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CANADIAN SOLAR INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Form 20-F

(Mark One)    

o

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ý

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012.

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

o

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

For the transition period from            to          

Commission file number: 001-33107

CANADIAN SOLAR INC.



(Exact name of Registrant as specified in its charter)

N/A



(Translation of Registrant's name into English)

Canada



(Jurisdiction of incorporation or organization)

545 Speedvale Avenue West
Guelph, Ontario, Canada N1K 1E6



(Address of principal executive offices)

Michael G. Potter, Chief Financial Officer
545 Speedvale Avenue West
Guelph, Ontario, Canada N1K 1E6
Tel: (1-519) 837-1881
Fax: (1-519) 837-2550



(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

            Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class   Name of Each Exchange on Which Registered
Common shares with no par value   The NASDAQ Stock Market LLC
(The NASDAQ Global Market)

            Securities registered or to be registered pursuant to Section 12(g) of the Act:

None



(Title of Class)

            Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None



(Title of Class)

            Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered 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. Yes Yes o    No ý

            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 Exchange Act of 1934. Yes o    No ý

            Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

            Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and 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 submit and post such files). Yes ý    No o

            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 large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o   Accelerated filer ý   Non-accelerated filer o

            Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP ý International Financial Reporting Standards as issued by the International Accounting Standards Board o    Other o

            If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. 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 ý

            (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

            Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o    No o

   


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Table 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 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  

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 OF PROCEEDS

    114  

ITEM 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 AFFILIATED PURCHASERS

    117  

ITEM 16F.

 

CHANGE IN REGISTRANT'S 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  

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INTRODUCTION

        Unless otherwise indicated, references in this annual report on Form 20-F to:

        This annual report on Form 20-F includes our audited consolidated financial statements for the years ended December 31, 2010, 2011 and 2012 and 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 for customs purposes by the Federal Reserve Bank of New York to translate Renminbi, Euros and Canadian dollars to U.S. dollars not otherwise recorded in our consolidated financial statements and included elsewhere in this annual report. Unless otherwise stated, the translation of Renminbi, Euros and Canadian dollars into U.S. dollars was made by the noon buying rate in effect on December 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 annual report on Form 20-F could have been or could be converted into U.S. dollars, Euros, Canadian dollars or Renminbi, as the case may be, at any particular rate or at all. See "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Industry—Fluctuations in exchange rates could adversely affect our business, including our financial condition and results of operations."


FORWARD-LOOKING INFORMATION

        This annual report on Form 20-F contains forward-looking statements that relate to future events, including our future operating results, our prospects and our future financial performance and condition, results of operations, business strategy and financial needs, all of which are largely based on our current expectations and projections. These forward-looking statements are made under the "safe harbor" provisions of the U.S. Private Securities 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 similar expressions. Forward-looking statements involve inherent risks and uncertainties. These forward-looking statements include, among other things, statements relating to:

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        Known and unknown risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements. See "Item 3. Key Information—D. Risk Factors" for a discussion of some risk factors that may affect our business and results of operations. These risks are not exhaustive. Other sections of this annual report may include additional factors that could adversely influence our business and financial performance. Moreover, because we operate in 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 impact of these factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those expressed or implied in any forward-looking statement. We do not undertake any obligation to update or revise the forward-looking statements except as required under applicable law.

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PART I

ITEM 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

        Not applicable.

ITEM 2.    OFFER STATISTICS AND EXPECTED TIMETABLE

        Not applicable.

ITEM 3.    KEY INFORMATION

A.    Selected Financial Data

        The following selected statement of operations data for the years ended December 31, 2010, 2011 and 2012 and balance sheet data as of December 31, 2011 and 2012 have been derived from our consolidated financial statements, which are included elsewhere in this annual report on Form 20-F. You should read the selected consolidated financial and operating data in conjunction with those financial statements and the related notes and "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 as of December 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. Our historical results are not necessarily 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 of operations data:

                               

Net revenues

    705,006     630,961     1,495,509     1,898,922     1,294,829  

Income (loss) from Operations

    24,065     6,512     120,299     6,833     (142,516 )

Net income (loss)

    (7,534 )   22,778     50,828     (90,903 )   (195,155 )

Net income (loss) attributable to Canadian Solar Inc. 

    (7,534 )   22,646     50,569     (90,804 )   (195,469 )

Earnings (loss) per share, basic

    (0.24 )   0.61     1.18     (2.11 )   (4.53 )

Shares used in computation, basic

    31,566,503     37,137,004     42,839,356     43,076,489     43,190,778  

Earnings (loss) per share, diluted

    (0.24 )   0.60     1.16     (2.11 )   (4.53 )

Shares used in computation, diluted

    31,566,503     37,727,138     43,678,208     43,076,489     43,190,778  

Other financial data:

                               

Gross margin

    10.1 %   12.4 %   15.3 %   9.6 %   7.0 %

Operating margin

    3.4 %   1.0 %   8.0 %   0.4 %   (11.0 )%

Net margin

    (1.1 )%   3.6 %   3.4 %   (4.8 )%   (15.1 )%

Selected operating data:

                               

Products sold (in MW)

                               

—Solar module business

    166.5     296.6     779.1     1,265.6     1,490.1  

—Total solution business(1)

        0.6     24.4     56.9     53.0  

Total

   
166.5
   
297.2
   
803.5
   
1,322.5
   
1,543.1
 

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  As of December 31,  
 
  2008   2009   2010   2011   2012  
 
  (In thousands of $, except share and per share data,
and operating data and percentages)

 

Average selling price (in $ per watt)

                               

—Solar module business

    4.23     2.13     1.80     1.34     0.77  

—Total solution business

        3.36     3.21     3.49     2.80  

Balance Sheet Data:

                               

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     534,984     466,978     301,583  

Long-term borrowings

    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 shares outstanding

   
35,686,313

(2)
 
42,745,360

(2)
 
42,893,044
   
43,155,767
   
43,242,426
 

(1)
Total solution business includes solar power 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 transferability as of December 31, 2008 and 2009, respectively.

B.    Capitalization and Indebtedness

        Not applicable.

C.    Reasons for the Offer and Use of Proceeds

        Not applicable.

D.    Risk Factors

Risks Related to Our Company and Our Industry

We may be adversely affected by volatile solar power market and industry conditions; in particular, the demand for our solar power products may decline, which may reduce our revenues and earnings.

        We are influenced by conditions in the solar power market and industry. In 2010, demand for solar power products increased and many manufacturers increased their production capacity accordingly as the effects of the global financial crisis subsided. In 2011, a decrease in payments to solar power producers in the form of feed-in tariffs and other reimbursements, a reduction in available financing and an excess supply of solar PV modules worldwide put severe downward pressure on solar PV module prices in European and other markets. As a result, many solar power plant developers, solar system installers and solar PV products distributors that purchase solar power products, including solar PV modules from manufacturers like us, were adversely affected and their financial condition weakened. Although our shipments increased year-over-year in 2011 and 2012, average selling prices for our solar PV modules declined significantly. In 2012, oversupply conditions across the value chain, difficult economic conditions in Europe as well as escalating foreign trade disputes in the U.S., Europe, India and China affected industry-wide demand and put continued pressure on average selling prices, resulting in lower revenue for many industry participants. If the supply of solar PV modules grows faster than demand, and if governments continue to reduce financial support for the solar industry and impose trade barriers, demand for our products as well as our average selling price could be materially and adversely affected.

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        The demand for solar power products is influenced by macroeconomic factors, such as global economic conditions, demand for electricity, the supply and prices of other energy products, such as oil, coal and natural gas, as well as government regulations and policies concerning the electric utility industry, the solar and other alternative energy industries and the environment. For example, a reduction in oil and coal prices may reduce the demand for alternative energy. Also, during 2011 and 2012, a decrease in solar power tariffs and a difficult financing environment caused a decrease in the 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, many downstream purchasers of solar power products were unable to secure sufficient financing for their PV projects. As a result, many purchasers of solar power products were unable or unwilling to expand their operations. In light of the uncertainty in the global credit and lending environment, we cannot make assurances that financial institutions will continue to offer funding to solar PV project developers at reasonable costs. An increase in interest rates or a decrease in funding of capital projects within the global financial market could make it difficult to fund PV systems and potentially reduce the demand for PV modules and/or reduce the average selling prices for PV modules, which may materially 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 the corresponding oversupply of solar cells and 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, the solar industry experienced an oversupply of high-purity silicon in 2009, which contributed to an oversupply of solar wafers, cells and modules and resulted in substantial downward pressure on prices throughout the value chain in 2009. Strong demand in 2010 stabilized and strengthened prices across the 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 increased from approximately $1.25 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. In 2011, the solar industry again experienced oversupply across the value chain, and by the end of the year, module pricing was approximately $1.00 per watt, cell pricing was approximately $0.55 per watt and wafer pricing was approximately $0.41 per watt. According to Solarbuzz, demand for solar products remained soft in 2012 and at the end of 2012, module pricing was approximately $0.78 per watt, cell pricing was approximately $0.43 per watt, wafer pricing was approximately $0.25 per watt and polysilicon pricing was approximately $24.66 per kilogram. Our average module selling price has decreased from $1.80 per watt in 2010 to $1.34 per watt in 2011 and to $0.77 per watt in 2012, in large part because the increase in the supply of solar cells and modules was greater than the increase in the demand therefor. As a result of the decline in our module selling prices, our revenue declined in 2012, even though our module shipment volume for the year increased. In addition, because module prices declined at a rapid rate, we suffered losses in the form of inventory write-downs, as the market price of modules consistently fell below the carrying cost of our inventory. Lower price realizations and inventory write-downs in 2012 put downward pressure on our gross profit and operating margins. Continued increases in solar module production in excess of market demand may result in further downward pressure on the price of solar cells and modules, including our products. Increasing competition could also result in us losing sales or market share. If we are unable, on an ongoing basis, to procure silicon, solar wafers and solar cells at reasonable prices or mark up the price of our solar modules to cover our manufacturing and operating costs, our revenues and margins will continue to be adversely impacted, either due to higher costs compared to our competitors or due to further write-

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downs 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, which is affected by general economic conditions. Tight credit markets could depress demand or prices for solar products, hamper our expansion and materially affect our results of operations.

        General economic conditions, liquidity and the availability and cost of capital could materially and adversely affect our business and results of operations. Most solar power projects, including our own, require financing for development and construction with a mixture of equity and third party funding. The cost of capital affects both the demand and price of solar power systems. A high cost of capital may materially reduce the internal rate of return for solar power projects and therefore put downward pressure on the prices of both solar systems and solar modules, which typically comprise approximately 40% to 50% of the cost of solar power projects.

        Furthermore, solar power projects compete for capital with other forms of investment such as bonds. Some classes of investors compare the returns of solar power projects with bond yields and expect a similar or higher internal rate of return, adjusted for risk and liquidity. Higher interest rates could render existing funding more expensive and present an obstacle for potential funding that would otherwise spur the growth of the solar power industry. In addition, higher bond yields could result in increased yield expectations for solar power projects, which would result in lower system prices. In the event that suitable funding is unavailable, our customers may be unable to pay for products they have agreed to purchase. It may also be difficult 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 affect our results of operations. Concerns about government deficits and debt in the European Union, or EU, our major market, have increased bond spreads in certain solar markets, such as Greece, Spain, Italy and Portugal. The cash flow of a solar power project is often derived from government-funded or government-backed feed-in tariffs. Consequently, the availability and cost of funding solar power projects is determined in part based on the perceived sovereign credit risk of the country where a particular project is located. Therefore, credit agency downgrades of nations in the EU could decrease the credit available for solar power projects, increase the expected rate of return compared to bond yields, and increase the cost of debt for solar power projects in countries with a higher perceived sovereign credit risk.

Governments may revise, reduce or eliminate subsidies and economic incentives for solar power, which could cause demand for our products to decline.

        The market for on-grid applications, where solar power supplements the electricity a customer purchases from the utility network or sells to a utility under a feed-in tariff, depends largely on the availability and size of government subsidy programs and economic incentives. At present, the cost of solar power exceeds retail electricity rates in many locations. Government incentives vary by geographic market. Government bodies in many countries, most notably Germany, Italy, the Czech Republic, the United States, Japan, Canada (Ontario), South Korea, Greece, France, Australia and Spain, have provided incentives in the form of feed-in tariffs, rebates, tax credits, renewable portfolio standards and other incentives. These governments have implemented mandates to end-users, distributors, system integrators and manufacturers of solar power products to promote the use of solar energy in on-grid applications and to reduce dependency on other forms of energy. Some of these government mandates and economic incentives, such as the German Renewable Energy Law, are scheduled to be reduced and could be altered or eliminated altogether through new legislation. For example, in January, July and October of 2010, Germany introduced reductions in solar feed-in tariffs of approximately 24-26% for rooftop systems and 20-25% for ground-based systems. Germany further reduced its feed-in tariffs in

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the beginning of 2012 by 15% to up to 24.43 Euro cents per kilowatt hour for rooftop systems and up to 18.76 Euro cents per kilowatt hour for ground-based systems. In June of 2012 the German government approved further changes to the Renewable Energy Law. Under the new rules solar systems smaller than 10 kW will receive subsidies of 19.5 Euro cents per kWh, solar systems between 10kW and 40 kW will receive subsidies of 18.5 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 MW will receive subsidies of 13.5 Euro cents per kWh. Systems larger than 10MW will no longer receive subsidies. In addition, for systems that still qualify for 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 in the first quarter of 2013 was approximately 32 GW. In Italy, another important market for solar products in the past several years, total cumulative capacity reached 15.9 GW in October of 2012 and just €241 million is left in the country's solar subsidy program. Once this amount is used up and the funding limit of €6.7 billion is reached, Italy will no longer pay out subsidies on photovoltaic solar systems. Many other countries in Europe have reduced or eliminated their subsidies in the past few years and it is likely that this trend will continue, possibly until subsidies are phased out completely for solar 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 were in the past. If internal rates of return fall below an acceptable rate for project investors, and governments continue to reduce or eliminate subsidies, this may cause a decrease in demand and considerable downward pressure on solar system and therefore solar module prices. The reduction, modification or elimination of government mandates and economic incentives in one or more of our markets could therefore materially and adversely affect the growth of 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 may make it difficult 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 shortages of polysilicon and silicon wafers, we entered into a number of long-term supply agreements with several silicon and wafer suppliers in an effort to secure raw materials to meet our production requirements. These suppliers included GCL-Poly Energy Holdings Limited, or GCL, Neo Solar Power Corp., or Neo Solar, Deutsche Solar AG, or Deutsche Solar, Jiangxi LDK Solar Hi-Tech Co., Ltd., or LDK, 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 under our supply agreements with these suppliers.

        In 2009 and thereafter, we agreed to amend our agreements with certain of them, including GCL, Neo Solar, LDK and the UMG-Si supplier, to adjust 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 to purchase. Under our supply agreements with certain silicon wafer suppliers, and consistent with historical industry practice, we made advance payments prior 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, 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 contracted volumes for 2010 and 2011. The agreement contains a provision stating that, if we do not order the contracted volume in a given year, Deutsche Solar can

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invoice 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 void under German law. In 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 to claim damages of €148.6 million ($196.0 million) in court. As a result of the termination, we reclassified the accrued loss on firm purchase commitments 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 Deutsche Solar. The accrued amount of $27.9 million represents our best estimate for our loss contingency. 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 specified quantities of silicon wafers and LDK converted our reclaimed silicon feedstock into wafers under a toll manufacturing arrangement. In 2008, we entered into two ten-year wafer supply agreements with LDK, under which we agreed to purchase specified volumes of wafers at pre-determined prices each year, commencing January 1, 2009. In April 2010, we gave LDK termination notice regarding our two ten-year supply agreements with them. We also initiated arbitration proceedings against LDK seeking a refund of certain advance payments that we made to them. In December of 2012, the Shanghai Branch of China International Economic and Trade Arbitration Commission, or CIETAC Shanghai Branch, awarded RMB248.9 million ($40.0 million) plus RMB2.2 million ($0.4 million) in arbitration expenses in favor of LDK. The total amount of the award includes an RMB60.0 million ($9.6 million) initial deposit. See "Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal and Administrative Proceedings." We recorded a full bad debt allowance against this initial deposit in 2009. We made a loss provision totaling RMB188.9 million ($30.3 million) in 2012 following the arbitration award in favor of LDK. We dispute the merits of the arbitration award and will pursue all legal means to overturn or resist the implementation of the award. 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 volumes for 2010 and concerns regarding its financial position, we concluded 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 allowance against the advance payments of RMB64 million ($10.3 million) to the UMG-Si supplier in 2010.

        If our suppliers file lawsuits against us for early termination of these contracts, such events could be costly, may divert management's attention and other resources away from our business, and could have a material and adverse effect on our reputation, business, financial condition, results of operations 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 silicon wafers or solar cells with fixed price and quantity terms. If, during the term of these agreements, the price of materials decreases significantly and we are unable to renegotiate favorable terms with our suppliers, we may be placed at a competitive disadvantage compared to our competitors, and our earnings could decline. In addition, if demand for our PV products decreases, yet our supply agreements require us to purchase more polysilicon than required to meet customer demand, we may incur costs associated with carrying excess inventory. To the extent that we are not able to pass these increased costs on to our customers, our business, cash flows, financial condition and results of operations may be materially and adversely affected.

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Existing regulations and policies, and changes to these regulations and policies, may present technical, regulatory and economic barriers to the purchase and use of solar power products, which may significantly reduce demand for our products and services.

        The market for electricity generation products in the countries where we sell our products is heavily influenced by federal, state and local government regulations and policies concerning the electric utility industry, as well as policies disseminated by electric utilities. These regulations and policies often relate to electricity pricing and technical interconnection of customer-owned electricity generation, and could deter further investment in the research and development of alternative energy sources as well as customer purchases of solar power technology, which could result in a significant reduction in the potential demand for our solar power products. We expect that our solar power products and installation will continue to be subject to federal, state and local regulations and policies relating to safety, utility interconnection and metering, construction, environmental protection, and other related matters. Any new regulations or policies pertaining to our solar power products may result in significant additional expenses to us, our resellers and 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, regulatory, labor and tax conditions in the 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 in key global markets. Throughout the process of establishing operating facilities in these markets, 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 ongoing basis, in order to attain longer-term sustainable returns. These investments could influence our financial performance before sustainable profitability is 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 be able to compete successfully and we may not be able to maintain or increase our market share.

        We have a large number of competitors, including non-China-based competitors such as First Solar, Inc., or First Solar, and Sharp Solar Corporation, or Sharp Solar, and China-based competitors such as Yingli Green Energy Holding Company Limited, or Yingli, Trina Solar Limited, or Trina, and Suntech Power Holdings Co. Ltd., or Suntech. Some of our competitors are developing or are currently producing products based on new solar power technologies that may ultimately have costs similar to or lower than our projected costs. These include products based on thin film PV technology, which requires either no silicon or significantly less silicon to produce than crystalline silicon solar modules, such as the ones that we produce, and is less susceptible to increases in silicon costs. Some of our competitors have longer operating histories, greater name and brand recognition, access to larger customer bases, greater resources and significantly greater economies of scale than we do. In addition, some of our competitors may have stronger relationships or may enter into exclusive relationships with some of the key distributors or system integrators to whom we sell our products. As a result, they may be able to respond more quickly to changing customer demands or devote greater resources to the development, promotion and sales of their products. Some of our competitors have more diversified product offerings, which may better position them to withstand a decline in demand for solar power products. Some of our competitors are more vertically integrated than we are, from upstream silicon wafer manufacturing to solar power system integration. This may allow them to capture higher margins or have lower costs. In addition, new competitors or alliances among existing competitors could emerge and rapidly acquire significant market share. If we fail to compete successfully, our business will suffer and we may not be able to maintain or increase our market share.

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If sufficient demand for solar power products does not develop or takes longer to develop than we anticipate, our revenues may not increase or may continue to decline, 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 for the solar power industry is not as readily available as for more established industries, where trends are more reliably assessed from data gathered over a longer 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 anticipate. Many factors may affect the viability of solar power technology and the demand for solar power products, including:

        If solar power technology is not suitable for widespread adoption or if sufficient demand for solar power products does not develop or takes longer 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 effectively manage these risks, they could impair our ability to expand our business abroad.

        The international marketing, distribution and sale of our products expose us to a number of risks, including:

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        If we are unable to effectively manage these risks, our ability to expand our business abroad could suffer. Furthermore, some of these risks, such as currency fluctuations, could influence our financial performance.

Imposition of anti-dumping and countervailing orders in one or more markets may result in additional costs to our customers, which could materially 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 U.S. International Trade Commission, or USITC, by the U.S. unit of SolarWorld AG and six other U.S. firms, accusing Chinese producers of crystalline silicon photovoltaic cells, or CSPV cells, whether or not incorporated into modules, of selling their products (i.e., CSPV cells or modules incorporating these cells) into the United States at less than fair value, or dumping, and of receiving countervailable subsidies from the Chinese authorities. These firms asked the U.S. government to impose anti-dumping and countervailing duties on CSPV cells imported from China. The USDOC and the USITC investigated the validity of these claims. We were identified as one of a number of Chinese exporting producers of the subject goods to the U.S. market. We also have affiliate U.S. operations that import the subject goods from China.

        On October 9, 2012, the USDOC issued final affirmative determinations in the anti-dumping and countervailing duty investigations. On November 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, the Company is required to pay cash deposits on CSPV cells imported into the U.S. from China, whether alone or incorporated into modules. The announced cash deposit rates applicable to the Company were 13.94% (anti-dumping duty) and 15.24% (countervailing duty). The actual rates at which duties will be assessed and payable may be subject to administrative review next year and may differ from the announced deposit rates. These duties could materially and adversely affect our affiliated U.S. import operations and increase our cost of selling into the United States, thus adversely affecting our 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 rulings of 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 imports into the EU of CSPV modules and key components (i.e., cells and wafers) originating in China. On November 8, 2012, following a complaint lodged by the same parties, the European Commission initiated an anti-subsidy investigation on these products. In each investigation, we were identified as one of a number of Chinese exporting producers of these products to the EU market. We also have 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 information to the EU authorities.

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        The Company requested "market economy treatment" in the anti-dumping investigation, but this request was denied. A number of other affected Chinese companies have filed an action for annulment of the decision that denied "market economy treatment".

        On March 5, 2013, the European Commission published a Regulation making all imports of CSPV modules and key components originating in or consigned from China subject to registration by EU Member State customs authorities. This registration requirement is likely to remain in effect through the pendency of the investigations. The Company filed 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 countervailing duties, if any, will be announced by August 8, 2013 and definitive anti-dumping and countervailing duties, if any, will be announced by December 5 and 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 products into the EU could materially and adversely affect our affiliated EU import operations, increase our cost of selling into the EU, and adversely affect our EU export sales.

        In late November 2012, India initiated an anti-dumping investigation on imported solar products from China, Taiwan, the United States and Malaysia. The scope of the Indian complaint includes thin-film and CSPV cells and modules, as well as "glass and other suitable substrates". The period of investigation is from January 1, 2011 to June 30, 2012. We completed and submitted a "sampling questionnaire" and were chosen by the Indian authorities to be a sampled company. We are now compiling the data requested of us. As with the U.S. and EU cases, duties on our sales to India could materially and adversely affect the Company, increasing our selling costs and reducing our export sales to India, which we view as a promising market.

        It is possible that an anti-subsidy investigation on solar products may also be initiated in India.

        Imposition of anti-dumping and countervailing orders in one or more markets may result in additional costs to our customers, which could materially and adversely affect our business, results of operations, financial conditions and future prospects.

Our quarterly operating results may fluctuate from period to period.

        Our quarterly operating results may fluctuate from period to period based on a number of factors, including:

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        We base our planned operating expenses in part on our expectations of future revenues. A significant portion of our expenses will be fixed in the short-term. If our revenues for a particular quarter are lower than we expect, we may not be able to reduce our operating expenses proportionately, 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 to meet or exceed analysts' estimates, investor expectations or our own future guidance, even by a small amount, our share price could decline, perhaps substantially.

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 pound. 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 Chinese commercial banks that are denominated primarily in Renminbi or U.S. dollars. The greater part of our cash and cash equivalents are denominated in Renminbi. Fluctuations in exchange rates, particularly among the U.S. dollar, Euro, Renminbi and Canadian dollar, may affect our net profit margins and may result in fluctuations in foreign exchange and operating gains or losses. We recorded foreign exchange losses of $36.3 million, $40.0 million and $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 China's political and economic conditions and China's foreign exchange policies. In late 2005, China amended its policy of tracking the value of the Renminbi to the U.S. dollar. The new policy permitted the Renminbi to fluctuate against a basket of foreign currencies, which caused the Renminbi to appreciate by approximately 21.5% against the U.S. dollar over the following three years. However, since 2008, the Renminbi has fluctuated against other freely traded currencies. In June 2010, the PRC government announced that it would allow greater flexibility for the Renminbi to fluctuate against the U.S. dollar, which resulted in further appreciation of the Renminbi.

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Between June 30, 2010 and December 31, 2012, the value of the Renminbi appreciated approximately 8.13% against the U.S. dollar. We cannot provide any assurances that the policy of the PRC government will not affect or the manner in which it may affect the exchange rate between the Renminbi and the 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 forward or option contracts in order to limit our foreign exchange losses.

        The collateral requirements to enter into hedging contracts and the expenses associated with purchasing currency options have increased. There are also notional limits on the size of the hedging transactions that we may enter into with any particular counterparty at any given time. However, the effectiveness of our hedging program may be limited with respect to cost effectiveness, cash management, exchange rate visibility and downside protection. 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 million in 2012. The gains or losses on change in foreign currency derivatives 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 pass along increased costs resulting from exchange rate fluctuations to our customers, our profits may materially decrease. As a result, fluctuations in currency 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 may 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 products tend to decrease during the winter months in our key markets, such as Germany, due to adverse weather conditions that can complicate the installation of 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 success depends partly on our ability to significantly expand our capacity to manufacture solar components, which exposes us to a number 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, we may be unable to expand our business, maintain our competitive position, improve our profitability, and generate the cash flows we have currently forecasted. Our ability to establish additional manufacturing capacity is subject to significant risks and uncertainties, including:

        If we are unable to establish or successfully operate our internal solar components manufacturing capabilities, we may be unable to expand our business as planned. Moreover, even if we do expand our

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manufacturing capacity, we might not be able to generate sufficient customer demand for our solar power products to support our increased production levels.

Our future success depends partly on our ability to expand our utility-scale solar power project pipelines in several key markets, which exposes us to 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-scale solar project pipelines is subject to significant risks and uncertainties, including:

        If we are unable to successfully expand our utility-scale solar power project pipelines, we may be unable to expand our business, maintain our competitive position, improve our profitability, and generate the cash flows we have currently forecasted.

Due to a variety of factors, including the general economic environment and conditions in financial markets, we may be unable to generate sufficient cash flows or have access to external financing necessary to fund planned operations and make adequate capital investments.

        In the future we anticipate that our operating and capital expenditures requirements will increase substantially. To develop new products, support future growth, achieve operating efficiencies and maintain product quality, we must make significant capital investments in manufacturing technology, facilities and capital equipment, research and development, and product and process technology. We also anticipate that our operating costs will increase as we expand our manufacturing operations, hire additional personnel, make advance payments or pay more for our raw materials, including polysilicon, increase our sales and marketing efforts, invest in joint ventures and acquisitions, and continue our research and development efforts with respect to our products and manufacturing technologies. Certain of our suppliers require performance bonds issued by a bonding agency or letters of credit issued by financial institutions. Obtaining letters of credit requires adequate collateral. Our letter of credit facility is collateralized by restricted cash, which reduces the amount of cash available for operations.

        We incurred moderate capital expenditures in 2012 related to improvements of our solar cell manufacturing capacity, 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 enhance our solar cell and module manufacturing capacity. Our capital expenditures and use of working capital may be greater than we expect if we invest in additional development and construction of solar power plants or decide to accelerate the increase of our manufacturing capacity, both internally and through investments in selected joint ventures. The financing that we require for the construction of solar power plants may not be available on terms acceptable 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 resources are insufficient to satisfy our liquidity requirements, we may seek to market additional equity or debt securities and/or obtain other debt financing. The economic

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environment and conditions in financial markets may limit our ability to raise equity or debt capital on acceptable terms. Lenders may be unwilling to lend funds that would be required to supplement cash flows to support daily operations. Further, increased debt would result in increased expenses and may give rise to restrictive covenants or collateral requirements. Financing arrangements, including project financing for our solar power plants, may not be 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 flows, find other sources of capital to fund our operations and solar power plant projects, make adequate capital investments to remain competitive in terms of technology development and cost efficiency required by our projects. If adequate funds and alternative resources are not available on acceptable terms, our ability to fund our operations, develop and construct solar power plants, develop and expand our manufacturing operations and distribution network, maintain our research and development efforts, provide collateral for our projects or otherwise respond to competitive pressures would be significantly impaired. Our inability to do the foregoing could have a material 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 may adversely influence our ability to grow our business.

        Our operations are capital intensive. We rely on working capital financing from PRC commercial banks for our daily operations. Although we are currently 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 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 and debt issuances due to market conditions and other factors, many of which are beyond our control. Our ability to obtain external financing is subject to a variety of uncertainties, including:

        If we are unable to obtain funding in a timely manner and on commercially acceptable terms, our growth prospects and future profitability may be adversely 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 will be able to obtain 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 terms which 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 by raising project equity capital from tax-oriented, strategic industry and other investors. Such investors may not be available or may only have limited resources, in which case our ability to sell our projects may be prevented or delayed and our business, financial condition, or results of operations may be adversely affected.

Our dependence on Chinese banks to extend our existing loans and provide additional loans exposes us to funding risks, which may materially and adversely affect our operations.

        We require significant cash flow and funding to support our operations. For example, there is a significant time lag between the time that we make payments to our suppliers and the time that we collect payments from our customers. As a result, we rely on short-term borrowings to provide working capital for our daily operations. Since the majority of our short-term borrowings come from Chinese

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banks, we are exposed to lending policy changes by the Chinese banks. In 2012, we successfully extended our short-term borrowings and, as of December 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 approximately $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 due dates beyond December 31, 2013.

        If the Chinese government changes its macroeconomic policies and forces Chinese banks to tighten their lending practices, or if Chinese banks are no longer willing to provide financing to solar power companies, including us, we may not be able to extend our short-term borrowings or make additional borrowings in the future. As a result, we may not be able to fund our operations to the same extent as in previous years, which may have a material and adverse effect on our operations.

Our project development and construction activities may not be successful; projects under development may not receive required permits, property rights, power purchase agreements, interconnection and transmission arrangements; or financing or construction of projects may not commence or continue as scheduled, all of which could increase our costs, delay or cancel a project, and have a material adverse effect on our revenue and profitability.

        The development and construction of solar power plants involve known and unknown risks. We may be required to invest significant amounts of money for land and interconnection rights, preliminary engineering, permitting, legal and other expenses before we can determine whether a project is feasible. Success in developing a particular project is contingent upon, among other things:

        In addition, successful completion of a particular project may be adversely affected by numerous factors, including:

        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 output guarantees or warranties (including 25 year power output performance guarantees) or other contract terms, or our projects cause grid interference or other damage, the EPC or other agreements related to the project may be terminated and/or we may be subject to significant damages, penalties and other obligations relating to the project, including

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obligations to repair, replace or supplement materials for the project. In 2013 and beyond, we still expect to invest a significant amount of capital to develop projects owned by us or third parties, which may limit the availability of capital to use for other purposes, such as contract damages or repurchase payments.

        We may enter into fixed-price EPC agreements in which we act as the general contractor for our customers in connection with the installation of their solar power systems. All essential costs are estimated at the time of entering into the EPC agreement for a particular project, and these costs are reflected in the overall fixed price that we charge our customers for the project. These cost estimates are preliminary and may or may not be covered by contracts between us and the subcontractors, suppliers and other parties involved in the project. In addition, we require qualified, licensed subcontractors to install most of our systems. Shortages of skilled labor could significantly delay a project or otherwise increase our costs. Should miscalculations in planning a project occur, including those due to unexpected increases in commodity prices or labor costs, or delays in execution occur and we are unable to increase the EPC sales price commensurately, we may not achieve our expected margins or we may be required to record a loss in the relevant fiscal period.

Lack of transmission capacity availability, potential upgrade costs to the transmission grid, and other system constraints could significantly impact our ability to build 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 transmission grid could substantially impact our projects and cause reductions in project size, delays in project implementation, increases in costs from transmission upgrades and potential forfeiture of deposits that we may have made with respect to a given project. These transmission issues, as well as issues relating to the availability of large systems such as transformers and switch gear, could significantly impact our ability to build PV solar power plants, connect them 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 adversely affect our business 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 upfront payments for, among other things, land rights and permitting in advance of commencing construction, and the receipt of any revenue, much of which is not recognized for several additional months following contract signing. Our inability to enter into sales contracts with customers after making such upfront payments could adversely affect our business and results of operations. Furthermore, we may become constrained in our ability to simultaneously 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 customer acceptance testing due to technical difficulties, equipment failure, or adverse weather, and we are unable to sell our solar projects at prices and on terms and 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 required to make prepayments to certain suppliers of silicon wafers and cells and silicon raw materials. Although we require certain customers to make partial prepayments, there is a lag between the due date for the prepayment of purchased silicon wafers and cells and silicon raw materials and the time that our customers make prepayments. The purchase of solar wafers and cells and silicon raw materials through toll manufacturing arrangements has required,

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and will continue to require us to make significant commitments of working capital beyond the cash flows generated from our operations to support our estimated production output. In the event our customers cancel their orders, we may not be able to recoup prepayments made to suppliers, which could adversely influence our financial condition and results of operations.

Credit terms offered to some of our customers expose us to the credit risks of such customers and may increase our costs and expenses, which could 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, our claims for payments and sales credits rank as unsecured claims, which would expose us to credit risk if our customers become insolvent or 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 our market share in existing key markets or because of the prospects of future sales with a rapidly growing customer. There are high credit risks in doing business with these customers because they are often small, young and high-growth companies with significant unfunded working capital, inadequate balance sheets and credit metrics and limited operating histories. If these customers are not able to obtain satisfactory working capital, maintain adequate cash 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 have submitted purchase orders or of which they have taken delivery. Our legal recourse under such circumstances may be limited if the customer's financial resources are already constrained or if we wish to continue to do business with that customer. For example, we took back solar modules that we had sold and shipped to certain customers that were unable to pay under the terms of our agreements or to provide any security that would have allowed us to extend our payment terms. As a result, we resold the modules to other customers at lower prices, which negatively influenced our revenue and margins. Revenue recognition for this type of customer is deferred until cash is received. If more customers to whom we extend credit are unable to pay for 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 suppliers, and the limited number of suppliers for certain other components, such as silver metallization paste, solar module back-sheet, and ethylene vinyl acetate encapsulant, could prevent us from delivering our products to our customers in the required quantities or in a timely manner, which could result 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%, 20.5% and 18.1% of our total raw materials purchases 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 of solar cells include Topcell Solar International Co., Ltd, or Topcell, Shunfeng Photovoltaic International Limited, or Shunfeng, and Neo Solar. These suppliers may not always be able to meet our quantity requirements, or to keep pace with the price reductions or quality improvements, necessary for us to price our products competitively. Supply may also be interrupted by accidents, disasters or other 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. Delivery problems may also occur with suppliers of other components, such as silver metallization paste, low-iron glass and solar module back sheet. The failure of a supplier, for whatever reason, to supply silicon wafers, solar cells, silicon raw materials or other essential components that meet our quality, quantity and cost requirements in a timely manner could impair our ability to manufacture our products or increase our costs. The impact could be more severe

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if we are unable to access alternative sources on a timely basis or on commercially reasonable terms, and could prevent us from delivering our products to our customers in the required quantities and at prices that are profitable. Problems of this kind could cause order cancellations, reduce our market share, harm our reputation and cause legal disputes with our customers.

We are developing and commercializing higher conversion efficiency cells, such as selective emitter and metal wrap-through cells, in order to produce higher-powered modules, which may command better prices. We cannot assure that we will be able to mass-produce these cells in a cost effective way, if at all.

        Higher efficiency cell structures are becoming an increasingly important factor in cost competitiveness and brand recognition in the solar power industry. Such cells may yield higher power outputs at the same cost to produce as lower efficiency cells, thereby lowering the manufactured cost per watt. The ability to manufacture and sell modules made from such cells may also be an important competitive advantage because system owners can obtain a higher yield of electricity from the modules that have a similar infrastructure, footprint and system cost compared to systems with modules using lower efficiency cells. Higher conversion efficiency solar cells and the resulting higher output modules are also one of the considerations in maintaining a price premium over thin-film products. However, while we are making the necessary capital equipment and other investments to develop higher conversion efficiency products, there is no assurance that we will be able to commercialize 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 products and we cannot do the same at all or in a cost efficient manner, we will be at a competitive disadvantage, which will likely influence our product pricing and 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 guarantee for defects in materials and workmanship and a 10-year and 25-year warranty against declines of more than 10% and 20%, respectively, from the initial minimum power generation capacity at the time of delivery. In June 2009, we increased our warranty against defects in materials and workmanship to six years. Effective August 1, 2011, we increased our warranty against defects in materials and workmanship to ten years and we guarantee that, for a period of 25 years, our modules will maintain the following performance levels:

        We believe our warranty periods are consistent with industry practice. Due to the long warranty period, we bear the risk of extensive warranty claims long after we have shipped our products and recognized revenue. We began selling specialty solar modules and products in 2002 and began selling standard solar modules in 2004. Any increase in the defect rate of our products would require us to increase our warranty reserves and would have a corresponding negative impact on our operating results. Although we conduct quality testing and inspection of our solar module products, our solar module products have not been and cannot be tested in an environment simulating the up-to-25-year warranty periods. In particular, unknown issues may surface after extended use. These issues could potentially affect our market reputation and adversely affect our revenues, giving rise to potential warranty claims by our customers. As a result, we may be subject to unexpected warranty costs and associated harm to our financial results as long as 25 years after the sale of our products.

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        In addition to the solar module warranty above, for utility-scale solar power projects built by us, we provide a limited warranty against defects in workmanship under normal use, operation and service conditions for a period of five years following the energizing of the solar power plant. In resolving 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 insurance companies to reduce some of this risk. Under the insurance policies, the insurance companies are obliged to reimburse us, subject to certain maximum claim limits and certain deductibles, for the actual product warranty costs that we incur under the terms of our warranty policy. The warranty insurance is renewable annually. See "Item 4. Information on the Company—B. Business Overview—Insurance." However, we cannot assure that potential warranty claims will not exceed the scope or amount of coverage under this insurance and, if they do, they could materially and adversely affect our business.

We may not continue 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. We expanded our annual solar cell production capacity from 800 MW as of December 31, 2010 to 1.5 GW as of December 31, 2011 and 1.6 GW as of December 31, 2012. To remain competitive going forward, we intend to further expand our total annual solar cell production capacity. However, we only have limited and recent operating experience in this area and may face significant 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 module manufacturing standards. Minor deviations in the manufacturing process can cause substantial decreases in yield and in some cases cause no yield output or production to be suspended. We will need to make capital expenditures to purchase manufacturing equipment for solar cell production and will also need to make significant investments in research and development to keep pace with technological advances in solar power technology. The technologies, designs and customer preferences for solar cells can change rapidly, and solar cell product life cycles are shorter than those for solar modules. We also face increased costs to comply with environmental laws and regulations. Any failure to successfully develop 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 past purchased a large percentage of solar cells from third parties. This negatively affected our margins compared with those of our competitors since it is less expensive to produce cells internally than to purchase them from third parties. Because third party solar cell purchases are usually made in a period of high demand, prices tend to be higher and availability reduced.

        Although we intend to continue direct purchasing of solar cells 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 suppliers discontinue or reduce the supply of solar cells to us, through direct sales or through toll manufacturing arrangements, and we are not able to compensate for 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 ingots and wafers or to achieve acceptable yields and product performance 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 our silicon ingot and wafer plant in the third quarter of 2008 and reached a nameplate capacity of approximately 216 MW as of December 31, 2012. We have limited prior operational experience in ingot and silicon wafer production and will face significant challenges in further increasing our internal production capabilities. The technology is complex and will

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require costly equipment and hiring of highly skilled personnel. In addition, we may experience delays in further developing these capabilities and in obtaining the governmental permits required to carry on these operations.

        If we are able to develop these production capabilities successfully, we will need to continuously enhance and modify these capabilities in order to improve 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 materials and tools used to manufacture silicon wafers can cause a percentage of the silicon wafers to be rejected, which would negatively affect our yields. We may experience manufacturing difficulties that cause production delays and lower than expected yields.

        Problems in our facilities, including but not limited to production failures, construction delays, human errors, weather conditions, equipment malfunction or process contamination, may limit our ability to manufacture products, which could seriously harm our operations. We are also susceptible to floods, droughts, power losses and similar events beyond our control that would affect our facilities. A disruption in any step of the manufacturing 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 acquisitions and investments and to establish and maintain strategic relationships, 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 to improve our market position or expand our products and services. We cannot assure you that we will be able to successfully make strategic acquisitions and investments or establish strategic relationships with third parties that will prove to be effective for our business. Our inability to do so could materially and adversely affect our market 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 sharing proprietary information and loss of control of operations that are material to our business. Moreover, strategic acquisitions, investments and relationships may be expensive to implement and subject us to the risk of non-performance by a counterparty, which may in turn lead to monetary losses that materially and adversely affect our business.

If we are unable 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 capable personnel, particularly those with expertise in the solar power industry, are vital to our success. There is substantial competition for qualified technical personnel, 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 retain qualified employees, our business may be materially and adversely affected.

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Our dependence on a limited number of customers and our lack of long-term customer contracts may cause significant fluctuations or declines in our revenues.

        We sell a substantial portion of our solar module products to a limited number of customers, including distributors, system integrators, project developers and installers who either integrate our products into their own products or sell them as part of their product portfolio. Our top five customers by revenues collectively accounted for approximately 26.0%, 29.2% and 21.6% of our net revenues in 2010, 2011 and 2012, respectively. We typically enter into one-year framework sales agreements with our customers, with quarterly firm orders stipulating prices and quantities. We anticipate that our dependence on a limited number of customers will continue for the foreseeable future. Consequently, any of the following events may cause material fluctuations or declines in our revenues:

        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 a consistent customer base.

Product liability claims against us could result in adverse publicity and potentially significant monetary damages.

        We, along with other solar module product manufacturers, are exposed to risks associated with product liability claims if the use of our solar module products results in injury. Since our products generate electricity, it is possible that users could be injured or killed by our products due to product malfunctions, defects, improper installation or other causes. We shipped our first products in March 2002 and, because of our limited operating history, we cannot predict whether product liability claims will be brought against us in the future, or the effect of any resulting negative publicity on our business. Although we carry limited product liability insurance, we may not have adequate resources to satisfy a judgment if a successful claim is brought against us. The successful assertion of product liability claims against us could result in potentially significant monetary damages and require us to make significant payments. Even if the product liability claims against us are determined in our favor, we may suffer significant damage to our reputation.

Our founder, Dr. Shawn Qu, has substantial influence over our company and his interests may not be aligned with the interests of our other shareholders.

        As of March 31, 2013, Dr. Shawn Qu, our founder, chairman, president and chief executive officer, beneficially owned 13,270,500 common shares, or 30.5% of our outstanding share capital. As a result, Dr. Qu has substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, the election of directors and other significant corporate actions. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares 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 to pay significant damage awards.

        Our success depends on our ability to use and develop our technology and know-how and sell our solar module products without infringing the intellectual property or other rights of third parties. The

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validity and scope of claims relating to solar power technology patents involve complex scientific, legal and factual questions and analyses and are therefore highly uncertain. We may be subject to litigation involving claims of patent infringement or the violation of intellectual property rights of third parties. Defending intellectual property suits, patent opposition proceedings and related legal and administrative proceedings can be both costly and time-consuming and may significantly divert the efforts and resources of our technical and management personnel. Additionally, we use both imported and China-made equipment in our production lines, sometimes without sufficient supplier guarantees that our use of such equipment does not infringe third-party intellectual property rights. This creates a potential source of litigation or infringement claims. An adverse determination in any such litigation or proceedings to which we may become a party could subject us to significant liability to third parties or require us to seek licenses 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 our technologies. Protracted litigation could also defer customers or potential customers or limit their purchase or use of our products until such litigation is resolved.

Compliance with environmental regulations can be expensive, and noncompliance with these regulations may result in adverse publicity and potentially significant monetary damages, fines and the suspension or even termination of our business operations.

        We are required to comply with all national and local environmental regulations. As we expanded our silicon reclamation program and research and development activities and moved into ingot, wafer and cell manufacturing, we began to generate material levels of noise, wastewater, gaseous wastes and other industrial waste in our business operations. Additionally, as we expanded our internal solar components production capacity, our risk of facility incidents with a potential environmental impact also increased. We believe that we comply with all environmental laws and regulations and have all necessary environmental permits to conduct our business as it is presently conducted. However, if more stringent regulations are adopted in the future, the costs of complying with these new regulations could be substantial. If we fail to comply with present or future environmental regulations, we may be required to pay substantial fines, suspend production or cease operations. Any failure by us to control our use or to restrict adequately the discharge, 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 environmental regulations of the jurisdictions in which they are installed, and we may incur expenses to design and manufacture our products to comply with such regulations. For example, we increased our expenditures to comply with the EU's Restriction of Hazardous Substances Directive, which took effect in July 2006, by reducing the amount of lead and other restricted substances in our solar module products. Furthermore, we may need to comply with the EU's Waste Electrical and Electronic Equipment Directive if solar modules and products are re-classified as consumer electronics under the directive or if our customers located in other markets demand that they comply with this directive. 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 expensive or unduly difficult, we may lose market share and our financial 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 compete with the products we manufacture on an original equipment manufacturer, 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 as other more established solar power vendors, and there can be no assurance that the "CSI" or "Canadian Solar" brand name or any of our possible future

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brand names will gain acceptance among customers. Moreover, because the range of products that we sell under our own brands and those we manufacture for our OEM customers may be substantially similar, we cannot assure that we will not directly or indirectly compete with our OEM customers, 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 competitive position.

        As we develop and bring to market new specialty solar modules and products, we may need to increase our expenditures to protect our intellectual property. Our failure to protect our intellectual property rights may undermine our competitive position. We currently have 151 patents and 133 patent applications pending in the PRC for products that contribute a relatively small percentage 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 "Canadian Solar" trademark in the United States in March 2009 and subsequently in a number of other jurisdictions, 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 Solar" trademark has been registered in the United States, Australia, Canada, Europe, South Korea, Japan, the United Arab Emirates and Hong Kong. We also have 56 registered trademarks and 11 trademark applications pending in the PRC, and 25 registered trademarks and 41 trademark applications pending outside of China. These intellectual property rights afford only limited protection and the actions we take to protect our rights as we develop new specialty solar modules and products may not be adequate. Policing the unauthorized use of proprietary technology can be difficult and expensive. In addition, litigation, which can be costly and divert management attention, may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others.

If our internal control over financial reporting or disclosure controls and procedures are not effective, there may be errors in our financial statements that could require a restatement or our filing may not be timely and investors may lose confidence in our reported financial information, which could lead to a decline in our stock price.

        We are subject to the reporting obligations under U.S. securities laws. The Securities and Exchange Commission, or SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management report on its internal control over financial reporting in its annual report, which contains management's assessment 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 company's internal controls over financial reporting. As of December 31, 2012, our management concluded that our internal control over financial reporting was effective as well. However, we cannot assure that material weaknesses in our internal controls over financial reporting will not be identified in the future. Any material weaknesses in our internal controls could cause us not to meet our periodic reporting obligations in a timely manner or result in material misstatements in our financial statements. Material weaknesses in our internal controls over financial reporting could also cause investors to lose confidence in our reported financial information, 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 documents relating to, among other things, certain sales transactions in 2009. We cannot predict when the SEC will complete its investigation or what its outcome will be. In addition, our company and certain of our directors and executive officers

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have been named as defendants in class action lawsuits in the United States and Canada. The lawsuits in the United States were consolidated into one class action, which was recently dismissed with prejudice. The lawsuit in Canada continues. As a preliminary matter, we challenged the Ontario Court's jurisdiction to hear the plaintiff's claim, but this motion was unsuccessful. The plaintiff is now pursuing his motion for class certification and for court approval to assert the statutory cause of action under the Ontario Securities Act. The plaintiff's motions will be heard by the court in June 2013. There is no guarantee that we will not become party to additional lawsuits or appeals to lawsuits that have been dismissed. See "Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal and Administrative Proceedings." We are generally obligated, to the extent permitted by law, to indemnify our directors and officers who are named defendants in these lawsuits. We may be required to pay judgments or settlements and incur expenses in aggregate amounts that could have a material and adverse effect on our financial condition or results of operations.

Risks Related to Doing Business in China

The enforcement of the labor contract law and increases in labor costs in the PRC may adversely affect our business and our profitability.

        The Labor Contract Law came into effect on January 1, 2008, and the Implementation Rules thereunder were promulgated and became effective on September 18, 2008. The Labor Contract Law and the Implementation Rules imposed stringent requirements on employers with regard to executing written employment contracts, hiring temporary employees, and dismissing employees. In addition, under the Regulations on Paid Annual Leave for Employees, which came into effect on January 1, 2008, and their Implementation Measures, which were promulgated and became effective on September 18, 2008, employees who have served for more than one year with an employer are entitled to a paid vacation ranging from five to 15 days, depending on their length of service. Employees who waive such vacation time at the request of the employer must be compensated for each vacation day waived at a rate equal to three times their normal daily salary. Our labor costs are expected to continue to increase due to these new laws and regulations. Higher labor costs and labor disputes with our employees stemming from these new rules and regulations could adversely affect our business, financial condition, and results of operations.

A change in our effective tax rate can have a significant adverse impact on our business.

        A number of factors may adversely impact our future effective tax rates, such as the jurisdictions in which our profits are determined to be earned and taxed; changes in the valuation of our deferred tax assets and liabilities; adjustments to estimated taxes upon finalization of various tax returns; adjustments to the interpretation of transfer pricing standards; changes in available tax credits; changes in stock-based compensation expenses; changes in tax laws or the interpretation of such tax laws (for example, proposals for fundamental U.S. international tax reform); changes in U.S. GAAP; expiration or the inability to renew tax rulings or tax holiday incentives; and the repatriation of non-U.S. earnings for which we have not previously provided for U.S. taxes. A change in our effective tax rate due to any of these factors may adversely influence our future results from operations.

In recent years, our subsidiaries have lost certain tax benefits and we expect to pay additional PRC taxes as a result, which could have a material and adverse impact on our financial condition and results of operations.

        On January 1, 2008, the Enterprise Income Tax Law, or the EIT Law, came into effect in China. Under the EIT Law, both foreign-invested enterprises and domestic enterprises are subject to a uniform enterprise income tax rate of 25%. There is a transition period for enterprises that were established prior to March 16, 2007 (the promulgation date of the EIT Law) and were given preferential tax treatment under the previous tax law. Enterprises that were subject to an enterprise income tax rate lower than 25% will have the new uniform enterprise income tax rate of 25% phased

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in over a five-year period from the effective date of the EIT Law. Enterprises that were entitled to exemptions or reductions from the standard enterprise income tax rate for a fixed term may continue to enjoy such treatment until the fixed term expires, subject to certain limitations. The EIT Law provides for preferential tax treatment for certain categories of industries and projects that are strongly supported and encouraged by the state. For example, enterprises classified as a "High and New Technology Enterprise," or HNTE, are entitled to a 15% enterprise income tax rate provided that such HNTE satisfies other applicable statutory requirements.

        Our subsidiary, CSI Solartronics (Changshu) Co., Ltd., or CSI Solartronics, has been recognized as an HNTE. However, because it does not satisfy certain requirements for the reduced 15% enterprise income tax rate, CSI Solartronics is still subject to a 25% enterprise income tax rate. CSI Solar Manufacture Inc., or CSI Manufacturing, was subject to a reduced enterprise income tax rate of 12.5% to the end of 2009, when its tax holiday expired. CSI Cells Co. Ltd., or CSI Cells and Canadian Solar Manufacturing (Luoyang) Inc., or CSI Luoyang Manufacturing, were subject to a reduced enterprise income tax rate of 12.5% until the end of 2011, when their tax holidays expired. Currently, CSI Cells is subject to a preferential enterprise income tax rate of 15% for the three years from 2012 to 2014, resulting from its HNTE status recognized in 2009 and renewed in 2012. Canadian Solar Manufacturing (Changshu) Inc. (formerly known as Changshu CSI Advanced Solar Inc.), or CSI Changshu Manufacturing, was exempt from enterprise income tax for 2009 and was subject to a reduced enterprise income tax rate of 12.5% for 2010, 2011 and 2012, at which time its tax holiday expired as well. As the preferential tax benefits enjoyed by our PRC subsidiaries expired, their effective tax rates increased significantly.

There are significant uncertainties in our tax liabilities regarding our income under the EIT Law.

        We are a Canadian company with substantially all of our manufacturing operations in China. Under the EIT Law and its implementation regulations, both of which became effective on January 1, 2008, enterprises established outside China whose "effective management" is located in China are considered PRC tax residents and will generally be subject to the uniform 25% enterprise income tax rate on their global income. Under the implementation regulations, the term "effective management" is defined as substantial and overall management and control over aspects such as the production and business, personnel, accounts and properties of an enterprise. Currently there are no detailed rules or precedents governing the procedures and specific criteria for determining a company's effective management, which are applicable to us. As a substantial number of the members of our management team are located in China, we may be considered as a PRC tax resident under the EIT Law and, therefore, subject to the uniform 25% enterprise income tax rate on our global income. If our global income is subject to PRC enterprise income tax at the rate of 25%, our financial condition and results of operation may be materially and adversely affected.

Dividends payable by us to our non-Chinese shareholders and gains on the sale of our common shares may become subject to PRC enterprise income tax liabilities.

        The implementation regulations of the EIT Law provide that (i) if the enterprise that distributes dividends is domiciled in the PRC or (ii) if gains are realized from transferring equity interests of enterprises domiciled in the PRC, then such dividends or capital gains will be treated as China-sourced income. Also, income sourced within China is determined based on the following principles for equity interest transfers and dividends: (x) for income from transfers of equity interests, source is determined in accordance with the place where the invested enterprise is located; and (y) for income from equity interests such as dividends and profit distributions, source is determined in accordance with the place of the enterprise which makes the distribution.

        Currently there are no detailed rules or precedents governing the procedures and specific criteria for determining what it means to be domiciled in the PRC. As a result, it is not clear how the concept

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of "China domicile" will be interpreted under the EIT Law. The concept of domicile may be interpreted simply as the jurisdiction where the enterprise is a tax resident. Therefore, if we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our overseas shareholders as well as any gains realized by such shareholders from the transfer of our common shares may be regarded as China-sourced income and, consequently, be subject to PRC withholding tax at a rate of up to 10%. The investment returns of our overseas investors, and the value of their investments in us, may be materially and adversely affected if any dividends we pay to them, or any gains realized by them on the transfer of our common shares are subject to PRC withholding tax.

Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.

        Certain of our revenues and expenses are denominated in Renminbi. If our revenues denominated in Renminbi increase or our expenses denominated in Renminbi decrease in the future, we may need to convert a portion of our revenues into other currencies to meet our foreign currency obligations, including, among others, payment of dividends, if any, in respect of our common shares. Under China's existing foreign exchange regulations, our PRC subsidiaries are able to pay dividends in foreign currencies without prior approval from the State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. However, we cannot assure that the PRC government will not take further measures in the future to restrict access to foreign currencies for current account transactions.

        Foreign exchange transactions by our PRC subsidiaries under most capital accounts continue to be subject to significant foreign exchange controls and require the approval of PRC governmental authorities. In particular, if we finance our PRC subsidiaries by means of additional capital contributions, certain government authorities, including the Ministry of Commerce or its local counterparts, must approve these capital contributions. These limitations could affect the ability of our PRC subsidiaries to obtain foreign exchange through equity financing.

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

        We conduct substantially all of our manufacturing operations through our subsidiaries in China. These subsidiaries are generally subject to laws and regulations applicable to foreign investment in China and, in particular, laws applicable to wholly foreign-owned enterprises. The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since these laws and regulations are relatively new and the PRC legal system is still developing, the implementation and enforcement of many laws, regulations and rules may be inconsistent, which may limit legal protections available to us. In addition, any litigation in China may be protracted and may result in substantial costs and divert our resources and the attention of our management.

Risks Related to Our Common Shares

The market price for our common stocks may be volatile.

        The market price for our common shares has been highly volatile and subject to wide fluctuations. During the period from November 9, 2006, the first day on which our common shares were listed on the Nasdaq Global Market, until December 31, 2012, the market price of our common shares ranged from $1.95 to $51.80 per share. The closing market price of our common shares on December 31, 2012 was $3.40 per share. The market price of our common shares may continue to be volatile and subject to wide fluctuations in response to a wide variety of factors, including the following:

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        In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also have a material and adverse effect on the market price of our common shares.

Substantial future sales of our common shares in the public market, or the perception that such sales could occur, could cause the price of our common shares to decline.

        Sales of our common shares in the public market, or the perception that such sales could occur, could cause the market price of our common shares to decline. As of December 31, 2012, we had 43,242,426 common shares outstanding. The number of common shares outstanding and available for sale will increase when our employees and former employees who are holders of restricted share units and options to acquire our common shares become entitled to the underlying shares under the terms of their units or options. To the extent these shares are sold into the market, the market price of our common shares could decline.

Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.

        We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make these rights available in the United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.

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Our articles of continuance contain anti-takeover provisions that could adversely affect the rights of holders of our common shares.

        The following provisions in our amended articles of continuance may deprive our shareholders of the opportunity to sell their shares at a premium over the prevailing market price by delaying or preventing a change of control of our company:

You may have difficulty enforcing judgments obtained against us.

        We are a corporation organized under the laws of Canada and a substantial portion of our assets is located outside of the United States. A substantial portion of our current business operations is conducted in the PRC. In addition, a majority of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons is located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. court judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, many of whom are not residents of the United States and whose assets are located in significant part outside of the United States. In addition, there is uncertainty as to whether the courts of Canada or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. In addition, it is uncertain whether such Canadian or PRC courts would be competent to hear original actions brought in Canada or the PRC against us or such persons predicated upon the securities laws of the United States or any state.

We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. Holders of our common shares.

        Based on the market price of our common shares, the value of our assets and the composition of our income and assets, we do not believe we were a "passive foreign investment company," or PFIC, for U.S. federal income tax purposes for our taxable year ended December 31, 2012. However, the application of the PFIC rules is subject to uncertainty in several respects, and we cannot assure you the U.S. Internal Revenue Service will not take a contrary position. A non-U.S. corporation will be a PFIC for any taxable year if either (i) at least 75% of its gross income for such year is passive income or (ii) at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income. A separate determination must be made after the close of each taxable year as to whether we were a PFIC for that year. Because the value of our assets for purposes of the PFIC test will generally be determined by reference to the market price of our common shares, fluctuations in the market price of the common shares may cause us to become a PFIC. In addition, changes in the composition of our income or assets may cause us to become a PFIC. If we are a PFIC for any taxable year during which a U.S. Holder (as defined in "Item 10. Additional Information—E. Taxation—

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U.S. Federal Income Taxation") holds a common share, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder. See "Item 10. Additional Information—E. Taxation—U.S. Federal Income Taxation—Passive Foreign Investment Company."

The audit report included in this annual report on Form 20-F was prepared by auditors who are not inspected by the Public Company Accounting Oversight Board and, as a result, you are deprived of the benefits of such inspection.

        The independent registered public accounting firm that issues the audit reports included in our annual reports filed with the SEC, as auditors of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States), or the "PCAOB", is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards. Because our auditors are located in the PRC, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the PRC authorities, our auditors are not currently inspected by the PCAOB.

        Inspections of other firms that the PCAOB has conducted outside China have identified deficiencies in those firms' audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating our auditor's audits and its quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.

        The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor's audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our financial statements.

        Recently, the SEC commenced administrative proceedings under Rule 102(e) of its Rules of Practice and under the Sarbanes-Oxley Act against the Chinese affiliates of five global accounting firms, including our independent registered public accounting firm. The Rule 102(e) proceedings initiated by the SEC relate to these firms' failure to produce documents, including audit work papers, at the request of the SEC pursuant to Section 106 of the Sarbanes-Oxley Act, as the auditors located in the PRC are not in a position lawfully to produce documents directly to the SEC because of restrictions under PRC law and specific directives issued by the China Securities Regulatory Commission, or CSRC. As the administrative proceedings are ongoing, it is impossible to determine their outcome or their consequences to us. The issues raised by the proceedings are not specific to our independent registered public accounting firm or to us, but affect equally all audit firms based in China and all China-based businesses with securities listed in the United States. However, if the administrative judge were to find in favor of the SEC under the proceedings then, depending upon the remedies sought by the SEC, these audit firms could be barred from practicing before the SEC. As a result, listed companies in the United States with major PRC operations would find it difficult or impossible to retain auditors in respect of their operations in the PRC, which may result in their delisting. Moreover, any negative news about the proceedings against these audit firms may erode investor confidence in China-based, United States-listed companies and the market price of our common shares may be adversely affected.

ITEM 4.    INFORMATION ON THE COMPANY

A.    History and Development of the Company

        Our legal and commercial name is Canadian Solar Inc. We were incorporated under the laws of the Province of Ontario, Canada in October 2001. We changed our jurisdiction by continuing under the Canadian federal corporate statute, the Canada Business Corporations Act, or CBCA, effective June 1, 2006. As a result, we are governed by the CBCA.

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        We have formed the following significant subsidiaries, all of which are incorporated in China and wholly owned except as otherwise noted:

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        See "Item 4. Information on the Company—C. Organizational Structure" for additional information on our corporate structure.

        Our principal executive office is located at 545 Speedvale Avenue West, Guelph, Ontario, Canada N1K 1E6. Our telephone number at this address is (1-519) 837-1881 and our fax number is (1-519) 837-2550.

        Our principal place of business is located at No. 199 Lushan Road, Suzhou New District, Suzhou, Jiangsu 215129, People's Republic of China.

        All inquiries to us should be directed at the address and telephone number of our principal executive offices set forth above. Our website is www.canadiansolar.com. The information contained on or accessible through our website does not form part of this annual report.

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B.    Business Overview

        We design, develop, and manufacture solar wafers, cells and solar module products that convert sunlight into electricity for a variety of uses. We are incorporated in Canada and conduct most of our manufacturing operations in China. Our products include a range of solar modules built to general specifications for use in a wide range of residential, commercial and industrial solar power generation systems. We also design and produce specialty solar modules and products based on our customers' requirements. Specialty solar modules and products consist of customized solar modules that our customers incorporate into their own products, such as building integrated photovoltaic modules, or BIPV modules, and complete specialty products, such as portable solar home systems and solar-powered car battery chargers. We sell our products under our "Canadian Solar" brand name and to OEM customers under their brand names. In addition, we also sell total solar power system kits for residential applications, and build-to-order solar systems for commercial and solar power plants for utility-scale applications.

        We believe we offer one of the broadest crystalline silicon solar module product lines in the industry. Our product lines range from modules of medium power, to high efficiency, high-power output mono-crystalline modules, as well as a range of specialty products. We currently sell our products to a diverse customer base in various markets worldwide, including Germany, Spain, Italy, France, the Czech Republic, the U.S., Canada, China, Japan and India, among others. We sell our standard solar modules to distributors and system integrators, as well as to solar project developers. We sell our solar power system kits to distributors and installers, and we sell our commercial system and utility-scale power plants to independent power producers and investors.

        We employ a flexible (or virtual) vertically integrated business model that combines internal manufacturing capacity with direct material purchases for both cells and wafers. We believe this approach has benefited us by lowering the cost of materials of our module products. We also believe that this approach provides us with greater flexibility to respond to short-term demand increases.

        Over the past several quarters we have taken steps to become more vertically integrated at the cell to module production steps of the manufacturing value chain. As of December 31, 2012, we had:

        We intend to use substantially all of the silicon wafers that we manufacture to supply our own solar cell plant and to use substantially all of the solar cells that we manufacture to produce our own solar module products.

        We are focused on reducing our production costs by improving solar cell conversion efficiency, enhancing manufacturing yields and reducing raw material costs. In January 2009, we established a new solar cell efficiency research center to develop more efficient cell structures, and we have been making ongoing improvements in solar cell conversion efficiency and product cost control. We began shipping new products, such as higher efficiency modules, in late 2011 and expect to increase the sales volumes of these products during 2013.

        In the fourth quarter of 2009, we began the conversion of our first cell line to Enhanced Selective Emitter, or ESE, production, and we started to ship ESE-based module products in March 2010. By December 31, 2012, our total ESE capacity was 60 MW.

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        In the third quarter of 2011, we began the conversion of some of our cell lines to Efficient Long-Term Photovoltaic Solution, or ELPS, production. We began shipping ELPS-based modules in November 2011 and expect to build our capacity for ELPS-based cells and modules to 180 MW by the end of 2013.

        We design, develop, manufacture and sell solar cell and solar module products, primarily standard solar modules. We are also engaged in the total solution business, which includes solar power project development and sales, EPC services, O&M services and sales of solar system kits.

        Our standard solar modules are arrays of interconnected solar cells encapsulated in weatherproof frames. We produce a wide variety of standard solar modules, ranging from 0.2 W to in excess of 300 W in power and using multi-crystalline or mono-crystalline cells in several different formats, including general purpose 60 pieces 6" cell and 72 pieces 5" cell formats, small modules for specialty products (see below) and larger formats for ground-mounted projects. Larger formats include a 72 pieces 6" cell format and a 96 pieces 5" cell format. In 2009, most of the modules that we shipped were assembled with 6" multi-crystalline cells. In 2010, we started shipping a higher percentage of modules assembled with 6" monocrystalline cells.

        We have applied for and received quality and safety certifications for modules with improved frames for rail-less mounting systems, an AC module and higher-powered modules in standard formats, such as a 60 pieces 6" cell, 260 W module. We expect such modules to be substantially cheaper to install because they require less labor and materials, especially in rooftop applications. In the third quarter of 2011, we began assembling modules using ELPS, a wrap-through cell architecture, on a commercial basis. These modules can achieve module conversion efficiencies in excess of 19%. In 2012, our research and development team continued to improve the cell efficiency of ELPS, bringing the efficiency under laboratory conditions to 21.1%.

        We successfully launched high powered ELPS modules in Japan at the beginning of 2012. ELPS modules in 48 cells with 215 W power output are used in residential solar power systems in Japan, and ELPS modules in 60 cells with 270 W power output are mainly used in commercial PV systems of up to 2 MW in Japan. We also began developing Quartech modules using 4 bus bar solar cell technology, which improves module reliability and efficiency. Quartech modules in 6 × 10 cell arrays have module power wattages of between 250 W and 255 W. With this cell technology improvement, we will be able to offer customers higher module wattages. We expect to launch new Quartech modules in March 2013. During 2012, we also developed and are offering to customers a Residential AC module that addresses some of the limitations of the first generation micro inverters. Our Residential AC module is designed to save installers time and materials during installation and provide homeowners with a cost effective and reliable solution. These products are built to general specifications for a wide range of residential, commercial and industrial solar power generation systems.

        We design our standard solar modules to be durable under harsh weather conditions and easy to transport and install. We sell our standard solar modules under our brand name and to OEM customers under their brand names. Since we began selling our solar module products in March 2002, we have increased our annual module production capacity from 2.0 MW to 2.4 GW as of December 31, 2012.

        As part of our strategy to broaden our products portfolio and address a wider cross section of the solar power market, we have been actively developing our building integrated photovoltaic, or BIPV,

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product line. Our BIPV products have various advantages over standard solar modules, including improved aesthetics, direct integration into building structures and the ability to be used in a wider range of applications, including residential and commercial roofing and architectural glazing. We used our BIPV products and systems in our BIPV solar glass roofing system project in Luoyang and we supplied BIPV products and systems for facilities at the Beijing Olympic Games. We believe that the demand for BIPV solutions will grow in our key markets, including China, Europe and North America. We plan to work closely with our customers to design and develop specialty solar modules and products that meet their individual requirements.

        We completed construction of four solar cell production lines in 2007, and we have gradually expanded our total annual solar cell nameplate production capacity to 1.6 GW as of December 31, 2012. Going forward, we expect to continue to increase our cell capacity in line with the growth in demand for our solar module products. We intend to use substantially all of our solar cells to manufacture our own solar module products.

        We make our solar cells from both mono-crystalline and multi-crystalline silicon wafers through multiple manufacturing steps, including surface texturization, diffusion, plasma-enhanced chemical vapor deposition and surface metallization. A functional solar cell generates a flow of electricity when exposed to light. The metal on the cell surface collects and carries away the current to the external circuitry.

        We began selling solar system kits in 2010, and today we sell them primarily to the Canadian and Japanese markets. A solar system kit is a ready-to-install package consisting of solar modules produced by us and components, such as inverters, racking system and other accessories, supplied by third parties. A typical residential rooftop solar system generates approximately 3.0 KW AC output. A commercial rooftop solar system generates between 30 KW to 500 KW AC output. Both are mounted on the rooftop of buildings.

        We also develop, build and sell solar power projects. Prior to 2008, we completed projects in Western China and conducted solar power forums in Beijing, Xining, Suzhou and Luoyang.

        In early 2010, we began to ship CE certified 11 to 14 kW two-axis trackers for ground-mounted applications. We are also developing single-axis trackers and smaller trackers intended for smaller ground-mounted installations.

        In the second half of 2009, we began developing utility-scale solar energy farm projects, also referred to as solar power plant projects, and partnering with solar energy farm project developers. Once completed, the solar power plants are sold to end-buyers such as independent power producers or infrastructure fund investors. In December 2009, we completed a solar power plant project in Germany and we started to construct similar projects in Canada in 2011.

        In December 2011, we entered into a sales agreement with TransCanada Energy Ltd., an affiliate of TransCanada Corporation, a North American energy infrastructure company. Under this agreement, TransCanada Energy Ltd. will acquire from us nine solar power plants totaling 86 MW for approximately C$470 million ($472 million). We completed construction of two plants in the fourth quarter of 2012. These plants are now in the testing phase before completion of their sale to TransCanada Energy Ltd. We expect to complete construction of six additional plants in 2013 and one in the first quarter of 2015.

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        In June 2012, we completed the acquisition of a majority interest in 16 solar power plant projects in Ontario, Canada, representing approximately 190 MW DC to 200 MW DC, from SkyPower Limited, or SkyPower, for a total consideration of approximately C$185 million ($186 million).

        In August 2012, we completed the sale of our first utility-scale solar power plant in Canada, representing approximately 11 MW DC, to Stonepeak Infrastructure Partners for approximately C$48.0 million ($48.2 million).

        In December 2012, we entered into an agreement with SunEdison Power Canada Inc., or SunEdison, to acquire four solar power plant projects, representing approximately 46.5 MW DC, for an aggregate transaction price of approximately C$37.0 million ($37.2 million).

        In late 2010, we began entering into a number of EPC contracting arrangements with solar project development partners in Canada. Under these arrangements, the solar farm project developer owns the project and we are contracted to perform the engineering design, procurement and construction work for the project.

        In 2012, we entered into EPC contract and O&M service agreement with Penn Energy Renewables Ltd. for the construction and operation of three solar farm projects, totaling 28.7 MW AC, in Ontario, Canada.

        In the second half of 2012, we started to provide O&M services, for solar power plants in commercial operations. Depending on the terms of our O&M service contracts, our O&M services include inspections, repair and replacement of plant equipment, site management and administrative support services.

        Our business depends on our ability to obtain a stable and cost-effective supply of polysilicon, silicon wafers and solar cells. Our principal wafer suppliers include GCL, ReneSola and Konca. Our principal solar cell suppliers include Topcell, Shunfeng and Neo Solar. Although this strategy may reduce our gross margin, it has allowed us to commit less capital in the form of pre-payments to polysilicon manufacturers compared to other solar module producers of our size and to reduce our capital expenditures for ingot and wafer capacity.

        In the third quarter of 2010, silicon wafer and polysilicon supply tightened compared to previous years. However, these raw materials began to decrease in price during the fourth quarter of 2010 and moved back into an oversupply environment in 2011. The oversupply environment continued into 2012 across the entire photovoltaic supply chain, particularly at the polysilicon production stage. See "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Industry—We have, from time to time, entered into long-term supply agreements with polysilicon and wafer suppliers. Long-term supply agreements may make it difficult 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."

        Through the third quarter of 2010, polysilicon remained relatively inexpensive at $45 to $55 per kilogram. In late 2010, polysilicon increased to approximately $80 to $90 per kilogram but decreased to approximately $27 per kilogram by December 31, 2011 and to $24.66 per kilogram by December 31, 2012 due to oversupply. In 2013, we expect that there will continue to be a modest oversupply of polysilicon materials and that polysilicon prices will remain low. We plan to continue to purchase most

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of our silicon wafers and all of our polysilicon requirement externally. We are currently diversifying our wafer and polysilicon suppliers, particularly with top tier international suppliers.

        Silicon feedstock, which consists of high-purity solar grade silicon, is the starting point of the silicon based solar PV module supply chain. Our current principal suppliers of silicon wafers are GCL, ReneSola and Konca.

        Our silicon wafer agreements set forth price and quantity information, delivery terms and technical specifications. Generally, payment is required after delivery has been made and the product has been inspected and approved by us. While the contracts set forth specific price terms, most of them also include mechanisms to change the price, either upwards or downwards, based on market conditions. We require the seller to bear the costs and risks of transporting solar wafers to our facilities. We currently do not have any long-term supply contracts for silicon wafers with fixed price or quantity terms.

        In 2007 and 2008, due to shortages of polysilicon and silicon wafers, we entered into a number of long-term supply agreements with several silicon and wafer suppliers in an effort to secure raw materials to meet our production requirements. These suppliers included GCL, Neo Solar, Deutsche Solar, LDK and a UMG-Si supplier.

        In response to a decline in the price of polysilicon, beginning in 2009, we began discussing adjustments in the unit price and volume terms under our supply agreements with these suppliers. In 2009 and thereafter, we amended our agreements with certain of these suppliers to adjust 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 to purchase. Under our supply agreements with certain suppliers, and consistent with historical industry practice, we made advance payments prior 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, the balance of advance payments made to suppliers totaled $45.4 million.

        See "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Industry—We have, from time to time, entered into long-term supply agreements with polysilicon and wafer suppliers. Long-term supply agreements may make it difficult 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 addition to manufacturing our own solar cells and toll manufacturing arrangements with our solar cell suppliers, we purchase solar cells from a number of international and local suppliers, including Topcell, Shunfeng and Neo Solar.

        Our solar cell agreements set forth price and quantity information, delivery terms and technical specifications. Generally, payment is required within a certain number of days after delivery. These contracts generally provide for a period of time during which we can inspect the product and request the seller to make replacements for damaged goods. We generally require the seller to bear the costs and risks of transporting solar cells until they have been delivered to the location specified in the contract. We currently do not have any long-term supply contracts for solar cells with fixed price or quantity terms.

        Although we have established relationships with cell suppliers, we experienced a shortage of solar cell supplies in late 2009 and 2010. As we expand our business, we expect to increase our solar cell manufacturing capacity and diversify our solar cell supply channel to ensure we have the flexibility to adapt to future changes in the supply of, and demand for, solar cells.

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        We assemble our solar modules by interconnecting multiple solar cells by tabbing and stringing them into a desired electrical configuration. We lay the interconnected cells, laminate them in a vacuum, cure them by heating and package them in a protective lightweight anodized aluminum frame. We seal and weatherproof our solar modules to withstand high levels of ultraviolet radiation, moisture and extreme temperatures.

        We selectively use automation to enhance the quality and consistency of our finished products and to improve the efficiency of our manufacturing processes. Key equipment in our manufacturing process includes automatic laminators, simulators and solar cell testers. The design of our assembly lines provides flexibility to adjust the ratio of automated equipment to skilled labor in order to maximize quality and efficiency. We purchase our manufacturing equipment primarily from Chinese suppliers. Our proximity to these Chinese manufacturers is an advantage because they typically sell manufacturing equipment at more competitive prices than similar international equipment manufacturers. We source critical testing equipment from international manufacturers.

        We have registered our quality control system according to the requirements of ISO 9001:2000 and ISO/TS 16949 standards. The latter quality control standard originated from the QS 9000 and VDA quality systems and is now the world-wide quality system standard for the automotive industry. TUV Rheinland Group, a leading international service company that documents the safety and quality of products, systems and services, audits our quality systems. We inspect and test incoming raw materials to ensure their quality. We monitor our manufacturing processes to ensure quality control and we inspect finished products by conducting reliability and other tests.

        We have obtained IEC 61215 and IEC 61730 (previously TUV Class II safety) European standards for sales in Europe. We have also obtained certifications of CAN ORD-UL 1703 and UL 1703, which allow us to sell products in North America. In 2009, we obtained the necessary certifications to sell our modules in Japan, South Korea and Great Britain and to several of the Chinese solar programs, including Golden Sun. We have obtained IEC and UL certifications for higher-powered modules of 280 W and above, a solar laminate for BIPV applications in France with TUV certification. In 2011, we completed IEC61215/61730 and UL1703 certification for modules designed to be assembled from metal wrap-through cells, and extended laminate certification in North American market. Our certified portfolio was also increased with the addition of model CS5P-P and several small models. Power outputs for our product portfolio were further increased through the qualification of quasi-mono wafers. In 2011, we also completed DLG ammoniac resistance testing and obtained the salt mist certification for our leading module CS6P-P. In 2012, we achieved the highest ratings possible in the two most significant standard tests for ammonia resistance of solar modules, which were the IEC62716 draft C ammonia corrosion test and the DLG standard test. In 2013, we extended the salt mist certification under IEC 61701 ed.2 Severity 1 to all of our standard PV modules at VDE. In addition, we were able to register more key module types at JET for Japan; enhanced the maximum system voltage up to 1000V for our CSA certification (North America), allowing significant cost reduction for our EPC partners; and again raised the ranking of CEC PTC ratings.

        We successfully assisted Suzhou Gaochuangte New Energy Co., Ltd. (an EPC company in which we have invested) to receive the first PV plant certificate from TUV SUD in China under the IEC 62446 standard. The new half-cell module designed by our R&D team was fully certified by CSA and VDE, two worldwide recognized certification bodies, in 2012. We also started providing our customers with third-party-approved PAN files (testing per IEC61853-1) for all our key module series, allowing more accurate energy yield simulation and better return-on-investment analysis for their projects. In 2013, we intend to obtain certifications for double glasses and DC-to-AC/DC-to-DC module designs. We will continue our efforts for general improvements in module and component designs and

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seek to obtain corresponding certifications. With the emergence of new markets that we are expanding into, we have made and expect to make efforts to comply with new certification schemes that apply to us, such as INMETRO for Brazil and the UNI9177 fire test for Italy that we have now complied with.

        Our PV test laboratory is registered with the ISO 17025 quality improvement program, and has been accepted for the Mutual Data Acceptance Program by the CSA in Canada, VDE in Germany, Intertek in the U.S. and CGC in China. The PV test laboratory allows us to conduct some product certification testing in-house, which should decrease time-to-market and certification costs.

        We sell our standard solar modules primarily to distributors, system integrators and OEM customers. Our distributor customers include companies that are exclusive solar component and system distributors and engineering and design firms that include our standard solar modules in their system installations. Our system integrator customers typically design and sell complete, integrated systems that include our standard solar modules along with other system components. We sell our solar modules and products to various manufacturers who either integrate these products into their own products or sell and market them as part of their product portfolio. Our standard solar module customers include leading solar distributors and system integrators. Our specialty solar module and products customers include manufacturers who incorporate our customized solar modules in their bus stop, road lighting and marine lighting products.

        A small number of customers have historically accounted for a major portion of our net revenues. In 2010, 2011 and 2012, our top five customers by net revenues collectively accounted for approximately 26.0%, 29.2% and 25.5%, respectively, of our total net revenues. Sales to our largest customer in those years accounted for 11.0%, 6.6% and 8.4%, respectively, of our total net revenues.

        The following table sets forth, for the periods indicated, certain information relating to our total net revenues derived from our customers categorized by their geographic location for the periods indicated:

 
  Years Ended December 31,  
 
  2010   2011   2012  
Region
  Total Net
Revenues
  %   Total Net
Revenues
  %   Total Net
Revenues
  %  
 
  (In thousands of $, except for percentages)
 

Europe

    1,193,449     79.8     1,233,201     65.0     656,460     50.7  

Asia and others

    186,366     12.5     330,803     17.4     296,117     22.9  

America

    115,694     7.7     334,918     17.6     342,252     26.4  
                           

Total

    1,495,509     100.0     1,898,922     100.0     1,294,829     100.0  
                           

        As we expand our manufacturing capacity and enhance our brand name, we continue to develop new customer relationships in a wider range of geographic markets to decrease our market concentration. In 2012, we significantly increased our total number of customers, gained market share in Europe, the U.S. and Japan and achieved a leading market share in India, Canada, and Chile. We strive to achieve or maintain a leading market share in Thailand, Japan, India, Canada and Chile in 2013, while exploring other emerging solar markets, including Southeast Asia, Africa, the Middle East, Central Asia and South America. These markets have been significantly influenced by past and current government subsidies and incentives. While we expect to expand our markets, we expect that the European markets will remain our major markets in the near future.

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        We market and sell our standard solar modules worldwide, primarily through a direct sales force and market-focused sales agents. Our direct sales personnel and sales agent representatives cover our markets in Europe, North America and Asia. Our marketing activities include trade shows, conferences, sales training, product launch events, advertising and public relations campaigns. Working closely with our sales and product development teams, our marketing team is also responsible for collecting market intelligence and supporting our sales team's lead generation efforts. We have marketing staff in the U.S., China, Europe, Canada, Japan and South Korea.

        We sell our products primarily under three types of arrangements: (i) sales contracts to distributors, (ii) sales to systems integrators, EPCs and project developers ("project" customers) and (iii) OEM/tolling manufacturing arrangements.

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        We target our sales and marketing efforts for our specialty solar modules and products at companies in selected industry sectors, including the automotive, telecommunications and light-emitting diode, or LED, lighting sectors. As standard solar modules increasingly become commoditized and technology advancements allow solar power to be used in more off-grid applications, we will expand our sales and marketing focus on our specialty solar modules and products and capabilities. Our sales and marketing team works with our specialty solar modules and products development team to take into account changing customer preferences and demands to ensure that our sales and marketing team is able to effectively communicate to customers our product development changes and innovations. We intend to establish additional relationships in other market sectors as the specialty solar modules and products market expands.

        In 2010, we commenced the sale of solar system kits. A solar system kit is a ready-to-install package consisting of solar modules produced by us and components, such as inverters, racking system and other accessories, supplied by third parties. In 2012, we sold approximately 38.7 MW of system kits primarily in Canada and Japan.

        In the second half of 2009, we began partnering with solar farm project developers to develop and construct solar farm projects. In April 2010, the OPA in Ontario, Canada, awarded us and our partners contract offers for 176 MW AC of open-field solar power generation projects. The projects were developed in partnership with several leading renewable energy developers in the Ontario market. In December 2011, we entered into a sales agreement with TransCanada Energy Ltd. whereby TransCanada Energy Ltd. will acquire from us nine solar power plants totaling 86 MW AC for approximately C$470 million ($472 million). We completed construction of two plants in the fourth quarter of 2012. These plants are now in the testing phase before completion of their sale to TransCanada Energy Ltd. We expect to complete construction of six additional plants in 2013 and one in the first quarter of 2015.

        In April 2012, we entered into a purchase and international joint venture agreement, with SkyPower, Canada's largest owner and developer of solar projects, to build and deploy solar energy solutions in Ontario, and to jointly develop solar projects internationally in selected emerging markets. We completed the acquisition of a majority interest in 16 solar projects representing approximately 190 MW to 200 MW DC from SkyPower in June 2012 for a total consideration of approximately C$185 million ($186 million). Each of these projects was awarded a 20-year power purchase contract by the OPA. Fifteen of these contracts were issued under Ontario's Feed-In-Tariff Program, and one was issued as part of Ontario's Renewable Energy Standard Offer Program. We have filed REA applications for all sixteen of the projects and expect to receive Notices to Proceed (NTP) with, and

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expect to start construction on, these projects prior to the end of the third quarter of 2013. These projects are expected to generate over C$800 million ($803 million) in revenue for us in the next two years. In June 2012, we also launched a 50/50 international joint venture with SkyPower to focus on developing solar power plants in selected emerging markets.

        In August 2012, we completed the sale of our first utility-scale solar power plant in Canada, representing approximately 11 MW DC, to Stonepeak Infrastructure Partners for approximately C$48.0 million ($48.2 million). As the project developer, EPC and construction financier, we built the solar power plant to provide clean, renewable energy to power more than 1,200 homes in eastern Ontario near the town of Napanee.

        In December 2012, we entered into an agreement with SunEdison to acquire four solar power plant projects, representing approximately 46.5 MW DC, for an aggregate transaction price of approximately C$37.0 million ($37.2 million). Under this agreement, we acquired 100% equity interest in two utility-scale solar power projects in Ontario, Canada. Subsequently we completed the purchase of one additional utility-scale solar power project in Ontario, Canada from SunEdison and are conducting due diligence on another project. When all of the above mentioned transactions are completed we expect to acquire the majority interest in a total of four utility-scale solar power projects in Canada with an option to purchase a fifth solar project at a later date from SunEdison.

        During 2012, we have expanded our utility-scale project pipeline in the United States to approximately 255 MW. We expect to complete construction of solar power projects totaling approximately 100 MW in the United States in 2013.

        In addition to Canada and the U.S., we have developed a robust pipeline in Japan and China and see potential for solar power projects in countries such as India and South America.

        Beginning in late 2010, we have entered into a number of EPC contracting arrangements with solar project development partners in Canada. Under these arrangements, the solar farm project developer owns the projects and we are contracted to perform the EPC work.

        In August 2012, we entered into an 18.7 MW AC EPC contract and O&M service agreement with Penn Energy Renewables Ltd. for the construction and operation of two new solar farm projects in Ontario, Canada. In October 2012, this arrangement was expanded to include an additional 10 MW AC EPC contract and O&M service agreement for the construction and operation of a third solar farm project in Ontario, Canada, totaling 28.7 MW AC for the three projects. We expect to complete these projects in the second half of 2013.

        In 2011, we completed approximately 23 MW of solar system EPC contracts in China, and approximately 31MW of solar system EPC contracts in Ontario, Canada. The EPC contracts in China were completed through our affiliated company, Suzhou Gaochuangte New Energy Co., Ltd., or Gaochuangte, in which we own a 40% equity interest. During 2012, we completed approximately 0.3 MW of solar system EPC contracts in Ontario, Canada. We expect to complete more EPC contracts in 2013.

        In the second half of 2012, we started to provide O&M services for solar power plants in commercial operations. Depending on the terms of our O&M service contracts, our O&M services include inspections, repair and replacement of plant equipment, site management and administrative support services.

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        We typically sell our standard solar modules with a ten-year warranty against defects in materials and workmanship and a linear power performance warranty that guarantees that the actual power output of our modules will be no less than 97% of the labeled power output during the first year and will decline by no more than 0.7% annually so that, by the end of year 25, the actual power output will be no less than 80% of the labeled power output.

        For utility-scale solar power projects built by us, we also provide a limited warranty against defects in workmanship under normal use, operation and service conditions for a period of five years following the energizing of the solar power plant. In resolving claims under the workmanship warranty, we have the option of remedying through repair, refurbishment or replacement of equipment.

        Our customer support and service function grew in 2012. We expanded our customer resources four fold, and established two functional support groups to address technical inquiries and warranty related issues. Our current structure enhances our ability to handle our customer's questions and concerns in a timely and professional manner. There has been an increase in claims, but this increase has been in line with our higher sales volumes, and due to the resolution of legacy issues through the warranty process.

        For 2013, we have renewed our product warranty insurance coverage to provide additional security to our customers. See "—Insurance" below. The customer support and service function will continue to expand and to improve services to our customers. With our entry in the Ontario market for solar systems and the introduction of our Smart Module product in the North America market, a new segment in the support and service function will be created to address technical inquiries and product related issues for these two new business lines.

        The market for solar module products is competitive and evolving. We compete with international companies such as SunPower, First Solar and Sharp Solar, and China-based companies such as Suntech, Yingli and Trina. Some of our competitors are developing or producing products based on alternative solar technologies, such as thin film PV materials, that may ultimately have costs similar to, or lower than, our projected costs. Solar modules produced using thin film materials, such as cadmium telluride and copper indium gallium selenide technology, are generally less efficient, with module conversion efficiencies ranging from approximately 5% to 11% according to company filings, but require significantly less silicon to produce than crystalline silicon solar modules, such as our products, and are less susceptible to increases in silicon costs. Some of our competitors have also become vertically integrated, from upstream polysilicon manufacturing to solar system integration. In addition, the solar power market in general competes with other sources of renewable and alternative energy and conventional power generation.

        We believe that the key competitive factors in the market for solar module products include:

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        In the immediate future, we believe that our ability to compete depends on delivering a cost-effective product in a timely manner and developing and maintaining a strong brand name based on high quality products and strong relationships with downstream customers. It also depends on our ability to effectively manage our cash flow and balance sheet and to maintain our relationships with the financial institutions that fund solar projects. Consolidation of the solar industry is already occurring and is expected to continue in the near future. We believe that such consolidation will benefit our company in the long-term. We believe that the key to competing successfully in the long-term is to produce innovative, high quality products at competitive prices and develop an integrated sales approach that includes services, ancillary products, such as mounting systems and inverters, and value-added product features. We believe that a good marketing program and the strong relationships that we are building with customers and suppliers will support us in this competitive environment.

        We maintain property risk insurance policies with reputable insurance companies to cover our equipment, facilities and buildings, including improvements, office furniture and inventory. These insurance policies cover losses due to fire, floods and other natural disasters. Our manufacturing facilities in China are also covered by business interruption insurance. However, significant damage to any of our manufacturing facilities, whether as a result of fire or other causes, could still have a material and adverse effect on our results of operations. We have maintained general commercial and product liability coverage at the same levels since 2009. We have also been actively working with China Export & Credit Insurance Corporation, or Sinosure, since early 2008. Credit insurance is designed to offset the collection risk of our account receivables for customers within the credit limits approved by Sinosure. Risks related to marine, air and inland transit for the export of our products and domestic transportation of materials and products are covered under cargo transportation insurance. We also maintain director and officer liability insurance. We consider our overall insurance coverage to be adequate. We currently take a 1% warranty provision against our revenue on solar modules and 0.8% warranty provision against our revenue on sales of solar system kits and solar power projects.

        Since April 2010, we have purchased product warranty insurance policies underwritten by A-rated insurance companies on an annual basis to back up our product warranties. These insurance policies apply to our warranty against defects in workmanship and material and our warranty relating to power output. The costs of these policies are charged to cost of revenues as part of warranty cost in the period the covered modules, solar system kits and solar power projects were sold. We believe that our warranty improves the marketability of our products and our customers are willing to pay more for products with warranties backed by insurance.

        Except for as disclosed in the "Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China," we believe we have obtained the environmental permits necessary to conduct the business currently carried on by us at our existing manufacturing facilities. We have conducted environmental studies in conjunction with our solar power development projects to assess and reduce the environmental impact of our facilities.

        Our products must comply with the environmental regulations of the jurisdictions in which they are installed. We make efforts to ensure that our products comply with the EU's Restriction of Hazardous

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Substances Directive, which took effect in July 2006, by reducing the amount of lead and other restricted substances used in our solar module products.

        Our operations are subject to regulation and periodic monitoring by local environmental protection authorities. If we fail to comply with present or future environmental laws and regulations, we could be subject to fines, suspension of production or a cessation of operations.

        This section sets forth a summary of certain significant regulations or requirements that affect our business activities in China or our shareholders' right to receive dividends and other distributions from us.

        In February 2005, China enacted its Renewable Energy Law, which became effective on January 1, 2006 and was revised in December 2009. The revised Renewable Energy Law, which became effective on April 1, 2010, sets forth policies to encourage the development and use of solar energy and other non-fossil energy and their on-grid generation. It also authorizes the relevant pricing authorities to set favorable prices for the purchase of electricity generated by solar and other renewable power generation systems.

        The law also sets forth the national policy to encourage the installation and use of solar energy water-heating systems, solar energy heating and cooling systems, solar photovoltaic systems and other solar energy utilization systems. It also provides financial incentives, such as national funding, preferential loans and tax preferences for the development of renewable energy projects subject to certain regulations of the relevant authorities.

        In November 2005, the NDRC promulgated the Renewable Energy Industry Development Guidance Catalogue, in which solar power figured prominently. In January 2006, the NDRC promulgated two implementation directives with respect to the Renewable Energy Law. In January 2007, the NDRC promulgated another related implementation directive. These directives set forth specific measures for setting the price of electricity generated by solar and other renewable power generation systems, for sharing additional expenses, and for allocating administrative and supervisory authority among different government agencies at the national and provincial levels. They also stipulate the responsibilities of electricity grid companies and power generation companies with respect to the implementation of the Renewable Energy Law.

        In August 2007, the NDRC promulgated the Medium and Long-Term Development Plan for the Renewable Energy Industry. This plan sets forth national policy to provide financial allowance and preferential tax regulations for the renewable energy industry. A similar demonstration of the PRC government's commitment to renewable energy was also stipulated in the Eleventh Five-Year Plan for Renewable Energy Development, which was promulgated by the NDRC in March 2008. The Outline of the Twelfth Five-Year Plan for National Economic and Social Development of the PRC, which was approved by the National People's Congress in March 2011, and the Twelfth Five-Year Plan for Renewable Energy Development, which was promulgated by the National Energy Administration in August 2012 also demonstrates a commitment to promote the development of renewable energy to enhance the competitiveness of the renewable energy industry.

        China's Ministry of Housing and Urban-Rural Development (formerly, the Ministry of Construction) also issued a directive in June 2005 which seeks to expand the use of solar energy in residential and commercial buildings and encourages the increased application of solar energy in different townships. Similarly, China's State Council promulgated a directive in July 2005, which sets forth specific measures to conserve energy resources. In November 2005, China's Ministry of Housing

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and Urban-Rural Development promulgated the Administrative Provisions on Energy Conservation for Civil Constructions which encourages the development of solar energy. In August 2006, the State Council issued the Decision on Strengthening the Work of Energy Conservation which encourages the great development of the solar energy and other renewable energy. In addition, on April 1, 2008, the PRC Energy Conservation Law came into effect. Among other objectives, this law encourages the installation of solar power facilities in buildings to improve energy-efficiency. In July 2009, China's Ministry of Finance and Ministry of Housing and Urban-Rural Development jointly promulgated "the Urban Demonstration Implementation Program of the Renewable Energy Building Construction" and "the Implementation Program of Acceleration in Rural Application of the Renewable Energy Building Construction" to support the development of the new energy industry and the new energy-saving industry.

        In March 2009, China's Ministry of Finance promulgated the Interim Measures for Administration of Government Subsidy Funds for Application of Solar Photovoltaic Technology in Building Construction, or the Interim Measures, to support the development of solar photovoltaic technology in China. Local governments are encouraged to issue and implement supporting policies. Under the Interim Measures, a subsidy, which is set at RMB20 per Watt-peak for 2009, will cover solar PV technology integrated into building construction. The Interim Measures do not apply to projects completed before the promulgation date of the Interim Measures. Also in March 2009, China's Ministry of Finance and Ministry of Housing and Urban-Rural Development jointly promulgated the Implementation Opinion on Acceleration in the Application of Solar Photovoltaic Technology in Building Construction. On March 8, 2011, China's Ministry of Finance and Ministry of Housing and Urban-Rural Development jointly promulgated the Notice on Further Application of Renewable Energy in Building Construction, which aims to raise the percentage of renewable energy used in buildings.

        In July 2009, China's Ministry of Finance and Ministry of Science and Technology and the National Energy Administration jointly published an announcement containing the guidelines for the "Golden Sun" demonstration program. Under the program, the PRC government will provide a 50%-70% subsidy for the capital costs of PV systems and the relevant power transmission and distribution systems for up to 20 MW of PV system projects in each province, with the aim to industrialize and expand the scale of China's solar power industry. The program requires that each PV project must have a minimum capacity of 300 kW, be completed within one year and have an operational term of not less than 20 years. On September 21, 2010 and November 19, 2010, China's Ministry of Finance, Ministry of Science and Technology, Ministry of Housing and Urban-Rural Development and the National Energy Administration published two announcements regarding the "Golden Sun" demonstration program to specify the terms for bid solicitation for key equipment and the standards for subsidies and supervision and management of projects.

        In September 2009, the PRC State Council approved and circulated the Opinions of the National Development and Reform Commission and other Nine Governmental Authorities on Restraining the Production Capacity Surplus and Duplicate Construction in Certain Industries and Guiding the Industries for Healthy Development. These opinions concluded that polysilicon production capacity in China has exceeded the demand and adopted the policy of imposing more stringent requirements on the construction of new polysilicon manufacturing projects in China. These opinions also stated in general terms that the government should encourage polysilicon manufacturers to enhance cooperation and affiliation with downstream solar product manufacturers to extend their product lines. However, these opinions do not provide any detailed measures for the implementation of this policy. As we are not a polysilicon manufacturer and do not expect to manufacture polysilicon in the future, we believe the issuance and circulation of these opinions will not have any material impact on our business or our silicon wafer, solar cell and solar module capacity expansion plans.

        In July 2011, the NDRC issued the Circular on Improving the On-Grid Price Policy for Photovoltaic Power, which aims to stimulate the photovoltaic power industry by regulating the price of

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photovoltaic power. On August 21, 2012, China's Ministry of Finance and Ministry of Housing and Urban-Rural Development jointly promulgated the Notice on Improving Policies for Application of Renewal Energy in Building and Adjusting Fund Allocation and Management Method, which aims to promote the use of solar energy and other new energy products in public facilities and residences, further amplifying the effect of the policies for application of renewable energy in buildings.

        As we have expanded our ingot, silicon wafer and solar cell manufacturing capacities, we have begun to generate material levels of noise, wastewater, gaseous wastes and other industrial waste. Additionally, as we expand our internal solar components production capacity, our risk of facility incidents that would negatively affect the environment also increases. We are subject to a variety of governmental regulations related to the storage, use and disposal of hazardous materials. The major environmental laws and regulations applicable to us include the PRC Environmental Protection Law, which became effective in 1982, as amended and promulgated in 2008, the PRC Law on the Prevention and Control of Noise Pollution, which became effective in 1996, the PRC Law on the Prevention and Control of Air Pollution, which became effective in 1987, as amended and promulgated in 1995 and 2000, the PRC Law on the Prevention and Control of Water Pollution, which became effective in 1984, as amended and promulgated in 1996 and 2008, the PRC Law on the Prevention and Control of Solid Waste Pollution, which became effective in 1995, as amended and promulgated in 2004, the PRC Law on Evaluation of Environmental Affects, the PRC Law on Promotion of Clean Production, which became effective in 2012, and the Regulations on the Administration of Construction Project Environmental Protection, which became effective in 1998.

        Further, some of our PRC subsidiaries are located in Suzhou, China, which is adjacent to Taihu Lake, a nationally renowned and protected body of water. As a result, production at these subsidiaries is subject to the Regulation of Jiangsu Province on Preventing Water Pollution in Taihu Lake, which became effective in June 2008 and was further revised and promulgated on September 29, 2010 and January 12, 2012, and the Implementation Plan of Jiangsu Province on Comprehensive Treatment of Water Environment in Taihu Lake Basin, which was promulgated in February 2009. Because of these two new regulations, the environmental protection requirements imposed on nearby manufacturing projects, especially new projects, have increased noticeably, and Jiangsu Province has stopped approving construction of new manufacturing projects that increase the amount of nitrogen and phosphorus released into Taihu Lake.

        The principal regulation governing foreign ownership of solar power businesses in the PRC is the Foreign Investment Industrial Guidance Catalogue. Under the current catalogue, which was amended in 2011 and became effective on January 30, 2012, the solar power related business is classified as an "encouraged foreign investment industry." Companies that operate in encouraged foreign investment industries and satisfy applicable statutory requirements are eligible for preferential treatment, including exemption from customs and input value added taxes, or VAT, of certain self-used equipment and priority consideration in obtaining land use rights provided by certain local governments.

        While the 2004 catalogue only applied to the construction and operation of solar power stations, the 2007 catalogue expanded its application also applies to the production of solar cell manufacturing machines, the production of solar powered air conditioning, heating and drying systems and the manufacture of solar cells, and the current 2011 catalogue also covers the manufacture of solar battery, solar light collector glass and etc.

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        The establishment, approval, registered capital requirement and day-to-day operational matters of wholly foreign-owned enterprises, are regulated by the Wholly Foreign-Owned Enterprise Law of the PRC, effective in 1986 and amended in 2000, and the Implementation Rules of the Wholly Foreign-owned Enterprise Law of the PRC, effective in 1990 and amended in 2001. The establishment, operation and management of corporate entities in China are governed by the Company Law of the PRC, or the Company Law, effective in 1994 and amended in 1999, 2004 and 2005. The Company Law is applicable to our PRC subsidiaries unless PRC laws on foreign investment stipulate otherwise.

        PRC enterprise income tax is calculated based on taxable income determined under PRC accounting principles. Our major operating subsidiaries, CSI Solartronics, CSI Manufacturing, CSI Cells, CSI Technologies, CSI Changshu Manufacturing and CSI Luoyang Manufacturing, are governed by the EIT Law, which became effective on January 1, 2008.

        Under the EIT Law, both foreign-invested enterprises and domestic enterprises are subject to a uniform enterprise income tax rate of 25%. There is a transition period for enterprises that were given preferential tax treatment under the previous tax law. Enterprises that were subject to an enterprise income tax rate lower than 25% will have the new uniform enterprise income tax rate of 25% phased in over a five-year period from the effective date of the EIT Law. Enterprises that were entitled to exemptions or reductions from the standard income tax rate for a fixed term may continue to enjoy such treatment until the fixed term expires, subject to certain limitations.

        The EIT Law provides for preferential tax treatment for certain categories of industries and projects that are strongly supported and encouraged by the state. For example, enterprises classified as HNTEs are entitled to a 15% enterprise income tax rate, provided that such HNTEs satisfy other applicable statutory requirements.

        Our subsidiary CSI Solartronics has been recognized as an HNTE. However, because CSI Solartronics does not meet certain requirements for the reduced 15% enterprise income tax rate, it is still subject to a 25% enterprise income tax rate. CSI Manufacturing was subject to a reduced enterprise income tax rate of 12.5% until the end of 2009, when its tax holiday expired. CSI Cells and CSI Luoyang Manufacturing were subject to a reduced enterprise income tax rate of 12.5% until the end of 2011, when their tax holidays expired. Currently, CSI Cells is subject to a preferential enterprise income tax rate of 15% for the three years from 2012 to 2014, resulting from its HNTE status recognized in 2009 and renewed in 2012. CSI Changshu Manufacturing and CSI Technologies were exempt from EIT for 2009 and were subject to a reduced enterprise income tax rate of 12.5% from 2010 through to and including 2012, at which time their tax holidays expired as well. As the preferential tax benefits enjoyed by our PRC subsidiaries expired, their effective tax rates increased significantly.

        The EIT Law also provides that enterprises established outside China whose "effective management" is located in China are considered PRC tax residents and will generally be subject to the uniform 25% enterprise income tax rate on their global income. Under the implementation regulations, the term "effective management" is defined as substantial and overall management and control over such aspects as the production and business, personnel, accounts and properties of an enterprise. Currently there are no other detailed rules or precedents governing the procedures and specific criteria for determining an enterprise's effective management, which are applicable to us. As a substantial number of the members of our management team are located in China, we may be considered a PRC tax resident under the EIT Law and, therefore, subject to the uniform 25% enterprise income tax rate on our global income.

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        Under the EIT Law and implementing regulations issued by the State Council, PRC withholding tax at the rate of 10% is applicable to interest and dividends payable to investors from companies that are not "resident enterprises" in the PRC, to the extent such interest or dividends have their sources within the PRC. If our Canadian parent entity is deemed a PRC tax resident under the EIT Law based on the location of our effective management, dividends distributed from our PRC subsidiaries to our Canadian parent entity could be exempt from Chinese dividend withholding tax. However, in that case, dividends from us to our shareholders may be regarded as China-sourced income and, consequently, be subject to Chinese withholding tax at the rate of 10%, or at a lower treaty rate if applicable. Similarly, if we are considered a PRC tax resident, any gain realized by our shareholders from the transfer of our common shares is also subject to Chinese withholding tax at the rate of 10% if such gain is regarded as income derived from sources within the PRC. It is unclear whether any dividends that we pay on our common shares or any gains that our shareholders may realize from the transfer of our common shares would be treated as income derived from sources within the PRC and subject to PRC tax.

        Pursuant to a November 2008 amendment to the Provisional Regulation of the PRC on Value Added Tax issued by the PRC State Council, all entities and individuals that are engaged in the sale of goods, the provision of repairs and replacement services and the importation of goods in China are required to pay VAT. Gross proceeds from sales and importation of goods and provision of services are generally subject to VAT at a rate of 17%, with exceptions for certain categories of goods that are taxed at a rate of 13%. When exporting goods, the exporter is entitled to a refund of a portion or all of the VAT that it has already paid or borne.

        In December 2008, the Ministry of Finance and the State Administration of Taxation jointly issued implementation rules for the VAT effective from January 1, 2009. Under the new rules, fixed assets (mainly including equipment and manufacturing facilities) are now eligible for credit for input VAT. Previously, input VAT on fixed assets purchases was not deductible from the current period's output VAT derived from the sales of goods, but had to be included in the cost of the assets. The new rule permits this deduction except in the case of equipment purchased for non-taxable projects or tax-exempted projects where the deduction of input VAT is not allowed. However, the qualified fixed assets could also be eligible for input VAT if the fixed assets are used for both taxable projects and non-taxable projects or tax-exempted projects. Presently, no further detailed rules clarify under what circumstance the fixed assets are considered as being used for both taxable and non-taxable or tax exempt projects. Because of the new VAT rules, our PRC subsidiaries may benefit from future input VAT credit on our capital expenditures.

        Under the former rules, equipment imported for qualified projects was entitled to an import VAT exemption and domestic equipment purchased for qualified projects were entitled to a VAT refund. However, such exemption and refund were both eliminated as of January 1, 2009.

        Foreign currency exchange regulation in China is primarily governed by the Foreign Currency Administration Rules (1996), as amended in 2008, and the Settlement, Sale and Payment of Foreign Exchange Administration Rules (1996), or the Settlement Rules.

        Currently, the Renminbi is convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions. Conversion of the Renminbi for most capital account items, such as direct investment, security investment and repatriation of investment, however, is still subject to the approval of SAFE.

        Under the Settlement Rules, foreign-invested enterprises may buy, sell and/or remit foreign currencies only at those banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of most capital account item transactions, obtaining approval from SAFE. Capital investments by foreign-invested enterprises outside of China are also subject to

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limitations, which include approvals by the Ministry of Commerce, SAFE and the State Reform and Development Commission.

        The principal regulations governing distribution of dividends paid by wholly foreign owned enterprises include the Wholly Foreign-Owned Enterprise Law of the PRC, effective in 1986 and amended in 2000, the Implementation Rules of the Wholly Foreign-Owned Enterprise Law of the PRC, effective in 1990 and amended in 2001, the Company Law effective in 1994 and amended in 1999, 2004 and 2005 and the New EIT Law and its implementation rules, both effective in 2008.

        Under these laws, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign owned enterprise in China is required to set aside at least 10% of its after-tax profits determined in accordance with PRC accounting standards each year to its general reserves until the accumulative amount of such reserves reach 50% of its registered capital. These reserves are not distributable as cash dividends. The board of directors of a foreign-invested enterprise has the discretion to allocate a portion of its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation.

        The major laws and regulations governing the employment relationship, including wage and hour requirements, working and safety conditions, social insurance, housing funds and other welfare. The PRC Labor Law which became effective on January 1, 1995 and amended on August 27, 2009, the Labor Contract Law of the People's Republic of China, which became effective on January 1, 2008, and its Implementing Regulation, which became effective on September 18, 2008, permit workers in both state-owned and private enterprises in the PRC to bargain collectively. The PRC Labor Law and the PRC Labor Contract Law provide for collective contracts to be developed through collaboration between the labor unions (or worker representatives in the absence of a union) and management that specify such matters as working conditions, wage scales, and hours of work. The PRC Labor Contract Law and its Implementing Regulation impose certain requirements with respect to human resources management, including, among other things, signing labor contracts with employees, terminating labor contracts, paying remuneration and compensation and making social insurance contributions. In addition, the PRC Labor Contract Law requires employers to provide remuneration packages that meet the relevant local minimum standards. The PRC Labor Contract Law has enhanced rights for the nation's workers, including permitting open-ended labor contracts and severance payments. It requires employers to provide written contracts to their workers, restricts the use of temporary labor and makes it harder for employers to lay off employees. It also requires that employees with fixed-term contracts be entitled to an indefinite-term contract after a fixed-term contract is renewed twice or the employee has worked for the employer for a consecutive ten-year period.

        Under applicable PRC laws, rules and regulations, including the Social Insurance Law promulgated by the Standing Committee of the National People's Congress and effective as of July 1, 2011, the Rules on Implementing the Social Insurance Law issued by Ministry of Human Resource and Social Security and effective as of July 1, 2011, the Interim Regulations on the Collection and Payment of Social Security Funds promulgated by the State Council and effective as of January 22, 1999, the Interim Measures Concerning Maternity Insurance promulgated by the Ministry of Labor and effective as of January 1, 1995, the Regulations on Occupational Injury Insurance promulgated by the State Council and effective as of January 1, 2004 and amended on December 20, 2010, and the Regulations on the Administration of Housing Accumulation Funds promulgated by the State Council and effective as of April 3, 1999 and amended on March 24, 2002, employers are required to contribute, on behalf of their employees, to a number of social security funds, including funds for basic pension insurance,

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unemployment insurance, basic medical insurance, occupational injury insurance, maternity leave insurance, and to housing accumulation funds. These payments are made to local administrative authorities and any employer who fails to contribute may be fined and ordered to remediate on payments within a stipulated time period.

C.    Organizational Structure

        The following table sets forth our company's organizational structure, including the place of formation, our ownership interest in each of our significant subsidiaries as of the date of this annual report.

Name of entity
  Place of incorporation   Ownership interest  

CSI Solartronics (Changshu) Co., Ltd. 

  PRC     100 %

CSI Solar Technologies Inc. 

  PRC     100 %

CSI Solar Manufacture Inc. 

  PRC     100 %

Canadian Solar Manufacturing (Luoyang) Inc. 

  PRC     100 %

Canadian Solar Manufacturing (Changshu) Inc. 

  PRC     100 %

CSI Cells Co., Ltd. 

  PRC     100 %

Canadian Solar (USA) Inc. 

  USA     100 %

CSI Project Consulting GmbH

  Germany     70 %

Canadian Solar Japan K.K. 

  Japan     90.67 %

Canadian Solar Solutions Inc. 

  Canada     100 %

CSI Solar Power (China) Inc. 

  PRC     100 %

Canadian Solar EMEA GmbH

  Germany     100 %

Canadian Solar Manufacturing (Ontario) Inc. 

  Canada     100 %

Canadian Solar (Australia) Pty., Ltd. 

  Australia     100 %

Canadian Solar International Ltd. 

  Hong Kong     100 %

Canadian Solar O&M (Ontario) Inc. 

  Canada     100 %

CSI-Cenergy Holdings LLC

  USA     62.50 %

Suzhou Sanysolar Materials Technology Co., Ltd. 

  PRC     80 %

Canadian Solar South East Asia Pte., Ltd. 

  Singapore     100 %

CSI Project Holdco LLC

  USA     100 %

Canadian Solar Manufacturing (Suzhou) Inc. 

  PRC     61 %

Canadian Solar South Africa Pty., Ltd. 

  South Africa     100 %

Canadian Solar Brasil Servicos De Consultoria EM Energia Solar Ltda. 

  Brazil     100 %

Canadian Solar Middle East Ltd. 

  United Arab Emirates     100 %

Canadian Solar International Project Holding Limited

  Hong Kong     100 %

Canadian Solartronics (Suzhou) Co., Ltd. 

  PRC     100 %

        See "Item 4. Information on the Company—A. History and Development of the Company" for additional information on our corporate structure.

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D.    Property, Plant and Equipment

        The following is a summary of our properties, including information on our manufacturing facilities and office buildings as of the date of this annual report:

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ITEM 4A.    UNRESOLVED STAFF COMMENTS

        None.

ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS

        The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Item 3. Key Information—D. Risk Factors" or in other parts of this annual report on Form 20-F.

A.    Operating Results

        The most significant factors that affect our financial performance and results of operations are:

        We believe that the near-term growth of the market for on-grid applications depends in large part on the availability and size of government subsidies and economic incentives and financing for solar projects. For a detailed discussion of government subsidies and incentives, possible changes in government policy and associated risks to our business, see "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Industry—Governments may revise, reduce or eliminate subsidies and economic incentives for solar power, which could cause demand for our products to decline." and "Item 4. Information on the Company—B. Business Overview—Markets and Customers."

        Additionally, the continuing weak global economy and uncertain global economic outlook, especially in Europe, could limit the availability of debt or equity for solar power projects, or increase the cost thereof, and adversely impact our customers' ability to finance the purchase of our products or to construct solar power projects. See "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Industry—The execution of our growth strategy depends upon the continued availability of third-party financing arrangements for our customers, which is affected by general economic conditions. Tight credit markets could depress demand or prices for solar products, hamper our expansion and materially affect our results of operations."

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        Our business and revenue growth depend on the demand for solar power. Although solar power technology has been used for several decades, the solar power market has only started to grow significantly in the past few years. See "Item 4. Information on the Company—B. Business Overview" for a more detailed discussion of the factors driving the growth of the solar power industry and the challenges that it faces. In addition, industry demand is affected by seasonality. Demand tends to be lower in winter, primarily because adverse weather conditions complicate the installation of solar power systems, particularly in Germany, one of our key markets. For example, our sales to Germany slowed significantly in the fourth quarter of 2008 and the first quarter of 2009 due to changes in seasonal demand, together with inventory clearing efforts by some solar module producers and a significant reduction of subsidies in Spain, coupled with the global financial crisis. However, the demand from other key markets may offset seasonal fluctuations from time to time. In anticipation of strong demand for systems in 2010, distributors continued to purchase modules late in the fourth quarter of 2009 and early in the first quarter of 2010, even though this is traditionally the slowest season for solar installations. Weakened global economic conditions continued to affect the availability of financing in the European markets in 2011, which in turn slowed the demand for solar power projects. If governments around the world continue to approve subsidies that encourage the use of solar energy, we expect to be able to take advantage of the diversity of global markets to mitigate some of the effects of seasonality on our business results in the future.

        See "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Industry—If sufficient demand for solar power products does not develop or takes longer to develop than we anticipate, our revenues may not continue to increase or may even decline, and we may be unable to sustain our profitability."

        Prior to 2004, all of our net revenues were generated from sales of specialty solar modules and products. We began selling standard solar modules in 2004. In 2010 and 2011, we generated net revenues of 94.8% and 89.1%, respectively from our solar module business, which comprises primarily sales of standard solar modules and specialty solar modules, with the remainder coming from our total solution business, which comprises solar power project development and sales, EPC services, O&M services and sales of solar system kits. In 2012, we generated 88.5% of our net revenues from our solar module business with 11.5% coming from our total solution business.

        Our standard solar modules are priced based on either the actual flash test result or the nameplate capacity of our panels, expressed in Watts-peak. The actual price per watt is affected by overall demand in the solar power industry and increasingly also by the total power of the module. Higher-powered modules usually command slightly higher prices per watt. We price our standard solar modules based on the prevailing market price at the time we enter into sales contracts with our customers, taking into account the size of the contract, the strength and history of our relationship with each customer and our silicon wafer, solar cell and silicon raw materials costs. During the first few years of our operations, the average selling prices for standard solar modules rose year-to-year across the industry, primarily because of high demand. Correspondingly, the average selling price of our standard solar module products ranged from $3.62 to $4.23 during the period from 2004 to 2008. Following a peak in the third quarter of 2008, the industry-wide average selling price of solar modules has declined sharply, as market demand has declined and competition increased due to the worldwide credit crisis, reduction in subsidies in certain solar markets, and increased manufacturing output. In 2009, the average selling price of our standard solar modules continued to fall, with an average selling price of $1.93 per watt in the fourth quarter of 2009. Thereafter, the average selling price of our standard solar modules has generally continued to fall due to an oversupply of solar modules and, in the fourth quarter of 2012, the average selling price was $0.67 per watt.

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        We produce solar modules, which are an array of interconnected solar cells encased in a weatherproof frame, and products that use solar modules. Solar cells are the most important component of solar modules. Our solar cells are currently made from mono-crystalline and multi-crystalline silicon wafers through multiple manufacturing steps. Silicon wafers are the most important material for making solar cells. If we are unable to procure silicon, wafers and cells at prices that decline in line with our solar module pricing, our revenues and margins could be adversely impacted, either due to relatively high costs compared to our competitors or further write-downs of inventory, or both. Our market share could decline if competitors are able to offer better pricing than we are. See "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Industry—We have, from time to time, entered into long-term supply agreements with polysilicon and wafer suppliers. Long-term supply agreements may make it difficult 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." Currently, we acquire a large percentage of our requirements of solar wafers through purchasing arrangements and limited tolling arrangements. We also acquire a large portion of our requirements of solar cells through purchase arrangements.

        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 pound. 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 Chinese commercial banks that are denominated primarily in U.S. dollars or Renminbi. The greater part of our cash and cash equivalents are denominated in Renminbi. Fluctuations in exchange rates, particularly among the U.S. dollar, Euro, Renminbi and Canadian dollar, may affect our net profit margins and may result in fluctuations in foreign exchange and operating gains or losses. Since 2008, we hedge part of our foreign currency exposures against the U.S. dollar using foreign currency forward or option contracts in order to limit our foreign exchange losses. However, the effectiveness of our hedging program may be limited with respect to cost effectiveness, cash management, exchange rate visibility and downside protection. We incurred a foreign exchange loss of $36.3 million, $40.0 million and $10.7 million in 2010, 2011 and 2012, respectively. For our hedging program, we recorded a gain on change in foreign currency derivatives of $1.7 million in 2010, incurred a loss on change in foreign currency derivatives of $5.8 million in 2011 and incurred a loss on change in foreign currency derivatives of $4.4 million in 2012.

        We evaluate our business using a variety of key financial measures.

        Revenues generated from our solar module business, which comprises primarily sales of standard solar modules and specialty solar modules, accounted for 94.8%, 89.1% and 88.5% of our net revenues in 2010, 2011 and 2012, respectively. Revenues generated from our total solution business, which comprises primarily solar power project development and sales, EPC services, O&M services and sales of solar system kits, represented 5.2%, 10.9% and 11.5% of our net revenues in 2010, 2011 and 2012, respectively. As we continue to expand our business into the downstream segment of the industry, we expect that around 50% of our net revenues will be generated from our total solution business in 2013, primarily from our utility-scale solar power project pipelines in Canada and the U.S., as well as our residential system kits business in Japan. We believe this strategy of focusing on the downstream

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segment of the business will help to put us in a good competitive position and possibly increase our margins and overall profitability.

        The main factors affecting our net revenues include average selling prices per watt and unit volume shipped, both of which depend on product supply and demand.

        Our net revenues are net of business tax, VAT, returns and exchanges.

        Our cost of revenues consists primarily of the costs of:

        Solar wafers and cells and silicon raw materials make up the major portion of our cost of revenues. Where we manufacture solar wafers in our own manufacturing facilities, the cost of the solar wafers consists of:

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        Where we manufacture solar cells in our own manufacturing facilities, the cost of the solar cells consists of:

        In 2010, 2011 and 2012, we obtained some of our solar wafers and cells through toll manufacturing arrangements, under which we source and provide silicon feedstock to suppliers of ingots, wafers and cells. These suppliers convert these silicon raw materials into the solar wafers and cells that we use for our production of solar modules. The costs of solar wafers and cells that we obtain through these toll manufacturing arrangements consist of:

        The payments we make to our suppliers for the solar wafers and cells and the payments our suppliers make to us for the silicon feedstock that we source and provide are generally settled separately under these tolling arrangements. We do not include payments we receive for providing silicon feedstock as part of these toll manufacturing arrangements in our net revenues.

        In 2010, we began selling solar system kits. Solar modules make up a substantial portion of the cost of revenue on solar system kits. The cost of revenue on these solar modules is the cost of revenue on solar modules manufactured by us. The other components that make up the cost of solar system kits comprise the costs of purchased inverters, racking systems and other installation components.

        Our cost of revenues also includes warranty costs. We accrue 1.0% of our net revenues on solar modules and 0.8% on solar system kits and solar power projects as warranty costs at the time revenues are recognized. Before June 2009, we typically sold our standard solar modules with a two-year warranty against defects in materials and workmanship and a 10-year and 25-year warranty against declines of more than 10% and 20%, respectively, from the initial minimum power generation capacity at the time of delivery. In June 2009, we increased our warranty against defects in materials and workmanship to six years. Effective August 1, 2011, we increased our warranty against defects in materials and workmanship to ten years and we guarantee that, for a period of 25 years, our modules will maintain the following performance levels:

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        We have the right to repair or replace solar modules, at our option, under the terms of the warranty policy. We maintain warranty reserves to cover potential liabilities that could arise under these guarantees and warranties. Since April 2010, we have entered into agreements with a group of insurance companies to back up these warranties. Under these insurance policies, the insurance companies are obliged to reimburse us, subject to certain maximum claim limits and certain deductibles, for the actual product warranty costs that we incur under the terms of our warranty policy. We record the insurance premiums initially as prepaid expenses and amortize them over the respective policy period, normally one year. If we determine that the product warranty costs to be reimbursed from the insurance companies are probable and determinable, an asset is recognized on our balance sheet. The warranty insurance is renewable annually. See "Item 4. Information on the Company—B. Business Overview—Insurance."

        Our cost of revenues has historically decreased due to the decrease of our net revenues. Write-downs of inventory included in our cost of revenue were $2.1 million, $8.5 million and $3.1 million in 2010, 2011 and 2012, respectively. We recorded a loss on firm purchase commitments of $1.6 million, $10.6 million and nil for the years ended December 31, 2010, 2011 and 2012, respectively. The losses were computed using the lower of cost or market method.

        In 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 to claim damage of €148.6 million ($196.0 million) in court. As a result of the termination, we reclassified the accrued loss on firm purchase commitments 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 our advance payments to Deutsche Solar. The accrued amount of $27.9 million represents our best estimate for our loss contingency. Deutsche Solar did not specify the basis for its claimed damage of €148.6 million ($196.0 million) on the notice. See "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Industry—We have, from time to time, entered into long-term supply agreements with polysilicon and wafer suppliers. Long-term supply agreements may make it difficult 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."

        Our gross profit is affected by a number of factors, including the average selling price of our products, our product mix, loss on firm purchase commitments under long-term supply agreements, and our ability to cost-effectively manage our supply chain.

        Our operating expenses include selling expenses, general and administrative expenses, and research development expenses. Our operating expenses have increased in recent years as our business has grown rapidly. We expect this trend to continue as our net revenues grow in the future. On a percentage basis, however, we expect our operating expenses to decline or remain constant with the growth of our operations.

        Selling expenses consist primarily of salaries and benefits, transportation and customs expenses for delivery of our products, sales commissions for our sales personnel and sales agents, advertising, promotional and trade show expenses, and other sales and marketing expenses. As we expand our business, we will increase our sales and marketing efforts and target companies in selected industry

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sectors in response to evolving industry trends. We expect as we increase our sales volume our selling expenses will increase as we hire additional sales personnel, target more markets and initiate additional marketing programs to reach our goal of continuing to be a leading global brand.

        General and administrative expenses consist primarily of salaries and benefits for our administrative and finance personnel, consulting and professional service fees, government and administration fees and insurance fees. We expect our general and administrative expenses to increase to support the anticipated growth of our business. Non-recurring general and administrative expenses increased significantly in 2010 because of increased legal, accounting and other professional fees related to our audit committee investigation and the shareholder class action lawsuits. In 2010, the expenses for legal and professional services were $16.2 million. In 2011 and 2012, we recovered $4.4 million and $3.5 million, respectively, of the costs incurred in 2010 under our director and officer liability insurance policy. See "Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal and Administrative Proceedings."

        Research and development expenses consist primarily of costs of raw materials used in our research and development activities, salaries and benefits for research and development personnel and prototype and equipment costs related to the design, development, testing and enhancement of our products and our silicon reclamation program. We continue to increase our expenses on research and development. These expenses are primarily related to our ongoing efforts to improve our ingot and wafer, solar cell and module manufacturing processes.

        We expect to devote more efforts to research and development in the future. We also expect that our research and development expenses will increase as we hire additional research and development personnel, expand and promote innovation in our products portfolio, and devote more resources towards using new technologies and alternative materials to grow ingots, cut wafers and manufacture solar cells and solar system accessories such as inverters.

        Under our share incentive plan, as of December 31, 2012, we had outstanding:

        For a description of the stock options, restricted shares, and restricted share units granted, including the exercise prices and vesting periods, see "Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—Share-based Compensation—Share Incentive Plan." We recognize share-based compensation to employees as expenses in our statement of operations based on the fair value of the equity awarded on the date of the grant. The compensation expense is recognized over the period in which the recipient is required to provide service in exchange for the equity award.

        We have made an estimate of expected forfeitures and are recognizing compensation costs only for those equity awards that we expect to vest. We estimate our forfeitures based on past employee retention rates and our expectations of future retention rates. We will prospectively revise our forfeiture rates based on actual history. Our share-based compensation expenses may change based on changes to our actual forfeitures.

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        For the year ended December 31, 2012, we recorded share-based compensation expenses of approximately $5.2 million, compared to approximately $4.1 million for the year ended December 31, 2011. We have categorized these share-based compensation expenses in our:

depending on the job functions of the individuals to whom we granted the options, restricted shares and restricted share units. The following table sets forth, for the periods indicated, the allocation of our share-based compensation expenses both in absolute amounts and as a percentage of total share-based compensation expenses.

 
  Years Ended December 31,  
 
  2010   2011   2012  
 
  (In thousands of $, except for percentages)
 

Share-based compensation expenses included in:

                                     

Cost of revenues

    231     6.0 %   686     16.9 %   870     16.8 %

Selling expenses

    509     13.1     683     16.8     964     18.6  

General and administrative expenses

    2,873     74.1     2,442     60.1     3,037     58.5  

Research and development expenses

    264     6.8     250     6.2     315     6.1  
                           

Total share-based compensation expenses

    3,877     100.0 %   4,061     100.0 %   5,186     100.0 %
                           

        We expect to incur additional share-based compensation expenses as we expand our operations. For example, we anticipate that selling expenses will increase as we hire additional sales personnel to further expand our worldwide marketing activities in line with the expected growth of our operations.

        Interest expenses consist primarily of interest incurred with respect to our short and long-term loans from Chinese commercial banks and the 6% convertible notes we issued privately to qualified institutional investors. We repaid the outstanding convertible notes in full in 2012.

        The gain on change in fair value of derivatives in our 2010 financial statements and the loss on change in fair value of derivatives in our 2011 and 2012 financial statements were associated with hedging part of our expected cash flows and balances denominated in foreign currencies, mainly in Euros and Canadian dollars.

        We recognize deferred tax assets and liabilities for temporary differences between the financial statement and income tax bases of assets and liabilities. Valuation allowances are provided against deferred tax assets when management cannot conclude that it is more likely than not that some portion or all deferred tax assets will be realized.

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        We are governed by the CBCA, a federal statute of Canada and are registered to carry on business in Ontario. This subjects us to both Canadian federal and Ontario provincial corporate income taxes. Our combined tax rates were 31.0%, 28.25% and 26.5% for the years ended 2010, 2011 and 2012, respectively.

        PRC enterprise income tax is calculated based on taxable income determined under PRC accounting principles. Our major operating subsidiaries, CSI Solartronics, CSI Manufacturing, CSI Cells, CSI Luoyang Manufacturing, CSI Technologies and CSI Changshu Manufacturing, are subject to taxation in China. CSI Solartronics has been recognized as an HNTE. However, because CSI Solartronics does not meet certain requirements for the reduced 15% enterprise income tax rate, CSI Solartronics is still subject to a 25% enterprise income tax rate. CSI Cells and CSI Luoyang Manufacturing were subject to a reduced enterprise income tax rate of 12.5% until the end of 2011, when their tax holidays expired. Currently, CSI Cells is subject to a preferential enterprise income tax rate of 15% for the three years from 2012 to 2014, resulting from its HNTE status recognized in 2009 and renewed in 2012. CSI Technologies and CSI Changshu Manufacturing were subject to a reduced enterprise income tax rate of 12.5% until the end of 2012, when their tax holidays expired. CSI Manufacturing is subject to a standard 25% enterprise income tax rate. When the preferential tax benefits enjoyed by our PRC subsidiaries expired, their effective tax rates increased significantly.

        The EIT Law provides that enterprises established outside China whose "effective management" is located in China are considered PRC tax residents and will generally be subject to the uniform 25% enterprise income tax rate on their global income. Under the implementation regulations, the term "effective management" is defined as substantial and overall management and control over such aspects as the production and business, personnel, accounts and properties of an enterprise. Currently there are no detailed rules or precedents governing the procedures and specific criteria for determining an enterprise's effective management. As a substantial number of the members of our management team are located in China, we may be considered a PRC tax resident under the EIT Law and, therefore, subject to the uniform 25% enterprise income tax rate as it relates to our global income.

        Under the EIT Law and implementing regulations issued by the State Council, the PRC withholding tax rate of 10% is generally applicable to interest and dividends payable to investors that are not "resident enterprises" in the PRC, to the extent such interest or dividends have their sources within the PRC. We consider the undistributed earnings of our PRC subsidiaries (approximately $116.3 million at December 31, 2012) to be indefinitely reinvested in China, and, consequently, we have made no provision for withholding taxes for those amounts.

        We prepare financial statements in accordance with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect (i) the reported amounts of our assets and liabilities, (ii) the disclosure of our contingent assets and liabilities at the end of each fiscal period and (iii) the reported amounts of revenues and expenses during each fiscal period. We regularly evaluate these estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and reasonable assumptions, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.

        When reviewing our financial statements, the following should be considered: (i) our selection of critical accounting policies, (ii) the judgment and other uncertainties affecting the application of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions. We believe

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the following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements.

        Sales of modules, solar system kits and silicon materials are recorded when products are delivered and title and risk of loss or damage has passed to the customers. A solar system kit is a ready-to-install package consisting of solar modules produced by us and components, such as inverters, racking system, tracker and other accessories, supplied by third parties. We only recognize revenues when prices to the seller are fixed or determinable and collectability is reasonably assured. If collectability is not reasonably assured, we recognize revenue only upon collection of cash. Revenues also include reimbursements of shipping and handling costs of products sold to customers. Sales agreements typically contain customary product warranties but do not contain any post-shipment obligations or any return or credit provisions.

        A majority of our contracts provide that products are shipped under the terms of free on board, or FOB, ex-works or cost, insurance and freight, or CIF. Under FOB, we fulfill our obligation to deliver when the goods have passed over the ship's rail at the named port of shipment. The customer has to bear all costs and risks of loss or damage to the goods from that point. Under ex-works, we fulfill our obligation to deliver when we have made the goods available at our premises to the customer. The customer bears all costs and risks involved in taking the goods from our premises to the desired destination. Under CIF, we must pay the costs, marine insurance and freight necessary to bring the goods to the named port of destination, but the risk of loss of or damage to the goods as well as any additional costs due to events occurring after the time the goods have been delivered on board the vessel, is transferred to the customer when the goods pass the ship's rail in the port of shipment.

        We use the percentage of completion method to recognize revenue from systems integration projects for which we provide EPC services under an EPC contract when the contract price is fixed or determinable. We use the cost-to-cost method to measure the percentage of completion and recognize revenue based on the estimated progress to completion. We periodically revise our profit estimates based on changes in facts, and immediately recognize any losses that are identified on contracts. Incurred costs include all direct material, labor, subcontractor cost, and other associated costs. We recognize job material costs as incurred costs when the job materials have been permanently attached or fitted to the solar power systems as required by the engineering design. The construction periods normally extend beyond six months and less than one year.

        We recognize revenue from the sale of project assets in accordance with ASC 360-20, Real Estate Sales. For these transactions, we determined that the project assets, which represent the costs of constructing solar power projects, represent "integral" equipment and as such, the entire transaction is in substance the sale of real estate and subject to the revenue recognition guidance under ASC 360-20 Real Estate Sales. We recognize revenue and profit using the full accrual method once the sale is consummated, the buyer's initial and continuing investments are adequate to demonstrate its commitment to pay, the receivable is not subject to any future subordination, and we have transferred the usual risk and rewards of ownership to the buyer. If these criteria are met and we execute a sales agreement prior to the delivery of the solar power project which has an original construction period of three months or longer, we recognize revenue and profit under the percentage of completion method of accounting applicable to real estate sales when we can reasonably estimate progress towards completion. If the criteria for recognition under the full accrual method are met except that the buyer's initial and continuing investment is less than the level determined to be adequate, we recognize revenue using the installment method. Under the installment method, we record revenue up to costs incurred and apportions each cash receipt from the buyer between cost recovered and profit in the same ratio as total cost and total profit bear to the sales value. During 2012, we recognized $48.9 million of revenue using the full accrual method.

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        We allocate revenue for transactions involving multiple-element arrangements to each unit of accounting on a relative fair value basis. We estimate fair value on each unit of accounting on the following basis (i) vendor-specific objective evidence of selling price, if it exists, otherwise, (ii) third-party evidence of selling price. If neither (i) nor (ii) exists, management's best estimate of the selling price for that unit of accounting is used. We recognize revenue for each unit of accounting when the revenue recognition criteria have been met.

        Sales to customers are recorded net of estimated returns.

        We enter into toll manufacturing arrangements in which we receive wafers and return finished modules. In those cases, the title of the wafers received and risk of loss remains with the seller. As a result, we do not recognize inventory on the balance sheet. We recognize a service fee as revenue when the processed modules are delivered. During the years ended December 31, 2010, 2011 and 2012, we recognized revenue of nil, $24.7 million, and $7.9 million, respectively, under the toll manufacturing arrangements.

        We enter into buy/sell arrangements with certain raw material vendors pursuant to which we sell finished goods, comprising either solar cells or solar modules, in exchange for raw materials, typically silicon wafers. These arrangements are made with counterparties in the same line of business as us and are executed as a means of securing a consistent supply of raw materials. The transactions are recorded in revenues and cost of revenues at fair value on a gross basis. During the years ended December 31, 2010, 2011, and 2012, we purchased nil, $21.5 million, and nil of raw materials, respectively, and sold nil, $43.9 million, nil of finished goods under these buy-and-sell arrangements respectively.

        As of December 31, 2010, 2011 and 2012, we had inventories of $18.8 million, $23.2 million and $18.6 million, respectively, relating to sales to customers where revenues were not recognized given that payment collection was not reasonably assured. The delivered product remains as inventories on our consolidated balance sheets, regardless of whether title has been transferred. In such cases, we recognize revenues, relieve inventories and recognize the cost of revenue when payment is collected from customers.

        Before June 2009, we typically sold our standard solar modules and products with up to a two-year guarantee for defects in materials and workmanship and a 10-year and 25-year warranty against declines of more than 10% and 20%, respectively, from the initial minimum power generation capacity at the time of delivery. In June 2009, we increased our warranty against defects in materials and workmanship to six years. Effective August 1, 2011, we increased our warranty against defects in materials and workmanship to ten years and we guarantee that for a period of 25 years, our modules will maintain the following performance levels:

        In addition to the solar module warranty above, for utility-scale solar power projects built by us, we also provide a limited warranty against defects in workmanship under normal use, operation and service conditions for a period of five years following the energizing of the solar power plant. In resolving claims under the workmanship warranty, we have the option of remedying through repair, refurbishment or replacement of equipment.

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        We have the right to repair or replace solar modules, at our option, under the terms of the warranty policy. We maintain warranty reserves to cover potential liabilities that could arise under these guarantees and warranties. Due to limited warranty claims to date, we accrue the estimated costs of warranties based on an assessment of our competitors' accrual history, industry-standard accelerated testing, estimates of failure rates from our quality review, and other assumptions that we believe to be reasonable under the circumstances. Actual warranty costs are accumulated and charged against the accrued warranty liability. To the extent that accrual warranty costs differ from the estimates, we will prospectively revise our accrual rate. There was no prospective reversion for each period presented. We currently take a 1% warranty provision against our revenue for sales of solar modules and 0.8% for solar system kits and solar power projects.

        Since April 2010, we have entered into agreements with a group of insurance companies to back up our warranties. Under the insurance policies, the insurance companies are obliged to reimburse us, subject to certain maximum claim limits and certain deductibles, for the actual product warranty costs that we incur under the terms of our warranty policy. We record the insurance premiums initially as prepaid expenses and amortize them over the respective policy period, normally one year. If we determine that the product warranty costs to be reimbursed from the insurance companies are probable and determinable, an asset is recognized on our balance sheet.

        We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When these events occur, we measure impairment by comparing the carrying amount of the assets to future undiscounted net cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, we will recognize an impairment loss based on the fair value of the assets. There was no impairment charge recognized during the years ended December 31, 2010, 2011 and 2012.

        We conduct credit evaluations of our customers and generally do not require collateral or other security from them. We establish allowances for doubtful accounts primarily based upon the age of our receivables and factors surrounding the credit risk of specific customers. As of December 31, 2010, 2011 and 2012, an allowance for doubtful accounts receivable of $8.0 million, $9.5 million and $47.6 million, respectively, was established for certain customers for whom management sees a credit risk on the collection of accounts receivable balances. The allowance for doubtful accounts receivable as of December 31, 2012 included $18.6 million relating to one customer in China with severe liquidity issues. An allowance of $10 million for doubtful accounts receivable was made in 2009 in connection with a particular customer due to the fact that the customer's account was more than 90 days overdue and the customer had communicated to us that it was unable to pay. We recovered the full overdue amount in 2010 after having taken legal proceedings against the customer. From mid-2009, we started to purchase insurance from Sinosure for accounts receivable to mitigate collection risks from some customers. We establish allowances for all doubtful accounts according to our allowance policy regardless of whether such accounts are covered by Sinosure insurance. For the amounts recoverable from Sinosure, we recorded $4.2 million, $5.3 million and $9.5 million in prepaid expenses and other current assets as of December 31, 2010, 2011 and 2012, respectively.

        With respect to advances to suppliers, primarily suppliers of solar cells, solar wafers and silicon raw materials, we perform ongoing credit evaluations of their financial condition. We generally do not require collateral or security against advances to suppliers, as they tend to be recurring supply partners. However, we maintained a reserve for potential credit losses for advances to suppliers as of December 31, 2010, 2011 and 2012 of $19.4 million, $38.1 million and $38.5 million, respectively. The

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reserves as of December 31, 2012 include allowances on advances to LDK of $9.5 million, allowances on advances to a UMG-Si supplier of $10.2 million and allowances on advances to Deutsche Solar of $17.7 million.

        Inventories are stated at the lower of cost or market. Cost is determined by the weighted average method. Cost of inventories consists of costs of direct materials and, where applicable, direct labor costs, tolling costs and any overhead that we incur in bringing the inventories to their present location and condition.

        Adjustments are recorded to write down the cost of obsolete and excess inventories to the estimated market value based on historical and forecast demand. The write-down of inventories for the years ended December 31, 2010, 2011 and 2012 were $2.1 million, $8.5 million and $3.1 million, respectively.

        In the past, we entered into firm purchase commitments to acquire materials from our suppliers. A firm purchase commitment represents an agreement that specifies all significant terms, including the price and timing of the transactions, and includes a disincentive for non-performance that is sufficiently large to make performance probable, such as a take-or-pay provision which requires us to pay for committed volumes regardless of whether we actually acquire the materials. We evaluate these agreements and record a loss, if any, on firm purchase commitments using the same lower of cost or market approach that is used to value inventory. The computation of the loss on firm purchase commitments is subject to several estimates, including primarily the ultimate selling price of the finished goods of which these raw materials comprise a part, and is therefore inherently uncertain. Further, we only record the expected loss as it relates to the following fiscal period, as we are unable to reasonably estimate future market prices beyond one year. As a result, changes in the cost of materials or sales price of modules will directly affect the computation of the estimated loss on firm purchase commitments and our consolidated financial statements in the following years. We purchased the minimum contracted volume for year 2009 under our 12-year supply agreement with Deutsche Solar. We did not, however, purchase the minimum contracted volumes for years 2010 and 2011. The agreement contains a provision stating that if we do not order the contracted volume in a given year, Deutsche Solar can invoice 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 void under German law. In 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 to claim damages of €148.6 million ($196.0 million) in court. As a result of the termination, we reclassified the accrued loss on firm purchase commitments 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 our advance payments to Deutsche Solar. The accrued amount of $27.9 million represents our best estimate for our loss contingency. Deutsche Solar did not specify the basis for its claimed damage of €148.6 million ($196.0 million) in the notice. Finally, we believe that the supply agreement was terminated in 2011 and, as a result, we are no longer obligated to purchase (and pay for) wafers for year 2012 and after.

        We outsource portions of our manufacturing process, including converting silicon into ingots, cutting ingots into wafers, and converting wafers into solar cells, to various third-party manufacturers. These outsourcing arrangements may or may not include the transfer of title of the raw material inventory (silicon, ingots or wafers) to third-party manufacturers. Such raw materials are recorded as raw materials inventory when purchased from suppliers. For those outsourcing arrangements in which the title is not transferred, we maintain such inventory on our balance sheet as raw materials inventory while it is in the physical possession of the third-party manufacturer. Upon receipt of the processed

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inventory, it is reclassified as work-in-process inventory and a processing fee is paid to the third-party manufacturer.

        For those outsourcing arrangements, characterized as sales, where title (including risk of loss) is transferred to the third-party manufacturer, through raw materials sales contracts and processed inventory purchase contracts that were entered into simultaneously, we are constructively obligated to repurchase the inventory once it has been processed. In this case, the raw material inventory is classified as raw material inventory while in physical possession of the third-party manufacturer. The cash received is classified as advances from customers on the balance sheet and not as revenue or deferred revenue. Outsourcing arrangements, which require prepayment for repurchase of the processed inventory, are classified as advances to suppliers on the balance sheet. There is no right of offset for these advances from customers and advances to suppliers; they remain on the balance sheet until the processed inventory is repurchased.

        Project assets consist primarily of costs relating to solar power projects in various stages of development that are capitalized prior to the sale of the solar power project. These costs include modules, installation and other development costs, such as legal, consulting and permitting, interconnect and other similar costs. Where the project assets are not constructed for any specific customer, we intend to sell the project assets upon their completion.

        We review project assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In determining whether or not the project assets are recoverable, we consider a number of factors, including changes in environmental, ecological, permitting, or regulatory conditions that affect the project. Such changes may cause the cost of the project to increase or the selling price of the project to decrease.

        The carrying value of cash and cash equivalents, trade receivables, advances to suppliers, accounts payable and short-term borrowings approximate their fair values due to the short-term maturity of these instruments. Long-term bank borrowings approximate their fair value since the contracts were entered into with floating market interest rates.

        We monitor our investments for other-than-temporary impairment by considering factors such as current economic and market conditions and the operating performance of the entities and records reductions in carrying values when necessary.

        The book value of our investment in a UMG-Si supplier was $3.0 million as of December 31, 2010. Due to the supplier's financial position and default on scheduled material delivery in 2010, we made an investment impairment of $3.0 million. The impairment reduced the carrying value of the investment in our balance sheet to nil as at December 31, 2010. The book value of our investment in Nernst New Energy (Suzhou) Co., Ltd., or Nernst, was $1.1 million as of December 31, 2012. Nernst is a company which focuses on Li-ion batteries and super-capacitors and in which we own a 50% interest. Due to Nernst's continued losses, deteriorating financial position and unpromising business outlook, we recognized impairment in the investment. The impairment reduced the carrying value of the investment in our balance sheet to nil as at December 31, 2012.

        Our primary objective for holding derivative and financial instruments is to manage foreign currency risk. We record derivative and financial instruments as assets or liabilities, measured at fair value. The recognition of gains or losses resulting from changes in fair value of those derivatives and financial instruments is based on the use of each derivative and financial instrument and whether or not they qualify for hedge accounting. We entered into certain foreign currency derivative contracts to

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hedge part of our foreign currency exposures against the U.S. dollar using foreign exchange forward or option contracts. The foreign currency derivative contracts did not qualify for hedge accounting and, as a result, changes in their fair value are recognized in the statement of operations. We recorded a gain on foreign currency derivative contracts of $1.7 million and a loss of $5.8 million and $4.4 million for the years ended December 31, 2010, 2011 and 2012, respectively.

        Changes to any of the assumptions used in the valuation model could materially impact the valuation results. Our foreign currency derivative instruments relate to foreign exchange forward or option contracts involving major currencies such as the Euro and the U.S. dollar. Since our derivative and financial instruments are not traded on an exchange, they are valued using valuation models. Interest rate yield curves and foreign exchange rates are the significant inputs for these valuation models. These inputs are observable in active markets over the terms of the instruments we hold, and accordingly, the fair value measurements are classified as Level 2 in the fair value hierarchy. We consider the effect of our own credit standing and that of our counterparties in the valuation of our derivative and financial instruments. A more detailed discussion on fair value measurement is reflected in Note 7 to our consolidated financial statements included elsewhere in this annual report.

        Deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, net tax loss carry forward and credits by applying enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. In 2012, we established a valuation allowance in the amount of $54.1 million against deferred tax assets which were primarily attributable to the portion of the accumulated operating losses generated by certain of our subsidiaries in China for which no tax benefit could be recorded.

        Current income taxes are provided for in accordance with the laws of the relevant taxing jurisdictions. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on the characteristics of the underlying assets and liabilities, or the expected timing of their use when they do not relate to a specific asset or liability.

        We have granted share-based compensation in the forms of restricted shares, stock options and restricted share units to our directors, officers and employees. The value of share-based payment compensation is based on grant date fair value and is recognized in our consolidated financial statements over the requisite service period, which is generally the vesting period. We grant our restricted shares and restricted share units at their fair value, which generally represents the fair value of an unrestricted share less a discount calculated based on the length of time the share is restricted. For stock options, we use the binominal model. Determining the value of our share-based compensation expense in future periods requires the input of highly subjective assumptions, including the expected life of the options, the price volatility of our underlying shares, the risk free interest rate, the expected dividend rate, and the estimated forfeitures of the options. We estimate our forfeitures based on past employee retention rates, our expectations of future retention rates, and we will prospectively revise our forfeiture rates based on actual history. Our compensation charges may change based on changes to our actual forfeitures.

        In February 2013, the FASB issued ASU 2013-02, an authoritative pronouncement related to reporting of amounts reclassified out of accumulated other comprehensive income. Under the guidance,

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an entity is required to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. The amendments are effective prospectively for reporting periods beginning after December 15, 2012. Early adoption is permitted. We are in the process of evaluating the effect of adoption of this pronouncement.

        In March 2013, the FASB issued ASU 2013-05, an authoritative pronouncement related to parent's accounting for the cumulative translation adjustment upon de-recognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. Under the guidance, the cumulative translation adjustment should be released into net income when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. A pro rata portion of the cumulative translation adjustment should be released into net income upon a partial sale of an equity method investment which is a foreign entity. The amendments are effective prospectively for reporting periods beginning after December 15, 2013. Early adoption is permitted. We are in the process of evaluating the effect of adoption of this pronouncement.

        In July 2012, the FASB issued ASU 2012-02, Impairment of Indefinite-Lived Intangible Assets, an authoritative pronouncement related to testing indefinite-lived intangible assets, other than goodwill, for impairment. Under the guidance, an entity testing an indefinite-lived intangible asset for impairment has the option of performing a qualitative assessment before calculating the fair value of the asset. If the entity determines, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is not more likely than not (i.e., a likelihood of more than 50 percent) impaired, the entity would not need to calculate the fair value of the asset. The guidance does not revise the requirement to test indefinite-lived intangible assets annually for impairment. In addition, the guidance does not amend the requirement to test these assets for impairment between annual tests if there is a change in events or circumstances; however, it does revise the examples of events and circumstances that an entity should consider in interim periods. The guidance was effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of this guidance did not have a significant effect on our consolidated financial statements.

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        The following table sets forth a summary, for the periods indicated, of our consolidated results of operations and each item expressed as a percentage of our total net revenues. Our historical results presented below are not necessarily indicative of the results that may be expected for any future period.

 
  For the years ended December 31,  
 
  2010   2011   2012  
 
  (in thousands of $, except percentages)
 

Net revenues

  $ 1,495,509     100.0 % $ 1,898,922     100.0 % $ 1,294,829     100.0 %

Cost of revenues

    1,266,737     84.7 %   1,716,640     90.4 %   1,204,468     93.0 %

Gross profit

    228,772     15.3 %   182,282     9.6 %   90,361     7.0 %

Operating expenses:

                                     

Selling expenses

    47,109     3.2 %   69,341     3.7 %   91,053     7.0 %

General and administrative expenses

    54,520     3.6 %   86,269     4.5 %   128,826     9.9 %

Research and development expenses

    6,843     0.5 %   19,839     1.0 %   12,998     1.0 %

Total operating expenses

    108,472     7.3 %   175,449     9.2 %   232,877     18.0 %

Income from continuing operations

    120,300     8.0 %   6,833     0.4 %   (142,516 )   (11.0 )%

Other income (expenses)

                                     

Interest expenses

    (22,164 )   (1.5 )%   (43,844 )   (2.3 )%   (53,304 )   (4.1 )%

Interest income

    6,936     0.5 %   8,447     0.4 %   13,360     1.0 %

Gain(loss) on change in fair value of derivatives

    1,657     0.1 %   (5,751 )   (0.3 )%   (4,369 )   (0.34 )%

Investment loss

    (3,000 )   (0.2 )%       (0.0 )%   (1,082 )   (0.08 )%

Foreign exchange gain (loss)

    (36,293 )   (2.4 )%   (40,007 )   (2.1 )%   (10,708 )   (0.83 )%

Income(loss) before income taxes

    67,436     4.5 %   (74,322 )   (3.9 )%   (198,619 )   (15.3 )%

Income tax (expense) benefit

    (16,754 )   (1.1 )%   (16,540 )   (0.9 )%   5,433     4.2 %

Equity in earnings (loss) of unconsolidated investees

    146     (0.0 )%   (41 )   (0.0 )%   (1,969 )   (0.2 )%

Net income (loss)

    50,828     3.4 %   (90,903 )   (4.8 )%   (195,155 )   (15.1 )%

Less: Net income attributable to non-controlling interest

    259     (0.0 )%   (99 )   (0.0 )%   314     0.0 %

Net income (loss) attributable to Canadian Solar Inc.

    50,569     3.4 %   (90,804 )   (4.8 )%   (195,469 )   (15.1 )%

        Net Revenues.    Our total net revenues decreased by $604.1 million, or 31.8%, from $1,898.9 million in 2011 to $1,294.8 million in 2012. The decrease in our net revenues was primarily due to a decrease in the average selling price of our standard solar modules from $1.34 per watt in 2011 to $0.77 per watt in 2012, partially offset by increased shipments from 1,323 MW in 2011 to 1,543 MW in 2012. The decrease in the average selling price of our standard solar modules in 2012 was primarily due to changes in government subsidies and economic incentives in many markets, and continued oversupply across the entire photovoltaic supply chain.

        Total solar module shipments were 1,543 MW in 2012, an increase of 16.6%, from 1,323 MW in 2011. Our shipments to non-European markets increased by 203.3 MW from 440.3 MW in 2011 to 643.6 MW in 2012. The increase in shipments to non-European markets primarily came from the U.S. and Japan among others. Our shipments to European markets increased by 17.2 MW from 882.3 MW in 2011 to 899.5 MW in 2012.

        We periodically make estimates of our sales returns based on historical experience and record those estimates as a reduction of revenues. As of December 31, 2011 and 2012, we had a sales return reserve of $6.2 million and $1.0 million, respectively. Actual returns could differ from these estimates.

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        Cost of Revenues.    Our cost of revenues decreased by $512.2 million, or 29.8%, from $1,716.6 million in 2011 to $1,204.5 million in 2012. The decrease in our cost of revenues was due to a decrease in raw material costs for the year resulting from market competition among suppliers of solar wafers and cells, partially offset by higher shipments as well as depreciation charges of $11.8 million relating to underutilized assets. The decrease in our cost of revenues was in line with the decrease in our net revenues for the year. Cost of revenues as a percentage of total net revenues increased from 90.4% in 2011 to 93.0% in 2012.

        Our inventory write-downs for 2011 and 2012 were $8.5 million and $3.1 million, respectively. The decrease in inventory write-downs was primarily due to continued decrease in our manufacturing costs. In 2012, our manufacturing costs decreased (approximately 43.0%) more rapidly than market prices (approximately 31.8%).

        Gross Profit.    As a result of the foregoing, our gross profit decreased by $91.9 million, or 50.4%, from $182.3 million in 2011 to $90.4 million in 2012. Our gross profit margin decreased from 9.6% in 2011 to 7.0% in 2012, primarily due to a decrease in average selling price, partially offset by increased shipments and lower manufacturing costs.

        Operating Expenses.    Our operating expenses increased by $57.4 million, or 32.7%, from $175.4 million in 2011 to $232.9 million in 2012. Operating expenses as a percentage of our total net revenues increased from 9.2% in 2011 to 18.0% in 2012.

        Selling Expenses.    Our selling expenses increased by $21.7 million, or 31.3%, from $69.3 million in 2011 to $91.1 million in 2012. The increase in our selling expenses was primarily due to an increase of $9.8 million in our shipping and handling costs resulting from increased shipment volume accompanied by higher unit costs for shipping and handling, an increase of $5.2 million in our sales commissions and payroll costs due to increased personnel requirements for our project business as well as an increase of $2.3 million in our marketing costs. Selling expenses as a percentage of our net total revenues increased from 3.7% in 2011 to 7.0% in 2012.

        General and Administrative Expenses.    Our general and administrative expenses increased by $42.6 million, or 49.3%, from $86.3 million in 2011 to $128.8 million in 2012. The increase in our general and administrative expenses was primarily due to the provision for an arbitration decision and the increase in the bad debt allowance for doubtful accounts. We made a non-cash provision totaling $30.3 million for the arbitration decision against us by the CIETAC Shanghai Branch in favor of LDK. In addition, allowance for doubtful accounts receivable and advances to suppliers increased by 74.4% from $23.2 million in 2011 to $40.4 million in 2012, including $18.6 million relating to one customer in China with severe liquidity issues.

        Research and Development Expenses.    Our research and development expenses decreased by $6.8 million, or 34.5%, from $19.8 million in 2011 to $13.0 million in 2012. The decrease in research and development expenses was primarily due to the successful completion of several key research and development projects at the end of 2011. Research and development expenses as a percentage of our total net revenues were approximately 1.0% in each of 2011 and 2012.

        Interest Expenses, Net.    Our interest expenses, net increased by $4.5 million, or 12.8%, from $35.4 million in 2011 to $39.9 million in 2012. Interest expenses increased from $43.8 million in 2011 to $53.3 million in 2012, or 21.6%, primarily due to a significant increase in bank borrowings in 2012, partially offset by the interest costs capitalized to project assets relating to construction of our solar power projects. Interest income increased from $8.4 million in 2011 to $13.4 million in 2012, or 58.2%, mainly due to an increased restricted cash balance.

        Gain/(Loss) On Change in Fair Value of Derivatives.    In 2012, we recorded a loss on change in fair value of derivatives of $4.4 million, compared to a loss on change in fair value of derivatives of

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$5.8 million in 2011. The loss on change in fair value of derivatives represents a loss on the foreign currency hedges that we established on part of our expected cash flows and balances denominated in foreign currencies, mainly in Euros and Canadian dollars, by means of foreign currency forward or option contracts.

        Investment Loss.    We recorded an investment loss of $1.1 million in 2012, compared to an investment loss of nil in 2011. In 2012, we concluded that our $1.1 million investment in Nernst, a joint venture in which we own a 50% interest, was fully impaired.

        Foreign Exchange Loss.    We recorded a foreign exchange loss of $10.7 million in 2012, compared to a foreign exchange loss of $40.0 million in 2011. These foreign exchange losses were mainly due to the depreciation of the Euro and Japanese Yen and the appreciation of the Renminbi against the U.S. dollar.

        Income Tax Benefit (Expenses).    Our income tax benefit was $5.4 million in 2012, compared to tax expense of $16.5 million in 2011. The income tax benefit in 2012 was primarily due to recognition of deferred tax assets associated with the net operating losses recorded by certain of our subsidiaries in China.

        Equity in Earnings (Loss) of Unconsolidated Investees.    Our equity in earnings of unconsolidated investees was a net loss of $2.0 million in 2012, compared to a net loss of $0.4 million in 2011.

        Net Income Attributable To Non-Controlling Interest.    The net income attributable to non-controlling interest was related to the share of net income by the non-controlling shareholders in certain of our subsidiaries in China, Germany, Japan and the U.S.

        Net Income (Loss) Attributable To Canadian Solar Inc.    As a result of the foregoing, the net loss attributable to Canadian Solar Inc. increased by $104.7 million, or 115.3%, from negative $90.8 million in 2011 to negative $195.5 million in 2012.

        Net Revenues.    Our total net revenues increased by $403.4 million, or 27.0%, from $1,495.5 million in 2010 to $1,898.9 million in 2011. Increase in net revenues from non-European markets contributed $365.9 million to increase in our total net revenues in 2011. Our net revenues increased primarily due to increased shipments from 803.5 MW in 2010 to 1,322.5 MW in 2011, an increase of 64.6%, offset by decreased average selling prices of our standard solar modules from $1.80 per watt in 2010 to $1.34 per watt in 2011.

        Our shipments to European markets increased by 216.4 MW from 665.9 MW in 2010 to 882.3 MW in 2011. And our shipments to non-European markets increased by 302.7 MW from 137.6 MW in 2010 to 440.3 MW in 2011. The increase in shipments in non-European markets primarily came from China, the U.S. and India among others as we increased our marketing efforts and expanded our customer base in these markets.

        We periodically make estimates of our sales returns based on historical experience and record such estimates as a reduction of revenues. As of December 31, 2010 and 2011, we had a sales return reserve of $8.9 million and $6.2 million, respectively. Actual returns could differ from these estimates.

        Cost of Revenues.    Our cost of revenues increased by $449.9 million, or 35.5%, from $1,266.7 million in 2010 to $1,716.6 million in 2011. The increase in our cost of revenues was in line with the increase in our net revenues for the year, offset by a decrease in raw materials costs for the year due to market supply competition on wafers and solar cells. Cost of revenues as a percentage of our total net revenues increased from 84.7% in 2010 to 90.4% in 2011.

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        We recorded a loss on firm purchase commitments of $1.6 million and $10.6 million for the years ended December 31, 2010 and 2011, respectively. The 12-year supply agreement with Deutsche Solar was terminated by the end of 2011. As a result, we reclassified the accrued loss on firm purchase commitments of $27.9 million as of December 31, 2011 to loss contingency accruals.

        Our inventory write-downs for year 2010 and year 2011 were $2.1 million and $8.5 million, respectively.

        Gross Profit.    As a result of the foregoing, our gross profit decreased by $46.5 million, or 20.3%, from $228.8 million in 2010 to $182.3 million in 2011. Our gross profit margin decreased from 15.3% in 2010 to 9.6% in 2011.

        Operating Expenses.    Our operating expenses increased by $67.0 million, or 61.7%, from $108.5 million in 2010 to $175.4 million in 2011. Operating expenses as a percentage of our total net revenues increased from 7.3% in 2010 to 9.2% in 2011.

        Selling Expenses.    Our selling expenses increased by $22.2 million, or 47.2%, from $47.1 million in 2010 to $69.3 million in 2011. The increase in our selling expenses was due to increases in shipping and handling costs by $8.1 million, sales commissions and payroll costs by $5.4 million, and advertising and promotion costs by $5.3 million, all in line with the increased shipments and personnel. Selling expenses as a percentage of our net total revenues increased from 3.2% in 2010 to 3.7% in 2011.

        General and Administrative Expenses.    Our general and administrative expenses increased by $31.7 million, or 58.2%, from $54.5 million in 2010 to $86.3 million in 2011. The increase in our general and administrative expenses was primarily due to an increase in allowance for doubtful accounts by $20.2 million, or 673.3%, from $3.0 million in 2010 to $23.2 million in 2011, including a $17.4 million allowance related to advances to Deutsche Solar, and an increase in salary and benefits expenses by $8.0 million, or 46.8%, from $16.9 million in 2010 to $24.9 million in 2011.

        Research and Development Expenses.    Our research and development expenses increased by $13.0 million, or 190.0%, from $6.8 million in 2010 to $19.8 million in 2011. The increase in research and development expenses was primarily due to the development of our next-generation, high-efficiency cells, expanded and other innovative product development initiatives and the expansion of our research and development team. We expect our research and development expenses will continue to increase in 2012 as we continue to undertake technology development related to future product offerings. Research and development expenses as a percentage of our total net revenues were approximately 0.5% and 1.0% in 2010 and 2011, respectively.

        Interest Expenses, Net.    Our interest expenses, net increased by $20.2 million, or 132.4%, from $15.2 million in 2010 to $35.4 million in 2011. The increase in our interest expenses from $22.2 million in 2010 to $43.8 million in 2011, or 97.8% was due to a significant increase in bank borrowings to finance our increased working capital requirements and our daily operations during 2011. Interest expense is expected to increase in the near future in line with increased bank borrowings. Interest income increased from $6.9 million in 2010 to $8.4 million in 2011, or 21.8%, mainly due to increased restricted cash and higher rates.

        Gain/(Loss) On Change in Fair Value of Derivatives.    In 2011, we recorded a loss on change in fair value of derivatives of $5.8 million, compared to a gain of $1.7 million in 2010. The gain or loss on change in fair value of derivatives represents a gain or loss on the foreign currency hedges that we established on part of our expected cash flows and balances denominated in foreign currencies, mainly in the Euro, by means of foreign currency forward or option contracts.

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        Investment Income/(Loss).    We recorded an investment loss of $41,163 in 2011 compared to investment loss of $2.8 million in 2010. The investment loss in 2010 was mainly due to the impairment of an investment in a UMG-Si supplier amounting to $3.0 million.

        Foreign Exchange Loss.    We recorded a foreign exchange loss of $40.0 million in 2011, compared to a foreign exchange loss of $36.3 million in 2010. These foreign exchange losses were mainly due to the depreciation of the Euro and appreciation of the Renminbi against the U.S. dollar.

        Income Tax Benefit (Expenses).    Our income tax expense was $16.5 million in 2011, compared to $16.8 million in 2010. Although we experienced loss in 2011, the income tax expenses remained stable mainly due to our tax structure where revenues for certain Chinese subsidiaries from overseas trading companies are on a cost plus basis, and can result in taxes being owed in some jurisdictions even when we incurred an overall loss.

        Net Income Attributable To Non-Controlling Interest.    The net income attributable to non-controlling interest represented the share of net income by the non-controlling shareholders in certain of our subsidiaries in China, Germany, Japan and the U.S.

        Net Income (Loss) Attributable To Canadian Solar Inc.    As a result of the foregoing, the net income attributable to Canadian Solar Inc. decreased by $141.4 million, or 279.6%, from $50.6 million in 2010, to negative $90.8 million in 2011.

B.    Liquidity and Capital Resources

        We are generally required to make prepayments to suppliers of silicon wafers and cells and silicon raw materials. Even though we require some customers to make partial prepayments, there is typically a lag between the time we make our prepayments for silicon wafers and cells and silicon raw materials and the time our customers make their prepayments. The purchase of solar wafers and cells and silicon raw materials through toll manufacturing arrangements has required, and will continue to require, us to make significant commitments of working capital beyond that generated from our cash flows from operations to support our estimated production output.

        In addition, our total solution business required increased liquidity in 2012 and is expected to continue to require significant liquidity in the future. The time cycles of our solar power development projects can vary substantially and can take up to many years to mature. As a result, we may need to make significant up-front investments of resources before the collection of any cash from the sale of these projects. These investments include payment of interconnection and other deposits, posting of letters of credit, and incurring engineering, permitting, legal, and other expenses. In addition, we may have to use our working capital or our existing bank facilities to finance the construction of these solar power development projects. Depending on the size and number of solar power projects that we are developing and self-financing, our liquidity requirements could be significant. Delays in constructing or completing the sale of any of projects which we are self-financing could also impact our liquidity.

        In 2012, we made a loss provision totaling RMB188.9 million ($30.3 million) following an arbitration award in favor of LDK by CIETAC Shanghai Branch. See "Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal and Administrative Proceedings." We dispute the merits of the arbitration award and will pursue all legal means to overturn or resist the implementation of the award. However, if we do not succeed, payment of the award to LDK could have an adverse effect on our liquidity.

        In 2012, we financed our operations primarily through cash flows from operations and short-term and long-term borrowings. As of December 31, 2012, we had $142.0 million in cash and cash equivalents. Our cash and cash equivalents consist primarily of cash on hand, bank balances and

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demand deposits with original maturities of three months or less that are outstanding and placed with banks. As of March 31, 2013, we had contractual bank lines with an aggregate limit of approximately $1,128 million, of which $432 million is due beyond December 31, 2013. Out of these bank lines totaling $432 million, we have drawn down $234 million by March 31, 2013. In addition, we had non-contractual bank lines with an aggregate limit of approximately $314 million, of which $32 million is due beyond December 31, 2013. Out of these bank lines totaling $32 million, we have drawn down $28.5 million by March 31, 2013. Non-contractual bank lines represent non-legally binding facility limits granted by banks, which can be changed unilaterally by the banks. As of March 31, 2013, on all our contractual and non-contractual bank lines, we had drawn down approximately $241 million of long-term borrowings, of which $72 million was secured by charges on land use rights and property, plant and equipment, and approximately $911 million of short-term borrowings, of which $155 million was secured by charges on inventory, land use rights, and property, plant and equipment. The long-term borrowings mature at various times during the period 2014 to 2017 and bear interest at rates of between 0.90% and 7.05% per annum. The short-term borrowings mature at various times during 2013 and the first quarter of 2014 and bear interest at rates of between 0.66% and 12.5% per annum. Our bank lines contain no specific extension terms but, historically, we have been able to obtain new short-term loans on terms similar to those of the maturing short-term loans shortly before they mature.

        During 2012, the solar industry was negatively impacted by a number of factors, including excess capacity, reduction of government incentives in key solar markets, higher import tariffs and the European debt crisis. These factors contributed to declining average selling prices throughout the industry, including our products.

        In addition, during 2012, we made a strategic decision to further expand into the downstream total solution business and acquired a significant number of project assets, which are not expected to be accretive, in terms of cash flows or revenues, until late 2013.

        All these factors have had a significant impact on our liquidity as of and for the year ended December 31, 2012, including the following:

        In response to the foregoing, we have carried out a review of our cash flow forecast for the twelve months ending December 31, 2013 and note the following:

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        Based on the above, we believe that adequate sources of liquidity will exist to fund our working capital and capital expenditures requirements and to meet our short term debt obligations and other liabilities and commitments as they become due.

        We expect that our accounts receivable, inventories and project assets, three of the principal components of our current assets, will increase in line with increases in our net revenues. Due to market competition, in many cases, we offer credit terms to our customers ranging from 30 days up to 120 days with small advance payments ranging from 5% to 20% of the sale prices. The prepayments are recorded as current liabilities under advances from customers, and amounted to $65.2 million as of December 31, 2011 and $18.7 million as of December 31, 2012. As the market demand for our products has changed and as we have diversified our geographical markets, we have increased and may continue to increase credit term sales to creditworthy customers after careful review of their credit standings and accept export credit insurance by Sinosure.

        Our inventories have increased due to the rapid growth of our operations and business. Our inventory turnover days increased from 65 days in 2011 to 94 days in 2012.

        The following table sets forth a summary of our cash flows for the periods indicated:

 
  As of December 31,  
 
  2010   2011   2012  
 
  (in thousands of $)
 

Net cash provided by (used in) operating activities

    (58,487 )   60,124     (147,759 )

Net cash used in investing activities

    (133,989 )   (193,577 )   (306,491 )

Net cash provided by financing activities

    312,629     177,748     249,576  

Net increase (decrease) in cash and cash equivalents

    128,541     55,343     (202,027 )

Cash and cash equivalents at the beginning of the year

    160,111     288,652     343,995  

Cash and cash equivalents at the end of the year

    288,652     343,995     141,968  

        Net cash used in operating activities was $147.8 million in 2012 compared to net cash provided by operating activities of $60.1 million in 2011. The year-over-year decrease in operating cash flow was primarily due to the increased use of cash to expand our total solution business. The net cash used in operating activities in 2012 included payments of $162.3 million relating to the acquisition of solar power projects. The decrease in operating cash flow in 2012 was partially offset by the effect of continued improvement in our working capital management.

        Net cash used in operating activities of $58.5 million in 2010 increased to net cash provided by operating activities of $60.1 million in 2011. The increase from 2010 to 2011 was primarily due to

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strengthened working capital management which led to increases in accounts payable, short-term notes payable and advances from customers, partially offset by increases in accounts receivable.

        Net cash used in investing activities increased from $193.6 million in 2011 to $306.5 million in 2012. The increase in net cash used in investing activities in 2012 was due to increase in restricted cash as collateral to secure our bank acceptances and bank borrowings, partially offset by decreased payments to acquire property, plant and equipment.

        Net cash used in investing activities increased from $134.0 million in 2010 to $193.6 million in 2011. The increase was primarily due to an increase in property, plant and equipment as a result of improvements of our solar cell manufacturing capacity, technology and other projects offset in part by a decrease in restricted cash in 2011.

        Net cash provided by financing activities increased from $177.7 million in 2011 to $249.6 million in 2012. The increase in net cash provided by financing activities in 2012 was primarily due to a net increase in bank borrowings.

        Net cash provided by financing activities decreased from $312.6 million in 2010 to $177.7 million in 2011, primarily as a result of reduced net proceeds from short-term borrowings in 2011.

        We believe that our current cash and cash equivalents, anticipated cash flow from operations and existing banking facilities will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures, for the 12 months ending December 31, 2013, under our current market guidance. We may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. The availability of commercial loans from Chinese commercial banks may be affected by administrative policies of the PRC government, which in turn may affect our plans for business expansion. If our existing cash or the availability of commercial bank borrowings is insufficient to meet our requirements, we may seek to sell additional equity securities or debt securities or borrow from other sources. We cannot assure that financing will be available in the amounts we need or on terms acceptable to us, if at all. The issuance of additional equity securities, including convertible debt securities, would dilute the holdings our shareholders. The incurrence of debt would divert cash for working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as required, our business operations and prospects may suffer.

        We made capital expenditures of $134.3 million, $205.4 million and $60.5 million in 2010, 2011 and 2012, respectively. Our capital expenditures were used primarily to expand our manufacturing capacity for ingot, wafer, solar cells and solar modules. As of December 31, 2012, our short-term commitments for the purchase of property, plant and equipment were $3.2 million.

        Our PRC subsidiaries are required under PRC laws and regulations to make appropriations from net income as determined under accounting principles generally accepted in the PRC, or PRC GAAP, to non-distributable reserves, which include a general reserve, staff welfare and bonus reserve. The general reserve is required to be made at not less than 10% of the profit after tax as determined under PRC GAAP. Our board of directors determines the staff welfare and bonus reserve. The general

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reserve is used to offset future extraordinary losses. Our PRC subsidiaries may, upon a resolution of the board of directors, convert the general reserve into capital. The staff welfare and bonus reserve is used for the collective welfare of the employees of the PRC subsidiaries. These reserves represent appropriations of the retained earnings determined under PRC law. In addition to the general reserve, our PRC subsidiaries are required to obtain approval from the local government authorities prior to decreasing and distributing any registered share capital to their shareholders. Accordingly, both the appropriations to general reserve and the registered share capital of our PRC subsidiaries are considered as restricted net assets. These restricted net assets amounted to $491.2 million, $354.0 million and $360.0 million as of December 31, 2010, 2011 and 2012, respectively.

        Our operations in China are subject to certain restrictions on the transfer and use of cash within the Company. Transfers of cash between our PRC subsidiaries and the Canadian parent company are restricted to normal trade business payments and any further capital contribution from the Canadian parent company only under China's existing foreign currency regulations. Foreign exchange transactions by our PRC subsidiaries under most capital accounts continue to be subject to significant foreign exchange controls and require the approval of PRC governmental authorities. In particular, if we finance our PRC subsidiaries by means of additional capital contributions, certain government authorities, including the Ministry of Commerce or its local counterparts, must approve these capital contributions. These limitations could affect the ability of our Chinese subsidiaries to obtain foreign exchange through equity financing.

        As of December 31, 2012, $116.3 million of undistributed earnings in our PRC subsidiaries are considered to be indefinitely reinvested so that no provision of withholding taxes has been provided in our consolidated financial statements. Our PRC subsidiaries are required to make appropriations of at least 10% of net income, as determined under accounting principles generally accepted in the PRC, to a non-distributable general reserve. After making this appropriation, the balance of the $116.3 million of undistributed earnings is distributable. Should our PRC subsidiaries subsequently distribute the distributable earnings, they are subject to applicable withholding taxes to the PRC State Administration of Tax.

C.    Research and Development

        We have significantly expanded our research and development activities since 2009. We have two new research and development centers with state-of-the-art equipment—the Center for Solar Cell Research and the Center for Photovoltaic Testing and Reliability Analysis. The Center for Solar Cell Research is focused on developing new high efficiency solar cells and advanced solar cell processing technologies. The Center for Photovoltaic Testing and Reliability Analysis is focused on photovoltaic module testing, photovoltaic module components testing and qualifications, and photovoltaic module performance and reliability testing and analysis. As of December 31, 2012, we had approximately 187 employees in research, product development and engineering.

        Our research and development activities have generally focused on the following areas:

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        Our research and development team works closely with our manufacturing teams and our suppliers, partners and customers. We have also established collaborative research and development relationships with a number of companies, universities and research institutes, including DuPont, Shanghai Jiaotong University and the University of Toronto.

        Going forward, we will focus on the following research and development initiatives that we believe will enhance our competitiveness:

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D.    Trend Information

        Other than as disclosed elsewhere in this annual report on Form 20-F, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

E.    Off Balance Sheet Arrangements

        We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder's equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.

F.     Tabular Disclosure of Contractual Obligations

        The following table sets forth our contractual obligations and commercial commitments as of December 31, 2012:

 
  Payment Due by Period  
 
  Total   Less Than
1 Year
  1 - 3 Years   3 - 5 Years   More Than
5 Years
 
 
  (In thousands of US$)
 

Short-term debt obligations

    858,927     858,927              

Interest related to short-term debt obligations(1)

    14,010     14,010              

Operating lease obligations

    15,564     4,691     4,605     2,676     3,592  

Purchase obligations(2)

    857,202     268,464     588,738          

Other long-term borrowing(3)

    214,563         85,144     129,419      

Interest related to long-term debt(4)

    48,812     14,214     21,836     12,762      
                       

Total

    2,009,078     1,160,306     700,323     144,857     3,592  
                       

(1)
Interest rates range from 0.66% to 7.26% per annum for short-term debt.

(2)
Includes commitments to purchase production equipment of $3.2 million, commitments to purchase equity interest of two solar projects of $17.6 million and commitments to purchase solar cells, wafers and silicon raw materials of $836.4 million.

(3)
The other long-term borrowings mainly consist of the following items: unsecured commercial loans with Agricultural Bank of China of $40 million and China Development Bank of $70 million; secured commercial loans with Agricultural Bank of China of $38 million and Bank of Communication of $34 million.

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(4)
Interest rates range from 0.90% to 7.05% per annum for long-term borrowings.

        The table above excludes uncertain tax liabilities of $14.8 million, as we are unable to reasonably estimate the timing of future payments due to uncertainties in the timing of the effective settlement of these tax positions. For additional information, see the notes to our consolidated financial statements, included herein.

        In April 2012, we entered into a purchase agreement with SkyPower to acquire a majority interest in 16 solar projects for a total consideration of approximately C$185 million ($186 million), of which $69.8 million were paid upon the closing conditions, $69.8 million were paid on May 31, 2012 and the balance will be paid as the solar projects reach certain milestones.

        Other than the contractual obligations and commercial commitments set forth above, we did not have any long-term debt obligations, operating lease obligations, purchase obligations or other long-term liabilities as of December 31, 2012.

G.    Safe Harbor

        This annual report on Form 20-F contains forward-looking statements that relate to future events, including our future operating results, our prospects and our future financial performance and condition, results of operations, business strategy and financial needs, all of which are largely based on our current expectations and projections. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as "may," "will," "expect," "anticipate," "future," "intend," "plan," "believe," "estimate," "is/are likely to" or similar expressions. Forward-looking statements involve inherent risks and uncertainties. These forward-looking statements include, among other things, statements relating to:

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        Known and unknown risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements. See "Item 3. Key Information—D. Risk Factors" for a discussion of some risk factors that may affect our business and results of operations. These risks are not exhaustive. Other sections of this annual report may include additional factors that could adversely influence our business and financial performance. Moreover, because we operate in 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 impact of these factors on our business or the extent to which any factor, or combination of factors, may cause actual result to differ materially from those expressed or implied in any forward-looking statement. We do not undertake any obligation to update or revise the forward-looking statements except as required under applicable law.

ITEM 6.    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.    Directors and Senior Management

        The following table sets forth information regarding our directors and executive officers as of the date of this annual report on Form 20-F.

Name
  Age   Position/Title

Shawn (Xiaohua) Qu

    49   Chairman of the Board, President and Chief Executive Officer

Robert McDermott

    71   Lead Independent Director

Lars-Eric Johansson

    66   Independent Director

Harry E. Ruda

    54   Independent Director

Michael G. Potter

    46   Senior Vice President, Chief Financial Officer and Director

Guangchun Zhang

    55   Chief Operation Officer

Charlotte Xi Klein

    57   Senior Vice President, Global Operations

Yan Zhuang

    49   Senior Vice President and Chief Commercial Officer

        Dr. Shawn (Xiaohua) Qu has served as our chairman, president and chief executive officer since founding our company in October 2001. Through his leadership, we became a public listed company on NASDAQ in 2006 and have since firmly established ourselves among the top ranked manufacturers of solar photovoltaic products globally. Prior to founding Canadian Solar, Dr. Qu held various positions in product engineering, business development and strategic planning at ATS Automation Tooling Systems, Inc., or ATS, and its solar subsidiary Photowatt International S.A. Prior to ATS, Dr. Qu was a research scientist at Ontario Power Generation where he worked as a process leader in its solar product commercialization team. In 2011, Dr. Qu became a visiting professor at Tsinghua University, one of the most prestigious universities in China. Dr. Qu has published research articles in academic journals including IEEE Quantum Electronics, Applied Physics Letter and Physical Review. He received a Ph.D. in material sciences in 1995 from the University of Toronto, focusing on semiconductor super lattice and optical effects. He also holds a Master of Science in physics from University of Manitoba and a Bachelor of Science in applied physics from Tsinghua University in Beijing.

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        Mr. Robert McDermott has served as lead independent director of our Company since August 2006. Mr. McDermott is a corporate director and consultant. Before July 2011, he was a partner with McMillan LLP, a business law firm based in Canada, where he practiced business law, with an emphasis on mergers and acquisitions, securities and corporate finance, and advised boards and special committees of public companies on corporate governance matters. He is now a counsel to the firm. Mr. McDermott was admitted to the Ontario Bar in Canada in 1968. He has a Juris Doctor degree from the University of Toronto in 1966 and a Bachelor of Arts degree from the University of Western Ontario in 1963.

        Mr. Lars-Eric Johansson has served as an independent director of our Company since August 2006. Mr. Johansson has worked in finance and controls positions for more than thirty years in Sweden and Canada. He has been the president and chief executive officer of Ivanplats Limited (formerly known as Ivanhoe Nickel & Platinum Ltd.), a Canadian public mining company since May 1, 2007. From 2004 to 2007, Mr. Johansson was a director and chairperson of the audit committee of Harry Winston Diamond Corporation, a specialist diamond company with assets in the mining and retail segments of the diamond industry. From May 2004 to April 2006, he was an executive vice president and the chief financial officer of Kinross Gold Corporation, a gold mining company dually listed on the Toronto Stock Exchange and the New York Stock Exchange. Between June 2002 and November 2003, Mr. Johansson was an executive vice president and chief financial officer of Noranda Inc., a Canadian mining company dually listed on the Toronto Stock Exchange and the New York Stock Exchange. Until May 2004, Mr. Johansson served as a special advisor at Noranda Inc. From 1989 to May 2002, he was the chief financial officer of Falconbridge Limited, a mining and metals company in Canada listed on the Toronto Stock Exchange. He has chaired the audit committee of Golden Star Resources Ltd., a gold mining company dually listed on the Toronto Stock Exchange and American Stock Exchange, from 2006 to 2010. From 2002 to 2003, he was also a director of Novicor Inc., a company listed on the Toronto Stock Exchange. Mr. Johansson holds an MBA, with a major in finance and accounting, from Gothenburg School of Economics in Sweden.

        Dr. Harry E. Ruda has served as an independent director since July 2011. He is the Director of the Centre for Advanced Nanotechnology, the Stanley Meek Chair in Nanotechnology and Professor of Applied Science and Engineering at the University of Toronto, Canada. From 1982 to 1984, he developed one of the first theories for electron transport in selectively doped two dimensional electron gas heterostructures, while working as an IBM post-doctoral fellow. From 1984 to 1989, he was a senior scientist at 3M Corporation, developing some of the first models for electronic transport and optical properties of wide bandgap II-VI semiconductors. Dr. Ruda joined the faculty of the University of Toronto in 1989 in the Material Science and Engineering and Electrical and Computer Engineering Departments. His research interests focus on the fabrication and modeling of semiconductor nanostructures with applications in the fields of optoelectronics and sensing. Dr. Ruda is one of the founders of a Canadian National Centre of Excellence in Photonics. He has served on the National Science and Engineering Council of Canada and on other government panels, including those of the DOE, EPA and NSF in the United States and the RAE and EPSRC in the UK. Dr. Ruda is a Fellow of the Royal Society of Canada. He obtained his PhD in semiconductor physics from the Massachusetts Institute of Technology in 1982.

        Mr. Michael G. Potter served as an independent director of our Company from September 2007 until he was appointed our senior vice president and chief financial officer in July 2011. He continued as a director. Mr. Potter has worked in finance, controlling and audit positions with a variety of multinational companies for over 20 years. From February 2009 to April 2011, he served as the corporate vice president and chief financial officer of Lattice Semiconductor Corporation, a Nasdaq-listed semiconductor device company. Prior to that, he was senior vice president and chief financial officer of NYSE-listed NeoPhotonics Corporation, a leading provider of photonic integrated circuit-based modules, components and subsystems for use in optical communications networks with extensive

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operations in Shenzhen, China. Before joining NeoPhotonics Corporation in May 2007, he was the senior vice president and chief financial officer of STATS ChipPAC, a semiconductor assembly and test services company based in Singapore and listed on the Singapore Stock Exchange. Before that, he held a variety of executive positions at NYSE-listed Honeywell Inc. Mr. Potter is a Chartered Accountant and holds a Bachelor of Commerce degree from Concordia University, Canada and a Diploma of Accountancy from McGill University, Canada.

        Mr. Guangchun Zhang has served as our chief operation officer since December 2012 and has over 18 years of experience in the photovoltaic industry. Prior to joining us, Mr. Zhang worked for Suntech Power Holdings Co., Ltd, most recently as senior vice president for research and development and industrialization of manufacturing technology since December 2005. Prior to joining Suntech, Mr. Zhang previously worked at the Centre for Photovoltaic Engineering at the University of New South Wales in Australia and Pacific Solar Pty. Limited from June 1994 to November 2005. Mr. Zhang was an associate professor in Shandong Technology University in China from February 1982 to May 1994. Mr. Zhang received his bachelor degree in 1982 from the School of Electronic Engineering at Shandong Industrial Institute.

        Ms. Charlotte Xi Klein has served as our senior vice president of global operations since July 2011. Prior to that, she has served as our vice president of global operations from November 2009 to July 2011, vice president of finance from August 2008 to November 2009 and our compliance officer from September 2007 to November 2009. She also served as our corporate controller from February 2007 to July 2008. Prior to joining us, between 2004 and 2007, Ms. Xi Klein was director of accounting and compliance at ARAMARK Corporation, a Fortune 500 company, and TV Guide Magazine in the United States, responsible for financial reporting and successfully implementing Sarbanes-Oxley compliance during the first year of its applicability. In addition to her corporate reporting experience, Ms. Xi Klein spent eight years in manufacturing facilities with progressive job responsibilities from cost accountant to plant controller for Saint-Gobain Corporation and Armstrong World Industries. Ms. Xi Klein holds a bachelor's degree from the Shanghai Teachers University and MA and MBA degrees from the Midwestern State University in Texas. She is also a member of the AICPA and has been a Texas-licensed CPA since 1996.

        Mr. Yan Zhuang has served as our chief commercial officer since May 2012. He has also severed as our senior vice president of global sales and marketing since July 2011, and prior to that as our vice president of global sales and marketing since June 2009. He was an independent director of our Company from September 2007 to June 2009. Mr. Zhuang has worked in corporate branding, sales and marketing positions with, or provided consulting services to, a variety of multinational companies for over 15 years. In 2008, he founded and became a director of INS Research and Consulting. Mr. Zhuang was the head of Asia for Hands-on Mobile, Inc., a global media and entertainment company with operations in China, South Korea and India, from 2006 to 2007. He previously served as our senior vice president of business operations and marketing in Asia. Before joining Hands-on Mobile, Inc., he held various marketing and business operation positions with Motorola Inc., including as its Asia Pacific regional director of marketing planning and consumer insight. Prior to that, he was a marketing consultant in Canada and China. Mr. Zhuang holds a bachelor's degree in electrical engineering from Northern Jiaotong University, China, a Master of Science degree in applied statistics from the University of Alberta, Canada and a Master of Science degree in marketing management from the University of Guelph, Canada.

        Under our governing statute, our directors have a duty of loyalty to act honestly and in good faith with a view to our best interests. They also have a duty to exercise the care, diligence and skill that a

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reasonably prudent person would exercise in comparable circumstances. A shareholder has the right to seek damages if a duty owed by our directors is breached. The functions and powers of our board of directors include, among others:

B.    Compensation of Directors and Executive Officers

        We paid our directors and executive officers aggregate cash remuneration, including salaries, bonuses and benefits in kind, of approximately $1.8 million for 2012. Of this amount, we paid $166,500 to our three independent directors and approximately $1.7 million to our executive officers.

        In March 2006, we adopted a share incentive plan, or the Plan.

        The purpose of the Plan is to promote the success and enhance the value of the Company by linking the personal interests of the directors, officers and employees to those of the shareholders and providing the directors, officers and employees with an incentive for outstanding performance to generate superior returns to the shareholders. The Plan is also intended to motivate, attract and retain the services of the directors, officers and employees upon whose judgment, interest and effort the successful conduct of the Company's operations is largely dependent.

        In September 2010, the shareholders approved an amendment to the Plan to increase the maximum number of common shares which may be issued pursuant to all awards of restricted shares, options and restricted share units under the Plan to the sum of (i) 2,330,000 plus (ii) the sum of (a) 1% of the number of our outstanding common shares on the first day of each of 2007, 2008 and 2009 plus (b) 2.5% of our outstanding common shares on the first day of each calendar year after 2009. As at March 31, 2013, the maximum number of common shares which may be issued pursuant to all awards of restricted shares, options and restricted share units under the Plan was 7,530,000 common shares, of which 566,190 restricted shares, 3,473,046 options, and 2,834,213 restricted share units (in each case net of forfeitures) have been awarded, leaving 656,551 common shares available to be issued.

        The following describes the principal terms of the Plan.

        Types of Awards.    We may make the following types of awards under the Plan:

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        Plan Administration.    The Compensation Committee of our board of directors administers the Plan, except with respect to awards made to our non-employee directors, where the entire board of directors administers the Plan. The Compensation Committee or the full board of directors, as appropriate, determines the provisions, terms, and conditions of each award.

        Award Agreement.    Awards are evidenced by an award agreement that sets forth the terms, conditions and limitations for each award.

        Eligibility.    We may grant awards to employees, directors and consultants of our Company or any of our related entities, which include our subsidiaries and any entities in which we hold a substantial ownership interest. We may, however, grant options that are intended to qualify as incentive share options only to our employees.

        Acceleration of Awards upon Corporate Transactions.    Outstanding awards will accelerate upon a change-of-control where the successor entity does not assume our outstanding awards. In such event, each outstanding award will become fully vested and immediately exercisable, the transfer restrictions on the awards will be released and the repurchase or forfeiture rights will terminate immediately before the date of the change-of-control transaction.

        Exercise Price and Term of Options.    In general, the Compensation Committee determines the exercise price of an option and sets out the price in the award agreement. The exercise price may be a fixed or variable price related to the fair market value of our common shares. If we grant an incentive share option to an employee who, at the time of that grant, owns shares representing more than 10% of the voting power of all classes of our share capital, the exercise price cannot be less than 110% of the fair market value of our common shares on the date of that grant and the share option is exercisable for no more than five years from the date of that grant.

        The term of an award may not exceed ten years from the date of the grant.

        Vesting Schedule.    In general, the Compensation Committee determines the vesting schedule.

        The following table summarizes, as of March 31, 2013, the restricted shares granted under the Plan to our executive officers and to other individuals, individually and each as a group. We have not granted any restricted shares to our directors. The restricted shares granted in May 2006 vested over a two-year period beginning in March 2006. The vesting periods for all other restricted shares are indicated in the notes below.

Name
  Restricted
Shares
Granted
  Restricted
Shares
Vested
  Restricted
Shares
Forfeited
  Date of Grant   Expiration

Employees

                         

Twelve individuals as a group

    330,860     330,860       May 30, 2006   May 29, 2016

Hanbing Zhang(3)

    116,500 (4)   116,500       July 28, 2006   July 27, 2016
                     

Employees as a group

    447,360     447,360            

Other Individuals

                         

One individual

    2,330 (1)   2,330       May 30, 2006   May 29, 2016

One individual

    116,500 (2)   116,500       June 30, 2006   June 29, 2016
                     

Other Individuals as a group

    118,830     118,830            
                     

Total Restricted Shares

    566,190     566,190            

(1)
Vest on accelerated termination.

(2)
Vest over a two-year period from the date of grant.

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(3)
The wife of Dr. Qu, our founder, president, chairman and chief executive officer.

(4)
Vest over a four-year period from the date of grant.

        The following table summarizes, as of March 31, 2013, the options granted under the Plan to our directors and executive officers and to other individuals, individually and as a group. The options granted in May 2006 vest over a four-year period beginning in March 2006. Unless otherwise noted, all other options granted vest over a four-year period (one-quarter on each anniversary date) from the date of grant, and exercise prices are equal to the average of the trading prices of the common shares for the five trading days preceding the date of grant.

Name
  Common
Shares
Underlying
Options
Granted
  Common
Shares
Underlying
Options
Exercised
  Common
Shares
Underlying
Options
Forfeited
  Common
Shares
Underlying
Options
Outstanding
  Exercise
Price
($ per
Share)
  Date of Grant   Date of
Expiration
 

Directors:

                                           

Shawn (Xiaohua) Qu

    20,000             20,000     3.18     March 12, 2009     March 11, 2019  

    25,000             25,000     11.33     August 27, 2010     August 26, 2020  

    18,779             18,779     9.33     May 20, 2011     May 19, 2021  

Robert McDermott

   
46,600

(1)
 
   
   
46,600
   
15.00

(3)
 
August 8, 2006
   
August 7, 2016
 

    23,300 (2)   23,300             9.88     July 1, 2007     June 30, 2017  

    23,300 (2)           23,300     41.75 (4)   June 26, 2008     June 25, 2018  

    23,300 (2)           23,300     13.75 (4)   June 29, 2009     June 28, 2019  

    23,300 (2)           23,300     12.09 (4)   September 20, 2010     September 19, 2020  

    23,300 (2)           23,300     9.81 (4)   June 27, 2011     June 26, 2021  

    23,300 (2)           23,300     3.03 (4)   June 11, 2012     June 10, 2022  

Lars-Eric Johansson

   
46,600

(2)
 
25,000
   
   
21,600
   
15.00

(3)
 
August 8, 2006
   
August 7, 2016
 

    23,300 (2)           23,300     9.88 (4)   July 1, 2007     June 30, 2017  

    23,300 (2)           23,300     41.75 (4)   June 26, 2008     June 25, 2018  

    23,300 (2)           23,300     13.75 (4)   June 29, 2009     June 28, 2019  

    23,300 (2)           23,300     12.09 (4)   September 20, 2010     September 19, 2020  

    23,300 (2)           23,300     9.81 (4)   June 27, 2011     June 26, 2021  

    23,300 (2)           23,300     3.03 (4)   June 11, 2012     June 10, 2022  

Harry E. Ruda

   
23,300

(2)
 
   
   
23,300
   
8.31

(4)
 
August 14, 2011
   
August 13, 2021
 

    23,300 (2)           23,300     3.03 (4)   June 11, 2012     June 10, 2022  

Michael G. Potter

   
23,300

(2)
 
   
   
23,300
   
7.36

(4)
 
September 24, 2007
   
September 23, 2017
 

    23,300 (2)           23,300     41.75 (4)   June 26, 2008     June 25, 2018  

    23,300 (2)           23,300     13.75 (4)   June 29, 2009     June 28, 2019  

    23,300 (2)           23,300     12.09 (4)   September 20, 2010     September 19, 2020  

    23,300 (2)           23,300     9.81 (4)   June 27, 2011     June 26, 2021  

    60,688             60,688     9.52     July 20, 2011     July 19, 2021  

Directors as a Group

   
660,367
   
48,300
   
   
612,067
                   

Executive Officers:

                                           

Charlotte Xi Klein

    46,600     34,950         11,650     12.10     March 1, 2007     February 28, 2017  

    11,652 (5)   11,652             7.36     September 24, 2007     September 23, 2017  

    12,000     3,000         9,000     3.18     March 12, 2009     March 11, 2019  

    40,000             40,000     16.10     November 8, 2009     November 7, 2019  

    15,000             15,000     11.33     August 27, 2010     August 26, 2020  

    11,268             11,268     9.33     May 20, 2011     May 19, 2021  

Yan Zhuang

    23,300 (2)   23,300             7.36     September 24, 2007     September 23, 2017  

    23,300 (2)           23,300     41.75     June 26, 2008     June 25, 2018  

    80,000             80,000     9.37     May 23, 2009     May 22, 2019  

    15,000             15,000     11.33     August 27, 2010     August 26, 2010  

    11,268             11,268     9.33     May 20, 2011     May 19, 2021  

Executive Officers as a Group

   
289,388
   
72,902
   
   
216,486
                   

Employees:

                                           

Ten employees as a group

    791,035     398,626     121,160     271,249     2.12     May 30, 2006     May 29, 2016  

Twenty-eight employees as a group

    126,170     48,380     33,202     44,588     4.29     May 30, 2006     May 29, 2016  

One employee

    2,330 (6)   2,330             4.29     May 30, 2006     May 29, 2016  

Two employees as a group

    51,260     47,765         3,495     4.29     June 30, 2006     June 29, 2016  

One employee

    64,075     64,075             4.29     July 17, 2006     July 16, 2016  

Hanbing Zhang(7)

    46,600             46,600     4.29     July 28, 2006     July 27, 2016  

One employee

    46,600 (1)   46,600             4.29     August 8, 2006     August 7, 2016  

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Name
  Common
Shares
Underlying
Options
Granted
  Common
Shares
Underlying
Options
Exercised
  Common
Shares
Underlying
Options
Forfeited
  Common
Shares
Underlying
Options
Outstanding
  Exercise
Price
($ per
Share)
  Date of Grant   Date of
Expiration
 

One employee

    58,250     14,563         43,687     12.00 (8)   August 8, 2006     August 7, 2016  

Three employees as a group

    11,650     5,079     1,747     4,824     12.00 (8)   August 31, 2006     August 30, 2016  

Two employees as a group

    33,300     11,650     21,650         12.10     March 1, 2007     February 28, 2017  

One employee

    6,990     1,748     5,242         12.10     March 1, 2007     February 28, 2017  

One employee

    23,300 (2)   23,300             9.88 (4)   July 1, 2007     June 30, 2017  

Five employees as a group

    52,280     5,413     41,867     5,000     8.21     August 17, 2007     August 16, 2017  

Seven employees as a group

    27,556     22,724     4,832         7.36     September 24, 2007     September 23, 2017  

Thirteen employees as a group

    216,745     111,443     64,982     40,320     7.36     September 24, 2007     September 23, 2017  

Six employees as a group

    36,136         11,136     25,000     19.55     February 28, 2008     February 27, 2018  

One employee

    10,000         10,000         19.40     March 3, 2008     March 2, 2018  

Two employees as a group

    18,000         18,000         20.67     March 31, 2008     March 30, 2018  

One employee

    30,000         30,000         46.28     June 26, 2008     June 25, 2018  

Four employees as a group

    30,000         15,000     15,000     27.88     August 7, 2008     August 6, 2018  

Seventy-eight employees as a group

    408,200     91,340     147,110     169,750     3.18     March 12, 2009     March 11, 2019  

Hanbing Zhang(7)

    6,000             6,000     3.18     March 12, 2009     March 11, 2019  

One employee

    20,000     2,500         17,500     5.26     March 30, 2009     March 29, 2019  

Eighteen employees as a group

    59,400     750     7,050     51,600     9.37     May 23, 2009     May 22, 2019  

One employee

    10,000         10,000         11.58     May 31, 2009     May 30, 2019  

Seven employees as a group

    30,800         17,600     14,400     15.18     August 6, 2009     August 5, 2019  

Thirteen employees as a group

    42,600         16,750     33,500     16.10     November 8, 2009     November 7, 2019  

One hundred and thirty-one employees as a group

    483,600         222,950     260,650     11.33     August 27, 2010     August 26, 2020  

Hanbing Zhang(7)

    12,000             12,000     11.33     August 27, 2010     August 26, 2020  

One employee

    100,000         100,000         15     October 8, 2010     October 7, 2020  

One hundred and fifty-three employees as a group

    236,000         62,200     173,800     15.24     November 14, 2010     November 13, 2020  

Five employees as a group

    32,900         4,200     28,700     13.99     March 5, 2011     March 4, 2021  

Seventy-two employees as a group

    341,796         88,266     253,530     9.33     May 20, 2011     May 19, 2021  

Hanbing Zhang(7)

    7,512             7,512     9.33     May 20, 2011     May 19, 2021  

Five employees as a group

    150,000         105,000     45,000     8.94     June 1, 2011     May 31, 2021  

Twenty employees as a group

    74,000     500     25,500     48,000     3.03     November 14, 2011     November 13, 2021  

Employees as a group

    3,697,085     898,786     1,185,444     1,621,705                    

Two individuals as a group

    11,650             11,650     15.00 (3)   April 13, 2007     April 12, 2017  

Individuals as a group

    11,650             11,650                    

Total Options

    4,658,490     1,019,988     1,185,444     2,453,058                    

(1)
Vest in two equal installments, the first upon the date of grant and the second upon the first year anniversary of the date of grant as long as the director remains in service.

(2)
Vest immediately upon the date of grant.

(3)
The initial public offering price of the common shares.

(4)
Exercise price equal to the average of the trading prices of the common shares for the 20 trading days preceding the date of grant.

(5)
Vest one year after the date of grant.

(6)
Vesting accelerated on termination.

(7)
The wife of Dr. Qu, our founder, chairman, president and chief executive officer.

(8)
80% of the initial public offering price of the common shares.

        We have agreed to grant each of our independent directors, Robert McDermott, Lars-Eric Johansson and Harry E. Ruda, options to purchase 23,300 of our common shares immediately after each annual shareholder meeting at an exercise price equal to the average of the trading price of our common shares for the 20 trading days ending on such date. These options vest immediately.

        The following table summarizes, as of March 31, 2013, the restricted share units granted under the Plan to our executive officers and to other individuals, individually and each as a group. We have not granted any restricted share units to our independent directors. The restricted share units granted on

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May 8, 2011 vested on the anniversary of the date of grant. The other restricted share units granted vest over a four-year period (one-quarter on each anniversary date) from the date of grant.

Name
  Restricted
Share Units
Granted
  Restricted
Share Units
Vested
  Restricted
Share Units
Forfeited
  Date of
Grant
  Expiration  

Directors:

                               

Shawn (Xiaohua) Qu

    6,154 (1)   6,154         May 8, 2011     May 7, 2021  

    13,706 (2)   3,426         May 20, 2011     May 19, 2021  

    75,075 (2)   18,768         March 16, 2012     March 15, 2022  

    67,024 (2)           March 9, 2013     March 8, 2023  

Michael G. Potter

   
42,868

(2)
 
10,717
   
   
July 20, 2011
   
July 19, 2021
 

    45,045 (2)   11,261         March 16, 2012     March 15, 2022  

    40,214 (2)           March 9, 2013     March 8, 2023  

Directors as a group

   
290,086
   
50,326
   
             

Executive Officers

                               

Guangchun Zhang

    80,000 (2)           March 9, 2013     March 8, 2023  

Charlotte Xi Klein

   
2,564

(1)
 
2,564
   
   
May 8, 2011
   
May 7, 2021
 

    8,224 (2)   2,056         May 20, 2011     May 19, 2021  

    45,045 (2)   11,261         March 16, 2012     March 15, 2022  

Yan Zhuang

   
2,564

(1)
 
2,564
   
   
May 8, 2011
   
May 7, 2021
 

    8,224 (2)   2,056         May 20, 2011     May 19, 2021  

    45,045 (2)   11,261         March 16, 2012     March 15, 2022  

    40,214 (2)           March 9, 2013     March 8, 2023  

Executive Officers as a group

    231,880     31,763                  

Employees

                               

Eight employees as a group

    11,280 (1)   8,204     3,076     May 8, 2011     May 7, 2021  

One hundred and seventy-three employees as a group

    415,577 (2)   90,009     91,152     May 20, 2011     May 19, 2021  

One hundred and forty-six employees as a group

    1,079,999 (2)   250,479     100,601     March 16, 2012     March 15, 2022  

Four employees as a group

    43,000 (2)       25,000     May 6, 2012     May 5, 2022  

Three employees as a group

    30,000 (2)           Aug 16, 2012     Aug 15, 2022  

Two employees as a group

    16,006 (2)           Aug 17, 2012     Aug 16, 2022  

One hundred and thirty-eight employees as a group

    889,406 (2)           March 9, 2013     March 8, 2023  

Hanbing Zhang(3)

    1,538 (1)   1,538         May 8, 2011     May 7, 2021  

    5,482 (2)   1,371         May 20, 2011     May 19, 2021  

    21,021 (2)   5,255         March 16, 2012     March 15, 2022  

    18,767 (2)           March 9, 2013     March 8, 2023  

Employees as a group

    2,532,076     356,856     219,829              

Total Restricted Share Units

    3,054,042     438,944     219,829              

(1)
Vest over a one-year period from the date of grant.

(2)
Vest over a four-year period from the date of grant.

(3)
The wife of Dr. Qu, our founder, president, chairman and chief executive officer.

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C.    Board Practices

        In 2012, our board of directors held six meetings and passed nine resolutions by unanimous written consent.

        Our officers are appointed by and serve at the discretion of our board of directors. Our current directors have not been elected to serve for a specific term and, unless re-elected, hold office until the close of our next annual meeting of shareholders or until such time as their successors are elected or appointed.

        Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee.

        Our audit committee comprises Messrs. Lars-Eric Johansson, Robert McDermott and Harry E. Ruda, and is chaired by Mr. Johansson. Mr. Johansson qualifies as an "audit committee financial expert" as required by the SEC. Each of Messrs. Johansson, McDermott and Ruda satisfies the "independence" requirements of the NASDAQ corporate governance rules and is "financially literate" as required by the NASDAQ rules. The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company.

        The audit committee is responsible for, among other things:

        In 2012, our audit committee held six meetings, and passed no resolution by unanimous written consent.

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        Our compensation committee consists of Messrs. Lars-Eric Johansson, Robert McDermott and Harry E. Ruda and is chaired by Mr. McDermott. Each of Messrs. Johansson, McDermott and Ruda satisfies the "independence" requirements of the NASDAQ corporate governance rules. The compensation committee assists the board in reviewing and approving the compensation structure for our directors and executive officers, including all forms of compensation to be provided to our directors and executive officers. Members of the compensation committee are not prohibited from direct involvement in determining their own compensation. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among other things:

        In 2012, our compensation committee held four meetings and passed two resolutions by unanimous written consent.

        Our nominating and corporate governance committee consists of Messrs. Lars-Eric Johansson, Robert McDermott and Harry E. Ruda and is chaired by Mr. McDermott. Each of Messrs. Johansson, McDermott and Ruda satisfies the "independence" requirements of the NASDAQ corporate governance rules. The nominating and corporate governance committee assists the board of directors in identifying individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee is responsible for, among other things:

        In 2012, our nominating and corporate governance committee held four meetings and passed no resolution by unanimous written consent.

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        A director of a corporation who is a party to a material contract or transaction or proposed material contract or transaction with the corporation, or is a director or officer of, or has a material interest in, any person who is party to such a contract or transaction, is required to disclose in writing or request to have entered into the minutes of meetings of directors the nature and extent of his or her interest. A director may vote in respect of such contract or transaction only if the contract or transaction is: (i) one relating primarily to remuneration as our director, officer, employee or agent; (ii) one for indemnity or insurance in favor of directors and officers; or (iii) one with an affiliate. In 2012, we did not enter into any interested transactions other than those described in this "Item 6. Directors, Senior Management and Employees" and "Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions."

        Our directors may determine the remuneration to be paid to them. The compensation committee will assist the directors in reviewing and approving the compensation structure for our directors. Our directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital, and to issue debentures or other securities whether outright or as security for any debt obligations of our company or of any third party.

        There is no shareholding qualification for directors.

        We have entered into employment agreements with each of our executive officers.

        All of the employment agreements with our executive officers are for an indefinite term. Under the employment agreements, we may terminate an executive officer's employment at any time for cause without notice and for any other reason by giving written notice of termination to the executive officer. An executive officer may terminate his employment at any time by giving 60 days' notice of termination to us. If we terminate an executive officer's employment for any reason other than cause, or the executive officer terminates his employment for good reason, the executive officer is entitled to continue to receive his salary for a period of six months following the termination of his employment provided that he continues to comply with his confidentiality, inventions and non-competition obligations described below.

        Each executive officer has agreed not to disclose or use, directly or indirectly, any of our confidential information, including trade secrets and information concerning our finances, employees, technology, processes, facilities, products, suppliers, customers and markets, except in the performance of his duties and responsibilities or as required pursuant to applicable law. Each executive officer has also agreed to disclose in confidence to us all inventions, designs and trade secrets which he may conceive, develop or reduce to practice during his employment and to assign all right, title and interest in them to us. Finally, each executive officer has agreed that he will not, directly or indirectly, during and within one year after the termination of his employment:

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        Our compensation committee is required to approve all employment agreements entered into by us with any officer whose base salary is equal to or greater than $150,000.

        We have entered into director agreements with our independent directors, pursuant to which we make payments in the form of an annual retainer and meeting fees and option grants to our independent directors for their services. See "Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers."

        Under the CBCA, we may indemnify a present or former director or officer or a person who acts or has acted at our request as a director or officer or an individual acting in a similar capacity, of another corporation or entity, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him or her in respect of any civil, criminal, administrative, investigative or other proceeding in which the individual is involved because of that association with the corporation or other entity, provided that the director or officer acted honestly and in good faith with a view to the best interests of the corporation or other entity and, in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, had reasonable grounds for believing that his or her conduct was lawful. Such indemnification may be made in connection with a derivative action only with court approval. A director or officer is entitled to indemnification from us as a matter of right if the court or other competent authority has judged that he or she has not committed any fault or omitted to do anything that the individual ought to have done and fulfilled the conditions set forth above.

        We have entered into indemnity agreements with each of our directors agreeing to indemnify them, to the fullest extent permitted by law, against all liability, loss, harm damage cost or expense, reasonably incurred by the director in respect of any threatened, pending, ongoing or completed claim or civil, criminal, administrative, investigative or other action or proceeding made or commenced against him or in which he is or was involved by reason of the fact that he is or was a director of the Company.

        Our directors and officers are covered by directors and officers' insurance policies.

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D.    Employees

        As of December 31, 2010, 2011 and 2012, we had 8,733, 9,087 and 7,020 full-time employees, respectively. The following table sets forth the number of our employees categorized by our areas of operations and as a percentage of our workforce as of December 31, 2012.

 
  As of December 31, 2012  
 
  Number of Employees   Percentage of Total  

Manufacturing

    5,383     76.7 %

General and administrative

    1,179     16.7 %

Research and development

    187     2.7 %

Sales and marketing

    271     3.9 %
           

Total

    7,020     100 %
           

        As of December 31, 2012, we had 2,693 employees at our facilities in Suzhou, 2,818 employees at our facilities in Changshu, 993 employees at our facilities in Luoyang, and 516 employees based in our facilities and offices in Canada, South Korea, Japan, Australia, Singapore, India, Philippines, the U.S. and the EU (which includes Germany, Italy and France). Our employees are not covered by any collective bargaining agreement. We consider our relations with our employees to be good. From time to time, we also employ part-time employees and independent contractors to support our manufacturing, research and development and sales and marketing activities. We plan to hire additional employees as we expand.

E.    Share Ownership

        The following table sets forth information with respect to the beneficial ownership of our common shares as of March 31, 2013, the latest practicable date, by:

        The calculations in the table below are based on the 43,553,586 common shares outstanding, as of March 31, 2013.

        Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days from March 31, 2013, including through the exercise of any option, warrant or other right or the conversion of any

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other security. These shares, however, are not included in the computation of the percentage ownership of any other person.

 
  Shares Beneficially
Owned(1)
 
 
  Number   %  

Directors and Executive Officers:(2)

             

Shawn (Xiaohua) Qu(3)

    13,532,225     31.0 %

Robert McDermott(4)

    167,100     *  

Lars-Eric Johansson(5)

    166,400     *  

Harry E. Ruda(6)

    46,600     *  

Michael G. Potter(7)

    196,368     *  

Charlotte Xi Klein(8)

    77,101     *  

Yan Zhuang(9)

    133,665     *  

All Directors and Executive Officers as a Group

    14,319,459     32.3 %

*
The person beneficially owns less than 1% of our outstanding shares.

(1)
Beneficial ownership is determined in accordance with Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, or Exchange Act, and includes voting or investment power with respect to the securities.

(2)
The business address of our directors and executive officers is 199 Lushan Road, Suzhou New District, Suzhou, Jiangsu 215129, People's Republic of China.

(3)
Includes 13,270,500 common shares directly held by Mr. Qu, 41,890 common shares issuable upon the exercise of options held by Mr. Qu within 60 days from March 31, 2013, 31,775 share issuable upon vesting of restricted share units held by Mr. Qu within 60 days from March 31, 2013, 124,334 common shares directly held by Hanbing Zhang, the wife of Mr. Qu, 62,356 common shares issuable upon the exercise of options held by Ms. Zhang within 60 days from March 31, 2013 and 1,370 share issuable upon vesting of restricted share units held by Ms. Zhang within 60 days from March 31, 2013.

(4)
Includes 4,000 common shares directly held by Mr. McDermott and 163,100 common shares issuable upon exercise of options held by Mr. McDermott within 60 days from March 31, 2013.

(5)
Includes 5,000 common shares directly held by Mr. Johansson and 161,400 common shares issuable upon exercise of options held by Mr. Johansson within 60 days from March 31, 2013.

(6)
Includes 46,600 common shares issuable upon exercise of options held by Mr. Ruda within 60 days from March 31, 2013.

(7)
Includes 64,696 common shares directly held by Mr. Potter and 131,672 common shares issuable upon exercise of options held by Mr. Potter within 60 days from March 31, 2013.

(8)
Includes 11,261 common shares directly held by Ms. Xi Klein, 63,784 common shares issuable upon exercise of options held by Ms. Xi Klein within 60 days from March 31, 2013 and 2,056 shares issuable upon vesting of restricted share units within 60 days from March 31, 2013.

(9)
Includes 15,175 common shares directly held by Mr. Zhuang, 116,434 common shares issuable upon exercise of options held by Mr. Zhuang within 60 days from March 31,

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    2013 and 2,056 shares issuable upon vesting of restricted share units within 60 days from March 31, 2013.

ITEM 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

        Dr. Qu fully guaranteed a one-year RMB250 million, RMB1,520 million and RMB1,001 million loan facilities from Chinese commercial banks in 2010, 2011 and 2012, respectively. Amounts drawn down from the facilities as at December 31, 2011 and 2012 were $33,328,470 and $66,349,563, respectively.

        In 2012, we sold solar modules to Gaochuangte in the amount of RMB66,520,343 ($10,513,212).

        In 2012, we paid RMB12,987,653 ($2,066,288) to Gaochuangte for solar project construction services. Since the solar project is for our internal use, these amounts were recorded in construction in progress.

        In 2011, we sold solar modules to Gaochuangte in the amount of RMB125,948,865 ($19,674,164).

        In 2011, we paid RMB16,444,130 ($2,609,798) to Gaochuangte for solar project construction services. Since the solar project is for our internal use, these amounts were recorded in construction in progress.

        See "Item 6. Directors, Senior Management and Employees—C. Board Practices—Employment Agreements."

        See "Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—Share-based Compensation—Share Incentive Plan."

C.    Interests of Experts and Counsel

        Not applicable.

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ITEM 8.    FINANCIAL INFORMATION

A.    Consolidated Statements and Other Financial Information

        We have appended audited consolidated financial statements filed as part of this annual report.

        On June 1, 2010, we announced that we would postpone the release of our financial results for the first quarter ended March 31, 2010 and our quarterly earnings call pending the outcome of an investigation by the Audit Committee of our Board of Directors that had been launched after we received a subpoena from the SEC requesting documents relating to, among other things, certain sales transactions in 2009. Thereafter six class action lawsuits were filed in the United States District Court for the Southern District of New York, or the New York cases, and another class action lawsuit was filed in the United States District Court for the Northern District of California, or the California case. The New York cases were consolidated into a single action in December 2010. On January 5, 2011, the California case was dismissed by the plaintiff, who became a member of the lead plaintiff group in the New York action. On March 11, 2011, a Consolidated Complaint was filed with respect to the New York action. The Consolidated Complaint alleges generally that our financial disclosures during 2009 and early 2010 were false or misleading; asserts claims under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder; and names us, our chief executive officer and our former chief financial officer as defendants. We filed our motion to dismiss in May 2011, which was taken under submission by the Court in July 2011. On March 30, 2012, the Court dismissed the Consolidated Complaint with leave to amend, and the plaintiffs filed an Amended Consolidated Complaint against the same defendants on April 19, 2012. On March 28, 2013, the Court entered an order granting our motion to dismiss and dismissing the Amended Consolidated Complaint with prejudice. On March 29, 2013, the Court entered judgment in the matter.

        In addition, a similar class action lawsuit was filed against us and certain of our executive officers in the Ontario Superior Court of Justice on August 10, 2010. The lawsuit alleges generally that our financial disclosures during 2009 and 2010 were false or misleading and brings claims under the shareholders' relief provisions of the Canada Business Corporations Act, Part XXIII.1 of the Ontario Securities Act as well as claims based on negligent misrepresentation. In December 2010, we filed a motion to dismiss the Ontario action on the basis that the Ontario Court has no jurisdiction over the claims and potential claims advanced by the plaintiff. The court dismissed our motion on August 29, 2011. On March 30, 2012, the Ontario Court of Appeal denied our appeal with regard to our jurisdictional motion. On November 29, 2012, the Supreme Court of Canada denied our application for leave to appeal the order of the Ontario Court of Appeal. Our jurisdiction motion is therefore at an end. To proceed with the case, the plaintiff must now bring his own motions for class certification and for leave to assert the statutory cause of action under the Ontario Securities Act. These motions are scheduled for argument in the Ontario Superior Court of Justice in June 2013. We believe the Ontario action is without merit and we are defending it vigorously.

        In July 2010, CSI Cells filed a request for arbitration against LDK with the CIETAC Shanghai Branch. In its arbitration request, CSI Cells asked that LDK refund (1) an advance payment of RMB10.0 million ($1.6 million) that it had made to LDK pursuant to a three-year wafer supply agreement between CSI Cells and LDK entered into in October 2007 and (2) two advance payments totaling RMB50.0 million ($8.0 million) that CSI Cells had made to LDK pursuant to two ten-year supply agreements between CSI Cells and LDK entered into in June 2008. The first hearing was held in October 2010, during which CSI Cells and LDK exchanged and reviewed the evidence. After the

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first hearing, LDK counterclaimed against CSI Cells, seeking (1) forfeiture of the three advance payments totaling RMB60.0 million ($9.6 million) that CSI Cells had made to LDK pursuant to the October 2007 and June 2008 agreements; (2) compensation of approximately RMB377.0 million ($60.5 million) for the loss due to the alleged breach of the June 2008 agreements by CSI Cells; (3) a penalty of approximately RMB15.2 million ($2.4 million) due to the alleged breach of the June 2008 agreements by CSI Cells; and (4) arbitration expenses up to RMB4.7 million ($0.8 million). The second hearing was held on March 9, 2011, during which the parties presented arguments to the arbitration commission. The arbitration commission hosted a settlement discussion between the parties on May 13, 2011. In December of 2012, CIETAC Shanghai Branch awarded RMB248.9 million ($40.0 million) plus RMB2.2 million ($0.4 million) in arbitration expenses in favor of LDK in relation to the wafer supply contracts we entered into with LDK. The total amount of the award includes RMB60.0 million ($9.6 million) that relates to the initial deposit. CIETAC Shanghai Branch determined that we had no legal grounds to cancel the long-term supply agreements. In February 2013, LDK filed for enforcement proceedings against us with the Suzhou Intermediate People's Court.

        We dispute the merits of the arbitration award and will pursue all legal means to overturn or resist the implementation of the award.

        In October 2011, a trade action was filed with the USDOC and USITC by the U.S. unit of SolarWorld AG and six other U.S. firms, accusing Chinese producers of CSPV cells, whether or not incorporated into modules, of selling their products into the United States at less than fair value, or dumping, and of receiving countervailable subsidies from the Chinese authorities. These firms asked the U.S. government to impose anti-dumping and countervailing duties on CSPV cells imported from China. The USDOC and the USITC investigated the validity of these claims. We were identified as one of a number of Chinese exporting producers of subject goods to the U.S. market. We also have affiliate U.S. operations that import subject goods from China.

        On October 9, 2012, the USDOC issued final affirmative determinations in the anti-dumping and countervailing duty investigations. On November 7, 2012, the USITC ruled that imports of these CSPV products had caused material injury to the U.S. CSPV industry. As a result of these rulings, the Company is required to pay cash deposits on subject CSPV imports from China. Cash deposit rates for subject Chinese-origin products of Canadian Solar were announced as being 13.94% (anti-dumping duty) and 15.24% (countervailing duty). The rate at which duties will be assessed and payable may be subject to administrative review next year and may differ from these announced deposit rates. These duties could materially and adversely affect our affiliated U.S. import operations and increase our cost of selling into the United States, thus adversely affecting our 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 rulings of 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 imports into the EU of CSPV modules and key components (i.e., cells and wafers) originating in China. On November 8, 2012, following a complaint lodged by the same parties, the European Commission initiated an anti-subsidy investigation on these products. In each investigation, we were identified as one of a number of Chinese exporting producers of subject goods to the EU market. We also have affiliate EU operations that import subject goods from China.

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        The Company was not chosen as one of the "sampled" companies in these EU investigations, which were required to provide written information to the EU authorities.

        The Company requested "market economy treatment" in the anti-dumping investigation, but this request was denied. A number of other affected Chinese companies have filed an action for annulment of the decision that denied "market economy treatment."

        On March 5, 2013, the European Commission published a Regulation making all imports of CSPV modules and key components originating in or consigned from China subject to registration by EU Member State customs authorities. This registration requirement is likely to remain in effect through the pendency of the investigations. The Company filed 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 countervailing duties will be announced by August 8, 2013, and definitive duties, if any, will be announced respectively by December 5 and 7, 2013.

        In late November, India initiated an anti-dumping investigation on imported solar products from China, Taiwan, the United States, and Malaysia. The scope of the Indian complaint includes thin-film and CSPV cells and modules, as well as "glass and other suitable substrates." The period of investigation is from January 1, 2011 to June 30, 2012. We completed and submitted a "sampling questionnaire" and were chosen by the Indian authorities to be a sampled company. We are now compiling the data requested of us.

        We have never declared or paid any dividends on our common shares, nor do we have any present plan to declare or pay any dividends on our common shares in the foreseeable future. We currently intend to retain our available funds and any future earnings to operate and expand our business.

        Our board of directors has complete discretion on whether to pay dividends. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations, earnings, capital requirements, surplus, general financial condition, contractual restrictions, and other factors that our board of directors may deem relevant.

B.    Significant Changes

        Between January 1, 2013 and March 31, 2013, an additional 49,008 options and 308,286 restricted share units granted under the Plan vested.

        Except as described above, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.

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ITEM 9.    THE OFFER AND LISTING

A.    Offering and Listing Details

        Our common shares have been listed on the Nasdaq Global Market under the symbol "CSIQ" since November 9, 2006. The following table sets forth the high and low trading prices for our common shares on the NASDAQ for the periods indicated.

 
  Trading Price  
 
  High   Low  
 
  $
  $
 

Annual Highs and Lows

             

2008

    51.80     3.11  

2009

    30.51     3.00  

2010

    33.68     8.99  

2011

    16.79     2.07  

2012

    4.74     1.95  

Quarterly Highs and Lows

             

First Quarter 2011

    16.79     10.20  

Second Quarter 2011

    12.01     8.25  

Third Quarter 2011

    11.65     3.66  

Fourth Quarter 2011

    4.14     2.07  

First Quarter 2012

    4.74     2.68  

Second Quarter 2012

    3.84     2.61  

Third Quarter 2012

    4.05     2.47  

Fourth Quarter 2012

    3.59     1.95  

First Quarter 2013

    5.15     3.12  

Monthly Highs and Lows

             

2012

             

October

    2.93     2.52  

November

    2.85     1.95  

December

    3.59     2.52  

2013

             

January

    4.74     3.40  

February

    5.15     3.76  

March

    4.02     3.12  

April (through April 25)

    4.85     3.16