##### 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, 2010.
 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)
 81,716,084 ordinary shares, par
value US$0.005 per share, as of December 31, 2010.
 Yes þ No o
 o þ
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
  þ   o
 o
 o o
 o þ
  o o




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##### 



TABLE OF CONTENTS
 PageINTRODUCTION
    
    
    1PART I.
    
    
    1ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    
    1ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    1ITEM 3. KEY INFORMATION
    
    
    1ITEM 4. INFORMATION ON THE COMPANY
    
    
    22ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    42ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    58ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    69ITEM 8. FINANCIAL INFORMATION
    
    
    70ITEM 9. THE OFFER AND LISTING
    
    
    71ITEM 10. ADDITIONAL INFORMATION
    
    
    72ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    81ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    81PART II.
    
    
    83ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    83ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    83ITEM 15. CONTROLS AND PROCEDURES
    
    
    83ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    84ITEM 16B. CODE OF ETHICS
    
    
    84ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    85ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    85ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    85ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
    
    
    85ITEM 16G. CORPORATE GOVERNANCE
    
    
    85PART III.
    
    
    86ITEM 17. FINANCIAL STATEMENTS
    
    
    86ITEM 18. FINANCIAL STATEMENTS
    
    
    86ITEM 19. EXHIBITS
    
    
    86Exhibit 2.2Exhibit 2.3Exhibit 2.4Exhibit 4.7Exhibit 4.10Exhibit 4.11Exhibit 4.12Exhibit 4.13Exhibit 8.1Exhibit 12.1Exhibit 12.2Exhibit 13.1Exhibit 13.2Exhibit 23.1Exhibit 23.2
   i




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##### Table of Contents



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;
 
    
    outstanding ordinary shares and ordinary shares outstanding refer to our
outstanding ordinary shares, but excluding 3,917,922 ordinary shares that have been
issued to The Bank of New York Mellon but are reserved in anticipation of the exercise
of options and vesting of restricted shares under our Employees Stock Option Plan as
well as the share incentive plan we adopted in 2006;
 
    
    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;
 
    
    convertible bonds due 2012 refer to our US$ settled zero coupon convertible senior
bonds due 2012 that were issued in December 2007;
 
    
    convertible notes due 2015 refer to our US$184 million aggregate principal amount
of 2.00% convertible senior notes due 2015 that were issued in December 2010; 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.
  
 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
  1




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##### Table of Contents



Our Selected Consolidated Financial Data
   For the Year Ended December 31,2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in thousands, except share, per share and per ADS data)Consolidated Statement of Operations DataRevenues:Leased-and-operated hotels
    
    
    567,895
    
    
    
    963,050
    
    
    
    1,771,762
    
    
    
    2,453,105
    
    
    
    2,910,458
    
    
    
    440,978Franchised-and-managed hotels
    
    
    20,605
    
    
    
    46,266
    
    
    
    99,779
    
    
    
    147,535
    
    
    
    256,799
    
    
    
    38,909Total revenues
    
    
    588,500
    
    
    
    1,009,316
    
    
    
    1,871,541
    
    
    
    2,600,640
    
    
    
    3,167,257
    
    
    
    479,887Less: Business tax and related surcharges
    
    
    (33,977
    )
    
    
    (60,302
    )
    
    
    (111,870
    )
    
    
    (158,975
    )
    
    
    (191,232
    )
    
    
    (28,975
    )Net revenues
    
    
    554,523
    
    
    
    949,014
    
    
    
    1,759,671
    
    
    
    2,441,665
    
    
    
    2,976,025
    
    
    
    450,912Operating costs and expenses(1):Leased-and-operated hotel costs:Rents and utilities
    
    
    (171,576
    )
    
    
    (299,792
    )
    
    
    (643,694
    )
    
    
    (797,944
    )
    
    
    (875,510
    )
    
    
    (132,653
    )Personnel costs
    
    
    (87,981
    )
    
    
    (155,611
    )
    
    
    (337,837
    )
    
    
    (461,949
    )
    
    
    (506,406
    )
    
    
    (76,728
    )Depreciation and amortization
    
    
    (44,619
    )
    
    
    (85,600
    )
    
    
    (190,698
    )
    
    
    (281,543
    )
    
    
    (308,888
    )
    
    
    (46,801
    )Consumables, food and beverage
    
    
    (43,482
    )
    
    
    (84,053
    )
    
    
    (143,555
    )
    
    
    (172,467
    )
    
    
    (173,256
    )
    
    
    (26,251
    )Others
    
    
    (56,019
    )
    
    
    (98,644
    )
    
    
    (182,284
    )
    
    
    (275,186
    )
    
    
    (310,705
    )
    
    
    (47,077
    )Total leased-and-operated hotel costs
    
    
    (403,677
    )
    
    
    (723,700
    )
    
    
    (1,498,068
    )
    
    
    (1,989,089
    )
    
    
    (2,174,765
    )
    
    
    (329,510
    )Sales and marketing expenses
    
    
    (11,488
    )
    
    
    (19,632
    )
    
    
    (27,161
    )
    
    
    (30,462
    )
    
    
    (33,257
    )
    
    
    (5,039
    )General and administrative expenses
    
    
    (64,793
    )
    
    
    (99,026
    )
    
    
    (152,648
    )
    
    
    (180,480
    )
    
    
    (237,610
    )
    
    
    (36,002
    )Total operating costs and expenses
    
    
    (479,958
    )
    
    
    (842,358
    )
    
    
    (1,677,877
    )
    
    
    (2,200,031
    )
    
    
    (2,445,632
    )
    
    
    (370,551
    )Income from operations
    
    
    74,566
    
    
    
    106,656
    
    
    
    81,794
    
    
    
    241,634
    
    
    
    530,393
    
    
    
    80,361Interest income
    
    
    6,578
    
    
    
    31,717
    
    
    
    32,023
    
    
    
    6,686
    
    
    
    9,454
    
    
    
    1,432Interest expense
    
    
    (6,143
    )
    
    
    (7,168
    )
    
    
    (28,136
    )
    
    
    (10,983
    )
    
    
    (2,024
    )
    
    
    (307
    )Issuance costs for convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,559
    )
    
    
    (6,448
    )Loss on change in fair value of convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,040
    )
    
    
    (1,370
    )Gain on buy-back of convertible bond
    
    
    
    
    
    
    
    
    
    
    103,291
    
    
    
    69,327
    
    
    
    2,480
    
    
    
    376Other non-operating income
    
    
    5,309
    
    
    
    8,434
    
    
    
    10,971
    
    
    
    16,248
    
    
    
    22,223
    
    
    
    3,367Foreign exchange loss, net
    
    
    (6,990
    )
    
    
    (53,221
    )
    
    
    (65,524
    )
    
    
    (286
    )
    
    
    (4,350
    )
    
    
    (659
    )Income before income tax expense and
noncontrolling interests
    
    
    73,319
    
    
    
    86,418
    
    
    
    134,419
    
    
    
    322,626
    
    
    
    506,577
    
    
    
    76,752Income tax expense
    
    
    (21,391
    )
    
    
    (45,035
    )
    
    
    (28,107
    )
    
    
    (62,166
    )
    
    
    (139,969
    )
    
    
    (21,207
    )Net Income(2)
    
    
    51,928
    
    
    
    41,383
    
    
    
    106,312
    
    
    
    260,460
    
    
    
    366,608
    
    
    
    55,545Less: Net income attributable to noncontrolling
interests
    
    
    (5,034
    )
    
    
    (5,627
    )
    
    
    (5,087
    )
    
    
    (4,457
    )
    
    
    (7,109
    )
    
    
    (1,077
    )
  2




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##### Table of Contents



For the Year Ended December 31,2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in thousands, except share, per share and per ADS data)Net income attributable to our shareholders
    
    
    46,894
    
    
    
    35,756
    
    
    
    101,225
    
    
    
    256,003
    
    
    
    359,499
    
    
    
    54,468Amount allocated to participating preferred
shareholders
    
    
    (16,174
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income available to ordinary shareholders
    
    
    30,720
    
    
    
    35,756
    
    
    
    101,225
    
    
    
    256,003
    
    
    
    359,499
    
    
    
    54,468Earning per share:Basic
    
    
    0.86
    
    
    
    0.52
    
    
    
    1.43
    
    
    
    3.37
    
    
    
    4.45
    
    
    
    0.67Diluted
    
    
    0.82
    
    
    
    0.47
    
    
    
    0.04
    
    
    
    2.34
    
    
    
    4.23
    
    
    
    0.64Earnings per ADS(3):Basic
    
    
    1.73
    
    
    
    1.05
    
    
    
    2.86
    
    
    
    6.74
    
    
    
    8.89
    
    
    
    1.35Diluted
    
    
    1.64
    
    
    
    0.93
    
    
    
    0.09
    
    
    
    4.69
    
    
    
    8.45
    
    
    
    1.28Weighted average ordinary shares outstanding:Basic
    
    
    35,550,114
    
    
    
    68,323,370
    
    
    
    70,863,336
    
    
    
    75,922,589
    
    
    
    80,846,617
    
    
    
    80,846,617Diluted
    
    
    37,530,332
    
    
    
    76,883,995
    
    
    
    78,037,433
    
    
    
    80,895,112
    
    
    
    84,747,102
    
    
    
    84,747,102
 
 (1)
    
    Share-based compensation expenses are included in the consolidated statement of operations
data as follows: For the Year Ended December 31,2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in thousands)Leased-and-operated hotel costspersonnel costs
    
    
    12
    
    
    
    11
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    General and administrative expenses
    
    
    16,283
    
    
    
    15,060
    
    
    
    24,833
    
    
    
    32,009
    
    
    
    53,272
    
    
    
    8,072
 (2)
    
    Data from 2006 to 2008 were retrospectively adjusted to reflect the adoption of ASC 810.(3)
    
    Each ADS represents two ordinary shares.  As of December 31,2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in thousands)Consolidated Balance Sheet DataCash and cash equivalents
    
    
    758,004
    
    
    
    1,562,600
    
    
    
    608,445
    
    
    
    829,592
    
    
    
    2,382,643
    
    
    
    361,007Total assets
    
    
    1,320,019
    
    
    
    3,561,538
    
    
    
    3,363,454
    
    
    
    3,454,948
    
    
    
    5,286,145
    
    
    
    800,931Convertible bonds, current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    363,506
    
    
    
    
    
    
    
    Current portion of long-term loan
from a related party
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total current liabilities
    
    
    323,229
    
    
    
    804,922
    
    
    
    639,518
    
    
    
    925,630
    
    
    
    838,576
    
    
    
    127,056Deferred rental
    
    
    44,103
    
    
    
    94,226
    
    
    
    136,825
    
    
    
    155,612
    
    
    
    191,034
    
    
    
    28,945Long-term loan from a related party
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Convertible bonds, non-current
    
    
    
    
    
    
    1,110,308
    
    
    
    895,696
    
    
    
    
    
    
    
    159,402
    
    
    
    24,152Financial liability (convertible notes measured at fair value)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,227,577
    
    
    
    185,997Ordinary shares
    
    
    2,691
    
    
    
    2,874
    
    
    
    2,899
    
    
    
    3,209
    
    
    
    3,257
    
    
    
    493Additional paid-in capital
    
    
    813,222
    
    
    
    1,362,942
    
    
    
    1,393,903
    
    
    
    1,798,086
    
    
    
    1,913,734
    
    
    
    289,960Total our shareholders equity
    
    
    889,739
    
    
    
    1,475,397
    
    
    
    1,607,608
    
    
    
    2,268,104
    
    
    
    2,743,299
    
    
    
    415,651
  3




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Exchange Rate Information
   Noon Buying RatePeriodPeriod
    
    End
    
    
    Average(1)
    
    
    Low
    
    
    High2006
    
    
    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
    
    
    
    6.81762010October
    
    
    6.6705
    
    
    
    6.6675
    
    
    
    6.6912
    
    
    
    6.6397November
    
    
    6.6670
    
    
    
    6.6538
    
    
    
    6.6892
    
    
    
    6.6330December
    
    
    6.6000
    
    
    
    6.6497
    
    
    
    6.6745
    
    
    
    6.60002011January
    
    
    6.6017
    
    
    
    6.5964
    
    
    
    6.6364
    
    
    
    6.5809February
    
    
    6.5713
    
    
    
    6.5761
    
    
    
    6.5965
    
    
    
    6.5520March
    
    
    6.5483
    
    
    
    6.5645
    
    
    
    6.5483
    
    
    
    6.5743April
(through April 22, 2011)
    
    
    6.5067
    
    
    
    6.5315
    
    
    
    6.4920
    
    
    
    6.5477
 (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
  4




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##### Table of Contents



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;
 
    
    severe weather conditions, natural disasters or travelers fears of exposure to
serious contagious diseases;
 
    
    competition from other hotels, the attractiveness of our hotels to customers, and
our ability to maintain and increase sales to existing customers and attract new
customers;
 
    
    local market conditions such as an oversupply of, or a reduction in demand for,
hotel rooms;
 
    
    the quality and performance of managerial and other employees of our hotels;
 
    
    increases in operating costs and expenses due to inflation and other factors;
 
    
    the availability and cost of capital to allow us and our franchisees to fund
construction and renovation of, and make other investments in, our hotels;
 
    
    seasonality of the lodging business; and
 
    
    the risk that leased properties may be subject to challenges as to their compliance
with the relevant government regulations.
  We may not be able to manage our expected expansion, which could materially and adversely affect
our operating results.
 Heyi
    5




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##### Table of Contents



If the value of our brand or image diminishes, it could have a material and adverse effect on our
business and results of operations.
  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.
   6




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##### Table of Contents



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.
   Our effort in developing our new hotel brand, Yitel (or Heyi in Chinese), 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.
 Heyi
  7




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##### Table of Contents



Our business is sensitive to 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, severe weather
conditions, natural disasters and other catastrophes.
  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.
   8




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##### Table of Contents



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.
  Failure to maintain the integrity of internal or customer data could result in harm to our
reputation or subject us to costs, liabilities, fines or lawsuits.
  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.
   9




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##### Table of Contents



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.
  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.
   10




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##### Table of Contents



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.
  Seasonality of our business may cause fluctuations in our revenues, cause our ADS price to decline,
and adversely affect our profitability
   11




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##### Table of Contents



We are subject to various franchise, hotel industry, construction, hygiene, health and safety, and
environmental laws and regulations that may subject us to liability.
    Accidents or injuries in our hotels may adversely affect our reputation and subject us to
liability.
  We have limited insurance coverage.
   12




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##### Table of Contents



Our leases could be terminated early, we may not be able to renew our existing leases on
commercially reasonable terms and our rents could increase substantially in the future, which could
materially and adversely affect our business and results of operations.
   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.
   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.
   13




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##### Table of Contents



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.
   Uncertainties with respect to the Chinese legal system could adversely affect us.
   14




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##### Table of Contents



Governmental control of currency conversion may affect the value of your investment.
   Fluctuation in the value of the Renminbi may have a material adverse effect on your investment.
    15




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##### Table of Contents



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 PRC regulations
relating to employee share options or shares granted by offshore special purpose companies or
offshore listed companies to Chinese citizens.
  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.
   16




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##### Table of Contents



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 or ordinary share holders may be subject to PRC withholding tax on the dividends
payable by us and upon gains realized on their sales of our ADSs or ordinary shares if we are
classified as a PRC resident enterprise.
     17




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##### 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.
   18




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##### Table of Contents



Substantial future sales of our ADSs or ordinary shares 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.
   19




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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.
      20




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##### Table of Contents



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.
  Provisions of our convertible notes due 2015 could discourage an acquisition of us by a third
party.
  The depositary of our ADSs, except in limited circumstances, has granted to us a discretionary
proxy to vote the ordinary shares underlying the ADSs if ADS holders do not vote at shareholders
meetings, which could adversely affect ADS holders interests.
  
    
    we have failed to timely provide the depositary with our notice of meeting and
related materials;
 
    
    we have instructed the depositary that we do not wish a discretionary proxy to be
given;
 
    
    we have informed the depositary that there is substantial opposition as to a matter
to be voted on at the meeting;
 
    
    a matter to be voted on at the meeting would have a material adverse impact on
shareholders; or
 
    
    voting at the meeting is made on a show of hands.
  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.
   21




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##### Table of Contents



ITEM 4. INFORMATION ON THE COMPANY
 History and Development of the Company
         22




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##### Table of Contents



Business Overview
     Our Home Inns Hotel Chain
 Heyi
   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
    
    
    HotelsBeijing
    
    
    24
    
    
    
    65
    
    
    
    1
    (2)
    
    
    7Shanghai
    
    
    30
    (3)
    
    
    40
    
    
    
    
    
    
    
    Tianjin
    
    
    15
    
    
    
    24
    
    
    
    2
    
    
    
    3Hangzhou
    
    
    4
    
    
    
    26
    
    
    
    
    
    
    
    2Xian
    
    
    18
    
    
    
    12
    
    
    
    
    
    
    
    2Shenyang
    
    
    13
    
    
    
    11
    
    
    
    
    
    
    
    3Nanjing
    
    
    12
    
    
    
    9
    
    
    
    1
    
    
    
    1Suzhou
    
    
    7
    
    
    
    13
    
    
    
    
    
    
    
    1Shijiazhuang
    
    
    6
    
    
    
    11
    
    
    
    
    
    
    
    3Jinan
    
    
    11
    
    
    
    7
    
    
    
    
    
    
    
    Xiamen
    
    
    2
    
    
    
    13
    
    
    
    
    
    
    
    2Guangzhou
    
    
    13
    
    
    
    3
    
    
    
    
    
    
    
    1Taiyuan
    
    
    5
    
    
    
    6
    
    
    
    2
    (4)
    
    
    4Wuhan
    
    
    14
    
    
    
    1
    
    
    
    1
    
    
    
    Qingdao
    
    
    7
    
    
    
    5
    
    
    
    2
    
    
    
    2Wuxi
    
    
    4
    
    
    
    10
    
    
    
    
    
    
    
    1Dalian
    
    
    8
    
    
    
    5
    
    
    
    
    
    
    
    1Zhengzhou
    
    
    10
    
    
    
    4
    
    
    
    
    
    
    
    Changzhou
    
    
    8
    
    
    
    3
    
    
    
    
    
    
    
    2Haerbin
    
    
    11
    
    
    
    1
    
    
    
    
    
    
    
    1Chengdu
    
    
    9
    
    
    
    3
    
    
    
    
    
    
    
    Changchun
    
    
    9
    
    
    
    3
    
    
    
    
    
    
    
    Ningbo
    
    
    4
    
    
    
    6
    
    
    
    
    
    
    
    1Lanzhou
    
    
    9
    
    
    
    1
    
    
    
    
    
    
    
    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
    
    
    HotelsShenzhen
    
    
    9
    
    
    
    1
    
    
    
    
    
    
    
    Fuzhou
    
    
    4
    
    
    
    5
    
    
    
    
    
    
    
    Xuzhou
    
    
    7
    
    
    
    1
    
    
    
    
    
    
    
    1Wulumuqi
    
    
    7
    
    
    
    1
    
    
    
    
    
    
    
    1Kunming
    
    
    5
    
    
    
    3
    
    
    
    
    
    
    
    1Zibo
    
    
    6
    
    
    
    1
    
    
    
    1
    
    
    
    Yantai
    
    
    3
    
    
    
    1
    
    
    
    2
    
    
    
    2Nanchang
    
    
    5
    
    
    
    3
    
    
    
    
    
    
    
    Huhehaote
    
    
    6
    
    
    
    1
    
    
    
    
    
    
    
    1Changsha
    
    
    6
    
    
    
    2
    
    
    
    
    
    
    
    Chongqing
    
    
    6
    
    
    
    1
    
    
    
    
    
    
    
    Hefei
    
    
    4
    
    
    
    1
    
    
    
    1
    
    
    
    Weihai
    
    
    3
    
    
    
    3
    
    
    
    
    
    
    
    Guiyang
    
    
    5
    
    
    
    
    
    
    
    1
    
    
    
    Nantong
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    1Nanning
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    Yinchuan
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    2Taian
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    1Shantou
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    Zhuhai
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    Baoding
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Yangzhou
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    Baotou
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    Changshu
    
    
    1
    
    
    
    3
    
    
    
    
    
    
    
    Dongguan
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    Kunshan
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    Yancheng
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    1Linyi
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    1Jiangyin
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    1Jilin
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    Weifang
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    1Guilin
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    1Qiqihaer
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    Wuhu
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    
  25




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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
    
    
    HotelsTangshan
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    1Shunde
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    1Langfang
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    Haikou
    
    
    2
    
    
    
    
    
    
    
    1
    
    
    
    Xining
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    Lianyungang
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    Shaoxing
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Luoyang
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Bengbu
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Foshan
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Dezhou
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Heze
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    Dongying
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Rizhao
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Dandong
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    Liaocheng
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Binzhou
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Yichang
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Jinhua
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Zhangjiagang
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    Zaozhuang
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    Panjin
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    Huaian
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    Taizhou
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    Rongcheng
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Anshan
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Jining
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Kaifeng
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Xiangfan
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    Zhucheng
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Qinghuangdao
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Zhangjiajie
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Zhongshan
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Yueyang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
  26




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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
    
    
    HotelsYixing
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Jiaxing
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Yanji
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Maanshan
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Yingkou
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Fushun
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Tonghua
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Zhenjiang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Shishi
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Anqing
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Cangzhou
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Wuyishan
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Deyang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Laiyang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Jinzhou
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Quanzhou
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Puyang
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Luohe
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Taicang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Xinxiang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Zhaoqing
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Huludao
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Wuwei
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Wuzhong
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Jingdezhen
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Keshe
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Zhongwei
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Qufu
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Datong
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Huangshan
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Handan
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Suqian
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Haimen
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    chaozhou
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
  27




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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
    
    
    Hotelshegang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Changzhi
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Haining
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Leshan
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Zunyi
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Shiyan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Jiujiang
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Wendeng
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Zhanjiang
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Yizheng
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Yichun
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Yiyang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Daqing
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Jieyang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Jiaonan
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Liaoyang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Qidong
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Liyang
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Laiwu
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Xingtai
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Huizhou
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Chaoyang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    AnYang
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Zhangjiakou
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Rushan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Yulin
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Fuxin
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Baishan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Chifeng
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Meizhou
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Beihai
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    TOTAL
    
    
    454
    
    
    
    364
    
    
    
    21
    
    
    
    69
 
 (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)
    
    Including one Yitel hotel.(3)
    
    Including the only H Hotel, which we plan to convert into a Yitel hotel.(4)
    
    Including one Yitel hotel.  28




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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
    
    
    454
    
    
    
    388
    
    
    
    66
    
    
    
    117
    
    
    15 yearsFranchised-and-managed Hotels
    
    
    364
    
    
    
    282
    
    
    
    82
    
    
    
    112
    
    
    8 years
   29




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##### Table of Contents



As of and for the Year EndedDecember 31,2008
    
    
    2009
    
    
    2010Operating DataTotal hotels in operation(1):Leased-and-operated hotels(2)
    
    
    326
    
    
    
    390
    
    
    
    454Franchised-and-managed hotels
    
    
    145
    
    
    
    226
    
    
    
    364Total rooms(1)
    
    
    55,631
    
    
    
    71,671
    
    
    
    93,898Number of cities(1):
    
    
    94
    
    
    
    120
    
    
    
    146Occupancy rate (as a percentage)
    
    
    85.0
    
    
    
    91.5
    
    
    
    93.5Average daily rate (in RMB)
    
    
    173
    
    
    
    160
    
    
    
    175RevPAR (in RMB)
    
    
    147
    
    
    
    146
    
    
    
    164
 
 (1)
    
    As of the end of each period.(2)
    
    Includes seven hotels operated in 2008, 2009 and 2010 through joint ventures. Hotel Development
    30




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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
  31




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##### Table of Contents



Hotel Management
  Budgeting and Monitoring
 Quality Assurance and Training
  Strategic Capital Improvements
 Centralized Procurement
 Targeted Sales
  32




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##### Table of Contents



Hotel Information and Operational Systems
   Property Management System
 Central Reservation System
 Customer Relationship Management System
 Management Reporting System
 Sales and Marketing
   33




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##### Table of Contents



Approximate Percentage ofTotal Room Nights StayedCustomer Channel
    
    in 2010Central reservation system bookings by members
of our Home Inns membership network
    
    
    11.9Central reservation system bookings by
non-members of our Home Inns membership network
    
    
    4.3Reservations not booked through our central
reservation system by members of our Home Inns
membership network
    
    
    42.0Walk-ins
    
    
    10.0Corporate account
    
    
    14.1Travel agencies and consolidators
    
    
    4.2Others
    
    
    13.5Total
    
    
    100.0
    Employees and Training
   34




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##### Table of Contents



Competition
    35




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##### Table of Contents



Intellectual Property
   Insurance
  Regulation
   36




---



##### Table of Contents



Regulations on Hotel Operation
   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
  37




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##### Table of Contents



Regulations on Environmental Protection
 Law on Promoting Clean Production
 Regulations on Commercial Franchising
     Regulations on Trademarks
  Regulations on Foreign Currency Exchange
    38




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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
   39




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##### Table of Contents



Regulation of Loans between a Foreign Company and its Chinese Subsidiary
  Tax
   40




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##### Table of Contents



Organizational Structure
  
 *
    
    Home Inns Hotel 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.  41




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##### Table of Contents



Property, Plant and Equipment
  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
     42




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##### Table of Contents



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.
   For the Year Ended December 31,2008
    
    
    2009
    
    
    2010RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in thousands, except share, per share and per ADS data)Consolidated Statement of
Operations DataRevenues:Leased-and-operated hotels
    
    
    1,771,762
    
    
    
    94.7
    
    
    
    2,453,105
    
    
    
    94.3
    
    
    
    2,910,458
    
    
    
    440,978
    
    
    
    91.9Franchised-and-managed hotels
    
    
    99,779
    
    
    
    5.3
    
    
    
    147,535
    
    
    
    5.7
    
    
    
    256,799
    
    
    
    38,909
    
    
    
    8.1Total revenues
    
    
    1,871,541
    
    
    
    100.0
    
    
    
    2,600,640
    
    
    
    100.0
    
    
    
    3,167,257
    
    
    
    479,887
    
    
    
    100.0Less: Business tax and
related surcharges
    
    
    (111,870
    )
    
    
    (6.0
    )
    
    
    (158,975
    )
    
    
    (6.1
    )
    
    
    (191,232
    )
    
    
    (28,975
    )
    
    
    (6.0
    )Net revenues
    
    
    1,759,671
    
    
    
    94.0
    
    
    
    2,441,665
    
    
    
    93.9
    
    
    
    2,976,025
    
    
    
    450,912
    
    
    
    94.0
 Leased-and-operated Hotels
   43




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##### Table of Contents



Franchised-and-managed Hotels
   Operating Costs and Expenses
 For the Year Ended December 31,2008
    
    
    2009
    
    
    2010RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in thousands except percentages)Total revenues
    
    
    1,871,541
    
    
    
    100.0
    
    
    
    2,600,640
    
    
    
    100.0
    
    
    
    3,167,257
    
    
    
    479,887
    
    
    
    100.0Less: Business tax and related
surcharges
    
    
    (111,870
    )
    
    
    (6.0
    )
    
    
    (158,975
    )
    
    
    (6.1
    )
    
    
    (191,232
    )
    
    
    (28,975
    )
    
    
    (6.0
    )Net revenues
    
    
    1,759,671
    
    
    
    94.0
    
    
    
    2,441,665
    
    
    
    93.9
    
    
    
    2,976,025
    
    
    
    450,912
    
    
    
    94.0Operating costs and expenses:Leased-and-operated hotel costs:Rents and utilities
    
    
    (643,694
    )
    
    
    (34.4
    )
    
    
    (797,944
    )
    
    
    (30.7
    )
    
    
    (875,510
    )
    
    
    (132,653
    )
    
    
    (27.6
    )Personnel costs
    
    
    (337,837
    )
    
    
    (18.1
    )
    
    
    (461,949
    )
    
    
    (17.8
    )
    
    
    (506,406
    )
    
    
    (76,728
    )
    
    
    (16.0
    )Depreciation and amortization
    
    
    (190,698
    )
    
    
    (10.2
    )
    
    
    (281,543
    )
    
    
    (10.8
    )
    
    
    (308,888
    )
    
    
    (46,801
    )
    
    
    (9.8
    )Consumables, food and beverage
    
    
    (143,555
    )
    
    
    (7.7
    )
    
    
    (172,467
    )
    
    
    (6.6
    )
    
    
    (173,256
    )
    
    
    (26,251
    )
    
    
    (5.5
    )Others
    
    
    (182,284
    )
    
    
    (9.7
    )
    
    
    (275,186
    )
    
    
    (10.6
    )
    
    
    (310,705
    )
    
    
    (47,077
    )
    
    
    (9.8
    )Total leased-and-operated hotel costs
    
    
    (1,498,068
    )
    
    
    (80.0
    )
    
    
    (1,989,089
    )
    
    
    (76.5
    )
    
    
    (2,174,765
    )
    
    
    (329,510
    )
    
    
    (68.7
    )Sales and marketing expenses
    
    
    (27,161
    )
    
    
    (1.5
    )
    
    
    (30,462
    )
    
    
    (1.2
    )
    
    
    (33,257
    )
    
    
    (5,039
    )
    
    
    (1.0
    )General and administrative expenses
    
    
    (152,648
    )
    
    
    (8.2
    )
    
    
    (180,480
    )
    
    
    (6.9
    )
    
    
    (237,610
    )
    
    
    (36,002
    )
    
    
    (7.5
    )Total operating costs and expenses
    
    
    (1,677,877
    )
    
    
    (89.7
    )
    
    
    (2,200,031
    )
    
    
    (84.6
    )
    
    
    (2,445,632
    )
    
    
    (370,551
    )
    
    
    (77.2
    )
  44




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##### Table of Contents



Leased-and-operated Hotel Costs
 Sales and Marketing Expenses
 General and Administrative Expenses
  For the Year Ended December 31,2008
    
    
    2009
    
    
    2010RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in thousands except percentages)Leased-and-operated hotel
costspersonnel costs
    
    
    11
    
    
    
    0.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    General and administrative expenses
    
    
    24,833
    
    
    
    100.0
    
    
    
    32,009
    
    
    
    100.0
    
    
    
    53,272
    
    
    
    8,072
    
    
    
    100.0Total share-based compensation
expenses
    
    
    24,844
    
    
    
    100.0
    
    
    
    32,009
    
    
    
    100.0
    
    
    
    53,272
    
    
    
    8,072
    
    
    
    100.0
 Taxation
     45




---



##### Table of Contents



Critical Accounting Policies
    46




---



##### 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
   47




---



##### Table of Contents



Impairment of Long-lived Assets and Definite-lived Intangible Assets
  Accruals for Customer Reward Program
  Revenue Recognition
     48




---



##### Table of Contents



Share-based Compensation
      Taxation
     49




---



##### Table of Contents



Selected Operating Data
  As of and for the Year EndedDecember 31,2008
    
    
    2009
    
    
    2010Operating DataTotal hotels in operation(1):Leased-and-operated hotels(2)
    
    
    326
    
    
    
    390
    
    
    
    454Franchised-and-managed hotels
    
    
    145
    
    
    
    226
    
    
    
    364Total rooms(1)
    
    
    55,631
    
    
    
    71,671
    
    
    
    93,898Number of cities(1):
    
    
    94
    
    
    
    120
    
    
    
    146Occupancy rate (as a percentage)
    
    
    85.0
    
    
    
    91.5
    
    
    
    93.5Average daily rate (in RMB)
    
    
    173
    
    
    
    160
    
    
    
    175RevPAR (in RMB)
    
    
    147
    
    
    
    146
    
    
    
    164
 (1)
    
    As of the end of each period.(2)
    
    Includes seven hotels operated through separate joint ventures with third parties. Home Inns
Hotel 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 31,2008
    
    
    2009
    
    
    2010RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in thousands except percentages)Consolidated Statement of
Operations DataRevenues:Leased-and-operated hotels
    
    
    1,771,762
    
    
    
    94.7
    
    
    
    2,453,105
    
    
    
    94.3
    
    
    
    2,910,458
    
    
    
    440,978
    
    
    
    91.9Franchised-and-managed hotels
    
    
    99,779
    
    
    
    5.3
    
    
    
    147,535
    
    
    
    5.7
    
    
    
    256,799
    
    
    
    38,909
    
    
    
    8.1Total revenues
    
    
    1,871,541
    
    
    
    100.0
    
    
    
    2,600,640
    
    
    
    100.0
    
    
    
    3,167,257
    
    
    
    479,887
    
    
    
    100.0Less: Business tax and related
surcharges
    
    
    (111,870
    )
    
    
    (6.0
    )
    
    
    (158,975
    )
    
    
    (6.1
    )
    
    
    (191,232
    )
    
    
    (28,975
    )
    
    
    (6.0
    )Net revenues
    
    
    1,759,671
    
    
    
    94.0
    
    
    
    2,441,665
    
    
    
    93.9
    
    
    
    2,976,025
    
    
    
    450,912
    
    
    
    94.0Operating costs and expenses:Leased-and-operated hotel costs:Rents and utilities
    
    
    (643,694
    )
    
    
    (34.4
    )
    
    
    (797,944
    )
    
    
    (30.7
    )
    
    
    (875,510
    )
    
    
    (132,653
    )
    
    
    (27.6
    )Personnel costs
    
    
    (337,837
    )
    
    
    (18.1
    )
    
    
    (461,949
    )
    
    
    (17.8
    )
    
    
    (506,406
    )
    
    
    (76,728
    )
    
    
    (16.0
    )Depreciation and amortization
    
    
    (190,698
    )
    
    
    (10.2
    )
    
    
    (281,543
    )
    
    
    (10.8
    )
    
    
    (308,888
    )
    
    
    (46,801
    )
    
    
    (9.8
    )
  50




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##### Table of Contents



For the Year Ended December 31,2008
    
    
    2009
    
    
    2010RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in thousands except percentages)Consumables, food and beverage
    
    
    (143,555
    )
    
    
    (7.7
    )
    
    
    (172,467
    )
    
    
    (6.6
    )
    
    
    (173,256
    )
    
    
    (26,251
    )
    
    
    (5.5
    )Others
    
    
    (182,284
    )
    
    
    (9.7
    )
    
    
    (275,186
    )
    
    
    (10.6
    )
    
    
    (310,705
    )
    
    
    (47,077
    )
    
    
    (9.8
    )Total leased-and-operated hotel
costs
    
    
    (1,498,068
    )
    
    
    (80.0
    )
    
    
    (1,989,089
    )
    
    
    (76.5
    )
    
    
    (2,174,765
    )
    
    
    (329,510
    )
    
    
    (68.7
    )Sales and marketing expenses
    
    
    (27,161
    )
    
    
    (1.5
    )
    
    
    (30,462
    )
    
    
    (1.2
    )
    
    
    (33,257
    )
    
    
    (5,039
    )
    
    
    (1.0
    )General and administrative
expenses
    
    
    (152,648
    )
    
    
    (8.2
    )
    
    
    (180,480
    )
    
    
    (6.9
    )
    
    
    (237,610
    )
    
    
    (36,002
    )
    
    
    (7.5
    )Total operating costs and
expenses
    
    
    (1,677,877
    )
    
    
    (89.7
    )
    
    
    (2,200,031
    )
    
    
    (84.6
    )
    
    
    (2,445,632
    )
    
    
    (370,551
    )
    
    
    (77.2
    )Income from operations
    
    
    81,794
    
    
    
    4.4
    
    
    
    241,634
    
    
    
    9.3
    
    
    
    530,393
    
    
    
    80,361
    
    
    
    16.7Interest income, net
    
    
    3,887
    
    
    
    0.2
    
    
    
    (4,297
    )
    
    
    (0.2
    )
    
    
    7,430
    
    
    
    1,126
    
    
    
    0.2Issuance costs for convertible
notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,559
    )
    
    
    (6,448
    )
    
    
    (1.34
    )Loss on change in fair value of
convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,040
    )
    
    
    (1,370
    )
    
    
    (0.3
    )Gain on buy-back of convertible
bond
    
    
    103,291
    
    
    
    5.5
    
    
    
    69,327
    
    
    
    2.7
    
    
    
    2,480
    
    
    
    376
    
    
    
    0.1Other non-operating income
    
    
    10,971
    
    
    
    0.6
    
    
    
    16,248
    
    
    
    0.6
    
    
    
    22,223
    
    
    
    3,367
    
    
    
    0.7Foreign exchange loss, net
    
    
    (65,524
    )
    
    
    (3.5
    )
    
    
    (286
    )
    
    
    0.0
    
    
    
    (4,350
    )
    
    
    (659
    )
    
    
    (0.1
    )Income tax expense
    
    
    (28,107
    )
    
    
    (1.5
    )
    
    
    (62,166
    )
    
    
    (2.4
    )
    
    
    (139,969
    )
    
    
    (21,207
    )
    
    
    (4.4
    )Net Income
    
    
    106,312
    
    
    
    6
    
    
    
    260,460
    
    
    
    10
    
    
    
    366,608
    
    
    
    55,545
    
    
    
    11.6Noncontrolling interests
    
    
    (5,087
    )
    
    
    (0.3
    )
    
    
    (4,457
    )
    
    
    (0.2
    )
    
    
    (7,109
    )
    
    
    (1,077
    )
    
    
    (0.2
    )Net income attributable to
shareholders
    
    
    101,225
    
    
    
    5.4
    
    
    
    256,003
    
    
    
    9.8
    
    
    
    359,499
    
    
    
    54,468
    
    
    
    11.4
 Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
 Revenues
 
    
    Leased-and-operated Hotels. Revenues from our leased-and-operated hotels increased
by 18.6% from RMB 2.45 billion in 2009 to RMB 2.91 billion (US$441.0 million ) in 2010.
This increase was primarily due to an increase in the number of leased-and-operated
hotels in operation from 390 hotels with 46,496 rooms as of December 31, 2009 to 454
hotels with 53,067 rooms as of December 31, 2010, as well as an increase in our average
daily rate and occupancy rate.
 
    
    Franchised-and-managed Hotels. Revenues from our franchised-and-managed hotels
increased by 74.1% from RMB 147.5 million in 2009 to RMB 256.8 million (US$38.9
million) in 2010. This growth was primarily due to an increase in the number of
franchised-and-managed hotels in operation from 226 hotels with 25,175 rooms as of
December 31, 2009 to 364 hotels with 40,831 rooms as of December 31, 2010, as well as
increased management service fees due to an increase in the average daily rate and
occupancy rate of our franchised-and-managed hotels.
 Operating Costs and Expenses
 
    
    Leased-and-operated Hotel Costs. Our leased-and-operated hotel costs increased from
RMB 1.99 billion in 2009 to RMB 2.17 billion (US$329.5 million) in 2010. This increase
was primarily driven by the increased number of leased-and-operated hotels in operation
from 390 hotels with 46,496 rooms as of December 31, 2009 to 454 hotels with 53,067
rooms as of December 31, 2010.
  51




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
    
    Sales and Marketing Expenses. Our sales and marketing expenses for 2010 were RMB
33.3 million (US$5.0 million), representing 1.1% of total revenue, compared with RMB
30.5 million or 1.2% of total revenue in 2009. The decrease as a percentage of revenue
in 2010 was a result of our larger revenue base.
 
    
    General and Administrative Expenses. Our general and administrative expenses
increased by 31.7% from RMB 180.5 million in 2009 to RMB 237.6 million (US$36.0
million) in 2010. General and administrative expenses, excluding share-based
compensation (non-GAAP) and reimbursable personnel costs for franchised-and-managed
hotels, were RMB 138.9 million (US$21.0 million) or 4.8% of total revenues, compared
with 4.9% in 2009. The decrease in this ratio represented greater efficiency as a
result of increased economies of scale and improved productivity.
 Income from Operations
 Interest Income (Expense), Net
 Issuance Cost for Convertible Notes
 Loss
on Change in Fair Value of Convertible Notes
 Gain on Buy-back of Convertible Bond.
 Foreign Exchange Loss, Net
 Income Tax Expense
 Net Income
 Noncontrolling Interests.
  52




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Net Income Attributable to Shareholders
 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 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 46,496
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 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 25,175 rooms as of December 31, 2009.
 Operating Costs and Expenses
 
    
    Leased-and-operated Hotel Costs. Our leased-and-operated hotel costs increased from
RMB 1.50 billion in 2008 to RMB 1.99 billion 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, representing 1.2% of total revenue, compared with RMB 27.2 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 in 2009. General
and administrative expenses excluding share-based compensation (non-GAAP) were RMB
148.5 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.
 Income from Operations.
 Interest Income (Expense), Net
 Gain on Buy-back of Convertible Bond.
  53




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Foreign Exchange Loss, Net
 Income Tax Expense
 Net Income
 Noncontrolling Interests.
 Net Income Attributable to Shareholders
 Liquidity and Capital Resources
    For the Year Ended December 31,2008
    
    
    2009
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in thousands except percentages)Net cash provided by operating activities
    
    
    356,886
    
    
    
    648,663
    
    
    
    878,694
    
    
    
    133,136Net cash used in investing activities
    
    
    (964,315
    )
    
    
    (323,501
    )
    
    
    (355,962
    )
    
    
    (53,933
    )Net cash (used)/provided by financing activities
    
    
    (281,202
    )
    
    
    (103,729
    )
    
    
    1,040,250
    
    
    
    157,614Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    (65,524
    )
    
    
    (286
    )
    
    
    (11,195
    )
    
    
    (1,697
    )Net (decrease)/increase in cash and cash
equivalents
    
    
    (954,155
    )
    
    
    221,147
    
    
    
    1,553,051
    
    
    
    235,311Cash and cash equivalents at beginning of period
    
    
    1,562,600
    
    
    
    608,445
    
    
    
    829,592
    
    
    
    125,696Cash and cash equivalents at end of the period
    
    
    608,445
    
    
    
    829,592
    
    
    
    2,382,643
    
    
    
    361,007
  54




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Operating Activities
    Investing Activities
     55




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##### Table of Contents



Financing Activities
   Capital Expenditures
  Research and Development, Patents and Licenses, Etc.
 Intellectual Property
 
   56




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Trend Information
  Off-balance Sheet Arrangements
  Tabular Disclosure of Contractual Obligations
  Payment Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 years(in RMB millions)Convertible bonds and notes
    
    
    1,509
    
    
    
    25
    
    
    
    208
    
    
    
    1,276
    
    
    
    Operating lease obligations
    
    
    8,444
    
    
    
    720
    
    
    
    1,514
    
    
    
    1,523
    
    
    
    4,687Purchase obligations
    
    
    167
    
    
    
    167
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    10,120
    
    
    
    912
    
    
    
    1,722
    
    
    
    2,799
    
    
    
    4,687
    Safe Harbor
   57




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##### Table of Contents




    
    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.
  
 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 Directors and Senior Management
  Name
    
    Age
    
    Position/TitleYunxin Mei
    
    
    62
    
    
    Co-Chairman of the Board of DirectorsNeil Nanpeng Shen
    
    
    43
    
    
    Co-Founder, Co-Chairman of the Board of DirectorsDavid Jian Sun
    
    
    46
    
    
    Chief Executive Officer, DirectorMay Wu
    
    
    43
    
    
    Chief Strategy OfficerHuiping Yan
    
    
    44
    
    
    Chief Financial OfficerJason Zong
    
    
    46
    
    
    Chief Operating OfficerMin Bao
    
    
    51
    
    
    Independent DirectorJames Jianzhang Liang
    
    
    41
    
    
    Co-Founder, Independent DirectorKenneth Gaw
    
    
    40
    
    
    Independent DirectorTerry Yongmin Hu
    
    
    41
    
    
    Independent DirectorArthur M. Wang
    
    
    50
    
    
    Independent Director
 Yunxin Mei
  58




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##### Table of Contents



Neil Nanpeng Shen
 David Jian Sun
 May Wu
 Huiping Yan
 Jason Zong
  59




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##### Table of Contents



Min Bao
 James Jianzhang Liang
 Kenneth Gaw
 Terry Yongmin Hu
 Arthur M. Wang
  60




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##### Table of Contents



Employment Agreements
   Compensation of Directors and Executive Officers
  Share Incentives
 2003 Plan
 Plan Administration
 Stock Option and Stock Purchase Right Agreements
  61




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##### Table of Contents



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.
  Eligibility
  62




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##### Table of Contents



Plan Administration
 Award Agreement
 Acceleration of Awards upon Corporate Transactions
 Exercise Price and Term of Awards
  Amendment and Termination
 Amendment to the 2006 Plan
  63




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##### Table of Contents



Options
    
    
    Exercise Price
    
    
    
    
    
    
    Date ofName
    
    Awarded
    
    
    (US$/Share)
    
    
    Date of Grant
    
    
    ExpirationYunxin Mei
    
    
    150,000
    
    
    
    2.72
    
    
    
    3/17/2006
    
    
    
    3/16/201150,000
    
    
    
    5.5
    
    
    
    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
    
    
    
    7/13/201424,000
    
    
    
    16.165
    
    
    
    3/19/2010
    
    
    
    3/18/2015Neil Nanpeng Shen
    
    
    100,000
    
    
    
    0.3309
    
    
    
    1/1/2005
    
    
    
    12/31/2009150,000
    
    
    
    2.72
    
    
    
    3/17/2006
    
    
    
    3/16/201150,000
    
    
    
    5.5
    
    
    
    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
    
    
    
    7/13/201424,000
    
    
    
    16.165
    
    
    
    3/19/2010
    
    
    
    3/18/2015David 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
    
    
    
    5.5
    
    
    
    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
    
    
    
    7/13/201496,000
    
    
    
    16.165
    
    
    
    3/19/2010
    
    
    
    3/18/2015May Wu
    
    
    300,000
    
    
    
    1.53
    
    
    
    3/1/2006
    
    
    
    2/28/2011142,500
    
    
    
    5.5
    
    
    
    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
    
    
    
    7/13/201448,000
    
    
    
    16.165
    
    
    
    3/19/2010
    
    
    
    3/18/2015Huiping Yan
    
    
    150,000
    
    
    
    7.33
    
    
    
    7/14/2009
    
    
    
    7/13/201498,000
    
    
    
    16.165
    
    
    
    3/19/2010
    
    
    
    3/18/2015Jason Zong
    
    
    200,000
    
    
    
    5.5
    
    
    
    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
    
    
    
    7/13/201472,000
    
    
    
    16.165
    
    
    
    3/19/2010
    
    
    
    3/18/2015Min 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
    
    
    
    7/13/201412,000
    
    
    
    16.165
    
    
    
    3/19/2010
    
    
    
    3/18/2015James 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
    
    
    
    7/13/201412,000
    
    
    
    16.165
    
    
    
    3/19/2010
    
    
    
    3/18/2015Kenneth 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
    
    
    
    7/13/201412,000
    
    
    
    16.165
    
    
    
    3/19/2010
    
    
    
    3/18/2015Terry 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
    
    
    
    7/13/201415,000
    
    
    
    16.165
    
    
    
    3/19/2010
    
    
    
    3/18/2015Arthur Wang
    
    
    60,000
    
    
    
    13.29
    
    
    
    10/30/2009
    
    
    
    10/29/201412,000
    
    
    
    16.165
    
    
    
    3/19/2010
    
    
    
    3/18/2015Other individuals as a group
    
    
    7,984,162
    
    
    
    *
 
 *
    
    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.  64




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##### Table of Contents



Board Practices
   Committees of the Board of Directors
  Audit Committee
 
    
    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.
  65




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##### Table of Contents



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
   66




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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)
    
    
    18,904,266
    
    
    
    23.02
    %James Jianzhang Liang(4)
    
    
    15,207,159
    
    
    
    18.53
    %Yunxin Mei(5)
    
    
    13,481,009
    
    
    
    16.42
    %Min Bao(6)
    
    
    13,461,459
    
    
    
    16.41
    %David Jian Sun(7)
    
    
    324,132
    
    
    
    *May Wu(8)
    
    
    200,127
    
    
    
    *Jason Zong(9)
    
    
    164,250
    
    
    
    *Kenneth Gaw(10)
    
    
    86,959
    
    
    
    *Huiping Yan(11)
    
    
    30,350
    
    
    
    *Arthur Wang(12)
    
    
    18,000
    
    
    
    *Terry Yongmin Hu(13)
    
    
    9,750
    
    
    
    *All Directors and Executive Officers as a Group(14)
    
    
    34,039,737
    
    
    
    41.20
    %Principal Shareholders:Ctrip.com International, Ltd.(15)
    
    
    14,400,765
    
    
    
    17.55
    %Poly Victory Investments Limited(16)
    
    
    13,446,959
    
    
    
    16.39
    %Maverick Capital, Ltd.(17)
    
    
    5,886,692
    
    
    
    7.17
    %FMR LLC(18)
    
    
    4,715,920
    
    
    
    5.75
    %
 
 *
    
    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)
82,046,440, which was the number of ordinary shares outstanding as of March 31, 2011, 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, 2011.(3)
    
    Includes (i) 250,000 ordinary shares held by Mr. Shen; (ii) 3,955,389 ordinary shares held by
Smart Master International Limited (Smart Master), a British Virgin Islands company solely
owned and controlled by Mr. Shen; (iii) 206,362 ordinary shares represented by ADS held by
Smart Master; (iv) 91,750 ordinary shares issuable upon exercise of options held by Mr. Shen
that are exercisable within 60 days after March 31, 2011 and (v) 7,514,503 ordinary shares and
3,443,131 ADSs representing 6,886,262 ordinary shares held by subsidiaries of Ctrip, of which
Mr. Shen is a co-founder and a director. The business address of Mr. Shen is Suite 2215, Two
Pacific Place, 88 Queensway, Hong Kong.(4)
    
    Includes (i) 784,894 ordinary shares represented by ADS held by Ms. Lau, Mr. Liangs wife;
(ii) 21,500 ordinary shares issuable upon exercise of options held by Mr. Liang that that are
exercisable within 60 days after March 31, 2011 and (iii) 7,514,503 ordinary shares and
3,443,131 ADSs representing 6,886,262 ordinary shares held by subsidiaries of Ctrip, of which
Mr. Liang is chairman, a co-founder and a director. 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 200335, Peoples Republic of China.(5)
    
    Includes (i) 34,050 ordinary shares issuable upon exercise of options held by Mr. Mei that
are exercisable within 60 days after March 31, 2011 and (ii) 13,446,959 ordinary shares held
by Poly Victory Investments Limited, of which Mr. Mei is a director. Mr. Mei is also the vice
chairman and president of BTG, the parent company of Poly Victory Investments Limited. The
business address of Mr. Mei is No.10 Yabao Road, Chaoyang District, Beijing 100020, Peoples
Republic of China.  67




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##### Table of Contents



(6)
    
    Includes (i) 5,500 ordinary shares represented by ADS and 9,000 ordinary shares issuable upon
exercise of options held by Mr. Bao that are exercisable within 60 days after March 31, 2011
and (ii) 13,446,959 ordinary shares held by Poly Victory Investments Limited, of which Mr. Bao
is a director. Mr. Bao is also serves on the board of BTG, the parent company of Poly Victory
Investments Limited. The business address of Mr. Bao is No.10 Yabao Road, Chaoyang District,
Beijing 100020, Peoples Republic of China.(7)
    
    Includes (i) 188,806 ordinary shares held by Peace Unity Investments Limited, a company
solely owned and controlled by Mr. Sun, (ii) 40,000 ordinary shares held by Mr. Suns
daughters; (iii) 95,326 ordinary shares issuable upon exercise of options held by Mr. Sun that
are exercisable within 60 days after March 31, 2011. The business address of Mr. Sun is No.
124, Caobao Road, Xuhui District, Shanghai 200235, Peoples Republic of China.(8)
    
    Includes 100,001 ordinary shares held by Ms. Wu and 100,126 ordinary shares issuable upon
exercise of options held by Ms. Wu that are exercisable within 60 days after March 31, 2011.
The business address of Ms. Wu is No. 124, Caobao Road, Xuhui District, Shanghai 200235,
Peoples Republic of China.(9)
    
    Includes 14,000 ordinary shares represented by ADS and 150,250 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.(10)
    
    Includes (i) 32,800 ordinary shares represented by ADS held by Mr. Gaw; (ii) 32,659 ordinary
shares held by Top Elite Company Limited, a company solely owned and controlled by Mr. Gaw,
and (iii) 21,500 ordinary shares issuable upon exercise of options held by Mr. Gaw that are
exercisable within 60 days after March 31, 2011. The business address of Mr. Gaw is 22nd
Floor, 1 Lyndhurst Tower, No. 1 Lyndhurst Terrace, Central, Hong Kong.(11)
    
    These 30,350 ordinary shares are issuable upon exercise of options held by Ms. Yan that are
exercisable within 60 days after March 31, 2011. The business address of Ms. Yan is No. 124,
Caobao Road, Xuhui District, Shanghai 200235, Peoples Republic of China.(12)
    
    These 18,000 ordinary shares are issuable upon exercise of options held by Mr. Wang that are
exercisable within 60 days after March 31, 2011. The business address of Mr. Wang is the
Centrium, 22/F, 60 Wyndham Street, Central, Hong Kong.(13)
    
    These 9,750 ordinary shares are issuable upon exercise of options held by Mr. Hu that are
exercisable within 60 days after March 31, 2011. The business address of Mr. Hu is Suite 906
ICBC Tower, 3 Garden Road, Central, Hong Kong.(14)
    
    Includes 33,458,135 ordinary shares, and 581,602 ordinary shares issuable upon exercise of options that are exercisable within 60 days after
March 31, 2011.(15)
    
    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 subsidiaries.(16)
    
    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.(17)
    
    Based on the Schedule 13G filed with the SEC on February 14, 2011. The principal business
office of Maverick Capital, Ltd. is 300 Crescent Court, 18th Floor, Dallas, Texas 75201.
Maverick Capital, Ltd., an investment adviser registered under Section 203 of the Investment
Advisers Act of 1940, is the beneficial owner of 5,886,692 ordinary shares represented by ADS
as a result of the investment discretion it exercises over its clients accounts.(18)
    
    Based on the Schedule 13G filed with the SEC on March 10, 2011. 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 4,715,920 ordinary shares represented by ADS as a result of
acting as investment adviser to various investment companies registered under Section 8 of the
Investment Company Act of 1940.  68




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##### Table of Contents



ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 Major Shareholders
  Related Party Transactions
 Shareholders Agreement
  Transaction with Jian Guo Inns
  Transactions with Ctrip
     69




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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
     70




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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
    
    
    
    7.632010
    
    
    53.66
    
    
    
    27.89Quarterly Highs and LowsFirst Quarter 2009
    
    
    10.28
    
    
    
    7.63Second Quarter 2009
    
    
    18.34
    
    
    
    9.75Third Quarter 2009
    
    
    30.75
    
    
    
    13.22Fourth Quarter 2009
    
    
    37.93
    
    
    
    25.51First Quarter 2010
    
    
    40.06
    
    
    
    27.89Second Quarter 2010
    
    
    41.75
    
    
    
    30.79Third Quarter 2010
    
    
    50.79
    
    
    
    37.30Fourth Quarter 2010
    
    
    53.66
    
    
    
    39.67First Quarter 2011
    
    
    40.83
    
    
    
    32.55Monthly Highs and Lows2010October
    
    
    53.66
    
    
    
    48.60November
    
    
    51.60
    
    
    
    44.82December
    
    
    47.29
    
    
    
    39.672011January
    
    
    40.25
    
    
    
    33.73February
    
    
    34.96
    
    
    
    32.55March
    
    
    40.83
    
    
    
    34.00April
(through April 25, 2011)
    
    
    44.48
    
    
    
    41.41
  71




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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
   72




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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
  73




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##### Table of Contents



Inspection of Books and Records
 Material Contracts
  Registration Rights of Ctrip
  Demand Registration Rights
 Piggyback Registration Rights
 Form F-3 Registration Rights
 Expenses of Registration
  74




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##### Table of Contents



Registration Rights Relating to Convertible Notes due 2015
  Exchange Controls
  Taxation
  Cayman Islands Taxation
  Peoples Republic of China Taxation
  United States Federal Income Taxation
   75




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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.
     76




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Taxation of Dividends and Other Distributions on the ADSs or Ordinary Shares
    Taxation of Disposition of ADSs or Ordinary Shares
   77




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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.
  78




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##### Table of Contents



Information Reporting and Backup Withholding
   79




---



##### Table of Contents



Dividends and Paying Agents
  Statement by Experts
  Documents on Display
 www.sec.gov
  Subsidiary Information
   80




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##### Table of Contents



ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
  Foreign Exchange Risk
    Inflation
  
 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
 Debt Securities
   81




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##### Table of Contents



Warrants and Rights
  Other Securities
  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
  82




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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
  83




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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
   84




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##### Table of Contents



ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  For the Year Ended December 31,2009
    
    
    2010(in thousands of RMB)Audit fees(1)
    
    
    7,150
    
    
    
    7,865Audit-related fees
    
    
    
    
    
    
    1,338Tax 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.(2)
    
    Audit-related fees means the aggregate fees billed for professional services rendered by
our principal auditors in connection with the offering in 2010 of our convertible notes due
2015. de minimis
 
 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
  
 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
  
 ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
  
 ITEM 16G. CORPORATE GOVERNANCE
    85




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##### Table of Contents



PART III.
 
 ITEM 17. FINANCIAL STATEMENTS
  
 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)2.2
    *
    
    Indenture, dated December 21, 2010, constituting US$184,000,000 2.00% Convertible Senior Notes
due December 15, 2015
  86




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##### Table of Contents



ExhibitNumber
    
    Description of Document2.3
    *
    

Amendment
Agreement regarding indenture, dated April 26, 2011, between the Registrant and The Bank of New York Mellon, as trustee2.4
    *
    
    Registration Rights Agreement among the Registrant, Credit Suisse Securities (USA) LLC and J.P.
Morgan Securities Ltd., dated December 21, 20104.1
    
    
    Employment Agreement between the Registrant and Jason Zong, dated January 1, 2007 (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, 2009 (incorporated by reference to Exhibit 4.4 of our annual report on Form 20-F (File No.
001-33082) filed with the SEC on April 21, 2010)4.5
    
    
    Registration Rights Agreement by and among the Registrant and Ctrip.com International, Ltd. as of
May 7, 2009 (incorporated by reference to Exhibit 4.5 of our annual report on Form 20-F (File No.
001-33082) filed with the SEC on April 21, 2010)4.6
    
    
    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)4.7
    *
    
    Purchase Agreement for convertible notes due 2015 among the Registrant, Credit Suisse Securities
(USA) LLC and J.P. Morgan Securities Ltd., dated December 14, 20104.8
    
    
    Employment Agreement between the Registrant and David Jian Sun, dated January 1, 2007
(incorporated by reference to Exhibit 10.3 of our F-1 registration statement (File No.
333-142190), as amended, initially filed with the SEC on April 18, 2007)4.9
    
    
    Employment Agreement between the Registrant and May Wu, dated January 1, 2007 (incorporated by
reference to Exhibit 10.5 of our F-1 registration statement (File No. 333-142190), as amended,
initially filed with the SEC on April 18, 2007)4.10
    *
    
    Employment Agreement between the Registrant and Huiping Yan, dated July 13, 20094.11
    *
    
    Amendment to Employment Agreement between the Registrant and Jason Zong, effective January 1, 20084.12
    *
    
    Amendment to Employment Agreement between the Registrant and May Wu, effective April 22, 20104.13
    *
    
    Amendment to Employment Agreement between the Registrant and Huiping Yan, effective April 22, 20108.1
    *
    
    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 (incorporated
by reference to Exhibit 11.1 of our annual report on Form 20-F (File No. 001-33082) filed with
the SEC on April 21, 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.  87




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##### Table of Contents



SIGNATURES
  HOME INNS & HOTELS MANAGEMENT INC.By:

/s/ David Jian SunName:
    David Jian SunTitle:
    Director and Chief Executive Officer   88




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##### Table of Contents



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, 2008, 2009 and 2010
    
    
    F-3Consolidated Balance Sheets as of December 31, 2009 and 2010
    
    
    F-4Consolidated Statements of Shareholders Equity for the Years Ended December 31, 2008, 2009 and 2010
    
    
    F-6Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2009 and 2010
    
    
    F-8Notes to the Consolidated Financial Statements
    
    
    F-10




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##### Table of Contents



(CHINESE CHARACTER)11th FloorPricewaterhouseCoopers Center2 Corporate Avenue202 Hu Bin RoadShanghai 200021Peoples Republic of ChinaTelephone +86 (21) 2323 8888Facsimile +86 (21) 2323 8800www.pwccn.com
 
 Report of Independent Registered Public Accounting Firm
  Internal Control  Integrated Framework
   
  F-2




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 Note
    
    2008
    
    
    2009
    
    
    2010
    
    
    2010US$ thousands(Note 2(d))Revenues:Leased-and-operated hotels
    
    
    
    
    1,771,762
    
    
    
    2,453,105
    
    
    
    2,910,458
    
    
    
    440,978Franchised-and-managed hotels
    
    
    
    
    99,779
    
    
    
    147,535
    
    
    
    256,799
    
    
    
    38,909Total revenues
    
    
    
    
    1,871,541
    
    
    
    2,600,640
    
    
    
    3,167,257
    
    
    
    479,887Less: Business tax and related surcharges
    
    
    
    
    (111,870
    )
    
    
    (158,975
    )
    
    
    (191,232
    )
    
    
    (28,975
    )Net revenues
    
    
    
    
    1,759,671
    
    
    
    2,441,665
    
    
    
    2,976,025
    
    
    
    450,912Operating costs and expenses:Leased-and-operated hotel costs Rents and utilities
    
    
    
    
    (643,694
    )
    
    
    (797,944
    )
    
    
    (875,510
    )
    
    
    (132,653
    )Personnel costs
    
    
    
    
    (337,837
    )
    
    
    (461,949
    )
    
    
    (506,406
    )
    
    
    (76,728
    )Depreciation and amortization
    
    
    
    
    (190,698
    )
    
    
    (281,543
    )
    
    
    (308,888
    )
    
    
    (46,801
    )Consumables, food and beverage
    
    
    
    
    (143,555
    )
    
    
    (172,467
    )
    
    
    (173,256
    )
    
    
    (26,251
    )Others
    
    
    
    
    (182,284
    )
    
    
    (275,186
    )
    
    
    (310,705
    )
    
    
    (47,077
    )Total leased-and-operated hotel costs
    
    
    
    
    (1,498,068
    )
    
    
    (1,989,089
    )
    
    
    (2,174,765
    )
    
    
    (329,510
    )Sales and marketing expenses
    
    2(w)
    
    
    (27,161
    )
    
    
    (30,462
    )
    
    
    (33,257
    )
    
    
    (5,039
    )General and administrative expenses
    
    
    
    
    (152,648
    )
    
    
    (180,480
    )
    
    
    (237,610
    )
    
    
    (36,002
    )Total operating costs and expenses
    
    
    
    
    (1,677,877
    )
    
    
    (2,200,031
    )
    
    
    (2,445,632
    )
    
    
    (370,551
    )Income from operations
    
    
    
    
    81,794
    
    
    
    241,634
    
    
    
    530,393
    
    
    
    80,361Interest income
    
    
    
    
    32,023
    
    
    
    6,686
    
    
    
    9,454
    
    
    
    1,432Interest expense
    
    
    
    
    (28,136
    )
    
    
    (10,983
    )
    
    
    (2,024
    )
    
    
    (307
    )Issuance costs for convertible notes
    
    10
    
    
    
    
    
    
    
    
    
    
    (42,559
    )
    
    
    (6,448
    )Loss on change in fair value of convertible notes
    
    10
    
    
    
    
    
    
    
    
    
    
    (9,040
    )
    
    
    (1,370
    )Gain on buy-back of convertible bonds
    
    9
    
    
    103,291
    
    
    
    69,327
    
    
    
    2,480
    
    
    
    376Other non-operating income
    
    2(ac)
    
    
    10,971
    
    
    
    16,248
    
    
    
    22,223
    
    
    
    3,367Foreign exchange loss, net
    
    2(c)
    
    
    (65,524
    )
    
    
    (286
    )
    
    
    (4,350
    )
    
    
    (659
    )Income before income tax expense and noncontrolling interests
    
    
    
    
    134,419
    
    
    
    322,626
    
    
    
    506,577
    
    
    
    76,752Income tax expenses
    
    4
    
    
    (28,107
    )
    
    
    (62,166
    )
    
    
    (139,969
    )
    
    
    (21,207
    )Net income
    
    
    
    
    106,312
    
    
    
    260,460
    
    
    
    366,608
    
    
    
    55,545Less: Net income attributable to noncontrolling interests
    
    
    
    
    (5,087
    )
    
    
    (4,457
    )
    
    
    (7,109
    )
    
    
    (1,077
    )Net income attributable to Home Inns shareholders
    
    
    
    
    101,225
    
    
    
    256,003
    
    
    
    359,499
    
    
    
    54,468Earnings per share
    
    13 Basic
    
    
    
    
    1.43
    
    
    
    3.37
    
    
    
    4.45
    
    
    
    0.67 Diluted
    
    
    
    
    0.04
    
    
    
    2.34
    
    
    
    4.23
    
    
    
    0.64Weighted average ordinary shares outstanding Basic
    
    
    
    
    70,863,336
    
    
    
    75,922,589
    
    
    
    80,846,617
    
    
    
    80,846,617 Diluted
    
    
    
    
    78,037,433
    
    
    
    80,895,112
    
    
    
    84,747,102
    
    
    
    84,747,102Share-based compensation expense was included in the
statement of
operations as follows:Leased-and-operated hotel costs  Personnel costs
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    General and administrative expenses
    
    
    
    
    24,833
    
    
    
    32,009
    
    
    
    53,272
    
    
    
    8,072
   F-3




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 
 CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2009 AND 2010
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 Note
    
    2009
    
    
    2010
    
    
    2010US$ thousands(Note 2(d))ASSETSCurrent assets:Cash and cash equivalents
    
    2(e)
    
    
    829,592
    
    
    
    2,382,643
    
    
    
    361,007Restricted cash
    
    2(f)
    
    
    
    
    
    
    21,552
    
    
    
    3,265Accounts receivable
    
    2(h)
    
    
    32,069
    
    
    
    43,274
    
    
    
    6,557Receivables from related parties
    
    14
    
    
    3,136
    
    
    
    5,659
    
    
    
    857Consumables
    
    
    
    
    15,319
    
    
    
    25,459
    
    
    
    3,857Prepayments and other current assets
    
    3, 2(h)
    
    
    53,054
    
    
    
    77,886
    
    
    
    11,801Deferred tax assets, current
    
    4
    
    
    38,918
    
    
    
    42,613
    
    
    
    6,457Total current assets
    
    
    
    
    972,088
    
    
    
    2,599,086
    
    
    
    393,801Property and equipment, net
    
    5
    
    
    1,905,307
    
    
    
    2,104,393
    
    
    
    318,847Goodwill
    
    6
    
    
    390,882
    
    
    
    390,882
    
    
    
    59,225Intangible assets, net
    
    7
    
    
    43,184
    
    
    
    42,393
    
    
    
    6,423Other assets
    
    
    
    
    33,861
    
    
    
    50,473
    
    
    
    7,647Deferred tax assets, non-current
    
    4
    
    
    109,626
    
    
    
    98,918
    
    
    
    14,988Total assets
    
    
    
    
    3,454,948
    
    
    
    5,286,145
    
    
    
    800,931LIABILITIESCurrent liabilities:Accounts payable
    
    
    
    
    21,654
    
    
    
    45,742
    
    
    
    6,931Payables to related parties
    
    14
    
    
    3,815
    
    
    
    4,182
    
    
    
    634Convertible bonds, current
    
    9
    
    
    363,506
    
    
    
    
    
    
    
    Salaries and welfare payable
    
    
    
    
    103,667
    
    
    
    141,839
    
    
    
    21,491Income tax payable
    
    
    
    
    61,764
    
    
    
    42,397
    
    
    
    6,424Other taxes payable
    
    
    
    
    15,361
    
    
    
    15,308
    
    
    
    2,319Deferred revenues
    
    
    
    
    57,232
    
    
    
    73,150
    
    
    
    11,083Accruals for customer reward program
    
    2(r)
    
    
    13,331
    
    
    
    17,406
    
    
    
    2,637Other unpaid and accruals
    
    8
    
    
    67,502
    
    
    
    79,434
    
    
    
    12,034Other payables
    
    8
    
    
    217,798
    
    
    
    419,118
    
    
    
    63,503Total current liabilities
    
    
    
    
    925,630
    
    
    
    838,576
    
    
    
    127,056
   F-4




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 CONSOLIDATED BALANCE SHEETS

 (CONTINUED)
AS OF DECEMBER 31, 2009 AND 2010
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 Note
    
    2009
    
    
    2010
    
    
    2010US$ thousands(Note 2(d))Deferred rental
    
    
    
    
    155,612
    
    
    
    191,034
    
    
    
    28,945Deferred revenues, non-current
    
    
    
    
    45,240
    
    
    
    56,996
    
    
    
    8,636Deposits
    
    
    
    
    20,735
    
    
    
    33,454
    
    
    
    5,069Unfavorable lease liability
    
    7
    
    
    14,585
    
    
    
    13,211
    
    
    
    2,002Convertible bonds, non-current
    
    9
    
    
    
    
    
    
    159,402
    
    
    
    24,152Financial liability (Convertible notes measured at fair value)
    
    10
    
    
    
    
    
    
    1,227,577
    
    
    
    185,997Deferred tax liability, non-current
    
    4
    
    
    11,577
    
    
    
    11,552
    
    
    
    1,750Total liabilities
    
    
    
    
    1,173,379
    
    
    
    2,531,802
    
    
    
    383,607Commitments and contingencies
    
    15Shareholders equityOrdinary shares (US$ 0.005 par value; 200,000,000 shares
authorized, 80,303,510 and 81,716,084 shares issued and
outstanding as of December 31, 2009 and 2010, respectively)
    
    11
    
    
    3,209
    
    
    
    3,257
    
    
    
    493Additional paid-in capital
    
    
    
    
    1,798,086
    
    
    
    1,913,734
    
    
    
    289,960Statutory reserves
    
    2(ad)
    
    
    67,591
    
    
    
    94,114
    
    
    
    14,260Retained earnings
    
    
    
    
    399,218
    
    
    
    732,194
    
    
    
    110,938Total Home Inns shareholders equity
    
    
    
    
    2,268,104
    
    
    
    2,743,299
    
    
    
    415,651Noncontrolling interests
    
    
    
    
    13,465
    
    
    
    11,044
    
    
    
    1,673Total shareholders equity
    
    
    
    
    2,281,569
    
    
    
    2,754,343
    
    
    
    417,324Total liabilities and shareholders equity
    
    
    
    
    3,454,948
    
    
    
    5,286,145
    
    
    
    800,931
   F-5




---



##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
 (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 January 1, 2008
    
    
    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-based 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
    
    
    
    1,626,681Issuance of ordinary shares to Ctrip.com
International, 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-base 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 interest 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-6




---



##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

 (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
 (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, 2009
    
    
    80,303,510
    
    
    
    3,209
    
    
    
    1,798,086
    
    
    
    67,591
    
    
    
    399,218
    
    
    
    13,465
    
    
    
    2,281,569Exercise of stock purchase right (Note 12)
    
    
    75,000
    
    
    
    3
    
    
    
    781
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    784Exercise of stock option (Note 12)
    
    
    1,337,574
    
    
    
    45
    
    
    
    61,595
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,640Recognition of share-based compensation costs
    
    
    
    
    
    
    
    
    
    
    53,272
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,272Dividends distributed to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,530
    )
    
    
    (9,530
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    359,499
    
    
    
    7,109
    
    
    
    366,608Appropriations to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,523
    
    
    
    (26,523
    )
    
    
    
    
    
    
    Balance as of December 31, 2010
    
    
    81,716,084
    
    
    
    3,257
    
    
    
    1,913,734
    
    
    
    94,114
    
    
    
    732,194
    
    
    
    11,044
    
    
    
    2,754,343Balance as of December 31, 2010 US$ thousands
(Note 2(d))
    
    
    81,716,084
    
    
    
    493
    
    
    
    289,960
    
    
    
    14,260
    
    
    
    110,938
    
    
    
    1,673
    
    
    
    417,324
   F-7




---



##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 2008
    
    
    2009
    
    
    2010
    
    
    2010US$ thousands(Note 2(d))Cash flows from operating activities:Net income
    
    
    106,312
    
    
    
    260,460
    
    
    
    366,608
    
    
    
    55,545Adjustments to reconcile net income to net cash provided by
operating activities:Share-based compensation
    
    
    24,844
    
    
    
    32,009
    
    
    
    53,272
    
    
    
    8,072Depreciation and amortization
    
    
    199,989
    
    
    
    286,574
    
    
    
    319,988
    
    
    
    48,483Foreign exchange loss, net
    
    
    65,524
    
    
    
    286
    
    
    
    4,350
    
    
    
    659Loss/(gain) from disposal of property and equipment
    
    
    2,315
    
    
    
    (2,946
    )
    
    
    (6,165
    )
    
    
    (934
    )Impairment loss of property and equipment
    
    
    
    
    
    
    5,477
    
    
    
    
    
    
    
    Gain on buy-back of convertible bonds
    
    
    (103,290
    )
    
    
    (69,327
    )
    
    
    (2,480
    )
    
    
    (376
    )Issuance costs for convertible notes
    
    
    
    
    
    
    
    
    
    
    42,559
    
    
    
    6,448Loss on change in fair value of convertible notes
    
    
    
    
    
    
    
    
    
    
    9,040
    
    
    
    1,370Deferred income tax
    
    
    (55,572
    )
    
    
    (29,843
    )
    
    
    6,789
    
    
    
    1,029Change in assets and liabilities, net of effects of acquisitions:Increase in accounts receivable
    
    
    (6,163
    )
    
    
    (8,935
    )
    
    
    (11,205
    )
    
    
    (1,698
    )Increase in receivables from related parties
    
    
    (245
    )
    
    
    (3,136
    )
    
    
    (2,523
    )
    
    
    (382
    )(Increase)/decrease in consumables
    
    
    (7,391
    )
    
    
    11,566
    
    
    
    (10,140
    )
    
    
    (1,536
    )Decrease/(increase) in prepayments and other current assets
    
    
    1,116
    
    
    
    8,497
    
    
    
    (25,674
    )
    
    
    (3,890
    )Decrease/(increase) in other assets
    
    
    19,017
    
    
    
    (684
    )
    
    
    (8,813
    )
    
    
    (1,335
    )Increase/(decrease) in accounts payable
    
    
    7,260
    
    
    
    (1,043
    )
    
    
    24,088
    
    
    
    3,650Increase/(decrease) in payables to related parties
    
    
    17
    
    
    
    (1,206
    )
    
    
    1,150
    
    
    
    174Increase in salaries and welfare payable
    
    
    21,236
    
    
    
    33,994
    
    
    
    38,172
    
    
    
    5,784Increase/(decrease) in income tax payable
    
    
    9,375
    
    
    
    9,306
    
    
    
    (19,367
    )
    
    
    (2,934
    )Increase/(decrease) in other taxes payable
    
    
    3,718
    
    
    
    2,643
    
    
    
    (53
    )
    
    
    (8
    )Increase in accruals for customer reward program
    
    
    3,148
    
    
    
    4,744
    
    
    
    4,075
    
    
    
    617(Decrease)/increase in other payables and accruals
    
    
    (18,993
    )
    
    
    39,764
    
    
    
    19,409
    
    
    
    2,941Increase in deferred revenues, current and non-current
    
    
    22,941
    
    
    
    41,693
    
    
    
    27,674
    
    
    
    4,193Increase in deferred rental
    
    
    42,599
    
    
    
    18,787
    
    
    
    35,422
    
    
    
    5,367Increase in deposits
    
    
    13,741
    
    
    
    6,994
    
    
    
    12,719
    
    
    
    1,927Increase in interest accruals for convertible bonds
    
    
    5,388
    
    
    
    2,989
    
    
    
    1,063
    
    
    
    161Net cash provided by operating activities
    
    
    356,886
    
    
    
    648,663
    
    
    
    879,958
    
    
    
    133,327
   F-8




---



##### 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)
 2008
    
    
    2009
    
    
    2010
    
    
    2010US$ thousands(Note 2(d))Cash flows from investing activities:Proceeds from sale of property and equipment
    
    
    1,657
    
    
    
    15,171
    
    
    
    21,708
    
    
    
    3,289Purchase of property and equipment
    
    
    (828,484
    )
    
    
    (426,591
    )
    
    
    (373,531
    )
    
    
    (56,595
    )Purchase of intangible assets
    
    
    (3,905
    )
    
    
    (4,322
    )
    
    
    (3,539
    )
    
    
    (536
    )Cash (paid) and collected for short term investment
    
    
    (100,000
    )
    
    
    102,206
    
    
    
    
    
    
    
    Net cash used for the acquisition of subsidiaries
    
    
    (33,583
    )
    
    
    (9,965
    )
    
    
    (600
    )
    
    
    (91
    )Net cash used in investing activities
    
    
    (964,315
    )
    
    
    (323,501
    )
    
    
    (355,962
    )
    
    
    (53,933
    )Cash flows from financing activities:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Net proceeds from issuance of ordinary shares
    
    
    
    
    
    
    341,078
    
    
    
    
    
    
    
    Proceeds from share option exercise
    
    
    4,872
    
    
    
    26,975
    
    
    
    63,644
    
    
    
    9,643Net proceeds from issuance of convertible notes
    
    
    
    
    
    
    
    
    
    
    1,188,823
    
    
    
    180,125Buy-back of convertible bonds
    
    
    (113,370
    )
    
    
    (462,029
    )
    
    
    (202,687
    )
    
    
    (30,710
    )Payment for bond offering related transaction costs
    
    
    (4,885
    )
    
    
    
    
    
    
    
    
    
    
    Repayment of acquired subsidiaries debts to former shareholders
    
    
    (52,467
    )
    
    
    (5,481
    )
    
    
    
    
    
    
    Restricted cash collected for short-term borrowings
    
    
    173,849
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from short-term borrowings
    
    
    340,000
    
    
    
    10,000
    
    
    
    24,900
    
    
    
    3,773Repayment of short-term borrowings
    
    
    (609,000
    )
    
    
    (10,000
    )
    
    
    (24,900
    )
    
    
    (3,773
    )Repayment of long-term loan
    
    
    (18,036
    )
    
    
    
    
    
    
    
    
    
    
    Dividend paid by variable interest entities to noncontrolling
interests shareholders
    
    
    (3,515
    )
    
    
    (4,272
    )
    
    
    (9,530
    )
    
    
    (1,444
    )Other financing activities
    
    
    1,350
    
    
    
    
    
    
    
    Net cash (used)/provided by financing activities
    
    
    (281,202
    )
    
    
    (103,729
    )
    
    
    1,040,250
    
    
    
    157,614Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    (65,524
    )
    
    
    (286
    )
    
    
    (11,195
    )
    
    
    (1,697
    )Net (decrease)/increase in cash and cash equivalents
    
    
    (954,155
    )
    
    
    221,147
    
    
    
    1,553,051
    
    
    
    235,311Cash and cash equivalents, beginning of year
    
    
    1,562,600
    
    
    
    608,445
    
    
    
    829,592
    
    
    
    125,696Cash and cash equivalents, end of year
    
    
    608,445
    
    
    
    829,592
    
    
    
    2,382,643
    
    
    
    361,007Supplemental disclosure of cash flow informationCash paid during the year for income taxes
    
    
    (73,897
    )
    
    
    (82,703
    )
    
    
    (152,547
    )
    
    
    (23,113
    )Cash paid during the year for interest
    
    
    (7,733
    )
    
    
    (43
    )
    
    
    (211
    )
    
    
    (32
    )Supplemental schedule of non-cash activities:Accruals related to the construction costs of property and equipment
    
    
    163,967
    
    
    
    
    
    
    
    169,196
    
    
    
    25,636Accruals related to the issuance costs for convertible notes
    
    
    
    
    
    
    
    
    
    
    5,998
    
    
    
    909Restricted cash related to the exercise of the employee stock option
    
    
    
    
    
    
    
    
    
    
    21,552
    
    
    
    3,265
   F-9




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##### 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. Restricted cash
  g. Short-term investment
  h. Allowance for doubtful accounts
   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. Consumables
  j. 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
   k. 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)
 l. Fair value of financial instruments
   m. Business combinations and non controlling interests
   n. Goodwill
   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)
 o. Intangible assets, net
   p. Impairment of long-lived assets and definite-lived intangible assets
  q. Employee benefits
  r. Accruals for customer reward program
  s. Deferred Revenue
   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. Revenue recognition
     u. Business tax and related surcharge
  v. Leased-and-operated hotel costs
  w. Sales and marketing expenses
  x. Share-based compensation
   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)
 y. Operating leases
  z. Borrowing costs
  aa. Pre-operating expenditure
  ab. Taxation
   ac. Other non-operating income
  ad. Statutory reserves
    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. Dividends
   af. Earnings per share
  ag. Segment reporting
  ah. 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)
     ai. Certain risks and concentration
    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)
 3. PREPAYMENTS AND OTHER CURRENT ASSETS
  2009
    
    
    2010Prepayment for utility and telecom expenses
    
    
    15,939
    
    
    
    21,034Prepayment for rental expenses
    
    
    9,894
    
    
    
    19,495Employee advances
    
    
    4,442
    
    
    
    5,615Interest receivable
    
    
    149
    
    
    
    4,932Prepayment for advertisement, consultation and insurance
    
    
    3,360
    
    
    
    3,509Deposits for utility expenses
    
    
    2,816
    
    
    
    6,411Other current assets
    
    
    16,454
    
    
    
    16,890Total
    
    
    53,054
    
    
    
    77,886
 4. INCOME TAXES
 Cayman Islands
  Hong Kong
  PRC
   Composition of income tax expense
  2008
    
    
    2009
    
    
    2010Current income tax expense
    
    
    83,679
    
    
    
    92,009
    
    
    
    133,180Deferred income tax benefit
    
    
    (55,572
    )
    
    
    (29,843
    )
    
    
    6,789Income tax expense
    
    
    28,107
    
    
    
    62,166
    
    
    
    139,969
  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
  2008
    
    
    2009
    
    
    2010Statutory CIT rate
    
    
    25
    %
    
    
    25
    %
    
    
    25
    %Tax differential from statutory rate applicable to
subsidiaries in the PRC
    
    
    (5
    %)
    
    
    (3
    %)
    
    
    (3
    %)Permanent difference (issuance cost, loss on change in fair
value and interest expenses relating to issuance of
convertible notes)
    
    
    
    
    
    
    
    
    
    
    3
    %Permanent difference (non-deductible expenses)
    
    
    21
    %
    
    
    4
    %
    
    
    3
    %Permanent difference (gain on buy-back of convertible bonds)
    
    
    (19
    %)
    
    
    (5
    %)
    
    
    CIT refund
    
    
    (1
    %)
    
    
    (2
    %)
    
    
    Effective CIT rate
    
    
    21
    %
    
    
    19
    %
    
    
    28
    %
  2009
    
    
    2010Deferred tax assets, current:Tax loss carry forwards
    
    
    4,918
    
    
    
    10,668Deductible temporary differences related to:-rental expenses
    
    
    688
    
    
    
    1,091-pre-operating expenses
    
    
    13,587
    
    
    
    5,780-deferred revenue, current
    
    
    11,427
    
    
    
    14,376-accruals for customer reward program
    
    
    3,333
    
    
    
    4,351-others
    
    
    6,295
    
    
    
    6,682Valuation allowance
    
    
    (1,330
    )
    
    
    (335
    )38,918
    
    
    
    42,613Deferred tax assets, non-current:Tax loss carry forwards
    
    
    51,189
    
    
    
    32,905Deductible temporary differences related to:-rental expenses
    
    
    53,428
    
    
    
    66,246-pre-operating expenses
    
    
    28,280
    
    
    
    11,560-deferred revenue, non current
    
    
    11,292
    
    
    
    12,178-unfavorable lease
    
    
    2,407
    
    
    
    2,180-Impairment loss of property and equipment
    
    
    1,369
    
    
    
    1,369-others
    
    
    
    
    
    
    442Valuation allowance
    
    
    (38,339
    )
    
    
    (27,962
    )109,626
    
    
    
    98,918Total deferred tax assets
    
    
    148,544
    
    
    
    141,531Deferred tax liabilities, non-current:Taxable temporary differences related to
unfavorable lease and other temporary
differences
    
    
    11,577
    
    
    
    11,552Total deferred tax liabilities
    
    
    11,577
    
    
    
    11,552
   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)
  5. PROPERTY AND EQUIPMENT
  2009
    
    
    2010Buildings
    
    
    23,764
    
    
    
    9,815Leasehold improvements
    
    
    1,958,100
    
    
    
    2,258,501Machinery and equipment
    
    
    165,895
    
    
    
    182,792Furniture, fixtures and office equipment
    
    
    400,909
    
    
    
    544,852Construction in progress
    
    
    6,136
    
    
    
    56,8052,554,804
    
    
    
    3,052,765Less: Accumulated depreciation
    
    
    (649,497
    )
    
    
    (948,372
    )Property and equipment, net
    
    
    1,905,307
    
    
    
    2,104,393
   6. GOODWILL
  2009
    
    
    2010Acquisition 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)
 7. INTANGIBLE ASSETS AND UNFAVORABLE LEASE
  2009
    
    
    2010Intangible assets, original costFavorable lease agreements
    
    
    41,689
    
    
    
    42,489Franchise agreements
    
    
    804
    
    
    
    804Customer relationship
    
    
    83
    
    
    
    83Purchased software
    
    
    16,193
    
    
    
    20,96058,769
    
    
    
    64,336Less: Accumulated amortization Favorable lease agreements
    
    
    (8,197
    )
    
    
    (11,452
    )Franchise agreements
    
    
    (804
    )
    
    
    (804
    )Customer relationship
    
    
    (13
    )
    
    
    (19
    )Purchased software
    
    
    (6,571
    )
    
    
    (9,668
    )(15,585
    )
    
    
    (21,943
    )Intangible assets, net
    
    
    43,184
    
    
    
    42,393
  2009
    
    
    2010Unfavorable lease agreements, original cost
    
    
    17,773
    
    
    
    17,773Less: Accumulated amortization
    
    
    (3,188
    )
    
    
    (4,562
    )Unfavorable lease liability, net
    
    
    14,585
    
    
    
    13,211
    Amortization for
    
    
    Amortization forIntangible Assets
    
    
    Unfavourable Lease
    
    
    Net Amortization2011
    
    
    7,237
    
    
    
    (1,396
    )
    
    
    5,8412012
    
    
    6,433
    
    
    
    (1,396
    )
    
    
    5,0372013
    
    
    5,256
    
    
    
    (1,396
    )
    
    
    3,8602014
    
    
    4,662
    
    
    
    (1,394
    )
    
    
    3,2682015
    
    
    3,604
    
    
    
    (1,393
    )
    
    
    2,21127,192
    
    
    
    (6,975
    )
    
    
    20,217
  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)
 8. OTHER PAYABLES AND ACCRUALS
 2009
    
    
    2010Accrued expenses for utilities, rental expenses, professional fee and etc.
    
    
    63,115
    
    
    
    74,501Accrued agency fees
    
    
    3,317
    
    
    
    3,819Others
    
    
    1,070
    
    
    
    1,114Other unpaid and accruals-subtotal
    
    
    67,502
    
    
    
    79,434Payables on construction cost of leasehold improvement
    
    
    169,486
    
    
    
    338,753Payables on repair and maintenance cost
    
    
    15,376
    
    
    
    12,537Payables to employees for exercised options
    
    
    9,725
    
    
    
    30,596Deposit from franchised-and-managed hotels, current
    
    
    11,110
    
    
    
    25,180Others
    
    
    12,101
    
    
    
    12,052Other payables-subtotal
    
    
    217,798
    
    
    
    419,118Total
    
    
    285,300
    
    
    
    498,552
 9. CONVERTIBLE BONDS
        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)
    10. FINANCIAL LIABILITY
         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)
    11. SHARE CAPITAL
      12. SHARE BASED COMPENSATION
   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)
   WeightedNumber of
    
    
    AverageRestricted
    
    
    Grant-DateStocks
    
    
    Fair Value (US$)Outstanding at the beginning of the year
    
    
    75,000
    
    
    US$
    2.72Granted
    
    
    
    
    
    
    Vested
    
    
    (75,000
    )
    
    US$
    2.72Forfeited
    
    
    
    
    
    
    Outstanding and unvested at the end of the year
    
    
    
    
    
    US$
    
        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)
  Weighted-averageWeighted Average
    
    
    remaining
    
    
    Aggregate IntrinsicExercise Price
    
    
    contractual
    
    
    ValueOptions
    
    
    (US$)
    
    
    life (years)
    
    
    (US$ millions)Outstanding as of January 1, 2008
    
    
    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$
    13.56Outstanding as of December 31, 2009
    
    
    5,196,132
    
    
    US$
    5.8839
    
    
    
    3.5
    
    
    US$
    61.27Granted
    
    
    1,989,500
    
    
    US$
    16.8005Exercised
    
    
    (1,337,574
    )
    
    US$
    6.8249Forfeited
    
    
    (79,630
    )
    
    US$
    10.2435Cancelled
    
    
    (1,500
    )
    
    US$
    8.2183Outstanding as of December 31, 2010
    
    
    5,766,928
    
    
    US$
    9.3709
    
    
    
    3.3
    
    
    US$
    64.06Vested and exercisable as of December 31, 2010
    
    
    1,329,628
    
    
    US$
    5.1184
    
    
    
    2.1
    
    
    US$
    20.43
   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$2.7200
    
    US$
    2.7200
    
    
    
    225,500
    
    
    
    0.21
    
    
    
    225,500
    
    
    
    0.21US$3.2000
    
    US$
    3.2000
    
    
    
    11,250
    
    
    
    0.5
    
    
    
    11,250
    
    
    
    0.5US$5.5000
    
    US$
    5.5000
    
    
    
    188,452
    
    
    
    0.75
    
    
    
    188,452
    
    
    
    0.75US$16.640
    
    US$
    16.640
    
    
    
    4,500
    
    
    
    0.98
    
    
    
    4,500
    
    
    
    0.98US$17.390
    
    US$
    17.390
    
    
    
    70,200
    
    
    
    1.30
    
    
    
    70,200
    
    
    
    1.30US$3.6300
    
    US$
    3.6300
    
    
    
    1,955,676
    
    
    
    2.82
    
    
    
    666,126
    
    
    
    2.82US$7.3300
    
    US$
    7.3300
    
    
    
    1,160,100
    
    
    
    3.53
    
    
    
    128,850
    
    
    
    3.53US$13.290
    
    US$
    13.290
    
    
    
    196,750
    
    
    
    3.83
    
    
    
    34,750
    
    
    
    3.83US$16.165
    
    US$
    16.165
    
    
    
    1,727,500
    
    
    
    4.21
    
    
    
    US$20.515
    
    US$
    22.975
    
    
    
    120,000
    
    
    
    4.86
    
    
    
    US$22.975
    
    US$
    22.975
    
    
    
    107,000
    
    
    
    4.86
    
    
    
    5,766,928
    
    
    
    
    
    
    
    1,329,628
  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)
   2008
    
    2009
    
    2010Risk-free interest rate (1)
    
    1.63% to 2.15%
    
    1.76% to 1.81%
    
    0.795% to 1.905%Expected life (years) (2)
    
    2.2 to 4.5
    
    3 to 4.5
    
    3 to 4.5Expected dividend yield (3)
    
    
    
    
    
    Expected Volatility (4)
    
    40.12% to 63.14%
    
    57.29% to 64.24%
    
    67.32% to 68.92%
 (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, 2010, 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-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)
 13. EARNINGS PER SHARE
  2008
    
    
    2009
    
    
    2010Numerator:Net income available to ordinary shareholders
    
    
    101,225
    
    
    
    256,003
    
    
    
    359,499Dilutive effect of issuance and buy-back of convertible bonds
    
    
    (97,903
    )
    
    
    (66,338
    )
    
    
    (1,418
    )Net income for diluted earnings
    
    
    3,322
    
    
    
    189,665
    
    
    
    358,081Denominator:Denominator for basic earnings per shareweighted average
ordinary shares outstanding
    
    
    70,863,336
    
    
    
    75,922,589
    
    
    
    80,846,617Dilutive effect of share options
    
    
    1,688,342
    
    
    
    1,952,622
    
    
    
    2,847,416Dilutive effect of convertible bonds
    
    
    5,485,755
    
    
    
    3,019,901
    
    
    
    1,053,069Denominator for diluted earnings per share
    
    
    78,037,433
    
    
    
    80,895,112
    
    
    
    84,747,102Basic earnings per share
    
    
    1.43
    
    
    
    3.37
    
    
    
    4.45Diluted earnings per share
    
    
    0.04
    
    
    
    2.34
    
    
    
    4.23
   14. RELATED PARTY TRANSACTIONS
 Name of related parties
    
    Relationships with 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 subsidiaryShanghai Dinuo Co., Ltd.
    
    Noncontrolling interest of subsidiarySun Yan
    
    Noncontrolling interest of subsidiaryMay Wu
    
    Director of the Company
  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)
  2008
    
    
    2009
    
    
    2010Agency fees paid to Ctrip.com International, Ltd.
    
    
    14,767
    
    
    
    20,942
    
    
    
    18,191Rental fees paid to Jian Guo Inns
    
    
    2,800
    
    
    
    2,800
    
    
    
    2,800
   2009
    
    
    2010Shanghai Xin Zhi Trading Co., Ltd.
    
    
    2,058
    
    
    
    3,114Xiamen Shuiwu Co., Ltd.
    
    
    1,078
    
    
    
    Shanghai Dinuo Co., Ltd.
    
    
    
    
    
    
    825Fujian Yun Tong Co., Ltd.
    
    
    
    
    
    
    1,170Sun Yan
    
    
    
    
    
    
    5503,136
    
    
    
    5,659
   2009
    
    
    2010Dongguan Kanglv Co., Ltd.
    
    
    1,496
    
    
    
    1,496Ctrip.com International, Ltd.
    
    
    1,360
    
    
    
    1,421May Wu
    
    
    784
    
    
    
    Jian Guo Inns
    
    
    118
    
    
    
    Fujian Yun Tong Co., Ltd.
    
    
    57
    
    
    
    Xiamen Shuiwu Co., Ltd.
    
    
    
    
    
    
    1,2653,815
    
    
    
    4,182
   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)
 15. COMMITMENTS AND CONTINGENCIES
 (a) Capital commitments
  (b) Commitments under operating leases
   Related party
    
    
    Non-related party
    
    
    TotalRMB
    
    
    RMB
    
    
    RMB2011
    
    
    2,800
    
    
    
    717,527
    
    
    
    720,3272012
    
    
    2,800
    
    
    
    751,318
    
    
    
    754,1182013
    
    
    2,800
    
    
    
    756,710
    
    
    
    759,5102014
    
    
    2,800
    
    
    
    759,802
    
    
    
    762,6022015
    
    
    2,800
    
    
    
    757,912
    
    
    
    760,712Thereafter
    
    
    3,567
    
    
    
    4,683,043
    
    
    
    4,686,610Total
    
    
    17,567
    
    
    
    8,426,312
    
    
    
    8,443,879
  (c) Contingencies
   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)
 16. ADDITIONAL INFORMATION-FINANCIAL STATEMENTS SCHEDULE I
   2008
    
    
    2009
    
    
    2010
    
    
    2010US$ thousandsStatements of operationsNet revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating expenses
    
    
    (3,642
    )
    
    
    (3,262
    )
    
    
    (3,590
    )
    
    
    (544
    )Loss from operations
    
    
    (3,642
    )
    
    
    (3,262
    )
    
    
    (3,590
    )
    
    
    (544
    )Share of income from subsidiaries
    
    
    50,364
    
    
    
    200,664
    
    
    
    416,760
    
    
    
    63,145Interest income
    
    
    16,738
    
    
    
    268
    
    
    
    90
    
    
    
    14Interest expense
    
    
    (20,824
    )
    
    
    (10,866
    )
    
    
    (1,730
    )
    
    
    (262
    )Issuance costs for convertible notes
    
    
    
    
    
    
    
    
    
    
    (42,559
    )
    
    
    (6,448
    )Loss on change in fair value of convertible notes
    
    
    
    
    
    
    
    
    
    
    (9,040
    )
    
    
    (1,370
    )Foreign exchange loss
    
    
    (44,702
    )
    
    
    (128
    )
    
    
    (2,912
    )
    
    
    (441
    )Gain on buy-back of convertible bonds
    
    
    103,291
    
    
    
    69,327
    
    
    
    2,480
    
    
    
    376Income before income tax expense
    
    
    101,225
    
    
    
    256,003
    
    
    
    359,499
    
    
    
    54,470Income tax expense
    
    
    
    
    
    
    Net income
    
    
    101,225
    
    
    
    256,003
    
    
    
    359,499
    
    
    
    54,470
  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)
 2009
    
    
    2010
    
    
    2010US$ thousands(Note 2(d))Balance sheets:AssetsCurrent assets:Cash and cash equivalents
    
    
    154,311
    
    
    
    1,366,249
    
    
    
    207,007Prepayments and other current assets
    
    
    3,693
    
    
    
    1,896
    
    
    
    287Total current assets
    
    
    158,004
    
    
    
    1,368,145
    
    
    
    207,294Investments in subsidiaries (a)
    
    
    2,527,054
    
    
    
    2,918,037
    
    
    
    442,127Total assets
    
    
    2,685,058
    
    
    
    4,286,182
    
    
    
    649,421LiabilitiesCurrent liabilitiesPayables to related parties
    
    
    42,944
    
    
    
    139,408
    
    
    
    21,122Other payables and accruals
    
    
    10,504
    
    
    
    16,496
    
    
    
    2,499Total current liabilities
    
    
    53,448
    
    
    
    155,904
    
    
    
    23,621Non-current liabilitiesConvertible bonds
    
    
    363,506
    
    
    
    159,402
    
    
    
    24,152Financial liability (Convertible notes measured at fair value)
    
    
    
    
    
    
    1,227,577
    
    
    
    185,997Total liabilities
    
    
    416,954
    
    
    
    1,542,883
    
    
    
    233,770Shareholders equityOrdinary shares (US$ 0.005 par value; 200,000,000 shares
authorized, 80,303,510 and 81,716,084 shares issued and
outstanding as of December 31, 2009 and 2010, respectively)
    
    
    3,209
    
    
    
    3,257
    
    
    
    493Additional paid-in capital
    
    
    1,798,086
    
    
    
    1,913,734
    
    
    
    289,960Retained earnings
    
    
    466,809
    
    
    
    826,308
    
    
    
    125,198Total shareholders equity
    
    
    2,268,104
    
    
    
    2,743,299
    
    
    
    415,651Total liabilities and shareholders equity
    
    
    2,685,058
    
    
    
    4,286,182
    
    
    
    649,421
 (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-34




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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
    
    
    2010
    
    
    2010US$ thousandsStatements of Cash flows:Cash flows from operating activities:Net income
    
    
    101,225
    
    
    
    256,003
    
    
    
    359,499
    
    
    
    54,470Adjustments to reconcile net income to net cash used in
operating activities:Share of income from subsidiaries
    
    
    (50,364
    )
    
    
    (200,664
    )
    
    
    (416,760
    )
    
    
    (63,145
    )Interest expense
    
    
    5,387
    
    
    
    2,989
    
    
    
    1,730
    
    
    
    262Foreign exchange loss
    
    
    44,702
    
    
    
    128
    
    
    
    2,912
    
    
    
    441Gain on buy-back of convertible bonds
    
    
    (103,290
    )
    
    
    (69,327
    )
    
    
    (2,480
    )
    
    
    (376
    )Issuance costs for convertible notes
    
    
    
    
    
    
    
    
    
    
    42,559
    
    
    
    6,448Loss on change in fair value of convertible notes
    
    
    
    
    
    
    
    
    
    
    9,040
    
    
    
    1,370Change in assets and liabilities, net of effects of
acquisitions:(Increase)/decrease in prepayments and other current
assets
    
    
    (6,207
    )
    
    
    8,855
    
    
    
    (205
    )
    
    
    (31
    )Decrease in other assets
    
    
    27,135
    
    
    
    
    
    
    
    
    
    
    
    Increase in payables to related parties
    
    
    23,717
    
    
    
    20,741
    
    
    
    97,248
    
    
    
    14,735(Decrease)/increase in other payables and accruals
    
    
    (16,636
    )
    
    
    8,238
    
    
    
    (673
    )
    
    
    (102
    )Net cash generated in operating activities
    
    
    25,669
    
    
    
    26,963
    
    
    
    92,870
    
    
    
    14,072Cash flows from investing activities:Investments in subsidiaries
    
    
    (1,007,849
    )
    
    
    
    
    
    
    (47,951
    )
    
    
    (7,265
    )Cash received from returns on investments
    
    
    
    
    
    
    5,746
    
    
    
    
    
    
    
    Cash flows (used)/generated in investing activities:
    
    
    (1,007,849
    )
    
    
    5,746
    
    
    
    (47,951
    )
    
    
    (7,265
    )Cash flows from financing activities:Proceeds from issuance of ordinary shares, net with share
issuance costs
    
    
    
    
    
    
    341,078
    
    
    
    
    
    
    
    Proceeds from share option exercise
    
    
    4,872
    
    
    
    26,975
    
    
    
    63,644
    
    
    
    9,643Restricted cash paid and collected for short-term
Borrowings of subsidiaries
    
    
    173,849
    
    
    
    
    
    
    
    
    
    
    
    Buy-back of convertible bonds
    
    
    (113,370
    )
    
    
    (395,842
    )
    
    
    (75,687
    )
    
    
    (11,468
    )Payment for bond offering related transaction costs
    
    
    (4,884
    )
    
    
    
    
    
    
    
    
    
    
    Net proceeds from issuance of convertible notes
    
    
    
    
    
    
    
    
    
    
    1,188,823
    
    
    
    180,125Net cash generated/(used) in financing activities
    
    
    60,467
    
    
    
    (27,789
    )
    
    
    1,176,780
    
    
    
    178,300Effect of foreign exchange rate changes on cash and cash
equivalents
    
    
    (44,702
    )
    
    
    (128
    )
    
    
    (9,761
    )
    
    
    (1,480
    )Net (decrease)/increase in cash and cash equivalents
    
    
    (966,415
    )
    
    
    4,792
    
    
    
    1,211,938
    
    
    
    183,627Cash and cash equivalents, beginning of year
    
    
    1,115,934
    
    
    
    149,519
    
    
    
    154,311
    
    
    
    23,380Cash and cash equivalents, end of the year
    
    
    149,519
    
    
    
    154,311
    
    
    
    1,366,249
    
    
    
    207,007Supplemental 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
    
    
    
    127,000
    
    
    
    19,242
  F-35