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1、Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON,D.C.20549 FORM 20-F (Mark One)ooREGISTRATION STATEMENT PURSUANT TO SECTION 12(b)OR 12(g)OF THE SECURITIESEXCHANGE ACT OF 1934 OR xxANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF1934For the fis
2、cal year ended December 31,2013 OR ooTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACTOF 1934For the transition period from to OR ooSHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGEACT OF 1934 Date of event requiring this shell company repor
3、t.Commission file number 001-33853 CTRIP.COM INTERNATIONAL,LTD.(Exact name of Registrant as specified in its charter)N/A(Translation of Registrants name into English)Cayman Islands(Jurisdiction of incorporation or organization)99 Fu Quan RoadShanghai 200335Peoples Republic of China(Address of princi
4、pal executive offices)James Jianzhang Liang,Chief Executive OfficerTelephone:+(8621)3406-4880Facsimile:+(8621)5251-000099 Fu Quan RoadShanghai 200335Peoples Republic of China(Name,Telephone,E-mail and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered
5、 pursuant to Section 12(b)of the Act.Title of each className of each exchange on which registeredOrdinary shares,par value US$0.01The NASDAQ Stock Market LLC*Ordinary shares,par value US$0.01The NASDAQ Stock Market LLC*per ordinary share(The NASDAQ Global Select Market)*Not for trading but only in c
6、onnection with the listing on the NASDAQ Global Select Market of American depositary shares,each representing 0.25 ofan ordinary share.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 Se
7、ction 15(d)of the Act.None(Title of Class)Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report.33,828,251 ordinary shares,par value$0.01 per ordinary share.Indicate by check mark if the registra
8、nt is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act.x Yes o No If this report is an annual or transition report,indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d)of theSecurities Exchange Act of 1934.o Yes x No Indicat
9、e by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 duringthe preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requi
10、rementsfor the past 90 days.x Yes o No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,if any,every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months(or for su
11、ch shorter period that the registrant was required tosubmit and post such files).x Yes o No Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,or a non-accelerated filer.See definition of“accelerated filer andlarge accelerated filer”in Rule 12b-2 of the E
12、xchange Act.(Check one):Large accelerated filer x Accelerated filer o Non-accelerated filer o Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:U.S.GAAP x International Financial Reporting Standards as issuedby the In
13、ternational Accounting Standards Board o Other o If“Other”has been checked in response to the previous question,indicate by check mark which financial statement item the registrant has elected to follow.o Item 17 o Item 18 If this is an annual report,indicate by check mark whether the registrant is
14、a shell company(as defined in Rule 12b-2 of the Exchange Act).o Yes x No(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS.)Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12,13 or 15(d)of the S
15、ecurities ExchangeAct of 1934 subsequent to the distribution of securities under a plan confirmed by a court.o Yes o No Table of Contents TABLE OF CONTENTS PageINTRODUCTION1FORWARD-LOOKING INFORMATION1PART I2ITEM 1.IDENTITY OF DIRECTORS,SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPE
16、CTED TIMETABLE2ITEM 3.KEY INFORMATION2ITEM 4.INFORMATION ON THE COMPANY22ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS34ITEM 6.DIRECTORS,SENIOR MANAGEMENT AND EMPLOYEES47ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS54ITEM 8.FINANCIAL INFORMATION57ITEM 9.THE OFFER AND LISTING58ITEM 1
17、0.ADDITIONAL INFORMATION59ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK65ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES66PART II67ITEM 13.DEFAULTS,DIVIDEND ARREARAGES AND DELINQUENCIES67ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF P
18、ROCEEDS67ITEM 15.CONTROLS AND PROCEDURES67ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT68ITEM 16B.CODE OF ETHICS68ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES68ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES69ITEM 16E.PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURC
19、HASERS69ITEM 16F.CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT69ITEM 16G.CORPORATE GOVERNANCE69ITEM 16H.MINE SAFETY DISCLOSURE69PART III69ITEM 17.FINANCIAL STATEMENTS69ITEM 18.FINANCIAL STATEMENTS70ITEM 19.EXHIBITS70 iTable of Contents INTRODUCTION In this annual report,unless otherwise indicated,(1)t
20、he terms“we,”“us,”“our company,”“our”and“Ctrip”refer to C International,Ltd.,its predecessor entities and subsidiaries,and,in thecontext of describing our operations and consolidated financial information,also include its consolidated affiliated Chinese entities;(2)“shares”and“ordinary shares”refer
21、to our ordinary shares,par value of US$0.01 per ordinary share;(3)“ADSs”refers to our American depositary shares,four of which represent one ordinary share;(4)“China”and“PRC”refer to the Peoples Republic of China,and solely for the purpose of this annual report,exclude Taiwan,Hong Kong and Macau,and
22、“Greater China”refers to the PRC,Taiwan,Hong Kong and Macau;and(5)all references to“RMB”and“Renminbi”are to the legal currency of China and all references to“U.S.dollars,”“US$,”“dollars”and“$”are to thelegal currency of the United States.Any discrepancies in any table between the amounts identified
23、as total amounts and the sum of the amounts listed therein are due to rounding.This annual report on Form 20-F includes our audited consolidated financial statements for the years ended December 31,2011,2012 and 2013.On January 21,2010,we effected a change of the ratio of our ADSs to ordinary shares
24、 from two(2)ADSs representing one ordinary share to four(4)ADSs representing one ordinary share.Unless otherwise indicated,ADSs and per ADS amount in this annual report have been retroactively adjusted toreflect the changes in ratio for all periods presented.FORWARD-LOOKING INFORMATION This annual r
25、eport on Form 20-F contains forward-looking statements that reflect our current expectations and views of future events.These statementsare made under the“safe harbor”provisions of the U.S.Private Securities Litigation Reform Act of 1995.You can identify these forward-looking statementsby terminolog
26、y such as“may,”“will,”“expect,”“anticipate,”“future,”“intend,”“plan,”“believe,”“estimate,”“is/are likely to”or other similar expressions.We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believemay affe
27、ct our financial condition,results of operations,business strategy and financial needs.These forward-looking statements include,among otherthings:our anticipated growth strategies;our future business development,results of operations and financial condition;our ability to continue to control costs a
28、nd maintain profitability;and the expected growth in the overall economy and demand for travel services in China.Table of Contents The forward-looking statements included in this annual report on Form 20-F are subject to risks,uncertainties and assumptions about our company.Ouractual results of oper
29、ations may differ materially from the forward-looking statements as a result of the risk factors described under“Item 3.D.Risk Factors,”included elsewhere in this annual report on Form 20-F,including the following risks:a severe or prolonged downturn in the global or Chinese economy may have a mater
30、ial and adverse effect on our business,and may materiallyand adversely affect our growth and profitability;general declines or disruptions in the travel industry may materially and adversely affect our business and results of operations;the trading price of our ADSs has been volatile historically an
31、d may continue to be volatile regardless of our operating performance;if we are unable to maintain existing relationships with travel suppliers and strategic alliances,or establish new arrangements with travelsuppliers and strategic alliances similar to those we currently have,our business may suffe
32、r;if we fail to further increase our brand recognition,we may face difficulty in obtaining new business partners and customers,and our businessmay be harmed;if we do not compete successfully against new and existing competitors,we may lose our market share,and our business and results ofoperations m
33、ay be materially and adversely affected;our business could suffer if we do not successfully manage current growth and potential future growth;our strategy to acquire or invest in complementary businesses and assets involves significant risks and uncertainty that may prevent us fromachieving our obje
34、ctives and harm our financial condition and results of operations;our quarterly results are likely to fluctuate because of seasonality in the travel industry in Greater China;our business may be harmed if our infrastructure and technology are damaged or otherwise fail or become obsolete;our business
35、 depends substantially on the continuing efforts of our key executives,and our business may be severely disrupted if we lose theirservices;inflation in China may disrupt our business and have an adverse effect on our financial condition and results of operations;and if the ownership structure of our
36、 affiliated Chinese entities and the contractual arrangements among us,our consolidated affiliated Chineseentities and their shareholders are found to be in violation of any PRC laws or regulations,we and/or our affiliated Chinese entities may besubject to fines and other penalties,which may adverse
37、ly affect our business and results of operations.These risks are not exhaustive.Other sections of this annual report include additional factors that could adversely impact our business and financialperformance.You should read these statements in conjunction with the risk factors disclosed in“Item 3.
38、D.Risk Factors”of this annual report and other risksoutlined in our other filings with the Securities and Exchange Commission.Moreover,we operate in an emerging and evolving environment.New risk factorsmay emerge from time to time,and it is not possible for our management to predict all risk factors
39、,nor can we assess the impact of all factors on our businessor the extent to which any factor,or combination of factors,may cause actual results to differ materially from those contained in any forward-lookingstatements.You should not rely upon forward-looking statements as predictions of future eve
40、nts.We undertake no obligation to update or revise any forward-lookingstatements,whether as a result of new information,future events or otherwise.PART I ITEM 1.IDENTITY OF DIRECTORS,SENIOR MANAGEMENT AND ADVISERS Not applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable.ITEM 3.KE
41、Y INFORMATION A.Selected Financial Data The following table presents the selected consolidated financial information for our business.You should read the following information in conjunctionwith“Item 5.Operating and Financial Review and Prospects”below.The selected consolidated statement of operatio
42、ns data for the years ended December 31,2011,2012 and 2013 and the selected consolidated balance sheet data as of December 31,2012 and 2013 have been derived from our audited consolidatedfinancial statements and should be read in conjunction with those statements,which are included in this annual re
43、port beginning on page F-1.The selectedconsolidated statement of operations data for the years ended December 31,2009 and 2010 and the selected consolidated balance sheet data as of December 31,2009,2010 and 2011 have been derived from our audited consolidated financial statements for these periods,
44、which are not included in this annual report.All ADS data have been retroactively adjusted to reflect the current ADS to ordinary share ratio for all periods presented.2Table of Contents For the Year Ended December 31,2009RMB2010RMB2011RMB2012RMB2013RMB2013US$(in thousands,except for per ordinary sh
45、are data)Consolidated Statement of Operation DataNet revenues1,988,0072,881,2333,498,0854,158,7915,386,746889,827Cost of revenues(450,603)(625,261)(805,130)(1,037,791)(1,386,767)(229,078)Gross profit1,537,4042,255,9722,692,9553,121,0003,999,979660,749Operating expensesProduct development(308,452)(45
46、3,853)(601,485)(911,905)(1,245,719)(205,778)Sales and marketing(345,289)(453,293)(624,600)(984,002)(1,269,413)(209,692)General and administrative(196,297)(294,701)(400,876)(570,487)(646,405)(106,778)Total operating expenses(850,038)(1,201,847)(1,626,961)(2,466,394)(3,161,537)(522,248)Income from ope
47、rations687,3661,054,1251,065,994654,606838,442138,501Net interest income and other income78,194136,712223,627296,088306,14750,572Income before income tax expense,equity inincome of affiliates and noncontrollinginterest765,5601,190,8371,289,621950,6941,144,589189,073Income tax expense(131,658)(205,01
48、7)(262,186)(294,526)(293,740)(48,522)Equity in income of affiliates32,86966,17257,52534,34355,5549,176Net income666,7711,051,9921,084,960690,511906,403149,727Less:Net loss/(income)attributable tononcontrolling interests(7,797)(3,922)(8,545)23,89591,91715,184Net income attributable to Ctrips sharehol
49、ders658,9741,048,0701,076,415714,406998,320164,911Earnings Per Ordinary Share Data:Net income attributable to Ctrips shareholders658,9741,048,0701,076,415714,406998,320164,911Earnings per ordinary share,basic19.6229.6229.9220.8730.345.01Earnings per ordinary share,diluted18.6927.8928.3019.9226.634.4
50、0 As of December 31,2009RMB2010RMB2011RMB2012RMB2013RMB2013US$(in thousands)Consolidated Balance Sheet Data:Cash and cash equivalents1,434,6182,153,9353,503,4283,421,5337,138,3451,179,171Restricted cash113,150224,179211,636768,229739,544122,164Short-term investment180,1841,178,2781,288,4721,408,6643
51、,635,091600,474Accounts receivable,net420,579621,549789,036983,8041,518,230250,794Prepayments and other current assets134,318355,831566,188999,1491,237,531204,426Deferred tax assets,current23,44637,13639,78261,84196,98016,020Non-current assets1,850,4653,545,2963,362,8934,026,5316,452,7531,065,918Tot
52、al assets4,156,7608,116,2049,761,43511,669,75120,818,4743,438,967Current liabilities1,158,5421,880,8982,568,0603,910,1446,368,0081,051,921Deferred tax liabilities,non-current11,51045,38348,30953,30963,19710,439Long-term Debt1,121,4185,657,183934,500Total Ctrips shareholders equity2,925,0486,103,6937
53、,042,2956,489,6328,530,3961,409,121Noncontrolling interests61,66086,230102,77195,248199,69032,986Total shareholders equity2,986,7086,189,9237,145,0666,584,8808,730,0861,442,107(1)Share-based compensation was included in the related operating expense categories as follows:For the Year Ended December
54、31,2009RMB2010RMB2011RMB2012RMB2013RMB2013US$(in thousands)Product development33,86364,25498,955132,583138,66822,906Sales and marketing18,86433,20348,19155,89249,1058,111General and administrative77,802145,104195,645243,246250,15741,323(2)Translation from RMB amounts into U.S.dollars was made at a r
55、ate of RMB6.0537 to US$1.00.See“Exchange Rate Information.”(3)Each ADS represents 0.25 of an ordinary share.Exchange Rate Information We have published our consolidated financial statements in RMB.Our business is primarily conducted in China in RMB.The conversion of RMB intoU.S.dollars in this annua
56、l report is based on the certified exchange rate published by the Federal Reserve Board.For your convenience,this annual report(2)(1)(1)(1)(3)(3)(2)(2)contains translations of some RMB or U.S.dollar amounts for 2013 at US$1.00:RMB6.0537,which was the certified exchange rate in effect as ofDecember 3
57、1,2013.The certified exchange rate on March 21,2014 was US$1.00:RMB 6.2248.We make no representation that any RMB or U.S.dollaramounts could have been,or could be,converted into U.S.dollars or RMB,as the case may be,at any particular rate,the rates stated below,or at all.ThePRC government imposes co
58、ntrol over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange.3Table of Contents The following table sets forth information concerning exchange rates between the RMB and the U.S.dollar for the periods indicated.The exchange raterefers to th
59、e exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board.These rates are provided solely for your convenience and arenot necessarily the exchange rates that we used in this annual report or will use in the preparation of our periodic reports or any other information
60、to beprovided to you.The source of these rates is the Federal Reserve Statistical Release.Certified Exchange RatePeriodPeriod-EndAverageLowHigh(RMB per U.S.Dollar)20096.82596.82956.84706.817620106.60006.76896.83306.600020116.29396.44756.63646.293920126.23016.30886.38796.222120136.05376.14786.24386.0
61、537September6.12006.11986.12136.1178October6.09436.10326.12096.0815November6.09226.09296.09936.0903December6.05376.07386.09276.05372014January6.05906.05096.06006.0402February6.14486.08166.14486.0591March(through March March 21,2014)6.22486.15906.22736.1183(1)Annual averages are calculated using the
62、average of month-end rates of the relevant year.Monthly averages are calculated using the average of the dailyrates during the relevant period.B.Capitalization and Indebtedness Not applicable.C.Reasons for the Offer and Use of Proceeds Not applicable.D.Risk Factors Risks Related to Our Company Our b
63、usiness is sensitive to global economic conditions.A severe or prolonged downturn in the global or Chinese economy may have amaterial and adverse effect on our business,and may materially and adversely affect our growth and profitability.The global financial markets have experienced significant disr
64、uptions since 2008,and most of the worlds major economies have experienced recession.The recovery from the lows of 2008 and 2009 was uneven and the markets are facing new challenges,including the escalation of the European sovereign debtcrisis after 2011.There is considerable future uncertainty over
65、 the long-term effects of the expansionary monetary and fiscal policies that have been adopted bythe central banks and financial authorities of some of the worlds leading economies,including China.There have also been concerns over unrest in theMiddle East and Africa,which have resulted in higher oi
66、l prices and significant market volatility.There have also been concerns about natural disasters andpolitical and diplomatic tensions in Asia,including in Thailand,Japan and the Philippines.Economic conditions in China are sensitive to global economic conditions.Our business and operations are prima
67、rily based in China and the majority ofour revenues are derived from our operations in China.Accordingly,our financial results have been,and are expected to continue to be,affected by theeconomy and travel industry in China.Although the economy in China has grown significantly in the past decades,an
68、y severe or prolonged slowdown in theglobal and/or Chinese economy could reduce expenditures for travel,which in turn may adversely affect our operating results and financial condition.Recovery of the Chinese economy since 2010 has been uneven.It was relatively stable in 2011,and the growth rate of
69、Chinas GDP decreased in 2012 andremained relatively slow in 2013.It is unclear how the economy will fare in 2014 and beyond.Since we derive the majority of our revenues from hotelreservation,air-ticketing and packaged-tour services in China,any severe or prolonged slowdown in the global and/or Chine
70、se economy or the recurrence ofany financial disruptions may materially and adversely affect our business,operating results and financial condition in a number of ways.For example,theweakness in the economy could erode consumer confidence which,in turn,could result in changes to consumer spending pa
71、tterns relating to travel productsand services.If consumer demand for travel products and services we offer decreases,our revenues may decline.Furthermore,continued turbulence in theinternational markets may adversely affect our ability to access the capital markets to meet liquidity needs.4(1)Table
72、 of Contents General declines or disruptions in the travel industry may materially and adversely affect our business and results of operations.Our business is significantly affected by the trends that occur in the travel industry in China,including the hotel,air ticketing and packaged-tour sectors.A
73、s the travel industry is highly sensitive to business and personal discretionary spending levels,it tends to decline during general economic downturns.Therecent worldwide recession has led to a weakening in the demand for travel services.Other trends or events that tend to reduce travel and are like
74、ly to reduceour revenues include:an outbreak of H1N1 influenza,avian flu,severe acute respiratory syndrome,or SARS,or any other serious contagious diseases;increased prices in the hotel,air-ticketing,or other travel-related sectors;increased occurrence of travel-related accidents;political unrest;na
75、tural disasters or poor weather conditions;terrorist attacks or threats of terrorist attacks or wars;and any travel restrictions or other security procedures implemented in connection with any major events in China.We could be severely and adversely affected by declines or disruptions in the travel
76、industry and,in many cases,have little or no control over theoccurrence of such events.Such events could result in a decrease in demand for our travel services.This decrease in demand,depending on the scope andduration,could significantly and adversely affect our business and financial performance o
77、ver the short and long term.The trading price of our ADSs has been volatile historically and may continue to be volatile regardless of our operating performance.The trading price of our ADSs has been and may continue to be subject to wide fluctuations.In 2013,the trading prices of our ADSs on the NA
78、SDAQGlobal Select Market ranged from US$18.87 to US$61.09 per ADS,and the closing price on March 27,2014 was US$47.01 per ADS.The price of ourADSs may fluctuate in response to a number of events and factors,including the following:actual or anticipated fluctuations in our quarterly operating results
79、;changes in financial estimates by securities analysts;conditions in the Internet or travel industries;changes in the economic performance or market valuations of other Internet or travel companies or other companies that primarily operate inChina;changes in major business terms between our travel s
80、uppliers and us;announcements by us or our competitors of new products or services,significant acquisitions,strategic partnerships,joint ventures or capitalcommitments;additions or departures of key personnel;and market and volume fluctuations in the stock market in general.In addition,the stock mar
81、ket in general,and the market prices for Internet-related companies and companies with operations in China in particular,haveexperienced volatility that often has been unrelated to the operating performance of such companies.The securities of some China-based companies that havelisted their securiti
82、es in the United States have experienced significant volatility since their initial public offerings,including,in some cases,substantial pricedeclines in the trading prices of their securities.The trading performances of the securities of these China-based companies after their offerings may affect
83、theattitudes of investors toward Chinese companies listed in the United States,which consequently may impact the trading performance of our ADSs,regardlessof our actual operating performance.Furthermore,some negative news and perceptions about inadequate corporate governance practices or fraudulenta
84、ccounting,corporate structure including the use of variable interest entities or other matters of other China-based companies have negatively affected theattitudes of investors towards China-based companies,including us,in general in the past,regardless of whether we have engaged in any inappropriat
85、eactivities,and any news or perceptions with a similar nature may continue to negatively affect us in the future.In addition,the global financial crisis and theensuing economic recessions in many countries have contributed and may continue to contribute to extreme volatility in the global stock mark
86、ets,such as thelarge decline in share prices in the United States,China and other jurisdictions in late 2008,early 2009,the second half of 2011 and the first half of 2012.These broad market and industry fluctuations may continue to adversely affect the price of our ADSs,regardless of our operating p
87、erformance.Additionally,volatility or a lack of positive performance in our stock price may adversely affect our ability to retain key employees,all of whom have been granted share-based awards.5Table of Contents If we are unable to maintain existing relationships with travel suppliers and strategic
88、 alliances,or establish new arrangements with travelsuppliers and strategic alliances at or on favorable terms or at terms similar to those we currently have,our business and profit margins maysuffer.If we are unable to maintain satisfactory relationships with our existing hotel suppliers,or if our
89、hotel suppliers establish similar or more favorablerelationships with our competitors,or if our hotel suppliers increase their competition with us through their direct sales,our operating results and our businesswould be harmed,because we would not have the necessary supply of hotel rooms or hotel r
90、ooms at satisfactory rates to meet the needs of our customers,orbecause of reduced demand for our services.Our business depends significantly upon our ability to contract with hotels in advance for the guaranteedavailability of certain hotel rooms.We rely on hotel suppliers to provide us with rooms
91、at discounted prices.However,our contracts with our hotel suppliersare not exclusive and most of the contracts must be renewed semi-annually or annually.We cannot assure you that our hotel suppliers will renew our contractsin the future on favorable terms or terms similar to those we currently have
92、agreed.The hotel suppliers may reduce the commission rates on bookings madethrough us.Furthermore,in order to maintain and grow our business,we will need to establish new arrangements with hotels and accommodations of allratings and categories in our existing markets and in new markets.We cannot ass
93、ure you that we will be able to identify appropriate hotels or enter intoarrangements with those hotels on favorable terms,if at all.This failure could harm the growth of our business and adversely affect our operating results andfinancial condition,which consequently will impact the price of our AD
94、Ss.We derive revenues and other significant benefits from our arrangements with major domestic airlines in China and international airlines.Our airlineticket suppliers allow us to book and sell tickets on their behalf and collect commissions on tickets booked and sold through us.Although we currentl
95、y havesupply relationships with these airlines,they also compete with us for ticket bookings and have entered into similar arrangements with many of ourcompetitors and may continue to do so in the future.Such arrangements may be on better terms than we have.In the past,airlines have from time to tim
96、ereduced the commission rates on tickets booked and sold through us,which negatively affected our revenues from air-ticketing in the relevant periods.Wecannot assure you that any of these airlines will continue to have supplier relationships with us or pay us commissions at the same or similar rates
97、 as whatthey paid us in the past.The loss of these supplier relationships or adverse changes in major business terms with our travel suppliers would materially impairour operating results and financial condition as we would lose an increasingly significant source of our revenues.Part of the revenues
98、 that we derive from our hotel suppliers,airline ticket suppliers and other travel service providers are obtained through our strategicalliances with various third parties.We cannot assure you,however,that we will be able to successfully establish and maintain strategic alliances with thirdparties w
99、hich are effective and beneficial for our business.Our inability to do so could have a material adverse effect on our market penetration,revenuegrowth and profitability.If we fail to further increase our brand recognition,we may face difficulty in maintaining existing and acquiring new customers and
100、business partners and our business may be harmed.We believe that maintaining and enhancing the Ctrip brand depends in part on our ability to grow our customer base and obtain new business partners.Some of our potential competitors already have well-established brands in the travel industry.The succe
101、ssful promotion of our brand will depend largely onour ability to maintain a sizeable and active customer base,maintain relationships with our business partners,provide high-quality customer service,properlyaddress customer needs and handle customer complaints and organize effective marketing and ad
102、vertising programs.If our customer base significantlydeclines,the quality of our customer services substantially deteriorates,or our business partners cease to do business with us,we may not be able to cost-effectively maintain and promote our brand,and our business may be harmed.If we do not compet
103、e successfully against new and existing competitors,we may lose our market share,and our business may bematerially and adversely affected.We compete primarily with other consolidators of hotel accommodations and flight reservation services based in China,such as eLong,Inc.,andM.We also compete with
104、traditional travel agencies and new Internet travel search websites,such as Q and T.In the future,we may also face competition from new players in the hotel consolidation market in China and abroad that may enter China.6Table of Contents We may face more competition from hotels and airlines as they
105、enter the discount rate market directly or through alliances with other travel consolidators.In addition,international travelers have become an increasingly important customer base.Competitors that have strategic alliances with overseas travelconsolidators may have more effective channels to direct
106、on-line booking requests to their websites for travel needs in China.Furthermore,we do not haveexclusive arrangements with our travel suppliers.The combination of these factors means that potential entrants to our industry face relatively low entrybarriers.In the past,our competitors launched aggres
107、sive advertising campaigns,special promotions and engaged in other marketing activities to promote theirbrands,acquire new customers or to increase their market shares.In response to such competitive pressure,we started to take and may continue to takesimilar measures and as a result will incur sign
108、ificant expenses,which in turn could negatively affect our operating margins in the quarters or years whensuch promotional activities are carried out.For example,we launched a promotion program in recent years to offer certain selected air tickets,hotel rooms andpackage tours as well as grant of e-c
109、oupons to our customers in response to promotion campaigns that our competitors have launched.Primarily as a result ofthe enhanced marketing efforts and additional investment in product developments in response to the intensified market competition,our operational marginwas negatively affected.In ad
110、dition,some of our existing and potential competitors may have competitive advantages,such as significantly greater financial,marketing and strategic relationships and alliances or other resources or name recognition,and may be able to imitate and adopt our business model.Wecannot assure you that we
111、 will be able to successfully compete against new or existing competitors.In the event we are not able to compete successfully,ourbusiness,results of operations and profit margins may be materially and adversely affected.Our business could suffer if we do not successfully manage current growth and p
112、otential future growth.Our business has grown significantly as a result of both organic growth of existing operations and acquisitions.We have significantly expanded ouroperations and anticipate further expansion of our operations and workforce.Our growth to date has placed,and our anticipated futur
113、e operations will continueto place,a significant strain on our management,systems and resources.In addition to training and managing our workforce,we will need to continue toimprove and develop our financial and managerial controls and our reporting systems and procedures.We cannot assure you that w
114、e will be able to efficientlyor effectively manage the growth of our operations,and any failure to do so may limit our future growth and hamper our business strategy.Our strategy to acquire or invest in complementary businesses and assets and establish strategic alliances involves significant risk a
115、nduncertainty that may prevent us from achieving our objectives and harm our financial condition and results of operations.As part of our plan to expand our product and service offerings,we have made and intend to make strategic acquisitions or investments in the travelservice industries in Greater
116、China and overseas.Our strategic acquisitions and investments could subject us to uncertainties and risks,including:high acquisition and financing costs;potential ongoing financial obligations and unforeseen or hidden liabilities;failure to achieve our intended objectives,benefits or revenue-enhanci
117、ng opportunities;cost of,and difficulties in,integrating acquired businesses and managing a larger business;potential claims or litigation regarding our boards exercise of its duty of care and other duties required under applicable law in connection withany of our significant acquisitions or investm
118、ents approved by the board;and diversion of our resources and management attention.Our failure to address these uncertainties and risks may have a material adverse effect on our financial condition and results of operations.In addition,we establish strategic alliances with various third parties to f
119、urther our business purpose from time to time.Strategic alliances with third parties could subjectus to a number of risks,including risks associated with sharing proprietary information,non-performance by the counter-party,and an increase in expensesincurred in establishing new strategic alliances,a
120、ny of which may materially and adversely affect our business.We have invested through open market purchases and in a private placement transaction a total of US$92 million in an approximately 15.39%stake inHome Inns&Hotels Management Inc.,or Home Inns,a leading economy hotel chain in China.The purch
121、ase prices were determined based on the tradingprices of Home Inns ADSs on the NASDAQ Global Market at the time of each open market purchase or the average closing prices of Home Inns ADSs asstipulated in the relevant purchase agreement.In March 2010,we invested a total of US$67.5 million in approxi
122、mately 9%stake in China Lodging Group,Limited,or Hanting,a leading economy hotel chain in China,through private placement transactions and purchases in Hantings initial public offering.Thepurchase prices for shares acquired in both private placement transactions and the initial public offering were
123、equal to Hantings initial public offering price.Ifthe ADS price of Home Inns or Hanting declines and becomes lower than our share purchase price,we could incur impairment loss under U.S.GAAP,whichin turn would adversely affect our financial results for the relevant periods.In addition,if any of thes
124、e acquired entities incur a net loss in the future,wewould share their net loss proportionate to our equity interest in them.7Table of Contents From time to time,we selectively acquired or invested in businesses that complement our existing business,and will continue to do so in the future.See“Item
125、4.Information on the CompanyHistory and Development of the Company”for more details of our acquisitions and investments.We cannot assureyou that we will be able to achieve the benefits we expected from such acquisitions or investments.Any actual or perceived failure to realize the benefits weexpecte
126、d from these acquisitions or investments may cause the trading price of our ADSs to decline.Our quarterly results are likely to fluctuate because of seasonality in the travel industry in Greater China.Our business experiences fluctuations,reflecting seasonal variations in demand for travel services.
127、For example,the first quarter of each year generallycontributes the lowest portion of our annual net revenues primarily due to a slowdown in business activity around and during the Chinese New Year holiday,which occurs during the period.Consequently,our results of operations may fluctuate from quart
128、er to quarter.Our business may be harmed if our infrastructure and technology are damaged or otherwise fail or become obsolete.Substantially all of our computer and communications systems are located at two customer service centers,one in Shanghai and the other one inNantong,China.Therefore our comp
129、uter and communication systems are vulnerable to damage or interruption from human error,computer viruses,fire,flood,power loss,telecommunications failure,physical or electronic break-ins,sabotage,vandalism,natural disasters and other similar events.We do notcarry business interruption insurance to
130、compensate us for losses that may occur.We use an internally developed booking software system that supports nearly all aspects of our booking transactions.Our business may be harmed if weare unable to upgrade our systems and infrastructure quickly enough to accommodate future traffic levels,avoid o
131、bsolescence or successfully integrate anynewly developed or purchased technology with our existing system.Capacity constraints could cause unanticipated system disruptions,slower responsetimes,poor customer service,impaired quality and speed of reservations and confirmations and delays in reporting
132、accurate financial and operatinginformation.These factors could cause us to lose customers and suppliers,which would have a material adverse effect on our results of operations andfinancial condition.In addition,our future success will depend on our ability to adapt our products and services to the
133、changes in technologies and Internet user behavior.Forexample,the number of people accessing the internet through mobile devices,including smart devices,mobile phones,tablets and other hand-held devices,hasincreased in recent years,and we expect this trend to continue while 3G and more advanced mobi
134、le communications technologies are broadly implemented.Ifwe fail to develop products and technologies that are compatible with all mobile devices and operating systems,or if the products and services we develop arenot widely accepted and used by users of various mobile devices and operating systems,
135、we may not be able to penetrate the mobile Internet market.Inaddition,the widespread adoption of new internet technologies or other technological changes could require significant expenditures to modify or integrate ourproducts or services.If we fail to keep up with these changes to remain competiti
136、ve,our future success may be adversely affected.Our business depends substantially on the continuing efforts of our key executives,and our business may be severely disrupted if we losetheir services.Our future success depends heavily upon the continued services of our key executives.We rely on their
137、 expertise in business operations,finance andtravel services and on their relationships with our suppliers,shareholders,and business partners.We do not maintain key-man life insurance for any of ourkey executives.If one or more of our key executives are unable or unwilling to continue in their prese
138、nt positions,we may not be able to easily replace them.Inthat case,our business may be severely disrupted,we may incur additional expenses to recruit and train personnel and our financial condition and results ofoperations may be materially and adversely affected.In addition,if any of these key exec
139、utives joins a competitor or forms a competing company,we may lose customers and suppliers.Each of our executiveofficers has entered into an employment agreement with us that contains confidentiality and non-competition provisions.If any disputes arise between ourexecutive officers and us,we cannot
140、assure you of the extent to which any of these agreements would be enforced in China,where most of these executiveofficers reside and hold most of their assets,in light of the uncertainties with Chinas legal system.See“Risks Related to Doing Business in ChinaUncertainties with respect to the PRC leg
141、al system could adversely affect us.”8Table of Contents If we are unable to attract,train and retain key individuals and highly skilled employees,our business may be adversely affected.If our business continues to expand,we will need to hire additional employees,including travel supplier management
142、personnel to maintain and expandour travel supplier network,information technology and engineering personnel to maintain and expand our websites,mobile platform,customer service centersand systems,and customer service representatives to serve an increasing number of customers.If we are unable to ide
143、ntify,attract,hire,train and retainsufficient employees in these areas,users of our websites,mobile platform and customer service centers may not have satisfactory experiences and may turn toour competitors,which may adversely affect our business and results of operations.The PRC government regulate
144、s the air-ticketing,travel agency,advertising and Internet industries.If we fail to obtain or maintain allpertinent permits and approvals or if the PRC government imposes more restrictions on these industries,our business may be adversely affected.The PRC government regulates the air-ticketing,trave
145、l agency,advertising and Internet industries.We are required to obtain applicable permits orapprovals from different regulatory authorities to conduct our business,including separate licenses for value-added telecommunications,air-ticketing,advertising and travel agency activities.If we fail to obta
146、in or maintain any of the required permits or approvals in the future,we may be subject to variouspenalties,such as fines or suspension of operations in these regulated businesses,which could severely disrupt our business operations.As a result,ourfinancial condition and results of operations may be
147、 adversely affected.In particular,the Civil Aviation Administration of China,or CAAC,together with National Development and Reform Commission,or NDRC,regulatespricing of air tickets.CAAC also supervises commissions payable to air-ticketing agencies together with China National Aviation Transportatio
148、n Association,or CNATA.If restrictive policies are adopted by CAAC,NDRC,or CNATA,or any of their regional branches,our air-ticketing revenues may be adverselyaffected.We may not be able to prevent others from using our intellectual property,which may harm our business and expose us to litigation.We
149、regard our domain names,trade names,trademarks and similar intellectual property as critical to our success.We try to protect our intellectualproperty rights by relying on trademark protection and confidentiality laws and contracts.Trademark and confidentiality protection in China may not be aseffec
150、tive as that in the United States.Policing unauthorized use of proprietary technology is difficult and expensive.The steps we have taken may be inadequate to prevent the misappropriation of our proprietary technology.Any misappropriation could have a negativeeffect on our business and operating resu
151、lts.Furthermore,we may need to go to court to enforce our intellectual property rights.Litigation relating to ourintellectual property might result in substantial costs and diversion of resources and management attention.See“Risks Related to Doing Business in ChinaUncertainties with respect to the P
152、RC legal system could adversely affect us.”We rely on services from third parties to carry out our business and to deliver our products to customers,and if there is any interruptionor deterioration in the quality of these services,our customers may not continue using our services.We rely on third-pa
153、rty computer systems to host our websites,as well as third-party licenses for some of the software underlying our technology platform.In addition,we rely on third-party air-ticketing agencies to issue air tickets and travel insurance products,confirmations and deliveries in some cities inGreater Chi
154、na.We also rely on third party local operators to deliver on-site services to our packaged-tour customers.Any interruption in our ability to obtainthe products or services of these or other third parties or deterioration in their performance,such as server errors or interruptions,could impair the ti
155、ming andquality of our own service.If our service providers fail to provide high quality services in a timely manner to our customers or violate any applicable rules andregulations,our services will not meet the expectations of our customers and our reputation and brand will be damaged.Furthermore,i
156、f our arrangement withany of these third parties is terminated,we may not find an alternative source of support on a timely basis or on favorable terms to us.9Table of Contents If our hotel suppliers or customers provide us with untrue information regarding our customers stay,we may not be able to r
157、ecognizeand collect revenues to which we are entitled.A substantial portion of our revenues are represented by commissions which hotels pay us for room nights booked through us.Generally,we do notreceive payment from our customers on behalf of our hotel suppliers,as our customers pay hotels directly
158、.To confirm whether a customer adheres to thebooked itinerary,we routinely make inquiries with the hotel and,occasionally,with the customer.We rely on the hotel and the customer to provide us truthfulinformation regarding the customers check-in and check-out dates,which forms the basis for calculati
159、ng the commission we are entitled to receive from thehotel.If our hotel suppliers or customers provide us with untrue information with respect to our customers length of stay at the hotels,we would not be able tocollect revenues to which we are entitled.In addition,using such untrue information may
160、lead to inaccurate business projections and plans,which mayadversely affect our business planning and strategy.We may suffer losses if we are unable to predict the amount of inventory we will need to purchase during the peak holiday seasons.During the peak holiday seasons in China,we establish limit
161、ed merchant business relationships with selected travel service suppliers,particularly forour packaged-tour products,in order to secure adequate supplies for our customers.In the merchant business relationship,we buy hotel rooms and/or airtickets before selling them to our customers and thereby incu
162、r inventory risk.If we are unable to correctly predict demand for hotel rooms and air tickets thatwe are committed to purchase,we would be responsible for covering the cost of the hotel rooms and air tickets we are unable to sell,and our financialcondition and results of operations would be adversel
163、y affected.The recurrence of SARS or other similar outbreaks of contagious diseases as well as natural disasters may materially and adverselyaffect our business and operating results.In early 2003,several regions in Asia,including Hong Kong and China,were affected by the outbreak of SARS.The travel
164、industry in China,HongKong and some other parts of Asia suffered tremendously as a result of the outbreak of SARS.Furthermore,in early 2008,severe snowstorms hit many areasof China and particularly affected southern China.The travel industry was severely and adversely affected during and after the s
165、nowstorms.Additionally,inMay 2008,a major earthquake struck Chinas populous Sichuan Province,causing great loss of life,numerous injuries,property loss and disruption to thelocal economy.The earthquake had an immediate impact on our business as a result of the sharp decrease in travel in the relevan
166、t earthquake-affected areas inSichuan Province.In 2009,an outbreak of H1N1 influenza(swine flu)occurred in Mexico and the United States and human cases of the swine flu werediscovered in China and Hong Kong.In March 2011,a powerful earthquake hit Japan,and the subsequent tsunami and nuclear accident
167、s had far-reachingimpact on the surrounding economies.Starting from March 2013,H7N9 bird flu,a new strain of animal influenza,has been spreading in China and hasinfected more than a hundred people.In October 2013,large scale political protests began in Thailand that lasted several months and caused
168、disruption totourism and travel.In November 2013,one of the largest typhoons ever recorded hit the Philippines,causing widespread devastation.Any future outbreak of contagious diseases,extreme unexpected bad weather or natural disasters would adversely affect our business and operatingresults.Ongoin
169、g concerns regarding contagious disease or natural disasters,particularly its effect on travel,could negatively impact our customers desire totravel.If there is a recurrence of an outbreak of certain contagious diseases or natural disasters,travel to and from affected regions could be curtailed.Gove
170、rnment advice regarding,or restrictions on,travel to and from these and other regions on account of an outbreak of any contagious disease or occurrenceof natural disasters may have a material adverse effect on our business and operating results.If tax benefits available to our subsidiaries in China
171、are reduced or repealed,our results of operations could suffer.Under the PRC Enterprise Income Tax Law,or the EIT Law,effective on January 1,2008,foreign invested enterprises,or FIEs,and domestic enterprisesare subject to EIT at a uniform rate of 25%.Certain enterprises will benefit from a preferent
172、ial tax rate of 15%under the EIT Law if they qualify as“high andnew technology enterprises,”subject to certain general restrictions described in the EIT Law and the related regulations.In December 2008,our PRC subsidiaries,Ctrip Computer Technology,Ctrip Travel Information,Ctrip Travel Network and S
173、oftware Hotel Informationwere each designated by relevant local authorities as a“high and new technology enterprise”under the EIT Law with an effective period of three years.Therefore,these entities were entitled to enjoy a preferential tax rate of 15%from 2008 to 2011,as long as they maintained the
174、ir qualifications for“high andnew technology enterprises”.These four entities re-applied for this qualification after the effective period expired in 2011 and their applications were approvedby the relevant government authority.The“high and new technology enterprises”status of these entities is subj
175、ect to review every three years and we cannotassure you that our subsidiaries will continue to qualify as high and new technology enterprises when they are subject to reevaluation in the future.In 2012,Chengdu Ctrip and Chengdu Ctrip International obtained approval from local tax authorities to appl
176、y the 15%tax rate for 2011 tax filing and for the year from2012 to 2014.In 2013,Chengdu Information Technology Co.,Ltd.,or Chengdu Information,obtained approval from local tax authorities to apply the 15%tax rate for its 2012 tax filing and for the years from 2013 to 2016.In the event that the prefe
177、rential tax treatment for these entities is discontinued,these entitieswill become subject to the standard tax rate at 25%,which would materially increase our tax obligations.10Table of Contents We have sustained losses in the past and may experience earnings declines or net losses in the future.We
178、sustained net losses in the periods prior to 2002.We cannot assure you that we can sustain profitability or avoid net losses in the future.We expectthat our operating expenses will increase and the degree of increase in these expenses is largely based on anticipated growth,revenue trends and competi
179、tivepressure.As a result,any decrease or delay in generating additional sales volume and revenues and increase in our operating expenses may result in substantialoperating losses.We may be subject to legal or administrative proceedings regarding information provided on our websites or other aspects
180、of our businessoperations,which may be time-consuming to defend.Our websites contain information about hotels,flights,popular vacation destinations and other travel-related topics.It is possible that if any informationaccessible on our websites contains errors or false or misleading information,thir
181、d parties could take action against us for losses incurred in connection withthe use of such information.From time to time,we have become and may in the future become a party to various legal or administrative proceedings arising inthe ordinary course of our business,including actions with respect t
182、o labor and employment claims,breach of contract claims,anti-competition claims andother matters.Although such proceedings are inherently uncertain and their results cannot be predicted with certainty,we believe that the resolution of ourcurrent pending matters will not have a material adverse effec
183、t on our business,consolidated financial position,results of operations or cash flow.Regardlessof the outcome and merit of such proceedings,however,any legal action can have an adverse impact on us because of defense costs,negative publicity,diversion of managements attention and other factors.In ad
184、dition,it is possible that an unfavorable resolution of one or more legal or administrativeproceedings,whether in the PRC or in another jurisdiction,could materially and adversely affect our financial position,results of operations or cash flows ina particular period or damage our reputation.We coul
185、d be liable for breaches of Internet security or fraudulent transactions by users of our websites.The Internet industry is facing significant challenges regarding information security and privacy,including the storage,transmission and sharing ofconfidential information.In recent years,PRC government
186、 authorities have enacted legislation on Internet use to protect personal information from anyunauthorized disclosure.See“Item 4.Information on the Company B.Business OverviewPRC Government RegulationsInternet Privacy.”We conducta majority of our transactions through the Internet(including through o
187、ur websites and mobile apps).In such transactions,secured transmission ofconfidential information(such as customers itineraries,hotel and other reservation information,credit card information,personal information and billingaddresses)over public networks and ensuring the confidentiality,integrity,av
188、ailability and authenticity of the information of our users,customers,hotelsuppliers and airline partners is essential to maintain their confidence in our online products and services.Our current security measures may not be adequateand may contain deficiencies that we fail to identify,and advances
189、in technology,increased levels of expertise of hackers,new discoveries in the field ofcryptography or others could increase our vulnerability.For example,a third-party website with focus on Internet security information exchange released anews in March 2014 that as a result of a temporary testing fu
190、nction performed by us,certain data files containing customers credit card information had beenstored on local servers maintained by us,which may lead to potential exposure of these customers information to hackers.We removed the cause of thepotential security concern within two hours and then exami
191、ned all other possible leaks and found that 93 customers credit card information might have beendownloaded by the above-mentioned website for the purpose of confirming potential risks.Although to our knowledge,no customer has suffered financial lossor other damage due to the incident as of the date
192、of this report,our business,results of operations,user experience and reputation may be materially andadversely affected if similar incidents related to Internet security recur in the future.In August 2011,Chinas Supreme Peoples Court and Supreme PeoplesProcuratorate issued judicial interpretations
193、regarding hacking and other Internet crimes.However,its effect on curbing hacking and other illegal onlineactivities still remains to be seen.Significant capital,managerial and human resources are required to enhance information security and to address any issues caused by security failures.If we ar
194、e unable to protect our systems and the information stored in our systems from unauthorized access,use,disclosure,disruption,modification ordestruction,such problems or security breaches may cause loss,expose us to litigation and possible liability to the owners of confidential information,disruptou
195、r operations and may harm our reputation and ability to attract customers.We may be the subject of detrimental conduct by third parties including complaints to regulatory agencies,negative blog postings,and thepublic dissemination of malicious assessments of our business,which could have a negative
196、impact on our reputation and cause us to lose marketshare,travel suppliers and customers and revenues,and adversely affect the price of our ADSs.We may be the target of anti-competitive,harassing,or other detrimental conduct by third parties.Such conduct may include complaints,anonymous orotherwise,
197、to regulatory agencies regarding our operations,accounting,revenues,business relationships,business prospects and business ethics.Additionally,allegations,directly or indirectly against us,may be posted in Internet chat-rooms or on blogs or any websites by anyone,whether or not related to us,on anan
198、onymous basis.We may be subject to government or regulatory investigation as a result of such third-party conduct and may be required to expendsignificant time and incur substantial costs to address such third-party conduct,and there is no assurance that we will be able to conclusively refute each o
199、fthe allegations within a reasonable period of time,or at all.Our reputation may also be negatively affected as a result of the public dissemination of anonymousallegations or malicious statements about our business,which in turn may cause us to lose market share,travel suppliers and customers and r
200、evenues andadversely affect the price of our ADSs.11Table of Contents We have limited business insurance coverage in Greater China.Insurance companies in Greater China offer limited business insurance products and generally do not,to our knowledge,offer business liabilityinsurance.Business disruptio
201、n insurance is available to a limited extent in Greater China,but we have determined that the risks of disruption,the cost ofsuch insurance and the difficulties associated with acquiring such insurance make it impractical for us to have such insurance.We do not maintain insurancecoverage for any kin
202、ds of business liabilities or disruptions and would have to bear the costs and expenses associated with any such events out of our ownresources.We engage celebrities to be our brand ambassadors to market our brands and products.From time to time,we select celebrities to be our brand ambassadors to m
203、arket our“Ctrip”brand or our products and services that are important to ourbusiness.However,we cannot give assurance that the endorsement from our brand ambassadors or related advertisements will remain effective,that the brandambassador will remain popular or his or her images will remain positive
204、 and compatible with the messages that our brand and products aim to convey.Furthermore,we cannot ensure that we can successfully find suitable celebrities to replace any of our existing brand ambassador if the existing brandambassador is no longer able or suitable to continue the engagement,and ter
205、mination of such engagements may have a significant impact on our brand imagesand the promotion or sales of our products.If any of these situations occurs,our business,financial condition and results of operations could be materiallyand adversely affected.We may face greater risks of doubtful accoun
206、ts as our corporate travel business increases in scale.Since we began providing travel booking services to corporate customers who generally request credit terms,our accounts receivable have increased.Wecannot assure you that we will be able to collect payment fully and in a timely manner on our out
207、standing accounts receivable from our corporate travel servicecustomers.As a result,we may face a greater risk of non-payment of our accounts receivable and,as our corporate travel business grows in scale,we mayneed to make increased provisions for doubtful accounts.Our operating results and financi
208、al condition may be materially and adversely affected if we areunable to successfully manage our accounts receivable.As we have commenced accounting for employee share options using the fair value method beginning in 2006,such accountingtreatment could continue to significantly reduce our net income
209、.Since 2006,we have accounted for share-based compensation in accordance with ASC 718”CompensationStock Compensation,”or ASC 718,whichrequires a public company to recognize,as an expense,the fair value of share options and other share-based compensation to employees based on the requisiteservice per
210、iod of the share-based awards.We have granted share-based compensation awards,including share options and restricted share units,to employees,officers and directors to incentivize performance and align their interests with ours.We have adopted four share incentive plans,namely,the 2007 ShareIncentiv
211、e Plan,or the 2007 Plan,the 2005 Employees Stock Option Plan,or the 2005 Plan,the 2003 Employees Option Plan,or the 2003 Plan,and the 2000Employees Stock Option Plan,or the 2000 Plan.Under the 2007 Plan,the maximum aggregate number of ordinary shares which may be issued pursuant toawards was 8,000,0
212、00 as of the first business day of 2014,with annual increases of 1,000,000 ordinary shares on the first business day of each subsequentcalendar year until the termination of the plan.As a result of these grants and potential future grants,we had incurred in the past and expect to continue toincur in
213、 future periods significant share-based compensation expenses.The amount of these expenses is based on the fair value of the share-based awards.Our board of directors has the discretion to change terms of any previously issued share options and any such change may significantly increase theamount of
214、 our share-based compensation expenses for the period that the change takes effect as well as those for any future periods.In February 2009,ourboard of directors approved to reduce the exercise price of all outstanding unvested options that were granted by us in 2007 and 2008 under our 2007 Plan tot
215、he then fair market value of our ordinary shares underlying such options and,in December 2009,our board of directors approved to extend the expirationdates of all stock options granted in 2005 and 2006 to eight years after the respective original grant dates of these options.As a result of such chan
216、ges,ourshare-based compensation expense of 2009 reduced our diluted earnings per ADS by approximately US$0.14.In February 2010,our compensation committeeapproved to extend the expiration dates of all stock options granted in and after 2007 to eight years after the respective original grant dates of
217、these options.As aresult of such changes,our share-based compensation expense of 2010 reduced our diluted earnings per ADS by approximately US$0.06.The application ofASC 718 will continue to have a significant impact on our net income.In addition,future changes to various assumptions used to determi
218、ne the fair value ofawards issued or the amount and type of equity awards granted may also create uncertainty as to the amount of future share-based compensation expense.12Table of Contents Failure to maintain effective internal control over financial reporting could result in errors in our publishe
219、d financial statements,whichin turn could have a material adverse effect on the trading price of our ADSs.We are subject to the reporting obligations under the U.S.securities laws.The U.S.Securities and Exchange Commission,or the SEC,as required underSection 404 of the Sarbanes-Oxley Act of 2002,has
220、 adopted rules requiring public companies to include a report of management on the effectiveness of suchcompanies internal control over financial reporting in its annual report.In addition,an independent registered public accounting firm for a public companymust issue an attestation report on the ef
221、fectiveness of the companys internal control over financial reporting.Our management conducted an evaluation of theeffectiveness of our internal control over financial reporting and concluded that our internal control over financial reporting was effective as of December 31,2013.In addition,our inde
222、pendent registered public accounting firm attested the effectiveness of our internal control and reported that our internal control overfinancial reporting was effective as of December 31,2013.If we fail to maintain the effectiveness of our internal control over financial reporting,we may not beable
223、 to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with the Sarbanes-Oxley Act.Moreover,effective internal control over financial reporting is necessary for us to produce reliable financial reports.As a result,any failure to maintain effec
224、tive internalcontrol over financial reporting could result in the loss of investor confidence in the reliability of our financial statements,which in turn could negativelyimpact the trading price of our ADSs.Furthermore,we may need to incur additional costs and use additional management and other re
225、sources in an effort tocomply with Section 404 of the Sarbanes-Oxley Act and other requirements going forward.We may need additional capital and we may not be able to obtain it.We believe that our current cash and cash equivalents,short-term investments,cash flow from operations and proceeds from ou
226、r financing activities willbe sufficient to meet our anticipated cash needs for the foreseeable future.We may,however,require additional cash resources due to changed businessconditions or other future developments,including any investments or acquisitions we may decide to pursue.If these resources
227、are insufficient to satisfy ourcash requirements,we may seek to sell additional equity or debt securities or obtain a credit facility.The sale of additional equity securities could result inadditional dilution to our shareholders.The incurrence of indebtedness would result in increased debt service
228、obligations and could result in operating andfinancing covenants that would restrict our operations.We cannot assure you that financing will be available in amounts or on terms acceptable to us,if at all.In particular,the recent financial turmoil affecting the financial markets and banking system ma
229、y significantly restrict our ability to obtain financing in thecapital markets or from financial institutions on commercially reasonable terms,or at all.Risks Related to Our Corporate Structure PRC laws and regulations restrict foreign investment in the air-ticketing,travel agency,advertising and va
230、lue-added telecommunicationsbusinesses,and substantial uncertainties exist with respect to the application and implementation of PRC laws and regulations.We are a Cayman Islands incorporated company and a foreign person under PRC law.Due to foreign ownership restrictions in the air-ticketing,travela
231、gency,advertising and value-added telecommunications industries,we conduct part of our business through contractual arrangements with our affiliatedChinese entities.These entities hold the licenses and approvals that are essential for our business operations.In the opinion of our PRC counsel,Commerc
232、e&Finance Law Offices,our current ownership structure,the ownership structure of our subsidiaries andour affiliated Chinese entities,the contractual arrangements among us,our subsidiaries,our affiliated Chinese entities and their shareholders,as described inthis annual report,are in compliance with
233、existing PRC laws,rules and regulations.There are,however,substantial uncertainties regarding the interpretationand application of current or future PRC laws and regulations.Accordingly,we cannot assure you that PRC government authorities will not ultimately take aview contrary to the opinion of our
234、 PRC legal counsel due to the lack of official interpretation and clear guidance.If we and our affiliated Chinese entities are found to be in violation of any existing or future PRC laws or regulations,the relevant governmental authoritieswould have broad discretion in dealing with such violation,in
235、cluding,without limitation,levying fines,confiscating our income or the income of ouraffiliated Chinese entities,revoking our business licenses or the business licenses of our affiliated Chinese entities,requiring us and our affiliated Chineseentities to restructure our ownership structure or operat
236、ions and requiring us or our affiliated Chinese entities to discontinue any portion or all of our value-added telecommunications,air-ticketing,travel agency or advertising businesses.In particular,if the PRC government authorities impose penalties whichcause us to lose our rights to direct the activ
237、ities of and receive economic benefits from our consolidated affiliated Chinese entities,we may lose the ability toconsolidate and reflect in our financial statements the operation results of our consolidated affiliated Chinese entities.Any of these actions could causesignificant disruption to our b
238、usiness operations,and may materially and adversely affect our business,financial condition and results of operations.13Table of Contents Under the equity pledge agreements between our subsidiaries and the shareholders of our affiliated Chinese entities,the shareholders of our affiliatedChinese enti
239、ties pledged their respective equity interests in these entities to our subsidiaries.Such pledges were duly created by recording the pledge in therelevant affiliated Chinese entities register of shareholders in accordance with the PRC Collateral Law.However,according to the PRC Property Rights Law,e
240、ffective as of October 1,2007,and the Measures for the Registration of Equity Pledge with the Administration for Industry and Commerce,effective as ofOctober 1,2008,the effectiveness of the pledges will be denied if the pledges are not registered with the Administration for Industry and Commerce.Our
241、affiliated Chinese entities and our subsidiaries have registered all equity pledges.The effectiveness of the pledges will be recognized by PRC courts if disputesarise on certain pledged equity interests and that our subsidiaries interests as pledgees will prevail over those of third parties.Furtherm
242、ore,we were aware that a China-based company listed in the U.S.announced in 2012 that it was subject to the SECs investigation which itbelieved related to the consolidation of its consolidated affiliated Chinese entities.Following the announcement,that issuers stock price declined significantly.Alth
243、ough we are not aware of any actual or threatened investigation,inquiry or other action by the SEC,NASDAQ or any other regulatory authority withrespect to consolidation of our consolidated affiliated Chinese entities,we cannot assure you that we will not be subject to any such investigation or inqui
244、ry inthe future.In the event we are subject to any regulatory investigation or inquiry relating to our consolidated affiliated Chinese entities,including theconsolidation of such entities into our financial statements,or any other matters,we may need to spend significant amount of time and expenses
245、in connectionwith the investigation or inquiry,our reputation may be harmed regardless of the outcome,and the trading price of our ADS may materially decline orfluctuate.If our affiliated Chinese entities violate our contractual arrangements with them,our business could be disrupted,our reputation m
246、ay beharmed and we may have to resort to litigation to enforce our rights,which may be time-consuming and expensive.As the PRC government restricts foreign ownership of value-added telecommunications,air-ticketing,travel agency and advertising businesses in China,we depend on our affiliated Chinese
247、entities,in which we have no ownership interest,to conduct part of our non-hotel reservation business activities through aseries of contractual arrangements,which are intended to provide us with effective control over these entities and allow us to obtain economic benefits fromthem.Although we have
248、been advised by our PRC counsel,Commerce&Finance Law Offices,that the contractual arrangements as described in this annualreport are valid,binding and enforceable under current PRC laws,these arrangements are not as effective in providing control as direct ownership of thesebusinesses.For example,ou
249、r affiliated Chinese entities could violate our contractual arrangements with them by,among other things,failing to operate our air-ticketing,packaged-tour or advertising business in an acceptable manner or pay us for our consulting or other services.In any such event,we would have torely on the PRC
250、 legal system for the enforcement of those agreements,which could have uncertain results.Any legal proceeding could result in the disruptionof our business,damage to our reputation,diversion of our resources and incurrence of substantial costs.See“Risks Related to Doing Business in ChinaUncertaintie
251、s with respect to the PRC legal system could adversely affect us.”The principal shareholders of our affiliated Chinese entities have potential conflicts of interest with us,which may adversely affect ourbusiness.Our director,vice chairman of the board and president,Min Fan,our officers,Dongjie Guo a
252、nd Maohua Sun were also the principal shareholders of ourconsolidated affiliated Chinese entities as of the date of this report.Thus,conflicts of interest between their duties to our company and our affiliated Chineseentities may arise.We cannot assure you that when conflicts of interest arise,these
253、 persons will act entirely in our interests or that the conflicts of interest willbe resolved in our favor.In addition,these persons could violate their non-competition or employment agreements with us or their legal duties by divertingbusiness opportunities from us to others,resulting in our loss o
254、f corporate opportunities.In any such event,we would have to rely on the PRC legal system forthe enforcement of these agreements,which could have uncertain results.Any legal proceeding could result in the disruption of our business,diversion of ourresources and incurrence of substantial costs.See“Ri
255、sks Related to Doing Business in ChinaUncertainties with respect to the PRC legal system couldadversely affect us.”Our contractual arrangements with our affiliated Chinese entities may result in adverse tax consequences to us.As a result of our corporate structure and the contractual arrangements be
256、tween us and our affiliated Chinese entities,we are effectively subject to the 5%PRC business tax on both revenues generated by our affiliated Chinese entities operations in China and revenues derived from our contractual arrangementswith our affiliated Chinese entities.We may be subject to adverse
257、tax consequences if the PRC tax authorities were to determine that the contracts between usand our affiliated Chinese entities were not made on an arms-length basis and therefore constitute favorable transfer pricing arrangements.If this occurs,thePRC tax authorities could request that our affiliate
258、d Chinese entities adjust their taxable income upward for PRC tax purposes.Such a pricing adjustmentcould adversely affect us by increasing our affiliated Chinese entities tax expenses without reducing our tax expenses,which could subject our affiliatedChinese entities to late payment fees and other
259、 penalties for underpayment of taxes,and/or result in the loss of the tax benefits available to our subsidiaries inChina.The EIT Law requires every enterprise in China to submit its annual enterprise income tax return together with a report on transactions with itsaffiliates to the relevant tax auth
260、orities.The tax authorities may impose reasonable adjustments on taxation if they have identified any related party transactionsthat are inconsistent with arms-length principles.As a result,our contractual arrangements with our affiliated Chinese entities may result in adverse taxconsequences to us.
261、14Table of Contents Our subsidiaries and affiliated Chinese entities in China are subject to restrictions on paying dividends or making other payments to us,which may restrict our ability to satisfy our liquidity requirements.We are a holding company incorporated in the Cayman Islands.We rely on div
262、idends from our subsidiaries in China and consulting and other fees paidto us by our affiliated Chinese entities.Current PRC regulations permit our subsidiaries to pay dividends to us only out of their accumulated profits,if any,determined in accordance with Chinese accounting standards and regulati
263、ons.In addition,our subsidiaries in China are required to set aside at least 10%oftheir respective accumulated profits each year,if any,to fund certain reserve funds unless these reserves have reached 50%of the subsidiaries registeredcapital.These reserves are not distributable as cash dividends.Fur
264、thermore,if our subsidiaries and affiliated Chinese entities in China incur debt on theirown behalf in the future,the instruments governing the debt may restrict their ability to pay dividends or make other payments to us,which may restrict ourability to satisfy our liquidity requirements.Pursuant t
265、o the EIT Law and a circular issued by the PRC Ministry of Finance and the PRC State Administration of Taxation,or the SAT,inFebruary 2008,the dividends declared out of the profits earned after January 1,2008 by an FIE to its immediate holding company outside China are subject toa 10%withholding tax
266、 unless such foreign investors jurisdiction of incorporation has a tax treaty with China that provides for a different withholdingarrangement,and certain supplementary requirements and procedures stipulated by SAT for such tax treaty are met and observed.Our subsidiaries in Chinaare considered FIEs
267、and are directly held by our subsidiary in Hong Kong.According to the currently effective tax treaty between China and Hong Kong,dividends payable by an FIE in China to a company in Hong Kong which directly holds at least 25%of the equity interests in the FIE will be subject to awithholding tax of 5
268、%.In February 2009,the SAT issued a new notice,Notice No.81.According to Notice No.81,in order to enjoy the preferential treatmenton dividend withholding tax rates,an enterprise must be the“beneficial owner”of the relevant dividend income,and no enterprise is entitled to enjoypreferential treatment
269、pursuant to any tax treaties if such enterprise qualifies for such preferential tax rates through any transaction or arrangement,the majorpurpose of which is to obtain such preferential tax treatment.The tax authority in charge has the right to make adjustments to the applicable tax rates,if itdeter
270、mines that any taxpayer has enjoyed preferential treatment under tax treaties as a result of such transaction or arrangement.In October 2009,the SATissued another notice on this matter,Notice No.601,to provide guidance on the criteria for determining whether an enterprise qualifies as the“beneficial
271、owner”of the PRC sourced income for the purpose of obtaining preferential treatment under tax treaties.Pursuant to Notice No.601,the PRC tax authoritieswill review and grant tax preferential treatment on a case-by-case basis and adopt the“substance over form”principle in the review.Notice No.601 spe
272、cifiesthat a beneficial owner should generally carry out substantial business activities and own and have control over the income,the assets or other rightsgenerating the income.Therefore,an agent or a conduit company will not be regarded as a beneficial owner of such income.Since the two notices we
273、re issued,it has remained unclear how the PRC tax authorities will implement them in practice and to what extent they will affect the dividend withholding tax rates fordividends distributed by our subsidiaries in China to our Hong Kong subsidiary.If the relevant tax authority determines that our Hon
274、g Kong subsidiary is aconduit company and does not qualify as the“beneficial owner”of the dividend income it receives from our PRC subsidiaries,the higher 10%withholding taxrate will apply to such dividends.Under the EIT Law,an enterprise established outside of China with its“de facto management bod
275、y”within China is considered a resident enterprise andwill be subject to enterprise income tax at the rate of 25%on its worldwide income.The“de facto management body”is defined as the organizational body thateffectively exercises overall management and control over production and business operations
276、,personnel,finance and accounting,and properties of theenterprise.It remains unclear how the PRC tax authorities will interpret such a broad definition.If the PRC tax authorities determine that we should beclassified as a resident enterprise for PRC tax purposes,our global income will be subject to
277、income tax at a uniform rate of 25%,which may have a materialadverse effect on our financial condition and results of operations.Notwithstanding the foregoing provision,the EIT Law also provides that,if a residententerprise directly invests in another resident enterprise,the dividends received by th
278、e investing resident enterprise from the invested enterprise are exemptedfrom income tax,subject to certain conditions.However,it remains unclear how the PRC tax authorities will interpret the PRC tax resident treatment of anoffshore company,like us,having indirect ownership interests in PRC enterpr
279、ises through intermediary holding vehicles.Moreover,under the EIT Law,foreign ADS holders may be subject to a 10%withholding tax upon dividends payable by a Chinese entity and gainsrealized on the sale or other disposition of ADSs or ordinary shares,if such income is considered as income derived fro
280、m within China.Any such tax wouldreduce the returns on your investment in our ADSs.15Table of Contents 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 economicgrowth of China,which c
281、ould adversely affect our business.The majority of our business operations are conducted in mainland China.Accordingly,our results of operations,financial condition and prospects aresubject to a significant degree to economic,political and legal developments in China.Chinas economy differs from the
282、economies of most developed countriesin many respects,including with respect to the amount of government involvement,level of development,growth rate,control of foreign exchange andallocation of resources.While the PRC economy has experienced significant growth in the past decades,growth has been un
283、even across different regions andamong various economic sectors of China.The PRC government has implemented various measures to encourage economic development and guide theallocation of resources.Some of these measures benefit the overall PRC economy,but may also have a negative effect on us.For exa
284、mple,our financialcondition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are applicableto us.In addition,future measures to control the pace of economic growth may cause a decrease in the level of economic activ
285、ity in China,which in turn couldadversely affect our results of operations and financial condition.Inflation in China may disrupt our business and have an adverse effect on our financial condition and results of operations.The Chinese economy has experienced rapid expansion together with rising rate
286、s of inflation.Inflation may erode disposable incomes and consumerspending,which may have an adverse effect on the Chinese economy and lead to a reduction in business and leisure travel as the travel industry is highlysensitive to business and personal discretionary spending levels.This in turn coul
287、d adversely impact our business,financial condition and results ofoperations.Future movements in exchange rates between the U.S.dollar and the RMB may adversely affect the value of our ADSs.The value of the Renminbi against the U.S.dollar and other currencies may fluctuate and is affected by,among o
288、ther things,changes in political andeconomic conditions.The conversion of the Renminbi into foreign currencies,including the U.S.dollar,has been based on rates set by the Peoples Bank ofChina.The PRC government allowed the Renminbi to appreciate by more than 20%against the U.S.dollar between July 20
289、05 and July 2008.BetweenJuly 2008 and June 2010,this appreciation halted and the exchange rate between the Renminbi and the U.S.dollar remained within a narrow band.As aconsequence,the Renminbi fluctuated significantly during that period against other freely traded currencies,in tandem with the U.S.
290、dollar.Since June,2010,the PRC government has allowed the Renminbi to appreciate slowly against the U.S.dollar again.It is difficult to predict how market forces or PRC or U.S.government policy may impact the exchange rate between the Renminbi and the U.S.dollar in the future.The majority of our rev
291、enues and costs are denominated in Renminbi,while a portion of our financial assets and our dividend payments are denominatedin U.S.dollars.We have not used any forward contracts or currency borrowings to hedge our exposure to foreign currency risk.Any significant revaluation ofthe Renminbi or the U
292、.S.dollar may adversely affect our cash flows,earnings and financial position,and the value of,and any dividends payable on,ourADSs.For example,an appreciation of the Renminbi against the U.S.dollar would make any new RMB-denominated investments or expenditures more costlyto us,to the extent that we
293、 need to convert U.S.dollars into Renminbi for such purposes.An appreciation of the Renminbi against the U.S.dollar would alsoresult in foreign currency translation losses for financial reporting purposes when we translate our U.S.dollar-denominated financial assets into Renminbi,our reporting curre
294、ncy.Conversely,if we decide to convert Renminbi into U.S.dollars for the purpose of making payments for dividends on our ordinaryshares or ADSs or for other business purposes,appreciation of the U.S.dollar against the Renminbi would have a negative effect on the U.S.dollar amountavailable to us.Rest
295、rictions on currency exchange may limit our ability to receive and use our revenues effectively.Because the majority of our revenues are in the form of Renminbi,any restrictions on currency exchange may limit our ability to use revenues generated inRenminbi to fund our business activities outside Ch
296、ina or to make dividend payments in U.S.dollars.The principal regulation governing foreign currencyexchange in China is the Foreign Currency Administration Rules,as amended,or the Rules.Under the Rules,Renminbi is freely convertible for trade-andservice-related foreign exchange transactions,but not
297、for direct investment,loan or investment in securities outside China unless the prior approval of the StateAdministration of Foreign Exchange,or SAFE,is obtained.Although the PRC government regulations now allow greater convertibility of Renminbi for currentaccount transactions,significant restricti
298、ons still remain.For example,foreign exchange transactions under our subsidiaries capital account,includingprincipal payments in respect of foreign currency-denominated obligations,remain subject to significant foreign exchange controls and the approval of SAFE.These limitations could affect our abi
299、lity to obtain foreign exchange for capital expenditures.We cannot be certain that the PRC regulatory authorities will notimpose more stringent restrictions on the convertibility of Renminbi,especially with respect to foreign exchange transactions.16Table of Contents PRC regulations relating to the
300、establishment of offshore special purpose companies by PRC residents and the grant of employee stockoptions by overseas-listed companies may subject our PRC resident shareholders to personal liability and limit our ability to inject capital into ourPRC subsidiaries,limit our subsidiaries ability to
301、distribute profits to us,or otherwise adversely affect us.SAFE issued a public notice,or Notice 75,in October 2005 requiring PRC residents to register with the local SAFE branch before establishing orcontrolling any company outside of China for the purpose of capital financing with assets or equity
302、interests in any onshore enterprise located in China,referred to in the notice as a“special purpose company.”On May 20,2011,SAFE promulgated the Implementation Guidelines for Foreign ExchangeAdministration of Financings and Return Investment by Onshore Residents Utilizing Offshore Special Purpose Co
303、mpanies,or the Guidelines,which becameeffective on July 1,2011,clarifying certain implementation questions of Notice 75.According to Notice 75 and the Guidelines,any PRC resident who is adirect or indirect shareholder of a special purpose company is also required to file or update the registration w
304、ith the local branch of SAFE,with respect to thatspecial purpose company for any material change involving its round-trip investment,capital variation,such as an increase or decrease in capital,transfer orswap of shares,merger,division,long-term equity or debt investment or the creation of any secur
305、ity interest.Moreover,the PRC subsidiaries of that specialpurpose company are required to urge the PRC resident shareholders to update their SAFE registration with the local branch of SAFE when such updates arerequired under applicable SAFE regulations.We have notified holders of ordinary shares of
306、our company who we know are PRC residents to register with the local SAFE branch as required under theSAFE notice.The failure or inability of our shareholders resident in China to comply with the registration procedures set forth therein may subject them tofines and legal sanctions and may also limi
307、t our ability to contribute additional capital into our PRC subsidiaries,limit our PRC subsidiaries ability todistribute profits to our company or otherwise adversely affect our business.On February 15,2012,SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Administration f
308、or Domestic IndividualsParticipating in an Employees Share Incentive Plan of an Overseas-Listed Company(which is replacing the old circular,“Application Procedure of ForeignExchange Administration for Domestic Individuals Participating in an Employee Stock Holding Plan or Stock Option Plan of an Ove
309、rseas-Listed Company”,of 2007),or the new Share Incentive Rule.Under the new Share Incentive Rule,PRC resident individuals who participate in a share incentive plan of anoverseas publicly listed company are required to register with SAFE and complete certain other procedures.All such participants ne
310、ed to retain a PRC agentthrough PRC subsidiary to register with SAFE and handle foreign exchange matters such as opening accounts,transferring and settlement of the relevantproceeds.The Rule further requires that an offshore agent should also be designated to handle matters in connection with the ex
311、ercise or sale of share optionsand proceeds transferring for the share incentive plan participants.We and our PRC employees who have been granted stock options are subject to the ShareIncentive Rule.If we or our PRC optionees fail to comply with these regulations,we or our PRC optionees may be subje
312、ct to fines and legal sanctions.Online payment systems in China are at an early stage of development and may restrict our ability to expand our online commercebusiness.Online payment systems in China are at an early stage of development.Although major Chinese banks are instituting online payment sys
313、tems,thesesystems are not as widely accepted by consumers in China as in the United States and other developed countries.The lack of wide acceptance of onlinepayment systems and concerns regarding the adequacy of system security may limit the number of online commercial transactions that we can serv
314、ice.Ifonline payment services and their security capabilities are not significantly enhanced,our ability to grow our online commerce business may be limited.The Internet market has not been proven as an effective commercial medium in China.The Internet penetration rate in China is lower than those i
315、n theUnited States and other developed countries.Our future operating results from online services will depend substantially upon the increased use and acceptanceof the Internet for distribution of products and services and facilitation of commerce in China.The Internet may not become a viable comme
316、rcial marketplace in China for various reasons in the foreseeable future.More salient impediments to Internetdevelopment in China include:consumer dependence on traditional means of commerce;inexperience with the Internet as a sales and distribution channel;inadequate development of the necessary in
317、frastructure to facilitate online commerce;concerns about security,reliability,cost,ease of deployment,administration and quality of service associated with conducting business andsettling payment over the Internet;inexperience with credit card usage or with other means of electronic payment;and lim
318、ited use of personal computers.17Table of Contents If the Internet is not widely accepted as a medium for online commerce in China,our ability to grow our online business would be impeded.Uncertainties with respect to the PRC legal system could adversely affect us.We conduct our business primarily t
319、hrough our wholly owned subsidiaries incorporated in China.Our subsidiaries are generally subject to laws andregulations applicable to foreign investment in China and,in particular,laws applicable to wholly foreign owned enterprises.In addition,we depend on severalaffiliated Chinese entities in Chin
320、a to honor their service agreements with us.Almost all of these agreements are governed by PRC law and disputes arising outof these agreements are expected to be decided by arbitration in China.The PRC legal system is based on written statutes.Prior court decisions may be cited forreference but have
321、 limited precedential value.Since 1979,PRC legislation and regulations have significantly enhanced the protections afforded to variousforms of foreign investments in China.However,since the PRC legal system is still evolving,the interpretations of many laws,regulations and rules are notalways unifor
322、m and enforcement of these laws,regulations and rules involve uncertainties,which may limit remedies available to us.In addition,anylitigation in China may be protracted and result in substantial costs and diversion of resources and management attention.If we and our affiliated Chineseentities are f
323、ound to be in violation of any existing or future PRC laws or regulations,or fail to obtain or maintain any of the required permits or approvals,therelevant PRC regulatory authorities would have broad discretion in dealing with such violations,including restructuring.See“Risks Related to Our Corpora
324、teStructurePRC laws and regulations restrict foreign investment in the air-ticketing,travel agency,advertising and value-added telecommunicationsbusinesses,and substantial uncertainties exist with respect to the application and implementation of PRC laws and regulations.”Implementation of laws and r
325、egulations relating to data privacy in China could adversely affect our business.Certain data and services collected,provided or used by us or provided to and used by us or our users are currently subject to regulation in certainjurisdictions,including China.The PRC Constitution states that PRC laws
326、 protect the freedom and privacy of communications of citizens and prohibitinfringement of such basic rights,and the PRC Contract Law prohibits contracting parties from disclosing or misusing the trade secrets of the other party.Further,companies or their employees who illegally trade or disclose cu
327、stomer data may face criminal charges.Although the definition and scope of“privacy”and“trade secret”remain relatively ambiguous under PRC law,growing concerns about individual privacy and the collection,distribution and use ofinformation about individuals have led to national and local regulations t
328、hat could increase our expenses.In December 2012,the Standing Committee of the National Peoples Congress enacted the Decision to Enhance the Protection of Network Information,orthe Information Protection Decision,to further enhance the protection of users personal information in electronic form.The
329、Information Protection Decisionprovides that Internet information services providers must expressly inform their users of the purpose,manner and scope of the collection and use of userspersonal information by Internet information services providers,publish the Internet information services providers
330、 standards for their collection and use ofusers personal information,and collect and use users personal information only with the consent of the users and only within the scope of such consent.TheInformation Protection Decision also mandates that Internet information services providers and their emp
331、loyees keep users personal information that theycollect strictly confidential,and that they must take such technical and other measures as are necessary to safeguard the information against disclosure,damages and loss.Pursuant to the Order for the Protection of Telecommunication and Internet User Pe
332、rsonal Information issued by the MIIT in July 2013,anycollection and use of user personal information must be subject to the consent of the user,abide by the principles of legality,rationality and necessity and bewithin the specified purposes,methods and scopes.Compliance with current regulations an
333、d regulations that may come into effect in these areas may increaseour expenses related to regulatory compliance,which could have an adverse effect on our financial condition and operating results.PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using theproceeds from the offerings of any securities to make loans or additional
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