##### 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, 2008.
 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)
 May Y. Wu, Chief Financial 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)
 71,212,795 ordinary shares, par
value US$0.005 per share, as of December 31, 2008.
 Yes o No þ
 Yes o No þ
 Yes þ No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
  þ  o  o
 o o
 Yes o No þ
  Yes o No o




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##### 



TABLE OF CONTENTS
 PageINTRODUCTION
    
    
    1PART I
    
    
    2ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    
    2ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    2ITEM 3. KEY INFORMATION
    
    
    3ITEM 4. INFORMATION ON THE COMPANY
    
    
    21ITEM 4A. UNRESOLVED STAFF COMMENTS
    
    
    36ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    37ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    50ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    59ITEM 8. FINANCIAL INFORMATION
    
    
    60ITEM 9. THE OFFER AND LISTING
    
    
    61ITEM 10. ADDITIONAL INFORMATION
    
    
    62ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    68ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    69PART II
    
    
    69ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    69ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    69ITEM 15. CONTROLS AND PROCEDURES
    
    
    69ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    70ITEM 16B. CODE OF ETHICS
    
    
    71ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    71ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    71ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    71ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
    
    
    71ITEM 16G. CORPORATE GOVERNANCE
    
    
    71PART III
    
    
    72ITEM 17. FINANCIAL STATEMENTS
    
    
    72ITEM 18. FINANCIAL STATEMENTS
    
    
    72ITEM 19. EXHIBITS
    
    
    72Exhibit 2.1Exhibit 8.1Exhibit 12.1Exhibit 12.2Exhibit 13.1Exhibit 13.2Exhibit 23.1Exhibit 23.2




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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, except in
the context of discussing our consolidated financial data for the periods prior to April
2004, where the reference excludes Home Inns Beijing and its subsidiaries;
 
    
    BTG refers to Beijing Tourism Group, a state-owned enterprise established in China,
and its predecessors and subsidiaries, including Beijing Capital Travel International Hotel
Group Co., Ltd.;
 
    
    China or PRC refers to the Peoples Republic of China, excluding solely for the
purpose of this report Taiwan, Hong Kong and Macau;
 
    
    Home Inns Beijing refers to Home Inns & Hotels Management (Beijing) Co., Ltd., and its
subsidiaries, which have been our consolidated subsidiaries since April 2004;
 
    
    Home Inns Hong Kong refers to Home Inns & Hotels Management (Hong Kong) Limited;
 
    
    Top Star refers, collectively, to Hong Kong Ai Home Investment Company, Shanghai
Chuwen Investment Holding Co., Ltd. and their subsidiaries, which we acquired in 2007;
 
    
    our hotels refers, collectively, to our leased-and-operated and franchised-and-managed
hotels;
 
    
    average daily rate refers to total hotel room revenues divided by the total number of
occupied rooms in a given period;
 
    
    occupancy rate refers to the total number of occupied rooms divided by the total
number of available rooms in a given period;
 
    
    RevPAR represents revenue per available room, which is calculated by dividing total
hotel room revenues by the total number of available rooms in a given period, or by
multiplying average daily rates and occupancy rates in a given period;
 
    
    shares or ordinary shares refers to our ordinary shares; preferred shares refers
to our Series A convertible preferred shares, Series B convertible preferred shares and
Series C convertible preferred shares, collectively, all of which were converted into an
equal number of ordinary shares on October 31, 2006 upon the completion of our initial
public offering;
 
    
    ADSs refers to our American depositary shares, each of which represents two ordinary
 shares, and ADRs refers to the American depositary receipts that evidence our ADSs; 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.




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##### Table of Contents



FORWARD-LOOKING STATEMENTS
   
    
    our anticipated growth strategies;
 
    
    our future business development, results of operations and financial condition;
 
    
    expected changes in our revenues and certain cost or expense items;
 
    
    our ability to attract customers, leverage our brand and provide high-quality services
to our customers;
 
    
    trends and competition in the lodging industry;
 
    
    our ability to develop new hotels at desirable locations in a timely and cost-effective
manner.
   
 PART I
 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
   2




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##### Table of Contents



ITEM 3. KEY INFORMATION
 Selected Financial Data
 Our Selected Consolidated Financial Data
    For the Year Ended December 31,2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in thousands, except share, per share and per ADS data)Consolidated Statement of Operations DataRevenues:Leased-and-operated hotels
    
    
    93,687
    
    
    
    279,948
    
    
    
    567,895
    
    
    
    963,050
    
    
    
    1,771,762
    
    
    
    259,694Franchised-and-managed hotels
    
    
    2,313
    
    
    
    5,913
    
    
    
    20,605
    
    
    
    46,266
    
    
    
    99,779
    
    
    
    14,625Total revenues
    
    
    96,000
    
    
    
    285,861
    
    
    
    588,500
    
    
    
    1,009,316
    
    
    
    1,871,541
    
    
    
    274,319Less: Business tax and related surcharges
    
    
    (5,101
    )
    
    
    (16,830
    )
    
    
    (33,977
    )
    
    
    (60,302
    )
    
    
    (111,870
    )
    
    
    (16,397
    )Net revenues
    
    
    90,899
    
    
    
    269,031
    
    
    
    554,523
    
    
    
    949,014
    
    
    
    1,759,671
    
    
    
    257,922Operating costs and expenses(1):Leased-and-operated hotel costs:Rents and utilities
    
    
    (30,703
    )
    
    
    (94,784
    )
    
    
    (171,576
    )
    
    
    (299,792
    )
    
    
    (643,694
    )
    
    
    (94,349
    )Personnel costs
    
    
    (12,949
    )
    
    
    (41,225
    )
    
    
    (87,981
    )
    
    
    (155,611
    )
    
    
    (337,837
    )
    
    
    (49,518
    )Depreciation and amortization
    
    
    (5,681
    )
    
    
    (23,335
    )
    
    
    (44,619
    )
    
    
    (85,600
    )
    
    
    (190,698
    )
    
    
    (27,951
    )Consumables, food and beverage
    
    
    (6,441
    )
    
    
    (20,765
    )
    
    
    (43,482
    )
    
    
    (84,053
    )
    
    
    (143,555
    )
    
    
    (21,041
    )Others
    
    
    (8,162
    )
    
    
    (26,100
    )
    
    
    (56,019
    )
    
    
    (98,644
    )
    
    
    (182,284
    )
    
    
    (26,718
    )Total leased-and-operated hotel costs
    
    
    (63,936
    )
    
    
    (206,209
    )
    
    
    (403,677
    )
    
    
    (723,700
    )
    
    
    (1,498,068
    )
    
    
    (219,577
    )Sales and marketing expenses
    
    
    (2,113
    )
    
    
    (7,691
    )
    
    
    (11,488
    )
    
    
    (19,632
    )
    
    
    (27,161
    )
    
    
    (3,981
    )General and administrative expenses
    
    
    (16,127
    )
    
    
    (24,789
    )
    
    
    (64,793
    )
    
    
    (99,026
    )
    
    
    (152,648
    )
    
    
    (22,374
    )Total operating costs and expenses
    
    
    (82,176
    )
    
    
    (238,689
    )
    
    
    (479,958
    )
    
    
    (842,358
    )
    
    
    (1,677,877
    )
    
    
    (245,932
    )Income from operations
    
    
    8,723
    
    
    
    30,342
    
    
    
    74,566
    
    
    
    106,656
    
    
    
    81,794
    
    
    
    11,990Interest income
    
    
    89
    
    
    
    223
    
    
    
    6,578
    
    
    
    31,717
    
    
    
    32,023
    
    
    
    4,694Interest expense
    
    
    (98
    )
    
    
    (709
    )
    
    
    (6,143
    )
    
    
    (7,168
    )
    
    
    (28,136
    )
    
    
    (4,124
    )Gain on buy-back of convertible bond
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103,291
    
    
    
    15,140Other non-operating income
    
    
    325
    
    
    
    2,146
    
    
    
    5,309
    
    
    
    8,434
    
    
    
    10,971
    
    
    
    1,608Foreign exchange gain (loss), net
    
    
    144
    
    
    
    254
    
    
    
    (6,990
    )
    
    
    (53,221
    )
    
    
    (65,524
    )
    
    
    (9,604
    )Income before income tax expense, minority
interests and share of income of affiliated
companies
    
    
    9,183
    
    
    
    32,256
    
    
    
    73,319
    
    
    
    86,418
    
    
    
    134,419
    
    
    
    19,704Income tax expense
    
    
    (5,738
    )
    
    
    (6,526
    )
    
    
    (21,391
    )
    
    
    (45,035
    )
    
    
    (28,107
    )
    
    
    (4,120
    )Minority interests
    
    
    552
    
    
    
    (4,797
    )
    
    
    (5,034
    )
    
    
    (5,627
    )
    
    
    (5,087
    )
    
    
    (746
    )Share of income of affiliated companies
    
    
    1,972
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  3




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For the Year Ended December 31,2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in thousands, except share, per share and per ADS data)Net income
    
    
    5,969
    
    
    
    20,933
    
    
    
    46,894
    
    
    
    35,756
    
    
    
    101,225
    
    
    
    14,838Amount allocated to participating preferred
shareholders
    
    
    (2,960
    )
    
    
    (9,487
    )
    
    
    (16,174
    )
    
    
    
    
    
    
    
    
    
    
    Net income available to ordinary shareholders
    
    
    3,009
    
    
    
    11,446
    
    
    
    30,720
    
    
    
    35,756
    
    
    
    101,225
    
    
    
    14,838Earning per share:Basic
    
    
    0.15
    
    
    
    0.42
    
    
    
    0.86
    
    
    
    0.52
    
    
    
    1.43
    
    
    
    0.21Diluted
    
    
    0.15
    
    
    
    0.40
    
    
    
    0.82
    
    
    
    0.47
    
    
    
    0.04
    
    
    
    0.01Earnings per ADS(2):Basic
    
    
    0.30
    
    
    
    0.84
    
    
    
    1.73
    
    
    
    1.05
    
    
    
    2.86
    
    
    
    0.42Diluted
    
    
    0.30
    
    
    
    0.80
    
    
    
    1.64
    
    
    
    0.93
    
    
    
    0.09
    
    
    
    0.01Weighted average ordinary shares outstanding:Basic
    
    
    19,981,424
    
    
    
    27,399,140
    
    
    
    35,550,114
    
    
    
    68,323,370
    
    
    
    70,863,336
    
    
    
    70,863,336Diluted
    
    
    20,315,681
    
    
    
    28,713,188
    
    
    
    37,530,332
    
    
    
    76,883,995
    
    
    
    78,037,433
    
    
    
    78,037,433
 
 (1)
    
    Share-based compensation expenses are included in the consolidated statement of operations
data as follows: For the Year Ended December 31,2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in thousands)Leased-and-operated hotel costspersonnel costs
    
    
    8
    
    
    
    8
    
    
    
    12
    
    
    
    11
    
    
    
    11
    
    
    
    2General and administrative expenses
    
    
    141
    
    
    
    952
    
    
    
    16,283
    
    
    
    15,060
    
    
    
    24,833
    
    
    
    3,640
 
 (2)
    
    Each ADS represents two ordinary shares.  As of December 31,2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in thousands)Consolidated Balance Sheet DataCash and cash equivalents
    
    
    26,292
    
    
    
    37,727
    
    
    
    758,004
    
    
    
    1,562,600
    
    
    
    608,445
    
    
    
    89,182Total assets
    
    
    174,304
    
    
    
    375,002
    
    
    
    1,320,019
    
    
    
    3,561,538
    
    
    
    3,363,454
    
    
    
    492,997Current portion of long-term loan from a related party
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    Total current liabilities
    
    
    39,768
    
    
    
    119,187
    
    
    
    323,229
    
    
    
    804,922
    
    
    
    639,518
    
    
    
    93,737Deferred rental
    
    
    11,890
    
    
    
    26,534
    
    
    
    44,103
    
    
    
    94,226
    
    
    
    136,825
    
    
    
    20,055Long-term loan from a related party
    
    
    
    
    
    
    40,000
    
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    Convertible bond
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,110,308
    
    
    
    895,696
    
    
    
    131,286Convertible preferred shares
    
    
    813
    
    
    
    949
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ordinary shares
    
    
    1,134
    
    
    
    1,134
    
    
    
    2,691
    
    
    
    2,874
    
    
    
    2,899
    
    
    
    425Additional paid-in capital
    
    
    110,687
    
    
    
    152,878
    
    
    
    813,222
    
    
    
    1,362,942
    
    
    
    1,393,903
    
    
    
    204,310Total shareholders equity
    
    
    116,861
    
    
    
    179,083
    
    
    
    889,739
    
    
    
    1,475,397
    
    
    
    1,607,608
    
    
    
    235,634
 Home Inns Beijings Selected Consolidated Financial Data
   4




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##### Table of Contents



For the Year EndedDecember 31, 2004RMB(in thousands)Consolidated Statement of Operations DataRevenues:Leased-and-operated hotels
    
    
    112,914Franchised-and-managed hotels
    
    
    2,364Total revenues
    
    
    115,278Less: Business tax and related surcharges
    
    
    (6,150
    )Net revenues
    
    
    109,128Operating costs and expenses(1):Leased-and-operated hotel costs:Rents and utilities
    
    
    (36,463
    )Personnel costs
    
    
    (15,653
    )Consumables, food and beverage
    
    
    (8,149
    )Depreciation and amortization
    
    
    (6,685
    )Others
    
    
    (10,019
    )Total leased-and-operated hotel costs
    
    
    (76,969
    )Sales and marketing expenses
    
    
    (2,563
    )General and administrative expenses
    
    
    (16,607
    )Total operating costs and expenses
    
    
    (96,139
    )Income from operations
    
    
    12,989Interest income
    
    
    110Interest expense
    
    
    (125
    )Other non-operating income
    
    
    328Income before income tax expense and minority interests
    
    
    13,302Income tax expense
    
    
    (6,861
    )Minority interests
    
    
    1,294Share of income of affiliated companies
    
    
    Net income
    
    
    7,735
 
 (1)
    
    Includes share-based compensation expenses in the statement of operations data
as follows: For the Year EndedDecember 31, 2004RMB(in thousands)Leased-and-operated hotel costspersonnel costs
    
    
    8General and administrative expenses
    
    
    141
  As of December 31,2004RMB(in thousands)Consolidated Balance Sheet DataCash and cash equivalents
    
    
    16,710Total assets
    
    
    130,562Total current liabilities
    
    
    39,900Deferred rental
    
    
    11,890Paid-in capital
    
    
    68,945Additional paid-in capital
    
    
    150Total shareholders equity
    
    
    78,346
  5




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Exchange Rate Information
   Noon Buying RatePeriodPeriod
    
    End
    
    
    Average(1)
    
    
    Low
    
    
    High2004
    
    
    8.2765
    
    
    
    8.2768
    
    
    
    8.2774
    
    
    
    8.27642005
    
    
    8.0702
    
    
    
    8.1826
    
    
    
    8.2765
    
    
    
    8.07022006
    
    
    7.8041
    
    
    
    7.9579
    
    
    
    8.0702
    
    
    
    7.80412007
    
    
    7.2946
    
    
    
    7.5806
    
    
    
    7.8127
    
    
    
    7.29462008
    
    
    6.8225
    
    
    
    6.9193
    
    
    
    7.2946
    
    
    
    6.7800October
    
    
    6.8388
    
    
    
    6.8342
    
    
    
    6.8485
    
    
    
    6.8171November
    
    
    6.8254
    
    
    
    6.8281
    
    
    
    6.8373
    
    
    
    6.8220December
    
    
    6.8225
    
    
    
    6.8539
    
    
    
    6.8842
    
    
    
    6.82252009January
    
    
    6.8392
    
    
    
    6.8360
    
    
    
    6.8403
    
    
    
    6.8225February
    
    
    6.8395
    
    
    
    6.8363
    
    
    
    6.8470
    
    
    
    6.8241March
    
    
    6.8329
    
    
    
    6.8360
    
    
    
    6.8438
    
    
    
    6.8240April (through April 17)
    
    
    6.8325
    
    
    
    6.8337
    
    
    
    6.8361
    
    
    
    6.8316
 
 (1)
    
    Annual averages are calculated from month-end rates. Monthly averages are calculated using
the average of the daily rates during the relevant period. Capitalization and Indebtedness
  Reasons for the Offer and Use of Proceeds
  Risk Factors
 Risks Related to Our Business
 Our operating results are subject to conditions typically affecting the lodging industry.
  
    
    changes in the national, regional or local economic conditions;
 
    
    natural disasters or travelers fears of exposure to serious contagious diseases;
 
    
    the attractiveness of our hotels to customers and competition from other hotels;
 
    
    local market conditions such as an oversupply of, or a reduction in demand for, hotel
rooms;
  6




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##### Table of Contents




    
    the performance of managerial and other employees of our hotels; and
 
    
    increases in operating costs and expenses due to inflation and other factors.
  We may not be able to manage our expected expansion, which could adversely affect our operating
results.
    We committed significant resources to the acquisition and integration of Top Star, and will
continue to invest in the rebranding of the Top Star hotels to Home Inns. If we cannot improve the
performance of these acquired hotels, our results of operations and return on capital may be
materially and adversely affected.
     7




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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.
  Our effort in developing a new hotel brand, the H Hotel, may divert management attention and
resources from our existing business, and if the new product is not well received by the market, we
may not be able to generate sufficient revenue to offset the costs and expenses, and our overall
financial performance and condition may be adversely affected.
  If we are not able to hire, train and retain qualified managerial and other employees, our brand
and our business may be materially and adversely affected.
  We may not be able to successfully identify and secure additional hotel properties.
   8




---



##### Table of Contents



Future acquisitions may have an adverse effect on our ability to manage our business.
  Our business is sensitive to the current global economic crisis. A severe or prolonged downturn in
the global or Chinese economy could materially and adversely affect our revenues and results of
operations.
   Our financial and operating performance may be adversely affected by epidemics, natural disasters
and other catastrophes.
   9




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##### Table of Contents



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.
   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.
  Our limited operating history makes it difficult to evaluate our future prospects and results of
operations.
  
    
    the uncertainties associated with our ability to continue our growth while maintaining
our profitability;
 
    
    preserving our competitive position in the economy hotel segment of the lodging industry
in China;
 
    
    offering an innovative product to attract recurring and new customers;
 
    
    implementing our strategy and modifying it from time to time to respond effectively to
competition and changes in customer preferences and needs;
  10




---



##### Table of Contents




    
    increasing awareness of our Home Inn brand and continuing to develop customer loyalty;
and
 
    
    attracting, training, retaining and motivating qualified personnel.
  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.
  Any failure to protect our trademarks and other intellectual property rights could have a negative
impact on our business.
    11




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##### Table of Contents



We are subject to various hotel industry, 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 may not be able to develop hotel properties on a timely or cost-efficient basis, which may
adversely affect our growth strategy and business.
  Our costs and expenses may remain constant or increase even if our revenues decline.
   12




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##### Table of Contents



Our financial leverage may hamper our ability to expand and may materially affect our results of
operations.
  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.
  We have limited insurance coverage.
  If we are unable to maintain our hotels good condition and attractive appearance, our hotel
occupancy rates may decline.
  The growth of on-line and other hotel reservation intermediaries and travel consolidators may
adversely affect our margins and profitability.
   13




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##### Table of Contents



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.
  The new 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 Doing Business in China
 Adverse changes in economic and political policies of the PRC government could have a material
adverse effect on the overall economic growth of China, which could adversely affect our business.
   14




---



##### Table of Contents



Uncertainties with respect to the Chinese legal system could adversely affect us.
  Governmental control of currency conversion may affect the value of your investment.
  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 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.
  We have benefited from certain financial subsidies and preferential tax treatments in China.
Reduction or elimination of these subsidies or preferential tax treatments may have an adverse
effect on our income tax expense and net income.
    16




---



##### Table of Contents



The PRC tax treatment of our holding company structure under the new EIT law is subject to
uncertainties, and if such uncertainties are resolved unfavorably to us, we may incur higher taxes
than we anticipate, and our net income and ability to pay dividends could be hampered.
   Our foreign ADS holders may be subject to PRC withholding tax on the dividends payable by us and
upon gains realized on their sales of our ADSs if we are classified as a PRC resident enterprise.
   17




---



##### Table of Contents



Risks Related to Our ADSs
 The market price for our ADSs may 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.
  Substantial future sales of our ADSs in the public market, or the perception that these sales could
occur, could cause the price of our ADSs to decline.
   18




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##### Table of Contents



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.
  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.
   19




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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.
  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.
   20




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##### Table of Contents



ITEM 4. INFORMATION ON THE COMPANY
 History and Development of the Company
      Acquisition of Top Star Hotels
   21




---



##### Table of Contents



Convertible Bond Offering
 US$1.00.
  Business Overview
    22




---



##### Table of Contents



Our Home Inns Hotel Chain
      Hotels in Operation
    
    
    Hotels Contracted(1)Leased-and
    
    
    Franchised-
    
    
    Leased-and
    
    
    Franchised-Operated
    
    
    and-Managed
    
    
    Operated
    
    
    and-ManagedHotels
    
    
    Hotels
    
    
    Hotels
    
    
    HotelsBeijing
    
    
    18
    
    
    
    41
    
    
    
    3
    
    
    
    4Shanghai
    
    
    28
    (2)
    
    
    25
    
    
    
    2
    
    
    
    16Fuzhou
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    3Hangzhou
    
    
    4
    
    
    
    10
    
    
    
    
    
    
    
    1Suzhou
    
    
    6
    
    
    
    5
    
    
    
    
    
    
    
    1Tianjin
    
    
    12
    
    
    
    16
    
    
    
    
    
    
    
    3Wuxi
    
    
    4
    
    
    
    2
    
    
    
    
    
    
    
    3Changzhou
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    Ningbo
    
    
    4
    
    
    
    3
    
    
    
    
    
    
    
    Shenzhen
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    Xiamen
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    1Nantong
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    Chengdu
    
    
    9
    
    
    
    1
    
    
    
    
    
    
    
    Chongqing
    
    
    5
    
    
    
    1
    
    
    
    1
    
    
    
    Guangzhou
    
    
    5
    
    
    
    1
    
    
    
    6
    
    
    
    2Wuhan
    
    
    12
    
    
    
    1
    
    
    
    
    
    
    
    Shaoxing
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Hefei
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    Jiangyin
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    Nanjing
    
    
    11
    
    
    
    3
    
    
    
    1
    
    
    
    
  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
    
    
    HotelsDalian
    
    
    6
    
    
    
    1
    
    
    
    
    
    
    
    2Zhengzhou
    
    
    10
    
    
    
    4
    
    
    
    2
    
    
    
    Shenyang
    
    
    7
    
    
    
    4
    
    
    
    2
    
    
    
    3Shijiazhuang
    
    
    4
    
    
    
    4
    
    
    
    1
    
    
    
    Zhuhai
    
    
    2
    
    
    
    
    
    
    
    1
    
    
    
    Qingdao
    
    
    6
    
    
    
    
    
    
    
    1
    
    
    
    Zhangjiajie
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Zibo
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    Jilin
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    Baoding
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Luoyang
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Zhongshan
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Haerbin
    
    
    11
    
    
    
    1
    
    
    
    
    
    
    
    Yangzhou
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Xian
    
    
    11
    
    
    
    5
    
    
    
    2
    
    
    
    3Yantai
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    Bengbu
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Nanchang
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    1Baotou
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    Huhehaote
    
    
    4
    
    
    
    1
    
    
    
    1
    
    
    
    Foshan
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Weihai
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    2Jinan
    
    
    7
    
    
    
    
    
    
    
    2
    
    
    
    1Weifang
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Changchun
    
    
    6
    
    
    
    1
    
    
    
    
    
    
    
    1Nanning
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    Dezhou
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Taiyuan
    
    
    2
    
    
    
    2
    
    
    
    1
    
    
    
    1Changshu
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    Xuzhou
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    Guiyang
    
    
    3
    
    
    
    
    
    
    
    1
    
    
    
    1Changsha
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    Guilin
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    1Yixing
    
    
    6
    
    
    
    
    
    
    
    3
    
    
    
    Yinchuan
    
    
    2
    
    
    
    
    
    
    
    1
    
    
    
    1Yueyang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Lanzhou
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Qiqihaer
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Jiaxing
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Yanji
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Wuhu
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    Tangshan
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    Taian
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Maanshan
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Wulumuqi
    
    
    5
    
    
    
    
    
    
    
    1
    
    
    
    Heze
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Yingkou
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Dongying
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Shunde
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    Rizhao
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Dandong
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Fushun
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Dongguan
    
    
    3
    
    
    
    
    
    
    
    1
    
    
    
    Liaocheng
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Binzhou
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Langfang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Yichang
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    Kunming
    
    
    3
    
    
    
    
    
    
    
    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
    
    
    HotelsTonghua
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Zhenjiang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Haikou
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Kunshan
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Shishi
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Yancheng
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Anqing
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Jinhua
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    Cangzhou
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Wuyishan
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Zhangjiagang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Xining
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    Deyang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Laiyang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Jinzhou
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Quanzhou
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Zaozhuang
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Lianyungang
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Puyang
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Luohe
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Shantou
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Taicang
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Linyi
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    3Xinxiang
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Zhaoqing
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Huludao
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Weiwu
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Panjing
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Wuzhong
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Daqing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Total
    
    
    326
    
    
    
    145
    
    
    
    54
    
    
    
    60
 
 (1)
    
    Contracted hotels include hotels which have not commenced operations but for which we have
entered into binding leases or franchise agreements with the respective lessors or
franchisees.(2)
    
    Leased-and-operated hotels include one H Hotel located in Shanghai. Leased-and-operated
Hotels
   25




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##### Table of Contents



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
    
    
    326
    
    
    
    270
    
    
    
    56
    
    
    
    120
    
    
    15 yearsFranchised-and-managed Hotels
    
    
    145
    
    
    
    94
    
    
    
    51
    
    
    
    113
    
    
    8 years
   As of and for the Year EndedDecember 31,2006
    
    
    2007
    
    
    2008Operating DataTotal hotels in operation(1):Leased-and-operated hotels(2)
    
    
    94
    
    
    
    195
    
    
    
    326Franchised-and-managed hotels
    
    
    40
    
    
    
    71
    
    
    
    145Total rooms(1)
    
    
    16,162
    
    
    
    32,726
    
    
    
    55,631Geographic coverage(1):Number of cities
    
    
    39
    
    
    
    66
    
    
    
    94Occupancy rate (as a percentage)
    
    
    92.8
    
    
    
    91.1
    
    
    
    85.0Average daily rate (in RMB)
    
    
    182
    
    
    
    179
    
    
    
    173RevPAR (in RMB)
    
    
    169
    
    
    
    163
    
    
    
    147
 
 (1)
    
    As of the end of each period.(2)
    
    Includes five hotels operated through separate joint ventures with third parties.  26




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##### Table of Contents



Hotel Development
    General Market Criteria
 Economic Growth
 Geographic Diversification
 Favorable Development Environment
 Specific Hotel Criteria
 Location and Market Appeal
 Size and Facilities
  27




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##### Table of Contents



Financial Return Requirements
 Hotel Management
  Budgeting and Monitoring
 Quality Assurance and Training
  Strategic Capital Improvements
 Centralized Procurement
 Targeted Sales
  28




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##### Table of Contents



Hotel Information and Operational Systems
   Property Management System (PMS)
 Central Reservation System (CRS)
 Customer Relationship Management System (CRM)
 Management Reporting System
 Sales and Marketing
   29




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##### Table of Contents



Approximate Percentage ofTotal Room Nights StayedCustomer Channel
    
    in 2008CRS bookings by members of our Home Inns membership network
    
    
    10.6CRS bookings by non-members of our Home Inns membership network
    
    
    0.9Reservations not booked through CRS by members of our Home Inns membership network
    
    
    39.6Walk-ins
    
    
    16.4Corporate account
    
    
    9.7Travel agencies and consolidators
    
    
    7.1Others
    
    
    15.7Total
    
    
    100.0
    Employees and Training
     30




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##### Table of Contents



Competition
   Intellectual Property
 
   31




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##### Table of Contents



Insurance
  Regulation
  Regulations on Hotel Operation
 Measures for the Control of
Security in the Hotel Industry Decision of the
State Council on Establishing Administrative License for the Administrative Examination and
Approval Items Really Necessary To Be Retained. Measures for the Control of Security in the Hotel
Industry
 Public Area Hygiene Administration
Regulations PRC Law on Food Hygiene Fire Prevention Law Regulations for Administration of Entertainment
Places Circular on Carrying out the Regulations
for Administration of Entertainment Places
 Regulations on the Assessment of the Star Rating of Tourist
Hotels
  32




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##### Table of Contents



Regulations on Consumer Protection
 Law on the Protection of the Rights and Interests
of Consumers
       Interpretation of Some Issues
concerning the Application of Law for the Trial of Cases on Compensation for Personal Injury
 Regulations on Environmental Protection
 Law on Promoting Clean Production
 Regulations on Commercial Franchising
    33




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##### Table of Contents



Regulations on Trademarks
 PRC Trademark Law the Implementation
Regulation of the PRC Trademark Law
 Regulations on Foreign Currency Exchange
 Foreign Currency Administration Rules
  Regulations on Dividend Distribution
  
    
    the Wholly Foreign Owned Enterprise Law (1986), as amended;
 
    
    the Wholly Foreign Owned Enterprise Law Implementing Rules (1990), as amended;
 
    
    the Sino-foreign Equity Joint Venture Enterprise Law (1979), as amended; and
 
    
    the Sino-foreign Equity Joint Venture Enterprise Law Implementing Rules (1983), as
amended.
   34




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##### Table of Contents



Regulations on Employee Stock Holding Plan or Stock Option Plan
 Administration Measures on
Individual Foreign Exchange Control
 Regulation on Mergers and Acquisitions
  Tax
   35




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##### Table of Contents



Organizational Structure
  
 
 *
    
    Home Inns & Hotels Management (Shanghai) Co., Ltd. owns 51% of three joint ventures, 65% of
one joint venture, 70% of two joint ventures and 75% of one other joint venture.
 Property, Plant and Equipment
  
 ITEM 4A. UNRESOLVED STAFF COMMENTS
   36




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##### Table of Contents



ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 You should read the following discussion and analysis of our financial condition and results
of operations in conjunction with our consolidated financial statements and the related notes
included elsewhere in this annual report on Form 20-F . This discussion may contain forward-looking
statements based upon current expectations that involve risks and uncertainties. Our actual
results may differ materially from those anticipated in these forward-looking statements as a
result of various factors, including those set forth under Item 3. Key InformationD. Risk
Factors or in other parts of this annual report on Form 20-F.
 Operating Results
 Key Performance Indicators
    Revenues
 
    
    the total number of hotels in our hotel chain;
 
    
    the total number of hotel rooms in our hotel chain;
 
    
    occupancy rates achieved by our hotels;
 
    
    average daily rates achieved by our hotels; and
 
    
    the RevPAR achieved by our hotels, which represents the product of average daily rates
and occupancy rates.
  37




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##### Table of Contents



For the Year Ended December 31,2006
    
    
    2007
    
    
    2008RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in thousands, except share, per share and per ADS data)Consolidated Statement of Operations DataRevenues:Leased-and-operated hotels
    
    
    567,895
    
    
    
    96.5
    
    
    
    963,050
    
    
    
    95.4
    
    
    
    1,771,762
    
    
    
    259,694
    
    
    
    94.7Franchised-and-managed hotels
    
    
    20,605
    
    
    
    3.5
    
    
    
    46,266
    
    
    
    4.6
    
    
    
    99,779
    
    
    
    14,625
    
    
    
    5.3Total revenues
    
    
    588,500
    
    
    
    100.0
    
    
    
    1,009,316
    
    
    
    100.0
    
    
    
    1,871,541
    
    
    
    274,319
    
    
    
    100.0Less: Business tax and related surcharges
    
    
    (33,977
    )
    
    
    (5.8
    )
    
    
    (60,302
    )
    
    
    (6.0
    )
    
    
    (111,870
    )
    
    
    (16,397
    )
    
    
    (6.0
    )Net revenues
    
    
    554,523
    
    
    
    94.2
    
    
    
    949,014
    
    
    
    94.0
    
    
    
    1,759,671
    
    
    
    257,922
    
    
    
    94.0
 Leased-and-operated Hotels
   Franchised-and-managed Hotels
    38




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##### Table of Contents



Operating Costs and Expenses
 For the Year Ended December 31,2006
    
    
    2007
    
    
    2008RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in thousands except percentages)Total revenues
    
    
    588,500
    
    
    
    100.0
    
    
    
    1,009,316
    
    
    
    100.0
    
    
    
    1,871,541
    
    
    
    274,319
    
    
    
    100.0Less: Business tax and related surcharges
    
    
    (33,977
    )
    
    
    (5.8
    )
    
    
    (60,302
    )
    
    
    (6.0
    )
    
    
    (111,870
    )
    
    
    (16,397
    )
    
    
    (6.0
    )Net revenues
    
    
    554,523
    
    
    
    94.2
    
    
    
    949,014
    
    
    
    94.0
    
    
    
    1,759,671
    
    
    
    257,922
    
    
    
    94.0Operating costs and expenses:Leased-and-operated hotel costs:Rents and utilities
    
    
    (171,576
    )
    
    
    (29.2
    )
    
    
    (299,792
    )
    
    
    (29.7
    )
    
    
    (643,694
    )
    
    
    (94,349
    )
    
    
    (34.4
    )Personnel costs
    
    
    (87,981
    )
    
    
    (15.0
    )
    
    
    (155,611
    )
    
    
    (15.4
    )
    
    
    (337,837
    )
    
    
    (49,518
    )
    
    
    (18.1
    )Depreciation and amortization
    
    
    (44,619
    )
    
    
    (7.6
    )
    
    
    (85,600
    )
    
    
    (8.5
    )
    
    
    (190,698
    )
    
    
    (27,951
    )
    
    
    (10.2
    )Consumables, food and beverage
    
    
    (43,482
    )
    
    
    (7.4
    )
    
    
    (84,053
    )
    
    
    (8.3
    )
    
    
    (143,555
    )
    
    
    (21,041
    )
    
    
    (7.7
    )Others
    
    
    (56,019
    )
    
    
    (9.5
    )
    
    
    (98,644
    )
    
    
    (9.8
    )
    
    
    (182,284
    )
    
    
    (26,718
    )
    
    
    (9.7
    )Total leased-and-operated hotel costs
    
    
    (403,677
    )
    
    
    (68.6
    )
    
    
    (723,700
    )
    
    
    (71.7
    )
    
    
    (1,498,068
    )
    
    
    (219,577
    )
    
    
    (80.0
    )Sales and marketing expenses
    
    
    (11,488
    )
    
    
    (2.0
    )
    
    
    (19,632
    )
    
    
    (1.9
    )
    
    
    (27,161
    )
    
    
    (3,981
    )
    
    
    (1.5
    )General and administrative expenses
    
    
    (64,793
    )
    
    
    (11.0
    )
    
    
    (99,026
    )
    
    
    (9.8
    )
    
    
    (152,648
    )
    
    
    (22,374
    )
    
    
    (8.2
    )Total operating costs and expenses
    
    
    (479,958
    )
    
    
    (81.6
    )
    
    
    (842,358
    )
    
    
    (83.5
    )
    
    
    (1,677,877
    )
    
    
    (245,932
    )
    
    
    (89.7
    )
 Leased-and-operated Hotel Costs
 Sales and Marketing Expenses
 General and Administrative Expenses
  For the Year Ended December 31,2006
    
    
    2007
    
    
    2008RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in thousands except percentages)Leased-and-operated hotel
costspersonnel costs
    
    
    12
    
    
    
    0.1
    
    
    
    11
    
    
    
    0.1
    
    
    
    11
    
    
    
    2
    
    
    
    0.0General and administrative expenses
    
    
    16,283
    
    
    
    99.9
    
    
    
    15,060
    
    
    
    99.9
    
    
    
    24,833
    
    
    
    3,640
    
    
    
    100.0Total share-based compensation expenses
    
    
    16,295
    
    
    
    100.0
    
    
    
    15,071
    
    
    
    100.0
    
    
    
    24,844
    
    
    
    3,642
    
    
    
    100.0
  39




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Taxation
      Critical Accounting Policies
   40




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##### Table of Contents



Basis of Consolidation
  Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51,
    Goodwill
 Goodwill and Other Intangible Assets
  41




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##### Table of Contents



Impairment of Long-lived Assets and Definite-lived Intangible Assets
 Accounting for the Impairment or Disposal of Long-lived Assets
 Accruals for Customer Reward Program
  Revenue Recognition
      42




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Share-based Compensation
      Taxation
   43




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##### Table of Contents



Selected Operating Data
  As of and for the Year EndedDecember 31,2006
    
    
    2007
    
    
    2008Operating DataTotal hotels in operation(1):Leased-and-operated hotels(2)
    
    
    94
    
    
    
    195
    
    
    
    326Franchised-and-managed hotels
    
    
    40
    
    
    
    71
    
    
    
    145Total rooms(1)
    
    
    16,162
    
    
    
    32,726
    
    
    
    55,631Geographic coverage(1):Number of cities
    
    
    39
    
    
    
    66
    
    
    
    94Occupancy rate (as a percentage)
    
    
    92.8
    
    
    
    91.1
    
    
    
    85.0Average daily rate (in RMB)
    
    
    182
    
    
    
    179
    
    
    
    173RevPAR (in RMB)
    
    
    169
    
    
    
    163
    
    
    
    147
 
 (1)
    
    As of the end of each period.(2)
    
    Includes seven hotels operated through separate joint ventures with third parties. Home Inns
& Hotels Management (Shanghai) Co., Ltd. owns 51% of three joint ventures, 65% of one joint
venture, 70% of two joint ventures and 75% of one other joint venture. Results of Operations
  For the Year Ended December 31,2006
    
    
    2007
    
    
    2008RMB
    
    
    %
    
    
    RMB
    
    
    %
    
    
    RMB
    
    
    US$
    
    
    %(in thousands except percentages)Consolidated Statement of Operations DataRevenues:Leased-and-operated hotels
    
    
    567,895
    
    
    
    96.5
    
    
    
    963,050
    
    
    
    95.4
    
    
    
    1,771,762
    
    
    
    259,694
    
    
    
    94.7Franchised-and-managed hotels
    
    
    20,605
    
    
    
    3.5
    
    
    
    46,266
    
    
    
    4.6
    
    
    
    99,779
    
    
    
    14,625
    
    
    
    5.3Total revenues
    
    
    588,500
    
    
    
    100.0
    
    
    
    1,009,316
    
    
    
    100.0
    
    
    
    1,871,541
    
    
    
    274,319
    
    
    
    100.0Less: Business tax and related surcharges
    
    
    (33,977
    )
    
    
    (5.8
    )
    
    
    (60,302
    )
    
    
    (6.0
    )
    
    
    (111,870
    )
    
    
    (16,397
    )
    
    
    (6.0
    )Net revenues
    
    
    554,523
    
    
    
    94.2
    
    
    
    949,014
    
    
    
    94.0
    
    
    
    1,759,671
    
    
    
    257,922
    
    
    
    94.0Operating costs and expenses:Leased-and-operated hotel costs:Rents and utilities
    
    
    (171,576
    )
    
    
    (29.2
    )
    
    
    (299,792
    )
    
    
    (29.7
    )
    
    
    (643,694
    )
    
    
    (94,349
    )
    
    
    (34.4
    )Personnel costs
    
    
    (87,981
    )
    
    
    (15.0
    )
    
    
    (155,611
    )
    
    
    (15.4
    )
    
    
    (337,837
    )
    
    
    (49,518
    )
    
    
    (18.1
    )Depreciation and amortization
    
    
    (44,619
    )
    
    
    (7.6
    )
    
    
    (85,600
    )
    
    
    (8.5
    )
    
    
    (190,698
    )
    
    
    (27,951
    )
    
    
    (10.2
    )Consumables, food and beverage
    
    
    (43,482
    )
    
    
    (7.4
    )
    
    
    (84,053
    )
    
    
    (8.3
    )
    
    
    (143,555
    )
    
    
    (21,041
    )
    
    
    (7.7
    )Others
    
    
    (56,019
    )
    
    
    (9.5
    )
    
    
    (98,644
    )
    
    
    (9.8
    )
    
    
    (182,284
    )
    
    
    (26,718
    )
    
    
    (9.7
    )Total leased-and-operated hotel costs
    
    
    (403,677
    )
    
    
    (68.6
    )
    
    
    (723,700
    )
    
    
    (71.7
    )
    
    
    (1,498,068
    )
    
    
    (219,577
    )
    
    
    (80.0
    )Sales and marketing expenses
    
    
    (11,488
    )
    
    
    (2.0
    )
    
    
    (19,632
    )
    
    
    (1.9
    )
    
    
    (27,161
    )
    
    
    (3,981
    )
    
    
    (1.5
    )General and administrative expenses
    
    
    (64,793
    )
    
    
    (11.0
    )
    
    
    (99,026
    )
    
    
    (9.8
    )
    
    
    (152,648
    )
    
    
    (22,374
    )
    
    
    (8.2
    )Total operating costs and expenses
    
    
    (479,958
    )
    
    
    (81.6
    )
    
    
    (842,358
    )
    
    
    (83.5
    )
    
    
    (1,677,877
    )
    
    
    (245,932
    )
    
    
    (89.7
    )Income from operations
    
    
    74,565
    
    
    
    12.7
    
    
    
    106,656
    
    
    
    10.6
    
    
    
    81,794
    
    
    
    11,990
    
    
    
    4.4Interest income, net
    
    
    435
    
    
    
    0.1
    
    
    
    24,549
    
    
    
    2.4
    
    
    
    3,887
    
    
    
    570
    
    
    
    0.2Gain on buy-back of convertible bond
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103,291
    
    
    
    15,140
    
    
    
    5.5Other non-operating income
    
    
    5,309
    
    
    
    0.9
    
    
    
    8,434
    
    
    
    0.8
    
    
    
    10,971
    
    
    
    1,608
    
    
    
    0.6Foreign exchange loss, net
    
    
    (6,990
    )
    
    
    (1.2
    )
    
    
    (53,221
    )
    
    
    (5.3
    )
    
    
    (65,524
    )
    
    
    (9,604
    )
    
    
    (3.5
    )Income tax expense
    
    
    (21,391
    )
    
    
    (3.6
    )
    
    
    (45,035
    )
    
    
    (4.5
    )
    
    
    (28,107
    )
    
    
    (4,120
    )
    
    
    (1.5
    )Minority interests
    
    
    (5,034
    )
    
    
    (0.9
    )
    
    
    (5,627
    )
    
    
    (0.6
    )
    
    
    (5,087
    )
    
    
    (746
    )
    
    
    (0.3
    )Share of income of affiliated companies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    46,894
    
    
    
    8.0
    
    
    
    35,756
    
    
    
    3.5
    
    
    
    101,225
    
    
    
    14,838
    
    
    
    5.4
  44




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##### Table of Contents



Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
 Revenues
 
    
    Leased-and-operated Hotels. Revenues from our leased-and-operated hotels increased by
84.0% from RMB 963.1 million in 2007 to RMB 1.77 billion (US$259.7 million) in 2008. This
increase was primarily due to our substantial expansion of leased-and-operated hotels in
operation from 195 hotels and 24,336 rooms as of December 31, 2007 to 326 hotels and 39,188
rooms as of December 31, 2008. This was offset by lower average RevPAR due to a higher
proportion of hotels in lower tier cities where room rates are typically lower, the
negative impact of the May 2008 Sichuan earthquake and the economic slowdown in the fourth
quarter of the year, as well as the below average performance of the acquired Top Star
hotels.
 
    
    Franchised-and-managed Hotels. Revenues from our franchised-and-managed hotels increased
substantially by 115.7% from RMB 46.3 million in 2007 to RMB 99.8 million (US$14.6 million)
in 2008. This growth was primarily due to an increase in the number of
franchised-and-managed hotels in operation from 71 hotels with 8,390 rooms as of December
31, 2007 to 145 hotels with 16,443 rooms as of December 31, 2008.
 Operating Costs and Expenses
 
    
    Leased-and-operated Hotel Costs. Our leased-and-operated hotel costs increased
substantially from RMB 723.7 million in 2007 to RMB 1.5 billion (US$219.6 million) in 2008.
This increase was primarily because all items comprising our leased-and-operated hotel
costs increased substantially as we expanded our leased-and-operated hotels from 195 hotels
and 24,336 rooms as of December 31, 2007 to 326 hotels and 39,188 rooms as of December 31,
2008. In particular, rents and utilities increased from RMB 299.8 million in 2007 to RMB
643.7 million (US$94.3 million) in 2008 as a result of not only an increase in hotel
numbers but also inflationary pressures caused by intensified competition for new
properties, while personnel costs increased from RMB 155.6 million in 2007 to RMB 337.8
million (US$49.5 million) in 2008 as a result of an increase in hotel numbers and inflation
in wage and benefit costs.
 
    
    Sales and Marketing Expenses. Our sales and marketing expenses increased from RMB 19.6
million in 2007 to RMB 27.2 million (US$4.0 million) in 2008. This increase was primarily
due to increased marketing and promotional expenses in connection with 205 new hotels that
opened in 2008.
 
    
    General and Administrative Expenses. Our general and administrative expenses increased
by 54.1% from RMB 99.0 million in 2007 to RMB 152.6 million (US$22.4 million) in 2008,
primarily due to increased total compensation and benefits for our corporate administrative
staff, as well as increase in costs incurred for office rental, depreciation,
communications and other corporate support activities. We incurred these additional costs
as we substantially expanded our hotel chain with 205 new hotels added during the year and
114 additional hotels under development.
 Income from Operations.
 Interest Income (Expense), Net
  45




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##### Table of Contents



Gain
on Buy-back of Convertible Bond.
 Foreign Exchange Loss, Net
 Income Tax Expense
 Minority
Interests.
 Net Income
 Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
 Revenues
 
    
    Leased-and-operated Hotels. Revenues from our leased-and-operated hotels increased by
69.6% from RMB 567.9 million in 2006 to RMB 963.1 million in 2007. This increase was
primarily due to our substantial expansion of leased-and-operated hotels in operation from
94 hotels and 11,395 rooms as of December 31, 2006 to 195 hotels and 24,336 rooms as of
December 31, 2007.
 
    
    Franchised-and-managed Hotels. Revenues from our franchised-and-managed hotels
increased substantially by 124.5% from RMB 20.6 million in 2006 to RMB 46.3 million in
2007. This growth was primarily due to an increase in the number of franchised-and-managed
hotels in operation from 40 hotels with 4,767 rooms as of December 31, 2006 to 71 hotels
with 8,390 rooms as of December 31, 2007.
 Operating Costs and Expenses
 
    
    Leased-and-operated Hotel Costs. Our leased-and-operated hotel costs increased
substantially from RMB 403.7 million in 2006 to RMB 723.7 million in 2007. This increase
was primarily because all items comprising our leased-and-operated hotel costs increased
substantially as we expanded our leased-and-operated hotels from 94 hotels and 11,395 rooms
as of December 31, 2006 to 195 hotels and 24,336 rooms as of December 31, 2007.
 
    
    Sales and Marketing Expenses. Our sales and marketing expenses increased substantially
from RMB 11.5 million in 2006 to RMB 19.6 million in 2007. This increase was primarily due
to increased marketing and promotional expenses in connection with 132 new hotels that
opened in 2007.
 
    
    General and Administrative Expenses. Our general and administrative expenses increased
by 52.8% from RMB 64.8 million in 2006 to RMB 99.0 million in 2007, primarily due to an
increase in the total compensation and benefits for our administrative staff as a result of
our hiring of over 280 new employees in the areas of finance and accounting, human
resources and general administration to support our expanded operations in 2007.
  46




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##### Table of Contents



Income from Operations
 Interest Income (Expense), Net
 Foreign Exchange Gain (Loss), Net
 Income Tax Expense
 Minority
Interests
 Net Income
 Liquidity and Capital Resources
    For the Year Ended December 31,2006
    
    
    2007
    
    
    2008RMB
    
    
    RMB
    
    
    RMB
    
    
    US$(in thousands)Net cash provided by operating activities
    
    
    161,972
    
    
    
    214,631
    
    
    
    356,886
    
    
    
    52,310Net cash used in investing activities
    
    
    (213,795
    )
    
    
    (613,419
    )
    
    
    (964,315
    )
    
    
    (141,342
    )Net cash provided by/used in financing activities
    
    
    779,089
    
    
    
    1,256,606
    
    
    
    (281,202
    )
    
    
    (41,216
    )Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    (6,990
    )
    
    
    (53,221
    )
    
    
    (65,524
    )
    
    
    (9,604
    )Net increase/(decrease) in cash and cash equivalents
    
    
    720,276
    
    
    
    804,597
    
    
    
    (954,155
    )
    
    
    (139,852
    )Cash and cash equivalents at beginning of period
    
    
    37,727
    
    
    
    758,003
    
    
    
    1,562,600
    
    
    
    229,034Cash and cash equivalents at end of the period
    
    
    758,003
    
    
    
    1,562,600
    
    
    
    608,445
    
    
    
    89,182
  47




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##### Table of Contents



Operating Activities
    Investing Activities
  Financing Activities
   Capital Expenditures
  Research and Development, Patents and Licenses, Etc.
 Intellectual Property
 
  48




---



##### Table of Contents



Trend Information
  Off-balance Sheet Arrangements
  Tabular Disclosure of Contractual Obligations
  Payment Due by PeriodMoreLess than
    
    
    
    
    
    
    
    
    
    
    than 5Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    years(in RMB millions)Convertible bonds
    
    
    895
    
    
    
    
    
    
    
    895
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    7,044
    
    
    
    556
    
    
    
    1,717
    
    
    
    1,712
    
    
    
    3,059Purchase obligations
    
    
    83
    
    
    
    83
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    8,022
    
    
    
    639
    
    
    
    2,612
    
    
    
    1,712
    
    
    
    3,059
   49




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##### Table of Contents



Safe Harbor
   
    
    our anticipated growth strategies;
 
    
    our future business development, results of operations and financial condition;
 
    
    expected changes in our revenues and certain cost or expense items;
 
    
    our ability to attract customers and leverage our brand;
 
    
    trends and competition in the lodging industry; and
 
    
    our ability to develop new hotels at desirable locations in a timely and cost-effective
manner.
  
 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 Directors and Senior Management
  Name
    
    Age
    
    Position/TitleYunxin Mei
    
    60
    
    Co-Chairman of the Board of DirectorsNeil Nanpeng Shen
    
    41
    
    Co-Founder, Co-Chairman of the Board of DirectorsDavid Jian Sun
    
    44
    
    Chief Executive Officer, DirectorMay Wu
    
    41
    
    Chief Financial OfficerJason Zong
    
    44
    
    Chief Operating OfficerRixin Liang
    
    54
    
    Chief Branding OfficerMin Bao
    
    49
    
    Independent DirectorJames Jianzhang Liang
    
    39
    
    Co-Founder, Independent DirectorKenneth Gaw
    
    38
    
    Independent DirectorTerry Yongmin Hu
    
    39
    
    Independent Director
  50




---



##### Table of Contents



Yunxin Mei
 Neil Nanpeng Shen
 David Jian Sun
 May Wu
 Jason Zong
 Rixin Liang
 Min Bao
  51




---



##### Table of Contents



James Jianzhang Liang
 Kenneth Gaw
 Terry Yongmin Hu
 Employment Agreements
   Compensation of Directors and Executive Officers
   52




---



##### Table of Contents



Share Incentives
 Option Plan
 Plan Administration
 Stock Option and Stock Purchase Right Agreements
 Eligibility
 Acceleration of Options upon Corporate Transactions
 Term of the Options
 Vesting Schedule
 Transfer Restrictions
 Termination of the Option 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;
  53




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##### Table of Contents




    
    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
 Plan Administration
 Award Agreement
 Acceleration of Awards upon Corporate Transactions
 Exercise Price and Term of Awards
  Amendment and Termination
  54




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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
    
    
    
    5.50
    
    
    
    10/2/2006
    
    
    
    10/1/20117,500
    
    
    
    17.395
    
    
    
    4/20/2007
    
    
    
    4/19/201246,500
    
    
    
    3.63
    *
    
    
    10/27/2008
    
    
    
    10/26/2013Neil Nanpeng Shen
    
    
    100,000
    
    
    
    0.3309
    
    
    
    1/1/2005
    
    
    
    12/31/2009150,000
    
    
    
    2.72
    
    
    
    3/17/2006
    
    
    
    3/16/201150,000
    
    
    
    5.50
    
    
    
    10/2/2006
    
    
    
    10/1/20117,500
    
    
    
    17.395
    
    
    
    4/20/2007
    
    
    
    4/19/201246,500
    
    
    
    3.63
    *
    
    
    10/27/2008
    
    
    
    10/26/2013David Jian Sun
    
    
    271,000
    
    
    
    0.3309
    
    
    
    1/1/2005
    
    
    
    12/31/2009109,000
    
    
    
    2.25
    
    
    
    12/1/2005
    
    
    
    11/30/201070,000
    
    
    
    2.72
    
    
    
    3/17/2006
    
    
    
    3/16/2011142,500
    
    
    
    5.50
    
    
    
    10/2/2006
    
    
    
    10/1/201130,000
    
    
    
    17.395
    
    
    
    4/20/2007
    
    
    
    4/19/2012170,000
    
    
    
    3.63
    *
    
    
    10/27/2008
    
    
    
    10/26/2013May Wu
    
    
    300,000
    
    
    
    1.53
    
    
    
    3/1/2006
    
    
    
    2/28/2011142,500
    
    
    
    5.50
    
    
    
    10/2/2006
    
    
    
    10/1/201126,000
    
    
    
    17.395
    
    
    
    4/20/2007
    
    
    
    4/19/2012150,000
    
    
    
    3.63
    *
    
    
    10/27/2008
    
    
    
    10/26/2013Jason Zong
    
    
    200,000
    
    
    
    5.50
    
    
    
    10/2/2006
    
    
    
    10/1/201112,500
    
    
    
    17.395
    
    
    
    4/20/2007
    
    
    
    4/19/2012101,500
    
    
    
    3.63
    *
    
    
    10/27/2008
    
    
    
    10/26/2013Rixin Liang
    
    
    158,858
    
    
    
    0.232
    
    
    
    3/1/2003
    
    
    
    2/28/2008105,844
    
    
    
    0.3309
    
    
    
    3/1/2004
    
    
    
    2/28/200975,298
    
    
    
    2.25
    
    
    
    12/1/2005
    
    
    
    11/30/201010,000
    
    
    
    16.64
    
    
    
    12/26/2006
    
    
    
    12/25/201117,500
    
    
    
    17.395
    
    
    
    4/20/2007
    
    
    
    4/19/2012130,500
    
    
    
    3.63
    *
    
    
    10/27/2008
    
    
    
    10/26/2013Min 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
    
    
    
    10/26/2013James 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
    
    
    
    10/26/2013Kenneth 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
    
    
    
    10/26/2013Terry 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
    
    
    
    10/26/2013Other individuals as a group
    
    
    4,787,662
    
    
    
    
    *
 *
    
    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. Board Practices
    55




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##### Table of Contents



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.
  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
   56




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##### Table of Contents



Terms of Directors and Officers
  Employees
  Share Ownership
  
    
    each of our directors and executive officers; and
 
    
    each person known to us to own beneficially more than 5% of our ordinary shares.
 Shares Beneficially OwnedNumber(1)
    
    
    %(2)Directors and Executive Officers:Neil Nanpeng Shen(3)
    
    
    4,900,389
    
    
    
    6.8James Jianzhang Liang(4)
    
    
    3,972,250
    
    
    
    5.6Rixin Liang(5)
    
    
    679,218
    
    
    
    *David Jian Sun(6)
    
    
    648,056
    
    
    
    *May Wu(7)
    
    
    297,021
    
    
    
    *Yunxin Mei(8)
    
    
    126,000
    
    
    
    *Min Bao(9)
    
    
    49,850
    
    
    
    *Kenneth Gaw(10)
    
    
    39,000
    
    
    
    *Terry Yongmin Hu(11)
    
    
    4,000
    
    
    
    *Jason Zong(12)
    
    
    112,500
    
    
    
    *All Directors and Executive Officers as a Group(13)
    
    
    10,828,284
    
    
    
    15.0Principal Shareholders:Poly Victory Investments Limited(14)
    
    
    13,805,809
    
    
    
    19.3Ctrip.com International, Ltd.(15)
    
    
    6,187,720
    
    
    
    8.7Maverick Capital, Ltd.(16)
    
    
    5,911,922
    
    
    
    8.3Yijun Liu(17)
    
    
    5,176,660
    
    
    
    7.2Chung Lau(18)
    
    
    3,915,750
    
    
    
    5.5
 
 *
    
    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) 71,413,780, which was the
number of ordinary shares outstanding as of March 31, 2009, (ii) the number of restricted
shares held by such person or group that will become vested within 60 days after March 31,
2009 and (iii) the number of ordinary shares underlying share options held by such person or
group that are exercisable within 60 days after March 31, 2009.(3)
    
    Includes 3,955,389 ordinary shares and 350,000 ADSs representing 700,000 ordinary shares held
by Max Wealth Enterprise Limited, a British Virgin Islands company solely owned and controlled
Mr. Shen, and 245,000 ordinary shares issuable upon
exercise of options held by Mr. Shen that are exercisable within 60 days after March 31, 2009.
The business address of Mr. Shen is Suite 2215, Two Pacific Place, 88 Queensway Road, Hong
Kong.  57




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##### Table of Contents



(4)
    
    Includes 3,915,750 ordinary shares held by Ms. Lau, Mr. Liangs wife, and 56,500 ordinary
shares issuable upon exercise of options held by Mr. Liang that are exercisable within 60 days
after March 31, 2009. Mr. Liang disclaims the beneficial ownership of all the shares held by
his wife. The business address of Mr. Liang is Ctrip.com International, Ltd., 99 Fu Quan
Road, Shanghai 2000335, Peoples Republic of China.(5)
    
    Includes 651,718 ordinary shares held by Ms. Liang as well as 27,500 ordinary shares issuable
upon exercise of options held by Ms. Liang that are exercisable within 60 days after March 31,
2009. Does not include 18,825 restricted shares that will not become vested within 60 days
after March 31, 2009. The business address of Ms. Liang is No. 124, Caobao Road, Xuhui
District, Shanghai 200235, Peoples Republic of China.(6)
    
    Includes 494,306 ordinary shares held by Peace Unity Investments Limited, a company solely
owned and controlled by Mr. Sun, as well as 153,750 ordinary shares issuable upon exercise of
options held by Mr. Sun that are exercisable within 60 days after March 31, 2009. Does not
include 27,250 restricted shares that will not become vested within 60 days after March 31,
2009. The business address of Mr. Sun is No. 124, Caobao Road, Xuhui District, Shanghai
200235, Peoples Republic of China.(7)
    
    Includes 109,771 ordinary shares held by Ms. Wu and 90,000 ordinary shares held by Spring
Crest Group Limited, which is controlled by Ms. Wus mother, Ruiwen Jin, as well as 97,250
ordinary shares issuable upon exercise of options held by Ms. Wu that are exercisable within
60 days after March 31, 2009. Does not include 75,000 restricted shares that will not become
vested within 60 days after March 31, 2009. The business address of Ms. Wu is No. 124, Caobao
Road, Xuhui District, Shanghai 200235, Peoples Republic of China.(8)
    
    Includes 31,000 ordinary shares held by Mr. Mei and 95,000 ordinary shares issuable upon
exercise of options held by Mr. Mei that are exercisable within 60 days after March 31, 2009.
The business address of Mr. Mei is No.10 Yabao Road, Chaoyang District, Beijing 100020,
Peoples Republic of China.(9)
    
    Includes 10,850 ordinary shares held by Mr. Bao and 39,000 ordinary shares issuable upon
exercise of options held by Mr. Bao that are exercisable within 60 days after March 31, 2009.
The business address of Mr. Bao is No.10 Yabao Road, Chaoyang District, Beijing 100020,
Peoples Republic of China.(10)
    
    Includes 39,000 ordinary shares issuable upon exercise of options held by Mr. Gaw that are
exercisable within 60 days after March 31, 2009. The business address of Mr. Gaw is 22nd
Floor, 1 Lyndhurst Tower, No. 1 Lyndhurst Terrace, Central, Hong Kong.(11)
    
    Includes 4,000 ordinary shares issuable upon exercise of options held by Mr. Hu that are
exercisable within 60 days after March 31, 2009. The business address of Mr. Hu is Suite 906
ICBC Tower, 3 Garden Road, Central, Hong Kong.(12)
    
    Includes 112,500 ordinary shares issuable upon exercise of options held by Mr. Zong that are
exercisable within 60 days after March 31, 2009. The business address of Mr. Zong is No. 124,
Caobao Road, Xuhui District, Shanghai 200235, Peoples Republic of China.(13)
    
    Includes ordinary shares, restricted shares that will become vested within 60 days after
March 31, 2009 and ordinary shares issuable upon exercise of all of the options that are
exercisable within 60 days after March 31, 2009 held by all of our directors and senior
executive officers as a group.(14)
    
    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.
Poly Victory Investment Limiteds registered office is at Palm Grove House, P.O. Box 432, Road
Town, Tortola, British Virgin Islands.(15)
    
    Based on the Schedule 13D/A filed with the SEC on
December 30, 2008. The ordinary shares are represented by 3,093,860 ADSs purchased by Ctrip
and its wholly-owned subsidiary.(16)
    
    Based on the Schedule 13G filed with the SEC on February
17, 2009.(17)
    
    Based on the Schedule 13G filed with the SEC on February
17, 2009. In addition to convertible bonds convertible into 178,177 ADSs representing 356,354
ordinary shares beneficially owned by Mr. Liu, this also includes 2,323,865 ADSs representing
4,647,730 ordinary shares and convertible bonds convertible into 86,288 ADSs representing
172,576 ordinary shares that may also be deemed to be beneficially owned by Prime Capital
Management Company (Cayman) Limited, Prime Capital Management Company Limited and Dragon
Billion China Master Fund. Mr. Liu is the director of Prime Capital Management Company
(Cayman) Limited and Prime Capital Management Company Limited and the fund manager of Dragon
Billion China Master Fund; Prime Capital Management Company (Cayman) Limited and Prime Capital
Management Company Limited are the investment manager and the investment adviser,
respectively, of Dragon Billion China Master Fund. The business address of Prime Capital
Management Company (Cayman) Limited and Dragon Billion China Master Fund is c/o Campbell
Corporate Services Limited, 4th Floor, Scotia Centre, P.O. Box 268, George Town, Grand Cayman
KY1-1104, Cayman Islands. The business address of Prime Capital Management Company Limited is
Unit 2303, 23rd Floor, Low Block, Grand Millennium Plaza, 181 Queens Road Central, Hong Kong.(18)
    
    Ms. Lau is the wife of our director, James Jianzhang Liang. The address of Ms. Lau is c/o
James Jianzhang Liang, Ctrip.com International, Ltd., 99 Fu Quan Road, Shanghai 2000335,
Peoples Republic of China.    58




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##### Table of Contents



ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 Major Shareholders
  Related Party Transactions
 Private Placement
    Shareholders Agreement
  Transactions with BTG
  Financing Transactions with BTG
 Rental Payments to Jian Guo Inns
 Acquisition of BTGs Remaining 4.41% Stake in Home Inns Beijing
  59




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##### Table of Contents



Transactions with Ctrip
   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
     60




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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
    
    
    
    7.00Quarterly Highs and LowsFirst Quarter 2007
    
    
    49.50
    
    
    
    33.74Second Quarter 2007
    
    
    37.39
    
    
    
    28.26Third Quarter 2007
    
    
    36.96
    
    
    
    24.00Fourth Quarter 2007
    
    
    50.08
    
    
    
    30.63First Quarter 2008
    
    
    36.00
    
    
    
    17.79Second Quarter 2008
    
    
    26.44
    
    
    
    17.56Third Quarter 2008
    
    
    19.03
    
    
    
    12.60Fourth Quarter 2008
    
    
    14.21
    
    
    
    7.00First Quarter 2009
    
    
    11.11
    
    
    
    7.50Monthly Highs and Lows2008October
    
    
    14.21
    
    
    
    7.00November
    
    
    11.71
    
    
    
    7.06December
    
    
    11.61
    
    
    
    8.042009January
    
    
    11.11
    
    
    
    7.50February
    
    
    9.15
    
    
    
    7.65March
    
    
    10.44
    
    
    
    7.60April
(through April 21)
    
    
    14.43
    
    
    
    9.37
 Plan of Distribution
  Markets
  Selling Shareholders
   61




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##### Table of Contents



Dilution
  Expenses of the Issue
  
 ITEM 10. ADDITIONAL INFORMATION
 Share Capital
  Memorandum and Articles of Association
  Material Contracts
  Exchange Controls
  Taxation
  Cayman Islands Taxation
  Hong Kong Taxation
   62




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##### Table of Contents



Peoples Republic of China Taxation
     United States Federal Income Taxation
   
    
    banks;
 
    
    certain financial institutions;
 
    
    regulated investment companies;
 
    
    real estate investment trusts;
 
    
    insurance companies;
 
    
    broker dealers;
 
    
    U.S. expatriates;
  63




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##### Table of Contents




    
    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.
     64




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Taxation of Dividends and Other Distributions on the ADSs or Ordinary Shares
    Taxation of Disposition of ADSs or Ordinary Shares
  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).
  65




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##### Table of Contents




    
    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.
     66




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##### Table of Contents



Information Reporting and Backup Withholding
   Dividends and Paying Agents
  Statement by Experts
  Documents on Display
  www.sec.gov
  67




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##### Table of Contents



Subsidiary Information
  
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
  Foreign Exchange Risk
     68




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##### Table of Contents



Inflation
  
 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  
 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
    69




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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
   70




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##### Table of Contents



ITEM 16B. CODE OF ETHICS
  
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  For the Year EndedDecember 31,2006
    
    
    2007
    
    
    2008(in thousands of RMB)Audit fees(1)
    
    
    10,310
    
    
    
    7,202
    
    
    
    7,315Audit-related fees(2)
    
    
    3,246
    
    
    
    4,546
    
    
    
    Tax fees
    
    
    
    
    
    
    
    
    
    
    All other fees
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Audit fees means the aggregate fees billed for professional services rendered by our
principal auditors for the audit of our annual financial statements and the review of our
comparative interim financial statements.(2)
    
    Audit related fees represents aggregate fees billed for professional services rendered by
our principal auditors for the assurance and related services, which mainly included the
review of registration documents in connection with our initial public offering in 2006, our
additional public offering and our convertible bond offering in 2007. de minimus
 
 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
   71




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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 (incorporated
by reference to Exhibit 3.2 from our F-1 registration statement (File No.
333-142190), as amended, initially filed with the SEC on April 18,
2007)2.1
    *
    
    Indenture, dated December 10, 2007, constituting RMB 1,110,000,000 USD
Settled Zero Coupon Convertible Senior Bonds due December 10, 20124.1
    
    
    Employment Agreement between the Registrant and James Zong (incorporated by
reference to Exhibit 4.1 of our annual report on Form 20-F (File No. 001-33082)
filed with the SEC on April 18, 2008)4.2
    
    
    Agreement for the Sale and Purchase of Hong Kong AI Home Hotel Investment
Limited dated October 21, 2007 (incorporated by reference to Exhibit 4.2 of our
annual report on Form 20-F (File No. 001-33082) filed with the SEC on
April 18, 2008)4.3
    
    
    English translation of Agreement for the Sale and Purchase of Shanghai Chuwen
Holding Investment Ltd. dated October 21, 2007 (incorporated by reference to
Exhibit 4.3 of our annual report on Form 20-F (File No. 001-33082) filed with
the SEC on April 18, 2008)8.1
    *
    
    Subsidiaries of the Registrant9.1
    
    
    Shareholders agreement, dated June 29, 2006 (incorporated by reference to
Exhibit 4.8 from our F-1 registration statement (File No. 333-142190), as
amended, initially filed with the SEC on April 18, 2007)11.1
    
    
    Code of Business Conduct and Ethics of the Registrant (incorporated by
reference to Exhibit 99.1 from our F-1 registration statement (File No. 333-137800), as amended, initially filed with the
SEC on October 4, 2006)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.  72




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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




---



##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 HOME INNS & HOTELS MANAGEMENT INC.
 PageConsolidated Financial StatementsReport
of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Statements of Operations for the Years Ended December 31, 2006, 2007 and 2008
    
    
    F-3Consolidated Balance Sheets as of December 31, 2007 and 2008
    
    
    F-4Consolidated Statements of Shareholders Equity for the Years Ended December 31, 2006, 2007 and 2008
    
    
    F-6Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2007 and 2008
    
    
    F-8Notes to the Consolidated Financial Statements
    
    
    F-10




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##### Table of Contents



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, 2006, 2007 AND 2008
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 Note
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2008US$ thousands(Note 2(d))Revenues:Leased-and-operated hotels
    
    
    
    
    
    
    567,895
    
    
    
    963,050
    
    
    
    1,771,762
    
    
    
    259,694Franchised-and-managed hotels
    
    
    
    
    
    
    20,605
    
    
    
    46,266
    
    
    
    99,779
    
    
    
    14,625Total revenues
    
    
    
    
    
    
    588,500
    
    
    
    1,009,316
    
    
    
    1,871,541
    
    
    
    274,319Less: Business tax and related surcharges
    
    
    
    
    
    
    (33,977
    )
    
    
    (60,302
    )
    
    
    (111,870
    )
    
    
    (16,397
    )Net revenues
    
    
    
    
    
    
    554,523
    
    
    
    949,014
    
    
    
    1,759,671
    
    
    
    257,922Operating costs and expenses:Leased-and-operated hotel costs Rents and utilities
    
    
    
    
    
    
    (171,576
    )
    
    
    (299,792
    )
    
    
    (643,694
    )
    
    
    (94,349
    )Personnel costs
    
    
    
    
    
    
    (87,981
    )
    
    
    (155,611
    )
    
    
    (337,837
    )
    
    
    (49,518
    )Depreciation and amortization
    
    
    
    
    
    
    (44,619
    )
    
    
    (85,600
    )
    
    
    (190,698
    )
    
    
    (27,951
    )Consumables, food and beverage
    
    
    
    
    
    
    (43,482
    )
    
    
    (84,053
    )
    
    
    (143,555
    )
    
    
    (21,041
    )Others
    
    
    
    
    
    
    (56,019
    )
    
    
    (98,644
    )
    
    
    (182,284
    )
    
    
    (26,718
    )Total leased-and-operated hotel costs
    
    
    
    
    
    
    (403,677
    )
    
    
    (723,700
    )
    
    
    (1,498,068
    )
    
    
    (219,577
    )Sales and marketing expenses
    
    
    
    
    
    
    (11,488
    )
    
    
    (19,632
    )
    
    
    (27,161
    )
    
    
    (3,981
    )General and administrative expenses
    
    
    
    
    
    
    (64,793
    )
    
    
    (99,026
    )
    
    
    (152,648
    )
    
    
    (22,374
    )Total operating costs and expenses
    
    
    
    
    
    
    (479,958
    )
    
    
    (842,358
    )
    
    
    (1,677,877
    )
    
    
    (245,932
    )Income from operations
    
    
    
    
    
    
    74,565
    
    
    
    106,656
    
    
    
    81,794
    
    
    
    11,990Interest income
    
    
    
    
    
    
    6,578
    
    
    
    31,717
    
    
    
    32,023
    
    
    
    4,694Interest expense
    
    
    
    
    
    
    (6,143
    )
    
    
    (7,168
    )
    
    
    (28,136
    )
    
    
    (4,124
    )Gain on buy-back of convertible bond
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    103,291
    
    
    
    15,140Other non-operating income
    
    2
    (aa)
    
    
    5,309
    
    
    
    8,434
    
    
    
    10,971
    
    
    
    1,608Foreign exchange loss, net
    
    
    2
    (c)
    
    
    (6,990
    )
    
    
    (53,221
    )
    
    
    (65,524
    )
    
    
    (9,604
    )Income before income tax expense and minority interests
    
    
    
    
    
    
    73,319
    
    
    
    86,418
    
    
    
    134,419
    
    
    
    19,704Income tax expense
    
    
    5
    
    
    
    (21,391
    )
    
    
    (45,035
    )
    
    
    (28,107
    )
    
    
    (4,120
    )Minority interests
    
    
    
    
    
    
    (5,034
    )
    
    
    (5,627
    )
    
    
    (5,087
    )
    
    
    (746
    )Net income
    
    
    
    
    
    
    46,894
    
    
    
    35,756
    
    
    
    101,225
    
    
    
    14,838Amount allocated to participating preference shareholders
    
    
    
    
    
    
    (16,174
    )
    
    
    
    
    
    
    
    
    
    
    Net income available to ordinary shareholders
    
    
    
    
    
    
    30,720
    
    
    
    35,756
    
    
    
    101,225
    
    
    
    14,838Earnings per share
    
    
    14 Basic
    
    
    
    
    
    
    0.86
    
    
    
    0.52
    
    
    
    1.43
    
    
    
    0.21 Diluted
    
    
    
    
    
    
    0.82
    
    
    
    0.47
    
    
    
    0.04
    
    
    
    0.01Weighted average ordinary shares outstanding Basic
    
    
    
    
    
    
    35,550,114
    
    
    
    68,323,370
    
    
    
    70,863,336
    
    
    
    70,863,336 Diluted
    
    
    
    
    
    
    37,530,332
    
    
    
    76,883,995
    
    
    
    78,037,433
    
    
    
    78,037,433Share-based compensation expense was included in the
statement of operations as follows:Leased-and-operated hotel costs  Personnel costs
    
    
    
    
    
    
    12
    
    
    
    11
    
    
    
    11
    
    
    
    2General and administrative expenses
    
    
    
    
    
    
    16,283
    
    
    
    15,060
    
    
    
    24,833
    
    
    
    3,640
   F-3




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 
 CONSOLIDATED BALANCE SHEETS
 AS OF DECEMBER 31, 2007 AND 2008
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 Note
    
    
    2007
    
    
    2008
    
    
    2008US$ thousands(Note 2(d))ASSETSCurrent assets:Cash and cash equivalents
    
    
    
    
    
    
    1,562,600
    
    
    
    608,445
    
    
    
    89,182Restricted cash
    
    
    
    
    
    
    173,849
    
    
    
    
    
    
    
    Short-term investment
    
    
    3
    
    
    
    
    
    
    
    100,000
    
    
    
    14,657Accounts receivable
    
    
    2
    (h)
    
    
    16,913
    
    
    
    23,263
    
    
    
    3,410Receivables from related parties
    
    
    15
    
    
    
    1,372
    
    
    
    1,617
    
    
    
    237Consumables
    
    
    
    
    
    
    18,992
    
    
    
    26,885
    
    
    
    3,941Prepayments and other current assets, net of allowance
    
    
    4, 2
    (h)
    
    
    61,927
    
    
    
    63,904
    
    
    
    9,370Deferred tax assets, current
    
    
    5
    
    
    
    16,574
    
    
    
    41,824
    
    
    
    6,130Total current assets
    
    
    
    
    
    
    1,852,227
    
    
    
    865,938
    
    
    
    126,927Property and equipment, net
    
    
    6
    
    
    
    1,147,682
    
    
    
    1,950,900
    
    
    
    285,951Goodwill
    
    
    7
    
    
    
    397,778
    
    
    
    390,882
    
    
    
    57,293Intangible assets, net
    
    
    8
    
    
    
    46,739
    
    
    
    44,977
    
    
    
    6,592Other assets
    
    
    
    
    
    
    68,088
    
    
    
    33,177
    
    
    
    4,863Deferred tax assets, non-current
    
    
    5
    
    
    
    49,024
    
    
    
    77,580
    
    
    
    11,371Total assets
    
    
    
    
    
    
    3,561,538
    
    
    
    3,363,454
    
    
    
    492,997LIABILITIESCurrent liabilities:Accounts payable
    
    
    
    
    
    
    13,007
    
    
    
    22,438
    
    
    
    3,289Payables to related parties
    
    
    15
    
    
    
    6,651
    
    
    
    6,668
    
    
    
    977Short-term borrowings
    
    
    9
    
    
    
    269,000
    
    
    
    
    
    
    
    Salaries and welfare payable
    
    
    
    
    
    
    48,260
    
    
    
    69,635
    
    
    
    10,207Income tax payable
    
    
    
    
    
    
    43,083
    
    
    
    52,458
    
    
    
    7,689Other taxes payable
    
    
    
    
    
    
    8,901
    
    
    
    12,691
    
    
    
    1,860Deferred revenues
    
    
    
    
    
    
    23,807
    
    
    
    38,082
    
    
    
    5,582Accruals for customer reward program
    
    
    2
    (p)
    
    
    5,439
    
    
    
    8,587
    
    
    
    1,259Other unpaid and accruals
    
    
    10
    
    
    
    36,570
    
    
    
    52,220
    
    
    
    7,654Other payables
    
    
    10
    
    
    
    350,204
    
    
    
    376,739
    
    
    
    55,220Total current liabilities
    
    
    
    
    
    
    804,922
    
    
    
    639,518
    
    
    
    93,737
   F-4




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF DECEMBER 31, 2007 AND 2008
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 Note
    
    
    2007
    
    
    2008
    
    
    2008US$ thousands(Note 2(d))Deferred rental
    
    
    
    
    
    
    94,226
    
    
    
    136,825
    
    
    
    20,055Deferred revenues, non-current
    
    
    
    
    
    
    14,031
    
    
    
    22,697
    
    
    
    3,327Long-term loan
    
    
    9
    
    
    
    18,036
    
    
    
    
    
    
    
    Deposits from franchised-and-managed hotels
    
    
    
    
    
    
    
    
    
    
    13,741
    
    
    
    2,014Unfavorable lease liability
    
    
    
    
    
    
    19,894
    
    
    
    16,017
    
    
    
    2,348Convertible bond
    
    
    11
    
    
    
    1,110,308
    
    
    
    895,696
    
    
    
    131,286Deferred tax liability, non-current
    
    
    5
    
    
    
    13,637
    
    
    
    12,279
    
    
    
    1,800Total liabilities
    
    
    
    
    
    
    2,075,054
    
    
    
    1,736,773
    
    
    
    254,567Minority interest
    
    
    
    
    
    
    11,087
    
    
    
    19,073
    
    
    
    2,796Commitments and contingencies
    
    
    16Shareholders equityOrdinary shares (US$0.005 par value;
200,000,000 shares authorized, 70,487,385
and 71,212,795 shares issued and
outstanding as of December 31, 2007 and
2008, respectively)
    
    
    12
    
    
    
    2,874
    
    
    
    2,899
    
    
    
    425Additional paid-in capital
    
    
    
    
    
    
    1,362,942
    
    
    
    1,393,903
    
    
    
    204,310Statutory reserves
    
    
    
    
    
    
    41,333
    
    
    
    49,994
    
    
    
    7,328Retained earnings
    
    
    
    
    
    
    68,248
    
    
    
    160,812
    
    
    
    23,571Total shareholders equity
    
    
    
    
    
    
    1,475,397
    
    
    
    1,607,608
    
    
    
    235,634Total liabilities and shareholders equity
    
    
    
    
    
    
    3,561,538
    
    
    
    3,363,454
    
    
    
    492,997
   F-5




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 Preferred Shares
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    TotalSeries A
    
    
    Series B
    
    
    Series C
    
    
    Ordinary shares
    
    
    paid-in
    
    
    Statutory
    
    
    share-based
    
    
    Retained
    
    
    share-holdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    capital
    
    
    reserves
    
    
    compensation
    
    
    earnings
    
    
    equityBalance as of January 1, 2006
    
    
    17,241,400
    
    
    
    714
    
    
    
    2,417,645
    
    
    
    100
    
    
    
    3,265,841
    
    
    
    135
    
    
    
    27,399,140
    
    
    
    1,134
    
    
    
    152,879
    
    
    
    11,360
    
    
    
    (2,810
    )
    
    
    15,571
    
    
    
    179,083Adjustment as a result of adoption
of SFAS No.123(R) (Note 2(v))
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,810
    )
    
    
    
    
    
    
    2,810
    
    
    
    
    
    
    
    Issuance of ordinary shares in a
private placement (Note 12)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,834,037
    
    
    
    113
    
    
    
    72,369
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,482Issuance of ordinary shares in an
initial public offering (Note 12)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,748,474
    
    
    
    463
    
    
    
    580,789
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    581,252Conversion of convertible preferred
shares to ordinary shares (Note 12)
    
    
    (17,241,400
    )
    
    
    (714
    )
    
    
    (2,417,645
    )
    
    
    (100
    )
    
    
    (3,265,841
    )
    
    
    (135
    )
    
    
    22,924,886
    
    
    
    949
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock purchase right
(Note 13)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    806,302
    
    
    
    32
    
    
    
    6,579
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,611Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,894
    
    
    
    46,894Recognition of share-based
compensation costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,416
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,416Appropriations to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,054
    
    
    
    
    
    
    
    (12,054
    )
    
    
    Balance as of December 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,712,839
    
    
    
    2,691
    
    
    
    813,222
    
    
    
    23,414
    
    
    
    
    
    
    
    50,411
    
    
    
    889,738
   F-6




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 Preferred Shares
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    TotalSeries A
    
    
    Series B
    
    
    Series C
    
    
    Ordinary shares
    
    
    paid-in
    
    
    Statutory
    
    
    share-based
    
    
    Retained
    
    
    share-holdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    capital
    
    
    reserves
    
    
    compensation
    
    
    earnings
    
    
    equityBalance as of December 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,712,839
    
    
    
    2,691
    
    
    
    813,222
    
    
    
    23,414
    
    
    
    
    
    
    
    50,411
    
    
    
    889,738Issuance of ordinary shares to
acquire additional shares of Home
Inns Beijing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    441,669
    
    
    
    17
    
    
    
    53,187
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,204Issuance of ordinary shares in the
acquisition of Top Star
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    655,831
    
    
    
    25
    
    
    
    105,997
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106,022Issuance of ordinary shares in a
secondary offering (Note 12)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,956,310
    
    
    
    114
    
    
    
    370,265
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    370,379Exercise of stock purchase right
(Note 13)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    255,000
    
    
    
    10
    
    
    
    2,316
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,326Exercise of stock option (Note 13)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    465,736
    
    
    
    17
    
    
    
    2,884
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,901Recognition of share-based
compensation costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,071
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,071Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,756
    
    
    
    35,756Appropriations to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,919
    
    
    
    
    
    
    
    (17,919
    )
    
    
    Balance as of December 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70,487,385
    
    
    
    2,874
    
    
    
    1,362,942
    
    
    
    41,333
    
    
    
    
    
    
    
    68,248
    
    
    
    1,475,397Exercise of stock purchase right
(Note 13)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    215,286
    
    
    
    8
    
    
    
    1,982
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,990Exercise of stock option (Note 13)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    510,124
    
    
    
    17
    
    
    
    4,135
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,152Recognition of share-base
compensation costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,844
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,844Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,225
    
    
    
    101,225Appropriations to statutory reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,661
    
    
    
    
    
    
    
    (8,661
    )
    
    
    Balance as of December 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,212,795
    
    
    
    2,899
    
    
    
    1,393,903
    
    
    
    49,994
    
    
    
    
    
    
    
    160,812
    
    
    
    1,607,608
   F-7




---



##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 2006
    
    
    2007
    
    
    2008
    
    
    2008US$ thousands(Note 2(d))Cash flows from operating activities:Net income
    
    
    46,894
    
    
    
    35,756
    
    
    
    101,225
    
    
    
    14,838Adjustments to reconcile net income to net cash provided by
operating activities:Share-based compensation
    
    
    16,295
    
    
    
    15,071
    
    
    
    24,844
    
    
    
    3,642Depreciation and amortization
    
    
    46,603
    
    
    
    87,618
    
    
    
    199,989
    
    
    
    29,313Foreign exchange loss, net
    
    
    6,990
    
    
    
    53,221
    
    
    
    65,524
    
    
    
    9,604Minority interests
    
    
    5,034
    
    
    
    5,627
    
    
    
    5,087
    
    
    
    746Loss from disposal of property and equipment
    
    
    192
    
    
    
    4,030
    
    
    
    2,315
    
    
    
    339Gain on buy-back of convertible bond
    
    
    
    
    
    
    
    
    
    
    (103,290
    )
    
    
    (15,140
    )Deferred income tax
    
    
    (17,345
    )
    
    
    (23,632
    )
    
    
    (55,572
    )
    
    
    (8,145
    )Change in assets and liabilities, net of effects of acquisitions:Decrease in restricted cash
    
    
    1,900
    
    
    
    
    
    
    
    
    
    
    
    Increase in accounts receivable
    
    
    (5,772
    )
    
    
    (6,126
    )
    
    
    (6,163
    )
    
    
    (903
    )Increase in receivables from related parties
    
    
    (182
    )
    
    
    (1,174
    )
    
    
    (245
    )
    
    
    (36
    )Increase in consumables
    
    
    (6,601
    )
    
    
    (2,878
    )
    
    
    (7,391
    )
    
    
    (1,083
    )(Increase)/decrease in prepayments and other current assets
    
    
    (5,046
    )
    
    
    (22,098
    )
    
    
    1,116
    
    
    
    163(Increase)/decrease in other assets
    
    
    (1,207
    )
    
    
    (10,121
    )
    
    
    19,017
    
    
    
    2,787Increase/(decrease) in accounts payable
    
    
    5,528
    
    
    
    (9,051
    )
    
    
    7,260
    
    
    
    1,064Increase/(decrease) in payables to related parties
    
    
    25
    
    
    
    (739
    )
    
    
    17
    
    
    
    2Increase in salaries and welfare payable
    
    
    14,203
    
    
    
    21,309
    
    
    
    21,236
    
    
    
    3,113Increase in income tax payable
    
    
    7,010
    
    
    
    22,421
    
    
    
    9,375
    
    
    
    1,374Increase in other taxes payable
    
    
    2,533
    
    
    
    4,353
    
    
    
    3,718
    
    
    
    545Increase in accruals for customer reward program
    
    
    1,967
    
    
    
    2,696
    
    
    
    3,148
    
    
    
    461Increase/(decrease) in other payables and accruals
    
    
    13,211
    
    
    
    (6,987
    )
    
    
    (18,993
    )
    
    
    (2,785
    )Increase in deferred revenues, current and non-current
    
    
    12,170
    
    
    
    18,752
    
    
    
    22,941
    
    
    
    3,363Increase in deferred rental
    
    
    17,570
    
    
    
    26,275
    
    
    
    42,599
    
    
    
    6,244Increase in deposits from franchised-and-managed hotels, non-current
    
    
    
    
    
    
    
    
    
    
    13,741
    
    
    
    2,014Increase in interest accruals for convertible bond
    
    
    
    
    
    
    308
    
    
    
    5,388
    
    
    
    790Net cash provided by operating activities
    
    
    161,972
    
    
    
    214,631
    
    
    
    356,886
    
    
    
    52,310
   F-8




---



##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 2006
    
    
    2007
    
    
    2008
    
    
    2008US$ thousands(Note 2(d))Cash flows from investing activities:Proceeds from sale of fixed assets
    
    
    71
    
    
    
    859
    
    
    
    1,657
    
    
    
    243Purchase of property and equipment
    
    
    (212,625
    )
    
    
    (462,295
    )
    
    
    (828,484
    )
    
    
    (121,434
    )Purchase of intangible assets
    
    
    (1,241
    )
    
    
    (5,236
    )
    
    
    (3,905
    )
    
    
    (572
    )Cash paid for short term investments (Note 3)
    
    
    
    
    
    
    
    
    
    
    (100,000
    )
    
    
    (14,657
    )Net cash used for the acquisition of subsidiaries
    
    
    
    
    
    
    (146,747
    )
    
    
    (33,583
    )
    
    
    (4,922
    )Net cash used in investing activities
    
    
    (213,795
    )
    
    
    (613,419
    )
    
    
    (964,315
    )
    
    
    (141,342
    )Cash flows from financing activities:Net proceeds from issuance of ordinary shares
    
    
    650,588
    
    
    
    366,866
    
    
    
    
    
    
    
    Proceeds from share option exercise
    
    
    
    
    
    
    1,917
    
    
    
    4,872
    
    
    
    714Net proceeds from issuance of convertible bond
    
    
    
    
    
    
    1,082,268
    
    
    
    
    
    
    
    Buy-back of convertible bond
    
    
    
    
    
    
    
    
    
    
    (113,370
    )
    
    
    (16,617
    )Payment for bond offering related transaction costs
    
    
    
    
    
    
    
    
    
    
    (4,885
    )
    
    
    (716
    )Repayment of acquired subsidiaries debts to original shareholders
    
    
    
    
    
    
    (84,000
    )
    
    
    (52,467
    )
    
    
    (7,690
    )Restricted cash paid and collected for short-term borrowings
    
    
    
    
    
    
    (173,849
    )
    
    
    173,849
    
    
    
    25,482Proceeds from short-term borrowings
    
    
    190,000
    
    
    
    768,000
    
    
    
    340,000
    
    
    
    49,835Proceeds from long-term loans from a related party
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    Advance from a related party
    
    
    6,747
    
    
    
    
    
    
    
    
    
    
    
    Repayment of short-term borrowings
    
    
    (86,000
    )
    
    
    (643,000
    )
    
    
    (609,000
    )
    
    
    (89,263
    )Repayment of long-term loan
    
    
    
    
    
    
    (60,000
    )
    
    
    (18,036
    )
    
    
    (2,644
    )Dividend paid by VIE subsidiaries to minority shareholders
    
    
    (2,246
    )
    
    
    (1,877
    )
    
    
    (3,515
    )
    
    
    (515
    )Other financing activities
    
    
    
    
    
    
    281
    
    
    
    1,350
    
    
    
    198Net cash provided/(used) by financing activities
    
    
    779,089
    
    
    
    1,256,606
    
    
    
    (281,202
    )
    
    
    (41,216
    )Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    (6,990
    )
    
    
    (53,221
    )
    
    
    (65,524
    )
    
    
    (9,604
    )Net increase/(decrease) in cash
    
    
    720,276
    
    
    
    804,597
    
    
    
    (954,155
    )
    
    
    (139,852
    )Cash, beginning of year
    
    
    37,727
    
    
    
    758,003
    
    
    
    1,562,600
    
    
    
    229,034Cash, end of year
    
    
    758,003
    
    
    
    1,562,600
    
    
    
    608,445
    
    
    
    89,182Supplemental disclosure of cash flow informationCash paid during the year for income taxes
    
    
    (31,726
    )
    
    
    (45,977
    )
    
    
    (73,897
    )
    
    
    (10,831
    )Cash paid during the year for interest
    
    
    (6,143
    )
    
    
    (7,168
    )
    
    
    (7,733
    )
    
    
    (1,133
    )Supplemental schedule of non-cash investing and financing activities:Increase in payables for property and equipment
    
    
    24,035
    
    
    
    113,677
    
    
    
    163,967
    
    
    
    24,033Increase in accruals for share issuance costs
    
    
    3,763
    
    
    
    
    
    
    
    
    
    
    
    Decrease in advance from related parties on issuance of ordinary shares
    
    
    642
    
    
    
    
    
    
    
    
    
    
    
    Issuance of ordinary shares related to acquisition of 4.412% in
Home Inns Beijing
    
    
    
    
    
    
    53,204
    
    
    
    
    
    
    
    Issuance of ordinary shares related to acquisition of Top Star
    
    
    
    
    
    
    106,022
    
    
    
    
    
    
    
    
   F-9




---



##### Table of Contents



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




---



##### 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. ACCOUNTING POLICIES
  a. Basis of presentation and use of estimates
   b. Basis of consolidation and accounting for investments
         F-11




---



##### 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
  i. Consumables
   F-12




---



##### 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)
 j. Property and equipment, net
 Capitalization of Interest Costs
  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. Goodwill
 Goodwill and Other Intangible Assets
 l. Intangible assets, net
 Business Combinations
  m. Impairment of long-lived assets and definite-lived intangible assets
 Accounting for the Impairment or Disposal of
Long-lived Assets
  F-13




---



##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 n. Fair value of financial instruments
 (Note 11).
 o. Employee benefits
  p. Accruals for customer reward program
  q. Deferred Revenue
  r. Revenue recognition
      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)
 s. Business tax and related surcharge
  t. Leased-and-operated hotel costs
  u. Sales and marketing expenses
  v. Share-based compensation
   w. Operating leases
  x. Borrowing costs
  y. Pre-operating expenditure
   F-15




---



##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 z. Taxation
  aa. Other non-operating income
  ab. Statutory reserves
    ac. Dividends
    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)
 ad. Earnings per share
  ae. Segment reporting
   af. Recent accounting pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets
and Financial Liabilities
 Business Combinations Accounting and Reporting of Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB 51
   F-17




---



##### 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)
 ag. Certain risks and concentration
  3. SHORT TERM INVESTMENT
  4. PREPAYMENTS AND OTHER CURRENT ASSETS
  2007
    
    
    2008Prepayment for rental expenses
    
    
    31,891
    
    
    
    16,683Convertible bonds issuance cost
    
    
    
    
    
    
    11,699Prepayment for utility and telecom expenses
    
    
    5,237
    
    
    
    11,122Prepayment for advertisement, consultation and insurance
    
    
    1,554
    
    
    
    4,081Deposits for utility expenses
    
    
    1,251
    
    
    
    2,782Employee advances
    
    
    2,965
    
    
    
    2,496Interest receivable
    
    
    5,462
    
    
    
    133Receivables related to acquisition of Top Star Hotel Chain
    
    
    4,500
    
    
    
    Other current assets
    
    
    9,067
    
    
    
    14,908Total
    
    
    61,927
    
    
    
    63,904
  F-18




---



##### 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. INCOME TAXES
 Cayman Islands
  Hong Kong
  PRC
   Composition of income tax expense
  2006
    
    
    2007
    
    
    2008Current income tax expense
    
    
    38,736
    
    
    
    68,667
    
    
    
    83,679Deferred income tax benefit
    
    
    (17,345
    )
    
    
    (23,632
    )
    
    
    (55,572
    )Income tax expense
    
    
    21,391
    
    
    
    45,035
    
    
    
    28,107
  F-19




---



##### 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
  2006
    
    
    2007
    
    
    2008Statutory CIT rate
    
    
    33
    %
    
    
    33
    %
    
    
    25
    %Tax differential from statutory rate applicable to
subsidiaries in the PRC
    
    
    (18
    %)
    
    
    (27
    %)
    
    
    (5
    %)Impacts from changed CIT rate from 33% to 25%
    
    
    
    
    
    
    18
    %
    
    
    Permanent difference (non-deductible expenses)
    
    
    14
    %
    
    
    28
    %
    
    
    21
    %Permanent difference (gain on buy-back of convertible bond)
    
    
    
    
    
    
    
    
    
    
    (19
    %)CIT refund
    
    
    
    
    
    
    
    
    
    
    (1
    %)Effective CIT rate
    
    
    29
    %
    
    
    52
    %
    
    
    21
    %
  2007
    
    
    2008Deferred tax assets, current:Tax loss carry forwards
    
    
    10,813
    
    
    
    16,521Deductible temporary differences related to:-pre-operating expenses
    
    
    4,002
    
    
    
    16,264-rental expenses
    
    
    479
    
    
    
    671-deferred revenue, current
    
    
    
    
    
    
    7,366-accruals for customer reward program
    
    
    1,374
    
    
    
    2,147-others
    
    
    956
    
    
    
    1,002Valuation allowance
    
    
    (1,050
    )
    
    
    (2,147
    )16,574
    
    
    
    41,824Deferred tax assets, non-current:Tax loss carry forwards
    
    
    30,373
    
    
    
    31,456Deductible temporary differences related to:-rental expenses
    
    
    28,735
    
    
    
    46,235-pre-operating expenses
    
    
    15,108
    
    
    
    30,217-deferred revenue, non current
    
    
    7,390
    
    
    
    5,615-unfavorable lease
    
    
    3,283
    
    
    
    2,643-depreciation of property and equipment
    
    
    
    
    
    
    1,464-others
    
    
    437
    
    
    
    257Valuation allowance
    
    
    (36,302
    )
    
    
    (40,307
    )49,024
    
    
    
    77,580Total deferred tax assets
    
    
    65,598
    
    
    
    119,404Deferred tax liabilities, non-current:Taxable temporary differences related to intangible assets and other GAAP differences
    
    
    13,637
    
    
    
    12,279Total deferred tax liabilities
    
    
    13,637
    
    
    
    12,279
    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)
 6. PROPERTY AND EQUIPMENT
  2007
    
    
    2008Buildings
    
    
    9,814
    
    
    
    23,764Leasehold improvements
    
    
    895,414
    
    
    
    1,589,190Machinery and equipment
    
    
    68,876
    
    
    
    135,248Furniture, fixtures and office equipment
    
    
    193,403
    
    
    
    341,912Construction in progress
    
    
    161,583
    
    
    
    233,8891,329,090
    
    
    
    2,324,003Less: Accumulated depreciation
    
    
    (181,408
    )
    
    
    (373,103
    )Property and equipment, net
    
    
    1,147,682
    
    
    
    1,950,900
   7. GOODWILL
  2007
    
    
    2008Acquisition of Home Inns Beijing
    
    
    137,072
    
    
    
    137,072Acquisition of Top Star hotel chain (a)
    
    
    198,264
    
    
    
    191,368Other acquisitions
    
    
    62,442
    
    
    
    62,442Total goodwill
    
    
    397,778
    
    
    
    390,882
 (a)
    
    Acquisition of Top Star hotel chain  Amount as atDecember 31, 2008Amount at the
    
    
    after subsequentdate of acquisition
    
    
    adjustmentFair value of net tangible assets acquired
    
    
    170,404
    
    
    
    163,268Intangible assets-favorable lease
    
    
    18,345
    
    
    
    18,345Unfavorable lease liability
    
    
    (16,198
    )
    
    
    (13,724
    )Goodwill
    
    
    198,264
    
    
    
    191,368Deferred tax assets, non-current
    
    
    2,673
    
    
    
    2,265Deferred tax liability, non-current
    
    
    (3,027
    )
    
    
    (3,027
    )Total purchase price
    
    
    370,461
    
    
    
    358,495
   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)
 8. INTANGIBLE ASSETS AND UNFAVORABLE LEASE
  2007
    
    
    2008Intangible
assets, original cost Favorable lease agreements
    
    
    41,689
    
    
    
    41,689Franchise agreements
    
    
    804
    
    
    
    804Customer relationship
    
    
    83
    
    
    
    83Purchased software
    
    
    7,896
    
    
    
    11,89050,472
    
    
    
    54,466Less: Accumulated amortization Favorable lease agreements
    
    
    (1,497
    )
    
    
    (4,958
    )Franchise agreements
    
    
    (616
    )
    
    
    (788
    )Customer relationship
    
    
    (2
    )
    
    
    (8
    )Purchased software
    
    
    (1,618
    )
    
    
    (3,735
    )(3,733
    )
    
    
    (9,489
    )Intangible assets, net
    
    
    46,739
    
    
    
    44,977Unfavorable lease liability 
 2007
    
    
    2008Unfavorable lease agreements, original cost
    
    
    20,247
    
    
    
    17,773Less: Accumulated amortization
    
    
    (352
    )
    
    
    (1,756
    )Unfavorable lease liability, net
    
    
    19,895
    
    
    
    16,017
    Amortization for
    
    
    Amortization for
    
    
    NetIntangible Assets
    
    
    Unfavourable Lease
    
    
    Amortization2009
    
    
    5,721
    
    
    
    (1,379
    )
    
    
    4,3422010
    
    
    5,721
    
    
    
    (1,372
    )
    
    
    4,3492011
    
    
    5,605
    
    
    
    (1,334
    )
    
    
    4,2712012
    
    
    4,712
    
    
    
    (1,260
    )
    
    
    3,4522013
    
    
    3,532
    
    
    
    (1,110
    )
    
    
    2,42225,291
    
    
    
    (6,455
    )
    
    
    18,836
  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)
 9. BORROWINGS
 2007
    
    
    2008Short-term bank loans
    
    
    269,000
    
    
    
    
  2007
    
    
    2008Long-term bank loans
    
    
    18,036
    
    
    
    
  10. OTHER PAYABLES AND ACCRUALS
 2007
    
    
    2008Accrued expenses for utilities, rental expenses, professional fee and etc.
    
    
    34,424
    
    
    
    46,378Others
    
    
    2,146
    
    
    
    5,842Other unpaid and accruals-subtotal
    
    
    36,570
    
    
    
    52,220Payables on construction cost of leasehold improvement
    
    
    185,827
    
    
    
    350,292Payables related to acquisitions
    
    
    122,278
    
    
    
    10,790Payables to employees for exercised options
    
    
    17,693
    
    
    
    1,379Deposit from franchised-and-managed hotels, current
    
    
    6,859
    
    
    
    1,700Other Deposits
    
    
    497
    
    
    
    988Others
    
    
    17,050
    
    
    
    11,590Other payables-subtotal
    
    
    350,204
    
    
    
    376,739Total
    
    
    386,774
    
    
    
    428,959
  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)
 11. CONVERTIBLE BOND
          F-24




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##### Table of Contents



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




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 13. SHARE BASED COMPENSATION
    WeightedNumber of
    
    
    AverageRestricted
    
    
    Grant-DateStocks
    
    
    Fair Value (US$)Outstanding at the beginning of the year
    
    
    479,110
    
    
    US$
    1.9274Granted
    
    
    
    
    
    
    Vested
    
    
    (215,286
    )
    
    US$
    1.6785Forfeited
    
    
    
    
    
    
    Outstanding and unvested at the end of the year
    
    
    263,824
    
    
    US$
    2.1305
    F-26




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
    Weighted-
    
    
    AggregateWeighted
    
    
    average
    
    
    IntrinsicAverage
    
    
    remaining
    
    
    ValueExercise Price
    
    
    contractual life
    
    
    (US$Options
    
    
    (US$)
    
    
    (years)
    
    
    millions)Outstanding as of January 1, 2006
    
    
    2,831,886
    
    
    US$
    0.7830Granted
    
    
    1,927,000
    
    
    US$
    4.6871Exercised
    
    
    (520,412
    )
    
    US$
    0.4521Forfeited
    
    
    (19,588
    )
    
    US$
    1.7353Cancelled
    
    
    (1,020,000
    )
    
    US$
    1.0149Outstanding as of December 31, 2006
    
    
    3,198,886
    
    
    US$
    3.1092
    
    
    
    3.7
    
    
    US$
    50.1Vested and exercisable as of December 31, 2006
    
    
    1,019,826
    
    
    US$
    1.1192
    
    
    
    2.9
    
    
    US$
    18.0Outstanding as of December 31, 2006
    
    
    3,198,886
    
    
    US$
    3.1092
    
    
    
    3.7
    
    
    US$
    50.1Granted
    
    
    1,713,600
    
    
    US$
    17.4115Exercised
    
    
    (465,736
    )
    
    US$
    0.8340Forfeited
    
    
    (117,848
    )
    
    US$
    9.9779Cancelled
    
    
    (500
    )
    
    US$
    3.2000Outstanding as of December 31, 2007
    
    
    4,328,402
    
    
    US$
    8.8284
    
    
    
    3.5
    
    
    US$
    38.9Vested and exercisable as of December 31, 2007
    
    
    1,545,083
    
    
    US$
    4.8080
    
    
    
    2.9
    
    
    US$
    20.1Outstanding as of December 31, 2007
    
    
    4,328,402
    
    
    US$
    8.8284
    
    
    
    3.5
    
    
    US$
    38.9Granted
    
    
    1,373,200
    
    
    US$
    8.4543Exercised
    
    
    (510,124
    )
    
    US$
    1.1731Forfeited
    
    
    (86,808
    )
    
    US$
    12.5086Cancelled
    
    
    (2,444,000
    )
    
    US$
    14.0088Modified
    
    
    2,443,000
    
    
    US$
    3.6300Outstanding as of December 31, 2008
    
    
    5,103,670
    
    
    US$
    4.4353
    
    
    
    3.6
    
    
    US$
    (0.74
    )Vested and exercisable as of December 31, 2008
    
    
    1,512,594
    
    
    US$
    6.3937
    
    
    
    2.2
    
    
    US$
    (3.18
    )
   F-27




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
  Outstanding
    
    
    ExercisableWeighted-Weighted-
    
    
    
    
    
    
    average
    
    
    
    
    
    
    Weighted-average grant
    
    
    
    
    
    
    remaining
    
    
    
    
    
    
    averagedate fair value of
    
    
    Number of
    
    
    contractual
    
    
    Number of
    
    
    remainingExercise price
    
    ordinary shares
    
    
    shares
    
    
    life (years)
    
    
    shares
    
    
    contractualUS$0.3309
    
    US$
    0.5701
    
    
    
    382,884
    
    
    
    0.78
    
    
    
    335,234
    
    
    
    0.57US$1.531
    
    US$
    1.3327
    
    
    
    66,000
    
    
    
    1.50
    
    
    
    31,000
    
    
    
    1.53US$2.25
    
    US$
    1.9730
    
    
    
    248,806
    
    
    
    1.92
    
    
    
    167,880
    
    
    
    1.92US$2.72
    
    US$
    2.720
    
    
    
    455,000
    
    
    
    2.21
    
    
    
    200,000
    
    
    
    2.21US$3.20
    
    US$
    3.200
    
    
    
    247,080
    
    
    
    2.50
    
    
    
    102,080
    
    
    
    2.50US$5.50
    
    US$
    5.500
    
    
    
    596,500
    
    
    
    2.75
    
    
    
    292,000
    
    
    
    2.75US$16.64
    
    US$
    16.64
    
    
    
    37,000
    
    
    
    2.98
    
    
    
    37,000
    
    
    
    2.98US$17.39
    
    US$
    17.39
    
    
    
    347,400
    
    
    
    3.30
    
    
    
    347,400
    
    
    
    3.30US$3.63
    
    US$
    3.63
    
    
    
    2,723,000
    
    
    
    4.82
    
    
    
    
    
    
    
    4.825,103,670
    
    
    
    
    
    
    
    1,512,594
   2006
    
    
    2007
    
    
    2008Risk-free interest rate (1)
    
    4.983% to 5.204%
    
    
    3.2% to 3.58%
    
    
    1.6284% to 2.15%Expected life (years) (2)
    
    3 to 4.5
    
    
    3 to 4.5
    
    
    2.2 to 4.5Expected dividend yield (3)
    
    
    
    
    
    
    
    Expected Volatility (4)
    
    28.6% to 34.3%
    
    
    36.8%
    
    
    40.12% to 63.14%
 (1)
    
    The risk-free interest rate is 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 granted under the 2003 Option Plan and the 2006 Share
Incentive Plan is generally based on the average between the vesting period and the contractual
term for each grant, the simplified method for stock option awards with the characteristics
of plain vanilla option according to Staff Accounting Bulletin No.107.(3)
    
    The Company has no history or expectation of paying dividends on its ordinary share.(4)
    
    For the year ended December 31, 2008, the Company estimates the volatility of its ordinary
shares at the date of grant based on the historical volatility and implied volatility of
comparable companies and itself for a period equal to time from the grant date to the assumed
exercised date of the respective options in accordance with the vesting schedule.  F-28




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 14. EARNINGS PER SHARE
  2006
    
    
    2007
    
    
    2008Numerator:Net income for the year
    
    
    46,894
    
    
    
    35,756
    
    
    
    101,225Amount allocated to participating preference shareholders
    
    
    (16,174
    )
    
    
    
    
    
    
    Net income available to ordinary shareholders
    
    
    30,720
    
    
    
    35,756
    
    
    
    101,225Dilutive effect of issuance and buy-back of convertible bond
    
    
    
    
    
    
    308
    
    
    
    (97,903
    )Net income for diluted earnings
    
    
    30,720
    
    
    
    36,064
    
    
    
    3,322Denominator:Denominator for basic earnings per shareweighted average
ordinary shares outstanding
    
    
    35,550,114
    
    
    
    68,323,370
    
    
    
    70,863,336Dilutive effect of share options
    
    
    1,980,218
    
    
    
    2,909,845
    
    
    
    1,688,387Dilutive effect of issuance and buy-back of convertible bond
    
    
    
    
    
    
    5,650,780
    
    
    
    5,485,755Denominator for diluted earnings per share
    
    
    37,530,332
    
    
    
    76,883,995
    
    
    
    78,037,478Basic earnings per share
    
    
    0.86
    
    
    
    0.52
    
    
    
    1.43Diluted earnings per share
    
    
    0.82
    
    
    
    0.47
    
    
    
    0.04
  15. RELATED PARTY TRANSACTIONS
 Name of related parties
    
    Relationships with the CompanyPoly Victory Investments Ltd.
    
    Principal shareholder of the CompanyBTG
    
    Parent company of Poly Victory Investments Ltd.Ctrip.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.
    
    Minority interest of subsidiaryFujian Yun Tong Co., Ltd.
    
    Minority interest of subsidiaryDongguan Kanglv Co., Ltd.
    
    Minority interest of subsidiarySun Jian
    
    Director of the CompanyMay Wu
    
    Senior management of the CompanyLiang Rixin
    
    Senior management of the Company
  F-29




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
  2006
    
    
    2007
    
    
    2008Sales commissions paid to Ctrip.com International, Ltd.
    
    
    5,997
    
    
    
    8,937
    
    
    
    14,767Rental fees paid to Jian Guo Inns
    
    
    3,500
    
    
    
    2,800
    
    
    
    2,800Long-term loan obtained from BTG
    
    
    20,000
    
    
    
    
    
    
    
    
   2007
    
    
    2008Shanghai Xin Zhi Trading Co., Ltd.(a)
    
    
    1,372
    
    
    
    1,617
 (a)
    
    The amount due from Shanghai Xin Zhi Trading Co., Ltd. represented the advance
payment for dividends.  2007
    
    
    2008Ctrip.com International, Ltd.
    
    
    1,298
    
    
    
    1,533Dongguan Kanglv Co., Ltd.
    
    
    
    
    
    
    1,750May Wu (b)
    
    
    2,515
    
    
    
    1,569Sun Jian (b)
    
    
    1,223
    
    
    
    572Liang Rixin (b)
    
    
    683
    
    
    
    289Fujian Yun Tong Co., Ltd.
    
    
    900
    
    
    
    900Jian Guo Inns
    
    
    32
    
    
    
    556,651
    
    
    
    6,668
 (b)
    
    The amounts due to Sun Jian, Liang Rixin and May Wu represented the consideration
paid by them in July 2006 for restricted shares with repurchase feature (Note 13).   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)
 16. COMMITMENTS AND CONTINGENCIES
 (a) Capital commitments
  (b) Commitments under operating leases
   Related party
    
    
    Non-related party
    
    
    TotalRMB
    
    
    RMB
    
    
    RMB2009
    
    
    2,800
    
    
    
    552,735
    
    
    
    555,5352010
    
    
    2,800
    
    
    
    562,358
    
    
    
    565,1582011
    
    
    2,800
    
    
    
    570,227
    
    
    
    573,0272012
    
    
    2,800
    
    
    
    576,218
    
    
    
    579,0182013
    
    
    2,800
    
    
    
    574,770
    
    
    
    577,570Thereafter
    
    
    9,167
    
    
    
    4,184,262
    
    
    
    4,193,429Total
    
    
    23,167
    
    
    
    7,020,570
    
    
    
    7,043,737
  (c) Contingencies
  17. SUBSEQUENT EVENTS
   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)
 18. ADDITIONAL INFORMATION-CONDENSED FINANCIAL STATEMENTS OF THE COMPANY
   2006
    
    
    2007
    
    
    2008
    
    
    2008US$ thousands(Note 2(d))Condensed statements of operations:Net revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating expenses
    
    
    (900
    )
    
    
    (2,503
    )
    
    
    (3,642
    )
    
    
    (534
    )Loss from operations
    
    
    (900
    )
    
    
    (2,503
    )
    
    
    (3,642
    )
    
    
    (534
    )Share of income from subsidiaries
    
    
    52,532
    
    
    
    78,028
    
    
    
    50,364
    
    
    
    7,382Interest income
    
    
    265
    
    
    
    27,250
    
    
    
    16,738
    
    
    
    2,453Interest expense
    
    
    
    
    
    
    (310
    )
    
    
    (20,824
    )
    
    
    (3,052
    )Foreign exchange loss
    
    
    (5,003
    )
    
    
    (66,709
    )
    
    
    (44,702
    )
    
    
    (6,552
    )Gain on buy-back of convertible bond
    
    
    
    
    
    
    
    
    
    
    103,291
    
    
    
    15,140Income before income tax expense
    
    
    46,894
    
    
    
    35,756
    
    
    
    101,225
    
    
    
    14,837Income tax expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    46,894
    
    
    
    35,756
    
    
    
    101,225
    
    
    
    14,837Amount allocated to participating preference
shareholders
    
    
    (16,174
    )
    
    
    
    
    
    
    
    
    
    
    Net income available to ordinary shareholders
    
    
    30,720
    
    
    
    35,756
    
    
    
    101,225
    
    
    
    14,837
  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)
 2007
    
    
    2008
    
    
    2008US$ thousands(Note 2(d))Condensed balance sheet:AssetsCurrent assets:Cash and cash equivalents
    
    
    1,115,935
    
    
    
    149,519
    
    
    
    21,916Restricted cash
    
    
    173,849
    
    
    
    
    
    
    
    Prepayments and other current assets
    
    
    8,100
    
    
    
    13,589
    
    
    
    1,991Receivables from related parties
    
    
    879,897
    
    
    
    
    
    
    
    Total current assets
    
    
    2,177,781
    
    
    
    163,108
    
    
    
    23,907Investments in subsidiaries (a)
    
    
    403,370
    
    
    
    2,366,312
    
    
    
    346,840Other assets
    
    
    30,474
    
    
    
    
    
    
    
    Total assets
    
    
    2,611,625
    
    
    
    2,529,420
    
    
    
    370,747LiabilitiesCurrent liabilitiesPayables to related parties
    
    
    7,017
    
    
    
    23,849
    
    
    
    3,496Other payables and accruals
    
    
    18,903
    
    
    
    2,267
    
    
    
    331Total current liabilities
    
    
    25,920
    
    
    
    26,116
    
    
    
    3,827Non-current liabilitiesConvertible bond
    
    
    1,110,308
    
    
    
    895,696
    
    
    
    131,286Total liabilities
    
    
    1,136,228
    
    
    
    921,812
    
    
    
    135,113Shareholders equityOrdinary shares (US$0.005 par value;
200,000,000 shares authorized,
70,487,385 and 71,212,795 shares issued
and outstanding as of December 31, 2007
and 2008, respectively)
    
    
    2,874
    
    
    
    2,899
    
    
    
    425Additional paid-in capital
    
    
    1,362,942
    
    
    
    1,393,903
    
    
    
    204,310Retained earnings
    
    
    109,581
    
    
    
    210,806
    
    
    
    30,899Total shareholders equity
    
    
    1,475,397
    
    
    
    1,607,608
    
    
    
    235,634Total liabilities and shareholders equity
    
    
    2,611,625
    
    
    
    2,529,420
    
    
    
    370,747
 (a)
    
    Investments in subsidiaries include the amounts contributed to Home Inns HK by the
Company for Home Inns HKs investments in PRC subsidiaries.  F-33




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##### Table of Contents



HOME INNS & HOTELS MANAGEMENT INC.
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 (Amounts expressed in RMB in thousands, except share and per share data and where otherwise stated)
 2006
    
    
    2007
    
    
    2008
    
    
    2008US$ thousands(Note 2(d))Cash flows used in operating activities:Net income
    
    
    46,894
    
    
    
    35,756
    
    
    
    101,225
    
    
    
    14,837Adjustments to reconcile net income to net cash
used in operating activities:Amortization
    
    
    
    
    
    
    1,325
    
    
    
    
    
    
    
    Share of income from subsidiaries
    
    
    (52,532
    )
    
    
    (78,028
    )
    
    
    (50,364
    )
    
    
    (7,382
    )Interest expense
    
    
    
    
    
    
    310
    
    
    
    5,387
    
    
    
    790Foreign exchange loss
    
    
    5,003
    
    
    
    66,709
    
    
    
    44,702
    
    
    
    6,552Gain on buy-back of convertible bonds
    
    
    
    
    
    
    
    
    
    
    (103,290
    )
    
    
    (15,140
    )Increase in receivables from related parties
    
    
    
    
    
    
    (700,581
    )
    
    
    
    
    
    
    Increase in prepayments and other
current assets
    
    
    
    
    
    
    (7,117
    )
    
    
    (6,207
    )
    
    
    (910
    )Decrease in other assets
    
    
    
    
    
    
    
    
    
    
    27,135
    
    
    
    3,977(Decrease)/increase in payables to related
parties
    
    
    (37,965
    )
    
    
    (18,175
    )
    
    
    23,717
    
    
    
    3,476Increase/(decrease) in other payables and
accruals
    
    
    3,764
    
    
    
    14,583
    
    
    
    (16,636
    )
    
    
    (2,438
    )Net cash used in operating activities
    
    
    (34,836
    )
    
    
    (685,218
    )
    
    
    25,669
    
    
    
    3,762Cash flows used in investing activities:Investments in subsidiaries
    
    
    
    
    
    
    
    
    
    
    (1,007,849
    )
    
    
    (147,724
    )Borrowings to a subsidiary
    
    
    
    
    
    
    (20,090
    )
    
    
    
    
    
    
    Cash flows used in investing activities:
    
    
    
    
    
    
    (20,090
    )
    
    
    (1,007,849
    )
    
    
    (147,724
    )Cash flows from financing activities:Proceeds from issuance of ordinary shares, net
with share issuance costs
    
    
    650,588
    
    
    
    366,866
    
    
    
    
    
    
    
    Proceeds from issuance of preferred shares
    
    
    
    
    
    
    1,917
    
    
    
    4,872
    
    
    
    714Restricted cash paid and collected for short-term
Borrowings of subsidiaries
    
    
    
    
    
    
    (173,849
    )
    
    
    173,849
    
    
    
    25,482Buy-back of convertible bonds
    
    
    
    
    
    
    
    
    
    
    (113,370
    )
    
    
    (16,617
    )Payment for bond offering related transaction
costs
    
    
    
    
    
    
    
    
    
    
    (4,884
    )
    
    
    (716
    )Net proceeds from issuance of convertible bond
    
    
    
    
    
    
    1,082,268
    
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    650,588
    
    
    
    1,277,202
    
    
    
    60,467
    
    
    
    8,863Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    (5,003
    )
    
    
    (66,709
    )
    
    
    (44,702
    )
    
    
    (6,552
    )Net increase (decrease) in cash
    
    
    610,749
    
    
    
    505,185
    
    
    
    (966,415
    )
    
    
    (141,651
    )Cash, beginning of year
    
    
    
    
    
    
    610,749
    
    
    
    1,115,934
    
    
    
    163,567Cash, end of the year
    
    
    610,749
    
    
    
    1,115,934
    
    
    
    149,519
    
    
    
    21,916Supplemental schedule of non-cash investing
activities:Increase of investments in subsidiaries
transferred
from receivables due from Home Inns HK
    
    
    
    
    
    
    
    
    
    
    879,897
    
    
    
    128,970
  F-34




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description of Document1.1
    
    
    Amended and Restated Memorandum and Articles of Association (incorporated
by reference to Exhibit 3.2 from our F-1 registration statement (File No.
333-142190), as amended, initially filed with the SEC on April 18,
2007)2.1
    *
    
    Indenture,
dated December 10, 2007, constituting RMB 1,110,000,000 USD
Settled Zero Coupon Convertible Senior Bonds due December 10, 20124.1
    
    
    Employment
Agreement between the Registrant and James Zong (incorporated by
reference to Exhibit 4.1 of our annual report on Form 20-F (File No. 001-33082)
filed with the SEC on April 18, 2008)4.2
    
    
    Agreement for the Sale and Purchase of Hong Kong AI Home Hotel Investment
Limited dated October 21, 2007 (incorporated by reference to Exhibit 4.2 of our
annual report on Form 20-F (File No. 001-33082) filed with the SEC on
April 18, 2008)4.3
    
    
    English translation of Agreement for the Sale and Purchase of Shanghai Chuwen
Holding Investment Ltd. dated October 21, 2007 (incorporated by reference to
Exhibit 4.3 of our annual report on Form 20-F (File No. 001-33082) filed with
the SEC on April 18, 2008)8.1
    *
    
    Subsidiaries of the Registrant9.1
    
    
    Shareholders agreement, dated June 29, 2006 (incorporated by reference to
Exhibit 4.8 from our F-1 registration statement (File No. 333-142190), as
amended, initially filed with the SEC on April 18, 2007)11.1
    
    
    Code of Business Conduct and Ethics of the Registrant (incorporated by
reference to Exhibit 99.1 from our F-1 registration statement (File No. 333-137800), as amended, initially filed with the
SEC on October 4, 2006)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.