,789
    )
    
    
    (64,793
    )
    
    
    (99,026
    )
    
    
    (152,648
    )
    
    
    (180,480
    )
    
    
    (26,440
    )Total operating costs and expenses
    
    
    (238,689
    )
    
    
    (479,958
    )
    
    
    (842,358
    )
    
    
    (1,677,877
    )
    
    
    (2,200,031
    )
    
    
    (322,306
    )Income from operations
    
    
    30,342
    
    
    
    74,566
    
    
    
    106,656
    
    
    
    81,794
    
    
    
    241,634
    
    
    
    35,400Interest income
    
    
    223
    
    
    
    6,578
    
    
    
    31,717
    
    
    
    32,023
    
    
    
    6,686
    
    
    
    980Interest expense
    
    
    (709
    )
    
    
    (6,143
    )
    
    
    (7,168
    )
    
    
    (28,136
    )
    
    
    (10,983
    )
    
    
    (1,609
    )Gain on buy-back of convertible bond
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103,291
    
    
    
    69,327
    
    
    
    10,156Other non-operating income
    
    
    2,146
    
    
    
    5,309
    
    
    
    8,434
    
    
    
    10,971
    
    
    
    16,248
    
    
    
    2,380Foreign exchange gain (loss), net
    
    
    254
    
    
    
    (6,990
    )
    
    
    (53,221
    )
    
    
    (65,524
    )
    
    
    (286
    )
    
    
    (42
    )Income before income tax expense and
noncontrolling interests
    
    
    32,256
    
    
    
    73,319
    
    
    
    86,418
    
    
    
    134,419
    
    
    
    322,626
    
    
    
    47,265Income tax expense
    
    
    (6,526
    )
    
    
    (21,391
    )
    
    
    (45,035
    )
    
    
    (28,107
    )
    
    
    (62,166
    )
    
    
    (9,107
    )Net Income(2)
    
    
    25,730
    
    
    
    51,928
    
    
    
    41,383
    
    
    
    106,312
    
    
    
    260,460
    
    
    
    38,158Less: Net income attributable to
noncontrolling interests
    
    
    (4,797
    )
    
    
    (5,034
    )
    
    
    (5,627
    )
    
    
    (5,087
    )
    
    
    (4,457
    )
    
    
    (653
    )Net income attributable to our shareholders
    
    
    20,933
    
    
    
    46,894
    
    
    
    35,756
    
    
    
    101,225
    
    
    
    256,003
    
    
    
    37,505Amount allocated to participating
preferred shareholders
    
    
    (9,487
    )
    
    
    (16,174
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income available to ordinary
shareholders
    
    
    11,446
    
    
    
    30,720
    
    
    
    35,756
    
    
    
    101,225
    
    
    
    256,003
    
    
    
    37,505Earning per share:Basic
    
    
    0.42
    
    
    
    0.86
    
    
    
    0.52
    
    
    
    1.43
    
    
    
    3.37
    
    
    
    0.49Diluted
    
    
    0.40
    
    
    
    0.82
    
    
    
    0.47
    
    
    
    0.04
    
    
    
    2.34
    
    
    
    0.33Earnings per ADS(3):Basic
    
    
    0.84
    
    
    
    1.73
    
    
    
    1.05
    
    
    
    2.86
    
    
    
    6.74
    
    
    
    0.99Diluted
    
    
    0.80
    
    
    
    1.64
    
    
    
    0.93
    
    
    
    0.09
    
    
    
    4.69
    
    
    
    0.67Weighted average ordinary shares
outstanding:Basic
    
    
    27,399,140
    
    
    
    35,550,114
    
    
    
    68,323,370
    
    
    
    70,863,336
    
    
    
    75,922,589
    
    
    
    75,922,589Diluted
    
    
    28,713,188
    
    
    
    37,530,332
    
    
    
    76,883,995
    
    
    
    78,037,433
    
    
    
    80,895,112
    
    
    
    80,895,112
  3




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(1)
    
    Share-based compensation expenses are included in the consolidated statement of operations
data as follows: For the Year Ended December 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in thousands)Leased-and-operated
hotel
costspersonnel
costs
    
    
    8
    
    
    
    12
    
    
    
    11
    
    
    
    11
    
    
    
    
    
    
    
    General and
administrative
expenses
    
    
    952
    
    
    
    16,283
    
    
    
    15,060
    
    
    
    24,833
    
    
    
    32,009
    
    
    
    4,689
 (2)
    
    Data from 2005 to 2008 were retrospectively adjusted to reflect the adoption of ASC 810.(3)
    
    Each ADS represents two ordinary shares.  As of December 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in thousands)Consolidated Balance Sheet DataCash and cash equivalents
    
    
    37,727
    
    
    
    758,004
    
    
    
    1,562,600
    
    
    
    608,445
    
    
    
    829,592
    
    
    
    121,536Total assets
    
    
    375,002
    
    
    
    1,320,019
    
    
    
    3,561,538
    
    
    
    3,363,454
    
    
    
    3,454,948
    
    
    
    506,152Convertible Bond, current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    363,506
    
    
    
    53,254Current portion of long-term loan
from a related party
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total current liabilities
    
    
    119,187
    
    
    
    323,229
    
    
    
    804,922
    
    
    
    639,518
    
    
    
    925,630
    
    
    
    135,604Deferred rental
    
    
    26,534
    
    
    
    44,103
    
    
    
    94,226
    
    
    
    136,825
    
    
    
    155,612
    
    
    
    22,797Long-term loan from a related party
    
    
    40,000
    
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Convertible bond, non-current
    
    
    
    
    
    
    
    
    
    
    1,110,308
    
    
    
    895,696
    
    
    
    
    
    
    
    Series A, Series B, and Series C
convertible preferred shares
    
    
    949
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ordinary shares
    
    
    1,134
    
    
    
    2,691
    
    
    
    2,874
    
    
    
    2,899
    
    
    
    3,209
    
    
    
    470Additional paid-in capital
    
    
    152,878
    
    
    
    813,222
    
    
    
    1,362,942
    
    
    
    1,393,903
    
    
    
    1,798,086
    
    
    
    263,421Total our shareholders equity
    
    
    179,083
    
    
    
    889,739
    
    
    
    1,475,397
    
    
    
    1,607,608
    
    
    
    2,268,104
    
    
    
    332,279
 Exchange Rate Information
    4




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Noon Buying RatePeriodPeriod
    
    End
    
    
    Average(1)
    
    
    Low
    
    
    High2005
    
    
    8.0702
    
    
    
    8.1826
    
    
    
    8.2765
    
    
    
    8.07022006
    
    
    7.8041
    
    
    
    7.9579
    
    
    
    8.0702
    
    
    
    7.80412007
    
    
    7.2946
    
    
    
    7.5806
    
    
    
    7.8127
    
    
    
    7.29462008
    
    
    6.8225
    
    
    
    6.9193
    
    
    
    7.2946
    
    
    
    6.78002009
    
    
    6.8259
    
    
    
    6.8295
    
    
    
    6.8470
    
    
    
    6.8176October
    
    
    6.8264
    
    
    
    6.8267
    
    
    
    6.8292
    
    
    
    6.8248November
    
    
    6.8265
    
    
    
    6.8271
    
    
    
    6.8300
    
    
    
    6.8255December
    
    
    6.8259
    
    
    
    6.8275
    
    
    
    6.8299
    
    
    
    6.82442010January
    
    
    6.8268
    
    
    
    6.8269
    
    
    
    6.8295
    
    
    
    6.8258February
    
    
    6.8258
    
    
    
    6.8285
    
    
    
    6.8330
    
    
    
    6.8258March
    
    
    6.8258
    
    
    
    6.8262
    
    
    
    6.8270
    
    
    
    6.8254April
(through April 16, 2010)
    
    
    6.8263
    
    
    
    6.8252
    
    
    
    6.8263
    
    
    
    6.8229
 (1)
    
    Annual averages are calculated from month-end rates. Monthly averages are calculated using
the average of the daily rates during the relevant period. Capitalization and Indebtedness
  Reasons for the Offer and Use of Proceeds
  Risk Factors
 Risks Related to Our Business
 Our operating results are subject to conditions typically affecting the lodging industry.
  
    
    changes in national, regional or local economic conditions;
 
    
    natural disasters or travelers fears of exposure to serious contagious diseases;
 
    
    the attractiveness of our hotels to customers and competition from other hotels;
 
    
    local market conditions such as an oversupply of, or a reduction in demand for,
hotel rooms;
 
    
    the performance of managerial and other employees of our hotels;
 
    
    increases in operating costs and expenses due to inflation and other factors; and
 
    
    seasonality of the lodging business.
   5




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We may not be able to manage our expected expansion, which could materially and adversely affect
our operating results.
    If the value of our brand or image diminishes, it could have a material and adverse effect on our
business and results of operations.
   6




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If we are not able to hire, train and retain qualified managerial and other employees for our hotel
operations, our brand and our business may be materially and adversely affected.
  We may not be able to successfully identify and secure additional hotel properties.
  We may not be able to develop hotel properties on a timely or cost-efficient basis, which may
adversely affect our growth strategy and business.
  If we are unable to maintain our hotels good condition and attractive appearance, our hotel
occupancy rates may decline.
  Our costs and expenses may remain constant or increase even if our revenues decline.
   7




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Our effort in developing a new hotel brand, the H Hotel, may divert management attention and
resources from our existing business, and if the new product is not well received by the market, we
may not be able to generate sufficient revenue to offset the costs and expenses, and our overall
financial performance and condition may be adversely affected.
  Our business is sensitive to the global economic conditions. A severe or prolonged downturn in the
global or Chinese economy could materially and adversely affect our business and our financial
condition.
  Our financial and operating performance may be adversely affected by epidemics, natural disasters
and other catastrophes.
   8




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The lodging industry in China is highly competitive with relatively low barriers to entry, and if
we are unable to compete successfully, our financial condition and results of operations may be
harmed.
  Failure to retain our senior management could harm our business.
  Interruption or failure of our information and operational systems could impair our ability to
effectively provide our services, which could damage our reputation.
   9




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If we fail to maintain an effective system of internal control over financial reporting, we may not
be able to accurately report our financial results or prevent fraud.
  Any failure to protect our trademarks and other intellectual property rights could have a negative
impact on our business.
   The growth of on-line and other hotel reservation intermediaries and travel consolidators may
adversely affect our margins and profitability.
   10




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Our expansion requires capital. If we fail to generate sufficient cash flow from operations and/or
obtain outside financing when required, we may not be able to fund our planned expansion.
  Future acquisitions may have an adverse effect on our ability to manage our business.
  Our limited operating history makes it difficult to evaluate our future prospects and results of
operations.
  
    
    continue our growth while maintaining our profitability;
 
    
    maintain and enhance our competitive position in the economy hotel segment of the
lodging industry in China;
 
    
    offer an innovative product to attract recurring and new customers;
 
    
    implement our strategy and modify it from time to time to respond effectively to
competition and changes in customer preferences and needs;
 
    
    increase awareness of our Home Inn brand and continue to develop customer loyalty;
 
    
    attract, train, retain and motivate qualified personnel; and
 
    
    renew leases for our leased-and-operated hotels on commercially viable terms after
the initial lease terms expire.
  We are subject to various hotel industry, health and safety, and environmental laws and regulations
that may subject us to liability.
   11




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##### Table of Contents



Accidents or injuries in our hotels may adversely affect our reputation and subject us to
liability.
  We have limited insurance coverage.
  Our legal right to lease certain properties could be challenged by property owners or other third
parties, which could prevent us from continuing to operate the affected hotels or increase the
costs associated with operating these hotels.
    12




---



##### Table of Contents



Our lessors failure to comply with lease registration and other compliance requirements under PRC
law may subject these lessors or us to fines or other penalties that may negatively affect our
ability to operate our hotels.
  Risks Related to Doing Business in China
 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.
    13




---



##### Table of Contents



Uncertainties with respect to the Chinese legal system could adversely affect us.
  Governmental control of currency conversion may affect the value of your investment.
    14




---



##### Table of Contents



Fluctuation in the value of the Renminbi may have a material adverse effect on your investment.
   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 PRC subsidiaries ability to distribute profits
to us, or otherwise adversely affect us.
  We may be subject to fines and legal sanctions imposed by SAFE or other Chinese government
authorities if we or our Chinese employees or directors fail to comply with recent PRC regulations
relating to employee share options or shares granted by offshore special purpose companies or
offshore listed companies to Chinese citizens.
   15




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##### Table of Contents



We rely principally on dividends and other distributions on equity paid by our subsidiaries to fund
any cash and financing requirements we may have, and any limitation on the ability of our
subsidiaries entities to make payments to us could have a material adverse effect on our ability to
conduct our business.
  The PRC tax treatment of our holding company structure under the Enterprise Income Tax Law is
subject to uncertainties, and if such uncertainties are resolved unfavorably to us, we may incur
higher taxes than we anticipate, and our net income and ability to pay dividends could be hampered.
  Our foreign ADS holders may be subject to PRC withholding tax on the dividends payable by us and
upon gains realized on their sales of our ADSs if we are classified as a PRC resident enterprise.
   16




---



##### Table of Contents



The M&A rule sets forth complex procedures for acquisitions conducted by foreign investors which
could make it more difficult to pursue growth through acquisitions.
  Risks Related to Our ADSs
 The market price for our ADSs has been and may continue to be volatile.
  
    
    revisions to our projected financial or operational performance by ourselves or by
securities research analysts;
 
    
    actual or anticipated fluctuations in our quarterly operating results;
 
    
    conditions in the travel and lodging industries;
 
    
    changes in the performance or market valuations of other lodging companies;
 
    
    announcements by us or our competitors of new products, acquisitions, strategic
partnerships, expansions or capital commitments;
 
    
    addition or departure of key personnel;
 
    
    fluctuations of exchange rates between the RMB and U.S. dollar or other foreign
currencies;
 
    
    potential litigation or administrative investigations; and
 
    
    general economic or political conditions in China and elsewhere.
  We may need additional capital, and the sale of additional ADSs or other equity securities could
result in additional dilution to our shareholders.
   17




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##### Table of Contents



Substantial future sales of our ADSs in the public market, or the perception that these sales could
occur, could cause the price of our ADSs to decline.
  Our corporate actions are substantially controlled by our officers, directors and principal
shareholders.
  You may not have the same voting rights as the holders of our ordinary shares and may not receive
voting materials in time to be able to exercise your right to vote.
  You may not be able to participate in rights offerings and may experience dilution of your holdings
as a result.
   18




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##### Table of Contents



You may be subject to limitations on transfer of your ADSs.
  You may face difficulties in protecting your interests, and your ability to protect your rights
through the U.S. federal courts may be limited, because we are incorporated under Cayman Islands
law, we conduct substantially all of our operations in China and the majority of our officers
reside outside the United States.
    Our articles of association contain anti-takeover provisions that could have a material adverse
effect on the rights of holders of our ordinary shares and ADSs.
   19




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##### Table of Contents



We may be classified as a passive foreign investment company, which could result in adverse United
States federal income tax consequences for U.S. Holders.
  
 ITEM 4.  INFORMATION ON THE COMPANY
 History and Development of the Company
    20




---



##### Table of Contents



Acquisition of Top Star Hotels
     Convertible Bond Offering
   21




---



##### Table of Contents



Business Overview
    Our Home Inns Hotel Chain
    22




---



##### Table of Contents



Hotels in Operation
    
    
    Hotels Contracted(1)Leased-and
    
    
    Franchised-
    
    
    Leased-and
    
    
    Franchised-Operated
    
    
    and-Managed
    
    
    Operated
    
    
    and-ManagedHotels
    
    
    Hotels
    
    
    Hotels
    
    
    HotelsBeijing
    
    
    23
    
    
    
    47
    
    
    
    
    
    
    
    4Shanghai
    
    
    30
    (2)
    
    
    32
    
    
    
    
    
    
    
    3Tianjin
    
    
    12
    
    
    
    20
    
    
    
    
    
    
    
    Hangzhou
    
    
    4
    
    
    
    17
    
    
    
    
    
    
    
    4Xian
    
    
    13
    
    
    
    8
    
    
    
    
    
    
    
    3Zhengzhou
    
    
    12
    
    
    
    5
    
    
    
    
    
    
    
    Suzhou
    
    
    7
    
    
    
    10
    
    
    
    
    
    
    
    Nanjing
    
    
    12
    
    
    
    4
    
    
    
    
    
    
    
    1Shenyang
    
    
    10
    
    
    
    4
    
    
    
    
    
    
    
    6Wuhan
    
    
    12
    
    
    
    1
    
    
    
    
    
    
    
    Wuxi
    
    
    4
    
    
    
    8
    
    
    
    
    
    
    
    1Haerbin
    
    
    11
    
    
    
    1
    
    
    
    
    
    
    
    Chengdu
    
    
    9
    
    
    
    2
    
    
    
    
    
    
    
    Guangzhou
    
    
    9
    
    
    
    1
    
    
    
    1
    
    
    
    2Shijiazhuang
    
    
    5
    
    
    
    5
    
    
    
    1
    
    
    
    2Jinan
    
    
    8
    
    
    
    2
    
    
    
    1
    
    
    
    Lanzhou
    
    
    9
    
    
    
    1
    
    
    
    
    
    
    
    Dalian
    
    
    6
    
    
    
    2
    
    
    
    
    
    
    
    3Qingdao
    
    
    7
    
    
    
    1
    
    
    
    
    
    
    
    2Shenzhen
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    1Changchun
    
    
    6
    
    
    
    2
    
    
    
    
    
    
    
    Fuzhou
    
    
    4
    
    
    
    4
    
    
    
    
    
    
    
    Wulumuqi
    
    
    6
    
    
    
    1
    
    
    
    
    
    
    
    1Ningbo
    
    
    4
    
    
    
    3
    
    
    
    
    
    
    
    1Changzhou
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    Chongqing
    
    
    6
    
    
    
    1
    
    
    
    
    
    
    
    Xiamen
    
    
    2
    
    
    
    4
    
    
    
    
    
    
    
    3Nanchang
    
    
    4
    
    
    
    2
    
    
    
    
    
    
    
    1Kunming
    
    
    4
    
    
    
    2
    
    
    
    
    
    
    
    Taiyuan
    
    
    3
    
    
    
    3
    
    
    
    
    
    
    
    Guiyang
    
    
    5
    
    
    
    
    
    
    
    1
    
    
    
    Huhehaote
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    1Nanning
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    Hefei
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    Changsha
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    Xuzhou
    
    
    4
    
    
    
    
    
    
    
    1
    
    
    
    2Yantai
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    1Zibo
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    Dongguan
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    Yinchuan
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    1Zhuhai
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    Jilin
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    Nantong
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    Baotou
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    Qiqihaer
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    Weihai
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    Changshu
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    Yancheng
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    Xining
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    Lianyungang
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    2
  23




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##### Table of Contents



Hotels in Operation
    
    
    Hotels Contracted(1)Leased-and
    
    
    Franchised-
    
    
    Leased-and
    
    
    Franchised-Operated
    
    
    and-Managed
    
    
    Operated
    
    
    and-ManagedHotels
    
    
    Hotels
    
    
    Hotels
    
    
    HotelsLinyi
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    2Kunshan
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Yangzhou
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    1Wuhu
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    1Shaoxing
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Baoding
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Luoyang
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Bengbu
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Foshan
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Weifang
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Guilin
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Tangshan
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Taian
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Shunde
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Rizhao
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Binzhou
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Yichang
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Haikou
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Jinhua
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Shantou
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Jiangyin
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    Dandong
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    Huaian
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    Langfang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Zhongshan
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Dezhou
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Yixing
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Yueyang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Jiaxing
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Yanji
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Maanshan
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Heze
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Yingkou
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Dongying
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Fushun
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Liaocheng
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Tonghua
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Zhenjiang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Shishi
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Anqing
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Cangzhou
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Wuyishan
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Zhangjiagang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Deyang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Laiyang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Jinzhou
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Quanzhou
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Zaozhuang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Luohe
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Taicang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Xinxiang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Zhaoqing
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
  24




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##### Table of Contents



Hotels in Operation
    
    
    Hotels Contracted(1)Leased-and
    
    
    Franchised-
    
    
    Leased-and
    
    
    Franchised-Operated
    
    
    and-Managed
    
    
    Operated
    
    
    and-ManagedHotels
    
    
    Hotels
    
    
    Hotels
    
    
    HotelsHuludao
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Weiwu
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Wuzhong
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Rongcheng
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Qufu
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Haimen
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Chaozhou
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Hegang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Jining
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Zhangjiajie
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Puyang
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Panjin
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Taizhou
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Jingdezhen
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Kashi
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Datong
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Huangshan
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Anshan
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Leshan
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Zhongwei
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Tongxiang
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Handan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Suqian
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Changzhi
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Kaifeng
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Haining
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Zunyi
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Shiyan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Jiujiang
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Wendeng
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1TOTAL
    
    
    390
    
    
    
    226
    
    
    
    6
    
    
    
    63
 
 (1)
    
    Contracted hotels include hotels which have not commenced operations but for which we have
entered into binding leases or franchise agreements with the respective lessors or
franchisees.(2)
    
    Leased-and-operated hotels include one H Hotel located in Shanghai.
  25




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##### Table of Contents



Leased-and-operated Hotels
  Franchised-and-managed Hotels
  Number ofNumber of
    
    
    Hotels Opened
    
    
    AverageHotels Opened
    
    
    for No More
    
    
    Number of
    
    
    TypicalTotal Number
    
    
    for Over Six
    
    
    Than Six
    
    
    Rooms per
    
    
    Lease/Franchiseof Hotels
    
    
    Months
    
    
    Months
    
    
    Hotel
    
    
    TermLeased-and-operated Hotels
    
    
    390
    
    
    
    352
    
    
    
    38
    
    
    
    119
    
    
    
    15 yearsFranchised-and-managed Hotels
    
    
    226
    
    
    
    164
    
    
    
    62
    
    
    
    112
    
    
    
    8 years
    26




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##### Table of Contents



As of and for the Year EndedDecember 31,2007
    
    
    2008
    
    
    2009Operating DataTotal hotels in operation(1):Leased-and-operated hotels(2)
    
    
    195
    
    
    
    326
    
    
    
    390Franchised-and-managed hotels
    
    
    71
    
    
    
    145
    
    
    
    226Total rooms(1)
    
    
    32,726
    
    
    
    55,631
    
    
    
    71,671Geographic coverage(1):Number of cities
    
    
    66
    
    
    
    94
    
    
    
    120Occupancy rate (as a percentage)
    
    
    91.1
    
    
    
    85.0
    
    
    
    91.5Average daily rate (in RMB)
    
    
    179
    
    
    
    173
    
    
    
    160RevPAR (in RMB)
    
    
    163
    
    
    
    147
    
    
    
    149
 
 (1)
    
    As of the end of each period.(2)
    
    Includes five hotels operated in 2007 and seven hotels operated in 2008 and 2009 through
joint ventures. Hotel Development
    27




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##### Table of Contents



General Market Criteria
 Economic Growth
 Geographic Diversification
 Favorable Development Environment
 Specific Hotel Criteria
 Location and Market Appeal
 Size and Facilities
 Financial Return Requirements
 Hotel Management
  Budgeting and Monitoring
  28




---



##### Table of Contents



Quality Assurance and Training
  Strategic Capital Improvements
 Centralized Procurement
 Targeted Sales
 Hotel Information and Operational Systems
   29




---



##### Table of Contents



Property Management System
 Central Reservation System
 Customer Relationship Management System
 Management Reporting System
 Sales and Marketing
   Approximate Percentage ofTotal Room Nights StayedCustomer Channel
    
    in 2009Central reservation system bookings by members of our Home Inns membership network
    
    
    9.5Central reservation system bookings by non-members of our Home Inns membership network
    
    
    1.5Reservations not booked through our central reservation system by members of our Home Inns membership network
    
    
    40.9Walk-ins
    
    
    12.2Corporate account
    
    
    13.7Travel agencies and consolidators
    
    
    6.9Others
    
    
    15.3Total
    
    100.0
  30




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Employees and Training
    31




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##### Table of Contents



Competition
   Intellectual Property
 
  32




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##### Table of Contents



Insurance
  Regulation
  Regulations on Hotel Operation
    33




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##### Table of Contents



Regulations on the Assessment of the Star Rating of Tourist Hotels
 Regulations on Consumer Protection
 Law on the Protection of the Rights and Interests of Consumers
       Interpretation of Some Issues concerning the Application of Law for the Trial of Cases on
Compensation for Personal Injury
 Regulations on Environmental Protection
 Law on Promoting Clean Production
  34




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##### Table of Contents



Regulations on Commercial Franchising
     Regulations on Trademarks
  Regulations on Foreign Currency Exchange
    35




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##### Table of Contents



Regulations on Dividend Distribution
  Regulations on Employee Stock Holding Plan or Stock Option Plan
 Application Procedure of Foreign
Exchange Administration for Domestic Individuals Participating in Employee Stock Holding Plan or
Stock Option Plan of Overseas-Listed Company
 Regulation on Mergers and Acquisitions
  Regulation of Loans between a Foreign Company and its Chinese Subsidiary
  Tax
   36




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Organizational Structure
  
 *
    
    Home Inns & Hotels Management (Shanghai) Co., Ltd. owns 51% of three joint ventures, 65% of
one joint venture, 70% of one joint venture and 75% of one other joint venture. Property, Plant and Equipment
   37




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##### Table of Contents



ITEM 4A. UNRESOLVED STAFF COMMENTS
  
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 You should read the following discussion and analysis of our financial condition and results
of operations in conjunction with our consolidated financial statements and the related notes
included elsewhere in this annual report on Form 20-F . This discussion may contain forward-looking
statements based upon current expectations that involve risks and uncertainties. Our actual results
may differ materially from those anticipated in these forward-looking statements as a result of
various factors, including those set forth under Item 3. Key InformationD. Risk Factors or in
other parts of this annual report on Form 20-F .
 Operating Results
 Key Performance Indicators
    Revenues
 
    
    the total number of hotels in our hotel chain;
    
    the total number of hotel rooms in our hotel chain;
    
    occupancy rates achieved by our hotels;
    
    average daily rates achieved by our hotels; and
    
    the RevPAR achieved by our hotels, which represents the product of average daily
rates and occupancy rates.
  38




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For the Year Ended December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in thousands, except share, per share and per ADS data)Consolidated Statement of
Operations DataRevenues:Leased-and-operated hotels
    
    
    963,050
    
    
    
    95.4
    
    
    
    1,771,762
    
    
    
    94.7
    
    
    
    2,453,105
    
    
    
    359,382
    
    
    
    94.3Franchised-and-managed hotels
    
    
    46,266
    
    
    
    4.6
    
    
    
    99,779
    
    
    
    5.3
    
    
    
    147,535
    
    
    
    21,614
    
    
    
    5.7Total revenues
    
    
    1,009,316
    
    
    
    100.0
    
    
    
    1,871,541
    
    
    
    100.0
    
    
    
    2,600,640
    
    
    
    380,996
    
    
    
    100.0Less:
Business tax and related surcharges
    
    
    (60,302
    )
    
    
    (6.0
    )
    
    
    (111,870
    )
    
    
    (6.0
    )
    
    
    (158,975
    )
    
    
    (23,290
    )
    
    
    (6.1
    )Net revenues
    
    
    949,014
    
    
    
    94.0
    
    
    
    1,759,671
    
    
    
    94.0
    
    
    
    2,441,665
    
    
    
    357,706
    
    
    
    93.9
 Leased-and-operated Hotels
   Franchised-and-managed Hotels
  39




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Operating Costs and Expenses
 For the Year Ended December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in thousands except percentages)Total revenues
    
    
    1,009,316
    
    
    
    100.0
    
    
    
    1,871,541
    
    
    
    100.0
    
    
    
    2,600,640
    
    
    
    380,996
    
    
    
    100.0Less:
Business tax and related surcharges
    
    
    (60,302
    )
    
    
    (6.0
    )
    
    
    (111,870
    )
    
    
    (6.0
    )
    
    
    (158,975
    )
    
    
    (23,290
    )
    
    
    (6.1
    )Net revenues
    
    
    949,014
    
    
    
    94.0
    
    
    
    1,759,671
    
    
    
    94.0
    
    
    
    2,441,665
    
    
    
    357,706
    
    
    
    93.9Operating costs and expenses:Leased-and-operated hotel
costs:Rents and utilities
    
    
    (299,792
    )
    
    
    (29.7
    )
    
    
    (643,694
    )
    
    
    (34.4
    )
    
    
    (797,944
    )
    
    
    (116,899
    )
    
    
    (30.7
    )Personnel costs
    
    
    (155,611
    )
    
    
    (15.4
    )
    
    
    (337,837
    )
    
    
    (18.1
    )
    
    
    (461,949
    )
    
    
    (67,676
    )
    
    
    (17.8
    )Depreciation
and amortization
    
    
    (85,600
    )
    
    
    (8.5
    )
    
    
    (190,698
    )
    
    
    (10.2
    )
    
    
    (281,543
    )
    
    
    (41,246
    )
    
    
    (10.8
    )Consumables,
food and beverage
    
    
    (84,053
    )
    
    
    (8.3
    )
    
    
    (143,555
    )
    
    
    (7.7
    )
    
    
    (172,467
    )
    
    
    (25,267
    )
    
    
    (6.6
    )Others
    
    
    (98,644
    )
    
    
    (9.8
    )
    
    
    (182,284
    )
    
    
    (9.7
    )
    
    
    (275,186
    )
    
    
    (40,315
    )
    
    
    (10.6
    )Total
leased-and-operated hotel costs
    
    
    (723,700
    )
    
    
    (71.7
    )
    
    
    (1,498,068
    )
    
    
    (80.0
    )
    
    
    (1,989,089
    )
    
    
    (291,403
    )
    
    
    (76.5
    )Sales and
marketing expenses
    
    
    (19,632
    )
    
    
    (1.9
    )
    
    
    (27,161
    )
    
    
    (1.5
    )
    
    
    (30,462
    )
    
    
    (4,463
    )
    
    
    (1.2
    )General and
administrative expenses
    
    
    (99,026
    )
    
    
    (9.8
    )
    
    
    (152,648
    )
    
    
    (8.2
    )
    
    
    (180,480
    )
    
    
    (26,440
    )
    
    
    (6.9
    )Total
operating costs and expenses
    
    
    (842,358
    )
    
    
    (83.5
    )
    
    
    (1,677,877
    )
    
    
    (89.7
    )
    
    
    (2,200,031
    )
    
    
    (322,306
    )
    
    
    (84.6
    )
 Leased-and-operated Hotel Costs
  40




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Sales and Marketing Expenses
 General and Administrative Expenses
  For the Year Ended December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in thousands except percentages)Leased-and-operated
hotel
costspersonnel
costs
    
    
    11
    
    
    
    0.1
    
    
    
    11
    
    
    
    0.0
    
    
    
    
    
    
    
    
    
    
    
    General and
administrative
expenses
    
    
    15,060
    
    
    
    99.9
    
    
    
    24,833
    
    
    
    100.0
    
    
    
    32,009
    
    
    
    4,689
    
    
    
    100.0Total
share-based
compensation
expenses
    
    
    15,071
    
    
    
    100.0
    
    
    
    24,844
    
    
    
    100.0
    
    
    
    32,009
    
    
    
    4,689
    
    
    
    100.0
 Taxation
      41




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##### Table of Contents



Critical Accounting Policies
    42




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##### Table of Contents



Basis of Consolidation
   Name of VIE
    
    Our ownership interestHome Inns & Hotels Management (Xiamen) Co., Ltd.
    
    
    51
    %Home Inns & Hotels Management (Fuzhou) Co., Ltd.
    
    
    51
    %Home Inns & Hotels Management (Caoxi) Co., Ltd.
    
    
    51
    %Home Inns & Hotels Management (Caobao) Co., Ltd.
    
    
    75
    %Home Inns & Hotels Management (Dongguan) Co., Ltd.
    
    
    65
    %Home Inns & Hotels Kuaijie (Fuzhou) Co., Ltd.
    
    
    70
    %
   Goodwill
   43




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##### Table of Contents



Impairment of Long-lived Assets and Definite-lived Intangible Assets
  Accruals for Customer Reward Program
  Revenue Recognition
     44




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##### Table of Contents



Share-based Compensation
      Taxation
   45




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##### Table of Contents



Selected Operating Data
  As of and for the Year EndedDecember 31,2007
    
    
    2008
    
    
    2009Operating DataTotal hotels in operation(1):Leased-and-operated hotels(2)
    
    
    195
    
    
    
    326
    
    
    
    390Franchised-and-managed hotels
    
    
    71
    
    
    
    145
    
    
    
    226Total rooms(1)
    
    
    32,726
    
    
    
    55,631
    
    
    
    71,671Geographic coverage(1):Number of cities
    
    
    66
    
    
    
    94
    
    
    
    120Occupancy rate (as a percentage)
    
    
    91.1
    
    
    
    85.0
    
    
    
    91.5Average daily rate (in RMB)
    
    
    179
    
    
    
    173
    
    
    
    160RevPAR (in RMB)
    
    
    163
    
    
    
    147
    
    
    
    149
 (1)
    
    As of the end of each period.(2)
    
    Includes six hotels operated through separate joint ventures with third parties. Home Inns &
Hotels Management (Shanghai) Co., Ltd. owns 51% of three joint ventures, 65% of one joint
venture, 70% of one joint venture and 75% of one other joint venture. Results of Operations
  For the Year Ended December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in thousands except percentages)Consolidated Statement of
Operations DataRevenues:Leased-and-operated hotels
    
    
    963,050
    
    
    
    95.4
    
    
    
    1,771,762
    
    
    
    94.7
    
    
    
    2,453,105
    
    
    
    359,382
    
    
    
    94.3Franchised-and-managed hotels
    
    
    46,266
    
    
    
    4.6
    
    
    
    99,779
    
    
    
    5.3
    
    
    
    147,535
    
    
    
    21,614
    
    
    
    5.7Total revenues
    
    
    1,009,316
    
    
    
    100.0
    
    
    
    1,871,541
    
    
    
    100.0
    
    
    
    2,600,640
    
    
    
    380,996
    
    
    
    100.0Less: Business tax and related
surcharges
    
    
    (60,302
    )
    
    
    (6.0
    )
    
    
    (111,870
    )
    
    
    (6.0
    )
    
    
    (158,975
    )
    
    
    (23,290
    )
    
    
    (6.1
    )Net revenues
    
    
    949,014
    
    
    
    94.0
    
    
    
    1,759,671
    
    
    
    94.0
    
    
    
    2,441,665
    
    
    
    357,706
    
    
    
    93.9Operating costs and expenses:Leased-and-operated hotel costs:Rents and utilities
    
    
    (299,792
    )
    
    
    (29.7
    )
    
    
    (643,694
    )
    
    
    (34.4
    )
    
    
    (797,944
    )
    
    
    (116,899
    )
    
    
    (30.7
    )Personnel costs
    
    
    (155,611
    )
    
    
    (15.4
    )
    
    
    (337,837
    )
    
    
    (18.1
    )
    
    
    (461,949
    )
    
    
    (67,676
    )
    
    
    (17.8
    )Depreciation and amortization
    
    
    (85,600
    )
    
    
    (8.5
    )
    
    
    (190,698
    )
    
    
    (10.2
    )
    
    
    (281,543
    )
    
    
    (41,246
    )
    
    
    (10.8
    )Consumables, food and beverage
    
    
    (84,053
    )
    
    
    (8.3
    )
    
    
    (143,555
    )
    
    
    (7.7
    )
    
    
    (172,467
    )
    
    
    (25,267
    )
    
    
    (6.6
    )Others
    
    
    (98,644
    )
    
    
    (9.8
    )
    
    
    (182,284
    )
    
    
    (9.7
    )
    
    
    (275,186
    )
    
    
    (40,315
    )
    
    
    (10.6
    )Total leased-and-operated hotel
costs
    
    
    (723,700
    )
    
    
    (71.7
    )
    
    
    (1,498,068
    )
    
    
    (80.0
    )
    
    
    (1,989,089
    )
    
    
    (291,403
    )
    
    
    (76.5
    )
  46




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For the Year Ended December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in thousands except percentages)Sales and marketing expenses
    
    
    (19,632
    )
    
    
    (1.9
    )
    
    
    (27,161
    )
    
    
    (1.5
    )
    
    
    (30,462
    )
    
    
    (4,463
    )
    
    
    (1.2
    )General and administrative
expenses
    
    
    (99,026
    )
    
    
    (9.8
    )
    
    
    (152,648
    )
    
    
    (8.2
    )
    
    
    (180,480
    )
    
    
    (26,440
    )
    
    
    (6.9
    )Total operating costs and
expenses
    
    
    (842,358
    )
    
    
    (83.5
    )
    
    
    (1,677,877
    )
    
    
    (89.7
    )
    
    
    (2,200,031
    )
    
    
    (322,306
    )
    
    
    (84.6
    )Income from operations
    
    
    106,656
    
    
    
    10.6
    
    
    
    81,794
    
    
    
    4.4
    
    
    
    241,634
    
    
    
    35,400
    
    
    
    9.3Interest income, net
    
    
    24,549
    
    
    
    2.4
    
    
    
    3,887
    
    
    
    0.2
    
    
    
    (4,297
    )
    
    
    (629.5
    )
    
    
    (0.2
    )Gain on buy-back of convertible
bond
    
    
    
    
    
    
    
    
    
    
    103,291
    
    
    
    5.5
    
    
    
    69,327
    
    
    
    10,156
    
    
    
    2.7Other non-operating income
    
    
    8,434
    
    
    
    0.8
    
    
    
    10,971
    
    
    
    0.6
    
    
    
    16,248
    
    
    
    2,380
    
    
    
    0.6Foreign exchange loss, net
    
    
    (53,221
    )
    
    
    (5.3
    )
    
    
    (65,524
    )
    
    
    (3.5
    )
    
    
    (286
    )
    
    
    (42
    )
    
    
    0.0Income tax expense
    
    
    (45,035
    )
    
    
    (4.5
    )
    
    
    (28,107
    )
    
    
    (1.5
    )
    
    
    (62,166
    )
    
    
    (9,107
    )
    
    
    (2.4
    )Net Income
    
    
    41,383
    
    
    
    4.0
    
    
    
    106,312
    
    
    
    6
    
    
    
    260,460
    
    
    
    38,158
    
    
    
    10Noncontrolling interests
    
    
    (5,627
    )
    
    
    (0.6
    )
    
    
    (5,087
    )
    
    
    (0.3
    )
    
    
    (4,457
    )
    
    
    (653
    )
    
    
    (0.2
    )Net income attributable to
shareholders
    
    
    35,756
    
    
    
    3.5
    
    
    
    101,225
    
    
    
    5.4
    
    
    
    256,003
    
    
    
    37,505
    
    
    
    9.8
 Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
 Revenues
 
    
    Leased-and-operated Hotels. Revenues from our leased-and-operated hotels increased
by 38.5% from RMB 1.77 billion in 2008 to RMB 2.45 billion (US$359.4 million ) in 2009.
This increase was primarily due to an increase in the number of leased-and-operated
hotels in operation from 326 hotels with 39,188 rooms as of December 31, 2008 to 390
hotels with 46,462 rooms as of December 31, 2009.
    
    Franchised-and-managed Hotels. Revenues from our franchised-and-managed hotels
increased by 47.9% from RMB 99.8 million in 2008 to RMB 147.5 million (US$21.6 million)
in 2009. This growth was primarily due to an increase in the number of
franchised-and-managed hotels in operation from 145 hotels with 16,443 rooms as of
December 31, 2008 to 226 hotels with 25,287 rooms as of December 31, 2009.
 Operating Costs and Expenses
 
    
    Leased-and-operated Hotel Costs. Our leased-and-operated hotel costs increased from
RMB 1.5 billion in 2008 to RMB 2.0 billion (US$291.4 million) in 2009. This increase
was primarily driven by the increased number of leased-and-operated hotels in operation
from 326 hotels with 39,188 rooms as of December 31, 2008 to 390 hotels with 46,496
rooms as of December 31, 2009. It was offset by a decrease in pre-opening costs
incurred for leased-and-operated hotels under conversion because the number of net new
leased-and-operated hotel opened was down from 130 in 2008 to 64 in 2009, and fewer hotels were
under conversion during 2009 compared with 2008.
    
    Sales and Marketing Expenses. Our sales and marketing expenses for 2009 were RMB
30.5 million (US$4.5 million), representing 1.2% of total revenue, compared with RMB
27.2 million (US$4.0 million) or 1.5% of total revenue in 2008. The decrease as a
percentage of revenue in 2009 was a result of our conservative marketing plan based on
the economic outlook and fewer new hotel openings, and is also a result of a larger
revenue base.
    
    General and Administrative Expenses. Our general and administrative expenses
increased by 18.2% from RMB 152.6 million in 2008 to RMB 180.5 million (US$26.4
million) in 2009. General and administrative expenses excluding share-based
compensation (non-GAAP) were RMB 148.5 million (US$21.8 million) or 5.7% of total
revenues, compared with 6.8% in 2008. The improvement in the ratio of general and
administrative expenses to total revenues reflects the positive operational leverage
achieved during the year. In addition, reduced new hotel development activities in most
part of 2009 led to a lower level of related expenses.
  47




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##### Table of Contents



Income from Operations.
 Interest Income (Expense), Net
 Gain on Buy-back of Convertible Bond.
 Foreign Exchange Loss, Net
 Income Tax Expense
 Net Income
 Noncontrolling Interests.
 Net Income Attributable to Shareholders
 Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
 Revenues
 
    
    Leased-and-operated Hotels. Revenues from our leased-and-operated hotels increased
by 84.0% from RMB 963.1 million in 2007 to RMB 1.77 billion (US$259.7 million) in 2008.
This increase was primarily due to our substantial expansion of leased-and-operated
hotels in operation from 195 hotels and 24,336 rooms as of December 31, 2007 to 326
hotels and 39,188 rooms as of December 31, 2008. This was offset by lower average
RevPAR due to a higher proportion of hotels in lower tier cities where room rates are
typically lower, the negative impact of the May 2008 Sichuan earthquake and the
economic slowdown in the fourth quarter of the year, as well as the below average
performance of the acquired Top Star hotels.
    
    Franchised-and-managed Hotels. Revenues from our franchised-and-managed hotels
increased substantially by 115.7% from RMB 46.3 million in 2007 to RMB 99.8 million
(US$14.6 million) in 2008. This growth was primarily due to an increase in the number
of franchised-and-managed hotels in operation from 71 hotels with 8,390 rooms as of
December 31, 2007 to 145 hotels with 16,443 rooms as of December 31, 2008.
  48




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##### Table of Contents



Operating Costs and Expenses
 
    
    Leased-and-operated Hotel Costs. Our leased-and-operated hotel costs increased
substantially from RMB 723.7 million in 2007 to RMB 1.5 billion (US$219.6 million) in
2008. This increase was primarily because all items comprising our leased-and-operated
hotel costs increased substantially as we expanded our leased-and-operated hotels from
195 hotels and 24,336 rooms as of December 31, 2007 to 326 hotels and 39,188 rooms as
of December 31, 2008. In particular, rents and utilities increased from RMB 299.8
million in 2007 to RMB 643.7 million (US$94.3 million) in 2008 as a result of not only
an increase in hotel numbers but also inflationary pressures caused by intensified
competition for new properties, while personnel costs increased from RMB 155.6 million
in 2007 to RMB 337.8 million (US$49.5 million) in 2008 as a result of an increase in
hotel numbers and inflation in wage and benefit costs.
    
    Sales and Marketing Expenses. Our sales and marketing expenses increased from RMB
19.6 million in 2007 to RMB 27.2 million (US$4.0 million) in 2008. This increase was
primarily due to increased marketing and promotional expenses in connection with 205
new hotels that opened in 2008.
    
    General and Administrative Expenses. Our general and administrative expenses
increased by 54.1% from RMB 99.0 million in 2007 to RMB 152.6 million (US$22.4 million)
in 2008, primarily due to increased total compensation and benefits for our corporate
administrative staff, as well as increase in costs incurred for office rental,
depreciation, communications and other corporate support activities. We incurred these
additional costs as we substantially expanded our hotel chain with 205 new hotels added
during the year and 114 additional hotels under development.
 Income from Operations.
 Interest Income (Expense), Net
 Gain on Buy-back of Convertible Bond.
 Foreign Exchange Loss, Net
 Income Tax Expense
  49




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##### Table of Contents



Net Income
 Noncontrolling Interests.
 Net Income Attributable to Shareholders
 Liquidity and Capital Resources
    For the Year Ended December 31,2007
    
    
    2008
    
    
    2009RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in thousands)Net cash provided by operating activities
    
    
    214,631
    
    
    
    356,886
    
    
    
    648,663
    
    
    
    95,030Net cash used in investing activities
    
    
    (613,419
    )
    
    
    (964,315
    )
    
    
    (323,501
    )
    
    
    (47,393
    )Net cash provided by/used in financing activities
    
    
    1,256,606
    
    
    
    (281,202
    )
    
    
    (103,729
    )
    
    
    (15,196
    )Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    (53,221
    )
    
    
    (65,524
    )
    
    
    (286
    )
    
    
    (42
    )Net increase/(decrease) in cash and cash
equivalents
    
    
    804,597
    
    
    
    (954,155
    )
    
    
    221,147
    
    
    
    32,398Cash and cash equivalents at beginning of period
    
    
    758,003
    
    
    
    1,562,600
    
    
    
    608,445
    
    
    
    89,138Cash and cash equivalents at end of the period
    
    
    1,562,600
    
    
    
    608,445
    
    
    
    829,592
    
    
    
    121,536
  50




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##### Table of Contents



Operating Activities
   Investing Activities
  Financing Activities
   Capital Expenditures
   51




---



##### Table of Contents



Research and Development, Patents and Licenses, Etc.
 Intellectual Property
 
  Trend Information
  Off-balance Sheet Arrangements
   52




---



##### Table of Contents



Tabular Disclosure of Contractual Obligations
  Payment Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More than 5Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    years(in RMB millions)Convertible bonds
    
    
    364
    
    
    
    364
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    6,941
    
    
    
    584
    
    
    
    1,202
    
    
    
    1,212
    
    
    
    3,943Purchase obligations
    
    
    21
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    7,326
    
    
    
    969
    
    
    
    1,202
    
    
    
    1,212
    
    
    
    3,943
  Safe Harbor
   
    
    our anticipated growth strategies;
    
    our future business development, results of operations and financial condition;
    
    expected changes in our revenues and certain cost or expense items;
    
    our ability to attract customers and leverage our brand;
    
    trends and competition in the lodging industry; and
    
    our ability to develop new hotels at desirable locations in a timely and
cost-effective manner.
   53




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##### Table of Contents



ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 Directors and Senior Management
  Name
    
    Age
    
    Position/TitleYunxin Mei
    
    
    61
    
    
    Co-Chairman of the Board of DirectorsNeil Nanpeng Shen
    
    
    42
    
    
    Co-Founder, Co-Chairman of the Board of DirectorsDavid Jian Sun
    
    
    45
    
    
    Chief Executive Officer, DirectorMay Wu *
    
    
    42
    
    
    Chief Financial OfficerJason Zong
    
    
    45
    
    
    Chief Operating OfficerRixin Liang **
    
    
    55
    
    
    Chief Branding OfficerMin Bao
    
    
    50
    
    
    Independent DirectorJames Jianzhang Liang
    
    
    40
    
    
    Co-Founder, Independent DirectorKenneth Gaw
    
    
    39
    
    
    Independent DirectorTerry Yongmin Hu
    
    
    40
    
    
    Independent DirectorArthur M. Wang
    
    
    49
    
    
    Independent Director
 *
    
    Effective April 22, 2010, Ms. Wu will serve as our chief strategy officer and cease to be our
chief financial officer. Ms. Huiping Yan, currently our senior vice president of finance and
strategy, will succeed Ms. Wu as chief financial officer.**
    
    Ms. Liang has retired from the chief branding officer position, effective March 1, 2010. Ms.
Liang will remain as a consultant and advisor to Mr. David Jian Sun, our Chief Executive Officer. Yunxin Mei
 Neil Nanpeng Shen
 David Jian Sun
 May Wu
  54




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##### Table of Contents



Jason Zong
 Rixin Liang
 Min Bao
 James Jianzhang Liang
 Kenneth Gaw
 Terry Yongmin Hu
  55




---



##### Table of Contents



Arthur M. Wang
 Employment Agreements
   Compensation of Directors and Executive Officers
  Share Incentives
 2003 Plan
 Plan Administration
  56




---



##### Table of Contents



Stock Option and Stock Purchase Right Agreements
 Eligibility
 Acceleration of Options upon Corporate Transactions
 Term of the Options
 Vesting Schedule
 Transfer Restrictions
 Termination of the 2003 Plan
 2006 Plan
 Types of Awards
 
    
    options to purchase our ordinary shares;
 
    
    restricted shares, which may be subject to forfeiture, representing non-transferable
ordinary shares;
 
    
    restricted share units, which may be subject to forfeiture, representing the right
to receive our ordinary shares at a specified date in the future;
 
    
    share appreciation rights, which provide for payment to the grantee based upon
increases in the price of our ordinary shares over a set base price; and
 
    
    dividend equivalent rights, which represent the value of the dividends per share
that we pay.
  57




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##### Table of Contents



Eligibility
 Plan Administration
 Award Agreement
 Acceleration of Awards upon Corporate Transactions
 Exercise Price and Term of Awards
  Amendment and Termination
  58




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##### Table of Contents



Options
    
    
    Exercise Price
    
    
    Date of
    
    
    Date ofName
    
    Awarded
    
    
    (US$/Share)
    
    
    Grant
    
    
    ExpirationYunxin Mei
    
    
    150,000
    
    
    
    2.72
    
    
    
    3/17/2006
    
    
    
    3/16/201150,000
    
    
    
    5.50
    
    
    
    10/2/2006
    
    
    
    10/1/20117,500
    
    
    
    17.395
    
    
    
    4/20/2007
    
    
    
    4/19/201246,500
    
    
    
    3.63
    *
    
    
    10/27/2008
    
    
    
    10/26/201320,000
    
    
    
    7.33
    
    
    
    7/14/2009
    
    
    
    7/13/2014Neil Nanpeng Shen
    
    
    100,000
    
    
    
    0.3309
    
    
    
    1/1/2005
    
    
    
    12/31/2009150,000
    
    
    
    2.72
    
    
    
    3/17/2006
    
    
    
    3/16/201150,000
    
    
    
    5.50
    
    
    
    10/2/2006
    
    
    
    10/1/20117,500
    
    
    
    17.395
    
    
    
    4/20/2007
    
    
    
    4/19/201246,500
    
    
    
    3.63
    *
    
    
    10/27/2008
    
    
    
    10/26/201320,000
    
    
    
    7.33
    
    
    
    7/14/2009
    
    
    
    7/13/2014David Jian Sun
    
    
    271,000
    
    
    
    0.3309
    
    
    
    1/1/2005
    
    
    
    12/31/2009109,000
    
    
    
    2.25
    
    
    
    12/1/2005
    
    
    
    11/30/201070,000
    
    
    
    2.72
    
    
    
    3/17/2006
    
    
    
    3/16/2011142,500
    
    
    
    5.50
    
    
    
    10/2/2006
    
    
    
    10/1/201130,000
    
    
    
    17.395
    
    
    
    4/20/2007
    
    
    
    4/19/2012170,000
    
    
    
    3.63
    *
    
    
    10/27/2008
    
    
    
    10/26/2013100,000
    
    
    
    7.33
    
    
    
    7/14/2009
    
    
    
    7/13/2014May Wu
    
    
    300,000
    
    
    
    1.53
    
    
    
    3/1/2006
    
    
    
    2/28/2011142,500
    
    
    
    5.50
    
    
    
    10/2/2006
    
    
    
    10/1/201126,000
    
    
    
    17.395
    
    
    
    4/20/2007
    
    
    
    4/19/2012150,000
    
    
    
    3.63
    *
    
    
    10/27/2008
    
    
    
    10/26/201360,000
    
    
    
    7.33
    
    
    
    7/14/2009
    
    
    
    7/13/2014Jason Zong
    
    
    200,000
    
    
    
    5.50
    
    
    
    10/2/2006
    
    
    
    10/1/201112,500
    
    
    
    17.395
    
    
    
    4/20/2007
    
    
    
    4/19/2012101,500
    
    
    
    3.63
    *
    
    
    10/27/2008
    
    
    
    10/26/201360,000
    
    
    
    7.33
    
    
    
    7/14/2009
    
    
    
    7/13/2014Rixin Liang
    
    
    158,858
    
    
    
    0.232
    
    
    
    3/1/2003
    
    
    
    2/28/2008105,844
    
    
    
    0.3309
    
    
    
    3/1/2004
    
    
    
    2/28/200975,298
    
    
    
    2.25
    
    
    
    12/1/2005
    
    
    
    11/30/201010,000
    
    
    
    16.64
    
    
    
    12/26/2006
    
    
    
    12/25/201117,500
    
    
    
    17.395
    
    
    
    4/20/2007
    
    
    
    4/19/2012130,500
    
    
    
    3.63
    *
    
    
    10/27/2008
    
    
    
    10/26/201348,000
    
    
    
    7.33
    
    
    
    7/14/2009
    
    
    
    7/13/2014Min Bao
    
    
    70,000
    
    
    
    2.72
    
    
    
    3/17/2006
    
    
    
    3/16/20114,000
    
    
    
    17.395
    
    
    
    4/20/2007
    
    
    
    4/19/201224,000
    
    
    
    3.63
    *
    
    
    10/27/2008
    
    
    
    10/26/201310,000
    
    
    
    7.33
    
    
    
    7/14/2009
    
    
    
    7/13/2014James Jianzhang Liang
    
    
    70,000
    
    
    
    2.72
    
    
    
    3/17/2006
    
    
    
    3/16/20114,000
    
    
    
    17.395
    
    
    
    4/20/2007
    
    
    
    4/19/201224,000
    
    
    
    3.63
    *
    
    
    10/27/2008
    
    
    
    10/26/201310,000
    
    
    
    7.33
    
    
    
    7/14/2009
    
    
    
    7/13/2014Kenneth Gaw
    
    
    70,000
    
    
    
    3.202
    
    
    
    7/4/2006
    
    
    
    7/3/20114,000
    
    
    
    17.395
    
    
    
    4/20/2007
    
    
    
    4/19/201224,000
    
    
    
    3.63
    *
    
    
    10/27/2008
    
    
    
    10/26/201310,000
    
    
    
    7.33
    
    
    
    7/14/2009
    
    
    
    7/13/2014Terry Yongmin Hu
    
    
    70,000
    
    
    
    3.202
    
    
    
    7/4/2006
    
    
    
    7/3/20114,000
    
    
    
    17.395
    
    
    
    4/20/2007
    
    
    
    4/19/201224,000
    
    
    
    3.63
    *
    
    
    10/27/2008
    
    
    
    10/26/201310,000
    
    
    
    7.33
    
    
    
    7/14/2009
    
    
    
    7/13/2014Arthur Wang
    
    
    60,000
    
    
    
    13.29
    
    
    
    10/30/2009
    
    
    
    10/29/2014Other
individuals as a group
    
    
    6,023,616
    
    
    
    
    *
  59




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##### Table of Contents



*
    
    On October 27, 2008, we cancelled the unvested portion of the options held by each of our
option grantees and granted them new options that would entitle each of them to acquire the
same number of our ordinary shares underlying the cancelled options at a new strike price,
with a new vesting schedule beginning from October 27, 2008. The information in the above
table gives effect to the cancellation of the unvested portion of the old options and grant of
the new options to each of the directors and officers named in the table. Amendment to the 2006 Plan
 Board Practices
   Committees of the Board of Directors
  Audit Committee
  60




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##### Table of Contents




    
    selecting the independent auditors and pre-approving all auditing and non-auditing
services permitted to be performed by the independent auditors;
 
    
    reviewing with the independent auditors any audit problems or difficulties and
managements response;
 
    
    reviewing and approving all proposed related party transactions, as defined in Item
404 of Regulation S-K under the Securities Act;
 
    
    discussing the annual audited financial statements with management and the
independent auditors;
 
    
    reviewing major issues as to the adequacy of our internal control; and
 
    
    meeting separately and periodically with management and the independent auditors.
  Compensation Committee.
 
    
    reviewing and approving the total compensation package for our three most senior
executives;
 
    
    reviewing and recommending to the board with respect to the compensation of our
directors; and
 
    
    reviewing periodically and approving any long-term incentive compensation or equity
plans, programs or similar arrangements, annual bonuses, employee pension and welfare
benefit plans.
  Duties of Directors
  Terms of Directors and Officers
  Employees
   61




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##### Table of Contents



Share Ownership
  
    
    each of our directors and executive officers; and
 
    
    each person known to us to own beneficially more than 5% of our ordinary shares.
 Shares Beneficially OwnedNumber(1)
    
    
    %(2)Directors and Executive Officers:Neil Nanpeng Shen(3)
    
    
    4,962,013
    
    
    
    6.16
    %James Jianzhang Liang(4)
    
    
    2,841,294
    
    
    
    3.53
    %Rixin Liang(5)
    
    
    390,667
    
    
    
    *David Jian Sun(6)
    
    
    422,390
    
    
    
    *May Wu(7)
    
    
    333,745
    
    
    
    *Yunxin Mei(8)
    
    
    69,124
    
    
    
    *Min Bao(9)
    
    
    27,500
    
    
    
    *Kenneth Gaw(10)
    
    
    95,817
    
    
    
    *Terry Yongmin Hu(11)
    
    
    10,000
    
    
    
    *Jason Zong(12)
    
    
    87,874
    
    
    
    *Arthur Wang(13)
    
    
    0
    
    
    
    *All Directors and Executive Officers as a Group(14)
    
    
    9,240,424
    
    
    
    11.38
    %Principal Shareholders:Poly Victory Investments Limited(15)
    
    
    13,446,959
    
    
    
    16.73
    %Ctrip.com International, Ltd.(16)
    
    
    14,400,765
    
    
    
    17.91
    %FMR LLC(17)
    
    
    6,166,220
    
    
    
    7.67
    %
 
 *
    
    Less than 1%. (1)
    
    Beneficial ownership is determined in accordance with the rules of the SEC and includes
voting or investment owner 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 (i)
80,397,484, which was the number of ordinary shares outstanding as of March 31, 2010, and (ii)
the number of ordinary shares underlying share options held by such person or group that are
exercisable within 60 days after March 31, 2010.
 (3)
    
    Includes (i) 100,000 ordinary shares held by Mr. Shen; (ii) 3,955,389 ordinary shares held
by Max Wealth Enterprise Limited (Max Wealth), a British Virgin Islands company solely owned
and controlled Mr. Shen; (iii) 350,000 ADSs representing 700,000 ordinary shares held by Max
Wealth and (iv) 206,624 ordinary shares issuable upon exercise of options held by Mr. Shen
that are exercisable within 60 days after March 31, 2010. The business address of Mr. Shen is
Suite 2215, Two Pacific Place, 88 Queensway Road, Hong Kong.
 (4)
    
    Includes 2,561,294 ordinary shares and 100,000 ADSs representing 200,000 ordinary shares held
by Ms. Lau, Mr. Liangs wife, and 80,000 ordinary shares issuable upon exercise of options
held by Mr. Liang that are exercisable within 60 days after March 31, 2010. Mr. Liang
disclaims the beneficial ownership of all the shares held by his wife. The business address of
Mr. Liang is Ctrip.com International, Ltd., 99 Fu Quan Road, Shanghai 2000335, Peoples
Republic of China.
 (5)
    
    Includes 330,543 ordinary shares held by Ms. Liang and 60,124 ordinary shares issuable upon
exercise of options held by Ms. Liang that are exercisable within 60 days after March 31,
2010. The business address of Ms. Liang is No. 124, Caobao Road, Xuhui District, Shanghai
200235, Peoples Republic of China.
 (6)
    
    Includes 328,806 ordinary shares held by Peace Unity Investments Limited, a company solely
owned and controlled by Mr. Sun, as well as 93,584 ordinary shares issuable upon exercise of
options held by Mr. Sun that are
exercisable within 60 days after March 31, 2010. The business address of Mr. Sun is No. 124,
Caobao Road, Xuhui District, Shanghai 200235, Peoples Republic of China.
  62




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##### Table of Contents



(7)
    
    Includes 88,371 ordinary shares held by Ms. Wu and 75,000 restricted shares that became
vested on March 1, 2010, as well as 170,374 ordinary shares issuable upon exercise of options
held by Ms. Wu that are exercisable within 60 days after March 31, 2010. The business address
of Ms. Wu is No. 124, Caobao Road, Xuhui District, Shanghai 200235, Peoples Republic of
China.
 (8)
    
    Includes 69,124 ordinary shares issuable upon exercise of options held by Mr. Mei that are
exercisable within 60 days after March 31, 2010. The business address of Mr. Mei is No.10
Yabao Road, Chaoyang District, Beijing 100020, Peoples Republic of China.
 (9)
    
    Includes 27,500 ordinary shares issuable upon exercise of options held by Mr. Bao that are
exercisable within 60 days after March 31, 2010. The business address of Mr. Bao is No.10
Yabao Road, Chaoyang District, Beijing 100020, Peoples Republic of China.
 (10)
    
    Includes 65,317 ordinary shares held by Fortune Hero Limited (Fortune Hero), a company
half-owned by Mr. Gaw, and 30,500 ordinary shares issuable upon exercise of options held by
Mr. Gaw that are exercisable within 60 days after March 31, 2010. Mr. Gaw disclaims half of
the shares held by Fortune Hero. The business address of Mr. Gaw is 22nd Floor, 1 Lyndhurst
Tower, No. 1 Lyndhurst Terrace, Central, Hong Kong.
 (11)
    
    Includes 10,000 ordinary shares issuable upon exercise of options held by Mr. Hu that are
exercisable within 60 days after March 31, 2010. The business address of Mr. Hu is Suite 906
ICBC Tower, 3 Garden Road, Central, Hong Kong.
 (12)
    
    Includes 87,874 ordinary shares issuable upon exercise of options held by Mr. Zong that are
exercisable within 60 days after March 31, 2010. The business address of Mr. Zong is No. 124,
Caobao Road, Xuhui District, Shanghai 200235, Peoples Republic of China.
 (13)
    
    None of the stock options held by Mr. Wang is exercisable within 60 days after March 31,
2010.
 (14)
    
    Includes ordinary shares and ordinary shares issuable upon exercise of all of the options
that are exercisable within 60 days after March 31, 2010 held by all of our directors and
senior executive officers as a group.
 (15)
    
    Poly Victory Investments Limited, a company incorporated in the British Virgin Islands, is
beneficially owned by Beijing Tourism Group, which is a state-owned enterprise in China. The
registered office of Poly Victory Investment Limited is Palm Grove House, P.O. Box 432, Road
Town, Tortola, British Virgin Islands.
 (16)
    
    Based on the Schedule 13D/A filed with the SEC on May 21, 2009. The ordinary shares consist
of 7,514, 503 ordinary shares through private placement and 3,443,131 ADSs representing
6,886,262 ordinary shares purchased by Ctrip and its wholly-owned subsidiary.
 (17)
    
    Based on the Schedule 13G filed with the SEC on February 16, 2010. FMR LLCs principal
business office is 82 Devonshire Street, Boston, Massachusetts 02109. Fidelity Management &
Research Company, 82 Devonshire Street, Boston, Massachusetts 02109, a wholly-owned subsidiary
of FMR LLC and an investment adviser registered under Section 203 of the Investment Advisers
Act of 1940, is the beneficial owner of 6,166,220 shares of our Common Stock as a result of
acting as investment adviser to various investment companies registered under Section 8 of the
Investment Company Act of 1940.
    63




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##### Table of Contents



ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 Major Shareholders
  Related Party Transactions
 Shareholders Agreement
  Transactions with BTG
  Financing Transactions with BTG
 Rental Payments to Jian Guo Inns
 Acquisition of BTGs Remaining 4.41% Stake in Home Inns Beijing
 Transactions with Ctrip
   64




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##### Table of Contents



Employment Agreements
  Share Incentives
  Interests of Experts and Counsel
  
 ITEM 8. FINANCIAL INFORMATION
 Consolidated Statements and Other Financial Information
  Legal and Administrative Proceedings
  Dividend Policy
    65




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##### Table of Contents



Significant Changes
  
 ITEM 9. THE OFFER AND LISTING
 Offering and Listing Details
 Market Price Information for our American Depositary Shares
   Trading PriceHigh
    
    
    LowUS$
    
    
    US$Annual Highs and Lows2006 (from October 26, 2006)
    
    
    39.02
    
    
    
    21.502007
    
    
    50.08
    
    
    
    24.002008
    
    
    36.00
    
    
    
    7.002009
    
    
    37.93
    
    
    
    7.63Quarterly Highs and LowsFirst Quarter 2008
    
    
    36.00
    
    
    
    17.79Second Quarter 2008
    
    
    26.44
    
    
    
    17.56Third Quarter 2008
    
    
    19.03
    
    
    
    12.60Fourth Quarter 2008
    
    
    14.21
    
    
    
    7.00First Quarter 2009
    
    
    11.11
    
    
    
    7.50Second Quarter 2009
    
    
    18.34
    
    
    
    9.75Third Quarter 2009
    
    
    30.75
    
    
    
    13.22Fourth Quarter 2009
    
    
    33.47
    
    
    
    25.51First Quarter 2010
    
    
    40.06
    
    
    
    27.89Monthly Highs and Lows2009November
    
    
    37.30
    
    
    
    26.58December
    
    
    37.93
    
    
    
    34.332010January
    
    
    40.06
    
    
    
    30.76February
    
    
    33.57
    
    
    
    27.89March
    
    
    36.12
    
    
    
    30.81April (through April 20)
    
    
    35.13
    
    
    
    32.92
  66




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##### Table of Contents



Plan of Distribution
  Markets
  Selling Shareholders
  Dilution
  Expenses of the Issue
  
 ITEM 10. ADDITIONAL INFORMATION
 Share Capital
  Memorandum and Articles of Association
  Registered Office and Objects
  Board of Directors
   67




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##### Table of Contents



Ordinary Shares
 General
 Dividends
 Voting Rights
   Transfer of Shares
 Liquidation
 Calls on Shares and Forfeiture of Shares
 Redemption of Shares
 Variations of Rights of Shares
 Annual General Meeting
 Inspection of Books and Records
  68




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##### Table of Contents



Material Contracts
  Exchange Controls
  Taxation
  Cayman Islands Taxation
  Peoples Republic of China Taxation
  United States Federal Income Taxation
   69




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##### Table of Contents




    
    banks;
 
    
    certain financial institutions;
 
    
    regulated investment companies;
 
    
    real estate investment trusts;
 
    
    insurance companies;
 
    
    broker dealers;
 
    
    U.S. expatriates;
 
    
    traders that elect to mark to market;
 
    
    tax-exempt entities;
 
    
    persons liable for alternative minimum tax;
 
    
    persons holding an ADS or ordinary share as part of a straddle, hedging,
constructive sale, conversion or integrated transaction;
 
    
    persons that actually or constructively own 10.0% or more of our voting stock;
 
    
    persons who acquired ADSs or ordinary shares pursuant to the exercise of any
employee share option or otherwise as compensation; or
 
    
    persons holding ADSs or ordinary shares through partnerships or other pass-through
entities for U.S. federal income tax purposes.
 U.S. HOLDERS 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 AND LOCAL AND FOREIGN TAX CONSEQUENCES
TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF ADSs OR ORDINARY SHARES.
  
    
    an individual who is a citizen or resident of the United States;
 
    
    a corporation (or other entity taxable as a corporation) organized under the laws of
the United States, any State or the District of Columbia;
 
    
    an estate whose income is subject to U.S. federal income taxation regardless of its
source; or
 
    
    a trust that (1) is subject to the supervision of a court within the United States
and the control of one or more U.S. persons or (2) has a valid election in effect under
applicable U.S. Treasury regulations to be treated as a U.S. person.
     70




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Taxation of Dividends and Other Distributions on the ADSs or Ordinary Shares
    Taxation of Disposition of ADSs or Ordinary Shares
   71




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##### Table of Contents



Passive Foreign Investment Company
  
    
    at least 75% of its gross income is passive income (the income test), or
 
    
    at least 50% of the value of its assets (based on an average of the quarterly values
of the assets during a taxable year) is attributable to assets that produce or are held
for the production of passive income (the asset test).
    
    
    the excess distribution or gain will be allocated ratably over your holding period
for the ADSs or ordinary shares,
 
    
    the amount allocated to the current taxable year, and any taxable year prior to the
first taxable year in which we became a PFIC, will be treated as ordinary income, and
 
    
    the amount allocated to each other year will be subject to the highest tax rate in
effect for that year and the interest charge generally applicable to underpayments of
tax will be imposed on the resulting tax attributable to each such year.
    72




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##### Table of Contents



Information Reporting and Backup Withholding
    73




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##### Table of Contents



Dividends and Paying Agents
  Statement by Experts
  Documents on Display
 www.sec.gov
  Subsidiary Information
  
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
   74




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##### Table of Contents



Foreign Exchange Risk
    Inflation
  
 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
 A. Debt Securities
  B. Warrants and Rights
  C. Other Securities
   75




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##### Table of Contents



D. American Depositary Shares
 Fees and Charges Our ADS holders May Have to Pay
  Persons depositing or withdrawing shares must pay:
    
    For:US$5.00 (or less) per 100 ADSs (or portion
of 100 ADSs)
    


    Issuance of ADSs, including issuances
resulting from a distribution of shares or rights or
other property     Cancellation of ADSs for the purpose of
withdrawal, including if the deposit agreement
terminatesUS$0.02 (or less) per ADS
    
         Any cash distribution to registered ADS
holdersA fee equivalent to the fee that would be
payable if securities distributed had been
shares and the shares had been deposited
for issuance of ADSs
    
         Distribution of securities distributed to
holders of deposited securities which are distributed
by the depositary to registered ADS holdersUS$0.02 (or less) per ADS per calendar year
    
         Depositary servicesRegistration or transfer fees
    
         Transfer and registration of shares on our
share register to or from the name of the depositary
or its agent when you deposit or withdraw sharesExpenses of the depositary
    
         Cable, telex and facsimile transmissions
(when expressly provided in the deposit agreement)     Converting foreign currency to U.S. dollarsTaxes and other governmental charges the
depositary or the custodian have to pay on
any ADS or share underlying an ADS, for
example, stock transfer taxes, stamp duty
or withholding taxes
    
         As necessaryAny charges incurred by the depositary or 
its agents for servicing the deposited 
securities
    
         As necessary
  76




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##### Table of Contents



Fees and Other Payments Made by the Depositary to Us
  
 PART
II
 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
  
 ITEM 15. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
 Internal Control-Integrated Framework
    77




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##### Table of Contents



Attestation Report of the Registered Public Accounting Firm
  Changes in Internal Control
  
 ITEM
16A. AUDIT COMMITTEE FINANCIAL EXPERT
  
 ITEM 16B. CODE OF ETHICS
  
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  For the Year Ended December 31,2008
    
    
    2009(in thousands of RMB)Audit fees(1)
    
    
    7,315
    
    
    
    7,150Audit-related fees
    
    
    
    
    
    
    Tax fees
    
    
    
    
    
    
    All other fees
    
    
    
    
    
    
    
 
 (1)
    
    Audit fees means the aggregate fees billed for professional services rendered by our
principal auditors for the audit of our annual financial statements and the review of our
comparative interim financial statements.
 de minimis
 
 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
  
 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
   78




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##### Table of Contents



ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
  
 ITEM 16G. CORPORATE GOVERNANCE
       
 PART
III
 
 ITEM 17. FINANCIAL STATEMENTS
   79




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##### Table of Contents



ITEM 18. FINANCIAL STATEMENTS
  
 ITEM 19. EXHIBITS
 ExhibitNumber
    
    Description of Document1.1
    
    
    Amended and Restated Memorandum and Articles of Association of the Registrant,
 effective November 3, 2009 (incorporated by reference to Exhibit 99.3 of Form 6-K (File No. 001-33082) filed with the SEC on November 4, 2009)2.1
    
    
    Indenture, dated December 10, 2007, constituting RMB 1,110,000,000 USD Settled
Zero Coupon Convertible Senior Bonds due December 10, 2012 (incorporated by
reference to Exhibit 2.1 of our annual report on Form 20-F (File No. 001-33082)
filed with the SEC on April 18, 2008)4.1
    
    

Employment
Agreement between the Registrant and Jason Zong (incorporated by
reference to Exhibit 4.1 of our annual report on Form 20-F (File No. 001-33082)
filed with the SEC on April 18, 2008)4.2
    
    
    Agreement for the Sale and Purchase of Hong Kong Ai Home Hotel Investment Limited
dated October 21, 2007 (incorporated by reference to Exhibit 4.2 of our annual
report on Form 20-F (File No. 001-33082) filed with the SEC on April 18, 2008)4.3
    
    
    English translation of Agreement for the Sale and Purchase of Shanghai Chuwen
Holding Investment Ltd. dated October 21, 2007 (incorporated by reference to
Exhibit 4.3 of our annual report on Form 20-F (File No. 001-33082) filed with the
SEC on April 18, 2008)4.4
    *
    

Purchase
Agreement by and between the Registrant and Ctrip.com International, Ltd.,    dated as of May 7, 20094.5
    *
    

Registration Rights Agreement by and among the Registrant and Ctrip.com  International, Ltd., dated as of May 7, 20094.6
    
    
    Amended and Restated 2006 Share Incentive Plan, effective November 3, 2009 (incorporated by reference to Exhibit 99.2 of Form 6-K (File No. 001-33082) filed with the SEC on November 4, 2009)8.1
    *
    
    Subsidiaries of the Registrant9.1
    
    
    Shareholders agreement, dated June 29, 2006 (incorporated by reference to Exhibit
4.8 from our F-1 registration statement (File No. 333-142190), as amended,
initially filed with the SEC on April 18, 2007)11.1
    *
    
    Code of Business Conduct and Ethics of the Registrant, as amended on March 3, 2010.12.1
    *
    
    CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2
    *
    
    CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1
    *
    
    CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200213.2
    *
    
    CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200223.1
    *
    
    Consent of Maples and Calder23.2
    *
    
    Consent of PricewaterhouseCoopers Zhong Tian CPAs Limited Company
 
 *
    
    Filed with this Annual Report on Form 20-F.  80




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SIGNATURES
  HOME INNS & HOTELS MANAGEMENT INC.By:
    /s/ David Jian SunName:
    David Jian SunTitle:
    Director and Chief Executive Officer   81




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##### 



HOME INNS & HOTELS MANAGEMENT INC.
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageConsolidated Financial StatementsReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Statements of Operations for the Years Ended December 31, 2007, 2008 and 2009
    
    
    F-3Consolidated Balance Sheets as of December 31, 2008 and 2009
    
    
    F-4Consolidated Statements of Shareholders Equity for the Years Ended December 31, 2007,
2008 and 2009
    
    
    F-6Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2008 and 2009
    
    
    F-8Notes to the Consolidated Financial Statements
    
    
    F-10




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##### Table of Contents



Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Home Inns & Hotels Management Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations,
shareholders equity and cash flows present fairly, in all material respects, the financial position of Home Inns &
Hotels Management Inc. (the Company) and its subsidiaries as of December 31, 2009 and 2008, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2009, 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, 2009, based on
criteria established in Internal Control  Integrated Frameworkissued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). The Companys 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, appearing in item 15 of this Form 20-F. Our responsibility is to express opinions on these
financial statements and on the Companys 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. As disclosed in Note 2 to the consolidated financial statements, in 2009 the Company changed the manner in which it
presents noncontrolling interests in the consolidated financial statements. A companys 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 companys 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 companys 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 Shanghai, the Peoples Republic of China April 21, 2010 F-2




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 Note
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2009US$ thousands(Note 2(d))Revenues:Leased-and-operated hotels
    
    
    
    
    
    
    963,050
    
    
    
    1,771,762
    
    
    
    2,453,105
    
    
    
    359,382Franchised-and-managed hotels
    
    
    
    
    
    
    46,266
    
    
    
    99,779
    
    
    
    147,535
    
    
    
    21,614Total revenues
    
    
    
    
    
    
    1,009,316
    
    
    
    1,871,541
    
    
    
    2,600,640
    
    
    
    380,996Less: Business tax and related surcharges
    
    
    
    
    
    
    (60,302
    )
    
    
    (111,870
    )
    
    
    (158,975
    )
    
    
    (23,290
    )Net revenues
    
    
    
    
    
    
    949,014
    
    
    
    1,759,671
    
    
    
    2,441,665
    
    
    
    357,706Operating costs and expenses:Leased-and-operated hotel costs Rents and utilities
    
    
    
    
    
    
    (299,792
    )
    
    
    (643,694
    )
    
    
    (797,944
    )
    
    
    (116,899
    )Personnel costs
    
    
    
    
    
    
    (155,611
    )
    
    
    (337,837
    )
    
    
    (461,949
    )
    
    
    (67,676
    )Depreciation and amortization
    
    
    
    
    
    
    (85,600
    )
    
    
    (190,698
    )
    
    
    (281,543
    )
    
    
    (41,246
    )Consumables, food and beverage
    
    
    
    
    
    
    (84,053
    )
    
    
    (143,555
    )
    
    
    (172,467
    )
    
    
    (25,267
    )Others
    
    
    
    
    
    
    (98,644
    )
    
    
    (182,284
    )
    
    
    (275,186
    )
    
    
    (40,315
    )Total leased-and-operated hotel costs
    
    
    
    
    
    
    (723,700
    )
    
    
    (1,498,068
    )
    
    
    (1,989,089
    )
    
    
    (291,403
    )Sales and marketing expenses
    
    
    
    
    
    
    (19,632
    )
    
    
    (27,161
    )
    
    
    (30,462
    )
    
    
    (4,463
    )General and administrative expenses
    
    
    
    
    
    
    (99,026
    )
    
    
    (152,648
    )
    
    
    (180,480
    )
    
    
    (26,440
    )Total operating costs and expenses
    
    
    
    
    
    
    (842,358
    )
    
    
    (1,677,877
    )
    
    
    (2,200,031
    )
    
    
    (322,306
    )Income from operations
    
    
    
    
    
    
    106,656
    
    
    
    81,794
    
    
    
    241,634
    
    
    
    35,400Interest income
    
    
    
    
    
    
    31,717
    
    
    
    32,023
    
    
    
    6,686
    
    
    
    980Interest expense
    
    
    
    
    
    
    (7,168
    )
    
    
    (28,136
    )
    
    
    (10,983
    )
    
    
    (1,609
    )Gain on buy-back of convertible bond
    
    
    10
    
    
    
    
    
    
    
    103,291
    
    
    
    69,327
    
    
    
    10,156Other non-operating income
    
    2
    (ab)
    
    
    8,434
    
    
    
    10,971
    
    
    
    16,248
    
    
    
    2,380Foreign exchange loss, net
    
    
    2
    (c)
    
    
    (53,221
    )
    
    
    (65,524
    )
    
    
    (286
    )
    
    
    (42
    )Income before income tax expense and noncontrolling
interests*
    
    
    
    
    
    
    86,418
    
    
    
    134,419
    
    
    
    322,626
    
    
    
    47,265Income tax expense
    
    
    5
    
    
    
    (45,035
    )
    
    
    (28,107
    )
    
    
    (62,166
    )
    
    
    (9,107
    )Net income
    
    
    
    
    
    
    41,383
    
    
    
    106,312
    
    
    
    260,460
    
    
    
    38,158Less: Net income attributable to noncontrolling interests*
    
    
    
    
    
    
    (5,627
    )
    
    
    (5,087
    )
    
    
    (4,457
    )
    
    
    (653
    )Net income attributable to Home Inns shareholders
    
    
    
    
    
    
    35,756
    
    
    
    101,225
    
    
    
    256,003
    
    
    
    37,505Earnings per share
    
    
    13 Basic
    
    
    
    
    
    
    0.52
    
    
    
    1.43
    
    
    
    3.37
    
    
    
    0.49 Diluted
    
    
    
    
    
    
    0.47
    
    
    
    0.04
    
    
    
    2.34
    
    
    
    0.33Weighted average ordinary shares outstanding Basic
    
    
    
    
    
    
    68,323,370
    
    
    
    70,863,336
    
    
    
    75,922,589
    
    
    
    75,922,589 Diluted
    
    
    
    
    
    
    76,883,995
    
    
    
    78,037,433
    
    
    
    80,895,112
    
    
    
    80,895,112Share-based compensation expense was included in the
statement of operations as follows:Leased-and-operated hotel costs  Personnel costs
    
    
    
    
    
    
    11
    
    
    
    11
    
    
    
    
    
    
    
    General and administrative expenses
    
    
    
    
    
    
    15,060
    
    
    
    24,833
    
    
    
    32,009
    
    
    
    4,689
 *
    
    It reflects implementation of ASC 810 (formerly referred to as SFAS No.160,
Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No.51.)   F-3




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 
 CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2008 AND 2009
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 Note
    
    
    2008
    
    
    2009
    
    
    2009US$ thousands(Note 2(d))ASSETSCurrent assets:Cash and cash equivalents
    
    
    
    
    
    
    608,445
    
    
    
    829,592
    
    
    
    121,536Short-term investment
    
    
    3
    
    
    
    100,000
    
    
    
    
    
    
    
    Accounts receivable
    
    
    2
    (g)
    
    
    23,263
    
    
    
    32,069
    
    
    
    4,698Receivables from related parties
    
    
    14
    
    
    
    1,617
    
    
    
    3,136
    
    
    
    459Consumables
    
    
    
    
    
    
    26,885
    
    
    
    15,319
    
    
    
    2,244Prepayments and other current assets
    
    
    4, 2
    (g)
    
    
    63,904
    
    
    
    53,054
    
    
    
    7,772Deferred tax assets, current
    
    
    5
    
    
    
    41,824
    
    
    
    38,918
    
    
    
    5,702Total current assets
    
    
    
    
    
    
    865,938
    
    
    
    972,088
    
    
    
    142,411Property and equipment, net
    
    
    6
    
    
    
    1,950,900
    
    
    
    1,905,307
    
    
    
    279,129Goodwill
    
    
    7
    
    
    
    390,882
    
    
    
    390,882
    
    
    
    57,265Intangible assets, net
    
    
    8
    
    
    
    44,977
    
    
    
    43,184
    
    
    
    6,326Other assets
    
    
    
    
    
    
    33,177
    
    
    
    33,861
    
    
    
    4,961Deferred tax assets, non-current
    
    
    5
    
    
    
    77,580
    
    
    
    109,626
    
    
    
    16,060Total assets
    
    
    
    
    
    
    3,363,454
    
    
    
    3,454,948
    
    
    
    506,152LIABILITIESCurrent liabilities:Accounts payable
    
    
    
    
    
    
    22,438
    
    
    
    21,654
    
    
    
    3,172Payables to related parties
    
    
    14
    
    
    
    6,668
    
    
    
    3,815
    
    
    
    559Convertible bond, current
    
    
    10
    
    
    
    
    
    
    
    363,506
    
    
    
    53,254Salaries and welfare payable
    
    
    
    
    
    
    69,635
    
    
    
    103,667
    
    
    
    15,187Income tax payable
    
    
    
    
    
    
    52,458
    
    
    
    61,764
    
    
    
    9,048Other taxes payable
    
    
    
    
    
    
    12,691
    
    
    
    15,361
    
    
    
    2,250Deferred revenues
    
    
    
    
    
    
    38,082
    
    
    
    57,232
    
    
    
    8,385Accruals for customer reward program
    
    
    2
    (q)
    
    
    8,587
    
    
    
    13,331
    
    
    
    1,953Other unpaid and accruals
    
    
    9
    
    
    
    52,220
    
    
    
    67,502
    
    
    
    9,889Other payables
    
    
    9
    
    
    
    376,739
    
    
    
    217,798
    
    
    
    31,907Total current liabilities
    
    
    
    
    
    
    639,518
    
    
    
    925,630
    
    
    
    135,604
   F-4




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF DECEMBER 31, 2008 AND 2009
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 Note
    
    
    2008
    
    
    2009
    
    
    2009US$ thousands(Note 2(d))Deferred rental
    
    
    
    
    
    
    136,825
    
    
    
    155,612
    
    
    
    22,797Deferred revenues, non-current
    
    
    
    
    
    
    22,697
    
    
    
    45,240
    
    
    
    6,628Deposits
    
    
    
    
    
    
    13,741
    
    
    
    20,735
    
    
    
    3,038Unfavorable lease liability
    
    
    8
    
    
    
    16,017
    
    
    
    14,585
    
    
    
    2,137Convertible bond, non-current
    
    
    10
    
    
    
    895,696
    
    
    
    
    
    
    
    Deferred tax liability, non-current
    
    
    5
    
    
    
    12,279
    
    
    
    11,577
    
    
    
    1,696Total liabilities
    
    
    
    
    
    
    1,736,773
    
    
    
    1,173,379
    
    
    
    171,900Commitments and contingencies
    
    
    15Shareholders equityOrdinary shares (US$0.005 par value;
200,000,000 shares authorized, 71,212,795
and 80,303,510 shares issued and
outstanding as of December 31, 2008 and
2009, respectively)
    
    
    11
    
    
    
    2,899
    
    
    
    3,209
    
    
    
    470Additional paid-in capital
    
    
    
    
    
    
    1,393,903
    
    
    
    1,798,086
    
    
    
    263,421Statutory reserves
    
    
    
    
    
    
    49,994
    
    
    
    67,591
    
    
    
    9,902Retained earnings
    
    
    
    
    
    
    160,812
    
    
    
    399,218
    
    
    
    58,486Total Home Inns shareholders equity
    
    
    
    
    
    
    1,607,608
    
    
    
    2,268,104
    
    
    
    332,279Noncontrolling interests*
    
    
    
    
    
    
    19,073
    
    
    
    13,465
    
    
    
    1,973Total shareholders equity
    
    
    
    
    
    
    1,626,681
    
    
    
    2,281,569
    
    
    
    334,252Total liabilities and shareholders equity
    
    
    
    
    
    
    3,363,454
    
    
    
    3,454,948
    
    
    
    506,152
 *
    
    It reflects implementation of ASC 810 (formerly referred to as SFAS No.160,
Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No.51.)   F-5




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 Additional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalOrdinary shares
    
    
    paid-in
    
    
    Statutory
    
    
    Retained
    
    
    Noncontrolling
    
    
    shareholdersShares
    
    
    Amount
    
    
    capital
    
    
    reserves
    
    
    earnings
    
    
    interests
    
    
    equityBalance as of December 31, 2006
    
    
    65,712,839
    
    
    
    2,691
    
    
    
    813,222
    
    
    
    23,414
    
    
    
    50,411
    
    
    
    12,783
    
    
    
    902,521Issuance of ordinary shares to acquire additional shares of Home Inns Beijing
    
    
    441,669
    
    
    
    17
    
    
    
    53,187
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,204Issuance of ordinary shares in the acquisition of Top Star
    
    
    655,831
    
    
    
    25
    
    
    
    105,997
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106,022Issuance of ordinary shares in a secondary offering (Note 11)
    
    
    2,956,310
    
    
    
    114
    
    
    
    370,265
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    370,379Exercise of stock purchase right (Note 13)
    
    
    255,000
    
    
    
    10
    
    
    
    2,316
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,326Exercise of stock option (Note 12)
    
    
    465,736
    
    
    
    17
    
    
    
    2,884
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,901Recognition of share-based compensation costs
    
    
    
    
    
    
    
    
    
    
    15,071
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,071Dividends distributed to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,541
    )
    
    
    (2,541
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,756
    
    
    
    5,627
    
    
    
    41,383Appropriations to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,919
    
    
    
    (17,919
    )
    
    
    
    
    
    
    Acquisition of noncontrolling interests of Home Inns Beijing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,085
    )
    
    
    (5,085
    )Establishment of a variable interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    303
    
    
    
    303Balance as of December 31, 2007
    
    
    70,487,385
    
    
    
    2,874
    
    
    
    1,362,942
    
    
    
    41,333
    
    
    
    68,248
    
    
    
    11,087
    
    
    
    1,486,484Exercise of stock purchase right (Note 12)
    
    
    215,286
    
    
    
    8
    
    
    
    1,982
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,990Exercise of stock option (Note 12)
    
    
    510,124
    
    
    
    17
    
    
    
    4,135
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,152Recognition of share-base compensation costs
    
    
    
    
    
    
    
    
    
    
    24,844
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,844Dividends distributed to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,850
    )
    
    
    (2,850
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,225
    
    
    
    5,087
    
    
    
    106,312Appropriations to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,661
    
    
    
    (8,661
    )
    
    
    
    
    
    
    Acquisition of a subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,400
    
    
    
    5,400Establishment of a variable interest entity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    349
    
    
    
    349Balance as of December 31, 2008
    
    
    71,212,795
    
    
    
    2,899
    
    
    
    1,393,903
    
    
    
    49,994
    
    
    
    160,812
    
    
    
    19,073
    
    
    
    1,626,681
   F-6




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 Additional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalOrdinary shares
    
    
    paid-in
    
    
    Statutory
    
    
    Retained
    
    
    Noncontrolling
    
    
    shareholdersShares
    
    
    Amount
    
    
    capital
    
    
    reserves
    
    
    interests
    
    
    interests
    
    
    equityBalance as of December 31, 2008
    
    
    71,212,795
    
    
    
    2,899
    
    
    
    1,393,903
    
    
    
    49,994
    
    
    
    160,812
    
    
    
    19,073
    
    
    
    1,626,681Issuance of ordinary shares to Ctrip.comInternational, Ltd. (Note 11)
    
    
    7,514,503
    
    
    
    256
    
    
    
    340,822
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    341,078Exercise of stock purchase right (Note 12)
    
    
    188,824
    
    
    
    6
    
    
    
    1,642
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,648Exercise of stock option (Note 12)
    
    
    1,387,388
    
    
    
    48
    
    
    
    29,710
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,758Recognition of share-based compensation costs
    
    
    
    
    
    
    
    
    
    
    32,009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,009Dividends distributed to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,889
    )
    
    
    (5,889
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    256,003
    
    
    
    4,457
    
    
    
    260,460Appropriations to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,597
    
    
    
    (17,597
    )
    
    
    
    
    
    
    Acquisition of noncontrolling interests of
a subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,176
    )
    
    
    (4,176
    )Balance as of December 31, 2009
    
    
    80,303,510
    
    
    
    3,209
    
    
    
    1,798,086
    
    
    
    67,591
    
    
    
    399,218
    
    
    
    13,465
    
    
    
    2,281,569
   F-7




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 2007
    
    
    2008
    
    
    2009
    
    
    2009US$ thousands(Note 2(d))Cash flows from operating activities:Net income
    
    
    41,383
    
    
    
    106,312
    
    
    
    260,460
    
    
    
    38,158Adjustments to reconcile net income to net cash provided by
operating activities:Share-based compensation
    
    
    15,071
    
    
    
    24,844
    
    
    
    32,009
    
    
    
    4,689Depreciation and amortization
    
    
    87,618
    
    
    
    199,989
    
    
    
    286,574
    
    
    
    41,983Foreign exchange loss, net
    
    
    53,221
    
    
    
    65,524
    
    
    
    286
    
    
    
    42Loss/(gain) from disposal of property and equipment
    
    
    4,030
    
    
    
    2,315
    
    
    
    (2,946
    )
    
    
    (432
    )Impairment loss of property and equipment
    
    
    
    
    
    
    
    
    
    
    5,477
    
    
    
    802Gain on buy-back of convertible bond
    
    
    
    
    
    
    (103,290
    )
    
    
    (69,327
    )
    
    
    (10,156
    )Deferred income tax
    
    
    (23,632
    )
    
    
    (55,572
    )
    
    
    (29,843
    )
    
    
    (4,372
    )Change in assets and liabilities, net of effects of acquisitions:Increase in accounts receivable
    
    
    (6,126
    )
    
    
    (6,163
    )
    
    
    (8,935
    )
    
    
    (1,309
    )Increase in receivables from related parties
    
    
    (1,174
    )
    
    
    (245
    )
    
    
    (3,136
    )
    
    
    (459
    )(Increase)/decrease in consumables
    
    
    (2,878
    )
    
    
    (7,391
    )
    
    
    11,566
    
    
    
    1,695(Increase)/decrease in prepayments and other current assets
    
    
    (22,098
    )
    
    
    1,116
    
    
    
    8,497
    
    
    
    1,245(Increase)/decrease in other assets
    
    
    (10,121
    )
    
    
    19,017
    
    
    
    (684
    )
    
    
    (100
    )(Decrease)/increase in accounts payable
    
    
    (9,051
    )
    
    
    7,260
    
    
    
    (1,043
    )
    
    
    (153
    )(Decrease)/increase in payables to related parties
    
    
    (739
    )
    
    
    17
    
    
    
    (1,206
    )
    
    
    (177
    )Increase in salaries and welfare payable
    
    
    21,309
    
    
    
    21,236
    
    
    
    33,994
    
    
    
    4,980Increase in income tax payable
    
    
    22,421
    
    
    
    9,375
    
    
    
    9,306
    
    
    
    1,363Increase in other taxes payable
    
    
    4,353
    
    
    
    3,718
    
    
    
    2,643
    
    
    
    387Increase in accruals for customer reward program
    
    
    2,696
    
    
    
    3,148
    
    
    
    4,744
    
    
    
    695(Decrease)/increase in other payables and accruals
    
    
    (6,987
    )
    
    
    (18,993
    )
    
    
    39,764
    
    
    
    5,826Increase in deferred revenues, current and non-current
    
    
    18,752
    
    
    
    22,941
    
    
    
    41,693
    
    
    
    6,108Increase in deferred rental
    
    
    26,275
    
    
    
    42,599
    
    
    
    18,787
    
    
    
    2,752Increase in deposits
    
    
    
    
    
    
    13,741
    
    
    
    6,994
    
    
    
    1,025Increase in interest accruals for convertible bond
    
    
    308
    
    
    
    5,388
    
    
    
    2,989
    
    
    
    438Net cash provided by operating activities
    
    
    214,631
    
    
    
    356,886
    
    
    
    648,663
    
    
    
    95,030
   F-8




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 2007
    
    
    2008
    
    
    2009
    
    
    2009US$ thousands(Note 2(d))Cash flows from investing activities:Proceeds from sale of property and equipment
    
    
    859
    
    
    
    1,657
    
    
    
    15,171
    
    
    
    2,223Purchase of property and equipment
    
    
    (462,295
    )
    
    
    (828,484
    )
    
    
    (426,591
    )
    
    
    (62,496
    )Purchase of intangible assets
    
    
    (5,236
    )
    
    
    (3,905
    )
    
    
    (4,322
    )
    
    
    (633
    )Cash (paid) and collected for short term investment (Note 3)
    
    
    
    
    
    
    (100,000
    )
    
    
    102,206
    
    
    
    14,973Net cash used for the acquisition of subsidiaries
    
    
    (146,747
    )
    
    
    (33,583
    )
    
    
    (9,965
    )
    
    
    (1,460
    )Net cash used in investing activities
    
    
    (613,419
    )
    
    
    (964,315
    )
    
    
    (323,501
    )
    
    
    (47,393
    )Cash flows from financing activities:Net proceeds from issuance of ordinary shares
    
    
    366,866
    
    
    
    
    
    
    
    341,078
    
    
    
    49,968Proceeds from share option exercise
    
    
    1,917
    
    
    
    4,872
    
    
    
    26,975
    
    
    
    3,952Net proceeds from issuance of convertible bond
    
    
    1,082,268
    
    
    
    
    
    
    
    
    
    
    
    Buy-back of convertible bond
    
    
    
    
    
    
    (113,370
    )
    
    
    (462,029
    )
    
    
    (67,688
    )Payment for bond offering related transaction costs
    
    
    
    
    
    
    (4,885
    )
    
    
    
    
    
    
    Repayment of acquired subsidiaries debts to former shareholders
    
    
    (84,000
    )
    
    
    (52,467
    )
    
    
    (5,481
    )
    
    
    (803
    )Restricted cash (paid) and collected for short-term borrowings
    
    
    (173,849
    )
    
    
    173,849
    
    
    
    
    
    
    
    Proceeds from short-term borrowings
    
    
    768,000
    
    
    
    340,000
    
    
    
    10,000
    
    
    
    1,465Repayment of short-term borrowings
    
    
    (643,000
    )
    
    
    (609,000
    )
    
    
    (10,000
    )
    
    
    (1,465
    )Repayment of long-term loan
    
    
    (60,000
    )
    
    
    (18,036
    )
    
    
    
    
    
    
    Dividend paid by variable interest entities / subsidiaries to
noncontrolling interests shareholders
    
    
    (1,877
    )
    
    
    (3,515
    )
    
    
    (4,272
    )
    
    
    (626
    )Other financing activities
    
    
    281
    
    
    
    1,350
    
    
    
    
    
    
    
    Net cash provided/(used) by financing activities
    
    
    1,256,606
    
    
    
    (281,202
    )
    
    
    (103,729
    )
    
    
    (15,197
    )Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    (53,221
    )
    
    
    (65,524
    )
    
    
    (286
    )
    
    
    (42
    )Net increase/(decrease) in cash and cash equivalents
    
    
    804,597
    
    
    
    (954,155
    )
    
    
    221,147
    
    
    
    32,398Cash and cash equivalents, beginning of year
    
    
    758,003
    
    
    
    1,562,600
    
    
    
    608,445
    
    
    
    89,138Cash and cash equivalents, end of year
    
    
    1,562,600
    
    
    
    608,445
    
    
    
    829,592
    
    
    
    121,536Supplemental disclosure of cash flow informationCash paid during the year for income taxes
    
    
    (45,977
    )
    
    
    (73,897
    )
    
    
    (82,703
    )
    
    
    (12,115
    )Cash paid during the year for interest
    
    
    (7,168
    )
    
    
    (7,733
    )
    
    
    (43
    )
    
    
    (6
    )Supplemental schedule of non-cash investing and financing
activities:Accruals related to the construction costs of property and equipment
    
    
    113,677
    
    
    
    163,967
    
    
    
    
    
    
    
    Issuance of ordinary shares related to acquisition of 4.412% in
Home Inns Beijing
    
    
    53,204
    
    
    
    
    
    
    
    
    
    
    
    Issuance of ordinary shares related to acquisition of Top Star
    
    
    106,022
    
    
    
    
    
    
    
    
    
    
    
    
   F-9




---



##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 1. ORGANIZATION AND NATURE OF OPERATIONS
     Leased-and-operated hotels
  Franchised-and-managed hotels
   F-10




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 2. PRINCIPAL ACCOUNTING POLICIES
  a. Basis of presentation and use of estimates
   b. Basis of consolidation and accounting for investments
    Name of VIE
    

The Companys ownership interestHome Inns & Hotels Management (Xiamen) Co., Ltd. (Home Inns Xiamen)
    
    
    51
    %Home Inns & Hotels Management (Fuzhou) Co., Ltd. (Home Inns Fuzhou)
    
    
    51
    %Home Inns & Hotels Management (Caoxi) Co., Ltd. (Home Inns Caoxi)
    
    
    51
    %Home Inns & Hotels Management (Caobao) Co., Ltd. (Home Inns Caobao)
    
    
    75
    %Home Inns & Hotels Management (Dongguan) Co., Ltd. (Home Inns Dongguan)
    
    
    65
    %Home Inns & Hotels Kuaijie (Fuzhou) Co., Ltd. (Home Inns Fuzhou Kuaijie)
    
    
    70
    %
    F-11




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 c. Foreign currencies
   d. Convenience translation
  e. Cash and cash equivalents
  f. Short-term investment
  g. Allowance for doubtful accounts
  h. Consumables
   F-12




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 i. Property and equipment, net
   Buildings
    
    40 yearsLeasehold improvements
    
    Over the shorter of the economic useful life or the lease periodMachinery and equipment
    
    5 to 10 yearsFurniture, fixtures and office equipment
    
    3 to 5 years
   j. Fair value measurement
       F-13




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 k. Business combinations and non controlling interests
    l. Goodwill
  m. Intangible assets, net
    F-14




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 n. Impairment of long-lived assets and definite-lived intangible assets
  o. Fair value of financial instruments
  p. Employee benefits
  q. Accruals for customer reward program
  r. Deferred Revenue
  s. Revenue recognition
    F-15




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
   t. Business tax and related surcharge
  u. Leased-and-operated hotel costs
  v. Sales and marketing expenses
  w. Share-based compensation
   x. Operating leases
  y. Borrowing costs
   F-16




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 z. Pre-operating expenditure
  aa. Taxation
  ab. Other non-operating income
  ac. Statutory reserves
    ad. Dividends
    F-17




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 ae. Earnings per share
  af. Segment reporting
  ag. Recent accounting pronouncements
      F-18




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
    ah. Certain risks and concentration
   3. SHORT TERM INVESTMENT
   F-19




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 4. PREPAYMENTS AND OTHER CURRENT ASSETS
  2008
    
    
    2009Prepayment for utility and telecom expenses
    
    
    11,122
    
    
    
    15,939Prepayment for rental expenses
    
    
    16,683
    
    
    
    9,894Employee advances
    
    
    2,496
    
    
    
    4,442Prepayment for advertisement, consultation and insurance
    
    
    4,081
    
    
    
    3,360Deposits for utility expenses
    
    
    2,782
    
    
    
    2,816Convertible bonds issuance cost
    
    
    11,699
    
    
    
    Other current assets
    
    
    15,041
    
    
    
    16,603Total
    
    
    63,904
    
    
    
    53,054
 5. INCOME TAXES
 Cayman Islands
  Hong Kong
  PRC
   Composition of income tax expense
  2007
    
    
    2008
    
    
    2009Current income tax expense
    
    
    68,667
    
    
    
    83,679
    
    
    
    92,009Deferred income tax benefit
    
    
    (23,632
    )
    
    
    (55,572
    )
    
    
    (29,843
    )Income tax expense
    
    
    45,035
    
    
    
    28,107
    
    
    
    62,166
  F-20




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 Reconciliation of the differences between statutory tax rate and the effective tax rate
  2007
    
    
    2008
    
    
    2009Statutory CIT rate
    
    
    33
    %
    
    
    25
    %
    
    
    25
    %Tax differential from statutory rate applicable to
subsidiaries in the PRC
    
    
    (27
    %)
    
    
    (5
    %)
    
    
    (3
    %)Impacts from changed CIT rate from 33% to 25%
    
    
    18
    %
    
    
    
    
    
    
    Permanent difference (non-deductible expenses)
    
    
    28
    %
    
    
    21
    %
    
    
    4
    %Permanent difference (gain on buy-back of convertible bond)
    
    
    
    
    
    
    (19
    %)
    
    
    (5
    %)CIT refund
    
    
    
    
    
    
    (1
    %)
    
    
    (2
    %)Effective CIT rate
    
    
    52
    %
    
    
    21
    %
    
    
    19
    %
  2008
    
    
    2009Deferred tax assets, current:Tax loss carry forwards
    
    
    16,521
    
    
    
    4,918Deductible temporary differences related to:-rental expenses
    
    
    671
    
    
    
    688-pre-operating expenses
    
    
    16,264
    
    
    
    13,587-deferred revenue, current
    
    
    7,366
    
    
    
    11,427-accruals for customer reward program
    
    
    2,147
    
    
    
    3,333-others
    
    
    1,002
    
    
    
    6,295Valuation allowance
    
    
    (2,147
    )
    
    
    (1,330
    )41,824
    
    
    
    38,918Deferred tax assets, non-current:Tax loss carry forwards
    
    
    31,456
    
    
    
    51,189Deductible temporary differences related to:-rental expenses
    
    
    46,235
    
    
    
    53,428-pre-operating expenses
    
    
    30,217
    
    
    
    28,280-deferred revenue, non current
    
    
    5,615
    
    
    
    11,292-unfavorable lease
    
    
    2,643
    
    
    
    2,407-depreciation of property and equipment
    
    
    1,464
    
    
    
    -Impairment loss of property and equipment
    
    
    
    
    
    
    1,369-others
    
    
    257
    
    
    
    Valuation allowance
    
    
    (40,307
    )
    
    
    (38,339
    )77,580
    
    
    
    109,626Total deferred tax assets
    
    
    119,404
    
    
    
    148,544Deferred tax liabilities, non-current:Taxable temporary differences related to unfavorable lease and other temporary differences
    
    
    12,279
    
    
    
    11,577Total deferred tax liabilities
    
    
    12,279
    
    
    
    11,577
    F-21




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 6. PROPERTY AND EQUIPMENT
  2008
    
    
    2009Buildings
    
    
    23,764
    
    
    
    23,764Leasehold improvements
    
    
    1,589,190
    
    
    
    1,962,337Machinery and equipment
    
    
    135,248
    
    
    
    166,319Furniture, fixtures and office equipment
    
    
    341,912
    
    
    
    401,725Construction in progress
    
    
    233,889
    
    
    
    6,1362,324,003
    
    
    
    2,560,281Less: Accumulated depreciation
    
    
    (373,103
    )
    
    
    (649,497
    )Impairment
    
    
    
    
    
    
    (5,477
    )Property and equipment, net
    
    
    1,950,900
    
    
    
    1,905,307
   7. GOODWILL
  2008
    
    
    2009Acquisition of Home Inns Beijing
    
    
    137,072
    
    
    
    137,072Acquisition of Top Star hotel chain
    
    
    191,368
    
    
    
    191,368Other acquisitions
    
    
    62,442
    
    
    
    62,442Total goodwill
    
    
    390,882
    
    
    
    390,882
  F-22




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 8. INTANGIBLE ASSETS AND UNFAVORABLE LEASE
  2008
    
    
    2009Intangible assets, original costFavorable lease agreements
    
    
    41,689
    
    
    
    41,689Franchise agreements
    
    
    804
    
    
    
    804Customer relationship
    
    
    83
    
    
    
    83Purchased software
    
    
    11,890
    
    
    
    16,19354,466
    
    
    
    58,769Less: Accumulated amortization Favorable lease agreements
    
    
    (4,958
    )
    
    
    (8,197
    )Franchise agreements
    
    
    (788
    )
    
    
    (804
    )Customer relationship
    
    
    (8
    )
    
    
    (13
    )Purchased software
    
    
    (3,735
    )
    
    
    (6,571
    )(9,489
    )
    
    
    (15,585
    )Intangible assets, net
    
    
    44,977
    
    
    
    43,184
  2008
    
    
    2009Unfavorable lease agreements, original cost
    
    
    17,773
    
    
    
    17,773Less: Accumulated amortization
    
    
    (1,756
    )
    
    
    (3,188
    )Unfavorable lease liability, net
    
    
    16,017
    
    
    
    14,585
    Amortization for
    
    
    Amortization forIntangible Assets
    
    
    Unfavourable Lease
    
    
    Net Amortization2010
    
    
    6,223
    
    
    
    (1,374
    )
    
    
    4,8492011
    
    
    5,973
    
    
    
    (1,396
    )
    
    
    4,5772012
    
    
    5,287
    
    
    
    (1,396
    )
    
    
    3,8912013
    
    
    4,093
    
    
    
    (1,396
    )
    
    
    2,6972014
    
    
    3,656
    
    
    
    (1,394
    )
    
    
    2,26225,232
    
    
    
    (6,956
    )
    
    
    18,276
  F-23




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 9. OTHER PAYABLES AND ACCRUALS
 2008
    
    
    2009Accrued expenses for utilities, rental expenses, professional fee and etc.
    
    
    44,128
    
    
    
    63,115Accrued commission
    
    
    2,250
    
    
    
    3,317Others
    
    
    5,842
    
    
    
    1,070Other unpaid and accruals-subtotal
    
    
    52,220
    
    
    
    67,502Payables on construction cost of leasehold improvement
    
    
    350,292
    
    
    
    169,486Payables on repair and maintenance cost
    
    
    1,361
    
    
    
    15,376Payables related to acquisitions
    
    
    10,790
    
    
    
    674Payables to employees for exercised options
    
    
    1,379
    
    
    
    9,725Deposit from franchised-and-managed hotels, current
    
    
    1,700
    
    
    
    11,110Others
    
    
    11,217
    
    
    
    11,427Other payables-subtotal
    
    
    376,739
    
    
    
    217,798Total
    
    
    428,959
    
    
    
    285,300
 10.
    
    CONVERTIBLE BOND       F-24




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
    11. SHARE CAPITAL
       F-25




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 12. SHARE BASED COMPENSATION
    WeightedNumber of
    
    
    AverageRestricted
    
    
    Grant-DateStocks
    
    
    Fair Value (US$)Outstanding at the beginning of the year
    
    
    263,824
    
    
    US$
    2.1305Granted
    
    
    
    
    
    
    Vested
    
    
    (188,824
    )
    
    US$
    1.8963Forfeited
    
    
    
    
    
    
    Outstanding and unvested at the end of the year
    
    
    75,000
    
    
    US$
    2.7200
    F-26




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
     Weighted-Weighted
    
    
    average
    
    
    AggregateAverage
    
    
    remaining
    
    
    IntrinsicExercise Price
    
    
    contractual life
    
    
    Value (US$Options
    
    
    (US$)
    
    
    (years)
    
    
    millions)Outstanding as of January 1, 2007
    
    
    3,198,886
    
    
    US$
    3.1092
    
    
    
    3.7
    
    
    US$
    50.1Granted
    
    
    1,713,600
    
    
    US$
    17.4115Exercised
    
    
    (465,736
    )
    
    US$
    0.8340Forfeited
    
    
    (117,848
    )
    
    US$
    9.9779Cancelled
    
    
    (500
    )
    
    US$
    3.2000Outstanding as of December 31, 2007
    
    
    4,328,402
    
    
    US$
    8.8284
    
    
    
    3.5
    
    
    US$
    38.9Vested and exercisable as of December 31, 2007
    
    
    1,545,083
    
    
    US$
    4.8080
    
    
    
    2.9
    
    
    US$
    20.1Outstanding as of December 31, 2007
    
    
    4,328,402
    
    
    US$
    8.8284
    
    
    
    3.5
    
    
    US$
    38.9Granted
    
    
    1,373,200
    
    
    US$
    8.4543Exercised
    
    
    (510,124
    )
    
    US$
    1.1731Forfeited
    
    
    (86,808
    )
    
    US$
    12.5086Cancelled
    
    
    (2,444,000
    )
    
    US$
    14.0088Modified
    
    
    2,443,000
    
    
    US$
    3.6300Outstanding as of December 31, 2008
    
    
    5,103,670
    
    
    US$
    4.4353
    
    
    
    3.6
    
    
    US$
    (0.74
    )Vested and exercisable as of December 31, 2008
    
    
    1,512,594
    
    
    US$
    6.3937
    
    
    
    2.2
    
    
    US$
    (3.18
    )Outstanding as of December 31, 2008
    
    
    5,103,670
    
    
    US$
    4.4353
    
    
    
    3.6
    
    
    US$
    (0.74
    )Granted
    
    
    1,636,000
    
    
    US$
    8.1315Exercised
    
    
    (1,387,388
    )
    
    US$
    3.1468Forfeited
    
    
    (132,650
    )
    
    US$
    4.4636Cancelled
    
    
    (23,500
    )
    
    US$
    17.3629Outstanding as of December 31, 2009
    
    
    5,196,132
    
    
    US$
    5.8839
    
    
    
    3.5
    
    
    US$
    61.27Vested and exercisable as of December 31, 2009
    
    
    1,273,212
    
    
    US$
    7.0255
    
    
    
    2.4
    
    
    US$
    13.56
   F-27




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
  Outstanding
    
    
    ExercisableWeighted-Weighted-
    
    
    
    
    
    
    average
    
    
    
    
    
    
    Weighted-average grant
    
    
    
    
    
    
    remaining
    
    
    
    
    
    
    averagedate fair value of
    
    
    Number of
    
    
    contractual
    
    
    Number of
    
    
    remainingExercise price
    
    ordinary shares
    
    
    shares
    
    
    life (years)
    
    
    shares
    
    
    contractualUS$1.531
    
    US$
    1.3327
    
    
    
    10,000
    
    
    
    0.51
    
    
    
    10,000
    
    
    
    0.51US$2.25
    
    US$
    1.9730
    
    
    
    128,648
    
    
    
    0.92
    
    
    
    128,648
    
    
    
    0.92US$2.72
    
    US$
    2.720
    
    
    
    296,084
    
    
    
    1.21
    
    
    
    168,584
    
    
    
    1.21US$3.20
    
    US$
    3.200
    
    
    
    110,000
    
    
    
    1.50
    
    
    
    38,000
    
    
    
    1.50US$5.50
    
    US$
    5.500
    
    
    
    364,126
    
    
    
    1.75
    
    
    
    211,874
    
    
    
    1.75US$16.64
    
    US$
    16.64
    
    
    
    31,500
    
    
    
    1.98
    
    
    
    31,500
    
    
    
    1.98US$17.39
    
    US$
    17.39
    
    
    
    282,300
    
    
    
    2.30
    
    
    
    282,300
    
    
    
    2.30US$3.63
    
    US$
    3.63
    
    
    
    2,367,474
    
    
    
    3.82
    
    
    
    402,306
    
    
    
    3.82US$7.33
    
    US$
    7.33
    
    
    
    1,386,000
    
    
    
    4.53
    
    
    
    
    
    
    
    US$13.29
    
    US$
    13.29
    
    
    
    220,000
    
    
    
    4.83
    
    
    
    
    
    
    
    5,196,132
    
    
    
    
    
    
    
    1,273,212
   2007
    
    
    2008
    
    
    2009Risk-free interest rate (1)
    
    3.2% to 3.58
    %
    
    1.63% to 2.15
    %
    
    1.76% to 1.81
    %Expected life (years) (2)
    
    
    3 to 4.5
    
    
    
    2.2 to 4.5
    
    
    
    3 to 4.5Expected dividend yield (3)
    
    
    
    
    
    
    
    
    
    
    Expected Volatility (4)
    
    
    36.8
    %
    
    40.12% to 63.14
    %
    
    57.29% to 64.24
    %
 (1)
    
    The risk-free interest rates are based on the US Treasury yield for a term consistent with
the expected life of the awards in effect at the time of grant.(2)
    
    The expected life of share options is based on historical exercise patterns, for options
granted since 2009 which the Company has historical data of and believes are representative of
future behavior.(3)
    
    The Company has no history or expectation of paying dividends on its ordinary share.(4)
    
    For the year ended December 31, 2009, the Company estimates the volatility of its ordinary
shares at the date of grant based on the historical volatility and implied volatility of
comparable companies and itself for a period equal to time from the grant date to the assumed
exercised date of the respective options in accordance with the vesting schedule.  F-28




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 13. EARNINGS PER SHARE
  2007
    
    
    2008
    
    
    2009Numerator:Net income available to ordinary shareholders
    
    
    35,756
    
    
    
    101,225
    
    
    
    256,003Dilutive effect of issuance and buy-back of convertible bond
    
    
    308
    
    
    
    (97,903
    )
    
    
    (66,338
    )Net income for diluted earnings
    
    
    36,064
    
    
    
    3,322
    
    
    
    189,665Denominator:Denominator for basic earnings per shareweighted average
ordinary shares outstanding
    
    
    68,323,370
    
    
    
    70,863,336
    
    
    
    75,922,589Dilutive effect of share options
    
    
    2,909,845
    
    
    
    1,688,387
    
    
    
    1,952,622Dilutive effect of issuance and buy-back of convertible bond
    
    
    5,650,780
    
    
    
    5,485,755
    
    
    
    3,019,901Denominator for diluted earnings per share
    
    
    76,883,995
    
    
    
    78,037,478
    
    
    
    80,895,112Basic earnings per share
    
    
    0.52
    
    
    
    1.43
    
    
    
    3.37Diluted earnings per share
    
    
    0.47
    
    
    
    0.04
    
    
    
    2.34
  14. RELATED PARTY TRANSACTIONS
 Name of related parties
    
    Relationships with the CompanyPoly Victory Investments Limited
    
    Principal shareholder of the CompanyBTG
    
    Parent company of Poly Victory Investments LimitedCtrip.com International, Ltd.
    
    Principal shareholder of the Company, common directorsJian Guo Inns Beijing Ltd. (Jian Guo Inns)
    
    Subsidiary of BTGShanghai Xin Zhi Trading Co., Ltd.
    
    Noncontrolling interests of subsidiaryXiamen Shuiwu Co., Ltd.
    
    Noncontrolling interests of subsidiaryFujian Yun Tong Co., Ltd.
    
    Noncontrolling interests of subsidiaryDongguan Kanglv Co., Ltd.
    
    Noncontrolling interests of subsidiarySun Jian
    
    Director of the CompanyMay Wu
    
    Director of the CompanyLiang Rixin
    
    Senior management of the Company
  F-29




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
  2007
    
    
    2008
    
    
    2009Sales commissions paid to Ctrip.com International, Ltd.
    
    
    8,937
    
    
    
    14,767
    
    
    
    20,942Rental fees paid to Jian Guo Inns
    
    
    2,800
    
    
    
    2,800
    
    
    
    2,800
   2008
    
    
    2009Shanghai Xin Zhi Trading Co., Ltd.(a)
    
    
    1,617
    
    
    
    2,058Xiamen Shuiwu Co., Ltd. (a)
    
    
    
    
    
    
    1,0781,617
    
    
    
    3,136
 (a)
    
    The amount due from Shanghai Xin Zhi Trading Co., Ltd. and Xiamen Shuiwu Co.,
Ltd. represented the advance payment for dividends.  2008
    
    
    2009Dongguan Kanglv Co., Ltd.
    
    
    1,750
    
    
    
    1,496Ctrip.com International, Ltd.
    
    
    1,533
    
    
    
    1,360May Wu (b)
    
    
    1,569
    
    
    
    784Jian Guo Inns
    
    
    55
    
    
    
    118Fujian Yun Tong Co., Ltd.
    
    
    900
    
    
    
    57Sun Jian (b)
    
    
    572
    
    
    
    Liang Rixin (b)
    
    
    289
    
    
    
    6,668
    
    
    
    3,815
 (b)
    
    The amounts due to May Wu, Sun Jian and Liang Rixin represented the consideration
paid by them in July 2006 for restricted shares with repurchase feature (Note 12).   F-30




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 15. COMMITMENTS AND CONTINGENCIES
 (a) Capital commitments
  (b) Commitments under operating leases
   Related party
    
    
    Non-related party
    
    
    TotalRMB
    
    
    RMB
    
    
    RMB2010
    
    
    2,800
    
    
    
    581,590
    
    
    
    584,3902011
    
    
    2,800
    
    
    
    595,011
    
    
    
    597,8112012
    
    
    2,800
    
    
    
    601,776
    
    
    
    604,5762013
    
    
    2,800
    
    
    
    604,955
    
    
    
    607,7552014
    
    
    2,800
    
    
    
    604,979
    
    
    
    607,779Thereafter
    
    
    6,367
    
    
    
    3,937,122
    
    
    
    3,943,488Total
    
    
    20,367
    
    
    
    6,925,433
    
    
    
    6,945,799
  (c) Contingencies
   F-31




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 16. ADDITIONAL INFORMATION-CONDENSED FINANCIAL STATEMENTS OF THE COMPANY
   2007
    
    
    2008
    
    
    2009
    
    
    2009US$ thousandsCondensed statements of operationsNet revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating expenses
    
    
    (2,503
    )
    
    
    (3,642
    )
    
    
    (3,262
    )
    
    
    (478
    )Loss from operations
    
    
    (2,503
    )
    
    
    (3,642
    )
    
    
    (3,262
    )
    
    
    (478
    )Share of income from subsidiaries
    
    
    78,028
    
    
    
    50,364
    
    
    
    200,664
    
    
    
    29,398Interest income
    
    
    27,250
    
    
    
    16,738
    
    
    
    268
    
    
    
    39Interest expense
    
    
    (310
    )
    
    
    (20,824
    )
    
    
    (10,866
    )
    
    
    (1,592
    )Foreign exchange loss
    
    
    (66,709
    )
    
    
    (44,702
    )
    
    
    (128
    )
    
    
    (19
    )Gain on buy-back of convertible bond
    
    
    
    
    
    
    103,291
    
    
    
    69,327
    
    
    
    10,156Income before income tax expense
    
    
    35,756
    
    
    
    101,225
    
    
    
    256,003
    
    
    
    37,504Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    35,756
    
    
    
    101,225
    
    
    
    256,003
    
    
    
    37,504
  F-32




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 2008
    
    
    2009
    
    
    2009US$ thousands(Note 2(d))Condensed balance sheets:AssetsCurrent assets:Cash and cash equivalents
    
    
    149,519
    
    
    
    154,311
    
    
    
    22,607Prepayments and other current assets
    
    
    13,589
    
    
    
    3,693
    
    
    
    541Total current assets
    
    
    163,108
    
    
    
    158,004
    
    
    
    23,148Investments in subsidiaries (a)
    
    
    2,366,312
    
    
    
    2,527,054
    
    
    
    370,216Total assets
    
    
    2,529,420
    
    
    
    2,685,058
    
    
    
    393,364LiabilitiesCurrent liabilitiesPayables to related parties
    
    
    23,849
    
    
    
    42,944
    
    
    
    6,292Other payables and accruals
    
    
    2,267
    
    
    
    10,504
    
    
    
    1,539Total current liabilities
    
    
    26,116
    
    
    
    53,448
    
    
    
    7,831Non-current liabilitiesConvertible bond
    
    
    895,696
    
    
    
    363,506
    
    
    
    53,254Total liabilities
    
    
    921,812
    
    
    
    416,954
    
    
    
    61,085Shareholders equityOrdinary shares (US$0.005 par value;
200,000,000 shares authorized,
71,212,795 and 80,303,510 shares issued
and outstanding as of December 31, 2008
and 2009, respectively)
    
    
    2,899
    
    
    
    3,209
    
    
    
    470Additional paid-in capital
    
    
    1,393,903
    
    
    
    1,798,086
    
    
    
    263,421Retained earnings
    
    
    210,806
    
    
    
    466,809
    
    
    
    68,388Total shareholders equity
    
    
    1,607,608
    
    
    
    2,268,104
    
    
    
    332,279Total liabilities and shareholders equity
    
    
    2,529,420
    
    
    
    2,685,058
    
    
    
    393,364
 (a)
    
    Investments in subsidiaries include the amounts contributed to Home Inns HK by the
Company for Home Inns HKs investments in PRC subsidiaries.  F-33




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 2007
    
    
    2008
    
    
    2009
    
    
    2009US$thousandsCondensed statements of Cash flows:Cash flows from operating activities:Net income
    
    
    35,756
    
    
    
    101,225
    
    
    
    256,003
    
    
    
    37,504Adjustments to reconcile net income to net cash
used in operating activities:Amortization
    
    
    1,325
    
    
    
    
    
    
    
    
    
    
    
    Share of income from subsidiaries
    
    
    (78,028
    )
    
    
    (50,364
    )
    
    
    (200,664
    )
    
    
    (29,398
    )Interest expense
    
    
    310
    
    
    
    5,387
    
    
    
    2,989
    
    
    
    438Foreign exchange loss
    
    
    66,709
    
    
    
    44,702
    
    
    
    128
    
    
    
    19Gain on buy-back of convertible bonds
    
    
    
    
    
    
    (103,290
    )
    
    
    (69,327
    )
    
    
    (10,156
    )Increase in receivables from related parties
    
    
    (700,581
    )
    
    
    
    
    
    
    
    
    
    
    Increase/(decrease) in prepayments and other
current assets
    
    
    (7,117
    )
    
    
    (6,207
    )
    
    
    8,855
    
    
    
    1,297Decrease in other assets
    
    
    
    
    
    
    27,135
    
    
    
    
    
    
    
    (Decrease)/increase in payables to related parties
    
    
    (18,175
    )
    
    
    23,717
    
    
    
    20,741
    
    
    
    3,039Increase/(decrease) in other payables and accruals
    
    
    14,583
    
    
    
    (16,636
    )
    
    
    8,238
    
    
    
    1,207Net cash used/generated in operating activities
    
    
    (685,218
    )
    
    
    25,669
    
    
    
    26,963
    
    
    
    3,950Cash flows from investing activities:Investments in subsidiaries
    
    
    
    
    
    
    (1,007,849
    )
    
    
    
    
    
    
    Cash received from returns on investments
    
    
    
    
    
    
    
    
    
    
    5,746
    
    
    
    841Borrowings to a subsidiary
    
    
    (20,090
    )
    
    
    
    
    
    
    
    
    
    
    Cash flows (used)/generated in investing
activities:
    
    
    (20,090
    )
    
    
    (1,007,849
    )
    
    
    5,746
    
    
    
    841Cash flows from financing activities:Proceeds from issuance of ordinary shares, net
with share issuance costs
    
    
    366,866
    
    
    
    
    
    
    
    341,078
    
    
    
    49,968Proceeds from share option exercise
    
    
    1,917
    
    
    
    4,872
    
    
    
    26,975
    
    
    
    3,952Restricted cash paid and collected for short-term
Borrowings of subsidiaries
    
    
    (173,849
    )
    
    
    173,849
    
    
    
    
    
    
    
    Buy-back of convertible bonds
    
    
    
    
    
    
    (113,370
    )
    
    
    (395,842
    )
    
    
    (57,991
    )Payment for bond offering related transaction
costs
    
    
    
    
    
    
    (4,884
    )
    
    
    
    
    
    
    Net proceeds from issuance of convertible bond
    
    
    1,082,268
    
    
    
    
    
    
    
    
    
    
    
    Net cash generated/(used) in financing activities
    
    
    1,277,202
    
    
    
    60,467
    
    
    
    (27,789
    )
    
    
    (4,071
    )Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    (66,709
    )
    
    
    (44,702
    )
    
    
    (128
    )
    
    
    (18
    )Net increase/(decrease) in cash and
cash equivalents
    
    
    505,185
    
    
    
    (966,415
    )
    
    
    4,792
    
    
    
    702Cash and cash equivalents, beginning of year
    
    
    610,749
    
    
    
    1,115,934
    
    
    
    149,519
    
    
    
    21,905Cash and cash equivalents, end of the year
    
    
    1,115,934
    
    
    
    149,519
    
    
    
    154,311
    
    
    
    22,607Supplemental schedule of non-cash investing
activities:Increase of investments in subsidiaries transferred
from receivables due from Home Inns HK
    
    
    
    
    
    
    879,897
    
    
    
    
    
    
    
    Decrease of investments in subsidiaries when Home
Inns HK paid on behalf of the Company for buy-back
of convertible bonds
    
    
    
    
    
    
    
    
    
    
    66,187
    
    
    
    9,697
  F-34