TCOM

Business Context and Reporting Period

This Form 20-F is the annual report for Ctrip.com International, Ltd. (also referred to as Trip.com Group Ltd in the request metadata, but legally Ctrip.com International, Ltd. in the text) for the fiscal year ended December 31, 2005. The company is a Cayman Islands-incorporated entity operating primarily in the People's Republic of China (PRC) as a leading consolidator of hotel accommodations and airline tickets. It operates through wholly-owned subsidiaries and a network of Variable Interest Entities (VIEs) due to PRC restrictions on foreign ownership in travel, advertising, and internet content sectors.

Key Financial Metrics (Year Ended Dec 31, 2005)

Note: US$ amounts are translated at the rate of RMB 8.0702 to US$1.00 as of December 31, 2005.

Material Changes vs. Prior Period (2004)

• Revenue Growth: Net revenues increased by 57% to RMB 521.2 million (US$ 64.6 million) from RMB 333.8 million in 2004. This was driven by a 31% increase in hotel reservation revenue and a 158% surge in air-ticketing revenue.
• Profitability: Net income rose by 68% to RMB 224.2 million (US$ 27.8 million) from RMB 133.1 million in 2004. Operating income increased by 66% to RMB 219.5 million.
• Volume Metrics: Hotel room nights sold increased to approximately 5.5 million (from 4.2 million in 2004). Air tickets sold increased to approximately 3.7 million (from 1.7 million in 2004).
• Expense Management: While operating expenses increased by 42% to RMB 213.1 million, they decreased as a percentage of net revenues from 45% in 2004 to 41% in 2005, reflecting operational scalability.
• Cash Position: Cash and cash equivalents grew by 19% to RMB 735.1 million, supported by strong operating cash flows of RMB 231.4 million.

Guidance, Outlook, Risks, and Unusual Items

Outlook and Capital Allocation

Management anticipates continued growth driven by China's economic expansion and increasing demand for travel services. The company plans to invest approximately US$25 million to US$30 million in a new information and technology center in Shanghai, with construction expected to complete in mid-2007. The company intends to distribute 30% of its 2005 net income as dividends, payable in mid-2006.

Key Risks and Contingencies

• PRC Regulatory Structure: The company operates through contractual arrangements with VIEs because foreign ownership is restricted in air-ticketing, travel agency, and internet content businesses. There is a risk that PRC authorities could deem these arrangements invalid, potentially disrupting operations.
• Accounting Changes: Beginning in 2006, the company must adopt SFAS No. 123(R) for share-based compensation, which is expected to significantly increase expenses (estimated at less than RMB 15 million for Q1 2006) and reduce reported net income.
• Market Risks: The company is exposed to foreign exchange risk as revenues are in RMB while assets are partly in USD. It also faces risks related to the volatility of the Chinese economy, travel industry disruptions (e.g., SARS, avian flu), and intense competition.
• Off-Balance Sheet Guarantees: The company provides guarantees totaling approximately RMB 180 million to airlines for ticket issuance on behalf of its VIEs, though no liability is currently recorded as payment is not considered probable.

Investor Verification Checklist

• VIE Compliance: Verify the continued validity of the contractual arrangements with affiliated Chinese entities under evolving PRC laws.
• Share-Based Compensation Impact: Monitor the adoption of SFAS 123(R) in 2006 and its effect on future earnings per share.
• Revenue Recognition: Confirm that revenue is recognized on a net basis (commission only) and that the "ratchet system" for hotel commissions is accurately applied.
• Currency Exposure: Assess the impact of RMB appreciation against the USD on the valuation of USD-denominated assets and future repatriation of profits.
• Capital Expenditures: Track the progress and cost overruns of the new Shanghai technology center construction.