1、Use these links to rapidly review the documentTable of Contents CANADIAN SOLAR INC.INDEX TO CONSOLIDATED FINANCIAL STATEMENTSTable of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington,D.C.20549Form 20-FCommission file number:001-33107CANADIAN SOLAR INC.(Exact name of Registrant as sp
2、ecified in its charter)N/A(Translation of Registrants name into English)Canada(Jurisdiction of incorporation or organization)545 Speedvale Avenue WestGuelph,Ontario,Canada N1K 1E6(Address of principal executive offices)(MarkOne)o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)OR 12(g)OF THE SECURIT
3、IES EXCHANGE ACTOF 1934OR ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31,2012.ORo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934ORo SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)O
4、F THE SECURITIES EXCHANGE ACT OF 1934Date of event requiring this shell company reportFor the transition period from to Michael G.Potter,Chief Financial Officer545 Speedvale Avenue WestGuelph,Ontario,Canada N1K 1E6Tel:(1-519)837-1881Fax:(1-519)837-2550(Name,Telephone,E-mail and/or Facsimile number a
5、nd Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b)of the Act:Title of Each Class Name of Each Exchange on WhichRegisteredCommon shares with no par value The NASDAQ Stock Market LLC(The NASDAQ Global Market)Securities registered or to be registere
6、d pursuant to Section 12(g)of the Act:None(Title of Class)Securities for which there is a reporting obligation pursuant to Section 15(d)of the Act:None(Title of Class)Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period cov
7、ered by the annual report.43,242,426 common shares issued and outstanding which were not subject to restrictions on voting,dividend rights and transferability,as of December 31,2012.Indicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act.
8、Yes Yes oo 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 the Securities ExchangeAct of 1934.Yes oo No Indicate by check mark whether the registrant(1)has filed all reports required to be
9、filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing requirements for the past 90 days.Yes No oo Indicate by check mark whether the regi
10、strant has submitted electronically and posted on its corporate Web site,if any,every Interactive Data File required to be submittedand posted pursuant to Rule 405 of Regulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the registrant was required to
11、submitand post such files).Yes No oo 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 and largeaccelerated filer in Rule 12b-2 of the Exchange Act.(Check one):Indicate by check mark which ba
12、sis of accounting the registrant has used to prepare the financial statements included in this filing:U.S.GAAP International Financial ReportingStandards as issued by the International Accounting Standards Board o Other o If Other has been checked in response to the previous question,indicate by che
13、ck mark which financial statement item the registrant has elected to follow.Item 17 o Item 18 o If this is an annual report,indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Exchange Act).Yes o No (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCE
14、EDINGS 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 Securities Exchange Act of 1934 subsequentto the distribution of securities under a plan confirmed by a court.Yes o No o Large acc
15、elerated filer o Accelerated filer Non-accelerated filer oTable of ContentsTable of Contents Page INTRODUCTION 1 PART I 3 ITEM 1.IDENTITY OF DIRECTORS,SENIOR MANAGEMENT AND ADVISERS 3 ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE 3 ITEM 3.KEY INFORMATION 3 ITEM 4.INFORMATION ON THE COMPANY 31 ITEM
16、4A.UNRESOLVED STAFF COMMENTS 57 ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS 57 ITEM 6.DIRECTORS,SENIOR MANAGEMENT AND EMPLOYEES 85 ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 99 ITEM 8.FINANCIAL INFORMATION 100 ITEM 9.THE OFFER AND LISTING 103 ITEM 10.ADDITIONAL INFORMATION 104
17、ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 112 ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 113 PART II 114 ITEM 13.DEFAULTS,DIVIDEND ARREARAGES AND DELINQUENCIES 114 ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OFPROCEEDS 114 ITE
18、M 15.CONTROLS AND PROCEDURES 114 ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT 116 ITEM 16B.CODE OF ETHICS 116 ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES 116 ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 117 ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATEDP
19、URCHASERS 117 ITEM 16F.CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT 117 ITEM 16G.CORPORATE GOVERNANCE 117 PART III 117 ITEM 17.FINANCIAL STATEMENTS 117 ITEM 18.FINANCIAL STATEMENTS 117 ITEM 19.EXHIBITS 117 Table of ContentsINTRODUCTION Unless otherwise indicated,references in this annual report on Fo
20、rm 20-F to:CSI,we,us,our company and our are to Canadian Solar Inc.,its predecessor entities and its consolidated subsidiaries;$,US$and U.S.dollars are to the legal currency of the United States;RMB and Renminbi are to the legal currency of China;C$,CAD and Canadian dollars are to the legal currency
21、 of Canada;and Euro are to the legal currency of the European Economic and Monetary Union;MW and GW are to megawatts and gigawatts,respectively;AC and DC are to alternating current and direct current,respectively;PV is to photovoltaic.The photovoltaic effect is a process by which sunlight is convert
22、ed into electricity;and China and the PRC are to the Peoples Republic of China,excluding,for the purposes of this annual report on Form 20-F,Taiwanand the special administrative regions of Hong Kong and Macau.This annual report on Form 20-F includes our audited consolidated financial statements for
23、the years ended December 31,2010,2011 and 2012and as of December 31,2011 and 2012.We use the noon buying rate in The City of New York for cable transfers in Renminbi,Euros and Canadian dollars per U.S.dollar as certified forcustoms purposes by the Federal Reserve Bank of New York to translate Renmin
24、bi,Euros and Canadian dollars to U.S.dollars not otherwise recordedin our consolidated financial statements and included elsewhere in this annual report.Unless otherwise stated,the translation of Renminbi,Euros andCanadian dollars into U.S.dollars was made by the noon buying rate in effect on Decemb
25、er 31,2012,which was RMB6.2301 to$1.00,0.7583 to$1.00,and C$0.9958 to$1.00.We make no representation that the Renminbi,Euro,Canadian dollar or U.S.dollar amounts referred to in this annualreport on Form 20-F could have been or could be converted into U.S.dollars,Euros,Canadian dollars or Renminbi,as
26、 the case may be,at anyparticular rate or at all.See Item 3.Key InformationD.Risk FactorsRisks Related to Our Company and Our IndustryFluctuations in exchangerates could adversely affect our business,including our financial condition and results of operations.FORWARD-LOOKING INFORMATION This annual
27、report on Form 20-F contains forward-looking statements that relate to future events,including our future operating results,ourprospects and our future financial performance and condition,results of operations,business strategy and financial needs,all of which are largely basedon our current expecta
28、tions and projections.These forward-looking statements are made under the safe harbor provisions of the U.S.PrivateSecurities Litigation Reform Act of 1995.You can identify these statements by terminology such as may,will,expect,anticipate,future,intend,plan,believe,estimate,is/are likely to or simi
29、lar expressions.Forward-looking statements involve inherent risks and uncertainties.These forward-looking statements include,among other things,statements relating to:our expectations regarding the worldwide demand for electricity and the market for solar power;our beliefs regarding the importance o
30、f environmentally friendly power generation;our expectations regarding governmental support for solar power;1Table of Contentsour beliefs regarding the future shortage or availability of high-purity silicon;our beliefs regarding our ability to resolve our disputes with suppliers with respect to our
31、long-term supply agreements;our beliefs regarding the rate at which solar power technologies will be adopted and the continued growth of the solar power industry;our beliefs regarding the competitiveness of our solar module products;our expectations with respect to increased revenue growth and impro
32、ved profitability;our expectations regarding the benefits to be derived from our supply chain management and vertical integration manufacturing strategy;our ability to continue developing our in-house solar components production capabilities and our expectations regarding the timing andproduction ca
33、pacity of our internal manufacturing programs;our ability to secure adequate volume of silicon,solar wafers and cells at competitive cost to support our solar module production;our beliefs regarding the effects of environmental regulation;our beliefs regarding the changing competitive environment in
34、 the solar power industry;our future business development,results of operations and financial condition;competition from other manufacturers of solar power products and conventional energy suppliers;our ability to expand our products and business lines,including the total solution business;and our a
35、bility to develop,build and sell utility-scale solar power plants in Canada,the U.S.,Japan,China and elsewhere.Known and unknown risks,uncertainties and other factors may cause our actual results,performance or achievements to be materially differentfrom any future results,performance or achievement
36、s expressed or implied by forward-looking statements.See Item 3.Key InformationD.RiskFactors for a discussion of some risk factors that may affect our business and results of operations.These risks are not exhaustive.Other sections ofthis annual report may include additional factors that could adver
37、sely influence our business and financial performance.Moreover,because we operatein an emerging and evolving industry,new risk factors may emerge from time to time.We cannot predict all risk factors,nor can we assess the impactof these factors on our business or the extent to which any factor,or com
38、bination of factors,may cause actual results to differ materially from thoseexpressed or implied in any forward-looking statement.We do not undertake any obligation to update or revise the forward-looking statements exceptas required under applicable law.2Table of ContentsPART I ITEM 1.IDENTITY OF D
39、IRECTORS,SENIOR MANAGEMENT AND ADVISERS Not applicable.ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable.ITEM 3.KEY INFORMATION A.Selected Financial DataSelected Consolidated Financial and Operating Data The following selected statement of operations data for the years ended December 31,
40、2010,2011 and 2012 and balance sheet data as ofDecember 31,2011 and 2012 have been derived from our consolidated financial statements,which are included elsewhere in this annual report onForm 20-F.You should read the selected consolidated financial and operating data in conjunction with those financ
41、ial statements and the related notesand Item 5.Operating and Financial Review and Prospects included elsewhere in this annual report on Form 20-F.Our selected consolidated statement of operations data for the years ended December 31,2008 and 2009 and our consolidated balance sheet data asof December
42、 31,2008,2009 and 2010 were derived from our consolidated financial statements that are not included in this annual report.All of our financial statements are prepared and presented in accordance with U.S.generally accepted accounting principles,or U.S.GAAP.Ourhistorical results are not necessarily
43、indicative of results for any future periods.As of December 31,2008 2009 2010 2011 2012 (In thousands of$,except share and per share data,and operating data and percentages)Statement ofoperationsdata:Net revenues 705,006 630,961 1,495,509 1,898,922 1,294,829 Income(loss)fromOperations 24,065 6,512 1
44、20,299 6,833 (142,516)Net income(loss)(7,534)22,778 50,828 (90,903)(195,155)Net income(loss)attributable toCanadianSolar Inc.(7,534)22,646 50,569 (90,804)(195,469)Earnings(loss)pershare,basic (0.24)0.61 1.18 (2.11)(4.53)Shares used incomputation,basic 31,566,503 37,137,004 42,839,356 43,076,489 43,1
45、90,778 Earnings(loss)pershare,diluted (0.24)0.60 1.16 (2.11)(4.53)Shares used incomputation,diluted 31,566,503 37,727,138 43,678,208 43,076,489 43,190,778 Other financialdata:Gross margin 10.1%12.4%15.3%9.6%7.0%Operating margin 3.4%1.0%8.0%0.4%(11.0)%3Net margin (1.1)%3.6%3.4%(4.8)%(15.1)%Selected o
46、peratingdata:Products sold(in MW)Solar modulebusiness 166.5 296.6 779.1 1,265.6 1,490.1 Total solutionbusiness(1)0.6 24.4 56.9 53.0 Total 166.5 297.2 803.5 1,322.5 1,543.1 Table of ContentsB.Capitalization and Indebtedness Not applicable.C.Reasons for the Offer and Use of Proceeds Not applicable.D.R
47、isk FactorsRisks Related to Our Company and Our IndustryWe may be adversely affected by volatile solar power market and industry conditions;in particular,the demand for our solar power products maydecline,which may reduce our revenues and earnings.We are influenced by conditions in the solar power m
48、arket and industry.In 2010,demand for solar power products increased and manymanufacturers increased their production capacity accordingly as the effects of the global financial crisis subsided.In 2011,a decrease in payments tosolar power producers in the form of feed-in tariffs and other reimbursem
49、ents,a reduction in available financing and an excess supply of solar PVmodules worldwide put severe downward pressure on solar PV module prices in European and other markets.As a result,many solar power plantdevelopers,solar system installers and solar PV products distributors that purchase solar p
50、ower products,including solar PV modules frommanufacturers like us,were adversely affected and their financial condition weakened.Although our shipments increased year-over-year in 2011 and2012,average selling prices for our solar PV modules declined significantly.In 2012,oversupply conditions acros
51、s the value chain,difficult economicconditions in Europe as well as escalating foreign trade disputes in the U.S.,Europe,India and China affected industry-wide demand and put continuedpressure on average selling prices,resulting in lower revenue for many industry participants.If the supply of solar
52、PV modules grows faster thandemand,and if governments continue to reduce financial support for the solar industry and impose trade barriers,demand for our products as well as As of December 31,2008 2009 2010 2011 2012 (In thousands of$,except share and per share data,and operating data and percentag
53、es)Average sellingprice(in$perwatt)Solar modulebusiness 4.23 2.13 1.80 1.34 0.77 Total solutionbusiness 3.36 3.21 3.49 2.80 Balance SheetData:Net current assets(liabilities)166,361 239,047 259,332 59,131 (98,046)Total assets 570,654 1,038,703 1,423,367 1,879,809 2,259,313 Net assets 332,254 466,001
54、534,984 466,978 301,583 Long-termborrowings 45,357 29,290 69,458 88,249 214,563 Convertible notes 830 866 906 950 Common shares 395,154 500,322 501,146 502,403 502,562 Number of sharesoutstanding 35,686,313(2)42,745,360(2)42,893,044 43,155,767 43,242,426(1)Total solution business includes solar powe
55、r project development and sales,engineering,procurement and construction,or EPC,services,operating and maintenance,or O&M,services and sales of solar system kits.(2)Excludes 58,250 and 29,125 restricted shares,which were subject to restrictions on voting and dividend rights and transferabilityas of
56、December 31,2008 and 2009,respectively.our average selling price could be materially and adversely affected.4Table of Contents The demand for solar power products is influenced by macroeconomic factors,such as global economic conditions,demand for electricity,thesupply and prices of other energy pro
57、ducts,such as oil,coal and natural gas,as well as government regulations and policies concerning the electricutility industry,the solar and other alternative energy industries and the environment.For example,a reduction in oil and coal prices may reduce thedemand for alternative energy.Also,during 2
58、011 and 2012,a decrease in solar power tariffs and a difficult financing environment caused a decrease inthe demand for solar PV systems.Solar power prices decreased as governments,forced by the global economic crisis to implement austerity measures,reduced subsidies,such as feed-in tariffs.Further,
59、many downstream purchasers of solar power products were unable to secure sufficient financing fortheir PV projects.As a result,many purchasers of solar power products were unable or unwilling to expand their operations.In light of the uncertaintyin the global credit and lending environment,we cannot
60、 make assurances that financial institutions will continue to offer funding to solar PV projectdevelopers at reasonable costs.An increase in interest rates or a decrease in funding of capital projects within the global financial market could make itdifficult to fund PV systems and potentially reduce
61、 the demand for PV modules and/or reduce the average selling prices for PV modules,which maymaterially and adversely affect our business,results of operations,financial condition and prospects.If the supply of solar wafers and cells increases in line with increases in the supply of polysilicon,then
62、the corresponding oversupply of solar cellsand modules may cause substantial downward pressure on the prices of our products and reduce our revenues and earnings.Silicon production capacity has expanded rapidly in recent years.As a result of this expansion,coupled with the global economic downturn,t
63、hesolar industry experienced an oversupply of high-purity silicon in 2009,which contributed to an oversupply of solar wafers,cells and modules andresulted in substantial downward pressure on prices throughout the value chain in 2009.Strong demand in 2010 stabilized and strengthened pricesacross the
64、value chain,particularly in the second half of 2010,and,according to Solarbuzz,an independent solar energy research and consulting firm,from the end of 2009 to the end of 2010,module pricing increased from approximately$1.65 to approximately$1.90 per watt,cell pricing increasedfrom approximately$1.2
65、5 to approximately$1.40 per watt and wafer pricing increased from approximately$0.80 to approximately$1.00 per watt.Polysilicon prices also increased in 2010 compared to 2009,from approximately$50 to$55 per kilogram to approximately$80 to$90 per kilogram.In2011,the solar industry again experienced o
66、versupply across the value chain,and by the end of the year,module pricing was approximately$1.00 perwatt,cell pricing was approximately$0.55 per watt and wafer pricing was approximately$0.41 per watt.According to Solarbuzz,demand for solarproducts remained soft in 2012 and at the end of 2012,module
67、 pricing was approximately$0.78 per watt,cell pricing was approximately$0.43 perwatt,wafer pricing was approximately$0.25 per watt and polysilicon pricing was approximately$24.66 per kilogram.Our average module selling pricehas decreased from$1.80 per watt in 2010 to$1.34 per watt in 2011 and to$0.7
68、7 per watt in 2012,in large part because the increase in the supply ofsolar cells and modules was greater than the increase in the demand therefor.As a result of the decline in our module selling prices,our revenuedeclined in 2012,even though our module shipment volume for the year increased.In addi
69、tion,because module prices declined at a rapid rate,wesuffered losses in the form of inventory write-downs,as the market price of modules consistently fell below the carrying cost of our inventory.Lowerprice realizations and inventory write-downs in 2012 put downward pressure on our gross profit and
70、 operating margins.Continued increases in solarmodule production in excess of market demand may result in further downward pressure on the price of solar cells and modules,including ourproducts.Increasing competition could also result in us losing sales or market share.If we are unable,on an ongoing
71、 basis,to procure silicon,solarwafers and solar cells at reasonable prices or mark up the price of our solar modules to cover our manufacturing and operating costs,our revenues andmargins will continue to be adversely impacted,either due to higher costs compared to our competitors or due to further
72、write-5Table of Contentsdowns of inventory,or both.In addition,our market share could decline if our competitors are able to price their products more competitively.The execution of our growth strategy depends upon the continued availability of third-party financing arrangements for our customers,wh
73、ich isaffected by general economic conditions.Tight credit markets could depress demand or prices for solar products,hamper our expansion andmaterially affect our results of operations.General economic conditions,liquidity and the availability and cost of capital could materially and adversely affec
74、t our business and results ofoperations.Most solar power projects,including our own,require financing for development and construction with a mixture of equity and third partyfunding.The cost of capital affects both the demand and price of solar power systems.A high cost of capital may materially re
75、duce the internal rate ofreturn for solar power projects and therefore put downward pressure on the prices of both solar systems and solar modules,which typically compriseapproximately 40%to 50%of the cost of solar power projects.Furthermore,solar power projects compete for capital with other forms
76、of investment such as bonds.Some classes of investors compare thereturns of solar power projects with bond yields and expect a similar or higher internal rate of return,adjusted for risk and liquidity.Higher interest ratescould render existing funding more expensive and present an obstacle for poten
77、tial funding that would otherwise spur the growth of the solar powerindustry.In addition,higher bond yields could result in increased yield expectations for solar power projects,which would result in lower systemprices.In the event that suitable funding is unavailable,our customers may be unable to
78、pay for products they have agreed to purchase.It may also bedifficult to collect payments from customers facing liquidity challenges due to either customer defaults or financial institution defaults on project loans.Constricted credit markets may impede our expansion and materially and adversely aff
79、ect our results of operations.Concerns about government deficitsand debt in the European Union,or EU,our major market,have increased bond spreads in certain solar markets,such as Greece,Spain,Italy andPortugal.The cash flow of a solar power project is often derived from government-funded or governme
80、nt-backed feed-in tariffs.Consequently,theavailability and cost of funding solar power projects is determined in part based on the perceived sovereign credit risk of the country where a particularproject is located.Therefore,credit agency downgrades of nations in the EU could decrease the credit ava
81、ilable for solar power projects,increase theexpected rate of return compared to bond yields,and increase the cost of debt for solar power projects in countries with a higher perceived sovereigncredit risk.Governments may revise,reduce or eliminate subsidies and economic incentives for solar power,wh
82、ich could cause demand for our productsto decline.The market for on-grid applications,where solar power supplements the electricity a customer purchases from the utility network or sells to autility under a feed-in tariff,depends largely on the availability and size of government subsidy programs an
83、d economic incentives.At present,the costof solar power exceeds retail electricity rates in many locations.Government incentives vary by geographic market.Government bodies in manycountries,most notably Germany,Italy,the Czech Republic,the United States,Japan,Canada(Ontario),South Korea,Greece,Franc
84、e,Australia andSpain,have provided incentives in the form of feed-in tariffs,rebates,tax credits,renewable portfolio standards and other incentives.Thesegovernments have implemented mandates to end-users,distributors,system integrators and manufacturers of solar power products to promote the useof s
85、olar energy in on-grid applications and to reduce dependency on other forms of energy.Some of these government mandates and economicincentives,such as the German Renewable Energy Law,are scheduled to be reduced and could be altered or eliminated altogether through newlegislation.For example,in Janua
86、ry,July and October of 2010,Germany introduced reductions in solar feed-in tariffs of approximately 24-26%forrooftop systems and 20-25%for ground-based systems.Germany further reduced its feed-in tariffs in6Table of Contentsthe beginning of 2012 by 15%to up to 24.43 Euro cents per kilowatt hour for
87、rooftop systems and up to 18.76 Euro cents per kilowatt hour forground-based systems.In June of 2012 the German government approved further changes to the Renewable Energy Law.Under the new rules solarsystems smaller than 10 kW will receive subsidies of 19.5 Euro cents per kWh,solar systems between
88、10kW and 40 kW will receive subsidies of18.5 Euro cents per kWh,systems over 40 kW to 1 MW will receive subsidies of 16.5 Euro cents per kWh and systems between 1MW and 10 MWwill receive subsidies of 13.5 Euro cents per kWh.Systems larger than 10MW will no longer receive subsidies.In addition,for sy
89、stems that still qualifyfor subsidies,the tariff will be adjusted downward on a monthly basis to limit growth in solar systems installations to a range of 2.5-3.0 GW per year.Under the new plan,photovoltaic subsidies will be stopped when a cumulative capacity of 52 GW is reached;cumulative capacity
90、in the first quarter of2013 was approximately 32 GW.In Italy,another important market for solar products in the past several years,total cumulative capacity reached15.9 GW in October of 2012 and just 241 million is left in the countrys solar subsidy program.Once this amount is used up and the fundin
91、g limit of6.7 billion is reached,Italy will no longer pay out subsidies on photovoltaic solar systems.Many other countries in Europe have reduced or eliminatedtheir subsidies in the past few years and it is likely that this trend will continue,possibly until subsidies are phased out completely for s
92、olar energy.While solar power projects may continue to offer attractive internal rates of return,it is unlikely internal rates of return will be as high as they werein the past.If internal rates of return fall below an acceptable rate for project investors,and governments continue to reduce or elimi
93、nate subsidies,thismay cause a decrease in demand and considerable downward pressure on solar system and therefore solar module prices.The reduction,modification orelimination of government mandates and economic incentives in one or more of our markets could therefore materially and adversely affect
94、 the growthof such markets or result in increased price competition,either of which could cause our revenues to decline and harm our financial results.We have,from time to time,entered into long-term supply agreements with polysilicon and wafer suppliers.Long-term supply agreements maymake it diffic
95、ult for us to adjust our raw material costs should prices decrease.Also,if we chose to prematurely terminate any of these agreements,we may not be able to recover all or any part of the advance payments we have made to these suppliers and we may be subject to litigation.In 2007 and 2008,due to short
96、ages of polysilicon and silicon wafers,we entered into a number of long-term supply agreements with severalsilicon and wafer suppliers in an effort to secure raw materials to meet our production requirements.These suppliers included GCL-Poly EnergyHoldings Limited,or GCL,Neo Solar Power Corp.,or Neo
97、 Solar,Deutsche Solar AG,or Deutsche Solar,Jiangxi LDK Solar Hi-Tech Co.,Ltd.,orLDK,and a UMG-Si supplier.In response to the decline in the price of polysilicon,beginning in 2009,we began discussing adjustments in the unit price and volume terms underour supply agreements with these suppliers.In 200
98、9 and thereafter,we agreed to amend our agreements with certain of them,including GCL,Neo Solar,LDK and the UMG-Si supplier,toadjust the purchase price to prevailing market prices at the time we place a purchase order and to reduce the quantity of products that we are required topurchase.Under our s
99、upply agreements with certain silicon wafer suppliers,and consistent with historical industry practice,we made advance paymentsprior to scheduled delivery dates.The advance payments were made without collateral and were to be credited against the purchase prices payable by us.As of December 31,2012,
100、the balance of advance payments that we have made to GCL,Deutsche Solar,LDK and the UMG-Si supplier totaled$45.4 million.We purchased the contracted volume for 2009 under our 12-year supply agreement with Deutsche Solar,but we did not purchase the contractedvolumes for 2010 and 2011.The agreement co
101、ntains a provision stating that,if we do not order the contracted volume in a given year,Deutsche Solarcan7Table of Contentsinvoice us for the difference at the full contract price.We believe that it is more likely than not that the take-or-pay provisions of the agreement are voidunder German law.In
102、 December 2011,Deutsche Solar gave notice to us to terminate the 12-year wafer supply agreement with immediate effect.Deutsche Solar stated that the reason for the termination was an alleged breach of the agreement by us.In the notice,Deutsche Solar reserved its right toclaim damages of 148.6 millio
103、n($196.0 million)in court.As a result of the termination,we reclassified the accrued loss on firm purchasecommitments reserve of$27.9 million as of December 31,2011 to loss contingency accruals.In addition,we made a full bad debt allowance of$17.4 million against the balance of advance payments to D
104、eutsche Solar.The accrued amount of$27.9 million represents our best estimate for our losscontingency.Deutsche Solar did not specify the basis for its claimed damages of 148.6 million($196.0 million)on the notice.In 2007,we entered into a three-year agreement with LDK under which we purchased specif
105、ied quantities of silicon wafers and LDK convertedour reclaimed silicon feedstock into wafers under a toll manufacturing arrangement.In 2008,we entered into two ten-year wafer supply agreementswith LDK,under which we agreed to purchase specified volumes of wafers at pre-determined prices each year,c
106、ommencing January 1,2009.InApril 2010,we gave LDK termination notice regarding our two ten-year supply agreements with them.We also initiated arbitration proceedings againstLDK seeking a refund of certain advance payments that we made to them.In December of 2012,the Shanghai Branch of China Internat
107、ional Economicand Trade Arbitration Commission,or CIETAC Shanghai Branch,awarded RMB248.9 million($40.0 million)plus RMB2.2 million($0.4 million)inarbitration expenses in favor of LDK.The total amount of the award includes an RMB60.0 million($9.6 million)initial deposit.See Item 8.FinancialInformati
108、onA.Consolidated Statements and Other Financial InformationLegal and Administrative Proceedings.We recorded a full bad debtallowance against this initial deposit in 2009.We made a loss provision totaling RMB188.9 million($30.3 million)in 2012 following the arbitrationaward in favor of LDK.We dispute
109、 the merits of the arbitration award and will pursue all legal means to overturn or resist the implementation of theaward.If we do not succeed,payment of the award to LDK could have an adverse effect on our financial condition.Due to the default of the UMG-Si supplier in delivering its contracted vo
110、lumes for 2010 and concerns regarding its financial position,weconcluded that we were not likely to purchase any significant quantity of UMG-Si from this supplier in the future and made a full bad debt allowanceagainst the advance payments of RMB64 million($10.3 million)to the UMG-Si supplier in 201
111、0.If our suppliers file lawsuits against us for early termination of these contracts,such events could be costly,may divert managements attention andother resources away from our business,and could have a material and adverse effect on our reputation,business,financial condition,results ofoperations
112、 and prospects.While we currently do not have any such agreements,in the future,we may enter into new medium or long-term supply agreements for siliconwafers or solar cells with fixed price and quantity terms.If,during the term of these agreements,the price of materials decreases significantly and w
113、e areunable to renegotiate favorable terms with our suppliers,we may be placed at a competitive disadvantage compared to our competitors,and our earningscould decline.In addition,if demand for our PV products decreases,yet our supply agreements require us to purchase more polysilicon than required t
114、omeet customer demand,we may incur costs associated with carrying excess inventory.To the extent that we are not able to pass these increased costs onto our customers,our business,cash flows,financial condition and results of operations may be materially and adversely affected.8Table of ContentsExis
115、ting regulations and policies,and changes to these regulations and policies,may present technical,regulatory and economic barriers to thepurchase and use of solar power products,which may significantly reduce demand for our products and services.The market for electricity generation products in the
116、countries where we sell our products is heavily influenced by federal,state and localgovernment regulations and policies concerning the electric utility industry,as well as policies disseminated by electric utilities.These regulations andpolicies often relate to electricity pricing and technical int
117、erconnection of customer-owned electricity generation,and could deter further investment in theresearch and development of alternative energy sources as well as customer purchases of solar power technology,which could result in a significantreduction in the potential demand for our solar power produ
118、cts.We expect that our solar power products and installation will continue to be subject tofederal,state and local regulations and policies relating to safety,utility interconnection and metering,construction,environmental protection,and otherrelated matters.Any new regulations or policies pertainin
119、g to our solar power products may result in significant additional expenses to us,our resellersand customers,which could cause a significant reduction in demand for our solar power products.Our significant international operations expose us to a number of risks,including unfavorable political,regula
120、tory,labor and tax conditions inthe countries where we operate.We intend to continue to extend our global reach and capture market share through the establishment of manufacturing sites and logistic centers inkey global markets.Throughout the process of establishing operating facilities in these mar
121、kets,we could be exposed to risks,including political,regulatory,labor and tax risks.Furthermore,we may need to make substantial investments in these overseas operations,both initially and on an ongoingbasis,in order to attain longer-term sustainable returns.These investments could influence our fin
122、ancial performance before sustainable profitabilityis recognized.Because the markets in which we compete are highly competitive and many of our competitors have greater resources than we do,we may not beable to compete successfully and we may not be able to maintain or increase our market share.We h
123、ave a large number of competitors,including non-China-based competitors such as First Solar,Inc.,or First Solar,and Sharp SolarCorporation,or Sharp Solar,and China-based competitors such as Yingli Green Energy Holding Company Limited,or Yingli,Trina Solar Limited,orTrina,and Suntech Power Holdings C
124、o.Ltd.,or Suntech.Some of our competitors are developing or are currently producing products based on newsolar power technologies that may ultimately have costs similar to or lower than our projected costs.These include products based on thin film PVtechnology,which requires either no silicon or sig
125、nificantly less silicon to produce than crystalline silicon solar modules,such as the ones that weproduce,and is less susceptible to increases in silicon costs.Some of our competitors have longer operating histories,greater name and brandrecognition,access to larger customer bases,greater resources
126、and significantly greater economies of scale than we do.In addition,some of ourcompetitors may have stronger relationships or may enter into exclusive relationships with some of the key distributors or system integrators to whomwe sell our products.As a result,they may be able to respond more quickl
127、y to changing customer demands or devote greater resources to thedevelopment,promotion and sales of their products.Some of our competitors have more diversified product offerings,which may better position themto withstand a decline in demand for solar power products.Some of our competitors are more
128、vertically integrated than we are,from upstream siliconwafer manufacturing to solar power system integration.This may allow them to capture higher margins or have lower costs.In addition,newcompetitors or alliances among existing competitors could emerge and rapidly acquire significant market share.
129、If we fail to compete successfully,ourbusiness will suffer and we may not be able to maintain or increase our market share.9Table of ContentsIf sufficient demand for solar power products does not develop or takes longer to develop than we anticipate,our revenues may not increase ormay continue to de
130、cline,and we may be unable to sustain our profitability.The solar power market is still at a relatively early stage of development and future demand for solar power products is uncertain.Market data forthe solar power industry is not as readily available as for more established industries,where tren
131、ds are more reliably assessed from data gathered over alonger period.In addition,demand for solar power products in our targeted markets,including Germany,the U.S.,Japan,China,Canada,Spain,Korea,the United Kingdom,Italy,India and France may not develop or may develop to a lesser extent than we antic
132、ipate.Many factors may affect the viabilityof solar power technology and the demand for solar power products,including:the cost-effectiveness,performance and reliability of solar power products,including our utility-scale solar power plants,compared toconventional and other renewable energy sources
133、and products;the availability of government subsidies and incentives to support the development of the solar power industry;the cost and availability of capital,including long-term debt and tax equity,for solar projects;the success of other alternative energy technologies,such as wind power,hydroele
134、ctric power,geothermal power and biomass fuel;fluctuations in economic and market conditions that affect the viability of conventional and other renewable energy sources,such asincreases or decreases in the prices of oil,gas and other fossil fuels;capital expenditures by end users of solar power pro
135、ducts,which tend to decrease when the economy slows;and the lack of favorable regulation for solar power within the electric power industry and broader energy industry.If solar power technology is not suitable for widespread adoption or if sufficient demand for solar power products does not develop
136、or takeslonger to develop than we anticipate,our revenues may suffer and we may be unable to sustain our profitability.We face risks associated with the marketing,distribution and sale of our solar power products internationally and,if we are unable to effectivelymanage these risks,they could impair
137、 our ability to expand our business abroad.The international marketing,distribution and sale of our products expose us to a number of risks,including:difficulties staffing and managing overseas operations;fluctuations in foreign currency exchange rates;the increased cost of understanding local marke
138、ts and trends and developing and maintaining an effective marketing and distributionpresence in various countries;the difficulty of providing customer service and support in various countries;the difficulty of managing our sales channels effectively as we expand beyond distributors to include direct
139、 sales to systems integrators,end users and installers;the difficulty of managing the development,construction and sale of our utility-scale solar power projects on a timely and profitable basisas a result of technical difficulties,commercial disputes with our customers,changes in regulations among
140、other factors;10Table of Contentsthe difficulties and costs of complying with the different commercial,legal and regulatory requirements in the overseas markets in whichwe offer our products;our failure to develop appropriate risk management and internal control structures tailored to overseas opera
141、tions;our inability to obtain,maintain or enforce intellectual property rights;unanticipated changes in prevailing economic conditions and regulatory requirements;and trade barriers such as export requirements,tariffs,taxes and other restrictions and expenses,which could increase the prices of ourpr
142、oducts and make us less competitive in some countries.If we are unable to effectively manage these risks,our ability to expand our business abroad could suffer.Furthermore,some of these risks,suchas currency fluctuations,could influence our financial performance.Imposition of anti-dumping and counte
143、rvailing orders in one or more markets may result in additional costs to our customers,which couldmaterially or adversely affect our business,results of operations,financial conditions and future prospects.In October 2011,a trade action was filed with the U.S.Department of Commerce,or USDOC,and the
144、U.S.International Trade Commission,orUSITC,by the U.S.unit of SolarWorld AG and six other U.S.firms,accusing Chinese producers of crystalline silicon photovoltaic cells,or CSPVcells,whether or not incorporated into modules,of selling their products(i.e.,CSPV cells or modules incorporating these cell
145、s)into the United States atless than fair value,or dumping,and of receiving countervailable subsidies from the Chinese authorities.These firms asked the U.S.government toimpose anti-dumping and countervailing duties on CSPV cells imported from China.The USDOC and the USITC investigated the validity
146、of theseclaims.We were identified as one of a number of Chinese exporting producers of the subject goods to the U.S.market.We also have affiliateU.S.operations that import the subject goods from China.On October 9,2012,the USDOC issued final affirmative determinations in the anti-dumping and counter
147、vailing duty investigations.OnNovember 7,2012,the USITC ruled that imports of CSPV cells had caused material injury to the U.S.CSPV industry.As a result of these rulings,theCompany is required to pay cash deposits on CSPV cells imported into the U.S.from China,whether alone or incorporated into modu
148、les.Theannounced cash deposit rates applicable to the Company were 13.94%(anti-dumping duty)and 15.24%(countervailing duty).The actual rates at whichduties will be assessed and payable may be subject to administrative review next year and may differ from the announced deposit rates.These dutiescould
149、 materially and adversely affect our affiliated U.S.import operations and increase our cost of selling into the United States,thus adversely affectingour export sales to the United States,which is one of our growing markets.A number of parties have filed notice of their intent to challenge the rulin
150、gsof the USDOC and USITC in appeals to the U.S.Court of International Trade.Decisions on those appeals are not expected until next year.On September 6,2012,following a complaint lodged by SolarWorld AG and certain supporters,the European Commission initiated an anti-dumping investigation concerning
151、imports into the EU of CSPV modules and key components(i.e.,cells and wafers)originating in China.OnNovember 8,2012,following a complaint lodged by the same parties,the European Commission initiated an anti-subsidy investigation on theseproducts.In each investigation,we were identified as one of a n
152、umber of Chinese exporting producers of these products to the EU market.We alsohave affiliate EU operations that import these products from China.The Company was not chosen as one of the sampled companies in these EU investigations,which were required to provide written informationto the EU authorit
153、ies.11Table of Contents The Company requested market economy treatment in the anti-dumping investigation,but this request was denied.A number of other affectedChinese companies have filed an action for annulment of the decision that denied market economy treatment.On March 5,2013,the European Commis
154、sion published a Regulation making all imports of CSPV modules and key components originating in orconsigned from China subject to registration by EU Member State customs authorities.This registration requirement is likely to remain in effect throughthe pendency of the investigations.The Company fil
155、ed comments contesting this registration decision and requested a hearing to express its views.Under the current timeline,we expect that provisional anti-dumping duties,if any,will be announced by June 6,2013,provisional countervailingduties,if any,will be announced by August 8,2013 and definitive a
156、nti-dumping and countervailing duties,if any,will be announced by December 5and 7,2013,respectively.The EU is the largest market for solar products.Anti-dumping and/or countervailing(i.e.,anti-subsidy)duties imposed on imports of our productsinto the EU could materially and adversely affect our affi
157、liated EU import operations,increase our cost of selling into the EU,and adversely affect ourEU export sales.In late November 2012,India initiated an anti-dumping investigation on imported solar products from China,Taiwan,the United States andMalaysia.The scope of the Indian complaint includes thin-
158、film and CSPV cells and modules,as well as glass and other suitable substrates.Theperiod of investigation is from January 1,2011 to June 30,2012.We completed and submitted a sampling questionnaire and were chosen by theIndian authorities to be a sampled company.We are now compiling the data requeste
159、d of us.As with the U.S.and EU cases,duties on our sales to Indiacould materially and adversely affect the Company,increasing our selling costs and reducing our export sales to India,which we view as a promisingmarket.It is possible that an anti-subsidy investigation on solar products may also be in
160、itiated in India.Imposition of anti-dumping and countervailing orders in one or more markets may result in additional costs to our customers,which couldmaterially and adversely affect our business,results of operations,financial conditions and future prospects.Our quarterly operating results may flu
161、ctuate from period to period.Our quarterly operating results may fluctuate from period to period based on a number of factors,including:the average selling prices of our solar modules,solar system kits and products;the rate and cost at which we are able to expand our internal manufacturing capacity;
162、the availability and price of solar cells and wafers from our suppliers and toll manufacturers;the availability and price of raw materials,particularly high-purity silicon;changes in government incentive programs and regulations,particularly in our key and target markets;the unpredictable volume and
163、 timing of customer orders;the loss of one or more key customers or the significant reduction or postponement of orders;availability of financing for on-grid and off-grid solar power applications;acquisition and investment costs;12Table of Contentsthe timing of completion of construction of our util
164、ity-scale solar power projects;the timing of successful customer acceptance testing of our utility-scale solar power projects;geopolitical turmoil and natural disasters within any of the countries in which we operate or sell products;foreign currency fluctuations,particularly in the U.S.dollar,Euro,
165、RMB and Canadian dollar;our ability to establish and expand customer relationships;changes in our manufacturing costs;the timing of new products or technology introduced or announced by our competitors;increases or decreases in electricity rates due to changes in fossil fuel prices or other factors;
166、allowances for doubtful accounts and advances to suppliers;inventory write-downs;long-lived asset impairment;depreciation charges relating to underutilized assets;loss on firm purchase commitments under long-term supply agreements;and construction progress of solar power projects and related revenue
167、 recognition.We base our planned operating expenses in part on our expectations of future revenues.A significant portion of our expenses will be fixed in theshort-term.If our revenues for a particular quarter are lower than we expect,we may not be able to reduce our operating expenses proportionatel
168、y,which would harm our operating results for the quarter.This may cause us to miss analysts estimates or any guidance announced by us.If we fail tomeet or exceed analysts estimates,investor expectations or our own future guidance,even by a small amount,our share price could decline,perhapssubstantia
169、lly.Fluctuations in exchange rates could adversely affect our business,including our financial condition and results of operations.The majority of our sales are denominated in Euros and U.S.dollars,with the remainder in other currencies such as the Renminbi,Canadian dollar,Japanese yen and British p
170、ound.Our Renminbi costs and expenses are primarily related to domestic sourcing of solar cells,silicon wafers and silicon,other raw materials,toll manufacturing fees,labor costs and local overhead expenses.From time to time,we enter into loan arrangements with Chinesecommercial banks that are denomi
171、nated primarily in Renminbi or U.S.dollars.The greater part of our cash and cash equivalents are denominated inRenminbi.Fluctuations in exchange rates,particularly among the U.S.dollar,Euro,Renminbi and Canadian dollar,may affect our net profit marginsand may result in fluctuations in foreign exchan
172、ge and operating gains or losses.We recorded foreign exchange losses of$36.3 million,$40.0 millionand$10.7 million in 2010,2011 and 2012,respectively.The value of the Renminbi against the U.S.dollar,Euro and other currencies is affected by,among other things,changes in Chinas political andeconomic c
173、onditions and Chinas foreign exchange policies.In late 2005,China amended its policy of tracking the value of the Renminbi to theU.S.dollar.The new policy permitted the Renminbi to fluctuate against a basket of foreign currencies,which caused the Renminbi to appreciate byapproximately 21.5%against t
174、he U.S.dollar over the following three years.However,since 2008,the Renminbi has fluctuated against other freelytraded currencies.In June 2010,the PRC government announced that it would allow greater flexibility for the Renminbi to fluctuate against theU.S.dollar,which resulted in further appreciati
175、on of the Renminbi.13Table of ContentsBetween June 30,2010 and December 31,2012,the value of the Renminbi appreciated approximately 8.13%against the U.S.dollar.We cannot provideany assurances that the policy of the PRC government will not affect or the manner in which it may affect the exchange rate
176、 between the Renminbi andthe U.S.dollar in the future.Since 2008,we have hedged part of our foreign currency exposures against the U.S.dollar using foreign currency forwardor option contracts in order to limit our foreign exchange losses.The collateral requirements to enter into hedging contracts an
177、d the expenses associated with purchasing currency options have increased.There arealso notional limits on the size of the hedging transactions that we may enter into with any particular counterparty at any given time.However,theeffectiveness of our hedging program may be limited with respect to cos
178、t effectiveness,cash management,exchange rate visibility and downsideprotection.We recorded a gain on change in foreign currency derivatives of$1.7 million in 2010,a loss on change in foreign currency derivatives of$5.8 million in 2011,and a loss on change in foreign currency derivatives of$4.4 mill
179、ion in 2012.The gains or losses on change in foreign currencyderivatives are related to our hedging program.Volatility in foreign exchange rates will hamper,to some extent,our ability to plan our pricing strategy.To the extent that we are unable to passalong increased costs resulting from exchange r
180、ate fluctuations to our customers,our profits may materially decrease.As a result,fluctuations incurrency exchange rates could have a material and adverse effect on our financial condition and results of operations.Seasonal variations in demand linked to construction cycles and weather conditions ma
181、y influence our results of operations.Our business is subject to seasonal variations in demand linked to construction cycles and weather conditions.Purchases of solar power productstend to decrease during the winter months in our key markets,such as Germany,due to adverse weather conditions that can
182、 complicate the installationof solar power systems.Demand from other countries,such as Canada,the U.S.,China and South Korea,may also be subject to significant seasonality.Seasonal variations could adversely affect our results of operations and make them more volatile and unpredictable.Our future su
183、ccess depends partly on our ability to significantly expand our capacity to manufacture solar components,which exposes us to anumber of risks and uncertainties.Our future success depends on our ability to significantly increase our capacity to manufacture solar components.If we are unable to do so,w
184、emay be unable to expand our business,maintain our competitive position,improve our profitability,and generate the cash flows we have currentlyforecasted.Our ability to establish additional manufacturing capacity is subject to significant risks and uncertainties,including:the need to raise significa
185、nt additional funds to purchase raw materials and to build additional manufacturing facilities,which we may beunable to obtain on commercially reasonable terms or at all;delays and cost overruns as a result of a number of factors,many of which are beyond our control,including delays in equipmentdeli
186、very by vendors;delays or denial of required approvals by relevant government authorities;diversion of significant management attention and other resources;and failure to execute our expansion plan effectively.If we are unable to establish or successfully operate our internal solar components manufa
187、cturing capabilities,we may be unable to expand ourbusiness as planned.Moreover,even if we do expand our14Table of Contentsmanufacturing capacity,we might not be able to generate sufficient customer demand for our solar power products to support our increased productionlevels.Our future success depe
188、nds partly on our ability to expand our utility-scale solar power project pipelines in several key markets,which exposes usto a number of risks and uncertainties.Our future success depends on our ability to expand our utility-scale solar power project pipelines.Our ability to expand our utility-scal
189、e solarproject pipelines is subject to significant risks and uncertainties,including:the need to raise significant additional funds to develop from scratch or purchase late-stage solar power projects,which we may beunable to obtain on commercially reasonable terms or at all;delays and cost overruns
190、as a result of a number of factors,many of which are beyond our control,including delays in regulatoryapprovals,construction,grid-connection and customer acceptance testing;delays or denial of required approvals by relevant government authorities;diversion of significant management attention and oth
191、er resources;and failure to execute our project pipeline expansion plan effectively.If we are unable to successfully expand our utility-scale solar power project pipelines,we may be unable to expand our business,maintain ourcompetitive position,improve our profitability,and generate the cash flows w
192、e have currently forecasted.Due to a variety of factors,including the general economic environment and conditions in financial markets,we may be unable to generatesufficient cash flows or have access to external financing necessary to fund planned operations and make adequate capital investments.In
193、the future we anticipate that our operating and capital expenditures requirements will increase substantially.To develop new products,supportfuture growth,achieve operating efficiencies and maintain product quality,we must make significant capital investments in manufacturing technology,facilities a
194、nd capital equipment,research and development,and product and process technology.We also anticipate that our operating costs will increaseas we expand our manufacturing operations,hire additional personnel,make advance payments or pay more for our raw materials,includingpolysilicon,increase our sale
195、s and marketing efforts,invest in joint ventures and acquisitions,and continue our research and development efforts withrespect to our products and manufacturing technologies.Certain of our suppliers require performance bonds issued by a bonding agency or letters ofcredit issued by financial institu
196、tions.Obtaining letters of credit requires adequate collateral.Our letter of credit facility is collateralized by restrictedcash,which reduces the amount of cash available for operations.We incurred moderate capital expenditures in 2012 related to improvements of our solar cell manufacturing capacit
197、y,technology and other projects.Going forward,and once market conditions for our solar products improve,we expect that we have to make additional capital expenditures to enhanceour solar cell and module manufacturing capacity.Our capital expenditures and use of working capital may be greater than we
198、 expect if we invest inadditional development and construction of solar power plants or decide to accelerate the increase of our manufacturing capacity,both internally andthrough investments in selected joint ventures.The financing that we require for the construction of solar power plants may not b
199、e available on termsacceptable to us.In addition,we could make additional investments in joint ventures or guarantee certain financial obligations of our joint ventures,which could reduce our cash flows,increase our indebtedness and expose us to the credit risk of our joint ventures.If our capital r
200、esources areinsufficient to satisfy our liquidity requirements,we may seek to market additional equity or debt securities and/or obtain other debt financing.Theeconomic15Table of Contentsenvironment and conditions in financial markets may limit our ability to raise equity or debt capital on acceptab
201、le terms.Lenders may be unwilling tolend funds that would be required to supplement cash flows to support daily operations.Further,increased debt would result in increased expenses andmay give rise to restrictive covenants or collateral requirements.Financing arrangements,including project financing
202、 for our solar power plants,may notbe available to us,or may not be available in amounts or on terms acceptable to us.We may also seek to sell assets,reduce or delay capital investments,or refinance or restructure our debt.There can be no assurance that we will be able to generate sufficient cash fl
203、ows,find other sources of capital to fund our operations and solarpower plant projects,make adequate capital investments to remain competitive in terms of technology development and cost efficiency required by ourprojects.If adequate funds and alternative resources are not available on acceptable te
204、rms,our ability to fund our operations,develop and construct solarpower plants,develop and expand our manufacturing operations and distribution network,maintain our research and development efforts,providecollateral for our projects or otherwise respond to competitive pressures would be significantl
205、y impaired.Our inability to do the foregoing could have amaterial and adverse effect on our business and results of operations.We may be unable to obtain adequate financing due to market conditions and other factors,many of which are beyond our control,which mayadversely influence our ability to gro
206、w our business.Our operations are capital intensive.We rely on working capital financing from PRC commercial banks for our daily operations.Although we arecurrently able to obtain new working capital financing from PRC commercial banks,we cannot guarantee that we will continue to be able to do so on
207、commercially reasonable terms or at all.Also,even though we are a publicly-traded company,we may not be able to raise capital via public equity anddebt issuances due to market conditions and other factors,many of which are beyond our control.Our ability to obtain external financing is subject to ava
208、riety of uncertainties,including:our future financial condition,results of operations and cash flows;general market conditions for financing activities by manufacturers of photovoltaic and related products;and economic,political and other conditions in the PRC and elsewhere.If we are unable to obtai
209、n funding in a timely manner and on commercially acceptable terms,our growth prospects and future profitability may beadversely affected.The construction by us of large utility-scale solar power projects may require us to obtain project financing.There can be no assurance that we willbe able to obta
210、in such project financing on terms acceptable to us or at all.If we are unable to obtain project financing,or if it is only available on termswhich are not acceptable to us,we may be unable to fully execute our systems business plan.In addition,we generally expect to sell our projects byraising proj
211、ect equity capital from tax-oriented,strategic industry and other investors.Such investors may not be available or may only have limitedresources,in which case our ability to sell our projects may be prevented or delayed and our business,financial condition,or results of operations maybe adversely a
212、ffected.Our dependence on Chinese banks to extend our existing loans and provide additional loans exposes us to funding risks,which may materiallyand adversely affect our operations.We require significant cash flow and funding to support our operations.For example,there is a significant time lag bet
213、ween the time that we makepayments to our suppliers and the time that we collect payments from our customers.As a result,we rely on short-term borrowings to provide workingcapital for our daily operations.Since the majority of our short-term borrowings come from Chinese16Table of Contentsbanks,we ar
214、e exposed to lending policy changes by the Chinese banks.In 2012,we successfully extended our short-term borrowings and,as ofDecember 31,2012,we had outstanding short-term borrowings of$849.8 million with Chinese banks.Between January 1,2013 and March 31,2013,we obtained new borrowings of approximat
215、ely$240.1 million from Chinese banks,including$94.9 million with due dates beyond December 31,2013.Also,between January 1,2013 and March 31,2013,we renewed existing bank facilities of approximately$64 million from Chinese banks with duedates beyond December 31,2013.If the Chinese government changes
216、its macroeconomic policies and forces Chinese banks to tighten their lending practices,or if Chinese banks areno longer willing to provide financing to solar power companies,including us,we may not be able to extend our short-term borrowings or makeadditional borrowings in the future.As a result,we
217、may not be able to fund our operations to the same extent as in previous years,which may have amaterial and adverse effect on our operations.Our project development and construction activities may not be successful;projects under development may not receive required permits,propertyrights,power purc
218、hase agreements,interconnection and transmission arrangements;or financing or construction of projects may not commenceor continue as scheduled,all of which could increase our costs,delay or cancel a project,and have a material adverse effect on our revenue andprofitability.The development and const
219、ruction of solar power plants involve known and unknown risks.We may be required to invest significant amounts ofmoney for land and interconnection rights,preliminary engineering,permitting,legal and other expenses before we can determine whether a project isfeasible.Success in developing a particul
220、ar project is contingent upon,among other things:securing land rights and related permits,including satisfactory environmental assessments;receipt of required land use and construction permits and approvals;receipt of rights to interconnect to the electric grid;payment of interconnection and other d
221、eposits(some of which are non-refundable);negotiation of satisfactory EPC agreements;and obtaining construction financing,including debt,equity and tax credits.In addition,successful completion of a particular project may be adversely affected by numerous factors,including:delays in obtaining and ma
222、intaining required governmental permits and approvals;potential challenges from local residents,environmental organizations,and others who may not support the project;unforeseen engineering problems;subsurface land conditions;construction delays;cost over-runs;labor,equipment and materials supplysho
223、rtages or disruptions(including labor strikes);additional complexities when conducting project development or construction activities in foreign jurisdictions,including operating inaccordance with the U.S.Foreign Corrupt Practices Act and applicable local laws and customs;and force majeure events,in
224、cluding adverse weather conditions and other events out of our control.If we are unable to complete the development of a solar power project or we fail to meet any agreed upon system-level capacity or energy outputguarantees or warranties(including 25 year power output performance guarantees)or othe
225、r contract terms,or our projects cause grid interference orother damage,the EPC or other agreements related to the project may be terminated and/or we may be subject to significant damages,penalties and otherobligations relating to the project,including17Table of Contentsobligations to repair,replac
226、e or supplement materials for the project.In 2013 and beyond,we still expect to invest a significant amount of capital todevelop projects owned by us or third parties,which may limit the availability of capital to use for other purposes,such as contract damages orrepurchase payments.We may enter int
227、o fixed-price EPC agreements in which we act as the general contractor for our customers in connection with the installation oftheir solar power systems.All essential costs are estimated at the time of entering into the EPC agreement for a particular project,and these costs arereflected in the overa
228、ll fixed price that we charge our customers for the project.These cost estimates are preliminary and may or may not be covered bycontracts between us and the subcontractors,suppliers and other parties involved in the project.In addition,we require qualified,licensedsubcontractors to install most of
229、our systems.Shortages of skilled labor could significantly delay a project or otherwise increase our costs.Shouldmiscalculations in planning a project occur,including those due to unexpected increases in commodity prices or labor costs,or delays in execution occurand we are unable to increase the EP
230、C sales price commensurately,we may not achieve our expected margins or we may be required to record a loss inthe relevant fiscal period.Lack of transmission capacity availability,potential upgrade costs to the transmission grid,and other system constraints could significantly impactour ability to b
231、uild PV plants and generate solar electricity power sales.In order to deliver electricity,our solar power plants need to connect to the transmission grid.The lack of available capacity on the transmissiongrid could substantially impact our projects and cause reductions in project size,delays in proj
232、ect implementation,increases in costs from transmissionupgrades and potential forfeiture of deposits that we may have made with respect to a given project.These transmission issues,as well as issues relatingto the availability of large systems such as transformers and switch gear,could significantly
233、 impact our ability to build PV solar power plants,connectthem to the grid,successfully complete customer acceptance testing,and receive payment for such solar power plants.Developing solar power projects may require significant upfront investment prior to commencing construction,which could adverse
234、ly affect ourbusiness and results from our operations.Our solar power plant development cycles can take many months or years to mature.As a result,we may need to make significant upfrontpayments for,among other things,land rights and permitting in advance of commencing construction,and the receipt o
235、f any revenue,much of which isnot recognized for several additional months following contract signing.Our inability to enter into sales contracts with customers after making suchupfront payments could adversely affect our business and results of operations.Furthermore,we may become constrained in ou
236、r ability tosimultaneously fund our other business operations and these system investments through our long project development cycles.Our liquidity may be adversely affected to the extent the project sale market weakens or we are not able to successfully complete the customeracceptance testing due
237、to technical difficulties,equipment failure,or adverse weather,and we are unable to sell our solar projects at prices and on termsand timing that are acceptable to us.Cancellations of customer orders may make us unable to recoup any prepayments made to suppliers.In the past,we were generally require
238、d to make prepayments to certain suppliers of silicon wafers and cells and silicon raw materials.Although werequire certain customers to make partial prepayments,there is a lag between the due date for the prepayment of purchased silicon wafers and cells andsilicon raw materials and the time that ou
239、r customers make prepayments.The purchase of solar wafers and cells and silicon raw materials through tollmanufacturing arrangements has required,18Table of Contentsand will continue to require us to make significant commitments of working capital beyond the cash flows generated from our operations
240、to support ourestimated production output.In the event our customers cancel their orders,we may not be able to recoup prepayments made to suppliers,which couldadversely influence our financial condition and results of operations.Credit terms offered to some of our customers expose us to the credit r
241、isks of such customers and may increase our costs and expenses,whichcould in turn materially and adversely affect our revenues,liquidity and results of operations.We offer some customers unsecured short-term or medium-term credit based on our relationships with them and market conditions.As a result
242、,our claims for payments and sales credits rank as unsecured claims,which would expose us to credit risk if our customers become insolventor bankrupt.From time to time,we sell our products to high credit risk customers in order to gain early access to emerging or promising markets,increase ourmarket
243、 share in existing key markets or because of the prospects of future sales with a rapidly growing customer.There are high credit risks in doingbusiness with these customers because they are often small,young and high-growth companies with significant unfunded working capital,inadequatebalance sheets
244、 and credit metrics and limited operating histories.If these customers are not able to obtain satisfactory working capital,maintain adequatecash flow,or obtain construction financing for the projects where our modules are used,they may be unable to pay for the products for which they havesubmitted p
245、urchase orders or of which they have taken delivery.Our legal recourse under such circumstances may be limited if the customers financialresources are already constrained or if we wish to continue to do business with that customer.For example,we took back solar modules that we hadsold and shipped to
246、 certain customers that were unable to pay under the terms of our agreements or to provide any security that would have allowed usto extend our payment terms.As a result,we resold the modules to other customers at lower prices,which negatively influenced our revenue andmargins.Revenue recognition fo
247、r this type of customer is deferred until cash is received.If more customers to whom we extend credit are unable to payfor our products,our revenues,liquidity and results of operations could be materially and adversely affected.Our dependence on a limited number of silicon wafer and cell and silicon
248、 suppliers,and the limited number of suppliers for certain othercomponents,such as silver metallization paste,solar module back-sheet,and ethylene vinyl acetate encapsulant,could prevent us from deliveringour products to our customers in the required quantities or in a timely manner,which could resu
249、lt in order cancellations and decreased revenues.We purchase silicon raw materials,which include solar grade silicon,silicon wafers and solar cells,from a limited number of third-party suppliers.Our largest supplier of raw materials by dollar amount of purchases accounted for approximately 10.3%,20.
250、5%and 18.1%of our total raw materialspurchases in 2010,2011 and 2012,respectively.Our major suppliers of silicon wafers include GCL,ReneSola Ltd.,or ReneSola,and Konca Solar Cell.,Ltd,or Konca.Our major suppliers ofsolar cells include Topcell Solar International Co.,Ltd,or Topcell,Shunfeng Photovolt
251、aic International Limited,or Shunfeng,and Neo Solar.Thesesuppliers may not always be able to meet our quantity requirements,or to keep pace with the price reductions or quality improvements,necessary for usto price our products competitively.Supply may also be interrupted by accidents,disasters or o
252、ther unforeseen events over which we have no control.For example,in the first half of 2010 and the fourth quarter of 2011 and 2012,we experienced delivery issues with suppliers of silicon wafers,cells,connectors and encapsulants that caused us to miss shipment deadlines to some of our customers.Deli
253、very problems may also occur with suppliers ofother components,such as silver metallization paste,low-iron glass and solar module back sheet.The failure of a supplier,for whatever reason,tosupply silicon wafers,solar cells,silicon raw materials or other essential components that meet our quality,qua
254、ntity and cost requirements in a timelymanner could impair our ability to manufacture our products or increase our costs.The impact could be more severe19Table of Contentsif we are unable to access alternative sources on a timely basis or on commercially reasonable terms,and could prevent us from de
255、livering our productsto our customers in the required quantities and at prices that are profitable.Problems of this kind could cause order cancellations,reduce our marketshare,harm our reputation and cause legal disputes with our customers.We are developing and commercializing higher conversion effi
256、ciency cells,such as selective emitter and metal wrap-through cells,in order toproduce higher-powered modules,which may command better prices.We cannot assure that we will be able to mass-produce these cells in a costeffective way,if at all.Higher efficiency cell structures are becoming an increasin
257、gly important factor in cost competitiveness and brand recognition in the solar powerindustry.Such cells may yield higher power outputs at the same cost to produce as lower efficiency cells,thereby lowering the manufactured cost perwatt.The ability to manufacture and sell modules made from such cell
258、s may also be an important competitive advantage because system owners canobtain a higher yield of electricity from the modules that have a similar infrastructure,footprint and system cost compared to systems with modulesusing lower efficiency cells.Higher conversion efficiency solar cells and the r
259、esulting higher output modules are also one of the considerations inmaintaining a price premium over thin-film products.However,while we are making the necessary capital equipment and other investments to develophigher conversion efficiency products,there is no assurance that we will be able to comm
260、ercialize some or any of these products in a cost effective way,or at all.In the near term,such products may command a modest premium.In the longer term,if our competitors are able to manufacture such productsand we cannot do the same at all or in a cost efficient manner,we will be at a competitive
261、disadvantage,which will likely influence our product pricingand our financial performance.Since we cannot test our products for the duration of our standard warranty periods,we may be subject to unexpected warranty expense.Before June 2009,we typically sold our standard solar modules with a two-year
262、 guarantee for defects in materials and workmanship and a 10-yearand 25-year warranty against declines of more than 10%and 20%,respectively,from the initial minimum power generation capacity at the time ofdelivery.In June 2009,we increased our warranty against defects in materials and workmanship to
263、 six years.Effective August 1,2011,we increasedour warranty against defects in materials and workmanship to ten years and we guarantee that,for a period of 25 years,our modules will maintain thefollowing performance levels:during the first year,the actual power output of the module will be no less t
264、han 97%of the labeled power output;from year 2 to year 24,the actual annual power output decline will be no more than 0.7%;and by the end of year 25,the actual power output of the module will be no less than 80%of the labeled power output.We believe our warranty periods are consistent with industry
265、practice.Due to the long warranty period,we bear the risk of extensive warrantyclaims long after we have shipped our products and recognized revenue.We began selling specialty solar modules and products in 2002 and beganselling standard solar modules in 2004.Any increase in the defect rate of our pr
266、oducts would require us to increase our warranty reserves and wouldhave a corresponding negative impact on our operating results.Although we conduct quality testing and inspection of our solar module products,oursolar module products have not been and cannot be tested in an environment simulating th
267、e up-to-25-year warranty periods.In particular,unknownissues may surface after extended use.These issues could potentially affect our market reputation and adversely affect our revenues,giving rise topotential warranty claims by our customers.As a result,we may be subject to unexpected warranty cost
268、s and associated harm to our financial results aslong as 25 years after the sale of our products.20Table of Contents In addition to the solar module warranty above,for utility-scale solar power projects built by us,we provide a limited warranty against defects inworkmanship under normal use,operatio
269、n and service conditions for a period of five years following the energizing of the solar power plant.Inresolving claims under the workmanship warranty,we have the option of remedying through repair,refurbishment or replacement of equipment.In April 2010,we began entering into agreements with insura
270、nce companies to reduce some of this risk.Under the insurance policies,theinsurance companies are obliged to reimburse us,subject to certain maximum claim limits and certain deductibles,for the actual product warranty coststhat we incur under the terms of our warranty policy.The warranty insurance i
271、s renewable annually.See Item 4.Information on the CompanyB.Business OverviewInsurance.However,we cannot assure that potential warranty claims will not exceed the scope or amount of coverage under thisinsurance and,if they do,they could materially and adversely affect our business.We may not continu
272、e to be successful in developing and maintaining a cost-effective solar cell manufacturing capability.We plan to continue expanding our in-house solar cell manufacturing capabilities to support our core solar module manufacturing business.Weexpanded our annual solar cell production capacity from 800
273、 MW as of December 31,2010 to 1.5 GW as of December 31,2011 and 1.6 GW as ofDecember 31,2012.To remain competitive going forward,we intend to further expand our total annual solar cell production capacity.However,weonly have limited and recent operating experience in this area and may face significa
274、nt product development challenges in our solar cell operations.Manufacturing solar cells is a complex process and we may not be able to produce solar cells of sufficient quality to meet our solar modulemanufacturing standards.Minor deviations in the manufacturing process can cause substantial decrea
275、ses in yield and in some cases cause no yieldoutput or production to be suspended.We will need to make capital expenditures to purchase manufacturing equipment for solar cell production and willalso need to make significant investments in research and development to keep pace with technological adva
276、nces in solar power technology.Thetechnologies,designs and customer preferences for solar cells can change rapidly,and solar cell product life cycles are shorter than those for solarmodules.We also face increased costs to comply with environmental laws and regulations.Any failure to successfully dev
277、elop and maintain cost-effective solar cell manufacturing capability may have a material and adverse effect on our business and prospects.For example,we have in the pastpurchased a large percentage of solar cells from third parties.This negatively affected our margins compared with those of our comp
278、etitors since it isless expensive to produce cells internally than to purchase them from third parties.Because third party solar cell purchases are usually made in a periodof high demand,prices tend to be higher and availability reduced.Although we intend to continue direct purchasing of solar cells
279、 and toll manufacturing arrangements through a limited number of strategic partners,our relationships with our solar cell suppliers may be disrupted if we engage in the large-scale production of solar cells ourselves.If solar cell suppliersdiscontinue or reduce the supply of solar cells to us,throug
280、h direct sales or through toll manufacturing arrangements,and we are not able to compensatefor the loss or reduction by manufacturing our own solar cells,our business and results of operations may be adversely affected.It may be difficult to develop our internal production capabilities for silicon i
281、ngots and wafers or to achieve acceptable yields and productperformance as a result of manufacturing problems.We have been increasing our internal production capabilities for the manufacture of silicon ingots and wafers.We completed the initial phase of oursilicon ingot and wafer plant in the third
282、quarter of 2008 and reached a nameplate capacity of approximately 216 MW as of December 31,2012.Wehave limited prior operational experience in ingot and silicon wafer production and will face significant challenges in further increasing our internalproduction capabilities.The technology is complex a
283、nd will21Table of Contentsrequire costly equipment and hiring of highly skilled personnel.In addition,we may experience delays in further developing these capabilities and inobtaining the governmental permits required to carry on these operations.If we are able to develop these production capabiliti
284、es successfully,we will need to continuously enhance and modify these capabilities in order toimprove yields and product performance.Microscopic impurities such as dust and other contaminants,difficulties in the manufacturing process,disruptions in the supply of utilities or defects in the key mater
285、ials and tools used to manufacture silicon wafers can cause a percentage of the siliconwafers to be rejected,which would negatively affect our yields.We may experience manufacturing difficulties that cause production delays and lowerthan expected yields.Problems in our facilities,including but not l
286、imited to production failures,construction delays,human errors,weather conditions,equipmentmalfunction or process contamination,may limit our ability to manufacture products,which could seriously harm our operations.We are alsosusceptible to floods,droughts,power losses and similar events beyond our
287、 control that would affect our facilities.A disruption in any step of themanufacturing process will require us to repeat each step and recycle the silicon debris,which would adversely affect our yields and manufacturing cost.Our future growth depends in part on our ability to make strategic acquisit
288、ions and investments and to establish and maintain strategicrelationships,and our failure to do so could have a material and adverse effect on our market penetration and revenue growth.We may acquire other businesses,make strategic investments or establish strategic relationships with third parties
289、to improve our market positionor expand our products and services.We cannot assure you that we will be able to successfully make strategic acquisitions and investments or establishstrategic relationships with third parties that will prove to be effective for our business.Our inability to do so could
290、 materially and adversely affect ourmarket penetration,our revenue growth and our profitability.Investments,strategic acquisitions and relationships with third parties could subject us to a number of risks,including risks associated with sharingproprietary information and loss of control of operatio
291、ns that are material to our business.Moreover,strategic acquisitions,investments andrelationships may be expensive to implement and subject us to the risk of non-performance by a counterparty,which may in turn lead to monetarylosses that materially and adversely affect our business.If we are unable
292、to attract,train and retain technical personnel,our business may be materially and adversely affected.Our future success depends,to a significant extent,on our ability to attract,train and retain technical personnel.Recruiting and retaining capablepersonnel,particularly those with expertise in the s
293、olar power industry,are vital to our success.There is substantial competition for qualified technicalpersonnel,and there can be no assurance that we will be able to attract or retain sufficient technical personnel.If we are unable to attract and retainqualified employees,our business may be material
294、ly and adversely affected.22Table of ContentsOur dependence on a limited number of customers and our lack of long-term customer contracts may cause significant fluctuations or declines inour revenues.We sell a substantial portion of our solar module products to a limited number of customers,includin
295、g distributors,system integrators,projectdevelopers and installers who either integrate our products into their own products or sell them as part of their product portfolio.Our top five customersby revenues collectively accounted for approximately 26.0%,29.2%and 21.6%of our net revenues in 2010,2011
296、 and 2012,respectively.We typicallyenter into one-year framework sales agreements with our customers,with quarterly firm orders stipulating prices and quantities.We anticipate that ourdependence on a limited number of customers will continue for the foreseeable future.Consequently,any of the followi
297、ng events may cause materialfluctuations or declines in our revenues:reduced,delayed or cancelled orders from one or more of our significant customers;the loss of one or more of our significant customers;a significant customers failure to pay for our products on time;and a significant customers fina
298、ncial problems or insolvency.As we continue to expand our business and operations,our top customers continue to change.We cannot assure that we will be able to develop aconsistent customer base.Product liability claims against us could result in adverse publicity and potentially significant monetary
299、 damages.We,along with other solar module product manufacturers,are exposed to risks associated with product liability claims if the use of our solarmodule products results in injury.Since our products generate electricity,it is possible that users could be injured or killed by our products due topr
300、oduct malfunctions,defects,improper installation or other causes.We shipped our first products in March 2002 and,because of our limited operatinghistory,we cannot predict whether product liability claims will be brought against us in the future,or the effect of any resulting negative publicity on ou
301、rbusiness.Although we carry limited product liability insurance,we may not have adequate resources to satisfy a judgment if a successful claim isbrought against us.The successful assertion of product liability claims against us could result in potentially significant monetary damages and require ust
302、o make significant payments.Even if the product liability claims against us are determined in our favor,we may suffer significant damage toour reputation.Our founder,Dr.Shawn Qu,has substantial influence over our company and his interests may not be aligned with the interests of our othershareholder
303、s.As of March 31,2013,Dr.Shawn Qu,our founder,chairman,president and chief executive officer,beneficially owned 13,270,500 commonshares,or 30.5%of our outstanding share capital.As a result,Dr.Qu has substantial influence over our business,including decisions regardingmergers,consolidations and the s
304、ale of all or substantially all of our assets,the election of directors and other significant corporate actions.Thisconcentration of ownership may discourage,delay or prevent a change in control of our company,which could deprive our shareholders of anopportunity to receive a premium for their share
305、s as part of a sale of our company and might reduce the price of our common shares.We may be exposed to infringement,misappropriation or other claims by third parties,which,if determined adversely to us,could require us topay significant damage awards.Our success depends on our ability to use and de
306、velop our technology and know-how and sell our solar module products without infringing theintellectual property or other rights of third parties.The23Table of Contentsvalidity and scope of claims relating to solar power technology patents involve complex scientific,legal and factual questions and a
307、nalyses and aretherefore highly uncertain.We may be subject to litigation involving claims of patent infringement or the violation of intellectual property rights of thirdparties.Defending intellectual property suits,patent opposition proceedings and related legal and administrative proceedings can
308、be both costly andtime-consuming and may significantly divert the efforts and resources of our technical and management personnel.Additionally,we use both importedand China-made equipment in our production lines,sometimes without sufficient supplier guarantees that our use of such equipment does not
309、 infringethird-party intellectual property rights.This creates a potential source of litigation or infringement claims.An adverse determination in any such litigationor proceedings to which we may become a party could subject us to significant liability to third parties or require us to seek license
310、s from third parties,pay ongoing royalties,redesign our products or subject us to injunctions prohibiting the manufacture and sale of our products or the use of ourtechnologies.Protracted litigation could also defer customers or potential customers or limit their purchase or use of our products unti
311、l such litigationis resolved.Compliance with environmental regulations can be expensive,and noncompliance with these regulations may result in adverse publicity andpotentially significant monetary damages,fines and the suspension or even termination of our business operations.We are required to comp
312、ly with all national and local environmental regulations.As we expanded our silicon reclamation program and research anddevelopment activities and moved into ingot,wafer and cell manufacturing,we began to generate material levels of noise,wastewater,gaseous wastesand other industrial waste in our bu
313、siness operations.Additionally,as we expanded our internal solar components production capacity,our risk offacility incidents with a potential environmental impact also increased.We believe that we comply with all environmental laws and regulations and haveall necessary environmental permits to cond
314、uct our business as it is presently conducted.However,if more stringent regulations are adopted in thefuture,the costs of complying with these new regulations could be substantial.If we fail to comply with present or future environmental regulations,wemay be required to pay substantial fines,suspend
315、 production or cease operations.Any failure by us to control our use or to restrict adequately thedischarge,of hazardous substances could subject us to potentially significant monetary damages,fines or suspensions of our business operations.Our solar modules and products must comply with the environ
316、mental regulations of the jurisdictions in which they are installed,and we may incurexpenses to design and manufacture our products to comply with such regulations.For example,we increased our expenditures to comply with theEUs Restriction of Hazardous Substances Directive,which took effect in July
317、2006,by reducing the amount of lead and other restricted substances inour solar module products.Furthermore,we may need to comply with the EUs Waste Electrical and Electronic Equipment Directive if solar modulesand products are re-classified as consumer electronics under the directive or if our cust
318、omers located in other markets demand that they comply with thisdirective.This would require us to implement manufacturing process changes,such as changing the soldering materials used in module manufacturing,in order to continue to sell our products in these markets.If compliance is unduly expensiv
319、e or unduly difficult,we may lose market share and ourfinancial results may be adversely affected.We may not be successful in establishing our brand name in important markets and the products we sell under our brand name may competewith the products we manufacture on an original equipment manufactur
320、er,or OEM,basis for our customers.We sell our products primarily under our own brand name but also on an OEM basis.In certain markets,our brand may not be as prominent asother more established solar power vendors,and there can be no assurance that the CSI or Canadian Solar brand name or any of our p
321、ossible future24Table of Contentsbrand names will gain acceptance among customers.Moreover,because the range of products that we sell under our own brands and those wemanufacture for our OEM customers may be substantially similar,we cannot assure that we will not directly or indirectly compete with
322、our OEMcustomers,which could negatively affect our relationship with them.Failure to protect our intellectual property rights in connection with new specialty solar modules and products may undermine our competitiveposition.As we develop and bring to market new specialty solar modules and products,w
323、e may need to increase our expenditures to protect our intellectualproperty.Our failure to protect our intellectual property rights may undermine our competitive position.We currently have 151 patents and 133 patentapplications pending in the PRC for products that contribute a relatively small perce
324、ntage of our net revenues.We have two United States patents,issued in November 2009 and February 2010.We also have three patent applications pending in Europe.We applied for registration of the CanadianSolar trademark in the United States in March 2009 and subsequently in a number of other jurisdict
325、ions,including Australia,Canada,Europe,India,South Korea,Japan,the United Arab Emirates,Bosnia and Herzegovina,Switzerland,Ghana,Croatia,Israel,Kenya,Liechtenstein,Singapore,Morocco,Egypt,Vietnam,Turkey,South Africa,Argentina,Peru,Brazil,Bangladesh and Indonesia.Among these applications,the Canadian
326、 Solartrademark has been registered in the United States,Australia,Canada,Europe,South Korea,Japan,the United Arab Emirates and Hong Kong.We alsohave 56 registered trademarks and 11 trademark applications pending in the PRC,and 25 registered trademarks and 41 trademark applications pendingoutside of
327、 China.These intellectual property rights afford only limited protection and the actions we take to protect our rights as we develop newspecialty solar modules and products may not be adequate.Policing the unauthorized use of proprietary technology can be difficult and expensive.Inaddition,litigatio
328、n,which can be costly and divert management attention,may be necessary to enforce our intellectual property rights,protect our tradesecrets or determine the validity and scope of the proprietary rights of others.If our internal control over financial reporting or disclosure controls and procedures a
329、re not effective,there may be errors in our financialstatements that could require a restatement or our filing may not be timely and investors may lose confidence in our reported financialinformation,which could lead to a decline in our stock price.We are subject to the reporting obligations under U
330、.S.securities laws.The Securities and Exchange Commission,or SEC,as required bySection 404 of the Sarbanes-Oxley Act of 2002,adopted rules requiring every public company to include a management report on its internal controlover financial reporting in its annual report,which contains managements ass
331、essment of the effectiveness of its internal control over financial reporting.In addition,an independent registered public accounting firm must report on the effectiveness of the companys internal controls over financial reporting.As of December 31,2012,our management concluded that our internal con
332、trol over financial reporting was effective as well.However,we cannotassure that material weaknesses in our internal controls over financial reporting will not be identified in the future.Any material weaknesses in ourinternal controls could cause us not to meet our periodic reporting obligations in
333、 a timely manner or result in material misstatements in our financialstatements.Material weaknesses in our internal controls over financial reporting could also cause investors to lose confidence in our reported financialinformation,leading to a decline in our share price.We face risks related to an SEC subpoena and private securities litigation.We received a subpoena from the SEC requesting docum
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