Form 20-F
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
OR
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þ |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the fiscal year ended December 31, 2009
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
For the transition period from to
OR
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
Date of event requiring this shell company report
Commission file number: 001-33195
TRINA SOLAR LIMITED
(Exact Name of Registrant as Specified in Its Charter)
N/A
(Translation
of Registrants Name Into English)
Cayman Islands
(Jurisdiction of Incorporation or Organization)
No. 2 Tian He Road
Electronics Park, New District
Changzhou, Jiangsu 213031
Peoples Republic of China
(Address of Principal Executive Offices)
Terry Wang, Chief Financial Officer
Thomas Young, Director of Investor Relations
No. 2 Tian He Road
Electronics Park, New District
Changzhou, Jiangsu 213031
Peoples Republic of China
Tel: (+86) 519 8548 2008
Fax: (+86) 519 8517 6025
E-mail: ir@trinasolar.com
(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:
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Title of Each Class
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Name of Each Exchange on Which Registered |
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American Depositary Shares, each representing
50 ordinary shares, par value $0.00001 per share
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New York Stock Exchange |
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 issuers classes of capital or common
stock as of the close of the period covered by the annual report.
3,488,891,196 ordinary shares, par value $0.00001 per share, as of December 31, 2009.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes þ No o
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 þ
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 þ 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 during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o 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):
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Large accelerated filer o
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Accelerated filer þ
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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 þ
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 þ
(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
INTRODUCTION
Unless the context otherwise requires, in this annual report on Form 20-F:
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We, us, our, and our company refer to Trina Solar Limited, its predecessor
entities and its subsidiaries; |
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Trina refers to Trina Solar Limited; |
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Trina China refers to Changzhou Trina Solar Energy Co., Ltd.; |
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ADSs refers to our American depositary shares, each of which represents 50
ordinary shares. |
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China or PRC refers to the Peoples Republic of China, excluding, for the
purpose of this annual report, Taiwan, Hong Kong and Macau; |
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RMB or Renminbi refers to the legal currency of China, $ or U.S. dollars
refers to the legal currency of the United States, and or Euro refers to the
legal currency of the European Union; and |
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shares or ordinary shares refers to our ordinary shares, par value $0.00001 per
share. |
Names of certain companies provided in this annual report are translated or transliterated
from their original Chinese legal names.
Discrepancies in any table between the amounts identified as total amounts and the sum of the
amounts listed therein are due to rounding.
This annual report on Form 20-F includes our audited consolidated financial statements for the
years ended December 31, 2007, 2008 and 2009.
This annual report contains translations of certain Renminbi amounts into U.S. dollars at the
rate of RMB6.8259 to $1.00, the noon buying rate in effect on December 31, 2009 in New York City
for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of
New York. We make no representation that the Renminbi or U.S. dollar amounts referred to in this
annual report could have been or could be converted into U.S. dollars or Renminbi, as the case may
be, at any particular rate or at all. See Item 3. Key InformationD. Risk FactorsRisks Related
to Doing Business in ChinaFluctuation in the value of the Renminbi may have a material adverse
effect on your investment. On March 15, 2010, the noon
buying rate was RMB6.8259 to $1.00.
We completed the initial public offering of 5,300,000 ADSs on December 22, 2006. On December
19, 2006, we listed our ADSs on the New York Stock Exchange under the symbol TSL.
3
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 consolidated statement of operations data for the years ended December
31, 2007, 2008 and 2009 and the selected consolidated balance sheet data as of December 31, 2007,
2008 and 2009 have been derived from our audited financial statements included elsewhere in this
annual report. The selected consolidated financial data should be read in conjunction with those
financial statements and the accompanying notes and Item 5. Operating and Financial Review and
Prospects below. Our consolidated financial statements are prepared and presented in accordance
with United States generally accepted accounting principles, or U.S. GAAP. Our historical results
do not necessarily indicate our results expected for any future periods.
Our selected consolidated statements of operations data for the years ended December 31, 2005
and 2006 and our consolidated balance sheets as of December 31, 2005 and 2006 have been derived
from our audited consolidated financial statements, which are not included in this annual report.
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Year Ended December 31, |
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2005 |
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2006 |
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2007 |
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2008 |
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2009 |
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(in thousands, except for share, per share, operating data and percentages) |
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Consolidated Statement of Operations Data |
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Net revenues |
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$ |
27,275 |
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$ |
114,500 |
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$ |
301,819 |
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$ |
831,901 |
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$ |
845,136 |
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Cost of revenues |
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20,986 |
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84,450 |
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234,191 |
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667,459 |
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607,982 |
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Gross profit |
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6,289 |
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30,050 |
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67,628 |
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164,442 |
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237,154 |
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Operating expenses: |
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Selling expenses |
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521 |
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2,571 |
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11,019 |
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20,302 |
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30,940 |
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General and administrative expenses |
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1,375 |
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8,656 |
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17,817 |
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41,114 |
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65,406 |
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Research and development expenses |
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122 |
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1,903 |
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2,805 |
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3,039 |
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5,439 |
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Total operating expenses |
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2,018 |
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13,130 |
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31,641 |
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64,455 |
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101,785 |
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Income from continuing operations |
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4,271 |
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16,920 |
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35,987 |
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99,987 |
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135,369 |
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Foreign exchange gain (loss) |
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(1,999 |
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(11,802 |
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9,958 |
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Interest expense |
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(470 |
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(2,137 |
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(7,551 |
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(23,937 |
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(25,737 |
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Interest income |
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16 |
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261 |
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4,810 |
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2,944 |
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1,667 |
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Gain (loss) on change in fair value of derivative |
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854 |
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(1,067 |
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(1,590 |
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Other (expense) income |
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(27 |
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(82 |
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1,554 |
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(156 |
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2,613 |
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Income before income taxes |
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3,790 |
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14,962 |
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33,655 |
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65,969 |
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122,280 |
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Income tax (expense) benefit |
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(570 |
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(1,788 |
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1,707 |
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(4,609) |
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(24,696 |
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Net income from continuing operations |
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3,220 |
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13,174 |
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35,362 |
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61,360 |
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97,584 |
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Net Income (loss) from discontinued operations |
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91 |
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(753 |
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368 |
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4
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Year Ended December 31, |
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2005 |
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2006 |
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2007 |
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2008 |
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2009 |
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(in thousands, except for share, per share, operating data and percentages) |
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Net income |
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$ |
3,311 |
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$ |
12,421 |
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$ |
35,730 |
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$ |
61,360 |
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$ |
97,584 |
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Earnings per ordinary share from continuing operations: |
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Basic |
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0.00 |
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0.01 |
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0.02 |
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0.02 |
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0.04 |
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Diluted |
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0.00 |
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0.01 |
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0.02 |
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0.02 |
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0.03 |
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Earnings per ADS from continuing operations(1): |
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Basic |
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0.16 |
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0.49 |
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0.76 |
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1.23 |
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1.79 |
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Diluted |
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0.16 |
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0.48 |
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0.75 |
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1.20 |
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1.68 |
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Earnings per ordinary share: |
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Basic |
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0.00 |
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0.01 |
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0.02 |
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0.02 |
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0.04 |
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Diluted |
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0.00 |
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0.01 |
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0.02 |
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0.02 |
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0.03 |
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Earnings per ADS(1): |
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Basic |
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0.17 |
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0.46 |
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0.77 |
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1.23 |
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1.79 |
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Diluted |
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0.17 |
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0.45 |
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0.76 |
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1.20 |
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1.69 |
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Weighted average ordinary shares outstanding: |
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Basic |
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1,000,000,000 |
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1,038,316,484 |
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2,339,799,657 |
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2,501,202,680 |
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2,724,185,761 |
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Diluted |
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1,000,000,000 |
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1,058,483,593 |
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2,370,685,156 |
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2,690,723,390 |
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3,131,505,181 |
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Weighted
average ADS outstanding(1): |
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Basic |
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20,000,000 |
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20,766,330 |
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46,795,994 |
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50,024,054 |
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54,483,715 |
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Diluted |
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20,000,000 |
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21,169,672 |
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47,413,704 |
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53,814,468 |
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62,630,104 |
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Consolidated Financial Data |
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Gross margin |
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23.1 |
% |
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26.2 |
% |
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22.4 |
% |
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19.8 |
% |
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28.1 |
% |
Net margin of continuing operations |
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11.8 |
% |
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11.5 |
% |
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11.7 |
% |
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7.4 |
% |
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11.5 |
% |
Consolidated Operating Data |
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PV modules shipped (in MW) |
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6.79 |
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27.39 |
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75.91 |
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201.01 |
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399.01 |
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Average selling price ($/W) |
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$ |
4.02 |
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$ |
3.98 |
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$ |
3.80 |
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$ |
3.92 |
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$ |
2.10 |
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(1) |
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Reflects ADS ratio change effective January 2010. |
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As of December 31, |
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2005 |
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2006 |
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2007 |
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2008 |
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2009 |
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(in thousands) |
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Consolidated Balance Sheet Data |
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Cash and cash equivalents |
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$ |
1,224 |
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$ |
93,380 |
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$ |
59,696 |
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$ |
132,224 |
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$ |
406,058 |
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Restricted cash |
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|
527 |
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|
5,004 |
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103,375 |
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44,991 |
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72,006 |
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Inventories |
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6,696 |
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32,230 |
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58,548 |
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85,687 |
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81,154 |
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Accounts receivable, net |
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4,924 |
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29,353 |
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72,323 |
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|
105,193 |
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287,950 |
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Property, plant and equipment, net |
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9,630 |
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51,419 |
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197,124 |
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357,594 |
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476,858 |
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Total assets |
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32,298 |
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251,745 |
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600,674 |
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940,116 |
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1,548,698 |
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Short-term borrowings |
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6,628 |
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71,409 |
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163,563 |
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248,558 |
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267,428 |
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Accounts payable |
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3,845 |
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9,147 |
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42,691 |
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62,504 |
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186,535 |
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Total current liabilities |
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12,715 |
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88,068 |
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220,485 |
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335,714 |
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515,401 |
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Accrued warranty costs |
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272 |
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1,400 |
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4,486 |
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12,473 |
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21,023 |
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Long-term borrowings |
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4,957 |
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5,122 |
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8,214 |
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14,631 |
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182,516 |
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Total shareholders equity |
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14,355 |
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157,154 |
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367,489 |
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|
433,057 |
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|
677,225 |
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Total liabilities and shareholders equity |
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$ |
32,298 |
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$ |
251,745 |
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$ |
600,674 |
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$ |
940,116 |
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$ |
1,548,698 |
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5
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
As polysilicon supply increases, the corresponding increase in the global supply of photovoltaic
(PV) modules may cause substantial downward pressure on the price of such products and reduce our
revenues and earnings.
Polysilicon is an essential raw material used in the production of solar cells and modules.
Prior to the second half of 2008, there was an industry-wide shortage of polysilicon, primarily as
a result of the growing demand for solar power products. According to Solarbuzz, an independent
solar energy research and consulting firm, the average long-term supply contract price of
polysilicon increased from approximately $60-$65 per kilogram delivered in 2007 to $60-$75 per
kilogram in 2008. In addition, according to Solarbuzz, spot prices for solar grade polysilicon
were in the range of $230-$375 per kilogram for most of the first half of 2008 and rose to a peak
of $450-$475 per kilogram by mid-2008. Increases in the price of polysilicon have in the past
increased our production costs, and any significant price increase in the future may adversely
impact our business and results of operations. Due to the historical scarcity of polysilicon,
supply chain management and financial strength were the key barriers to entry. In late 2008 and
2009, however, newly available polysilicon capacity has resulted in an increased supply of
polysilicon, which created a downward pressure on the price of polysilicon. According to Solarbuzz, the average initial price range of long-term polysilicon supply contracts
decreased to $50-$60 in the fourth quarter of 2009, and spot prices for solar grade polysilicon
decreased rapidly to $150-$200 per kilogram by the beginning of 2009, and further declined to
$55-$60 per kilogram by the end of 2009.
However, we cannot assure you that the price of polysilicon will continue to decline or remain at its
current levels, especially if the global solar power market regains its growth momentum. As the
shortage of polysilicon eases, industry barriers to entry become less significant and PV module
production may increase globally. A decrease in polysilicon prices and an increase in PV module
production may result in substantial downward pressure on the price of PV modules. Such price
reductions could have a negative impact on our revenues and earnings, and materially and adversely
affect our business and results of operations.
We may be adversely affected by volatile market and industry trends, in particular, the demand for
our solar power products may decline, which may reduce our revenues and earnings.
We are affected by solar energy market and industry trends. In the fourth quarter of 2008 and
the first quarter of 2009, the global solar power industry experienced a precipitous decline in
demand due to decreased availability of financing for downstream buyers of solar power products as
a result of the global economic crisis. As a result, increased manufacturing capacity combined
with decreased demand caused a decline in the prices of solar power products. The prices of solar
power products further declined for the remainder of 2009 primarily due to decreased prices of
polysilicon and reclaimable silicon raw materials and increased manufacturing capacity.
6
During
the same period, however, lowered costs of raw materials have reduced the cost of producing solar
power products. As the effect of the global economic crisis subsided through 2009, the combination
of increased availability of financing for downstream buyers and decreased average selling prices
of solar power products contributed to an overall increase in demand during the second half of 2009
for solar power products compared to the first quarter of 2009. However, if demand for solar power
products declines again and the supply of solar power products continues to grow, the average
selling price of our products will be materially and adversely affected.
The demand for solar power products is also influenced by macroeconomic factors such as the
global economic downturn, 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. A decrease in oil prices, for example, may reduce demand for investment in alternative
energy. The global economic downturn, which affects the availability of financing, also
contributed to decreased sales and shipments of solar power products and the slowdown of the large
solar project market segments. If these negative market and industry trends continue and the price
of PV modules continues to decrease as a result, our business and results of operations may be
materially and adversely affected.
We continue to rely on a limited number of third-party suppliers and manufacturers for certain raw
materials for our products and toll services, which could prevent us from delivering our products
to our customers within required time frames and result in sales and installation delays,
cancellations, liquidated damages and loss of market share.
We purchase polysilicon from a limited number of domestic and international suppliers and we
source or contract toll services from third party manufacturers to manufacture some of our ingots
and wafers. If we fail to develop or maintain our relationships with these third party suppliers
or manufacturers, we may be unable to manufacture our products timely or our products may only be
available at a higher cost or
after a long delay. If we do not deliver products to our customers within the required time
frames, we may experience order cancellations, loss of market share and legal action.
Furthermore, the global economic crisis and the resulting decrease in availability of
financing had a significant negative impact on suppliers and manufacturers of raw materials.
Suppliers typically require a significant amount of cash to fund their production and operation.
The suppliers also require a significant amount of cash to meet future capital requirements,
including the expansion of manufacturing facilities, as well as research and development
activities. The inability of our suppliers to access capital or the insolvency of our suppliers
could lead to their failure to deliver raw materials to us. Our inability to obtain raw materials
in a timely manner from suppliers could have a material adverse effect on our business, financial
conditions and results of operations.
7
Our costs and expenses may increase as a result of entering into fixed price, prepaid arrangements
with our suppliers.
Due to the industry-wide shortage of polysilicon experienced prior to 2009, we have purchased
polysilicon using short-term, medium-term and long-term contracts from a limited number of
international and domestic suppliers. From the fourth quarter of 2008, the price of polysilicon
decreased rapidly due to the increased supply of polysilicon resulting from intensive investments
in silicon manufacturing. As a result of such decrease in polysilicon prices in the market in late
2008 and early 2009, we renegotiated most of our medium-term and long-term contracts to reduce the
purchase price, thereby reducing our costs. However, if the prices under our amended medium-term
or long-term supply agreements continue to be higher than the market prices, we may be placed at a
competitive disadvantage vis-a-vis our competitors, and our earnings could decline. In addition,
if demand for our PV modules decreases and such supply agreements require us to purchase more
polysilicon than required to meet our actual customer demand over time, we may incur costs
associated with carrying excess inventory. To the extent we are not able to pass these increased
costs and expenses on to our customers, our business, cash flows, financial condition and results
of operations may be materially and adversely affected.
Some of the suppliers of polysilicon with whom we have entered into long-term contracts have
limited operating experience in polysilicon production and may not be able to produce polysilicon
of sufficient quantity and quality or on schedule to meet our manufacturing requirements.
Some of the suppliers of polysilicon with whom we have entered into long-term contracts have
limited operating experience in polysilicon production. As a result, they might have difficulty in
manufacturing and supplying to us a sufficient amount of polysilicon to meet their obligations
under these long-term supply contracts. Manufacturing polysilicon is a highly complex process
and these suppliers may not be able to produce polysilicon of sufficient quantity and quality or on
schedule to meet our wafer manufacturing requirements. Minor deviations in the manufacturing
process can also cause substantial decreases in yield and, in some cases, cause production to be
suspended or result in minimal output. If shipments of polysilicon from these suppliers experience
major delays or our suppliers are unable to supply us with polysilicon as planned, we may suffer a
setback to our raw material procurement, which could materially and adversely affect our growth
strategy and our results of operations. Moreover, we may be involved in disputes to retrieve
prepayments we made for the polysilicon delivery, which would expose us to risks of losing the
prepayment or entering into settlements which may result in losses to us. In addition, the
polysilicon
supplied by suppliers may contain quality defects. For example, PV modules produced using
polysilicon of substandard quality would result in lower cell efficiency and conversion rates than
that which the supplier has claimed or provided a warranty for. From time to time, we may engage
in negotiations and disputes with certain suppliers that supplied us with polysilicon with quality
defects. Any litigation arising out of the disputes could subject us to potentially expensive
legal expenses, distract management from the day-to-day operation of our business and expose us to
risks for which appropriate damages may not be awarded to us, all of which could materially and
adversely affect our business and financial condition.
Prepayments to our polysilicon suppliers and equipment suppliers expose us to the credit risks of
such suppliers and may increase our costs and expenses, which could in turn have a material adverse
effect on our liquidity.
Under supply contracts with several of our multi-year polysilicon and our equipment suppliers,
consistent with industry practice, we have made prepayments to our suppliers prior to the scheduled
delivery dates for polysilicon and equipment. In many such cases, we made the prepayments without
receiving collateral for such payments. As a result, our claims for such payments would rank as
unsecured claims, which would expose us to the credit risks of our suppliers in the event of their
insolvency or bankruptcy. Our claims against the defaulting suppliers would rank below those of
secured creditors, which would undermine our chances of obtaining the return of our prepayments or
interest free loans. In addition, if the market price of polysilicon decreases after we have
prepaid our suppliers, we may not be able to adjust any historical payment insofar as it relates to
a future delivery at a fixed price. Furthermore, if demand for our products decreases, we may
incur costs associated with carrying excess materials. Accordingly, any of the above scenarios may
have a material adverse effect on our financial condition and results of operations.
8
A significant reduction or elimination of government subsidies and economic incentives or change in
government policies may have a material adverse effect on our business and prospects.
Demand for our products depends substantially on government incentives aimed to promote
greater use of solar power. In many countries in which we are currently, or intend to become,
active, the solar power markets, particularly the market of on-grid PV systems, would not be
commercially viable without government incentives. This is because the cost of generating
electricity from solar power currently exceeds, and we believe will continue to exceed for the
foreseeable future, the costs of generating electricity from conventional or non-solar renewable
energy sources.
The scope of the government incentives for solar power depends, to a large extent, on
political and policy developments relating to environmental concerns in a given country, which
could lead to a significant reduction in or a discontinuation of the support for renewable energies
in such country. Federal, state and local governmental bodies in many of our key markets, most
notably Germany, Italy, Spain, the United States, France, South Korea, Taiwan, India, Japan and
China have provided subsidies and economic incentives in the form of rebates, tax credits and other
incentives 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. Policy shifts could reduce or eliminate these government economic incentives
altogether. For example, the rapid rises of the German and Spanish markets were largely due to the
government policies of those countries that set feed-in tariff terms at attractive rates. However,
in September 2008, the
Spanish government introduced a cap of 500 megawatts, or MW, for the feed-in tariff in 2009,
which has resulted in limiting demand in the grid-connected market in Spain. In 2009, the German
government reduced solar feed-in tariffs by 9%. In January 2010, Germany proposed a further
mid-year reduction in solar feed-in tariffs of up to 17% for rooftop systems and an estimated 25%
for ground-based systems, which may result in a significant fall in the price of and demand for PV
products. In 2007, 2008 and 2009, Germany accounted for 31.4%, 23.9% and 33.9% of our net revenues,
respectively. In 2007, 2008 and 2009, Spain accounted for 40.0%, 32.5% and 12.1% of our net
revenues, respectively. We believe that in the time of uncertainty of political and policy
developments, competition among solar manufacturers could become fierce. Electric utility companies
that have significant political lobbying powers may also seek changes in the relevant legislation
in their markets that may adversely affect the development and commercial acceptance of solar
energy. A significant reduction in the scope or discontinuation of government incentive programs,
especially those in our target markets, could cause demand for our products and our revenues to
decline, and have a material adverse effect on our business, financial condition, results of
operations and prospects.
9
Failure to procure sufficient reclaimable silicon raw materials at reasonable prices may decrease
our gross margin and profitability.
To reduce our reliance on polysilicon, we also produce silicon ingots and wafers by using a
portion of reclaimable silicon raw materials, which include tops and tails of discarded portions of
silicon ingots, pot scraps and broken silicon wafers acquired primarily from the semiconductor
industry. Starting from 2008, we used a higher proportion of virgin polysilicon, as we were able
to access a high quality and stable supply of polysilicon, which was widely available in the open
market. In the fourth quarter of 2009, reclaimable silicon materials accounted for no more than
10% of our total silicon requirements, compared to approximately 15% in the fourth quarter of 2008.
Although the prices of reclaimable silicon raw materials have also been decreasing in line with
the recent decrease in the price of polysilicon, we cannot assure you that we will not revert to
using a higher proportion of reclaimable silicon raw materials when the price of polysilicon
increases in the future. If we fail to procure sufficient reclaimable silicon raw materials at
commercially reasonable prices in the future, we may be unable to timely manufacture our products
or our products may be available only at a higher cost, and we would be prevented from delivering
our products to our customers in the required quantities and at prices that are profitable. This
would have a materially negative impact on our business, financial condition and results of
operations.
Demand for our products may be adversely affected by the effect of the current economic and credit
environment on our customers.
The United States and international economies have experienced (and continue to experience) a
period of slow economic growth. Near-term economic recovery remains uncertain. In particular, the
credit and housing crises, terrorist acts and similar events, continued turmoil in the Middle East
or war in general could contribute to a slowdown of the market demand for products that require
significant initial capital expenditures, including demand for solar power products. For example,
global economics, capital markets and credit disruptions have resulted in slower investments in new
installation projects that make use of solar power products. Existing projects have also been
delayed as a result of the credit crisis and other disruptions. If the economic recovery slows
down as a result of the economic turmoil, or if there are further terrorist attacks in the United
States or elsewhere, we may
experience decreases in the demand for our solar power products, which may harm our operating
results.
Global economics, capital markets and credit disruptions also pose risks for our customers.
We have benefited from historically low interest rates that have made it more attractive for our
customers to use credit to purchase our products. Interest rates have fluctuated recently, which
could increase the cost of financing these purchases and may reduce our customers profits and
investors expected returns on investment. Given the current credit environment, particularly the
tightening of the credit markets, there can be no assurance that our customers will be able to
borrow money on a timely basis or on reasonable terms, which could have a negative impact on their
demand for our products. If economic recovery is slow in the United States or elsewhere, we may
experience decreases in the demand for our solar power products, which may harm our operating
results. These factors may adversely impact our existing or future sales agreements, including
increasing the likelihood of contract breaches. Our sales are affected by interest rate
fluctuations and the availability of liquidity, and would be adversely affected by increases in
interest rates or liquidity constraints. Rising interest rates may also make certain alternative
investments more attractive to investors, and therefore lead to a decline in demand for our solar
power products, which could have a material adverse effect on our business, results of operations,
financial conditions and cash flows.
10
Because the markets in which we compete are highly competitive and many of our competitors have
greater resources than us, we may not be able to compete successfully and we may lose or be unable
to gain market share.
The market for solar power products is competitive and fast evolving. We expect to face
increased competition, which may result in price reductions, reduced margins or loss of market
share. We compete with other PV module manufacturing companies such as Sharp Electronic
Corporation, Suntech Power Holdings Co., Ltd., Yingli Green Energy Holding Co., Ltd. and Mitsubishi
Electric Corporation. Some of our competitors have also become vertically integrated, from
polysilicon production, silicon ingot and wafer manufacturing to solar power system integration,
such as Renewable Energy Corporation ASA, SolarWorld AG and Canadian Solar Inc. Some of our
competitors may have a stronger market position than ours, more sophisticated technologies and
products, and larger resources and better name recognition than we have. Further, many of our
competitors are developing and are currently producing products based on new solar power
technologies, such as thin-film technology, which may ultimately have costs similar to, or lower
than, our projected costs.
The barriers to entry are relatively low in the PV module manufacturing business, given that
manufacturing PV modules is labor intensive and requires limited technology. Because of the
scarcity of polysilicon in the past few years, supply chain management and financial strength were
the key barriers to entry. As the shortage of polysilicon has eased since 2008, these barriers to
entry become less significant and many new competitors may enter the industry and cause the
industry to rapidly become over-saturated. Many mid-stream solar power products manufacturers have
been seeking to move downstream to strengthen their position in regional markets. They are
expected to leverage on their existing sales capacity as the industry faces challenges posed by the
economic downturn. In addition, we may also face new competition from semiconductor manufacturers,
several of which have already announced their intention to start production of solar cells.
Decreases in polysilicon prices and increases in PV module production could result in substantial
downward pressure on the price of PV modules and intensify the competition we face.
Some of our current and potential competitors have longer operating histories, access to a
larger customer base, stronger relationships with customers, access to greater resources, and
significantly greater economies of scale, financial, sales and marketing, manufacturing,
distribution, research and development, technical and other resources than us. As a result, they
may be able to respond more quickly to changing customer demands or market conditions or to devote
greater resources to the development, promotion and sales of their products than we can. Our
business relies on sales of our PV modules, and our competitors with more diversified product
offerings may be better positioned to withstand a decline in the demand for PV modules. New
competitors or alliances among existing competitors could emerge and rapidly acquire a significant
market share, which would harm our business. If we fail to compete successfully, our business
would suffer and we may lose or be unable to gain market share.
11
Our dependence on a limited number of customers may cause significant fluctuations or declines in
our revenues.
We currently sell a significant portion of our PV modules to a limited number of customers.
In 2007, 2008 and 2009, sales to our top five customers accounted for approximately 33.5%, 41.9%
and 36.9%, respectively, of our total net revenues. The top customer contributed approximately
9.5% of our net revenues in 2009. Sales to our customers are typically made through non-exclusive,
short-term arrangements. We anticipate that our dependence on a limited number of customers will
continue for the foreseeable future. Consequently, any one of the following events may cause
material fluctuations or declines in our revenues:
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reduction, delay or cancellation of orders from one or more of our significant
customers; |
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selection by one or more of our significant customers of products competitive with ours; |
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loss of one or more of our significant customers due to disputes, dissatisfaction with
our products or otherwise and our failure to attract additional or replacement customers;
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failure of any of our significant customers to make timely payment for our products. |
We are exposed to the credit risk of these customers, some of which are new customers with
whom we have not historically had extensive business dealings. The failure of any of these
significant customers to meet their payment obligations would materially and adversely affect our
financial position, liquidity and results of operations.
The practice of requiring customers to make advance payments when they place orders with us has
declined, and we have experienced and will continue to experience increased needs to finance our
working capital requirements and are exposed to increased credit risk.
We have historically required our customers to make an advance payment of a certain percentage
of their orders, a business practice that helped us to manage our accounts receivable, prepay our
suppliers and reduce the amount of funds that we needed to finance our working capital
requirements. In line with market trends, this practice of requiring our customers to make advance
payments is on the decline, which in turn has increased our need
to obtain additional short-term borrowings to fund our working capital requirements. In 2010,
we believe a majority of our revenues are expected to be derived from credit sales, generally with
payment schedules due according to negotiated contracts. In addition, some of our customers pay us
through drawn upon acceptance, open account and letter of credit terms, which typically take 90 to
120 days to process in order for us to be paid. Despite the more lenient payment terms, any of our
customers may fail to meet their payment obligations, especially due to the global economic crisis
and the resulting decrease in the availability of financing, which would materially and adversely
affect our financial position, liquidity and results of operations.
12
We have significant outstanding bank borrowings and capital expenditure needs, and we may not be
able to arrange adequate financing when our outstanding borrowings mature or when capital
expenditures are required.
We typically require a significant amount of cash to fund our operations, especially
prepayments or loans to suppliers to secure our polysilicon supply requirements. We also require a
significant amount of cash to meet future capital requirements, including the expansion of our
PV cell and module manufacturing facilities, as well as research and development activities in order
to remain competitive. Future acquisitions, expansions, market changes or other developments may
cause us to require additional funds. As of December 31, 2009, we had $406.1 million in cash and
cash equivalents, $72.0 million in restricted cash and $450.0 million in outstanding borrowings, of
which approximately $267.4 million was due within one year. We might not be able to obtain
extensions of these borrowings in the future as they mature. In the event that we are unable to
obtain extensions of these borrowings, or if we are unable to obtain sufficient alternative funding
at reasonable terms to make repayments, we will have to repay these borrowings with cash generated
by our operating activities. In addition, we estimate that our capital expenditures will be
approximately $200.0 million in 2010 for capacity expansion. Our business might not generate
sufficient cash flow from operations to repay these borrowings, some of which are secured by
significant amounts of our assets, and at the same time fund our capital expenditures. In
addition, repaying these borrowings and capital expenditures with cash generated by our operating
activities will divert our financial resources from the requirements of our ongoing operations and
future growth, and may have a material adverse effect on our business, financial condition and
future prospects. If we are unable to obtain funding in a timely manner or on commercially
acceptable terms, or at all, our growth prospects and future profitability may decrease materially.
Moreover, future turmoil in the credit markets and the potential impact on the liquidity of
financial institutions may have an adverse effect on our ability to fund our business through
borrowings, under either existing or newly created instruments in the public or private markets on
terms that we believe to be reasonable, if at all. Failure to secure any necessary financing in a
timely manner and on favorable terms could have a material adverse effect on our growth strategy,
financial performance and market price of ADSs and could require us to delay or abandon critical
development plans.
We may not be successful in manufacturing solar cells cost-effectively.
We began manufacturing solar cells in May 2007, and prior to that we did not have any
significant operating experience in solar cell manufacturing. Manufacturing solar cells is a
complex process. Minor deviations in the manufacturing process can cause substantial decreases in
yields and cell conversion efficiency and, in some cases, cause production to be suspended or yield
no output. We have invested significantly in research and development in solar cell technology in
order to achieve the high conversion efficiency rates required for our
solar cells and modules to remain competitive. If we face technological difficulties in our
production of solar cells, we may be unable to expand our business as planned.
Currently, we have an annual manufacturing capacity of ingots and wafers of approximately 500
MW and cells and modules of approximately 600 MW. We plan to increase our annual manufacturing
capacity of ingots and wafers to approximately 700 MW and cells and modules to between
approximately 850 MW and 950 MW by the end of 2010. We will determine the magnitude of increases
taking into account market visibility in both customer demand and the commercial lending
environment to finance PV system installations in our respective sales markets, as well as our
strategy to expand prudently while preserving liquidity. Accordingly, we cannot assure you that we
will not revise our capacity expansion plan after we finalize our review. If we fail to implement
our plan as expected, experience a delay in the ramp up or fail to achieve our targeted yields, our
business and results of operations may be materially and adversely affected.
13
We may experience difficulty in achieving acceptable yields and product performance as a result of
manufacturing problems.
The technology for the manufacturing of silicon ingots and wafers is complex, requires costly
equipment and is continuously being modified in an effort 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 wafers can cause a percentage of the wafers to be rejected, which in each
case negatively affects our yields. We have, from time to time, experienced production
difficulties that have caused manufacturing delays and lower than expected yields.
Because our manufacturing capabilities are concentrated in our manufacturing facilities in
Changzhou, China, any problem in our facilities may limit our ability to manufacture products. We
may encounter problems in our manufacturing facilities as a result of, among other things,
production failures, construction delays, human errors, equipment malfunction or process
contamination, which could seriously harm our operations. We may also experience fires, floods,
droughts, power losses and similar events beyond our control that would affect our facilities. For
example, shortages or suspensions of power supplied to us have occasionally occurred due to severe
thunderstorms in the area, and have disrupted our operations and caused severe damages to wafers in
the process. We experienced an accidental fire in our wafer facilities in March 2010 caused by a
hot spot in an electrical installation resulted in damages to our cleaning equipment and temporary
disruption to a segment of our production line. A disruption to any step of our manufacturing
process will require us to repeat each step and recycle the silicon debris, thus adversely
affecting our yields. Operating hazards and natural disasters may cause interruption to our
operations, property and/or environmental damage as well as personal injuries, and each of these
incidents could have a material adverse impact on our results of operations. Although we carry
business interruption insurance, losses incurred or payments required to be made by us due to
operating hazards or natural disasters that are not fully insured may have a material adverse
effect on our financial condition and results of operations.
Problems with product quality or product performance could damage our reputation, or result in a
decrease in customers and revenues, unexpected expenses or loss of market share, and may cause us
to incur significant warranty expenses
Our products may contain defects that are not detected until after they are shipped or are
installed because we cannot test for all possible scenarios. Unlike PV modules, which are subject
to certain uniform international standards, solar cells generally are not subject to uniform
international standards, and it is often difficult to determine whether solar power product defects
are a result of defective solar cells, other defective components of PV modules or other reasons.
Furthermore, the solar wafers and other components that we purchase from third-party suppliers are
typically sold to us with no or only limited warranties. We have received in the past, and may
receive from time to time in the future, complaints from certain customers that portions of our PV
modules have quality deficiencies. For example, in certain instances in the past, customers raised
concerns about the stated versus actual performance output of some of our PV modules. We
determined that these concerns resulted from differences in calibration standards we used.
However, the corrective actions and procedures that we took may turn out to be inadequate to
prevent further similar incidents or to protect against future errors or defects. If we deliver PV
module products that do not satisfy our customers or end users quality requirements, or if there
is a perception that our products are of poor quality, our credibility and the market acceptance
and sales of our PV module products could be harmed. We may also incur substantial expense to
replace low quality products.
14
In the past, our PV modules were typically sold with a two-year warranty for defects in materials and
workmanship and a minimum power output warranty of up to 25 years following the date of purchase or
installation. In 2009, we extended the warranty for defects in materials and workmanship from two years to
five years. We believe our warranty periods are consistent with industry practice. We have only
begun to sell PV modules since November 2004. Although we conduct accelerated reliability testing
of our PV modules, our PV modules have not been and cannot be tested in an environment simulating
the 25-year warranty period. As a result, we may be subject to unexpected warranty expense and
associated harm to our financial results for as long as 25 years after the sale of our products.
Any increase in the defect rate of our products would cause us to increase the amount of our
warranty reserves and have a correspondingly negative impact on our operating results.
Furthermore, widespread product failures may damage our market reputation, reduce our market share
and cause our sales to decline.
We may not be successful in the commercial production of new products, which could adversely affect
our business and prospects.
We may develop and produce new products from time to time, such as our new PV module product,
colored modules for architectural applications and larger sized modules for utility grid
applications. We may be unable to generate sufficient customer demand for our new products if we
are unable to develop and produce new products in a cost-effective manner with the expected
performance. If we fail to generate demand for our new products, our business and prospects may be
adversely affected and we may be unable to recoup our investment in the development and production
of such products.
Our future success depends in part on our ability to expand our business into downstream markets.
Any failure to successfully implement this strategy could have a material adverse effect on our
growth, business prospects and results of operations in future periods.
Our current business strategy includes plans to expand into select downstream markets, such as
systems integration and project development, which we believe are natural extensions of our
vertically integrated business model. These expansion plans may include investments in downstream
companies and joint ventures and formation of strategic alliances with third parties. However, these
plans may require significant capital expenditures, which could be used in pursuit of other
opportunities and investments. Additionally, our experience in the solar power products
manufacturing industry may not be as relevant or applicable in downstream markets. We may also
face intense competition from companies with greater experience or established presence in the
targeted downstream markets or competition from our industry peers with similar expansion plans.
Furthermore, we may not be able to manage or control entities which we invest in or
provide adequate resources to such entities to maximize the return on our investments. In
the case of joint ventures and strategic alliances with third parties, we may face risks associated
with the sharing of proprietary information, loss of control of operations that are material to our
business and profit sharing arrangements. We may also consider acquisitions of existing downstream
players, in which we may face difficulties related to the integration of the operations and
personnel of acquired businesses and the division of resources between our existing and acquired
downstream operations.
15
We cannot assure you that we will be successful in expanding our business into downstream markets along the
solar power product value chain. Any failure
to successfully identify, execute and integrate our acquisitions, investments, joint ventures and
alliances as part of entering into downstream markets may have a material adverse impact on our growth, business prospects and results of
operations, which could lead to a decline in the price of our ADSs.
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.
The market for electricity generation products is heavily influenced by government regulations
and policies concerning the electric utility industry, as well as policies adopted by electric
utilities. These regulations and policies often relate to electricity pricing and technical
interconnection of customer-owned electricity generation. In a number of countries, these
regulations and policies are being modified and may continue to be modified. Customer purchases
of, or further investment in the research and development of, alternative energy sources, including
solar power technology, could be deterred by these regulations and policies, which could result in
a significant reduction in the demand for our products. For example, without a regulatory mandated
exception for solar power systems, utility customers are often charged interconnection or standby
fees for putting distributed power generation on the electric utility grid. These fees could
increase the cost to our customers of using our solar power products and make them less desirable,
thereby harming our business, prospects, financial condition and results of operations.
We anticipate that our products and their installation will be subject to oversight and
regulation in accordance with national and local regulations relating to building codes, safety,
environmental protection, utility interconnection and metering and related matters. It is
difficult to track the requirements of individual jurisdictions and design products to comply
with the varying standards. Any new government regulations or utility policies pertaining to our
solar power products may result in significant additional expenses to us and, as a result, could
cause a significant reduction in demand for our solar power products.
If solar power technology is not adopted widely, or 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.
The solar power market is at a relatively early stage of development, and the extent of
acceptance of solar power products is uncertain. Market data on the solar power industry are not
as readily available as those for other more established industries where trends can be assessed
more reliably from data gathered over a longer period of time. In addition, demand for solar power
products in our targeted markets, including Germany, Italy, Spain, the Benelux markets, the Czech
Republic, the United States, France, China, Japan and South Korea, may not develop or may develop
to a lesser extent than we anticipate. Many factors may affect the viability of widespread
adoption of solar power technology and demand for solar power products, including:
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cost-effectiveness, performance and reliability of solar power products compared to
conventional and other renewable energy sources and products; |
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availability of government subsidies and incentives to support the development of the
solar power industry; |
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success of other alternative energy generation technologies, such as wind power,
hydroelectric power and biomass; |
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fluctuations in economic and market conditions that affect the viability of conventional
and other renewable energy sources, such as increases or decreases in the prices of oil and
other fossil fuels; |
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capital expenditures by end users of solar power products, which tend to decrease when
the economy slows down; and |
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deregulation of the electric power industry and broader energy industry. |
If solar power technology is not adopted widely or 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.
Further technological changes in the solar power industry could render our products uncompetitive
or obsolete, which could reduce our market share and cause our sales and profit to decline.
The solar power market is characterized by evolving technologies and standards that result in
improved features, such as more efficient and higher power output, improved aesthetics and smaller
size. This requires us to develop new solar power products and enhance existing products to keep
pace with evolving technologies and changing customer requirements. A variety of competing solar
technologies that other companies may develop
could prove to be more cost-effective and have better performance than our technologies. For
example, thin-film technologies are competing technologies in the solar power industry. According
to Solarbuzz, in 2009, thin-film technologies represented 18.0% of the solar market, compared to
82.0% for crystalline technology. Thin-film technologies allow for lower production costs for
solar cells by using lower amounts of semiconductor materials. Thin-film solar cells generally
have a lower conversion efficiency rate than crystalline solar cells.
Further development in competing solar power technologies may result in lower manufacturing
costs or higher product performance than those expected from our PV modules. We will need to
invest significant financial resources in research and development to maintain our market position,
keep pace with technological advances in the solar power industry and effectively compete in the
future. Our failure to further refine our technology, enhance our existing solar power products,
or develop and introduce new products, could cause our products to become uncompetitive or
obsolete, which could reduce our market share and cause our revenues to decline.
Non-compliance with present or future construction and environmental regulations may result in
potentially significant monetary damages and fines.
In the past, we had begun constructing and operating facilities without having obtained all of
the necessary construction and environmental permits. Although we have subsequently obtained all
of the construction and environmental permits for these facilities, we could be subject to fines or
penalties for our past non-compliance.
17
Because our manufacturing processes generate noise, waste water, gaseous wastes and other
industrial wastes, we are required to comply with national and local environmental regulations. 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 the use or
to adequately restrict the discharge of hazardous substances could subject us to potentially
significant monetary damages and fines or suspensions in our business operations, which would have
a materially adverse effect on our business and results of operations.
In particular, the manufacturing processes for producing polysilicon employ processes that
generate toxic waste products, including the highly volatile and highly toxic substance
silicon-tetrachloride. We purchase our polysilicon from our suppliers in the United States, Europe
and China. If any of our suppliers fails to comply with environmental regulations for the
production of polysilicon and the discharge of the highly toxic waste products, we may face
negative publicity which may have a material adverse effect on our business and results of
operations. Furthermore, if any of our suppliers are forced to suspend or shut down production due
to violations of environmental regulations, we may not be able to secure enough polysilicon for our
production needs on commercially reasonable terms, or at all.
Our future success substantially depends on our ability to significantly expand both our
manufacturing capacity and output, which exposes us to a number of risks and uncertainties.
Our future success depends on our ability to significantly increase both our manufacturing
capacity and output. If we are unable to do so, we may be unable to expand our business, decrease
our costs per watt, maintain our competitive position and improve our
profitability. Our ability to establish additional manufacturing capacity and increase output
is subject to significant risks and uncertainties, including:
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the need to raise significant additional funds to purchase raw materials or to build
additional manufacturing facilities, which we may be unable to obtain on commercially
viable terms or at all; |
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delays and cost overruns as a result of a number of factors, many of which are beyond
our control, such as increases in the price of polysilicon and problems with equipment
vendors, particularly with respect to major equipment such as ingot pulling or growing
machines; |
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delays or denial of required approvals by relevant government authorities; |
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diversion of significant management attention and other resources; and |
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failure to execute our expansion plan effectively. |
If we are unable to establish or successfully operate additional manufacturing capacity, or if
we encounter any of the risks described above, we may be unable to expand our business as planned.
Moreover, even if we do expand our manufacturing capacity we might not be able to generate
sufficient customer demand for our solar power products to support our increased production levels.
18
In particular, we believe that the expansion of our manufacturing capacity is an integral part
of our long-term strategy to achieve a grid parity cost structure. Our ability to meet our
estimate for the scale of production needed to achieve grid parity is affected by a number of
factors, including our ability to improve and maintain the degree of vertical integration and to
increase our efficiencies and margins, the likelihood that we may approach or reach a point of
diminishing returns as we continue to expand our scale, the average purchase price we will pay for
silicon in the future to meet our expansion requirements, and the cost of conventional grid
electricity which will determine at which point grid parity can be reached. We might not be able
to meet our desired scale of production in order to fully implement our strategy.
Our business depends substantially on the continuing efforts of our executive officers, and our
business may be severely disrupted if we lose their services.
Our future success depends substantially on the continued services of our executive officers,
especially Mr. Jifan Gao, our chairman and chief executive officer. If one or more of our
executive officers or key employees were unable or unwilling to continue in their present
positions, we might not be able to replace them easily or at all. Our business may be severely
disrupted, our financial condition and results of operations may be materially and adversely
affected, and we may incur additional expenses to recruit, train and retain personnel. Since our
industry is characterized by high demand and intense competition for talent, we also may not be
able to attract or retain additional highly skilled employees or other key personnel that we will
need to achieve our strategic objectives. As we are still a relatively young company and our
business has grown rapidly, our ability to train and integrate new employees into our operations
may not meet the growing demands of our business.
If any of our executive officers or key employees joins a competitor or forms a competing
company, we may lose customers, suppliers, know-how and key professionals and staff members. Each
of our executive officers has entered into an employment agreement with us, which contains
non-competition provisions. If any dispute arises between our executive officers and us, these
agreements may not be enforceable in China in light of the uncertainties with Chinas legal system,
or in another country where they obtain employment. See Risks Related to Doing Business in
ChinaUncertainties with respect to the Chinese legal system could have a material adverse effect
on us.
If we are unable to attract, train and retain qualified 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 qualified technical personnel, particularly those with expertise in the solar power
industry. There is substantial competition for qualified technical personnel, and we might not be
able to attract or retain our qualified technical personnel. If we are unable to do so, our
business may be materially and adversely affected.
19
If we fail to manage our growth effectively, our business may be adversely affected.
We have experienced a period of rapid growth and expansion that has placed, and continues to
place, significant strain on our management personnel, systems and resources. To accommodate our
growth, we anticipate that we will need to implement a variety of new and upgraded operational and
financial systems, procedures and controls, including the improvement of our accounting and other
internal management systems, all of which require substantial management efforts. We also will
need to continue to expand, train, manage and motivate our workforce, manage our customer
relationships and manage our relationship with foundries and assembly and testing houses. All of
these endeavors will require substantial management effort and skill and incurrence of additional
expenditures. We might not be able to manage our growth effectively, and any failure to do so may
have a material adverse effect on our business.
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.
In 2007, 2008 and 2009, we sold approximately 97.9%, 96.3% and 97.1%, respectively, of our
products to customers outside of China. The marketing, distribution and sale of our solar power
products in the international markets expose us to a number of risks, including:
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fluctuations in currency exchange rates; |
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difficulty in engaging and retaining distributors who are knowledgeable about, and can
function effectively in, overseas markets; |
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increased costs associated with maintaining marketing efforts in various countries; |
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difficulty and costs relating to compliance with the different commercial and legal
requirements of the overseas markets in which we offer our products; |
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trade barriers such as export requirements, tariffs, taxes and other restrictions and
expenses, which could increase the prices of our products and make us less competitive in
some countries; and |
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demand for solar power products in overseas markets as influenced by the global economic
downturn and its effects. |
In addition, we export a substantial amount of our products to Europe. There have been market
rumors that the European Union may seek to initiate anti-dumping investigations regarding imports
of solar power products from China. If an anti-dumping investigation is initiated against Chinese
exporters or if the European Union imposes anti-dumping measures, including tariffs on solar power
product imports from China, such action could materially and adversely affect our business and
results of operations.
20
We may be exposed to infringement or misappropriation claims by third parties, which, if determined
adversely to us, could cause us to pay significant damage awards.
Our success depends largely on our ability to use and develop our technology and know-how
without infringing the intellectual property rights of third parties. The validity and scope of
claims relating to solar power technology patents involve complex scientific, legal and factual
questions and analysis and, therefore, may be highly uncertain. We may be subject to litigation
involving claims of patent infringement or violation of intellectual property rights of third
parties. The defense and prosecution of 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. 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, require us to seek licenses from third
parties, to pay ongoing royalties, or to redesign our products or subject us to injunctions
prohibiting the manufacturing and sale of our products or the use of our technologies. Protracted
litigations could also result in our customers or potential customers deferring or limiting their
purchase or use of our products until resolution of such litigation.
Our failure to protect our intellectual property rights may undermine our competitive position, and
litigation to protect our intellectual property rights or defend against third-party allegations of
infringement may be costly.
We rely primarily on patent, trademark, trade secret, copyright law and other contractual
restrictions to protect our intellectual property. Nevertheless, these afford only limited
protection and the actions we take to protect our intellectual property rights may not be adequate.
Third parties may infringe or misappropriate our proprietary technologies or other intellectual
property rights, which could have a material adverse effect on our business, financial condition or
operating results. Policing unauthorized use of proprietary technology can be difficult and
expensive. Also, litigation 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. We
cannot assure you that the outcome of such potential litigation will be in our favor. An adverse
determination in any such litigation will impair our intellectual property rights and may harm our
business, prospects and reputation. Implementation of PRC intellectual property-related laws has
historically been lacking, primarily because of ambiguities in the PRC laws and difficulties in
enforcement. Accordingly, intellectual
property rights and confidentiality protections in China may not be as effective as in the
United States or other countries.
We have limited insurance coverage and may incur losses resulting from product liability claims.
As with other solar power product manufacturers, we are exposed to risks associated with
product liability claims if the use of our solar power products results in injury. Since our
products generate electricity, it is possible that users could be injured or killed by our products
as a result of product malfunctions, defects, improper installation or other causes. We only began
commercial shipment of our PV modules in November 2004 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. Moreover, we do not have
any product liability insurance and may not have adequate resources to satisfy a judgment in the
event of a successful claim 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.
21
If we fail to maintain an effective system of internal control over financial reporting, we may
lose investor confidence in the reliability of our financial statements.
We are subject to reporting obligations under the U.S. securities laws. The SEC, as required
by Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, adopted rules
requiring every public company to include a management report on such companys internal control
over financial reporting in its annual report, which contains managements assessment of the
effectiveness of the companys internal control over financial reporting. In addition, an
independent registered public accounting firm must render an opinion on the effectiveness of the
companys internal control over financial reporting.
Our management has concluded that our internal control over financial reporting is effective
as of December 31, 2009. See Item 15. Control and Procedures. If we fail to maintain effective
internal control over financial reporting in the future, it could result in the loss of investor
confidence in the reliability of our financial statements and negatively impact the trading price
of our ADSs. For example, in 2007, we identified a material weakness in internal control over financial
reporting relating to our failure to effectively identify and evaluate embedded derivative
instruments in long-term supply contracts. We subsequently addressed this material weakness by
establishing a policy and a set of procedures and by providing training to our staff to identify
such derivative instruments. We have incurred and anticipate that we will continue to incur
considerable costs, management time and other resources in an effort to comply with Section 404 and
other requirements of the Sarbanes-Oxley Act.
Trina or Trina China may be required by the PRC tax authorities to withhold capital gains tax
arising out of our restructuring in May 2006.
In connection with our restructuring in May 2006, certain former shareholders of Trina China
transferred their equity interests in Trina China to Trina for a nominal consideration. As a
result of the nominal consideration paid in these related party transactions, such consideration
may be subject to pricing reassessment by the PRC tax authorities, leading to a recognition of
capital gains by the transferring shareholders which would be subject to PRC tax. PRC tax law
provides a safe harbor exemption from such capital gains tax in the case of an intra-group
restructuring. While our restructuring does not fall squarely within the requirements for the safe
harbor, we believe that the PRC tax authorities may deem the restructuring to meet substantially
all of the requirements for the safe harbor for tax-free treatment. The PRC tax authorities could,
however, deem these transferring shareholders to have realized capital gains as a result of the
restructuring.
Under PRC tax law, where both parties to an equity transfer transaction are non-resident
enterprises and where the transfer occurs outside the Chinese territory, the non-resident
enterprise receiving income must pay taxes to the taxation authority in the locality of the
domestic enterprise whose equity was transferred, either directly or through an agent. The
domestic enterprise whose equity was transferred must assist the taxation authority in collecting
the relevant PRC taxes from the non-resident enterprise. As Trina and all of these transferring
shareholders are deemed to be foreign persons without a presence in China, Trina China may be
required to withhold tax on capital gains deemed to have been received by these former
shareholders. These former shareholders have agreed to indemnify us against any withholding
obligations or liabilities due to or imposed by the PRC tax authorities that may arise out of the
restructuring. The PRC tax authorities could impose such withholding obligation on Trina or Trina
China or impose fines or penalties on Trina or Trina China for its failure to make such
withholding. If such withholding obligation is imposed and we are not indemnified by these
transferring shareholders, our potential tax exposure would be approximately $2.8 million,
excluding any fines or penalties. The amount of such fines or penalties is difficult to estimate
as the determination of whether any such fines or penalties would be imposed and the amount of such
fines or penalties are at the discretion of the PRC tax authorities.
22
Our principal shareholders have substantial influence over our company and their interests may not
be aligned with the interests of our other shareholders.
Our principal shareholders have substantial influence over our business, including decisions
regarding mergers, consolidations and the sale of all or substantially all of our assets, 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 ADSs. These actions may be taken even if they are
opposed by our other shareholders. Furthermore, our articles of association contain a quorum
requirement of at least one-third of our total outstanding shares present in person or by proxy.
Two or more shareholders with an aggregate shareholding of more than one-third could constitute a
quorum and approve actions which may not be in the best interests of our other shareholders.
Fluctuations in exchange rates could adversely affect our business.
The value of the Renminbi against the U.S. dollar, Euro and other currencies is affected by,
among other things, changes in Chinas political and economic conditions and Chinas foreign
exchange policies. On July 21, 2005, the PRC government changed its
decade-old policy of pegging the value of the Renminbi to the U.S. dollar. Under the new
policy, the Renminbi was permitted to fluctuate within a narrow and managed band against a basket
of certain foreign currencies. This change in policy caused the Renminbi to appreciate
approximately 21.5% against the U.S. dollar over the following three years. Since reaching a high
against the U.S. dollar in July 2008, however, the Renminbi has traded within a narrow band against
the U.S. dollar, remaining within 1% of its August 2008 high but never exceeding it. As a
consequence, the Renminbi has fluctuated sharply since July 2008 against other freely traded
currencies, in tandem with the U.S. dollar. It is difficult to predict how long the current
situation may last and when and how it may change again.
Most of our sales are denominated in Euros, with the remainder in U.S. dollars, while a
substantial portion of our costs and expenses is denominated in Renminbi, with the remainder in
U.S. dollars. Fluctuations in exchange rates, particularly among the U.S. dollar, Renminbi and
Euro, may affect our net profit margins and could result in fluctuations in foreign currency
exchange and operating gains and losses. We had a foreign exchange gain of approximately $10.0
million in 2009. We cannot predict the impact of future exchange rate fluctuations on our results
of operations and may incur net foreign currency losses in the future. In addition, as we rely
entirely on dividends paid to us by our operating subsidiaries in China, any significant
revaluation of the Renminbi may have a material adverse effect on our revenues and financial
condition, and the value of, and any dividends payable on, our ordinary shares. For example, to
the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of
the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we receive
from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the
purpose of making payments for dividends on our ordinary shares or for other business purposes,
appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S.
dollar amount available to us. As a large proportion of our revenues are paid to us in Euros,
fluctuation between the Euro and the RMB may also have a material effect on our results of
operations.
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Starting from October 2008, we have entered into a series of foreign currency
forward contracts with several commercial banks to hedge our exposure to foreign currency exchange
risk. As of December 31, 2009, we had foreign currency forward contracts with a total contract
value of approximately 137.0 million ($196.6 million). We do not use foreign currency forward
contracts to hedge all of our foreign currency denominated commitments. As with all hedging
instruments, there are risks associated with the use of foreign currency forward contracts. While
the use of such foreign currency forward contracts provides us with protection from certain
fluctuations in foreign currency exchange, we potentially forgo the benefits that might result from
favorable fluctuations in foreign currency exchange. Any default by the counterparties to these
transactions could adversely affect our financial condition and results of operations.
Furthermore, these financial hedging transactions may not provide adequate protection against
future foreign currency exchange rate fluctuations and, consequently, such fluctuations could
adversely affect our financial condition and results of operations.
We may become a passive foreign investment company, or PFIC, which could result in adverse U.S. tax
consequences to U.S. investors.
A non-U.S. corporation will be considered a passive foreign investment company, or PFIC, for
any taxable year if either (1) at least 75% of its gross income is passive income or (2) at least
50% of the total value of its assets (based on an average of the quarterly values of the assets
during a taxable year) is attributable to assets, including cash, that produce or are
held for the production of passive income, or passive assets. For this purpose, the total
value of our assets generally will be determined by reference to the market price of our ordinary
shares and ADSs. Based on the market prices of our ordinary shares and ADSs and the composition of
our income and assets, we do not believe we were a PFIC for U.S. federal income tax purposes for
the year ended December 31, 2009. However, we generally will not be able to make a determination
of our PFIC status for any specific taxable year until the close of that taxable year and we must
make a separate determination each taxable year as to whether we are a PFIC.
In addition, a decrease in the market value of our ordinary shares and ADSs and/or an increase
in cash or other passive assets would increase the relative percentage of our passive assets.
Accordingly, we cannot assure you that we will not be a PFIC for the current or any future taxable
year. If we are a PFIC for any taxable year during which a U.S. Holder (as defined under Item 10.
Additional InformationE. TaxationU.S. Federal Income Taxation) holds any ADSs or ordinary
shares, certain adverse U.S. federal income tax consequences could apply to the U.S. Holder.
Please see Item 10. Additional InformationE. Taxation U.S. Federal Income Taxation Passive
Foreign Investment Company for information about PFIC status and certain elections that may be
available to mitigate such adverse U.S. federal income tax consequences if we ever become a PFIC.
U.S. Holders are urged to consult their own tax advisors regarding the potential application of the
PFIC rules to their ownership of ADSs or ordinary shares and the availability and advisability of
any elections.
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Risks Related to Doing Business in China
Adverse changes in political and economic policies of the PRC government could have a material
adverse effect on the overall economic growth of China, which could reduce the demand for our
products and materially and adversely affect our competitive position.
All of our business operations are conducted in China and some of our sales are made in China.
Accordingly, our business, financial condition, results of operations and prospects are affected
significantly by economic, political and legal developments in China. The Chinese economy differs
from the economies of most developed countries in many respects, including:
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the amount of government involvement; |
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the level of development; |
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the control of foreign exchange; and |
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the allocation of resources. |
While the Chinese economy has grown significantly in the past 30 years, the growth has been
uneven, both geographically and among various sectors of the economy. The PRC government has
implemented various measures to encourage economic growth and guide the allocation of resources.
Some of these measures benefit the overall Chinese economy, but may also have a negative effect on
us. For example, our financial condition and results of
operations may be adversely affected by government control over capital investments or changes
in tax regulations that are applicable to us.
The Chinese economy has been transitioning from a planned economy to a more market-oriented
economy. Although in recent years the PRC government has implemented measures emphasizing the
utilization of market forces for economic reform, the reduction of state ownership of productive
assets and the establishment of sound corporate governance in business enterprises, a substantial
portion of the productive assets in China is still owned by the PRC government. The continued
control of these assets and other aspects of the national economy by the PRC government could
materially and adversely affect our business. The PRC government also exercises significant
control over Chinese economic growth through the allocation of resources, controlling payment of
foreign currency-denominated obligations, setting monetary policy and providing preferential
treatment to particular industries or companies. Efforts by the PRC government to control the pace
of growth of the Chinese economy could result in decreased capital expenditure by solar energy
users, which in turn could reduce demand for our products.
Uncertainties with respect to the Chinese legal system could have a material adverse effect on us.
We conduct substantially all of our manufacturing operations through our wholly-owned
subsidiary, Trina China, a limited liability company established in China. Trina China is
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 continues to rapidly evolve, the
interpretations of many laws, regulations and rules are not always uniform and enforcement of these
laws, regulations and rules involves uncertainties. We cannot predict the effect of future
developments in the PRC legal system, including the promulgation of new laws, changes to existing
laws or the interpretation or enforcement thereof, the preemption of local regulations by national
laws, or the overturn of local government decisions by the superior government. These
uncertainties may limit legal protections available to us. In addition, any litigation in China
may be protracted and result in substantial costs and diversion of resources and management
attention.
25
Our ability to make distributions and other payments to our shareholders depends to a significant
extent upon the distribution of earnings and other payments made by Trina China.
We conduct substantially all of our operations through Trina China. Our ability to make
distributions or other payments to our shareholders depends on payments from Trina China, whose
ability to make such payments is subject to PRC regulations. Regulations in the PRC currently
permit payment of dividends only out of accumulated profits as determined in accordance with
accounting standards and regulations in China. According to the relevant PRC laws and regulations
applicable to Trina China and its articles of association, Trina China is required to set aside at
least 10% of its after-tax profit based on PRC accounting standards each year to its general
reserves until the accumulative amount of these reserves reaches 50% of its registered capital.
These reserves are not distributable as cash dividends. As of December 31, 2009, these general
reserves amounted to $25.3 million,
accounting for 6.57% of the registered capital of Trina China. In addition, under the new EIT
Law that became effective in January 2008, dividends from Trina China to us are subject to a 10%
withholding tax. See Our business benefits from certain PRC government tax incentives, and the
expiration of, or changes to, these incentives could have a material adverse effect on our results
of operations and Item 4. Information on the CompanyRegulationTax. Furthermore, if Trina
China incurs debt on its own behalf in the future, the instruments governing the debt may restrict
its ability to pay dividends or make other distributions to us.
Restrictions on currency exchange may limit our ability to receive and use our revenues
effectively.
Certain portions of our revenues and expenses are denominated in Renminbi. If our revenues
denominated in Renminbi increase or 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 declared, if any, in respect of our
ordinary shares or ADSs. Under Chinas existing foreign exchange regulations, Trina China is able
to pay dividends in foreign currencies without prior approval from the State Administration of
Foreign Exchange, or the SAFE, by complying with certain procedural requirements. However, the PRC
government could take further measures in the future to restrict access to foreign currencies for
current account transactions.
Foreign exchange transactions by Trina China under capital accounts continue to be subject to
significant foreign exchange controls and require the approval of, or registration with, PRC
governmental authorities. In particular, if Trina China borrows foreign currency loans from us or
other foreign lenders, these loans must be registered with the SAFE, and if we finance Trina China
by means of additional capital contributions, these capital contributions must be approved by
certain government authorities including the Ministry of Commerce or its local counterparts. These
limitations could affect the ability of Trina China to obtain foreign exchange through debt or
equity financing.
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Our business benefits from certain PRC government tax incentives, and expiration of, or changes to,
these incentives.
The PRC government has provided various incentives to foreign invested enterprises, although
these incentives are subject to the new Enterprise Income Tax Law as discussed below. Because
Trina China is a foreign invested enterprise engaged in manufacturing businesses and located in
Changzhou, which is within a coastal economic zone, it was entitled to a preferential enterprise
income tax rate of 24%. In addition, Trina China was qualified as an advanced technological
enterprise and, as a result, enjoyed a preferential enterprise income tax rate of 12% for the
years 2004 to 2006. As the tax benefit for an advanced technological enterprise expired in 2006,
Trina China was granted 50% relief with respect to the PRC income tax rate of 24% in 2007 for its
revenues generated from export sales which exceeds 70% of total revenue. Trina China made several
additional capital investments during 2006, 2007 and 2008. Income from incremental investment to
the registered capital of a foreign invested enterprise in 2006 and 2007 was entitled to a two-year
exemption and a 50% reduction of the applicable income tax rate for the succeeding three years.
Trina Chinas registered capital increased from $7.28 million in 2005 and to $40.0 million in 2006.
Accordingly, for the year 2007, an income tax rate of 12% was applied to 18.2% of Trina Chinas
taxable profit, and 81.8% of its taxable profit was exempted from income taxes.
The Enterprise Income Tax Law and its Implementation Regulations, or the new EIT Law, which
became effective January 1, 2008, imposes a uniform tax rate of 25% on all PRC enterprises,
including foreign-invested enterprises, and eliminates or modifies most of the tax exemptions,
reductions and preferential treatments available under the previous tax laws and regulations.
Under the new EIT law, enterprises that were established before March 16, 2007 and already enjoy
preferential tax treatments will (i) in the case of preferential tax rates, continue to enjoy the
tax rates which will be gradually increased to the new tax rates within five years from January 1,
2008 or (ii) in the case of preferential tax exemption or reduction for a specified term, continue
to enjoy the preferential tax holiday until the expiration of such term. In addition, certain
enterprises may still benefit from a preferential tax rate of 15% under the new EIT Law if they
qualify as high and new technology enterprises strongly supported by the State, subject to
certain general factors described therein. In September 2008, Trina China obtained the High and
New Technology Enterprise Certificate with a valid term of three years starting from 2008.
Therefore, Trina China is entitled to a preferential income tax rate of 15% in 2008, 2009 and 2010,
as long as it maintains its qualification as a high and new technology enterprise under the new
EIT Law. If Trina China fails to maintain the high and new technology enterprise qualification,
its applicable EIT rate may increase to up to 25%, which could have a material adverse effect on
our results of operations. In addition, in April 2009, we received a notice from the State Tax
Bureau of Changzhou Hi-tech Development Zone, which revoked a previous approval for the tax holiday
on taxable income related to registered capital contributions made in 2007. As a result, we made an
additional income tax payment of $6.5 million in 2009. Our EIT rate for 2009 was 15%. We cannot
assure you that we will be able to maintain our current effective tax rate in the future. Any
discontinuation of preferential tax treatment or any increase of the enterprise income tax rate
applicable to Trina China could have a material adverse effect on our financial condition and
results of operations.
27
The dividends we receive from our PRC subsidiaries and our global income may be subject to PRC tax
under the new EIT law, which would have a material adverse effect on our results of operations; our
foreign ADS holders may be subject to a PRC withholding tax upon the dividends payable by us and
upon gains realized on the sale of our ADSs, if we are classified as a PRC resident enterprise.
Under the new EIT law, dividends, interests, rents and royalties payable by a foreign-invested
enterprise in the PRC to its foreign investor who is a non-resident enterprise, as well as gains on
transfers of shares of a foreign-invested enterprise in the PRC by such a foreign investor, will be
subject to a 10% withholding tax, unless such non-resident enterprises jurisdiction of
incorporation has a tax treaty with the PRC that provides for a reduced rate of withholding tax.
The Cayman Islands, where Trina is incorporated, does not have such a tax treaty with the PRC.
Therefore, if Trina is considered a non-resident enterprise for purposes of the new EIT law, this
new 10% withholding tax imposed on dividends paid to Trina by its PRC subsidiaries would reduce
Trinas net income and have an adverse effect on Trinas operating results.
Under the new EIT law, an enterprise established outside the PRC with its de facto management
body within the PRC is considered a resident enterprise and will be subject to the enterprise
income tax at the rate of 25% on its worldwide income. The de facto management body is defined
as the organizational body that effectively exercises overall management and control over
production and business operations, personnel, finance and accounting, and properties of the
enterprise. It remains unclear how the PRC tax authorities
will interpret such a broad definition. Substantially all of Trinas management members are
based in the PRC. If the PRC tax authorities subsequently determine that Trina should be
classified as a resident enterprise, then Trinas worldwide income will be subject to income tax at
a uniform rate of 25%, which may have a material adverse effect on Trinas financial condition and
results of operations. Notwithstanding the foregoing provision, the new EIT law also provides
that, if a resident enterprise directly invests in another resident enterprise, the dividends
received by the investing resident enterprise from the invested enterprise are exempted from income
tax, subject to certain conditions. Therefore, if Trina is classified as a resident enterprise,
the dividends received from its PRC subsidiary may be exempted from income tax. However, it
remains unclear how the PRC tax authorities will interpret the PRC tax resident treatment of an
offshore company, like Trina, having ownership interest in a PRC enterprise.
Moreover, under the new EIT law, a withholding tax at the rate of 10% is applicable to
dividends payable to investors that are non-resident enterprises, which do not have an
establishment or place of business in the PRC, or which have such establishment or place of
business but the relevant income is not effectively connected with the establishment or place of
business, to the extent such interest or dividends have their sources within the PRC unless such
non-resident enterprises can claim treaty protection. As such, these non-resident enterprises
would enjoy a reduced withholding tax from treaty. Similarly, any gain realized on the transfer of
ADSs or shares by such investors is also subject to a 10% withholding tax if such gain is regarded
as income derived from sources within the PRC. If Trina is considered a PRC resident enterprise,
it is unclear whether the dividends Trina pays with respect to its ordinary shares or ADSs, or the
gain you may realize from the transfer of Trinas ordinary shares or ADSs, would be treated as
income derived from sources within the PRC and be subject to PRC withholding tax.
28
The approval of the Chinese Securities Regulatory Commission might have been required in connection
with our initial public offering, and, if required, we could be subject to sanction, fines and
other penalties.
On August 8, 2006, six PRC regulatory agencies, including the Chinese Securities Regulatory
Commission, or CSRC, promulgated the Regulation on Mergers and Acquisitions of Domestic Companies
by Foreign Investors, which became effective on September 8, 2006. This new regulation, among
other things, requires offshore special purpose vehicles, formed for overseas listing purposes
through acquisitions of PRC domestic companies and controlled by PRC individuals, to obtain the
approval of the CSRC prior to publicly listing their securities on an overseas stock exchange. On
September 21, 2006, the CSRC published a notice specifying the documents and materials that are
required to be submitted for obtaining CSRC approval. Based on the advice we received from Fangda
Partners, our PRC counsel, we did not seek the CSRC approval in connection with our initial public
offering as we believe that this regulation does not apply to us and that CSRC approval is not
required because (1) Trina is not a special purpose vehicle formed for the purpose of acquiring a
PRC domestic company because Trina China was a foreign-invested enterprise before it was acquired
by Trina, and, accordingly, Trina China did not fall within the definition of a PRC domestic
company as set forth in the new regulation; and (2) such acquisition was completed before the new
regulation became effective.
The interpretation and application of the New M&A Rule remains unclear, and we cannot assure
you that our initial public offering did not require approval from the CSRC. If the CSRC or other
PRC regulatory body subsequently determines that the CSRCs approval
was required for our initial public offering, we may face sanctions by the CSRC or other PRC
regulatory agencies. In that case, these regulatory agencies may impose fines and penalties on our
operations in the PRC, limit our operating privileges in the PRC, restrict or prohibit payment or
remittance of dividends by Trina China, or take other actions that could have a material adverse
effect on our business, financial condition, results of operations, reputation and prospects, as
well as the trading price of our ADSs.
The regulations also established additional procedures and requirements that could make merger
and acquisition activities by foreign investors more time-consuming and complex, including
requirements in some instances that the Ministry of Commerce, or MOFCOM, be notified in advance of
any change-of-control transaction in which a foreign investor takes control of a PRC domestic
enterprise. As we may grow our business in part by acquiring complementary businesses in the
future, complying with the requirements of the new regulations to complete such transactions could
be time-consuming, and any required approval processes, including obtaining approval from the
MOFCOM, may delay or inhibit our ability to complete such transactions. Any such delay or
inability to obtain applicable approvals to complete our potential future acquisitions could affect
our ability to expand our business or maintain our market share.
29
Recent regulations relating to offshore investment activities by PRC residents may limit our
ability to acquire PRC companies and could adversely affect our business, financial condition and
results of operations. The regulations also establish more complex procedures for acquisitions by
foreign investors, which could make it more difficult to pursue growth through acquisitions.
In October 2005, SAFE promulgated a regulation known as Circular No. 75 that states that if
PRC residents use assets or equity interests in their PRC entities as capital contributions to
establish offshore companies or inject assets or equity interests of their PRC entities into
offshore companies to raise capital overseas, they must register with local SAFE branches with
respect to their overseas investments in offshore companies. They must also file amendments to
their registrations if their offshore companies experience material events involving capital
variation, such as changes in share capital, share transfers, mergers and acquisitions, spin-off
transactions, long-term equity or debt investments or uses of assets in China to guarantee offshore
obligations. Under this regulation, failure to comply with the registration procedures set forth
in such regulation may result in restrictions being imposed on the foreign exchange activities of
the relevant PRC entity, including the payment of dividends and other distributions to its offshore
parent, as well as restrictions on the capital inflow from the offshore entity to the PRC entity.
While we believe our shareholders have complied with existing SAFE registration procedures, any
future failure by any of our shareholders who is a PRC resident, or controlled by a PRC resident,
to comply with relevant requirements under this regulation could subject our company to fines or
sanctions imposed by the PRC government, including restrictions on Trina Chinas ability to pay
dividends or make distributions to us and our ability to increase our investment in or to provide
loans to Trina China.
On December 25, 2006, the Peoples Bank of China promulgated the Measures for Administration
of Individual Foreign Exchange. On January 5, 2007, the SAFE promulgated Implementation Rules for
those measures and on March 28, 2007, the SAFE further promulgated the Operating Procedures on
Administration of Foreign Exchange regarding PRC Individuals Participation in Employee Share
Ownership Plans and Employee Stock Option Plans of Overseas Listed Companies (collectively,
referred to as the Individual
Foreign Exchange Rules). According to the Individual Foreign Exchange Rules, PRC citizens
who are granted shares or share options by a company listed on an overseas stock market according
to its employee share option or share incentive plan are required to register with the SAFE or its
local counterparts by following certain procedures. We and our employees who are PRC citizens and
individual beneficiary owners, or have been granted restricted shares or share options, may be
subject to the Individual Foreign Exchange Rules. The failure of our PRC individual beneficiary
owners and the restricted holders to complete their SAFE registrations pursuant to the SAFE Jiangsu
Branchs requirement or the Individual Foreign Exchange Rules may subject these PRC citizens to
fines and legal sanctions and may also limit our ability to contribute additional capital into our
PRC subsidiaries, limit our PRC subsidiaries ability to distribute dividends to us or otherwise
materially adversely affect our business.
New labor laws in the PRC may adversely affect our results of operations.
On June 29, 2007, the PRC government promulgated a new labor law, namely, the Labor Contract
Law of the PRC, or the New Labor Contract Law, which became effective on January 1, 2008. The New
Labor Contract Law imposes greater liabilities on employers and significantly impacts the cost of
an employers decision to reduce its workforce. Further, it requires certain terminations to be
based upon seniority and not the merits of employees. In the event we decide to significantly
change or decrease our workforce, the New Labor Contract Law could adversely affect our ability to
enact such changes in a manner that is most advantageous to our business or in a timely and cost
effective manner, thus materially and adversely affecting our financial condition and results of
operations.
30
We face risks related to health epidemics and other outbreaks.
Our business could be adversely affected by the effects of swine flu, avian flu, SARS or other
epidemics or outbreaks. China reported a number of cases of SARS in April 2004. In 2006, 2007 and
2008, there have been reports on the occurrences of avian flu in various parts of China, including
a few confirmed human cases and deaths. In April 2009, an outbreak of swine flu occurred in Mexico
and the United States. In May 2009, the World Health Organization declared a level 6 flu pandemic,
its highest pandemic alert phase, indicating a global pandemic underway. Any prolonged occurrence
or recurrence of swine flu, avian flu, SARS or other adverse public health developments in China or
any of the major markets in which we do business may have a material adverse effect on our business
and operations. These could include our ability to travel or ship our products outside of China
and to designated markets, as well as temporary closure of our manufacturing facilities, logistic
facilities and/or our customers facilities, leading to delayed or cancelled orders. Any severe
travel or shipment restrictions and closures would severely disrupt our operations and adversely
affect our business and results of operations. We have not adopted any written preventive measures
or contingency plans to combat any future outbreak of swine flu, avian flu, SARS or any other
epidemic.
Risks Related to Our Ordinary Shares and ADSs
The market price for our ADSs has been and is likely to continue to be highly volatile.
The market price for our ADSs has been and is likely to continue to be highly volatile and
subject to wide fluctuations in response to factors including the following:
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announcements of technological or competitive developments; |
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regulatory developments in our target markets affecting us, our customers or our
competitors; |
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announcements of studies and reports relating to the conversion efficiencies of our
products or those of our competitors; |
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actual or anticipated fluctuations in our quarterly operating results; |
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changes in financial estimates by securities research analysts; |
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changes in the economic performance or market valuations of other solar power technology
companies; |
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addition or departure of our executive officers and key research personnel; |
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announcements regarding patent litigation or the issuance of patents to us or our
competitors; |
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conditions affecting general economic performance in the United States; |
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fluctuations in the exchange rates between the U.S. dollar, the Euro and Renminbi; |
31
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release or expiry of lock-up or other transfer restrictions on our outstanding ordinary
shares; and |
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sales or perceived sales of additional ADSs. |
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 adverse effect on the market price of our ADSs.
For example, financial markets have experienced extreme disruption in recent months, including,
among other things, extreme volatility in securities prices. In the event of a continuing market
downturn, the market price of our ADSs may decline further.
Holders of our ADSs do not have the same voting rights as the holders of our ordinary shares and
may not receive voting materials in time to be able to exercise their right to vote.
Holders of our ADSs are not treated as shareholders. Instead, the depositary will be treated
as the holder of the shares underlying the ADSs. Holders of our ADSs, however, may exercise some
of the shareholders rights through the depositary and have the right to withdraw the shares
underlying their ADSs from the deposit facility.
Except as described in this annual report and provided in the deposit agreement, holders of
our ADSs will not be able to exercise voting rights attaching to the shares evidenced by our ADSs
on an individual basis. Holders of our ADSs may instruct the depositary to exercise the voting
rights attaching to the shares represented by the ADSs. If no instructions are received by the
depositary on or before a date established by the depositary, the depositary shall deem the holders
to have instructed it to give a discretionary proxy to a
person designated by us to exercise their voting rights. Holders of our ADSs may not receive
voting materials in time to instruct the depositary to vote, and holders of our ADSs, or persons
who hold their ADSs through brokers, dealers or other third parties, might not have the opportunity
to exercise a right to vote.
We have adopted a shareholders rights plan, which, together with the other anti-takeover provisions
of our articles of association, could discourage a third party from acquiring us, which could limit
our shareholders opportunity to sell their shares, including ordinary shares represented by our
ADSs, at a premium.
In November 2006, we adopted our amended and restated articles of association, which became
effective immediately upon completion of our initial public offering in December 2006. Our current
articles of association contain provisions that limit the ability of others to acquire control of
our company or cause us to engage in change-of-control transactions. In November 2008, our board
of directors adopted a shareholders rights plan. Under this rights plan, one right was distributed
with respect to each of our ordinary shares outstanding at the closing of business on December 1,
2008. These rights entitle the holders to purchase ordinary shares from us at half of the market
price at the time of purchase in the event that a person or group obtains ownership of 15% or more
of our ordinary shares (including by acquisition of the ADSs representing an ownership interest in
the ordinary shares) or enters into an acquisition transaction without the approval of our board of
directors.
32
This rights plan and the other anti-takeover provisions of our articles of association could
have the effect of depriving our shareholders of an opportunity to sell their shares at a premium
over prevailing market prices by discouraging third parties from seeking to obtain control of our
company in a tender offer or similar transaction. Our existing authorized ordinary shares confer
on the holders of our ordinary shares equal rights, privileges and restrictions. Our board of
directors may, without further action by our shareholders, issue additional ordinary shares, or
issue shares of a preferred class and attach to such shares special rights, privileges or
restrictions, which may be different from those associated with our ordinary shares, up to the
amount of the authorized capital and the number of authorized shares of our company. Preferred
shares could also be issued with terms calculated to delay or prevent a change in control of our
company or make removal of management more difficult. If our board of directors decides to issue
ordinary shares or preferred shares, the price of our ADSs and the notes may fall and the voting
and other rights of the holders of our ordinary shares and ADSs may be materially and adversely
affected.
Holders of our ADSs may not be able to participate in rights offerings that are made available to
our shareholders, and may not receive cash dividends if it is impractical to make them available to
them.
We may from time to time distribute rights to our shareholders, including rights to acquire
our securities. Under the deposit agreement, the depositary bank will not make rights available to
holders of our ADSs unless the distribution to ADS holders of both the rights and any related
securities are either registered under the Securities Act of 1933, as amended, or the Securities
Act, or exempted from registration under the Securities Act with respect to all holders of ADSs.
We are under no obligation to file a registration statement with respect to any such rights or
securities or to endeavor to cause such a registration statement to be declared effective.
Moreover, we may not be able to establish an exemption from registration
under the Securities Act. Accordingly, holders of our ADSs may be unable to participate in
our rights offerings and may experience dilution in their holdings.
In addition, the depositary of our ADSs has agreed to pay to holders of our ADSs the cash
dividends or other distributions it or the custodian receives on our ordinary shares or other
deposited securities after deducting its fees and expenses. Holders of our ADSs will receive these
distributions in proportion to the number of ordinary shares their ADSs represent. However, the
depositary may, at its discretion, decide that it is inequitable or impractical to make a
distribution available to any holders of ADSs. For example, the depositary may determine that it
is not practicable to distribute certain property through the mail, or that the value of certain
distributions may be less than the cost of mailing them. In these cases, the depositary may decide
not to distribute such property and holders of our ADSs will not receive such distribution.
Holders of our ADSs may be subject to limitations on transfer of their ADSs.
Our ADSs are transferable on the books of the depositary. However, the depositary may close
its transfer books at any time or from time to time when it deems expedient in connection with the
performance of its duties. In addition, the depositary may refuse to deliver, transfer or register
transfers of ADSs generally when our books or the books of the depositary are closed, or at any
time if we or the depositary deem it advisable to do so because of any requirement of law or of any
government or governmental body, or under any provision of the deposit agreement, or for any other
reason.
33
We are a Cayman Islands company and, because judicial precedent regarding the rights of
shareholders is more limited under Cayman Islands law than that under U.S. law, our shareholders
may have less protection for their shareholder rights than they would under U.S. law.
Our corporate affairs are governed by our memorandum and articles of association, the
Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands and the
common law of the Cayman Islands. The rights of shareholders to take action against the directors,
actions by minority shareholders and the fiduciary responsibilities of our directors to us under
Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The
common law of the Cayman Islands is derived in part from comparatively limited judicial precedent
in the Cayman Islands as well as that from English common law, which has persuasive, but not
binding, authority on a court in the Cayman Islands. The rights of our shareholders and the
fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established
as they would be under statutes or judicial precedent in some jurisdictions in the United States.
In particular, the Cayman Islands has a less developed body of securities laws than the United
States. In addition, some U.S. states, such as Delaware, have more fully developed and judicially
interpreted bodies of corporate law than the Cayman Islands. As a result of all of the above,
shareholders of a Cayman Islands company may have more difficulty in protecting their interests in
the face of actions taken by management, members of the board of directors or controlling
shareholders than they would as shareholders of a company incorporated in a jurisdiction in the
United States. The limitations described above will also apply to the depositary, which is treated
as the holder of the shares underlying our ADSs.
You may have difficulty enforcing judgments obtained against us.
We are a Cayman Islands company and substantially all of our assets are located outside of the
United States. Substantially all of our current operations are conducted in the PRC. In addition,
most 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 are 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. courts 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, most of whom are not residents in the United States and
the substantial majority of whose assets are located outside of the United States. In addition,
there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or
enforce judgments of U.S. courts.
34
Item 4. Information on the Company
A. History and Development of the Company
Our legal and commercial name is Trina Solar Limited. Our predecessor company, Changzhou
Trina Solar Energy Co., Ltd., or Trina China, was incorporated in December 1997. In anticipation
of our initial public offering, we incorporated Trina in the Cayman Islands as a listing vehicle on
March 14, 2006. Trina acquired all of the equity interests in Trina China through a series of
transactions that have been accounted for as a recapitalization and Trina China became our
wholly-owned subsidiary. We conduct substantially all of our operations through Trina China. In
December 2006, we completed our initial public offering of our ADSs and listed our ADSs on the New
York Stock Exchange. In June 2007, we completed a follow-on public offering of 5,406,280 ADSs sold
by us and certain selling shareholders. In July 2008, we completed public offerings of $138
million aggregate principal amount of convertible senior notes due 2013 and 4,073,194 ADSs for a
related ADS borrow facility. In August 2009, we completed another follow-on public offering of
5,175,000 ADSs.
Our principal executive offices are located at No. 2 Tian He Road, Electronics Park, New
District, Changzhou, Jiangsu 213031, Peoples Republic of China. Our telephone number at this
address is (+86) 519 8548-2008 and our fax number is (+86) 519 8517-6025. Our registered office in
the Cayman Islands is located at the offices of Codan Trust Company (Cayman) Limited, Cricket
Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands.
For information regarding our principal capital expenditures, see D. Property, Plants and
Equipment.
Investor inquiries should be directed to us at the address and telephone number of our
principal executive offices set forth above. Our website is http://www.trinasolar.com. The
information contained on our website does not form part of this annual report. Our agent for
service of process in the United States is CT Corporation System located at 111 Eighth Avenue, New
York, New York 10011.
B. Business Overview
Overview
We are a large-scale integrated solar-power products manufacturer based in China with a global
distribution network covering Europe, North America and Asia. Since we began our solar-power
products business in 2004, we have integrated the manufacturing of ingots, wafers and solar cells
for use in our PV module production. Our PV modules provide reliable and environmentally-friendly
electric power for residential, commercial, industrial and other applications worldwide.
We capitalize on our vertically integrated platform and low-cost manufacturing capability in
China to produce quality products at competitive costs. We produce standard monocrystalline PV
modules ranging from 165 watts, or W, to 240 W in power output and multicrystalline PV modules
ranging from 215 W to 240 W in power output. We build our PV modules to general specifications, as
well as to our customers and end-users specifications. We sell and market our products
worldwide, including in a number of European countries, such as Germany, Spain and Italy, where
government incentives have accelerated the adoption of solar power. In recent years, we have also
increased our sales in emerging solar power markets, such as the Benelux markets, China, the Czech
Republic, France, Japan, South Korea and the United States. We have
established regional headquarters and
offices located in Europe, North America and Asia to target sales and distribution in those
markets. We sell our products to distributors, wholesalers, power plant developers and operators
and PV system integrators, including Bull Solar, Enfinity NV, Gestamp Asetym Solar S.L., Invictus
NV and Proysectos Integrales Solares S.L.
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As of December 31, 2009, we had an annual manufacturing capacity of ingots and wafers of
approximately 500 MW and cells and modules of approximately 600 MW. In 2009, we fulfilled some of
our ingot and wafer requirements by sourcing and obtaining toll services from our strategic
partners. We will continue to contract toll services from third party manufacturers to process
ingots and wafers and source wafers from our suppliers and strategic partners in order to fill the
gap between our PV cell and module manufacturing capacity and our ingot and wafer manufacturing
capacity as a result of strong market demand. As a result, we have developed relationships with
various domestic and international suppliers of ingots and wafers.
We purchase polysilicon and reclaimable silicon materials from our network of over ten
suppliers, including several leading global producers of polysilicon, and have developed strong
relationships with our suppliers. To reduce raw material costs, we continue to focus on improving
solar cell conversion efficiency and enhancing manufacturing yields. Our research and development
platform will be further enhanced by the R&D Laboratory we have been commissioned by the PRC
Ministry of Science and Technology to establish in the Changzhou PV Park, or the PV Park, located
adjacent to our headquarters.
We began our research and development efforts in solar power products in 1999. We began our
system integration business in 2002, our PV module business in late 2004 and our production of
solar cells in April 2007. In 2007, 2008 and 2009, we generated net revenues of $301.8 million,
$831.9 million and $845.1 million, respectively, and net income from our continuing operations of
$35.4 million, $61.4 million and $97.6 million, respectively.
Products
We design, develop, manufacture and sell PV modules. PV modules are arrays of interconnected
solar cells encased in a weatherproof frame. We produce standard solar monocrystalline modules
ranging from 165 W to 240 W in power output and multicrystalline modules ranging from 215 W to 240
W in power output, built to general specifications for use in a wide range of residential,
commercial, industrial and other solar power generation systems. The variation in power output is
based on the conversion efficiency of the cells used in our PV modules, as well as the types of
cells. We assemble PV modules either from monocrystalline or multicrystalline cells. We also
design and produce PV modules based on our customers and end-users specifications, such as
colored modules for architectural applications and larger sized modules for utility grid
applications. Our PV modules are sealed, weatherproof and able to withstand high levels of
ultraviolet radiation and moisture. We sell our module products under our own brand.
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Manufacturing
We manufacture ingots, wafers, cells and modules. As of December 31, 2009, we had an annual
manufacturing capacity of ingots and wafers of approximately 500 MW and cells and modules of
approximately 600 MW. We plan to increase our annual manufacturing capacity of ingots and wafers
to approximately 700 MW and cells and modules to between approximately 850 MW and 950 MW by the end
of 2010. These capacity increases will be made at our new East Campus manufacturing facility,
which commenced commercial operations in the fourth quarter of 2009. We will determine the
magnitude of capacity increases taking into account market visibility in both customer demand and
the commercial lending environment to finance PV system installations in our respective sales
markets, as well as our strategy to expand while preserving liquidity. Accordingly, we cannot
assure you that we will not revise our capacity expansion plan after we finalize our review. The
following table sets forth our manufacturing capacity and production output in MW equivalent of
module production as a result of our ramp-up for each of our facilities.
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Estimated Maximum |
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Annual |
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Annual |
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Manufacturing |
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Manufacturing |
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Production Output |
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Manufacturing |
Manufacturing |
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Commencement |
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Capacity as of |
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for the Year Ended |
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Capacity as of |
Facility |
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Date |
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December 31, 2009 |
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December 31, 2009 |
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December 31, 2010 |
Silicon ingots |
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August 2005 |
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500 MW(1) |
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398 MW(2) |
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700 MW |
Silicon wafers |
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February 2006 |
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500 MW(1) |
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358 MW(2) |
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700 MW |
Solar cells |
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April 2007 |
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600 MW(1) |
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375 MW(2) |
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|
850 to 950 MW |
PV modules |
|
November 2004 |
|
600 MW(1) |
|
|
425 MW(2) |
|
|
850 to 950 MW |
|
|
|
(1) |
|
These are approximate figures due to discrepancies of the manufacturing capacity for each
stage of our solar power product value chain. |
|
(2) |
|
Includes modules produced but not shipped as of December 31, 2009. |
|
|
|
Silicon feedstock. We purchase polysilicon and reclaimable silicon raw materials from
various suppliers, including silicon distributors, silicon manufacturers, semiconductor
manufacturers and silicon processing companies. We test and categorize reclaimable silicon
raw materials based on their technical properties. These reclaimable silicon raw materials
then undergo mechanical grinding and chemical cleaning before they are mixed using our
proprietary formula. Our ability to mix the materials in the right proportion is critical
to the production of high-quality silicon ingots. In the fourth quarter of 2009, we had an
average silicon usage of
approximately 6.0 grams per watt, compared to approximately 6.3 grams per watt in the fourth
quarter of 2008. |
|
|
|
Ingots. We began manufacturing monocrystalline ingots in August 2005 with silicon
crystal growing furnaces. As of December 31, 2009, we had 110 silicon crystal growing
furnaces for manufacturing monocrystalline ingots, which can yield 110 MW of modules
annually based on current manufacturing processes, and 69 directional solidification
system, or DSS, furnaces for the manufacturing of multicrystalline ingots, which can yield
390 MW of modules annually based on current manufacturing processes. |
37
To produce monocrystalline silicon ingots, silicon raw materials are first melted in a
quartz crucible in the pulling furnace. Then, a thin crystal seed is dipped into the melted
material to determine the crystal orientation. The seed is rotated and then slowly
extracted from the melted material which solidifies on the seed to form a single crystal.
We began commercial production of multicrystalline ingots in November 2007. To produce
multicrystalline ingots, molten silicon is changed into a block through a casting process in
a DSS furnace. Crystallization starts by gradually cooling the crucibles in order to create
multicrystalline ingot blocks. The resulting ingot blocks consist of multiple smaller
crystals as opposed to the single crystal of a monocrystalline ingot.
|
|
|
Wafers. We began manufacturing wafers in February 2006. Currently, we slice
monocrystalline and multicrystalline wafers to a 180 micron thickness, while maintaining a
low breakage rate. After the ingots are inspected, monocrystalline ingots are squared by
squaring machines. Through high-precision cutting techniques, the squared ingots are then
sliced into wafers by wire saws using steel wires and silicon carbon powder. To produce
multicrystalline wafers, multicrystalline ingots are first cut into pre-determined sizes.
After a testing process, the multicrystalline ingots are cropped and the usable parts of
the ingots are sliced into wafers by wire saws by the same high-precision cutting
techniques used for slicing monocrystalline wafers. After being inserted into frames, the
wafers go through a cleansing process to remove debris from the previous processes, and are
then dried. Wafers are inspected for contaminants then packed and transferred to our solar
cell production facilities. Our annual wafer manufacturing capacity as of December 31,
2009 was approximately 500 MW of modules based on current manufacturing processes. |
|
|
|
Solar cells. We currently produce our own solar cells for use in our PV modules. We
have historically purchased solar cells from third-party solar cell manufacturers. After
we installed our ingot and wafer production lines, we began manufacturing ingots and wafers
in-house and outsourced the fabrication of solar cells to solar cell manufacturers. To
reduce our dependence on third-party solar cell manufacturers and to increase our
efficiencies both in solar cell and PV module manufacturing, we began the production of
monocrystalline cells in April 2007 and achieved a conversion efficiency of up to 18.8% as
of December 31, 2009 on a test production line basis. In November 2007, we began producing
multicrystalline cells and achieved a conversion efficiency of up to 17.5% as of December
31, 2009 on a test production line basis. In 2009, we were able to meet nearly all of our
solar cell needs with our in-house
production capabilities. We currently have 18 production lines with an annual manufacturing
capacity of approximately 600 MW. |
To manufacture solar cells, the crystalline silicon wafer is used as the base substrate.
After cleaning and texturing the surface, an emitter is formed through a diffusion process.
The front and back sides of the wafer are then isolated using the plasma etching technique,
the oxide formed during the diffusion process is removed and thus an electrical field is
formed. We then apply an anti-reflective coating to the surface of the cell using plasma
enhanced chemical vapors to enhance the absorption of sunlight. The front and back sides of
the cell are screen printed with metallic inks and the cell then undergoes a fire treatment
in order to preserve its mechanical and electrical properties. The cell is tested and
classified according to its parameters.
38
|
|
|
PV modules. We began module manufacturing in November 2004. We increased our annual
manufacturing capacity of modules from approximately 6 MW per year as of November 2004 to
approximately 600 MW per year as of December 31, 2009. We currently have 37 production
lines. |
To assemble PV modules, we interconnect multiple solar cells by taping and stringing the
cells into a desired electrical configuration. The interconnected cells are laid out,
laminated in a vacuum, cured by heating and then packaged in a protective light-weight
aluminum frame. Through this labor-intensive process, our PV modules are sealed and become
weatherproof and are able to withstand high levels of ultraviolet radiation and moisture.
PV module assembly remains a labor intensive process. We leverage Chinas lower labor costs
by using a greater degree of labor in our manufacturing process when it proves to be more
efficient and cost-effective than using automated equipment. We are in close proximity to
Chinese solar equipment manufacturers that offer many of the solar manufacturing equipment
we require at competitive prices compared to most similar machinery offered by international
solar equipment manufacturers.
In 2009, we fulfilled some of our ingot and wafer requirements by sourcing and obtaining toll services from our strategic partners. We will continue to contract toll services from third
party manufacturers to process ingots and wafers and source wafers from our suppliers and strategic
partners in order to fill the gap between our PV cell and module manufacturing capacity and our
ingot and wafer manufacturing capacity as a result of strong market demand. As a result, we have
developed relationships with various domestic and international suppliers of ingots and wafers.
Silicon Raw Material Supplies
Our business depends on our ability to obtain silicon raw materials, including polysilicon,
reclaimable silicon raw materials and, from time to time, ingots. We procure polysilicon from
international manufacturers as well as domestic and international distributors, and purchase
reclaimable silicon raw materials from over ten suppliers, including semiconductor manufacturers
and silicon processing companies. In addition to our headquarters, we have three offices located
in the United States, Asia and Europe to conduct procurement activities. We believe our procurement
teams geographical proximity to the supply sources helps us better communicate with the suppliers
and respond to them more efficiently. We believe our efforts to procure silicon raw materials from
various sources will
enable us to better control the silicon supply chain, increase manufacturing efficiency, and
reduce margin pressure.
According to Solarbuzz, the average long-term supply contract price of polysilicon increased
from approximately $60-$65 per kilogram delivered in 2007 to $60-$75 per kilogram in 2008.
In addition, according to Solarbuzz, spot prices for solar grade polysilicon were in the range of
$230-$375 per kilogram for most of the first half of 2008 and rose
to a peak of $400-$450 per
kilogram by mid-2008. Due to the industry-wide shortage of polysilicon experienced during the past few years, we
have purchased polysilicon using short-term, medium-term and
long-term contracts. However, since the fourth
quarter of 2008, the price of polysilicon decreased rapidly due to the increased supply of polysilicon
resulting from intensive investments in silicon
manufacturing. The average initial price range of long-term polysilicon supply contracts decreased to $50-$60 in
the fourth quarter of 2009, and spot prices for solar grade polysilicon decreased rapidly to
$150-$200 per kilogram by the beginning of 2009 and to $55-$60 per kilogram by the end of 2009. We cannot assure you
that the price of polysilicon will continue to decline or remain at its current levels, especially
if the global solar power market regains its growth momentum.
39
We have executed agreements with suppliers to obtain our silicon raw material requirements to
support our estimated production output in 2010. We intend to leverage the global reach of our
procurement personnel to secure our silicon requirements.
We have entered into medium-term and long-term supply contracts to procure silicon feedstock
of different grades with Chinese and international suppliers, which provide us with the ability to
meet our future requirements. These medium-term and long-term suppliers include Hemlock
Semiconductor Group, Jiangsu Zhongneng Polysilicon Technology Development Co., Ltd. (a wholly-owned subsidiary
of GCL-Poly Energy Holdings Limited), or Jiangsu Zhongneng, OCI Company Ltd. (formerly DC
Chemical Co., Ltd.) and Wacker Chemie AG. Our medium-term and long-term contracts have delivery
terms beginning in 2009, 2010 or 2011 and a fixed price or a price to be determined on a quarterly
or annual basis. Several of our long-term contracts contain price adjustment clauses that provide
for price renegotiations if the market price is lower or higher than the originally agreed price in any given
quarter. These contracts also require us to make an advance payment of a certain negotiated amount.
Due to the decrease in polysilicon prices in the market in late 2008 and early 2009, we
renegotiated most of our medium-term and long-term silicon supply contracts to achieve favorable
pricing and payment terms relative to current market conditions.
To secure sufficient feedstock to support our current and planned sales growth, in
March 2008, we entered into an eight-year polysilicon supply agreement with Jiangsu Zhongneng,
a suppler of polysilicon based in Jiangsu Province, China. This supply agreement was supplemented
by an agreement entered into in August 2008. In August 2009, we extended the term of this supply
agreement by another five years. Under this agreement and its supplemental agreements, Jiangsu Zhongneng agreed to supply us with
polysilicon and wafers sufficient to produce solar modules of a total of approximately 8,500 MW from 2008 to 2020. Jiangsu
Zhongneng has supplied to us an aggregate of 1,974 metric tons of polysilicon, with 284 metric tons
delivered in 2008 and 1,690 metric tons delivered in 2009. The prices of the polysilicon and wafers are predetermined subject to
periodic adjustments.
In April 2008, in order to encourage the development of the solar power industry in Changzhou,
the Changzhou municipal government established the PV Park, adjacent to our headquarters that has
attracted and continues to attract PV supply chain component manufacturers. Several of our
key suppliers have established, or plan to establish, production facilities in the PV Park.
We believe the relocation of suppliers to the PV Park will support our goal of realizing
procurement and logistical advantages, accelerate our cost reduction initiatives, as well as
providing synergies for research and development. For example, starting from January 2010, we
commenced sourcing slurry for wafer slicing from a vendors new facility located in the PV park.
Sourcing from suppliers located within the PV park and expanding our Enterprise Resource Planning
(ERP) system to cover a greater number of vendors would allow us to collaborate with our vendors
for better inventory and production management control, better monitoring of supply quality and
easy access to onsite inventory.
40
Quality Assurance
Our quality control was set up according to the quality system requirements of ISO 9001:2000.
Our quality control consists of three components: incoming inspections through which we ensure the
quality of the raw materials that we source from third parties, in-process quality control of our
manufacturing processes, and output quality control of finished products through inspection and by
conducting reliability and other tests. We possess a nationally recognized quality test laboratory
in China that performs quality control testing on all of our products.
We have received international certifications for our quality assurance programs, including
ISO 9001:2000, which we believe demonstrates our technological capabilities as well as instill
customer confidence. The following table sets forth the major certifications we have received and
major test standards our products have met as of the date of this annual report.
|
|
|
|
|
Certification Test Date |
|
Certification or Test Standard |
|
Relevant Products |
December 2007
|
|
ISO 9001:2000 quality system certification
|
|
Manufacturing and sales of silicon, ingots, casting, silicon wafers, solar cells and PV modules |
|
|
|
|
|
April 2008,
February 2010
|
|
Golden Sun product certification
|
|
PV modules sold in China |
|
|
|
|
|
August 2008, July 2009
|
|
UL 1703 certification
|
|
PV modules sold in the United States |
|
|
|
|
|
December 2008
|
|
ISO14001:2004 environmental management system
|
|
Manufacturing and sales of silicon, ingots, casting, silicon wafers, solar cells and PV modules |
|
|
|
|
|
October 2007, November 2007, December 2007, December 2008, May 2009
|
|
CE certification
|
|
PV modules sold in Europe |
|
|
|
|
|
March 2008, May 2008, October 2008, February 2009, April 2009, September 2009
|
|
ICIM product certification
|
|
PV modules sold in Europe |
|
|
|
|
|
August 2006, June 2007, July 2007, February 2009, April 2009, May 2009, June 2009 and November 2009
|
|
TÜV Rheinland product certification
|
|
PV modules sold in Europe |
|
|
|
|
|
March 2009, October 2009
|
|
JET product certification
|
|
PV modules sold in Japan |
|
|
|
|
|
December 2009
|
|
RoHS certification
|
|
PV modules sold in Europe |
Customers and Markets
We currently sell our PV modules primarily to distributors, wholesalers, power plant
developers and operators and PV system integrators. Our focus on which type of clients depends
largely on the demand in the specific markets. Distributors and wholesalers tend to be large
volume purchasers. We also work with solar power plant developers and operators by supplying solar
modules for select downstream projects. PV system integrators typically design and sell integrated
systems that include our branded PV modules along with other system components. Some of the PV
system integrators also resell our modules to other system integrators. Our major customers for
2009 included Bull Solar, Enfinity NV, Gestamp Asetym Solar S.L., Invictus NV and Proysectos
Integrales Solares S.L. We have a quality customer base as many of our customers are well-known
wholesalers and system integrators in their respective markets and are expanding to become
multinational PV companies.
41
A small number of customers have historically accounted for a majority of our net sales. The
top five of our customers collectively accounted for approximately 33.5%, 41.9% and 36.9% of our
net revenues in 2007, 2008 and 2009, respectively. The top customer, Invictus NV, contributed
approximately 9.5% of our net revenues in 2009.
We currently sell most of our PV modules to customers located in Europe. Solar manufacturers
like us have capitalized on government and regulatory policies for the promotion of solar power in
many jurisdictions. In order to continue growing our sales and to reduce our exposure to any
particular market segment, we intend to broaden our geographic presence and customer base. While
Germany continues to be our largest market, we have significantly expanded our sales of PV modules
to several solar power markets in Europe, including Spain, Italy, the Benelux markets, France and
the Czech Republic. In 2007, 2008 and 2009, we signed several agreements with well-recognized
companies in Spain, Germany, Italy and Belgium. These sales are conducted in line with our goals
of increasing our market presence in Europe outside of Germany and building our brand as one of the
top global solar brands. In 2008, the Spanish market contributed to the accelerated growth in the
market demand for solar power products, but contributed to the shortfall in demand globally after
the government policy shift in September 2008. Although the policy shift has impacted the demand
in the Spanish market, our customers in Spain also purchase large quantities of solar power
products for projects to be developed outside of Spain, which, we believe, will offset some of the
impact. Starting from 2009, the German government reduced solar feed-in tariffs, which may result
in a significant fall in the price of and demand for PV products. See Item 5. Operating and
Financial Review and ProspectsB. Overview Government Subsidies and Economic Incentives. In the
past two years, we also increased our sales in emerging solar power markets outside of Europe, such
as China, Japan, South Korea and the United States.
The following table sets forth our total net revenues by geographical region for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
Total Net |
|
|
|
|
|
|
Total Net |
|
|
|
|
|
|
Total Net |
|
|
|
|
Region |
|
Revenues |
|
|
Percent |
|
|
Revenues |
|
|
Percent |
|
|
Revenues |
|
|
Percent |
|
|
|
(in thousands, except for percentages) |
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany |
|
$ |
94,733 |
|
|
|
31.4 |
% |
|
$ |
198,529 |
|
|
|
23.9 |
% |
|
$ |
286,220 |
|
|
|
33.9 |
% |
Italy |
|
|
54,695 |
|
|
|
18.1 |
% |
|
|
149,685 |
|
|
|
18.0 |
% |
|
|
166,062 |
|
|
|
19.6 |
% |
Spain |
|
|
120,831 |
|
|
|
40.0 |
% |
|
|
270,549 |
|
|
|
32.5 |
% |
|
|
101,849 |
|
|
|
12.1 |
% |
Others |
|
|
21,041 |
|
|
|
7.0 |
% |
|
|
136,641 |
|
|
|
16.4 |
% |
|
|
234,021 |
|
|
|
27.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe Total |
|
|
291,300 |
|
|
|
96.5 |
% |
|
|
755,404 |
|
|
|
90.8 |
% |
|
|
788,152 |
|
|
|
93.3 |
% |
China |
|
|
6,373 |
|
|
|
2.1 |
% |
|
|
30,390 |
|
|
|
3.7 |
% |
|
|
24,435 |
|
|
|
2.9 |
% |
Others |
|
|
4,146 |
|
|
|
1.4 |
% |
|
|
46,107 |
|
|
|
5.5 |
% |
|
|
32,549 |
|
|
|
3.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
301,819 |
|
|
|
100.0 |
% |
|
$ |
831,901 |
|
|
|
100.0 |
% |
|
$ |
845,136 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
We conduct our PV module sales typically through short-term contracts with terms of one year
or less or, to a lesser extent, long-term sales or framework agreements with terms of generally one
to two years. Our short-term contracts provide for an agreed sales volume at a fixed price. Our
long-term sales or framework agreements provide for a fixed sales volume or a fixed range of sales
volume to be determined generally two to three quarters before the scheduled shipment date. Prices
for long-term sales or framework agreements are generally determined one month prior to the start
of the quarter of the scheduled shipment date. Compared to short-term contracts, we believe our
long-term sales or framework agreements not only provide us with better visibility into future
revenues, but also help us enhance our relationships with our customers.
We may require advance payments depending on the credit status of our customer, our
relationship with the customer, market demand and the terms of the particular contract. Our
contracts with customers stipulate different post-delivery payment schedules based on the credit
worthiness of the customer. We have also increased our sales to customers using credit sales,
generally with payments due within two to six months. Starting in February 2009, all of our
overseas sales have been insured by China Export & Credit Insurance Corporation, or Sinosure. The
amount of insurance coverage for each transaction is based on a rating assigned by Sinosure to the
customer based on such customers credit history.
Pursuant to our sales contracts, we provide customers with warranty services. In the past,
our PV modules were typically sold with a two-year warranty for defects in materials and
workmanship and a minimum power output warranty for up to 25 years following the date of purchase
or installation. In 2009, we extended the warranty for defects in materials and workmanship from
two years to five years.
We seek to better serve our customers or their end-customers by setting up local offices with
sales and marketing, sales support and logistics teams close to them. We are also expanding our
range of value-added services to customers. We service residential and commercial end-customers
through a network of local distributors and system integrator partners. For distributors and
system integrators, we provide marketing support, logistics
support that minimizes handling and administrative costs, and pre-sale and post-sale supports
that include customized product selection, technological and installation support. We are also
developing a solar power product solution that we hope to launch in 2010 to make rooftop
installation of solar power products easier for residential customers. For our customers in the
utility sector, we will continue to provide a greater level of pre-sale due diligence and technical
input to facilitate their procurement.
Sales and Marketing
Over the years, we
have expanded our distribution network globally. While our core solar
module customer base continues to be developed markets in Germany, Italy and Spain, we have also expanded our sales and
distribution channels into emerging solar markets such as the Benelux markets, China, the Czech
Republic, France, Japan, South Korea and the United States. To grow
our sales and reduce exposure to any particular market, we have broadened our geographic
presence and diversified our sales among distributors, wholesalers, power plant developers and
operators, PV system integrators and regional and national grid operators through increased sales
and marketing and customer support efforts.
To further expand our distribution network and enhance our sales and delivery capabilities, we have
established regional headquarters and offices in Europe, North America and Asia.
We established a representative office in
California in September 2007, which became our regional
headquarters in January 2010, and a regional
headquarters in Switzerland in January 2010.
We also established warehouse operations in Rotterdam, a key port city in the Netherlands, in
December 2008, and in California in June 2009, further strengthening our distribution networks.
Our localized offices will continue to be supported by our centralized operations and
administration located in Changzhou, China.
43
Our marketing programs include participation in industry conferences, trade fairs and public
relations events. Our sales and marketing group works closely with our research and development
and manufacturing groups to coordinate our product development activities, product launches and
ongoing demand and supply planning.
Intellectual Property
In manufacturing our solar power products, we use know-how available in the public domain and
unpatented know-how developed in-house. We rely on a combination of trade secrets and employee
contractual protections to establish and protect our proprietary rights. We believe that many
elements of our solar power products and manufacturing processes involve proprietary know-how,
technology or data that are not coverable by patents or patent applications, including technical
processes, equipment designs, algorithms and procedures. We have taken security measures to
protect these elements. Substantially all of our research and development personnel have entered
into confidentiality, non-competition and proprietary information agreements with us. These
agreements address intellectual property protection issues and require our employees to assign to
us all of their inventions, designs and technologies they develop during their terms of employment
with us.
As of December 31, 2009, we had 65 issued patents and 64 patent applications pending in China.
We obtained an additional 5 patents in 2010. 123 of our issued patents and our pending patent
applications relate to technology that we are currently using, including technology relating to
improvements to the solar power product manufacturing process and integration of construction
elements into our PV modules or solar systems. Eleven of our issued patents relate to technology that we do not use in our current
production of solar power products. As we expand our product portfolio, continue our expansion
into solar cell manufacturing and enter into polysilicon manufacturing in the future, we believe
that the development and protection of our intellectual property will become more important to our
business. We intend to continue to assess appropriate opportunities for patent protection of those
aspects of our technology that we believe provide a significant competitive advantage to us.
We have registered as a trademark the logo Trina in China, Japan, Singapore, Switzerland,
Morocco, Taiwan, Thailand, Croatia, South Korea and the Philippines. We also have registered as a
trademark the logo Trinasolar in Japan, Singapore, Switzerland, Morocco, Taiwan, South Korea and
Turkey. We have pending trademark registration applications for the logo Trina in the United
States, Australia, the EU and several other countries. We have pending trademark registration
applications for the logo Trinasolar in the PRC, the United States, Australia, the EU and
several other countries. We also filed a trademark registration application for the logo
with the trademark office in the PRC in December 2007 and November 2009. We also
registered as a trademark the logo MeSolar in Taiwan, Japan, Australia and Switzerland and
registered as a trademark the logo YouSolar in Taiwan, Japan, Switzerland and Singapore. We also
filed the trademark registration applications for the logos
,
,
,
,
,
individually with the trademark office in the PRC in November 2009.
44
Competition
The market for solar power products is competitive and fast evolving. We expect to face
increasing competition, which may result in price reductions, reduced margins or loss of market
share. We believe that the key competitive factors in the market for PV modules include:
|
|
|
manufacturing efficiency; |
|
|
|
power efficiency and performance; |
|
|
|
strength of supplier relationships; |
|
|
|
aesthetic appearance of PV modules; and |
|
|
|
brand name and reputation. |
We compete with other module manufacturing companies such as Sharp Electronic Corporation,
Suntech Power Holdings Co., Ltd., Yingli Green Energy Holding Co., Ltd. and Mitsubishi Electric
Corporation. We believe one of our key advantages over some of these competitors is our high
degree of vertical integration, which was strengthened with the completion of our solar cell plant.
Some of our competitors have also become vertically integrated, from silicon wafer manufacturing
to solar power system integration, such as Renewable Energy Corporation ASA and SolarWorld AG.
Some of our competitors may have a stronger market position than ours and have greater resources
than we have. Further, many of our competitors are developing and are currently producing products
based on new
solar power technologies, such as thin-film technology, which may ultimately have costs
similar to, or lower than, our projected costs.
The barriers to entry are relatively low in the PV module manufacturing business, given that
manufacturing PV modules is labor intensive and requires limited technology. Because of the
scarcity of polysilicon in the past few years, supply chain management and financial strength were
the key barriers to entry. As the shortage of polysilicon eases, these barriers to entry become
less significant and many new competitors may enter the industry and cause the industry to rapidly
become over-saturated. Many mid-stream solar power products manufacturers have been seeking to
move downstream to strengthen their position in regional markets. They are expected to leverage on
their existing sales capacity as the industry faces challenges posed by the economic downturn. In
addition, we may also face new competition from semiconductor manufacturers, several of which have
already announced their intention to start production of solar cells. Decreases in polysilicon
prices and increases in PV module production could result in substantial downward pressure on the
price of PV modules and intensify the competition we face.
45
Environmental Matters
We believe we have obtained the environmental permits necessary to conduct our business. Our
manufacturing processes generate noise, waste water, gaseous wastes and other industrial wastes.
However, we have devoted efforts to reduce such wastes to acceptable levels. We have installed
various types of anti-pollution equipment in our facilities to reduce, treat and, where feasible,
recycle the wastes generated in our manufacturing process. We believe we are currently in
compliance with all applicable environmental laws and regulations. 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.
Insurance
We maintain property insurance policies with reputable insurance companies for covering our
equipment, facilities, buildings and their improvements, and office furniture. These insurance
policies cover losses due to fire, earthquake, flood and a wide range of other natural disasters.
We maintain director and officer liability insurance for our directors and executive officers. We
do not maintain product liability insurance. We consider our insurance coverage to be in line with
other manufacturing companies of similar size in China. However, significant damage to any of our
manufacturing facilities, whether as a result of fire or other causes, could have a material
adverse effect on our results of operation. We paid an aggregate of approximately $1.0 million in
insurance premiums in 2009. The increase in premium was largely due to an increase in the scope of
our insurance coverage, including our purchase of business interruption insurance.
Starting in February 2009, all of our overseas sales have been insured by Sinosure. The
amount of insurance coverage for each transaction is based on a rating assigned by Sinosure to the
customer based on such customers credit history. We paid Sinosure insurance premiums of an
aggregate of approximately $2.0 million in 2009.
Regulation
This section sets forth a summary of the most significant regulations or requirements that
affect our business activities in China or our shareholders right to receive dividends and other
distributions from us.
Renewable Energy Law and Other Government Directives
In February 2005, China enacted its Renewable Energy Law, which became effective on January 1,
2006. The Renewable Energy Law sets forth policies to encourage the development and use of solar
energy and other non-fossil energy. The law sets forth the national policy to encourage and
support the use of solar and other renewable energy and the use of 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. In January 2006, Chinas National Development and Reform Commission promulgated two
implementation directives of the Renewable Energy Law. These directives set forth specific
measures in setting prices for electricity generated by solar and other renewal power generation
systems and in sharing additional expenses occurred. The directives further allocate the
administrative and supervisory authorities among different government agencies at the national and
provincial levels and stipulate responsibilities of electricity grid companies and power generation
companies with respect to the implementation of the Renewable Energy Law.
46
Chinas Ministry of Construction also issued a directive in June 2005 that seeks to expand the
use of solar energy in residential and commercial buildings, and encourages the increased
application of solar energy in different townships. In addition, Chinas State Council promulgated
a directive in July 2005 that sets forth specific measures to conserve energy resources.
Environmental Regulations
We are subject to a variety of governmental regulations related to environmental protection.
The major environmental regulations applicable to us include the Environmental Protection Law of
the PRC, the Law of PRC on the Prevention and Control of Water Pollution, Implementation Rules of
the Law of PRC on the Prevention and Control of Water Pollution, the Law of PRC on the Prevention
and Control of Air Pollution, Implementation Rules of the Law of PRC on the Prevention and Control
of Air Pollution, the Law of PRC on the Prevention and Control of Solid Waste Pollution, and the
Law of PRC on the Prevention and Control of Noise Pollution.
Restriction on Foreign Ownership
The principal regulation governing foreign ownership of solar power businesses in the PRC is
the Foreign Investment Industrial Guidance Catalogue (effective as of October 31, 2007), or the
Catalogue. The Catalogue classifies industries into four categories: encouraged, permitted, restricted and prohibited. As confirmed by the government authorities,
Trina China, our operating subsidiary, is engaged in an encouraged industry. Trina China is
permitted under the PRC laws to be wholly owned by a foreign company. Trina China is, accordingly,
also entitled to certain preferential treatment granted by the PRC government authorities, such as
exemption from tariffs on equipment imported for its own use.
Tax
In accordance with Income Tax Law of China for Enterprises with Foreign Investment and Foreign
Enterprises, or the Income Tax Law, and the related implementing rules, effective before January 1,
2008, foreign invested enterprises incorporated in the PRC are generally subject to an enterprise
income tax of 30% and a local income tax of 3%. The Income Tax Law and the related implementing
rules provide certain preferential favorable tax treatments to foreign invested enterprises which
qualify as advanced technological enterprises or are established in certain areas in the PRC.
In 2002, Trina China relocated to a high-tech zone in Changzhou, and as a high and new
technology enterprise, it qualified for a preferential enterprise income tax rate of 15% in 2002
and 2003. As a foreign invested enterprise engaged in a manufacturing business, Trina China was
also entitled to a two-year exemption from the enterprise income tax for its first two profitable
years of operation, which were 1999 and 2000, and to a 50% reduction of its applicable income tax
rate for the succeeding three years, which were from 2001 to 2003. Therefore, Trina China had a
tax rate of 7.5% in each of 2002 and 2003.
47
In 2004, Trina China moved out of the high-tech zone and no longer qualified for a
preferential enterprise income tax rate of 15%. Trina China, a foreign invested enterprise engaged
in a manufacturing business and established in Changzhou, which is within a coastal economic zone,
is entitled to a preferential enterprise income tax rate of 24%. In addition, Trina China was
qualified as an advanced technological enterprise and, as a result, enjoyed a preferential
enterprise income tax rate of 12% for the years 2004 to 2006. As the tax benefit for an advanced
technological enterprise expired in 2006, Trina China was granted 50% relief with respect to the
PRC income tax rate of 24% in 2007 for its revenue generated from export sales which exceeds 70% of
total revenue.
In February 2007, Jiangsu Province State Tax Bureau, where Trina China is registered, approved
Trina Chinas application for tax holiday in conjunction with an increase of $32.7 million in its
registered capital, from $7.28 million in August 2005 to $40.0 million in July 2006. In accordance
with the approval of Jiangsu Province State Tax Bureau, Trina China is exempt from income taxes for
81.8% of its taxable profit, representing the proportion of its increase in registered capital from
August 2006 to December 2007, followed by a 50% relief in its tax rate from 2008 to 2010. However,
this tax relief did not apply in 2006 because Jiangsu Province State Tax Bureau did not issue their
approval until February 2007. Accordingly, for 2007, an income tax rate of 12% applies to 18.2% of
Trina Chinas taxable profit, and 81.8% of its taxable profit is exempt from income taxes. The
additional capital investments made in 2008 were not entitled to additional tax holidays.
Chinas parliament, the National Peoples Congress, adopted the Enterprise Income Tax Law on
March 16, 2007. On December 6, 2007, the PRC State Council issued the Implementation Regulations
of the Enterprise Income Tax Law, both of which became effective on January 1, 2008. The
Enterprise Income Tax Law and its Implementation
Regulations, or the new EIT Law, imposes a uniform tax rate of 25% on all PRC enterprises,
including foreign-invested enterprises, and eliminates or modifies most of the tax exemptions,
reductions and preferential treatments available under the previous tax laws and regulations.
Under the new EIT Law, enterprises that were established before March 16, 2007 and already enjoy
preferential tax treatments will (i) in the case of preferential tax rates, continue to enjoy the
tax rates which will be gradually increased to the new tax rates within five years from January 1,
2008 or (ii) in the case of preferential tax exemption or reduction for a specified term, continue
to enjoy the preferential tax holiday until the expiration of such term. In addition, certain
enterprises may still benefit from a preferential tax rate of 15% under the new EIT Law if they
qualify as high and new technology enterprises strongly supported by the State, subject to
certain general factors described therein. In September 2008, Trina China obtained the High and
New Technology Enterprise Certificate with a valid term of three years starting from 2008.
Therefore, Trina China is entitled to a preferential income tax rate of 15% in 2008, 2009 and 2010
as long as it maintains its qualification as a high and new technology enterprise under the new
EIT Law. In addition, in April 2009, we received a notice from the State Tax Bureau of Changzhou
Hi-tech Development Zone, which revoked a previous approval for the tax holiday on taxable income
related to registered capital contributions made in 2007. As a result, we made an additional income
tax payment of $6.5 million during the year ended December 31, 2009. In 2008 and 2009, our income
tax rate was 15%.
48
Pursuant to the Provisional Regulation of China on Value Added Tax and its implementing rules,
all entities and individuals that are engaged in the sale of goods, the provision of processing,
repairs and replacement services and the importation of goods in China are generally required to
pay value added tax, or VAT, at a rate of 17.0% of the gross sales proceeds received, less any
deductible VAT already paid or borne by the taxpayer. Further, when exporting goods, the exporter
is entitled to a portion or all of the refund of VAT that it has already paid or borne. Imported
raw materials that are used for manufacturing export products and are deposited in bonded
warehouses are exempt from import VAT.
Foreign Currency Exchange
Pursuant to the Foreign Currency Administration Rules promulgated in 1996 and amended in 1997
and 2008 and various regulations issued by SAFE, and other relevant PRC government authorities,
the Renminbi is freely convertible only to the extent of current account items, such as
trade-related receipts and payments, interests and dividends. An enterprise can choose to either
keep or sell its foreign exchange income under the current account to financial institutions
authorized to engage in foreign exchange settlement or sales business. Capital account items, such
as direct equity investments, loans and repatriation of investment, require the prior approval from
SAFE or its local counterpart for conversion of Renminbi into a foreign currency, such as U.S.
dollars, and remittance of the foreign currency outside the PRC.
Payments for transactions that take place within the PRC must be made in Renminbi. Absent
circumstances specified under Chinese laws and regulations, upon approvals from SAFE, an enterprise
can choose to either keep or sell its foreign exchange income under capital account to financial
institutions authorized to engage in foreign exchange settlement and sales business. On the other
hand, FIEs may retain foreign exchange in accounts with designated foreign exchange banks, subject
to a cap set by SAFE or its local counterpart.
Dividend Distribution
The principal regulations governing distribution of dividends of wholly foreign-owned
enterprises include the Wholly Foreign-owned Enterprise Law (1986), as amended by the Decision on
Amending the Law of the Peoples Republic of China on Wholly Foreign-owned Enterprise (2000), and
the Implementing Rules of the Wholly Foreign-owned Enterprise Law (1990), as amended by the
Decision of the State Council on Amending the Implementing Rules of the Law of the Peoples
Republic of China on Wholly Foreign-owned Enterprise (2001).
Under these regulations, foreign invested enterprises in China may pay dividends only out of
their accumulated profits, if any, determined in accordance with Chinese accounting standards and
regulations. In addition, wholly foreign-owned enterprises in China are required to set aside at
least 10% of their respective after-tax profits based on PRC accounting standards each year, if
any, to fund its general reserves fund, until the accumulative amount of such reserves reaches 50%
of its registered capital. These reserves are not distributable as cash dividends. Wholly
foreign-owned enterprises are also required to allocate a portion of its after-tax profits, as
determined by its board of directors, to its staff welfare and bonus funds, which may not be
distributed to equity owners.
In addition, under a new PRC tax law that became effective in January 2008, dividends from
Trina China to us may become subject to a 10% withholding tax. See Tax.
49
C. Organizational Structure
The following table sets out the details of our subsidiaries:
|
|
|
|
|
|
|
Name |
|
Country of Incorporation |
|
Ownership Interest |
|
Top Energy International Limited |
|
Hong Kong |
|
|
100 |
% |
Changzhou Trina Solar Energy Co., Ltd. |
|
China |
|
|
100 |
% |
Trina Solar Korea Limited |
|
South Korea |
|
|
100 |
% |
Trina Solar (Singapore) Pte. Ltd. |
|
Singapore |
|
|
100 |
% |
Mutual Luck Enterprises Limited |
|
Hong Kong |
|
|
100 |
% |
Trina Solar (Luxembourg) Holdings S.à.r.l. |
|
Luxembourg |
|
|
100 |
% |
Trina Solar
(Luxembourg) S.à.r.l. |
|
Luxembourg |
|
|
100 |
% |
Trina Solar (Japan) Limited |
|
Japan |
|
|
100 |
% |
Trina Solar
(Italy) S.R.L. |
|
Italy |
|
|
100 |
% |
Trina Solar (Spain), Sociedad Limitada |
|
Spain |
|
|
100 |
% |
Trina Solar (Switzerland) Ltd. |
|
Switzerland |
|
|
100 |
% |
Trina Solar (U.S.) Holding Inc. |
|
United States |
|
|
100 |
% |
Trina Solar (U.S.) Inc. |
|
United States |
|
|
100 |
% |
Trina Solar (Germany) GmbH |
|
Germany |
|
|
100 |
% |
In December 2007, we established Trina Solar (Lianyungang) Co., Ltd. in Lianyungang, Jiangsu
Province, as a part of our plan to establish a 10,000 metric ton polysilicon production facility.
In April 2008, we decided to discontinue our development plan. Trina Solar (Lianyungang) Co., Ltd.
was dissolved in April 2009.
D. Property, Plant and Equipment
All of our research, development and manufacturing of ingots, wafers, cells and PV modules are
conducted at our facilities in Changzhou, China, where we occupy a site area of approximately
355,624 square meters for the facilities currently owned and operated by us. We have also occupied
a site area of approximately 274,327 square meters for our future production capacity expansion.
In 2008, we received approvals from Chinas National Development and Reform Commission for
investment relating to a capacity expansion project of up to 500MW in our new East Campus
manufacturing zone. The facilities, to be completed by 2011, will also include a co-located
technology research center. In 2008, we commenced groundwork for this project. In the fourth
quarter of 2009, we established new PV cell and module production lines, each with initial capacity
of 150 MW in the East Campus manufacturing facility. Furthermore, we expect to increase our total
annual production capacity of ingots and wafers from the current approximately 500 MW to 700 MW and
cells and PV modules from the current approximately 600 MW to between approximately 850 MW to 950
MW by the end of 2010. These capacity increases will be made at our new East Campus manufacturing
facility, which commenced commercial operations in the fourth quarter of 2009. See B. Business
OverviewManufacturing for more details. We believe our current and planned facilities will meet
our current and foreseeable requirements.
50
We selectively use automation to enhance the quality and consistency of our finished products
and improve efficiency in our manufacturing processes. We use manufacturing equipment purchased
primarily from European, North American and Asian, including Chinese and Japanese, solar equipment
suppliers. Other critical equipment is also sourced worldwide. Key equipment used in our
manufacturing facilities includes silicon crystal growing furnaces, DSS furnaces, high-precision
wafer sawing machines, diffusion furnaces (tube), screen print machine sets and automatic
laminators. Set forth below is a list of our major equipment as of December 31, 2009:
|
|
|
|
|
|
|
|
|
Manufacturing |
|
|
|
No. of Units in Operation as of |
|
|
Facility |
|
Major Equipment |
|
December 31, 2009 |
|
Source (Country) |
Silicon ingots
|
|
Silicon crystal growing furnaces
|
|
|
110 |
|
|
China |
|
|
|
|
|
|
|
|
|
|
|
DSS furnaces
|
|
|
69 |
|
|
United States |
|
|
|
|
|
|
|
|
|
Silicon wafers
|
|
Wafer sawing machines
|
|
|
92 |
|
|
Japan, Switzerland |
Solar cells
|
|
Diffusion furnaces (tube)
|
|
|
88 |
|
|
Germany |
|
|
|
|
|
|
|
|
|
|
|
Screen print machine sets
|
|
|
20 |
|
|
Italy |
PV modules
|
|
Automatic laminators
|
|
|
50 |
|
|
China |
In May and August 2007, we entered into agreements with Meyer Burger AG to purchase 38 and 265
wafer sawing machines, respectively, for delivery through 2010. In September 2007, we entered into
an agreement with GT Solar, which was subsequently amended in March 2009, to purchase 57 DSS
furnaces. Under this agreement and the subsequent amendment, 36 DSS furnaces were delivered in
2008, and the remaining furnaces were delivered in 2009.
With respect to encumbrances, as of December 31, 2009, we pledged our equipment of a total
appraised value of RMB1,301.8 million ($190.7 million) to secure repayment of our borrowings of
RMB865.7 million ($126.8 million). As of December 31, 2009, we mortgaged 629,951 square meters of
our facilities to secure repayment of our borrowings of RMB139.0 million ($20.4 million).
For a discussion of our capital expenditures targeted for our capacity expansion, see Item 5.
Operating and Financial Review and ProspectsB. Liquidity and Capital ResourcesCapital
Expenditures.
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
The following discussion of our financial condition and results of operations is based upon
and should be read in conjunction with our consolidated financial statements and their related
notes included in this annual report. This report contains forward-looking statements. See
¾G. Safe Harbor. In evaluating our business, you should carefully consider the
information provided under the caption Item 3. Key InformationD. Risk Factors in this annual
report. We caution you that our businesses and financial performance are subject to substantial
risks and uncertainties.
51
A. Operating Results
Overview
We are a large-scale integrated solar-power products manufacturer based in China with a global
distribution network covering Europe, North America and Asia. Since we began our solar-power
products business in 2004, we have integrated the manufacturing of ingots, wafers and solar cells
for use in our photovoltaic, or PV, module production. Our PV modules provide reliable and
environmentally-friendly electric power for residential, commercial, industrial and other
applications worldwide.
We capitalize on our vertically integrated platform and low-cost manufacturing capability in
China to produce quality products at competitive costs. We produce standard monocrystalline PV
modules ranging from 165 W to 240 W in power output and multicrystalline PV modules ranging from
215 W to 240 W in power output. We build our PV modules to general specifications as well as to our
customers and end-users specifications. We sell and market our products worldwide, including in a
number of European countries, such as Germany, Spain and Italy, where government incentives have
accelerated the adoption of solar power. We also target sales in emerging solar power markets such
as the Benelux markets, China, the Czech Republic, France, Japan, South Korea and the United
States. We sell our products to distributors, wholesalers, power plant developers and operators and
PV system integrators, including Bull Solar, Enfinity NV, Gestamp Asetym Solar S.L., Invictus NV
and Proysectos Integrales Solares S.L.
In 2009, our net revenues were $845.1 million compared to $831.9 million in 2008 and $301.8
million in 2007. Our net revenues increased primarily due to increased shipments
that offset decreased average selling prices. In addition, we recorded net income from
continuing operations of $97.6 million in 2009 compared to net income of $61.4 million and $35.4
million in 2007.
The most significant factors that affect the financial performance and results of operations
of our solar power products business are:
|
|
|
government subsidies and economic incentives; |
|
|
|
vertically integrated manufacturing capabilities; and |
|
|
|
availability and prices of polysilicon and reclaimable silicon raw materials. |
Industry Demand
Our business and revenue growth depends on market demand for solar power. Although solar
power technology has been used for several decades, the global solar power market has grown
significantly only in the past several years. According to Solarbuzz, the global solar power market, as
measured by annual volume of modules delivered to installation sites,
grew at a CAGR of 44.9% from approximately 1.5 gigawatts, or GW,
in 2005 to approximately 6.4 GW in 2009. According to a Solarbuzz forecast named Green World, in one of
several possible scenarios, annual volume of modules delivered to
installation sites may further increase to
approximately 24.7 GW in 2014, and solar power industry revenue may
increase from $33.9 billion in 2009 to
$77.9 billion in 2014, which we believe will be driven largely by growing market demand, rising
grid prices and government initiatives.
52
In the fourth quarter
of 2008 and the first quarter of 2009, the global solar power industry
experienced a precipitous decline in demand due to decreased availability of financing for
downstream buyers of solar power products as a result of the global
economic crisis. During the same period,
increased manufacturing capacity combined with decreased demand caused a decline in the prices of
solar power products. The average selling price per watt of our PV modules increased from $3.80 in
2007 to $3.92 in 2008, but decreased to $2.10 in 2009. The decrease in the average selling price
of our PV modules in the remainder of 2009 was primarily due to decreased prices of polysilicon
and reclaimable
silicon raw materials and increased manufacturing capacity.
The demand for solar power products is also influenced by macroeconomic factors such as the
global economic downturn, 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. A decrease in oil prices, for example, may reduce demand for investment in alternative
energy. The global economic downturn, which affects the availability of financing, also
contributed to decreased sales and shipments of solar power products and the slowdown of the large
solar project market segments. Although global demand began to recover in the second half of 2009,
lower costs of raw materials have continued to cause a decrease in the prices of solar power
products, which will lower the cost
of producing renewable energy over time. We cannot assure you that demand for solar power
products in 2010 will exceed the demand for solar power products in 2009 or that the oversupply of
solar power products will not continue to exist in 2010. Pleases see
Item 3. Key Information D. Risk Factors for discussions of the risks related to declining industry demand for solar power
products.
Government Subsidies and Economic Incentives
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. Today, the cost
of solar power substantially exceeds the cost of power provided by the electric utility grid in
many locations, when upfront system costs are factored into cost per kilowatt. As a result,
governmental bodies in many countries, most notably China, Germany, Italy, Japan, Spain, South
Korea, Taiwan and the United States, have provided subsidies and economic incentives to reduce
dependency on non-renewable sources of energy. These subsidies and economic incentives have come
in the form of capital cost rebates, feed-in tariffs, tax credits and other incentives to end
users, distributors, system integrators and manufacturers of solar power products.
53
The demand for PV modules in our targeted or potential markets is affected significantly by
government subsidies and economic incentives. According to Solarbuzz, Germany had the largest PV
market in 2009, with a market size of 3.0 GW, which accounted for 46.7% of the global PV market
demand in 2009. Italy and Spain had a market size of 0.62 GW and 0.10 GW, respectively, and
accounted for 7.5% and 1.5%, respectively, of the global PV market demand in 2009. The rapid
expansion of the German market was largely due to decreasing prices of PV modules in the first half
of 2009 and expectation of reduction in feed-in tariffs fueled by a fear of tightening of incentive
levels. In 2009, the German government reduced solar feed-in tariffs by 9%. In January 2010,
Germany proposed a further mid-year reduction in solar feed-in tariffs of up to 17% for rooftop
systems and an estimated 25% for ground-based systems, which may result in a significant fall in
the prices of and demand for PV products. The rise of the Italian market in 2009 was largely due
to an increase in the maximum installation of size that may be incentivized from 20 kW to 200 kW
and a reduction in the bureaucratic steps for securing incentives. The Spanish market declined
dramatically, primarily due to the cap of 500 MW for the feed-in tariff in 2009 introduced by the
Spanish government in September 2008, which has resulted in limiting the demand in the
grid-connected market in Spain, and national and global issues such as more stringent project
financing conditions and banks becoming less willing to lend into Spain. Although the policy shift
and the national and global environment have impacted the demand in the Spanish market, our
customers in Spain purchased large quantities of solar power products for
projects to be developed outside of Spain, which, we believe, offset some of the impact. According
to Solarbuzz, if Germany and Spain were excluded, the rest of the global market would grow strongly
by 89% from 1.8 GW in 2008 to 3.3 GW in 2009.
In 2008, Germany, Italy and Spain accounted for 23.9%, 18.0% and 32.5% of our net revenues,
respectively. In 2009, Germany, Italy and Spain accounted for 33.9%, 19.6% and 12.1% of our net
revenues, respectively. While we expect Germany, Italy and Spain to continue to generate
significant sales revenues, we will continue to diversify our revenues by expanding our business
presence in emerging solar markets such as the Benelux markets, China, the Czech Republic, France,
Italy, Japan, South Korea and the United States.
Product Pricing
We began selling our PV module products in November 2004. Our PV modules are priced based on
the number of watts of electricity they generate as well as the market price per watt for PV
modules. We price our standard PV modules based on the prevailing market prices at the time we
enter into sales contracts with our customers or our customers place their purchase orders with us,
taking into account the size of the contract or the purchase order, the strength and history of our
relationship with each customer, and our silicon raw materials costs. In the fourth quarter of
2008 and the first quarter of 2009, the global solar power industry experienced a precipitous
decline in demand due to decreased availability of financing for
downstream buyers of solarpower products as a result of the global
economic crisis. During the same period,
increased manufacturing capacity combined with decreased demand contributed to a decline in
the average selling price of PV modules. The demand for solar power products is influenced by
macroeconomic factors such as the global economic downturn, 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. Although global demand began to recover in the second
half of 2009, lower costs of raw materials continued to cause decreases in manufacturing costs and
the selling prices of solar power products.
The average selling price per watt of our PV modules increased from $3.80 in 2007 to $3.92 in
2008 but decreased to $2.10 in 2009. The decrease in the average selling price of our PV modules
in 2009 was primarily due to decreased prices of polysilicon and reclaimable silicon raw materials,
increased manufacturing capacity, decreased demand for solar power products in the first quarter of
2009 caused by the global economic downturn and credit crisis and inventory build-up in Spain and
Germany in the first quarter of 2009. If demand for solar power products declines and the supply
of solar power products continues to grow, the average selling price of our products will be
materially and adversely affected. See Item 3. Key InformationD. Risk FactorsRisks Related to
Our Company and Our IndustryWe may be adversely affected by volatile market and industry trends,
in particular, the demand for solar power products may decline, which may reduce our revenues and
earnings for more details.
54
We conduct our PV module sales typically through short-term contracts with terms of one year
or less or, to a lesser extent, long-term sales or framework agreements with terms of generally one
to two years. Our short-term contracts provide for an agreed sales volume at a fixed price. Our
long-term sales or framework agreements provide for a fixed sales volume or a fixed range of sales
volume to be determined generally two to three quarters before the scheduled shipment date. Prices
for long-term sales or framework agreements are generally determined one month prior to the start
of the quarter of the scheduled shipment date. Compared to short-term contracts, we believe our
long-term sales or framework agreements not only provide us with better visibility into future
revenues, but also help us enhance our relationships with our customers. Our contracts with
customers stipulate different post-delivery payment schedules based on the credit worthiness of the
customer. We have also increased our sales to customers using credit sales, generally with
payments due within two to six months. Starting in February 2009, all of our overseas sales have
been insured by Sinosure. The amount of insurance coverage for each transaction is based on a
rating assigned by Sinosure to the customer based on such customers credit history.
Vertically Integrated Manufacturing Capabilities
We believe that our vertical integration strategy has allowed us, and will continue to allow
us, to capture value throughout the solar power product value chain. Our vertically integrated
business model enables us to:
|
|
|
reduce excess costs, such as those associated with packaging and transportation, and the
breakage loss that usually occurs during shipment between various production locations; |
|
|
|
achieve better quality control of our products; |
|
|
|
shorten production cycle and improve value chain coordination; |
|
|
|
discontinue excess reliance on toll manufacturing; and |
|
|
|
capture upstream or downstream profit margins. |
We began commercial production of solar cells in April 2007, which favorably impacted our
margins and helped to offset negative factors such as a decrease in average selling price and
increasing polysilicon prices. In the fourth quarter of 2007, we met approximately 75% of our
needs for solar cells with our in-house production. In 2008 and 2009, we were able to meet nearly
all of our solar cell needs with our in-house production capabilities. Currently, we have an
annual manufacturing capacity of approximately 500 MW for ingots and wafers and approximately 600
MW for cells and modules.
In 2009, we fulfilled some of our ingot and
wafer requirements
by sourcing and obtaining toll services
from our strategic partners. We will continue to contract toll services from third
party manufacturers to process ingots and wafers and source wafers from our suppliers and strategic
partners in order to fill the gap between our PV cell and module manufacturing capacity and our
ingot and wafer manufacturing capacity as a result of strong market demand. As a result, we have
developed relationships with various domestic and international suppliers of ingots and wafers.
Availability and Prices of Polysilicon and Reclaimable Silicon Raw Materials
Polysilicon is an essential raw material for our business. Our proprietary process technology
allows us to use a high proportion of reclaimable silicon raw materials in the production of
monocrystalline and multicrystaline silicon ingots. In 2009, we used a higher proportion of virgin
polysilicon than in the past several years as polysilicon became widely available in the market and
we were able to have access to a high quality and stable supply of polysilicon. In 2009,
reclaimable silicon materials accounted for no more than 10% of our total silicon requirements,
compared to approximately 15% in the fourth quarter of 2008. We purchase polysilicon and
reclaimable silicon materials from our network of over ten suppliers. We have entered into
long-term contracts with our principal suppliers of polysilicon, including several leading global
producers, to secure favorable pricing for the majority of our raw material costs through long-term
supply agreements.
55
Increases in the price of polysilicon have in the past increased our production costs and
impacted our cost of revenues and net income. According to Solarbuzz, the average long-term supply
contract price of polysilicon increased from approximately $60-$65 per kilogram delivered in 2007
to $60-$75 per kilogram in 2008. In addition, according to Solarbuzz, spot prices for solar grade
polysilicon were in the range of $230-$375 per kilogram for most of the first half of 2008 and rose
to a peak of $450-$475 per kilogram by mid-2008. The average initial price range of long-term polysilicon supply contracts decreased to $50-$60 in
the fourth quarter of 2009, and spot prices for solar grade polysilicon decreased rapidly to
$150-$200 per kilogram by the beginning of 2009 and further declined to $55-$60 per kilogram by the end of 2009.
We believe the average price of polysilicon will continue
its moderate decline in 2010. There is no assurance that the price of polysilicon will continue to
decline, especially if the global solar power market regains its growth momentum. See Item 3.
Key InformationD. Risk Factors As polysilicon supply increases, the corresponding increase in
the global supply of photovoltaic (PV) modules may cause substantial downward pressure on the
price of such products and reduce our revenues and earnings.
We purchase polysilicon from silicon distributors and silicon manufacturers by contract. For
procurement of polysilicon, we enter into short-term, medium-term and long-term contracts. Our
short-term contracts have terms of no more than one year each. The contracts provide for a fixed
price and fixed amount and generally require prepayment prior to shipment. Most of the contracts
give us the right to reject any shipment by our suppliers that does not meet our quality standards
based on grade levels, such as semiconductor grade
or solar grade, of the polysilicon. The contracts also specify a time period during which we
can inspect the goods to ensure their quality. Our medium-term contracts have terms ranging from
one to three years, and our long-term contracts have terms ranging from five to eight years. These
contracts generally have a fixed amount and fixed price subject to adjustments or variable price
and require us to make an advance payment of a certain negotiated amount. Our medium-term and
long-term suppliers include Hemlock Semiconductor Group, Jiangsu
Zhongneng, OCI Company Ltd.
(formerly DC Chemical Co., Ltd.) and Wacker Chemie AG. These medium-term and long-term contracts
have delivery terms beginning in 2009, 2010 or 2011 and a fixed price or a price to be determined on a
quarterly or annual basis. Several of our long-term contracts contain price adjustment clauses
that provide for price renegotiations if the market price is lower or
higher than the originally agreed price
in any given quarter. These contracts also require us to make an advance payment of a certain
negotiated amount. Due to the decrease in polysilicon prices in the market in late 2008 and early
2009, we renegotiated most of our medium-term and long-term
silicon supply contracts to achieve favorable pricing and payment
terms relative to current market conditions.
We have secured most of our polysilicon requirements to support our estimated production
output through the end of 2010 and will continue our efforts to secure raw materials for future
years. As part of our balanced and prudent supply management, we source most of our raw materials
through long-term contracts, reserving up to 20% of our polysilicon requirements to be sourced from
the spot market in order to capitalize on the rapid declining prices of polysilicon in recent
periods.
The costs of reclaimable silicon raw materials have historically been significantly less than
the costs of polysilicon. However, due to the solar power industrys demand for reclaimable
silicon raw materials, prices of these reclaimable silicon raw materials increased in most of 2008,
but decreased in late 2008 in line with the decrease in the price of polysilicon.
56
From time to time, we purchase reclaimable silicon raw materials from various suppliers,
including semiconductor manufacturers and silicon processing companies. For the procurement of
reclaimable silicon raw materials, we generally enter into short-term contracts with terms of no
more than six months each. The contracts provide for a fixed price and fixed amount and generally
require prepayment prior to shipment. Most of the contracts give us the right to reject any
shipment by our suppliers that does not meet our quality standards based on usability and
resistivity of the materials. The contracts also specify a time period during which we can inspect
the goods to ensure their quality.
Suppliers of polysilicon and reclaimable silicon raw materials typically require customers to
make payments in advance of shipment. Our suppliers generally require us to make a prepayment at a
certain percentage of the order value prior to shipping. Due to the availability of polysilicon,
prepayment as a percentage of the entire contract has been reducing. However, the purchase of
silicon raw materials will continue to require us to make certain working capital commitments
beyond the capital generated from our cash flows from operations. We are required to manage our
borrowings to support our raw material purchases.
Overview of Financial Results
We evaluate our business using a variety of key financial measures.
Net Revenues
Our net revenues are net of business tax, value-added tax and returns and exchanges, as
applicable. We began to generate net revenues primarily from the sales of PV modules in November
2004. We generated revenues from other products and services such as system
integration prior to 2006, but such revenues are not significant after 2006. Factors
affecting our net revenues include average selling price per watt, market demand for our PV
modules, unit volume shipped and our production capacity expansion.
In 2007, 2008 and 2009, sales to our top five customers accounted for approximately 33.5%,
41.9% and 36.9% of our net revenues, respectively, and sales to our largest customer accounted for
14.8%, 9.8% and 9.5% of our net revenues, respectively.
We currently sell most of our PV modules to customers located in Europe, in particular
Germany, Italy and Spain. For an industry which end market is significantly impacted by government
incentives and policies, Germany and Spain were the largest solar power products markets in the
past several years and accounted for the biggest concentrations of our sales. In each of the last
three years, Germany was the largest solar power products market in the world and accounted for a
major portion of our sales. In 2008, the Spanish market contributed to the accelerated growth in
the market demand for solar power products, but contributed to the shortfall in demand globally
after its policy shift in September 2008. See -Overview-Government Subsidies and Economic
Incentives for more details about government policies of Spain and Germany. In 2007 and 2008, we
expanded our sales into Italy and achieved one of the largest market shares in Italy. We have also
expanded our business presence in emerging solar power markets such as the Benelux markets, China,
the Czech Republic, France, Japan, South Korea and the United States. We expect to continue to
expand our customer base geographically in 2010.
57
The following table sets forth our total net revenues by geographical region for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
Total Net |
|
|
|
|
|
|
Total Net |
|
|
|
|
|
|
Total Net |
|
|
|
|
Region |
|
Revenues |
|
|
Percent |
|
|
Revenues |
|
|
Percent |
|
|
Revenues |
|
|
Percent |
|
|
|
(in thousands, except for percentages) |
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany |
|
$ |
94,733 |
|
|
|
31.4 |
% |
|
$ |
198,529 |
|
|
|
23.9 |
% |
|
$ |
286,220 |
|
|
|
33.9 |
% |
Italy |
|
|
54,695 |
|
|
|
18.1 |
% |
|
|
149,685 |
|
|
|
18.0 |
% |
|
|
166,062 |
|
|
|
19.6 |
% |
Spain |
|
|
120,831 |
|
|
|
40.0 |
% |
|
|
270,549 |
|
|
|
32.5 |
% |
|
|
101,849 |
|
|
|
12.1 |
% |
Others |
|
|
21,041 |
|
|
|
7.0 |
% |
|
|
136,641 |
|
|
|
16.4 |
% |
|
|
234,021 |
|
|
|
27.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe Total |
|
|
291,300 |
|
|
|
96.5 |
% |
|
|
755,404 |
|
|
|
90.8 |
% |
|
|
788,152 |
|
|
|
93.3 |
% |
China |
|
|
6,373 |
|
|
|
2.1 |
% |
|
|
30,390 |
|
|
|
3.7 |
% |
|
|
24,435 |
|
|
|
2.9 |
% |
Others |
|
|
4,146 |
|
|
|
1.4 |
% |
|
|
46,107 |
|
|
|
5.5 |
% |
|
|
32,549 |
|
|
|
3.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
301,819 |
|
|
|
100.0 |
% |
|
$ |
831,901 |
|
|
|
100.0 |
% |
|
$ |
845,136 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues
Our cost of revenues consists primarily of:
|
|
|
Silicon raw materials. Silicon raw materials comprise the majority of our cost of
revenues. We purchase polysilicon and reclaimable silicon raw materials from various
suppliers, including silicon distributors, silicon manufacturers, semiconductor
manufacturers and silicon processing companies. |
|
|
|
Other direct materials. Such materials include direct materials for the production of
PV modules such as plastic, metallic pastes, tempered glass, laminate material, connecting
systems and aluminum frames. |
|
|
|
Toll manufacturing. Prior to 2008, we entered into toll manufacturing arrangements by
providing wafers to toll manufacturers for processing and receiving solar cells from them
in return. The toll manufacturing cost is capitalized as inventory, and recorded as a part
of our cost of revenues when our finished PV modules are sold. In 2008 and 2009, we were
able to meet nearly all of our solar cell needs with our in-house production capabilities
and we have discontinued our reliance on toll manufacturers for processing solar cells. In
2009, we fulfilled some of our ingot and wafer requirements by
sourcing and obtaining toll services from our strategic partners. |
|
|
|
Overhead. Overhead costs include equipment maintenance and utilities such as
electricity and water used in manufacturing. |
|
|
|
Direct labor. Direct labor costs include salaries and benefits for our manufacturing
personnel. |
|
|
|
Depreciation of facilities and equipment. Depreciation of manufacturing facilities and
related improvements is provided on a straight-line basis over the estimated useful life of
10 to 20 years and commences from the date the facility is ready for its intended use.
Depreciation of manufacturing equipment is provided on a straight-line basis over the
estimated useful life of five to ten years, commencing from the date that the equipment is
placed into productive use. |
58
Our cost of revenues is affected by our ability to control raw material costs, to achieve
economies of scale in our operations, and to efficiently manage our supply chain, including our
successful execution of our vertical integration strategy and our judicious use of toll
manufacturers or third-party wafer suppliers to fill potential shortfalls in production capability
along the supply chain.
Gross Margin
Our gross margin is affected by changes in our net revenues and cost of revenues. Our gross
margins decreased from 22.4% in 2007 to 19.8% in 2008, but increased to 28.1% in 2009. The margin
increase from 2008 to 2009 was mainly due to a decrease in silicon raw material prices and reduced
manufacturing costs. We may continue to face margin compression in the sales of PV modules if the
average selling price of our PV modules continues to decline and we are unable to lower our cost of
revenues due to our existing, higher priced medium-term and long-term contract. As our PV module
business expands, we believe additional economies of scale and successful execution of our vertical
integration strategy will help to improve our margins to offset negative market trends.
Operating Expenses
Our operating expenses include selling expenses, general and administrative expenses and
research and development expenses.
Selling Expenses
Selling expenses consist primarily of provisions for product warranties, outbound freight,
employee salaries, pensions, share-based compensation expenses and benefits, travel and other sales
and marketing expenses. In the past, our PV modules were typically sold with a two-year warranty
for defects in material and workmanship and a minimum power output warranty of up to 25 years
following the date of purchase or installation. In 2009, we extended the warranty for defects in
materials and workmanship from two years to five years. We accrue the estimated cost of warranty
based on 1% of the revenues generated from PV modules, consistent with the average industry level.
Our selling expenses as a percentage of net revenues decreased from 3.7% in 2007 to 2.4% in 2008
due to expense control measures taken by us, and increased to 3.7% in 2009 as we increased our
sales efforts, hired additional sales personnel, targeted new markets, established representative
offices and subsidiaries and initiated additional marketing programs to build our brand. We expect
our selling expenses to increase in the near term consistent with the growth of our revenues.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and benefits for our
administrative personnel, compliance related consulting and professional fees and travel expenses.
Our general and administrative expenses have increased since 2004, primarily due to increases in
the number of our administrative employees as well as their salaries and benefits and share-based
compensation expenses. Our general and administrative expenses as a percentage of net revenues
decreased from 5.9% in 2007 to 5.0% in 2008 primarily due to expense control measures taken by us,
and increased to 7.7% in 2009 primarily due to allowance for doubtful accounts for certain
suppliers and customers. We expect our general and administrative expenses to moderately increase
in 2010, as we continue to carefully control costs in our business. We will continue to hire
additional personnel on an as needed basis and incur expenses to support our operations as a public
company, including compliance-related costs.
59
Research and Development Expenses
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,
share-based compensation and prototype and equipment costs relating to the design, development,
testing and enhancement of our products and manufacturing process. Between 2006 and 2007, our
research and development expenses increased significantly due to investment in solar cell
technology in preparation of the ramp up of our solar cell production in April 2007. In 2008 and
2009, our research efforts focused on maximizing silicon usage, development of thinner wafers (to
reduce silicon use per watt) and improvement of cell efficiency. In particular, we have invested
significantly in research and development of solar cell technology in order to achieve high
conversion efficiency rates required for our advanced solar cells and modules. As of December 31,
2009, we achieved a conversion efficiency of monocrystalline cells of up to 18.8% and
multicrystalline cells of up to 17.5% on our test production line. We also designed products with
specific applications. We have developed a variety of PV solar power product applications based on
our existing monocrystalline and multicrystalline technologies. These products include
architecturally-friendly modules of different colors, shapes and sizes, such as black modules,
square modules and large-size modules, and crystalline-based BIPV roof products currently in
advanced prototype stage.
We will continue to expand and promote innovation in our process technologies of manufacturing
ingots, wafers, cells and PV modules. In particular, we plan to focus on improving cell efficiency
and reducing our production costs by enhancing manufacturing yields, which enable us to deliver
higher-efficiency products at a lower cost. Our research and development efforts range from
leveraging on declining raw material costs to optimize silicon feedstock mix to enhancing the
quality of our solar wafers and refining ingot growing and wafer slicing processes. Accordingly,
we expect our research and development expenses to increase as we hire additional research and
development personnel and advance our research and development projects
Share-based Compensation Expenses
We adopted our share incentive plan in July 2006 and a total of 41,139,713 restricted shares
and 24,337,277 share options were outstanding as of December 31, 2009. For a description of the
restricted shares and share options granted, including the exercise prices and vesting periods
thereof, see Item 6. Directors, Senior Management and EmployeesB. Compensation of Directors and
Executive OfficersShare Incentive Plan. Under Statement of Financial Accounting Standards No.
123(R), Share-Based Payment, we are required to recognize share-based compensation as compensation
expense in our statement of operations based on the fair value of equity awards on the date of the
grant, with the compensation expense recognized over the period in which the recipient is required
to provide services to us in exchange for the equity award. For restricted shares granted to our
employees, we record share-based compensation expense for the excess of the fair value of the
restricted shares at the date of the grant over the purchase price that a grantee must pay to
acquire the shares during the period in which the shares may be purchased. We have categorized
these share-based compensation expenses in our (i) cost of revenues; (ii) selling expenses; (iii)
general and administrative expenses; and (iv) research and development expenses, depending on the
job functions of the grantees of our restricted shares and share options.
60
The following table sets forth the allocation of our share-based compensation expenses both in
absolute amount and as a percentage of total share-based compensation expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
(in thousands, except for percentages) |
|
Cost of revenues |
|
$ |
35 |
|
|
|
2.1 |
% |
|
$ |
111 |
|
|
|
2.8 |
% |
|
$ |
62 |
|
|
|
1.4 |
% |
Selling expenses |
|
|
394 |
|
|
|
22.6 |
% |
|
|
512 |
|
|
|
12.7 |
% |
|
|
678 |
|
|
|
15.9 |
% |
General and administrative expenses |
|
|
1,165 |
|
|
|
66.9 |
% |
|
|
3,297 |
|
|
|
81.9 |
% |
|
|
3,295 |
|
|
|
77.0 |
% |
Research and development |
|
|
146 |
|
|
|
8.4 |
% |
|
|
105 |
|
|
|
2.6 |
% |
|
|
244 |
|
|
|
5.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expenses |
|
$ |
1,740 |
|
|
|
100 |
% |
|
$ |
4,025 |
|
|
|
100 |
% |
|
$ |
4,279 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxation
We recognize deferred tax assets and liabilities for temporary differences between 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 of the deferred tax asset will be realized.
The PRC enacted a new tax law that became effective in January 2008. See Item 4.
Information on the CompanyRegulationTax. Before the effectiveness of this new law, a foreign
invested enterprise in China was typically subject to an enterprise income tax of 30% and a local
income tax of 3%. The Income Tax Law and the related implementing rules provide certain
preferential favorable tax treatments to foreign invested enterprises which qualify as advanced
technological enterprises or are established in certain areas in the PRC.
In 2004, we were granted a three-year extension in the 50% relief from the PRC enterprise
income tax rate of 24%. As a result, Trina China was subject to a preferential enterprise income
tax rate of 12% in 2006. In accordance with the tax legislations applicable to export-oriented
enterprises, Trina China is entitled to a 50% relief from PRC enterprise income tax for the years
in which export sales revenue exceeds 70% of total sales revenue. In 2007, Trina China was granted
the 50% relief from the PRC enterprise income tax rate of 24%.
In February 2007, the State Tax Bureau of Changzhou High-Tech Industry Development Zone, or
the STB, where Trina China is registered, approved Trina Chinas application for tax holiday in
conjunction with an increase of $32.7 million in its registered capital, from $7.3 million in
August 2005 and to $40.0 million in July 2006. In accordance with the approval of the STB, Trina
China is exempt from income taxes for 81.8% of its taxable profit, representing the proportion of
its increase in registered capital from August 2006 to December 2007, followed by a 50% relief in
its tax rate from 2008 to 2010. However, this tax holiday did not apply in 2006 because the STB
did not issue its approval until February 2007. Accordingly, for year 2007, an income tax rate of
12% applies to 18.2% of Trina Chinas taxable profit, and 81.8% of its taxable profit was exempted
from income taxes. The additional capital investments made in 2008 were not entitled to additional
tax holidays. In 2008, our income tax rate was 15%, due to our status as a high and new
technology enterprise.
61
The new EIT Law, which became effective on January 1, 2008, imposes a uniform tax rate of 25%
on all PRC enterprises, including foreign-invested enterprises, and eliminates or modifies most of
the tax exemptions, reductions and preferential treatments available under the previous tax laws
and regulations. Under the new EIT Law, enterprises that were established before March 16, 2007
and already enjoy preferential tax treatments will (i) in the case of preferential tax rates,
continue to enjoy the tax rates which will be gradually increased to the new tax rates within five
years from January 1, 2008 or (ii) in the case of preferential tax exemption or reduction for a
specified term, continue to enjoy the preferential tax holiday until the expiration of such term.
In addition, certain enterprises may still benefit from a preferential tax rate of 15% under the
new EIT Law if they qualify as high and new technology enterprises strongly supported by the
State, subject to certain general factors described therein. In September 2008, Trina China
obtained the High and New Technology Enterprise Certificate with a valid term of three years
starting from 2008. Therefore, Trina China is entitled to a preferential income tax rate of 15% in
2008, 2009 and 2010 as long as it maintains its qualification as a high and new technology
enterprise under the new EIT Law. In addition, in April 2009, we received a notice from the State Tax Bureau of Changzhou
Hi-tech Development Zone, which revoked a previous approval for the tax holiday on taxable income
related to registered capital contributions made in 2007. As a result, we made an additional
income tax payment of $6.5 million during the year ended December 31, 2009. Our EIT rate for 2009
was 15%.
Critical Accounting Policies
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
continually 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, you should consider (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 the following accounting policies involve the most significant judgment and estimates
used in the preparation of our financial statements.
Revenue Recognition
We recognize revenues for product sales when persuasive evidence of an arrangement exists,
delivery of the product has occurred and title and risk of loss has passed to the customer, the
sales price is fixed or determinable, and the collectability of the resulting receivable is
reasonably assured. Our sales agreements typically contain our customary product warranties but do
not contain any post-shipment obligations nor any return or credit provisions. We recognize sales
of our solar modules based on the terms of the specific sales contract. Generally, we recognize
sales when we have delivered our products to our customers designated point of shipment, which may
include commercial docks or commercial shipping vessels.
62
For an arrangement with multiple deliverables, we recognize revenues in accordance with ASC
No.605-25 (Pre codification Emerging Issues Task Force (EITF) No. 00-21, Revenue Arrangements
with Multiple Deliverables). We are not contractually obligated to accept returns. The sales of
goods involve inconsequential or perfunctory performance obligations. These obligations can include
non-essential installation or training, provision of product manuals and materials, and limited
technical maintenance support. When the only remaining undelivered performance obligation under an
arrangement is inconsequential or perfunctory, we recognize revenue on the delivery of modules, the
predominant deliverable in the total contract and provides for the cost of the unperformed
obligations. Cash advances received from customers before the revenue is earned are classified as
deferred revenue.
Warranty Cost
It is customary in our business and industry to warrant or guarantee the performance of our
solar module products at certain levels of power output for extended periods. In the past, our
solar modules were typically sold with a two-year warranty for defects in material and workmanship
and a minimum power output warranty of up to 25 years following the date of delivery or
installation. In 2008, we extended the warranty for materials and workmanship from two years to
five years. If a solar module is defective, we will either repair or replace the module at our
discretion. We maintain warranty reserves (recorded as accrued warranty costs) to cover potential
liability that could arise from our warranties. Our accrued warranty cost reflects our best
estimate of such liabilities. Due to our limited warranty claims to date, we accrue the estimated
costs of warranties based on an assessment of our competitors and average industry level. The
provision of the warranty accrues at the time of sale and is recognized as a component of selling
expenses. Actual warranty costs are accumulated and charged against the accrued warranty
liability. To the extent that actual warranty costs differ from the estimates, we will
prospectively revise our accrual rate.
Impairment of Long-lived Assets and Definite-lived Intangibles
We evaluate our long-lived assets and definite-lived intangibles 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. The determination of fair value of the intangible and long lived assets acquired involves
certain judgments and estimates. These judgments can include, but are not limited to, the cash
flows that an asset is expected to generate in the future. Future cash flows can be affected by
factors such as changes in global economies, business plans and forecast, regulatory developments,
technological improvements, and operating results. Any impairment write-downs would be treated as
permanent reductions in the carrying amounts of the assets and a charge to operations would be
recognized.
63
Allowance for Doubtful Accounts
We conduct credit evaluations of customers and generally do not require collateral or other
security from them when we grant them credit. We establish an allowance for doubtful accounts
primarily based upon the age of the receivables and factors surrounding the credit risk of specific
customers like the length of time receivables are passing due, previous loss history and the
counterpartys current ability to fulfill its obligation. However, we maintain a reserve for
potential credit losses and such losses have historically been within our expectations.
With respect to advances to suppliers, our suppliers are primarily suppliers of silicon raw
materials. We perform ongoing credit evaluations of our suppliers financial conditions. We
generally do not require collateral or security against advances to suppliers.
Share-based Compensation
We have granted restricted shares and share options to our directors, officers and employees.
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 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 share options, 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, as well as 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.
Inventories
We report inventories at the lower of cost or market. We determine cost on a weighted-average
basis. These costs include direct material, direct labor, tolling manufacturing costs, and fixed
and variable indirect manufacturing costs, including depreciation and amortization.
We regularly review the cost of inventory against our estimated fair market value and records a
lower of cost or market write-down if any inventories have a cost in excess of estimated market
value. In addition, we regularly evaluate the quantity and value of our inventory in light of
current market conditions and market trends and record write-downs for any quantities in excess of
demand and for any product obsolescence. This evaluation considers historic usage, expected demand,
anticipated sales price, new product development schedules, the effect new products might have on
the sale of existing products, product obsolescence, customer concentrations, product
merchantability and other factors. We also write off silicon materials that may not meet our
required specifications for inclusion in our manufacturing process. These materials are
periodically sold for scrap. To date, the majority of the inventory write-downs were due to the rapid decline in the market
price of silicon raw materials. We may not be able to reasonably predict the price trend of silicon raw materials.
If the silicon price continues to decrease, we may have to take additional write-downs on inventory in the future.
Income Taxes
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 operating loss carry
forwards and credits by applying enacted statutory tax rates applicable to future years. Deferred
tax assets are reduced by a valuation allowance when, in our opinion, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. In 2007, 2008 and 2009,
our deferred tax assets were reduced by a valuation allowance. Current income taxes are provided
for in accordance with the laws of the relevant taxing authorities. 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.
64
Derivative Financial Instruments
Foreign Currency Embedded Derivative in Supply Agreement
One of our long-term silicon supply contracts provided that the purchase price of the silicon
to be acquired was denominated in U.S. dollars, which was not the functional currency of either of
the contracting parties when we entered into such contract. Accordingly, the contract contained an
embedded foreign currency forward contract, which was required to be bifurcated and accounted for
at fair value. Changes in fair value are recorded in the consolidated statements of operations.
Because of the monetary controls imposed by the PRC, the determination of the fair value of a
long-term foreign currency derivative requires the input of highly subjective assumptions,
including estimates of forward foreign exchange rates between the U.S. dollar and Renminbi.
In calculating the fair value of the embedded derivatives, we (i) estimated the monthly
purchases, and corresponding payments, based on historical usage rates, (ii) applied the estimated
exchange forward rates between the U.S. dollar and Renminbi associated with each of the estimated
monthly payment dates from (i) above, and (iii) applied an appropriate discount rate to the amounts
obtained in (ii) above. We estimated the exchange forward rates based on the following:
|
(1) |
|
Exchange forward rates for month one to 12 are available on the China on-shore
market. As such, for month one to 12, we obtained the exchange forward rates from the
China on-shore market. |
|
(2) |
|
Exchange forward rates for month 13 to 24 were computed by taking the 15th,
18th and 24th months exchange forward rates available from the China on-shore market
and applying linear interpolation to derive the other monthly forward rates. |
|
(3) |
|
Exchange forward rates for month 25 to 84 were estimated by applying linear
interpolation to the two- and seven-year exchange forward rates, available from the
China on-shore market. |
|
(4) |
|
Exchange forward rates for periods in excess of seven years were not available
from the China on-shore market. As such, for the periods beyond 84 months, we
forecasted the monthly exchange rates based on an assumption that the Renminbi will
appreciate at a fixed monthly rate, equivalent to the annual change in the exchange
rate projected by the International Monetary Fund. |
The discount rate applied is derived based on Chinas on-shore swap rates.
In 2007, we recorded a gain on the change in fair value of the embedded derivative of $0.9
million which was included in the line item Gain (loss) on change in fair value of derivative in
the consolidated statements of operations. Trina Chinas functional currency changed from Renminbi
to U.S. dollars effective January 1, 2008. As a result, we have not incurred any gain or loss on
the change in fair value of the embedded derivative since January 1, 2008.
65
Derivative Assets Related to Foreign Currency Forward Contracts
Our primary objective for holding derivative financial instruments is to manage currency risk.
We record derivative instruments as assets or liabilities, measured at fair value. The
recognition of gains or losses resulting from changes in fair values of those derivative
instruments is based on the use of each derivative instrument and whether it qualifies for hedge
accounting.
In 2008 and 2009, we
entered into a series of foreign currency forward contracts with
serveral commercial banks to
protect against volatility of future cash flows caused by the changes in foreign exchange rates
associated with the outstanding accounts receivable. The foreign exchange currency forward
contracts do not qualify for hedge accounting and, as a result, the changes in fair value of the
derivatives are recognized in the statement of operations. In 2008 and 2009, we recorded changes
in fair value of derivative assets related to the forward foreign currency exchange contracts of
$1.1 million and $1.6 million, respectively, which were
included in the line item Gain (loss) on change in fair value of derivative in the
consolidated statements of operations.
We adopted ASC 820, Fair Value Measurements and Disclosures, effective from December 1, 2007
for financial assets and liabilities measured on a recurring basis. Effective from December 1,
2009, we adopted ASC 820, Fair Value Measurements and Disclosures, for non-financial assets and
liabilities. ASC 820 applies to all financial assets and financial liabilities that are being
measured and reported on a fair value basis. ASC 820 establishes a framework for measuring fair
value and expands disclosure about fair value measurements. When available, we measure the fair
value of financial instruments based on quoted market prices in active markets, valuation
techniques that use observable market-based inputs or unobservable inputs that are corroborated by
market data. When observable market prices are not readily available, we generally estimate the fair value using valuation techniques that
rely on alternate market data or inputs that are generally less readily observable from objective
sources and are estimated based on pertinent information available at the time of the applicable
reporting periods.
66
Results of Operations
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
(in thousands, except for percentages) |
|
Net revenues |
|
$ |
301,819 |
|
|
|
100.0 |
% |
|
$ |
831,901 |
|
|
|
100.0 |
% |
|
$ |
845,136 |
|
|
|
100.0 |
% |
Cost of revenues |
|
|
234,191 |
|
|
|
77.6 |
% |
|
|
667,459 |
|
|
|
80.2 |
% |
|
|
607,982 |
|
|
|
71.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
67,628 |
|
|
|
22.4 |
% |
|
|
164,442 |
|
|
|
19.8 |
% |
|
|
237,154 |
|
|
|
28.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses |
|
|
11,019 |
|
|
|
3.7 |
% |
|
|
20,302 |
|
|
|
2.4 |
% |
|
|
30,940 |
|
|
|
3.7 |
% |
General and administrative expenses |
|
|
17,817 |
|
|
|
5.9 |
% |
|
|
41,114 |
|
|
|
5.0 |
% |
|
|
65,406 |
|
|
|
7.7 |
% |
Research and development expenses |
|
|
2,805 |
|
|
|
0.9 |
% |
|
|
3,039 |
|
|
|
0.4 |
% |
|
|
5,439 |
|
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
31,641 |
|
|
|
10.5 |
% |
|
|
64,455 |
|
|
|
7.8 |
% |
|
|
101,785 |
|
|
|
12.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
35,987 |
|
|
|
11.9 |
% |
|
|
99,987 |
|
|
|
12.0 |
% |
|
|
135,369 |
|
|
|
16.0 |
% |
Foreign exchange gain (loss) |
|
|
(1,999 |
) |
|
|
(0.6 |
%) |
|
|
(11,802 |
) |
|
|
(1.5 |
%) |
|
|
9,958 |
|
|
|
1.2 |
% |
Interest expense |
|
|
(7,551 |
) |
|
|
(2.5 |
%) |
|
|
(23,937 |
) |
|
|
(2.9 |
%) |
|
|
(25,737 |
) |
|
|
(3.0 |
%) |
Interest income |
|
|
4,810 |
|
|
|
1.6 |
% |
|
|
2,944 |
|
|
|
0.4 |
% |
|
|
1,667 |
|
|
|
0.2 |
% |
Gain (loss) on change in fair value of derivative |
|
|
854 |
|
|
|
0.3 |
% |
|
|
(1,067 |
) |
|
|
(0.1 |
%) |
|
|
(1,590 |
) |
|
|
(0.2 |
%) |
Other (expense) income |
|
|
1,554 |
|
|
|
0.5 |
% |
|
|
(156 |
) |
|
|
(0.0 |
%) |
|
|
2,613 |
|
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
33,655 |
|
|
|
11.2 |
% |
|
|
65,969 |
|
|
|
7.9 |
% |
|
|
122,280 |
|
|
|
14.5 |
% |
Income tax (expense) benefit |
|
|
1,707 |
|
|
|
0.5 |
% |
|
|
(4,609 |
) |
|
|
(0.5 |
%) |
|
|
(24,696 |
) |
|
|
(2.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations |
|
|
35,362 |
|
|
|
11.7 |
% |
|
|
61,360 |
|
|
|
7.4 |
% |
|
|
97,584 |
|
|
|
11.5 |
% |
Net income (loss) from discontinued operations |
|
|
368 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
35,730 |
|
|
|
11.8 |
% |
|
$ |
61,360 |
|
|
|
7.4 |
% |
|
$ |
97,584 |
|
|
|
11.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
Net Revenues. Our total net revenues increased by $13.2 million, or 1.6%, from $831.9 million
in 2008 to $845.1 million in 2009. Our net revenues increased primarily due to increased shipments
from 201.0 MW in 2008 to 399.0 MW in 2009, an increase of 98.5%, offset by decreased average
selling prices. Our average selling price decreased from $3.92 per watt in 2008 to $2.10 per watt
in 2009. The decrease in the average selling price of our PV modules in 2009 was primarily due to
decreased prices of polysilicon and reclaimable silicon raw materials, increased manufacturing
capacity, decreased demand for solar power products in the first quarter of 2009 caused by the
global economic downturn and credit crisis and inventory build-up in Spain and Germany in the first
quarter of 2009.
Cost of Revenues. Our cost of revenues decreased by $59.5 million, or 8.9%, from $667.5
million in 2008 to $608.0 million in 2009. Our cost of revenues decreased primarily due to the
favorable reduction in our silicon purchase prices and non-silicon manufacturing costs, partially offset by a slight increase in impairment charge on inventory in 2009 compared to 2008.
In 2008, we had a non-cash inventory write-down of $21.5 million based on a revaluation of our
silicon inventory as a result of the decline of market prices, compared to a non-cash inventory
write-down of $23.1 million in 2009.
As a percentage of our total net revenues, our cost of revenues decreased from 80.2% to 71.9% during the
same periods.
Gross Profit. As a result of the foregoing, our gross profit increased by $72.8 million from
$164.4 million in 2008 to $237.2 million in 2009. Our gross margin increased from 19.8% to 28.1%
during the same periods, primarily due to decreases in our cost of revenues.
Operating Expenses. Our operating expenses increased by $37.3 million, or 57.9%, from $64.5
million in 2008 to $101.8 million in 2009. The increase in operating expenses was due to increases
in selling expenses, general and administrative expenses and research and development expenses. As
a percentage of total net revenues, operating expenses increased from 7.8% in 2008 to 12.0% in
2009. Share-based compensation expenses allocated to our selling expenses, general and
administrative expenses and research and development expenses in 2009 were $0.7 million, $3.3
million and $0.2 million, respectively, based on the respective departments where such employees
worked at the time of the grant.
67
Selling Expenses. Our selling expenses increased by $10.6 million, or 52.4%, from $20.3
million in 2008 to $30.9 million in 2009, primarily due to an increase in export expenses
(including shipment expenses and insurance), as well as in warranty provision for solar modules as
a result of significant increases in the sale of solar modules. The increase in selling expenses
was also the result of increased costs associated with increased marketing efforts and overseas
expansion in connection with the continued growth of our solar module business. Selling expenses
as a percentage of net revenues increased from 2.4% to 3.7%.
General and Administrative Expenses. Our general and administrative expenses increased by
$24.3 million, or 59.1%, from $41.1 million in 2008 to $65.4 million in 2009. The increase in
general and administrative expenses was primarily due to allowance for doubtful accounts
for certain suppliers and customers, increased guarantee cost and bank charges due to credit lines
provided for customers and suppliers, increased compliance related consulting and professional fees
and costs related to setting up overseas offices. General and administrative expenses as a
percentage of net revenues increased from 5.0% to 7.7%.
Research and Development Expenses. Our research and development expenses increased by $2.4
million, or 79.0%, from $3.0 million in 2008 to $5.4 million in 2009, primarily due to increased
headcount of our research and development personnel, salaries,
and investments in research and development projects as described in Overview of Financial
ResultsOperating ExpensesResearch and Development Expenses. Research and development expenses
as a percentage of net revenues increased from 0.4% to 0.6%.
Foreign Exchange Gain (Loss). We had a foreign exchange gain of $10.0 million in 2009,
compared to a loss of $11.8 million in 2008. As some of our sales contracts were denominated in
Euros, the effect of the depreciation of the Euro against the U.S. dollar, as well as the effect of
appreciation of the RMB against the U.S. dollar on our RMB-denominated borrowings in 2008 resulted
in our recording of a large exchange loss in 2008. In contrast, the effect of the appreciation of
the Euro against the U.S. dollar in 2009 on our Euro-denominated contracts resulted in our
recording of a large exchange gain.
Interest Expenses, Net. Our interest expenses, net, was $24.1 million in 2009, compared to
$21.0 million in 2008. Our interest expenses, net, increased mainly due to additional bank
borrowings to support our announced capacity expansion.
Gain (Loss) on the Change in Fair Value of Derivative. In 2009, we had a loss on the change
in fair value of derivatives of $1.6 million, compared to a loss of $1.1 million in 2008. In 2008
and 2009, we recorded a loss due to the change in fair value of our forward foreign currency
exchange contracts entered into in the fourth quarter of 2008. See Critical Accounting
PoliciesDerivative Financial Instruments for more details.
Income Tax Benefit (Expenses). Our income tax expenses increased by $20.1 million, from $4.6
million in 2008 to $24.7 million in 2009. The increase of our income tax expenses in 2009 was
primarily due to increased profitability and effective tax rates. Our effective tax rates in 2008
and 2009 were 7.0% and 20.2%, respectively.
Net Income. As a result of the foregoing, our net income increased significantly from $61.4
million in 2008 to $97.6 million in 2009, representing an increase of 59.0%. Our net margin
increased from 7.4% in 2008 to 11.5% in 2009, primarily due to our improved gross margin in 2009.
68
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
Net Revenues. Our total net revenues increased by $530.1 million, or 175.6%, from $301.8
million in 2007 to $831.9 million in 2008. Our net revenues increased due to an increase in the
volume of the solar modules we sold from 75.9 MW in 2007 to 201.0 MW in 2008, and was particularly
due to increased sales in markets such as Spain and Italy. The increase was facilitated by the
expansion of our manufacturing capacity. Our average selling price increased from $3.80 per watt
in 2007 to $3.92 per watt in 2008. The increase in the average selling price of our PV modules in
2008 was due to an increase in demand of our PV modules in the first three quarters of 2008, driven
largely by surging market demand, particularly in the Spanish market, which was offset by a
decrease in the average selling price of our PV modules in the fourth quarter of 2008, due to the
falling demand caused by the global economic downturn.
Cost of Revenues. Our cost of revenues increased by $433.3 million, or 185.0%, from $234.2
million in 2007 to $667.5 million in 2008. Our cost of revenues increased primarily due to
increases in expenditures in raw materials as a result of the rapid expansion of our solar module
business. The increase in our cost of revenues was also impacted by the rising prices of silicon
raw materials in the first three quarters of 2008 due to the industry-wide shortage of polysilicon,
partially offset by the reduction in cost as a result of the reduction of non-silicon manufacturing
cost for our multicrystalline modules though a combination of technology and manufacturing process
improvements. In the last quarter of 2008, our cost of revenues decreased primarily due to
significant reduction in silicon raw material costs as a result of improved market supply
conditions. In 2008, we had a non-cash inventory write-down of $21.5 million based on a revaluation
of our silicon inventory as a result of market price declines. As a percentage of our total net
revenues, our cost of revenues increased from 77.6% to 80.2% during the same periods.
Gross Profit. As a result of the foregoing, our gross profit in 2008 increased by $96.8
million to $164.4 million, from $67.6 million in 2007. Our gross margin decreased from 22.4% to
19.8% during the same period.
Operating Expenses. Our operating expenses increased by $32.9 million, or 103.7%, from $31.6
million in 2007 to $64.5 million in 2008. The increase in operating expenses was due to increases
in selling expenses, general and administrative expenses and research and development expenses. As
a percentage of total net revenues, operating expenses decreased from 10.5% in 2007 to 7.8% in
2008. Share-based compensation expenses allocated to our selling expenses, general and
administrative expenses and research and development expenses in 2008 were $0.5 million, $3.3
million and $0.1 million, respectively, based on the department where such employees worked at the
time of the grant.
Selling Expenses. Our selling expenses increased by $9.3 million, or 84.3%, from $11.0
million in 2007 to $20.3 million in 2008, due primarily to an increase in warranty provision for
solar modules as a result of significant increases in the sale of solar modules, as well as
out-bound freight costs. Other selling expenses increased due to costs, such as increased
marketing efforts and overseas expansion, associated with growing our solar module business.
Selling expenses as a percentage of net revenues decreased from 3.7% to 2.4%.
69
General and Administrative Expenses. Our general and administrative expenses increased by
$23.3 million, or 130.8%, from $17.8 million in 2007 to
$41.1 million in 2008. The increase in general and administrative expenses was primarily due to increased salaries
and benefits, compliance related consulting and professional fees, as well as share-based
compensation expenses for restricted share grants to our personnel. General and administrative
expenses as a percentage of net revenues decreased from 5.9% to 5.0%.
Research and Development Expenses. Our research and development expenses increased by $0.2
million, or 8.3%, from $2.8 million to $3.0 million between 2007 and 2008, primarily due to
increased headcount of our research and development personnel and investments in research and
development projects as described in Overview of Financial ResultsSelling ExpensesResearch and
Development Expenses. Research and development expenses as a percentage of net revenues decreased
from 0.9% to 0.4%.
Foreign Exchange Gain (Loss). We incurred a foreign exchange loss of $11.8 million in 2008,
compared to a loss of $2.0 million in 2007. Before January 1, 2008, the functional currency of our
PRC operating subsidiaries was the RMB. Appreciation of the RMB in 2007 against other currencies
used in transactions during 2007 resulted in our recording of an exchange loss. The effect of the
depreciation of the Euro against the U.S. dollar on our Euro-denominated contracts, as well as the
effect of the appreciation of the RMB against the U.S. dollar on our RMB-denominated borrowings in
2008 resulted in our recording of a large exchange loss in 2008.
Interest Expenses, Net. Our interest expenses, net, was $2.7 million in 2007, compared to
$21.0 million in 2008. Our interest expenses, net, increased mainly due to an increase in
short-term borrowings and interest from our convertible senior notes, offset by the interest
generated from our operating cash and retained proceeds from our convertible senior notes offering
in July 2008.
Gain (Loss) on the Change in Fair Value of Derivative. In 2008, we had a loss on the change
in fair value of derivative of $1.1 million, compared to a gain of $0.9 million in 2007. In 2008,
we recorded loss due to the change in fair value of our forward foreign currency exchange contracts
entered into in the fourth quarter of 2008. In 2007, we recorded a gain due to the change in the
fair value of an embedded foreign currency derivative in one of our long-term silicon supply
contracts. See Critical Accounting PoliciesDerivative Financial Instruments for more details.
Income Tax Benefit (Expenses). Our income tax expenses increased by $6.3 million, from income
tax benefit of $1.7 million in 2007 to income tax expense of $4.6 million in 2008. Our income tax
expenses increased primarily due to the implementation of the new effective tax laws in 2008. Our
effective tax rates in 2007 and 2008 were (5.0)% and 7.0%, respectively.
Net Income from Continuing Operations. Net income from our continuing operations increased
between 2007 and 2008, from $35.4 million to $61.4 million. However, the net margin from our
continuing operations decreased from 11.7% in 2007 to 7.4% in 2008.
Net Income from Discontinued Operations. We had net income of $367,916 and nil from our
discontinued aluminum siding business in 2007 and 2008, respectively, as we wound down such
business.
70
Net Income. As a result of the foregoing, our net income increased significantly, from $35.7
million in 2007 to $61.4 million in 2008, representing an increase of $25.7 million. However, our
net margin decreased from 11.8% in 2007 to 7.4% in 2008.
B. Liquidity and Capital Resources
We have financed our operations primarily through short-term and long-term borrowings,
proceeds from public offerings, including our convertible senior notes offering in July 2008 and
our follow-on offering of ADSs in July 2009, and, to a lesser extent, cash generated from
operations. We believe that our current cash, cash equivalents, short-term and long-term
borrowings and anticipated cash flow from operations will be sufficient to meet our anticipated
cash needs, including our cash needs for working capital and capital expenditures, for at least the
next 12 months. 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. If
our existing cash is insufficient to meet our requirements, we may seek to sell additional equity
or debt securities or borrow from banks. However, the current financial downturn affecting the
financial markets and banking system may significantly restrict our ability to obtain financing in
the capital markets or from financial institutions. We cannot assure you that financing will be
available in the amounts we need or on terms acceptable to us, if at all. The sale of additional
equity securities, including convertible debt securities, would dilute our earnings per share. 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.
As of December 31, 2007, 2008 and 2009, we had $59.7 million, $132.2 million and $406.1
million, respectively, in cash and cash equivalents, $103.4 million, $45.0 million and $72.0
million in restricted cash and $171.8 million, $263.2 million and $450.0 million, respectively, in
outstanding borrowings. Our cash and cash equivalents primarily consist of cash on hand and demand
deposits with original maturities of three months or less that are placed with banks and other
financial institutions. Of the available cash as of December 31, 2009,
we have committed approximately $180 million to our 500 MW capacity
expansion project at our new East Campus manufacturing facility. We plan to use the remaining
available cash for other capital expenditures, including expenditures for the construction of
R&D Laboratory in the PV Park and other capacity expansion on top of the 500 MW capacity expansion
project, and for working capital and other day-to-day operating
purposes.
We had total bank facilities of $256.0 million, $483.9 million and
$893.9 million with various banks, of which $171.8 million, $282.5 million and $510.4 million
were drawn down and $84.2 million, $201.4 million and $383.5 million were available as of December
31, 2007, 2008 and 2009, respectively. As of December 31, 2009, we had $138 million in principal
amount of 4% convertible senior notes outstanding. For details on our borrowings, please see
Borrowings.
In the past, we had significant working capital commitments for purchases of polysilicon and
reclaimable silicon raw materials. Our prepayments to suppliers were recorded either as advances
to suppliers, if they are expected to be utilized within 12 months as of each balance sheet date,
or as long-term silicon procurement advances, if they represented the portion expected to be
utilized after 12 months. As of December 31, 2009, we had long-term silicon procurement advances
of $105.2 million, compared to $130.3 million as of December 31, 2008, due to the requirements
stipulated in our long-term silicon supply contracts. We also had the current portion of advances
to suppliers of $41.3 million in 2009, a slight decrease from $42.2 million from 2008. We
generally make prepayments without receiving collateral. As a result, our claims for such
prepayments would rank only as an unsecured claim, which exposes us to the credit risks of these
suppliers in the event of their insolvency or bankruptcy. Going forward, we expect our advances to
suppliers to decline as the polysilicon supply market further improves, offset by greater volume
purchases as we expand our manufacturing capacity and use a higher percentage of virgin
polysilicon.
71
We also have significant capital expenditures as we as expand our existing capacity in each
segment of our value chain. See Capital Expenditures. We plan to fund part of the capital
expenditures for such expansion with additional borrowings from third parties, including banks,
and, if any, cash from operations.
We expect that our accounts receivable and inventories, two of the principal components of our
current assets, will continue to increase as our net revenues increase. We require prepayments
from some customers, depending on the credit status of the customers, market demand and the term of
the contracts, but have been required to accept reduced prepayments from customers and may continue
to see reductions in the amounts of prepayment we are able to obtain. We also allow some of our
customers to pay all or a major portion of the purchase price by letters of credit. Until the
letters of credit are drawn in accordance with their terms, the amount earned is recorded as
accounts receivable. Because of the prepayment and the letters of credit payment requirements that
we impose on our customers, our allowance for doubtful accounts has not been significant with
respect to our solar module business.
Cash Flows and Working Capital
The following table sets forth a summary of our cash flows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
(in thousands) |
|
Net cash provided by (used in) operating activities |
|
$ |
(59,477 |
) |
|
$ |
(32,082 |
) |
|
$ |
101,150 |
|
Net cash used in investing activities |
|
|
(225,284 |
) |
|
|
(118,523 |
) |
|
|
(156,377 |
) |
Net cash provided by financing activities |
|
|
249,899 |
|
|
|
222,950 |
|
|
|
329,036 |
|
Effect of exchange rate changes |
|
|
1,178 |
|
|
|
183 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(33,684 |
) |
|
|
72,528 |
|
|
|
273,834 |
|
Cash and cash equivalents at the beginning of the year |
|
|
93,380 |
|
|
|
59,696 |
|
|
|
132,224 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the year |
|
$ |
59,696 |
|
|
$ |
132,224 |
|
|
$ |
406,058 |
|
|
|
|
|
|
|
|
|
|
|
Operating Activities
Net cash provided by operating activities amounted to $101.2 million in 2009, compared to net
cash used by operating activities of $32.1 million in 2008. The net cash provided by operating
activities in 2009 was primarily a result of (1) higher net income, (2) an increase in accounts
payables of $106.8 million due to longer payment terms we obtained from suppliers as a result of
the global economic crisis, and (3) a decrease in long-term silicon procurement and other advances
of $24.1 million due to improved supply conditions, offset by (1) an increase in accounts
receivable of $195.1 million as we increased our sales as wells as longer payment terms as a result
of the global economic crisis, (2) an increase in inventory of $18.6 million as our business and
capacity expanded and (3) an increase in prepaid expenses and other current assets of $26.2 million
due to increases of foreign currency derivatives and deferred tax assets.
The net cash used in operating activities in 2008 was primarily a result of (1) an increase of
long-term silicon procurement and other advances of $81.8 million, (2) an increase in inventories
of $48.7 million as our business and capacity expanded, and (3) an increase in accounts receivable of
$34.3 million as we increased our sales. These items were partially offset by (1) net income, (2) an increase in accrued
warranty costs of $8.0 million, (3) an increase in accrued
expenses of $7.1 million due to increases in interest expense from bank borrowings and
convertible senior notes and professional expenses, and (4) an increase in accounts payable of $4.5
million due to longer payment terms.
72
We had net cash used in operating activities in 2007 of $59.5 million primarily due to (1) an
increase in accounts receivable of $38.8 million as we increased our sales, and (2) an increase in
advances to suppliers of $57.5 million and (3) an increase in inventories of $26.7 million due to
increases in volumes of silicon raw material purchased, partially offset by (1) an increase in the
cash provided by the sale of our products and (2) an increase in accounts payable of $12.9 million
due to increases in the purchases of consumables and other non-polysilicon raw materials and
increased payment periods in connection with those purchases.
Investing Activities
Net cash used in investing activities amounted to $156.4 million in 2009, compared to
$118.5 million in 2008. The net cash used in investing activities in 2009 was primarily a result of an
increase in property, plant and equipment expenditures of $165.4 million, comprised mainly of
purchases of cell, ingot and wafer production equipment, construction of facilities in our East
Campus and materials for the construction of facilities and an increase in restricted cash of $27.0
million, which includes cash pledged to banks to secure our notes payable, hedge and letter of
credit facilities.
The net cash used in investing activities in 2008 was primarily a result of an increase in
property, plant and equipment expenditures of $165.4 million, comprised mainly of purchases of
cell, multicrystalline ingot and wafer production equipment and an increase in payments for
land-use rights, partially offset by a decrease in restricted cash of $58.4 million.
The net cash used in investing activities in 2007 was primarily an increase in property, plant
and equipment expenditures of $124.4 million due to production capacity expansion, comprised mainly
of purchases of cell, multicrystalline ingot and wafer production equipment, and an increase in
restricted cash of $98.0 million.
Financing Activities
Net cash provided by financing activities amounted to $329.0 million in 2009, which consisted
primarily of proceeds of $182.5 million from long-term bank borrowings, net proceeds of $141.5
million received from our public offering of shares in August 2009 and proceeds from our short-term
bank borrowings of $536.5 million, offset by repayment of our short-term bank borrowings of $532.3
million.
Net cash provided by financing activities amounted to $222.9 million in 2008, which consisted
primarily of net proceeds received from our public offering of convertible senior notes of
$131.5 million completed in July 2008 and proceeds from our short-term bank borrowings of $191.3 million,
offset by repayments of our short-term bank borrowings of $106.3 million.
Net cash provided by financing activities amounted to $249.9 million in 2007, which consisted
primarily of net proceeds received from our follow-on public offering of $163.5 million completed
in June 2007 and proceeds from our short-term bank borrowings of $257.2 million, offset by
repayment of our short-term bank borrowings of $173.4 million.
73
Restrictions on Cash Dividends
For a discussion on the ability of our subsidiaries to transfer funds to our company, and the
impact this has on our ability to meet our cash obligations, see Item 3. Key InformationD. Risk
FactorsWe rely on dividends paid by our subsidiary for our cash needs, and Item 3. Key
InformationD. Risk FactorsThe dividends we receive from our PRC subsidiary and our global income
may be subject to PRC tax under the new EIT law, which would have a material adverse effect on our
results of operations; our foreign ADS holders may be subject to a PRC withholding tax upon the
dividends payable by us and upon gains realized on the sale of our ADSs, if we are classified as a
PRC resident enterprise.
Borrowings
We had short-term and long-term borrowings due within one year of $163.6 million, $248.6
million and $267.4 million as of December 31, 2007, 2008 and 2009. Our short-term borrowings
outstanding as of December 31, 2007, 2008 and 2009 bore an average interest rate of 6.76%, 7.11%
and 5.14%, respectively. In connection with most of our short-term borrowings, we have either
sought guarantees by third parties or granted security interests over significant amounts of our
assets. With respect to encumbrances, as of December 31, 2009, we pledged our equipment of a total
appraised value of RMB1,301.8 million ($190.7 million) to secure repayment of our borrowings of
RMB865.7 million ($126.8 million). As of December 31, 2009, we mortgaged 629,951 square meters of
our facilities to secure repayment of our borrowings of RMB139.0 million ($20.4 million). In the
first quarter of 2009, we entered into additional short-term loan contracts in an aggregate amount
of $57.0 million, most of which are either secured by mortgage of real property and equipment or
guaranteed by a third party.
We had $8.2 million, $14.6 million and $182.5 million of long-term borrowings as of December
31, 2007, 2008 and 2009, respectively. In 2007, we obtained two long-term loans from the
Agricultural Bank of China, which totaled RMB60.0 million ($8.2 million) and will expire on
September 22, 2010 and October 31, 2010, respectively, and are secured by a pledge of production
equipment of Trina China. In 2007 and 2008, the average interest rate for these term loans was
7.097% and 7.118% per annum, respectively. In 2008, we obtained a long-term loan from the
Agricultural Bank of China, which totaled RMB40.0 million ($5.9 million) and will expire in January
2011 and is secured by a pledge of certain plants of Trina China. In 2008, the average interest
rate for this term loan was 7.182% per annum. In 2009, we obtained a five-year credit facility of
approximately $303.3 million with a syndicate of five PRC banks led by the Agricultural Bank of
China and Bank of China. In 2009, the average interest rate for this term loan was 4.96% per
annum.
We have historically been able to repay our total borrowings as they became due mostly from
cash from operations and proceeds from short-term and long-term borrowings. We may also seek
additional debt or equity financing to repay the remaining portion of our borrowings. As we
continue to ramp up our current and planned operations in order to complete our vertical
integration and expansion strategies, we also expect to generate cash from our expanded operations
to repay a portion of our borrowings.
74
In July 2008, we completed an offering of $138 million of 4% convertible senior notes. The
debt issuance costs are being amortized over the life of the convertible senior notes using the
interest method. The notes are convertible at any time prior to maturity, unless previously
redeemed, at the option of the holders into our ADSs at a conversion price
of $33.88 per ADS, subject to certain adjustments. We used the net proceeds received from the
offering to expand our manufacturing lines for the production of silicon ingots, wafers, solar
cells and solar modules, to purchase raw materials and other general corporate purposes. In
connection with the senior convertible senior notes offering, we also offered 4,073,194 ADSs in an
ADS borrowing facility. The ADS borrower will be required to return the borrowed ADSs by the
scheduled maturity date of the notes in July 2013.
In June 2009, we secured from Standard Chartered Bank (China) Limited credit facilities
totaling approximately $57 million, consisting of trade financing and hedge products. The
facilities are aimed to provide financial support to our raw material procurement and product sales
while helping us mitigate foreign exchange risks associated with market volatilities.
In July 2009, we secured loans of approximately $80 million due on June 30, 2010 from a
domestic bank to support our East Campus capacity expansion project. The loans were denominated in
Euros, U.S. dollars and Renminbi and bore annual interest rates linked to LIBOR for Euros
denominated loan and U.S. dollar denominated loan and the basic one-year borrowing rate of the
Peoples Bank of China for Renminbi denominated loan. These loans subsequently became part of a
five-year syndicated loan facility we secured in September 2009 to support our East Campus capacity
expansion project.
In September 2009, Trina China entered into a credit facility of approximately
$303.3 million, consisting of RMB1,524.6 million Renminbi
denominated loan and $80.0 million U.S. dollar denominated loan, with a syndicate of five PRC banks led by the Agricultural Bank of China and Bank of China.
Approximately $269.2 million of the facility are designated solely for the expansion of our
production capacity, with the remaining to be used to supplement working capital requirements once
the capacity expansion is completed. The facility can be drawn down
either in Renminbi or U.S. dollars.
As of December 31, 2009, we had drawn down approximately $182.5 million under the facility. The
remaining facility to supplement working capital requirements can only be drawn on or after the
date of completion of capacity expansion. The weighted average interest rate for borrowings under
the facility was 4.96% for the year ended December 31, 2009. Interest is payable quarterly or
biannually in arrears for loans denominated in Renminbi and U.S. dollars, respectively. Interest rate
applied for Renminbi-denominated borrowings is the same interest rate stipulated by Chinese central bank
plus 10%. U.S.-dollar denominated borrowings are subject to the six-month London Interbank Offered
Rate plus 3%. The facility is guaranteed by Trina and Mr. Jifan Gao, our chairman and chief
executive officer, and his wife, Ms. Chunyan Wu, and is collateralized by the property, plant and
equipment of the project and the related land-use right. Borrowings outstanding as of December
31, 2009 are payable on a biannual basis, commencing on October 27, 2011. For purposes of the
expansion, we are required to match draw-downs from the facility with an equal amount of cash from
sources other than the facility. The terms of facility also contain financial covenants which, among
other things,
require us to maintain a debt-asset ratio of no more than 0.60, a net profit ratio of not less than zero percent and an
interest coverage ratio of greater than 2.
In January 2010, Trina Solar (Luxembourg) S.à.r.l., or Trina Luxembourg, one of our
wholly-owned subsidiaries, entered into a 15-year credit facility
with China Development Bank under which Trina Luxembourg can draw down up to 100 million within one year commencing in March
2010. The facility will expire in March 2025. The interest rate for borrowings drawn under this
facility is the six-month Euro Interbank Offered Rate plus 3%. The
repayment of the credit facility is guaranteed by Trina
China. Trina Luxembourg can only use the proceeds of a draw down to finance its business
activities associated with certain downstream projects in Europe. We are required to obtain approval from the lender if Trina Luxembourg or Trina China disposes its assets or provides guarantees with a significant amount.
75
Capital Expenditures
We had capital expenditures of $124.4 million, $165.4 million and $136.5 million in 2007, 2008
and 2009, respectively. Our capital expenditures were used primarily to purchase equipment for the
production of ingots, wafers, cells and modules. We expect our capital expenditures to increase in
the future as we expand our solar module business. We estimate that our capital expenditures in
2010 will be approximately $200.0 million for manufacturing capacity expansion. As of December 31,
2009, we had an annual manufacturing capacity of ingots and wafers of approximately 500 MW and
cells and modules of approximately 600 MW. We plan to increase our annual manufacturing capacity
of ingots and wafers to approximately 700 MW and cells and modules to between approximately 850 MW
to 950 MW by the end of 2010. The specific increase will be based on market visibility in both
customer demand and the commercial lending environment to finance PV system installations in our
respective sales markets. We are implementing a strategy to focus on preserving cash, which
includes reducing costs and reviewing and taking a prudent approach to our capital expansion plan.
Accordingly, we cannot assure you that we will not revise our capacity expansion plan after we
finalize our review.
Recent Accounting Pronouncements
In June 2009, the FASB issued ASC 810-10, Consolidation Overall (previously SFAS 167,
Amendments to FASB Interpretation No. 46(R)). This accounting standard eliminates exceptions of
the previously issued pronouncement to consolidating qualifying special purpose entities, contains
new criteria for determining the primary beneficiary, and increases the frequency of required
reassessments to determine whether a company is the primary beneficiary of a variable interest
entity. This accounting standard also contains a new requirement that any term, transaction, or
arrangement that does not have a substantive effect on an entitys status as a variable interest
entity, a companys power over a variable interest entity, or a companys obligation to absorb
losses or its right to receive benefits of an entity must be disregarded in applying the provisions
of the previously issued pronouncement. This accounting standard will be effective for our fiscal
year beginning January 1, 2010. We are currently assessing the potential impacts, if any, on our
consolidated financial statements
In August 2009, the FASB issued Accounting Standards Update (ASU) 2009-05, Fair Value
Measurements and Disclosures (Topic 820) Measuring Liabilities at Fair Value. ASU 2009-05 amends
ASC 820-10, Fair Value Measurements and Disclosures Overall, for the fair value measurement of
liabilities. It provides clarification that in circumstances in which a quoted price in an active
market for the identical liability is not available, a reporting entity is required to measure the
fair value using (1) a valuation technique that uses the quoted price of the identical liability
when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded
as assets or (2) another valuation technique that is consistent with the principles of Topic 820.
It also clarifies that when estimating the fair value of a liability, a reporting entity is not
required to include a separate input or adjustment to other inputs relating to the existence of a
restriction that prevents the transfer of the liability and that both a quoted price in an active
market for the identical liability at measurement date and that the quoted price for the identical
liability when traded as an asset in an active market when no adjustments to the quoted price of
the asset are
required are Level 1 fair value measurements. The provisions of ASU 2009-05 are effective for
the first reporting period (including interim periods) beginning after issuance. Early application
is permitted. We adopted ASU 2009-05 on January 1, 2010.
76
In October 2009, the FASB issued ASU 2009-13, Revenue Recognition (Topic 605) Multiple-
Deliverable Revenue Arrangements (previously EITF 08-1, Revenue Arrangements with Multiple
Deliverables). This ASU addresses the accounting for multiple-deliverable arrangements to enable
vendors to account for products or services (deliverables) separately rather than as a combined
unit. Specifically, this guidance amends the criteria for separating consideration in
multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for
determining the selling price of a deliverable, which is based on: (a) vendor-specific objective
evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual
method of allocation and requires that arrangement consideration be allocated at the inception of
the arrangement to all deliverables using the relative selling price method. In addition, this
guidance significantly expands required disclosures related to a vendors multiple-deliverable
revenue arrangements. This accounting standard will be effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or after June 15,
2010. Early adoption is permitted. We are currently evaluating the impact of adoption of this
accounting principle on our consolidated financial statements.
In October 2009, the FASB issued ASU 2009-15, Accounting for Own-Share Lending Arrangements
in Contemplation of Convertible Debt Issuance or Other Financing, which clarifies that share
lending arrangements that are executed in connection with convertible debt offerings or other
financings should be measured at fair value and recognized as a debt issuance cost and be amortized
using the effective interest method over the life of the financing arrangement as interest cost.
In addition, ASU 2009-15 states that the loaned shares should be excluded from basic and diluted
earnings per share unless default of the share-lending arrangement occurs, at which time the loaned
shares would be included in the common and diluted earnings per share calculation. ASU 2009-15 is
effective for all arrangements outstanding as of the fiscal year beginning on or after December 15,
2009, (effective January 1, 2010 for us) and retrospective application is required for all periods
presented. In addition, ASU 2009-15 is effective for arrangements entered into on or after the
beginning of the first reporting period that begins on or after June 15, 2009. We have evaluated
the provisions of ASU 2009-15 and determined that it will record additional debt issuance costs at
issuance of $4.07 million related to ADSs borrowed by an affiliate of Credit Suisse Securities
(USA) LLC, one of the joint bookrunners of the notes offering. Such costs will be amortized over
the life of the convertible notes and will result in an adjustment of $1.98 million to beginning
retained earnings on January 1, 2010.
In December 2009, the FASB issued ASU 2009-16, Transfers and Servicing (Topic 860) -
Accounting for Transfers of Financial Assets, which formally codifies FASB Statement No. 166,
Accounting for Transfers of Financial Assets, into the ASC, issued by the FASB in June 2009. ASU
2009-16 represents a revision to the provisions of former FASB Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. The amendments in
ASU 2009-16 eliminate the exceptions for qualifying special-purpose entities from the consolidation
guidance and the exception that permitted sale accounting for certain mortgage securitizations when
a transferor has not surrendered control over the transferred financial assets. In addition, the
amendments require enhanced disclosures about the risks that a transferor continues to be exposed
to because of
its continuing involvement in transferred financial assets. ASU 2009-16 is effective for
annual and interim periods beginning after November 15, 2009. Additionally, the recognition and
measurement provisions of ASU 2009-16 should be applied to transfers that occur on or after the
effective date. Early application is not permitted. We are currently evaluating the impact of
adoption of this accounting principle on our consolidated financial statements.
77
In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic
820) Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends ASC 820 (formerly
SFAS 157) to add new requirements for disclosures about (1) the different classes of assets and
liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity
in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3. The guidance
in ASU 2010-06 is effective for the first reporting period beginning after December 15, 2009,
except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and
settlements on a gross basis, which will be effective for fiscal years beginning after December 15,
2010, and for interim periods within those fiscal years. In the period of initial adoption,
entities will not be required to provide the amended disclosures for any previous periods presented
for comparative purposes. However, those disclosures are required for periods ending after initial
adoption. Early adoption is permitted. We are currently evaluating the impact of adoption of this
accounting principle on our consolidated financial statements.
C. Research and Development
We focus our research and development efforts towards improving our ingot, wafer, solar cell
and solar module manufacturing capabilities. We seek to reduce manufacturing costs and improve the
performance of our products. As of December 31, 2009, we had a total of 264 employees involved in
our research and development activities. Among them, 48 employees are under our technology
development department and are dedicated to research and development. We also have a team of 216
employees under our engineering department and responsible for manufacturing technology development
and further fine-tuning our production processes.
Our research and development department is divided into teams responsible for research in each
stage of the solar power product value chain, such as ingot, wafer, solar cell and module
production and system integration. We also have a technology committee, which meets regularly to
review current development progress and identify new research and development areas. Our
technology committee is spearheaded by our senior management and is comprised of both our employees
and external solar energy experts.
Our research and development efforts will be further enhanced by our plan to establish a R&D
Laboratory in the PV Park, a research and development center that focuses on developing PV
technologies, including utilization of alternative materials, increasing cell conversion
efficiencies and conducting assembly and system research, and to conduct technology exchanges with
PV experts from world leading companies, research institutes and emerging technology companies. We
are one of the two solar companies in China commissioned by the PRC government to establish and
operate research and development centers.
78
Our research efforts are currently focused on four main product areas, namely ingots, wafers,
solar cells and solar modules. We focus on improving cell efficiency and reducing our production
costs by enhancing manufacturing yields, which enable us to deliver higher-efficiency products at a lower cost. Our research and development efforts range from
leveraging on declining raw material costs to optimize silicon feedstock mix to enhancing the
quality of our solar wafers and refining ingot growing and wafer slicing processes. In the fourth
quarter of 2009, our average silicon usage was approximately 6.0 grams per watt, compared to
approximately 6.3 grams per watt in the fourth quarter of 2008.
Currently, we slice monocrystalline and multicrystalline wafers to a 180 micron thickness,
while maintaining a low breakage rate.
For the assembly of modules, our research and development team works closely with our
manufacturing team and customers to improve our solar module and system designs. We have designed
products with specific applications. We have developed a variety of PV solar power product
applications based on our existing monocrystalline and multicrystalline technologies. These
products include architecturally-friendly modules of different colors, shapes and sizes, such as
black modules, square modules and large-size modules, and crystalline-based BIPV roof products
currently in advanced prototype stage.
We have invested significantly in research and development of solar cell technology in order
to achieve high conversion efficiency rates required for our advanced solar cells and modules. We
achieved conversion efficiencies of up to 18.8% in monocrystalline solar cells and 17.5% in
multicrystalline solar cells in 2009 on a test production line basis, and plan to increase the
efficiencies to up to 18.0% in multicrystalline solar cells and up to 19.5% in monocrystalline
solar cells on a test production line basis by the end of 2010. We have a team of 15 employees
dedicated to the development and implementation of this process technology. We also plan to make
additional efforts to realize the technical and cost synergies of having in-house vertically
integrated manufacturing capabilities.
In each of the three years ended December 31, 2007, 2008 and 2009, our research and
development expenditures were $2.8 million, $3.0 million and $5.4 million, representing 0.9%, 0.4%
and 0.6% of our total revenues for 2007, 2008 and 2009, respectively. We will continue to expand
and promote innovation in our process technologies of manufacturing ingots, wafers, cells and PV
modules. Accordingly, we expect our research and development expenses to increase as we hire
additional research and development personnel and advance our research and development projects.
D. Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any trends,
uncertainties, demands, commitments or events for the period from January 1, 2009 to December 31,
2009 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 Commitments and Arrangements
Other than our purchase obligations for raw materials and equipment, 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 shareholders 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.
79
F. Contractual Obligations and Commercial Commitments
The following table sets forth our contractual obligations and
commercial commitments whether capital commitment shall be inclusive as of
December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period |
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than |
|
|
|
Total |
|
|
1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
5 Years |
|
|
|
(in thousands) |
|
Long-term borrowings(1) |
|
$ |
182,516 |
|
|
|
|
|
|
$ |
65,239 |
|
|
$ |
117,277 |
|
|
|
|
|
Purchase obligations(2) |
|
|
4,826,930 |
|
|
|
595,382 |
|
|
|
1,144,300 |
|
|
|
1,007,053 |
|
|
|
2,080,195 |
|
Convertible senior notes(3) |
|
|
143,637 |
|
|
|
5,520 |
|
|
|
138,117 |
|
|
|
|
|
|
|
|
|
Other long-term liabilities reflected
on our balance sheet(4) |
|
|
38,433 |
|
|
|
|
|
|
|
17,410 |
|
|
|
|
|
|
|
21,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,191,516 |
|
|
$ |
600,902 |
|
|
$ |
1,365,066 |
|
|
$ |
1,124,330 |
|
|
$ |
2,101,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes interests that are derived using an average rate of 4.96% per annum for long-term
borrowings. |
|
(2) |
|
Consists of raw material and equipment purchase commitments and operating lease commitments. |
|
(3) |
|
Includes interests that are derived using the coupon rate of 4% per annum for convertible
senior notes. The convertible senior notes will mature on July 15, 2013 and the holders may
require us to early redeem the convertible senior notes on July 15, 2011. |
|
(4) |
|
Consists of accrued warranty costs for solar modules. |
In addition to the contractual obligations and commercial commitments set forth above, we
entered into short-term borrowings in the aggregate amount of $8.0 million in the first quarter of
2010. As of February 28, 2010, $275.4 million in short-term borrowings and $296.4 million in
long-term borrowings were outstanding.
Since December 31, 2009, we have entered into substantial commitments for future purchases of
raw materials, including reclaimable silicon raw materials and polysilicon. See Item 5.
Operating and Financial Review and Prospects¾A. Operating
Results¾Overview¾Availability and Price of Reclaimable Silicon Raw Materials and
Polysilicon and Item 4. Information on the Company¾Business Overview¾Silicon Raw
Material Supplies for more information about our future commitments to purchase raw materials.
G. Safe Harbor
This annual report on Form 20-F contains forward-looking statements that relate to future
events, including our future operating results and conditions, our prospects and our future
financial performance and condition, all of which are largely based on our current expectations and
projections. The forward-looking statements are contained principally in the sections entitled
Item 3. Key InformationD. Risk Factors, Item 4. Information on the Company and Item 5.
Operating and Financial Review and Prospects. These
statements are made under the safe harbor provisions of the U.S. Private Securities
Litigation Reform Act of 1995.
80
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
other and similar expressions. Forward-looking statements involve inherent risks and
uncertainties. A number of factors could cause actual results to differ materially from those
contained in any forward-looking statement, including but not limited to the following:
expectations regarding the worldwide demand for electricity and the market for solar energy; the
companys beliefs regarding the effects of environmental regulation, the lack of infrastructure
reliability and long-term fossil fuel supply constraints; the importance of environmentally
friendly power generation; expectations regarding governmental support for the deployment of solar
energy; expectations regarding the scaling of the companys manufacturing capacity; expectations
with respect to the companys ability to secure raw materials in the future; future business
development, results of operations and financial condition; and competition from other
manufacturers of PV products and conventional energy suppliers.
This annual report on Form 20-F also contains data related to the PV market worldwide and in
China taken from third party reports. The PV market may not grow at the rates projected by the
market data, or at all. The failure of the market to grow at the projected rates may have a
material adverse effect on our business and the market price of our ADSs. In addition, the rapidly
changing nature of the PV market subjects any projections or estimates relating to the growth
prospects or future condition of our market to significant uncertainties. If any one or more of
the assumptions underlying the market data turns out to be incorrect, actual results may differ
from the projections based on these assumptions. You should not place undue reliance on these
forward-looking statements.
The forward-looking statements made in this annual report on Form 20-F relate only to events
or information as of the date on which the statements are made in this annual report on Form 20-F.
Except as required by law, we undertake no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future events or otherwise,
after the date on which the statements are made or to reflect the occurrence of unanticipated
events. You should read this annual report on Form 20-F completely and with the understanding that
our actual future results may be materially different from what we expect.
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.
|
|
|
|
|
Directors and Executive Officers |
|
Age |
|
Position/Title |
Jifan Gao |
|
45 |
|
Chairman and Chief Executive Officer |
Sean Hsiyuan Tzou |
|
52 |
|
Director and Chief Operating Officer |
Liping Qiu |
|
45 |
|
Director |
Jerome Corcoran |
|
60 |
|
Independent Director |
Junfeng Li |
|
53 |
|
Independent Director |
Peter Mak |
|
48 |
|
Independent Director |
Qian Zhao |
|
41 |
|
Independent Director |
Terry Wang |
|
50 |
|
Chief Financial Officer |
Suping Chen |
|
44 |
|
Vice President of Manufacturing, East Campus |
Benjamin Hill |
|
39 |
|
Vice President of Sales and Marketing (Europe) |
Qiang Huang |
|
36 |
|
Vice President of Technology |
Chen Chung Yu |
|
44 |
|
Vice President of Manufacturing |
Yu Zhu |
|
35 |
|
Vice President of Project Development |
Diming Qiu |
|
69 |
|
Head of Technology Committee |
81
Directors
Mr. Jifan Gao founded our company in 1998. He has been our chairman and chief executive
officer since January 1998. From August 2001 to October 2006, Mr. Gao served as the chairman of
Changzhou Tianhe Investment Co., Ltd., a Chinese company that invests in new energy technologies,
and he served as the chairman of Changzhou Tianhe New Energy Institute Co., Ltd., a Chinese company
that is engaged in R&D and consulting services for new energy technologies, from May 2003 to
October 2006. Mr. Gao also served as the vice chairman of Changzhou Minsheng Financing Guarantee
Co., Ltd, a Chinese company that provides guarantee, investment and consulting services, from June
2004 to October 2006. Prior to founding our company, Mr. Gao was the founder and the head of Wujin
Xiehe Fine Chemical Factory, a Chinese company that manufactures detergents for metal surfaces,
from 1992 through 1997. From 1989 to 1992, Mr. Gao was one of the co-founders and the head of
Guangdong Shunde Fuyou Detergent Factory. Mr. Gao also serves as the vice chairman of the Solar
Power Construction Committee of the China Renewable Energy Society and as the standing vice
chairman of the New Energy Chamber of Commerce of the All-China Federation of Industry and
Commerce. Mr. Gao has published and presented several articles and papers in solar power related
magazines and conferences. Mr. Gao received his masters degree in physical chemistry from Jilin
University in 1988 and his bachelors degree in chemistry from Nanjing University in 1985.
Mr. Sean Hsiyuan Tzou has been a director of our company since August 28, 2008 and has been
our chief operating officer since March 2007. Prior to joining us, Mr. Tzou was the Corporate Vice
President in charge of Asia-Pacific Services in Solectron Corporation, a leading electronic
manufacturing services company headquartered in the United States. Mr. Tzou has more than 20 years
of experience in product development, strategic planning, supply chain management and operations
management both in China and the United States. Mr. Tzou received his bachelors degree in science
of industrial engineering from Tunghai University in 1978 and received his masters degree in
science of industrial engineering from University of Texas at Arlington in 1983.
Mr. Liping Qiu has been a director of our company since May 2006. He is a founding partner
and director of Milestone Capital, a China-focused private equity investment company, and the
general partner of Milestone China Opportunities Fund I and II, L.P., Cayman Islands limited
partnerships that invest primarily in high-growth Chinese companies, since 2002. In 2001, Mr. Qiu
was Bear Stearnss Beijing Office Representative, responsible for investment banking operations in
China. From 1997 to 2000, Mr. Qiu was an analyst at
Merrill Lynchs direct investment group and corporate finance group, and from 1998 to 2000 he
served as the chief financial officer of Tianrun Crankshaft Co., Ltd., an independent Chinese
crankshaft manufacturer. Mr. Qiu received his bachelors degree and masters degree in engineering
from the National University of Defense Technology of China in 1984 and 1986, respectively.
82
Independent Directors
Mr. Jerome Corcoran has been an independent director of our company since December 18, 2006.
From 1995 to 1998, Mr. Corcoran was a managing director at Merrill Lynchs China Private Equity
Group in Beijing, China. From 1989 to 1994, Mr. Corcoran had served as a managing director and the
head of international investment banking of Merrill Lynch in New York and London. Mr. Corcoran
retired from his investment banking career in 1998 and has been managing his personal wealth since
his retirement. Mr. Corcoran received his bachelors degree in political philosophy from Loyola
University in 1971 and his MBA degree from St Johns University in 1974.
Mr. Junfeng Li has been an independent director of our company since November 2007. Mr.
Junfeng Li is the vice chair of Chinas Renewable Energy Society and the deputy director general of
the Energy Research Institute (ERI) of the National Development and Reform Commission in Beijing.
He also serves as the chair of ERIs Academic Committee, and as a coordinator of the Renewable
Energy and Energy Efficiency Partnership in East Asia. During Chinas 10th Five-Year Plan
(2001-05), Mr. Li facilitated implementation of a national technology development program for wind
and solar and chaired the governments Sustainable Energy Task Force. Mr. Li was also the lead
author for Chinas 2005 Renewable Energy Law, and has worked on renewable energy project
development with the World Bank, Global Environment Facility, and the United Nations Development
Programme. Mr. Li received his bachelors degree in electronic engineering from Shandong
University of Science and Technology in 1982.
Mr. Peter Mak has
been an independent director and audit committee chairman of our company
since December 18, 2006. Mr. Mak is the managing director of Venfund Investment, a Shenzhen
based mid-market M&A investment banking firm specializing in cross-border mergers and acquisitions,
corporate restructuring, capital raising and international financial advisory services for Chinese
privately-owned clients, which he co-founded in late 2001. Prior to that, Mr. Mak spent 17 years
at Arthur Andersen Worldwide where he was a firm partner and served as the managing partner of
Arthur Andersen Southern China in his last position with the firm. Mr. Mak also serves as an
independent non-executive director and audit committee chairman of China GrenTech Corp. Ltd.,
Dragon Pharmaceutical Inc. and China Security & Surveillance Technology, Inc., all listed in the
U.S.; Shenzhen Fiyata Holdings Ltd., a company listed in China; and Huabao International Holdings
Ltd., China Dongxiang (Group) Co., Ltd., Pou Sheng International (Holdings) Limited, Real Gold
Mining Limited and 361 Degrees International Limited, all listed on the Hong Kong Stock Exchange.
Mr. Mak is also the non-executive director of Bright World Precision Machinery Ltd., a company
listed in the Republic of Singapore. Mr. Mak is a fellow member of the
Association of Chartered Certified Accountants and the Hong Kong Institute of Certified Public
Accountants. He received his accounting degree from the Hong Kong Polytechnic University in 1985.
83
Mr. Qian Zhao has been an independent director of our company since May 18, 2007. Mr. Zhao is
a founding partner of CXC China Sustainable Growth Fund, a private equity fund that makes
investments in China-based companies. He is also a managing director of
CXC Captial, Inc. which is the management company of CXC China Sustainable Growth Fund. Mr.
Zhao co-founded Haiwen & Partners, a preeminent China corporate finance law firm in Beijing, and
was a senior partner of the law firm. He worked in Sullivan & Cromwell LLPs New York office from
1996 to 2000, and Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates Beijing office from 2000
to 2003. He is admitted to practice law in both China and New York. Mr. Zhao received his J.D.
degree from New York University School of Law in 1997 and his LL.B from University of International
Business & Economics, Beijing in 1990.
Executive Officers
Mr. Terry Wang has been our chief financial officer since June 2008. He served as our senior
vice president of finance from January 2008 to June 2008. Prior to joining us, Mr. Wang served as
the executive vice president of finance of Spreadtrum Communications, Inc., a fabless semiconductor
company listed on NASDAQ, from 2004 to 2007. Before that, Mr. Wang was on various senior financial
management positions in public and private companies in Silicon Valley, the United States from 1998
to 2004, including as a controller at Chippac, Inc. from 1998 to 2001. Mr. Wang received his MBA
degree in finance from the University of Wisconsin at Madison in 1994 and received his masters
degree in economics and bachelors degree in business administration from Fudan University in 1985
and 1982, respectively. Mr. Wang is a Certified Management Accountant (CMA) and Certified in
Financial Management (CFM).
Dr. Suping Chen has been our vice president of manufacturing of East Campus since October
2008. Prior to joining us, Dr. Chen was in a privately owned business, which provided management
consulting services in the manufacturing industry for more than two years. From September 2005 to
October 2006, Dr. Suping Chen worked as the operations director in Filtronic (Suzhou)
Telecommunications Products Co., Ltd. Prior to that, Dr. Suping Chen worked as business development
manager, senior product manager and operations director in Seagate Technology International (Wuxi)
Co., Ltd. for seven years. Dr. Chen received his Ph.D degree in Industrial Automation from Zhejiang
University in China in 1994, his master and bachelor degrees in Measurement Technology and
Instrumentation from Zhejiang University in China in 1990 and 1987, respectively.
Mr. Benjamin Hill joined us as a director sales and marketing (Europe) in April 2009 and has been
our vice president of sales and marketing (Europe) since September 2009. Prior to joining us, he
worked with BP Solar for over ten years. He was previously a sales director of Europe, Africa and
the Middle East from September 1998 to January 2003, a regional director of North Europe from
January 2003 to November 2005, a European sales director from November 2005 to July 2007 and a
general manager (Performance Unit Leader South Europe) from July 2007 to April 2009. From August
1986 to August 1998, he worked with Hiltec Solar Ltd., Nestec Ltd. and Sollatek Ltd. (UK). Mr.
Hill has more than 20 years of experience in managing business development in the PV industry.
84
Dr. Qiang Huang has been our vice president of technology since October 2008. Dr. Huang
served as our director of manufacturing engineering from May 2007 to July 2008. Prior to joining
us, he served as senior manager of device integration of ST Microelectronics in Singapore from
September 2006 to April 2007. From July 2004 to September 2006, he served as the thin-film module
manager in X-Fab Sarawak (previously known as 1-Silicon) in Malaysia. From April 2001 to January
2004, he served as a senior engineer, and then the acting engineering manager in System-on-Silicon
Manufacturing Co. Ltd., a joint venture
between Taiwan Semiconductor Manufacturing Company Limited (TSMC) and Philips. Dr. Huang has
more than eight years of commercial operations experience in semiconductor engineering development
and engineering problem solving. Dr. Huang received a Ph.D degree in physics specializing in
thin-film technology from National University of Singapore in Singapore in 2001, a masters degree
in electronics materials and devices from Huazhong University of Science and Technology (HUST) in
China in 1998 and a bachelors degree in physics from Xinyang Normal University in China in 1994.
Mr. Chen Chung Yu has been our vice president of manufacturing since May 2007. Prior to
joining us, he was the managing director of Wuxi Lite-On Technology Ltd., an LED company in China,
from June 2006 to May 2007. From April 2005 to June 2006, he served as a director of manufacturing
at 1st Silicon Sdn. Bhd, a semiconductor wafer foundry company in Malaysia. From September 1991 to
March 2005, he worked at Macronix International Ltd., a semiconductor integrated device
manufacturer in Taiwan as a department manager in the operation/business management center. Mr. Yu
received his masters degree in industrial engineering and management from National Chiao Tung
University in Taiwan in 2003 and his bachelors degree in chemical engineering from Tunghai
University in Taiwan in 1989.
Mr. Yu Zhu has been our vice president of project development since January 2010. Previously,
he has served as our vice president of business development from September 2008 to January 2010,
and as our vice president of procurement from May 2006 to September 2008. From September 2005 to
May 2006, he served as the head of our U.S. representative office. Prior to joining us, Mr. Zhu
was the founder and the president of Country Road US Co. Ltd., a wireless internet communications
company in Nanjing, China, from 2002 to 2005. From 1998 to 2002, he worked at IBM as the global
training leader and as a software engineer. Mr. Zhu received his bachelors degree in engineering
from the University of Virginia in 1997.
Mr. Diming Qiu has been the head of our technology committee since January 2006 and has been
with our company since June 2002. Prior to joining us, Mr. Qiu was the principal engineer and the
deputy manager of Yunnan Semiconductor Device Factory, a Chinese company that engages in the
manufacturing of semiconductor and solar power products. In the 1980s, he was involved in the
construction of the first vertically-integrated solar power product production line in China. In
2004, Mr. Qiu was in charge of research on the integration of solar power components with
construction elements, which was sponsored by the PRCs Ministry of Science and Technology. Mr.
Qiu received his bachelors degree in physics from Sichuan University in 1965.
B. Compensation of Directors and Executive Officers
Compensation of Directors and Executive Officers
For the year ended December 31, 2009, the aggregate cash compensation that we paid to
directors and executive officers was $2.9 million. No executive officer is entitled to any
severance benefits upon termination of his or her employment with us. Our directors and executive
officers have also been paid pursuant to the share incentive plan in the form of restricted shares
and share options.
85
Share Incentive Plan
In July 2006, our board of directors adopted a share incentive plan to link the personal
interests of our board members, employees and consultants to those of our shareholders by providing
them with an incentive to generate superior returns for our shareholders, as well as to provide us
with the flexibility to motivate, attract and retain the services of these individuals upon whose
judgment, interest and special effort the successful conduct of our operations is dependent. Our
share incentive plan was amended by our board of directors in February 2007 to improve the number
of shares reserved for issuance under the share incentive plan from 52,631,579 shares to
102,718,350 shares. Such amendment was approved by our shareholders on June 27, 2007. In May
2008, the share incentive plan was further amended by our board of directors to improve the number
of shares reserved for issuance under the share incentive plan from 102,718,350 shares to
202,718,350 shares. Such amendment was approved by our shareholders on August 29, 2008.
The following paragraphs describe the principal terms of our share incentive plan.
Administration. Our share incentive plan is administered by our compensation committee or, in
its absence, by our board of directors. Our compensation committee will determine the provisions,
terms and conditions of our awards, including, but not limited to, vesting schedule, repurchase
provisions, forfeiture provisions, form of payment upon settlement of the award, payment
contingencies and satisfaction of any performance criteria. The compensation committee may
delegate to a committee of one or more members of our board of directors the authority to make
grants or amend prior awards to employees, consultants and directors.
Awards. The following briefly describe the principal features of the various awards that may
be granted under our share incentive plan.
|
|
|
Options. Options provide for the right to purchase our ordinary shares at a
specified price, and usually will become exercisable at the discretion of our
compensation committee in one or more installments after the grant date. The option
exercise price may be paid in cash, by check, our ordinary shares which have been held
by the option holder for such time as may be required to avoid adverse accounting
treatment, other property with value equal to the exercise price, through a broker
assisted cash-less exercise or such other methods as our compensation committee may
approve from time to time. |
|
|
|
Restricted Shares. A restricted share award is the grant of our ordinary shares at
a price determined by our compensation committee. A restricted share is
nontransferable, unless otherwise determined by our compensation committee at the time
of award and may be repurchased by us upon termination of employment or service during
a restricted period. Our compensation committee shall also determine in the award
agreement whether the participant will be entitled to vote the restricted shares or
receive dividends on such shares. |
|
|
|
Restricted Share Units. Restricted share units represent the right to receive our
ordinary shares at a specified date in the future, subject to forfeiture of such right.
If the restricted share unit has not been forfeited, then on the date specified in the
award agreement we shall deliver to the holder unrestricted ordinary shares, which will
be freely transferable. |
86
Termination of Plan. Unless terminated earlier, our share incentive plan will expire in 2016.
Our board of directors has the authority to amend or terminate our share incentive plan subject to
shareholder approval to the extent necessary to comply with applicable law. However, no such
action may impair the rights of any recipient of the awards unless agreed by the recipient and the
share incentive plan administrator.
Restricted Shares
As of March 11, 2010, our directors, officers, employees and consultants hold an aggregate of
43,286,280 restricted shares in our company. The following paragraphs describe the principal terms
of our restricted shares.
Restricted Share Award Agreement. Restricted shares issued under our share incentive plan
will be evidenced by a restricted share award agreement that contains, among other things,
provisions concerning the purchase price for the shares, if any, vesting and repurchase by us upon
termination of employment or consulting arrangement, as determined by our compensation committee.
Vesting Schedule. Restricted shares granted under our share incentive plan vest over a
five-year period following a specified grant date, with the exception of restricted shares granted
to our independent directors, which vest over a three-year period. Subject to certain exceptions,
our restricted share vest on a yearly basis. For restricted shares granted prior to April 11,
2008, typically, twenty percent of the restricted shares shall vest at the first anniversary of
the grant date and the remaining eighty percent shall vest at the second, third, fourth and fifth
anniversary of the grant date. For restricted shares granted on or after April 11, 2008, 15%, 15%,
20%, 25% and 25% of the restricted shares, typically, shall vest at the first, second, third,
fourth and fifth anniversary of the grant date, respectively. These vesting schedules are subject
to the grantee continuing to be an employee on each vesting date. Restricted shares also fully
vest upon termination of service due to death or disability.
Transfer Restrictions. Until vested, the restricted shares are not transferable and may not
be sold, pledged or otherwise transferred.
Dividend and Voting Rights. The restricted shares will not be entitled to dividends paid on
the ordinary shares until such restricted shares are vested. A holder will not be entitled to vote
restricted shares until such restricted shares are vested.
Repurchase of Restricted Shares. Following the holders termination of service with us,
except if such termination is a result of death or disability, the restricted shares that are
unvested will be repurchased by us for an amount equal to the price paid, if anything, for such
shares. Such repurchase must be accomplished within 180 days after the termination of service.
Third-Party Acquisition. If a third party acquires us through the purchase of all or
substantially all of our assets, a merger or other business combination, all outstanding awards
will be assumed or equivalent awards substituted by the successor corporation or parent or
subsidiary of successor corporation. In the event that the successor corporation refuses to assume
or substitute for awards, all awards will become fully vested and exercisable immediately so long
as the recipient remains an employee, consultant or director on the effective date of the
acquisition.
87
The following table summarizes, as of March 11, 2010, the outstanding restricted shares held
by our directors and executive officers and other individuals as a group pursuant to the share
incentive plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase |
|
|
|
|
|
|
|
|
Directors and |
|
Restricted |
|
|
Price |
|
|
|
|
|
|
End of Vesting |
Executive Officers |
|
Shares Held |
|
|
($ per share) |
|
|
Date of Grant |
|
Period |
Jifan Gao |
|
* |
|
|
0.00001 |
|
|
April 11, 2008/ |
|
April 11, 2013/ |
|
|
|
|
|
|
|
|
May 14, 2009 |
|
May 14, 2014 |
Sean Hsiyuan Tzou |
|
* |
|
|
0.00001 |
|
|
August 15, 2007/ |
|
August 15, 2012/ |
|
|
|
|
|
|
|
|
April 11, 2008/ |
|
April 11, 2013/ |
|
|
|
|
|
|
|
|
May 14, 2009 |
|
May 14, 2014/ |
|
|
|
|
|
|
|
|
November 20, 2009 |
|
January 1, 2011 |
Jerome Corcoran |
|
* |
|
|
0.00001 |
|
|
January 1, 2007/ |
|
January 1, 2010/ |
|
|
|
|
|
|
|
|
October 1, 2007/ |
|
January 1, 2010/ |
|
|
|
|
|
|
|
|
January 1, 2010 |
|
January 1, 2013 |
Junfeng Li |
|
* |
|
|
0.00001 |
|
|
November 9, 2007 |
|
November 9, 2010 |
Peter Mak |
|
* |
|
|
0.00001 |
|
|
January 1, 2007/ |
|
January 1, 2010/ |
|
|
|
|
|
|
|
|
October 1, 2007/ |
|
January 2, 2010/ |
|
|
|
|
|
|
|
|
January 1, 2010 |
|
January 1, 2013 |
Liping Qiu |
|
* |
|
|
0.00001 |
|
|
July 24, 2006/ |
|
July 24, 2009/ |
|
|
|
|
|
|
|
|
July 7, 2008 |
|
July 7, 2011 |
Qian Zhao |
|
* |
|
|
0.00001 |
|
|
October 1, 2007 |
|
May 18, 2010 |
Terry Wang |
|
* |
|
|
0.00001 |
|
|
January 28, 2008/ |
|
January 28, 2013/ |
|
|
|
|
|
|
|
|
May 14, 2009/ |
|
May 14, 2014/ |
|
|
|
|
|
|
|
|
November 20, 2009 |
|
January 1, 2011 |
Suping Chen |
|
* |
|
|
0.00001 |
|
|
November 1, 2008/ |
|
November 1, 2013/ |
|
|
|
|
|
|
|
|
May 14, 2009 |
|
May 14, 2014 |
Benjamin Hill |
|
* |
|
|
0.00001 |
|
|
May 1, 2009 |
|
May 1, 2014 |
Qiang Huang |
|
* |
|
|
0.00001 |
|
|
November 1, 2008/ |
|
November 1, 2013/ |
|
|
|
|
|
|
|
|
May 14, 2009 |
|
May 14, 2014 |
Chen Chung Yu |
|
* |
|
|
0.00001 |
|
|
August 15, 2007/ |
|
August 15, 2012/ |
|
|
|
|
|
|
|
|
April 11, 2008/ |
|
April 11, 2013/ |
|
|
|
|
|
|
|
|
May 14, 2009/ |
|
May 14, 2014/ |
|
|
|
|
|
|
|
|
October 1, 2009 |
|
October 1, 2012 |
Yu Zhu |
|
* |
|
|
0.00001 |
|
|
July 24, 2006/ |
|
July 24, 2011/ |
|
|
|
|
|
|
|
|
April 11, 2008/ |
|
April 11, 2013/ |
|
|
|
|
|
|
|
|
May 14, 2009 |
|
May 14, 2014 |
Diming Qiu |
|
* |
|
|
0.00001 |
|
|
July 24, 2006/ |
|
July 24, 2011/ |
|
|
|
|
|
|
|
|
April 11, 2008/ |
|
April 11, 2013/ |
|
|
|
|
|
|
|
|
May 14, 2009 |
|
May 14, 2014 |
Directors and executive officers
as a group |
|
19,486,582 |
|
|
|
|
|
|
|
|
|
|
|
|
Other individuals |
|
6,628,396/ |
|
|
0.00001 |
|
|
July 24, 2006/ |
|
July 24, 2011/ |
as a group |
|
20,000/ |
|
|
|
|
|
January 1, 2007/ |
|
January 1, 2012/ |
|
|
600,000/ |
|
|
|
|
|
August 15, 2007/ |
|
August 15, 2012/ |
|
|
1,740,000/ |
|
|
|
|
|
October 1, 2007/ |
|
October 1, 2012/ |
|
|
1,440,000/ |
|
|
|
|
|
January 1, 2008/ |
|
January 1, 2013/ |
|
|
787,415/ |
|
|
|
|
|
March 2, 2008/ |
|
March 2, 2013/ |
|
|
255,000/ |
|
|
|
|
|
March 18, 2008/ |
|
March 18, 2013/ |
|
|
160,000/ |
|
|
|
|
|
April 1, 2008/ |
|
April 1, 2013/ |
|
|
1,693,994/ |
|
|
|
|
|
April 11, 2008/ |
|
April 11, 2013/ |
|
|
170,000/ |
|
|
|
|
|
May 23, 2008/ |
|
May 23, 2013/ |
|
|
170,000/ |
|
|
|
|
|
September 1, 2008/ |
|
September 1, 2013/ |
|
|
425,000/ |
|
|
|
|
|
December 1, 2008/ |
|
December 1, 2013/ |
|
|
500,000/ |
|
|
|
|
|
April 1, 2009/ |
|
April 1, 2014/ |
|
|
3,709,893/ |
|
|
|
|
|
May 14, 2009/ |
|
May 14, 2014/ |
|
|
500,000/ |
|
|
|
|
|
May 15, 2009/ |
|
May 15, 2014/ |
|
|
500,000/ |
|
|
|
|
|
July 1, 2009/ |
|
July 1, 2014/ |
|
|
500,000/ |
|
|
|
|
|
October 1, 2009/ |
|
October 1, 2014/ |
|
|
500,000/ |
|
|
|
|
|
November 1, 2009/ |
|
November 1, 2014/ |
|
|
500,000/ |
|
|
|
|
|
December 1, 2009/ |
|
December 1, 2014/ |
|
|
1,000,000/ |
|
|
|
|
|
February 1, 2010/ |
|
February 1, 2015/ |
|
|
2,000,000 |
|
|
|
|
|
March 1, 2010 |
|
March 1, 2015 |
|
|
|
* |
|
Upon vesting of all restricted shares, would beneficially own 1% or less of our ordinary
shares. |
88
Share Options
As of March 11, 2010, our directors, officers, employees and consultants hold an aggregate of
23,189,855 options in our Company. The following paragraphs describe the principal terms of our
options.
Option Agreement. Options granted under our share incentive plan are evidenced by an option
agreement that contains, among other things, provisions concerning exercisability and forfeiture
upon termination of employment arrangement, as determined by our board.
Vesting Schedule. Options granted under our share incentive plan generally vest over a
three-year period following a specified grant date. Our options vest on a yearly basis. One-third
of the options granted vest and become exercisable at the first, second and third anniversary of
the grant date, subject to the optionee continuing to be an employee on each vesting date.
Option Exercise. The term of options granted under our share incentive plan may not exceed
the third anniversary of each respective vesting date.
Termination of Options. Where the option agreement permits the exercise of the options that
were vested before the recipients termination of service with us, or the recipients disability or
death, the options will terminate to the extent not exercised or purchased on the last day of a
specified period or the last day of the original term of the options, whichever occurs first. If
the recipients termination of service with us is by reason of cause, the options will terminate
concurrently with the termination of service with us.
89
The following table summarizes, as of March 11, 2010, the outstanding options that we granted
to our directors and executive officers and to other individuals as a group under our share
incentive plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary |
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
|
|
|
|
|
|
Underlying |
|
|
Exercise |
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
Price |
|
|
|
|
|
|
|
Directors and Executive Officers |
|
Options |
|
|
($ per ADS) |
|
|
Date of Grant |
|
Final Expiration Date |
Jifan Gao |
|
* |
|
|
16.275 |
|
|
April 11, 2008/ |
|
April 11, 2011/ |
|
|
|
|
|
7.42 |
|
|
May 14, 2009 |
|
May 14, 2012 |
Sean Hsiyuan Tzou |
|
* |
|
|
16.275 |
|
|
April 11, 2008/ |
|
April 11, 2011/ |
|
|
|
|
|
7.42 |
|
|
May 14, 2009 |
|
May 14, 2012 |
Jerome Corcoran |
|
|
|
|
|
|
|
|
|
|
Junfeng Li |
|
|
|
|
|
|
|
|
|
|
Peter Mak |
|
|
|
|
|
|
|
|
|
|
Liping Qiu |
|
|
|
|
|
|
|
|
|
|
Qian Zhao |
|
|
|
|
|
|
|
|
|
|
Terry Wang |
|
* |
|
|
21.71 |
|
|
January 28, 2008/ |
|
January 28, 2011/ |
|
|
|
|
|
7.42 |
|
|
May 14, 2009 |
|
May 14, 2012 |
Suping Chen |
|
* |
|
|
7.42 |
|
|
May 14, 2009 |
|
May 14, 2012 |
Benjamin Hill |
|
|
|
|
|
|
|
|
|
|
Qiang Huang |
|
* |
|
|
7.42 |
|
|
May 14, 2009 |
|
May 14, 2012 |
Chen Chung Yu |
|
* |
|
|
16.275 |
|
|
April 11, 2008/ |
|
April 11, 2011/ |
|
|
|
|
|
7.42 |
|
|
May 14, 2009 |
|
May 14, 2012 |
Yu Zhu |
|
* |
|
|
16.275 |
|
|
April 11, 2008/ |
|
April 11, 2011/ |
|
|
|
|
|
7.42 |
|
|
May 14, 2009 |
|
May 14, 2012 |
Diming Qiu |
|
* |
|
|
16.275 |
|
|
April 11, 2008/ |
|
April 11, 2011/ |
|
|
|
|
|
7.42 |
|
|
May 14, 2009 |
|
May 14, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and executive
officers as a group |
|
11,501,354 |
|
|
|
|
|
|
|
|
|
|
|
|
Other individuals as a group |
|
376,851/ |
|
|
17.07/ |
|
|
March 2, 2008/ |
|
March 2, 2011/ |
|
|
3,783,544/ |
|
|
16.275 |
|
|
April 11, 2008/ |
|
April 11, 2011/ |
|
|
7,528,106 |
|
|
7.42 |
|
|
May 14, 2009 |
|
May 14, 2012 |
|
|
|
* |
|
Upon exercise of all share options, would beneficially own 1% or less of our ordinary shares. |
C. Board Practices
Board of Directors
Our board of directors consists of seven directors. Our directors are elected by the holders
of our ordinary shares. At each annual general meeting, one-third of our directors are subject to
re-election. The directors to retire by rotation shall include (so far as necessary to ascertain
the number of directors to retire by rotation) any director who wishes to retire and does not offer
himself for re-election. Any other directors to retire will be those of the other directors who
are longest in office since their last re-election or appointment, or by lot should they be of the
same seniority. Our directors have the power to appoint a director to fill a vacancy on our board
or as an addition to the existing board. Any director so appointed shall hold office only until
the next following annual general meeting and shall then be eligible for re-election. In September
2009, Mr. Jerome Corcoran and Mr. Peter Mak were re-elected as directors by our shareholders during
the annual general meeting. A director may be removed by ordinary resolution passed by our
shareholders before the expiration of such directors term. A director is not required to hold any
shares in our company by way of qualification. A director may vote with respect to any contract,
proposed contract or arrangement in which he is materially interested. A director may exercise all
the powers of the company to borrow money, mortgage its undertakings, property and uncalled
capital, and issue debentures or
other securities whenever money is borrowed or pledged as security for any obligation of our
company or of any third party.
90
Committees of the Board of Directors
We have three committees under the board of directors: an audit committee, a compensation
committee and a corporate governance and nominating committee. We have adopted a charter for each
of the three committees.
Audit Committee
Our audit committee consists of Mr. Jerome Corcoran, Mr. Peter Mak and Mr. Qian Zhao. Mr.
Corcoran, Mr. Mak and Mr. Zhao satisfy the independence requirements of Section 303A of the
Corporate Governance Rules of the New York Stock Exchange and Rule 10A-3 under the Securities
Exchange Act of 1934, as amended, or the Exchange Act. Each of Mr. Jerome Corcoran and Mr. Peter
Mak qualifies as an audit committee financial expert as defined in Item 16A of Form 20-F. The
audit committee oversees our accounting and financial reporting processes and audits of the
financial statements of our company. The audit committee is responsible for, among other things:
|
|
|
selecting the independent auditors and pre-approving all auditing and non-auditing
services permitted to be performed by the independent auditors; |
|
|
|
reviewing with the independent auditors any audit problems or difficulties and
managements response; |
|
|
|
reviewing and approving all proposed related party transactions, as defined in Item 404
of Regulation S-K under the Securities Act; |
|
|
|
discussing the annual audited financial statements with management and the independent
auditors; |
|
|
|
reviewing major issues as to the adequacy of our internal controls and any special audit
steps adopted in light of material control deficiencies; and |
|
|
|
meeting separately and periodically with management and the independent auditors. |
In 2009, our audit committee held meetings or passed resolutions by unanimous written consent
six times.
Compensation Committee
Our compensation committee consists of Mr. Jerome Corcoran, Mr. Junfeng Li and Mr. Qian Zhao.
Mr. Corcoran, Mr. Li and Mr. Zhao satisfy the independence requirements of Section 303A of the
Corporate Governance Rules of the New York Stock Exchange. The compensation committee assists the
board in reviewing and approving the compensation structure, including all forms of compensation,
relating to our directors and executive officers. 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:
|
|
|
reviewing and recommending to the board the compensation of our directors; and |
|
|
|
reviewing periodically and approving any long-term incentive compensation or equity
plans, programs or similar arrangements, annual bonuses, employee pension and welfare
benefit plans. |
91
In 2009, our compensation committee held meetings or passed resolutions by unanimous written
consent four times.
Corporate Governance and Nominating Committee
Our corporate governance and nominating committee consists of Mr. Jerome Corcoran, Mr. Junfeng
Li and Mr. Peter Mak. Mr. Corcoran, Mr. Li and Mr. Mak satisfy the independence requirements of
Section 303A of the Corporate Governance Rules of the New York Stock Exchange. The corporate
governance and nominating committee assists the board of directors in selecting individuals
qualified to become our directors and in determining the composition of the board and its
committees. The corporate governance and nominating committee is responsible for, among other
things:
|
|
|
identifying and recommending qualified candidates to the board for selection of
directors nominees for election or re-election to the board of directors, or for
appointment to fill any vacancy; |
|
|
|
reviewing annually with the board of directors the current composition of the board of
directors with regards to characteristics such as independence, age, skills, experience and
availability of service to us; |
|
|
|
advising the board of directors periodically with regard to significant developments in
the law and practice of corporate governance as well as our compliance with applicable laws
and regulations, and making recommendations to the board of directors on all matters of
corporate governance and on any remedial actions to be taken; and |
|
|
|
monitoring compliance with our code of business conduct and ethics, including reviewing
the adequacy and effectiveness of our procedures to ensure proper compliance. |
In 2009, our corporate governance and nominating committee held one meeting.
Duties of Directors
Under Cayman Islands law, our directors have a statutory duty of loyalty to act honestly in
good faith with a view to our best interests. Our directors also have a duty to exercise the skill
they actually possess with the care and diligence that a reasonably prudent person would exercise
in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure
compliance with our memorandum and articles of association. A shareholder has the right to seek
damages if a duty owed by our directors is breached.
Employment Agreements
We have entered into employment agreements with each of our executive officers. Under these
agreements, each of our executive officers is employed for a specified time period. We may
terminate the employment for cause, at any time, without notice or remuneration, for certain acts
of the employee, including but not limited to a conviction or plea of guilty to a felony,
negligence or dishonesty to our detriment and failure to perform the
agreed-to duties after a reasonable opportunity to cure the failure. An executive officer may
terminate his employment at any time without notice or penalty if there is a material reduction in
his authority, duties and responsibilities or if there is a material reduction in his annual salary
before the next annual salary review. Furthermore, either party may terminate the employment at
any time without cause upon advance written notice to the other party. If we terminate the
executive officers employment without cause, the executive officer will be entitled to a severance
payment equal to a certain specified number of months of his or her then base salary, depending on
the length of his or her employment with us.
92
Each executive officer has agreed to hold, both during and after the employment agreement
expires or is earlier terminated, in strict confidence and not to use, except as required in the
performance of his duties in connection with the employment, any confidential information,
technical data, trade secrets and know-how of our company or the confidential information of any
third party, including our affiliated entities and our subsidiaries, received by us. The executive
officers have also agreed to disclose in confidence to us all inventions, designs and trade secrets
which they conceive, develop or reduce to practice and to assign all right, title and interest in
them to us.
D. Employees
We had 3,487, 4,604 and 7,891 employees as of December 31, 2007, 2008 and 2009, respectively.
As of December 31, 2009, we had 7,891 full-time employees, including 7,421 in manufacturing, 48 in
research and development, 52 in sales and marketing and 370 in administration.
From time to time, we also employ part-time employees and independent contractors to support
our research and development, manufacturing 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
shares as of March 11, 2010 by:
|
|
|
each of our directors and executive officers; and |
|
|
|
|
each person known to us to own beneficially more than 5% of our shares. |
|
|
|
|
|
|
|
|
|
|
|
Ordinary Shares |
|
|
|
|
|
|
Beneficially Owned(1)(2) |
|
|
% |
|
Directors and Executive Officers: |
|
|
|
|
|
|
|
|
Jifan Gao(3) |
|
|
245,403,108 |
|
|
|
7.03 |
|
Sean Hsiyuan Tzou |
|
|
* |
|
|
|
* |
|
Liping Qiu |
|
|
* |
|
|
|
* |
|
Jerome Corcoran |
|
|
* |
|
|
|
* |
|
Junfeng Li |
|
|
* |
|
|
|
* |
|
Peter Mak |
|
|
* |
|
|
|
* |
|
Qian Zhao |
|
|
* |
|
|
|
* |
|
Terry Wang |
|
|
* |
|
|
|
* |
|
Suping Chen |
|
|
* |
|
|
|
* |
|
Benjamin Hill |
|
|
* |
|
|
|
* |
|
Qiang Huang |
|
|
* |
|
|
|
* |
|
Cheng Chung Yu |
|
|
* |
|
|
|
* |
|
Yu Zhu |
|
|
* |
|
|
|
* |
|
Diming Qiu |
|
|
* |
|
|
|
* |
|
All
Directors and Executive Officers as a Group(4) |
|
|
250,899,621 |
|
|
|
7.18 |
|
|
|
|
|
|
|
|
|
|
Principal Shareholders: |
|
|
|
|
|
|
|
|
Wonder World
Limited(5) |
|
|
242,587,083 |
|
|
|
6.94 |
|
|
|
|
* |
|
The person beneficially owns less than 1% of our outstanding ordinary shares. |
|
(1) |
|
Beneficial ownership is determined in accordance with Rule 13d-3 of the General Rules and
Regulations under the Exchange Act and includes voting or investment power with respect to the
securities. |
93
|
|
|
(2) |
|
The percentage of beneficial ownership is calculated by dividing the number of shares
beneficially owned by such person or group by 3,493,062,191 ordinary shares, being the number
of shares outstanding as of March 11, 2010. |
|
(3) |
|
Includes 143,250 ordinary shares converted from restricted shares, 242,587,083 ordinary
shares held by Wonder World Limited, a Cayman Islands company wholly owned by The Gao Trust,
of which Mr. Gao is the settler and the sole member of the management committee, 2,672,775
ordinary shares held by Ms. Chunyan Wu. Mr. Gaos business address is No. 2 Tian He Road,
Electronics Park, New District, Changzhou, Jiangsu 213031, Peoples Republic of China. |
|
(4) |
|
The business address of directors and officers is No. 2, Tian He Road, Electronics Park, New
District, Changzhou Jiangsu 213031, Peoples Republic of China. |
|
(5) |
|
Wonder World Limited is a company incorporated in the Cayman Islands and wholly owned by The
Gao Trust. The management committee of The Gao Trust consists of the settlor, Mr. Jifan Gao.
The trustee of The Gao Trust is Merrill Lynch Bank and Trust Company (Cayman) Limited. Mr.
Gaos business address is No. 2 Tian He Road, Electronics Park, New District, Changzhou,
Jiangsu 213031, Peoples Republic of China. |
As of March 11, 2010, 3,493,062,191 of our ordinary shares were issued and outstanding. Based
on a review of the register of members maintained by our Cayman Islands registrar, we believe that
3,084,984,800 ordinary shares, or approximately 88.32% of our issued and outstanding shares, were
held by the record shareholders in the United States,
represented by 61,699,696 ADSs held of record by The Bank of New York Mellon, the depositary
of our ADS program.
None of our shareholders has different voting rights from other shareholders as of the date of
this annual report. We are currently not aware of any arrangement that may, at a subsequent date,
result in a change of control of our company.
94
Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
Please refer to Item 6. Directors, Senior Management and Employees¾E. Share
Ownership.
B. Related Party Transactions
Transactions with Certain Directors, Shareholders and Affiliates
Director and Shareholder Cash Advances
As of December 31, 2007, 2008 and 2009, amounts due from related parties were $613,925, nil
and nil, respectively. The amounts due from related parties in 2007 include prepayments to
Changzhou Youze S&T Co., Ltd., a company controlled by Mr. Weizhong Wu, the brother-in-law of Mr.
Jifan Gao, for purchase of wafers.
Loans and Guarantees
In June and July 2005, we entered into two long-term loans with Bank of Communications. These
loans were guaranteed by Changzhou Fulai Property Development Co., Ltd., a related party controlled
by Mr. Canfang Liu and Mr. Lai Shing Yip, two of our major beneficial shareholders. We fully
repaid these long-term loans in August 2007.
We had in the past entered into short-term loans with domestic banks, some of which were
guaranteed by related parties, but all of which have been fully repaid. The guarantee arrangements
were as follows:
|
|
|
In February 2006, Changzhou Fulai Property Development Co., Ltd. entered into an
agreement with Bank of Agriculture and us to guarantee up to RMB64.0 million ($9.4
million) for our short-term borrowings that expired in February 2008. |
|
|
|
|
In May 2007, Jiangsu Jiuzhou Investment Group Co., Ltd. entered into an agreement
with Agriculture Bank of China and us to guarantee up to RMB70 million ($10.3 million),
$5.0 million and EUR4.0 million ($5.6 million) for our short-term borrowings, which
expired in August 2007. |
Some of our short-term loans are guaranteed by unrelated parties. A guarantee by an unrelated
party is in turn guaranteed by related parties in an arrangement called counter-guarantee. In May
2006, Changzhou Hengtai Investment Guarantee Co., Ltd. provided a guarantee for our short-term
borrowings of RMB30.0 million ($4.4 million). In June 2006, Changzhou Hengtai Investment Guarantee
Co., Ltd. provided guarantees for our short-term
borrowings of RMB50.0 million ($7.3 million) and RMB10.0 million ($1.5 million), which were
fully repaid. In October 2006, Changzhou Hengtai Investment Guarantee Co., Ltd. provided a
guarantee for our short-term borrowings of RMB50.0 million ($7.3 million). The counter-guarantee
arrangement terminated in March 2007. In January 2008, Changzhou Hengtai Investment Guarantee Co.,
Ltd. provided a guarantee up to RMB90.0 million ($13.2 million) for our borrowings under a
revolving credit facility agreement with Bank of China, which expired on August 15, 2008. Mr.
Jifan Gao and Ms. Chunyan Wu, wife of Mr. Jifan Gao, jointly provided a counter-guarantee against the guarantee.
95
In 2007, Jiangsu Jiuzhou Investment Group Co., Ltd., a company controlled by Mr. Canfang Liu
provided a guarantee for certain bank loans and a letter of credit of Trina China. A guarantee fee
was charged at a rate of 2% per annum. We recorded a total amount of $530,063 of guarantee
expenses related to this guarantee service in the year ended December 31, 2007. All expenses were
paid prior to December 31, 2007.
Currently, Mr. Canfang Liu is not our related party. As of the date of this annual report, no
loans were guaranteed or counter-guaranteed by our related parties.
In September 2009, we entered into a five-year credit of approximately $303.3 million with
a syndicate of five PRC banks led by the Agricultural Bank of China and Bank of China. Mr. Jifan
Gao and Ms. Chunyan Wu jointly provided a guarantee for this facility. As of December 31, 2009, we
had drawn down approximately $182.5 million under the facility.
Purchase Contract
In 2007, 2008 and 2009, Trina China entered into wafer purchase contracts for a total price of
RMB905,520 and RMB79.4 million and RMB37.0 million ($5.4 million), respectively, with Changzhou
Youze S&T Co., Ltd. The purchase price was determined based on the current market price, and the
transaction was approved by our audit committee.
Sun Era
In the past, we procured raw materials and made toll manufacturing purchases from certain
suppliers through Sun Era Industries Limited, or Sun Era, whose sole shareholder is Ms. Chunyan Wu,
the wife of our chairman. Sun Era was established as a British Virgin Islands company in October
2002 by our chairman Mr. Jifan Gao, and his wife, Ms. Wu, as an offshore special purpose vehicle.
It was subsequently used solely for facilitating our sale and purchase arrangements with our
overseas silicon suppliers at the suggestion of our overseas silicon suppliers. It is customary
for PRC-based manufacturing companies to establish such offshore special purpose vehicles to
conduct trading activities, such as finding overseas suppliers and buyers and sourcing and shipping
products.
Sun Era did not engage in any business until 2005. In 2005, Trina China sold $0.8 million of
silicon ingots and wafers to Sun Era for Sun Era to arrange for further processing under toll
manufacturing arrangements with third party suppliers. In 2005 and 2006, Trina China purchased
$0.4 million and $0.9 million, respectively, of silicon raw materials through Sun Era and purchased
$0.4 million and nil, respectively, of solar cells pursuant to toll manufacturing arrangements
through Sun Era. These sales and purchases were effected through customary agreements or purchase
orders between Trina China and Sun Era. Sun Era has not made any profit from doing business with
us. In 2005 and 2006, Sun Era had net
losses of $144,518 and $110,584, respectively. In March 2007, Sun Era Industries ceased
operations, and in June 2007 it was officially wound-up.
96
Employment Agreements
See Item 6. Directors, Senior Management and EmployeesManagementEmployment Agreements.
Share Incentive Plan
See Item 6. Directors, Senior Management and EmployeesManagementShare Incentive Plan.
Related Party Transaction Policy
After the completion of our initial public offering on December 22, 2006, we adopted an audit
committee charter and a related party transaction policy, which require that the audit committee
review all related party transactions on an ongoing basis and all such transactions be approved by
the committee.
C. Interests of Experts and Counsel
Not applicable.
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information
We have appended consolidated financial statements filed as part of this annual report.
Legal and Administrative Proceedings
In January 2009, we received a notice of arbitration from Kobe Precision Inc., one of our
polysilicon suppliers, alleging that we breached the terms of an agreement dated August 21, 2008,
for the purchase of silicon wafers. Under the terms of the purchase agreement, the dispute was
submitted for resolution through arbitration before the American Arbitration Association. On
August 21, 2009, the arbitration panel found in favor of Kobe Precision Inc. and awarded it a sum
of $952,500. As of the date of this annual report, we have paid Kobe Precision Inc. the award in
full.
Other than as described above, we are currently not a party to any material legal or
administrative proceedings, and we are not aware of threatened material legal or administrative
proceedings against us. We may from time to time become a party to various legal or administrative
proceedings arising in the ordinary course of our business.
Dividend Policy
We have never declared or paid any dividends, nor do we have any present plan to pay any cash
dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if
not all, of our available funds and any future earnings to operate and expand our business.
97
Our board of directors has complete discretion whether to distribute dividends. Even if our
board of directors decides to pay dividends, the form, frequency and amount of our dividends will
depend upon our future operations and earnings, capital requirements and surplus, financial
condition, contractual restrictions and other factors that our board of directors may deem
relevant. If we pay any dividends, we will pay our ADS holders to the same extent as holders of
our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses
payable thereunder. Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.
B. Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant
changes since the date of our audited consolidated financial statements included in this annual
report.
Item 9. The Offer and Listing
A. Offering and Listing Details.
Our ADSs are listed on the New York Stock Exchange under the symbol TSL. From December 19,
2006 to January 19, 2010, each of ADSs represented 100 ordinary shares. Effective on January 19,
2010, we reduced this ratio to 50 ordinary shares to one ADS. All ADS trading prices on the New
York Stock Exchange set forth in this annual report, including historical trading and closing
prices, have been adjusted to reflect the new ADS to ordinary shares ratio of 50 ordinary shares to
one ADS. For the period from December 19, 2006 to
March 16, 2010, the trading price of our ADSs on the
New York Stock Exchange has ranged from $2.86 to
$35.43 per ADS.
The following table provides the high and low trading prices for our ADSs on the New York
Stock Exchange for (1) year 2006 (from December 19, 2006), year 2007, year 2008 and year 2009, (2)
each of the four quarters of 2008 and 2009 and (3) each of the past six months of our ADSs trading
history.
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Sales Price |
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High |
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Low |
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Annual High and Low |
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2006 (from December 19, 2006) |
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$ |
10.14 |
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$ |
9.45 |
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2007 |
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35.43 |
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9.04 |
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2008 |
|
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27.51 |
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2.86 |
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2009 |
|
|
27.79 |
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|
|
2.98 |
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Quarterly High and Low |
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First Quarter 2008 |
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27.51 |
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|
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13.94 |
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Second Quarter 2008 |
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25.57 |
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|
|
15.32 |
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Third Quarter 2008 |
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16.98 |
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11.26 |
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Fourth Quarter 2008 |
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12.06 |
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|
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2.86 |
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First Quarter 2009 |
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6.16 |
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|
|
2.98 |
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Second Quarter 2009 |
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13.77 |
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5.46 |
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Third Quarter 2009 |
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17.79 |
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10.64 |
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Fourth Quarter 2009 |
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27.79 |
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14.79 |
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Monthly High and Low |
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September 2009 |
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17.79 |
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12.18 |
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October 2009 |
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18.30 |
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|
14.79 |
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November 2009 |
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|
23.29 |
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|
|
17.10 |
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December 2009 |
|
|
27.79 |
|
|
|
23.61 |
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January 2010 |
|
|
30.78 |
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|
|
20.93 |
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February 2010 |
|
|
26.75 |
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|
|
19.53 |
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March 2010 (through March 16, 2010) |
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24.95 |
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22.15 |
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98
B. Plan of Distribution
Not applicable.
C. Markets
Our ADSs, each representing 50 ordinary shares, have been listed on the New York Stock
Exchange since December 19, 2006 under the symbol TSL.
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10. Additional Information
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
The following are summaries of material provisions of our amended and restated memorandum and
articles of association, as well as the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and
revised) of the Cayman Islands, which is referred to as the Companies Law below, insofar as they
relate to the material terms of our ordinary shares. This summary is not complete, and you should
read our memorandum and articles of association.
Registered Office and Objects
The Registered Office of our company is at the offices of Codan Trust Company (Cayman)
Limited, Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands.
99
According to Article 3 of our memorandum of association, the objects for which our company is
established are unrestricted and shall include, but without limitation: (a) to act and to perform
all the functions of a holding company in all its branches and to co-ordinate the policy and
administration of any subsidiary company or companies wherever incorporated or carrying on business
or of any group of companies of which our company or any subsidiary company is a member or which
are in any manner controlled directly or indirectly by our company; (b) to act as an investment
company and for that purpose to acquire and hold upon any terms and, either in the name of our
company or that of any nominee, shares, stock, debentures, debenture stock, annuities, notes,
mortgages, bonds, obligations and securities, foreign exchange, foreign currency deposits and
commodities, issued or guaranteed by any company wherever incorporated or carrying on business, or
by any government, sovereign, ruler, commissioners, public body or authority, supreme, municipal,
local or otherwise, by original subscription, tender, purchase, exchange, underwriting,
participation in syndicates or in any other manner and whether or not fully paid up, and to make
payments thereon as called up or in advance of calls or otherwise and to subscribe for the same,
whether conditionally or absolutely, and to hold the same with a view to investment, but with the
power to vary any investments, and to exercise and enforce all rights and powers conferred by or
incident to the ownership thereof, and to invest and deal with the moneys of our company not
immediately required upon such securities and in such manner as may be from time to time
determined.
Board of Directors
See Item 6.C. Board PracticesBoard of Directors.
Ordinary Shares
On September 1, 2009, our shareholders approved to amend the memorandum of association to
increase our authorized share capital. As of the date of this annual report, our authorized share
capital is $730,000 divided into 73,000,000,000 shares of nominal or par value of $0.00001 each.
The following are summaries of material provisions of our currently effective amended and restated
memorandum and articles of association and the Companies Law insofar as they relate to the material
terms of our ordinary shares.
General. All of our outstanding ordinary shares are fully paid and non-assessable.
Certificates representing the ordinary shares are issued in registered form. Our shareholders who
are nonresidents of the Cayman Islands may freely hold and vote their shares.
Dividends. The holders of our ordinary shares are entitled to such dividends as may be
declared by our shareholders or board of directors subject to the Companies Law.
Voting Rights. Each ordinary share is entitled to one vote on all matters upon which the
ordinary shares are entitled to vote. Voting at any meeting of shareholders is by a show of hands
unless a poll is demanded as described in our articles of association. A poll may be demanded by
(i) the chairman of the meeting, (ii) at least three shareholders present in person or, in the case
of a shareholder being a corporation, by its duly authorized representative or
by proxy for the time being entitled to vote at the meeting, (iii) any shareholder or
shareholders present in person or, in the case of a shareholder being a corporation, by its duly
authorized representative or by proxy and representing not less than one-tenth of the total voting
rights of all the shareholders having the right to vote at the meeting, or (iv) a shareholder or
shareholders present in person or, in the case of a shareholder being a corporation, by its duly
authorized representative or by proxy and holding not less than one-tenth of the issued share
capital of our voting shares.
100
A quorum required for a meeting of shareholders consists of at least two shareholders entitled
to vote representing not less than one-third of our total outstanding shares present in person or
by proxy or, if a corporation or other non-natural person, by its duly authorized representative.
Shareholders meetings are held annually and may be convened by our board of directors on its own
initiative. In general, advance notice of at least ten clear days is required for the convening of
our annual general meeting and other shareholders meetings.
An ordinary resolution to be passed by the shareholders requires the affirmative vote of a
simple majority of the votes attaching to the ordinary shares cast in a general meeting, while a
special resolution requires the affirmative vote of no less than two-thirds of the votes cast
attaching to the ordinary shares. A special resolution is required for important matters such as a
change of name or an amendment to our memorandum or articles of association. Holders of the
ordinary shares may effect certain changes by ordinary resolution, including alter the amount of
our authorized share capital, consolidate and divide all or any of our share capital into shares of
larger amount than our existing share capital, and cancel any unissued shares.
Transfer of Shares. Subject to the restrictions of our articles of association, as more fully
described below, any of our shareholders may transfer all or any of his or her ordinary shares by
an instrument of transfer in the usual or common form or by any other form approved by our board.
Our board of directors may, in its absolute discretion, decline to register any transfer of
any ordinary share which is not fully paid up or on which we have a lien. Our directors may also
decline to register any transfer of any ordinary shares unless (a) the instrument of transfer is
lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such
other evidence as our board of directors may reasonably require to show the right of the transferor
to make the transfer; (b) the instrument of transfer is in respect of only one class of ordinary
shares; (c) the instrument of transfer is properly stamped, if required; (d) in the case of a
transfer to joint holders, the number of joint holders to whom the ordinary share is to be
transferred does not exceed four; or (e) a fee of such maximum sum as the New York Stock Exchange
may determine to be payable, or such lesser sum as our board of directors may from time to time
require, is paid to us in respect thereof. There is presently no legal requirement under Cayman
Islands law for instruments of transfer for our ordinary shares to be stamped. In addition, our
board of directors has no present intention to charge any fee in connection with the registration
of a transfer of ordinary shares.
If our directors refuse to register a transfer they shall, within two months after the date on
which the instrument of transfer was lodged, send to each of the transferor and the transferee
notice of such refusal. The registration of transfers may, on prior notice being given by
advertisement in one or more newspapers or by electronic means, be suspended and the register
closed at such times and for such periods as our board of directors may from time
to time determine; provided, however, that the registration of transfers shall not be
suspended nor the register closed for more than 30 days in any year.
Liquidation. On a return of capital on winding-up or otherwise (other than on conversion,
redemption or purchase of shares), assets available for distribution among the holders of ordinary
shares shall be distributed among the holders of the ordinary shares on a pro rata basis. If our
assets available for distribution are insufficient to repay all of the paid-up capital, the assets
will be distributed so that the losses are borne by our shareholders proportionately.
101
Calls on Shares and Forfeiture of Shares. Our articles of association permit us to issue our
shares, including ordinary shares, nil paid and partially paid. This permits us to issue shares
where the payment for such shares has yet to be received. Although our articles give us the
flexibility to issue nil paid and partly paid shares, our board has no present intention to do so.
Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on
their shares in a notice served to such shareholders at least 14 clear days prior to the specified
time and place of payment. The shares that have been called upon and remain unpaid on the
specified time are subject to forfeiture.
Redemption of Shares. Subject to the provisions of the Companies Law, the rules of the
designated stock exchange, our memorandum and articles of association and to any special rights
conferred on the holders of any shares or class of shares, we may issue shares on terms that they
are subject to redemption at our option or at the option of the holders, on such terms and in such
manner as may be determined by our board of directors. Our currently outstanding ordinary shares
and those to be issued in this offering will not be subject to redemption at the option of the
holders or our board of directors.
Variations of Rights of Shares. All or any of the special rights attached to any class of
shares may, subject to the provisions of the Companies Law, be varied with the sanction of a
special resolution passed at a general meeting of the holders of the shares of that class.
Inspection of Register of Members. Pursuant to our articles of association, our register of
members and branch register of members shall be open for inspection by shareholders for such times
and on such days as our board of directors shall determine, without charge, or by any other person
upon a maximum payment of CI$2.50 or such other sum specified by the board, at the registered
office or such other place at which the register is kept in accordance with the Companies Law or,
upon a maximum payment of CI$1.00 or such other sum specified by the board, at our registered
office, unless the register is closed in accordance with our articles of association.
Designations and Classes of Shares. All of our issued shares upon the closing of this
offering will be ordinary shares. Our articles provide that our authorized unissued shares shall
be at the disposal of our board of directors, which may offer, allot, grant options over or
otherwise dispose of them to such persons, at such times and for such consideration and upon such
terms and conditions as our board may in its absolute discretion determine, but so that no shares
shall be issued at discount. In particular, our board of directors is empowered to authorize from
time to time the issuance of one or more classes or series of preferred shares and to fix the
designations, powers, preferences and relative, participating, optional and other rights, if any,
and the qualifications, limitations and restrictions thereof, if any, including, without
limitation, the number of shares constituting each such class or series, dividend rights,
conversion rights, redemption privileges, voting powers, full or limited or no voting powers, and
liquidation preferences, and to increase or decrease the size of any such class or
series, but not below the number of shares of any class or series of preferred shares then
outstanding.
102
C. Material Contracts
We have not entered into any material contracts other than in the ordinary course of business
and other than those described in Item 4. Information on the Company or elsewhere in this annual
report.
D. Exchange Controls
See Item 4B. Business OverviewRegulationForeign Currency Exchange and Dividend
Distribution.
E. Taxation
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon
profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or
estate duty. There are no other taxes likely to be material to us levied by the Government of the
Cayman Islands except for stamp duties which may be applicable on instruments executed in, or
brought within the jurisdiction of the Cayman Islands. There are no exchange control regulations
or currency restrictions in the Cayman Islands.
Peoples Republic of China Taxation
Under the PRC Enterprise Income Tax Law and its Implementation Regulations, or the new EIT
law, which became effective January 1, 2008, dividends, interests, rents, and royalties payable by
a foreign-invested enterprise in the PRC to its foreign investor who is a non-resident enterprise,
as well as gains on transfers of shares of a foreign-invested enterprise in the PRC by such a
foreign investor, will be subject to a 10% withholding tax, unless such non-resident enterprises
jurisdiction of incorporation has a tax treaty with the PRC that provides for a reduced rate of
withholding tax. The Cayman Islands, where Trina is incorporated, does not have such a tax treaty
with the PRC. Therefore, if Trina is considered a non-resident enterprise for purposes of the new
EIT law, a 10% withholding tax will be imposed on dividends paid to Trina by its PRC subsidiaries.
In such a case, there will be no PRC withholding tax on dividends paid by Trina to investors that
are not PRC legal or natural persons or on any gain realized on the transfer of ADSs or shares by
such investors. However, PRC income tax will apply to dividends paid by Trina to investors that
are PRC legal or natural persons and to any gain realized by such investors on the transfer of ADSs
or shares.
Under the new EIT law, an enterprise established outside the PRC with its de facto management
body within the PRC is considered a resident enterprise and will be subject to the enterprise
income tax at the rate of 25% on its worldwide income. The de facto management body is defined
as the organizational body that effectively exercises overall management and control over
production and business operations, personnel, finance and accounting, and properties of the
enterprise. It remains unclear how the PRC tax authorities will interpret such a broad definition.
Substantially all of Trinas management members are based in the PRC. If the PRC tax authorities
subsequently determine that Trina should be classified as a resident enterprise, then Trinas
worldwide income will be subject to income
tax at a uniform rate of 25%. Notwithstanding the foregoing provision, the new EIT law also
provides that, if a resident enterprise directly invests in another resident enterprise, the
dividends received by the investing resident enterprise from the invested enterprise are exempted
from income tax, subject to certain conditions. Therefore, if Trina is classified as a resident
enterprise, the dividends received from its PRC subsidiary may be exempted from income tax.
However, it remains unclear how the PRC tax authorities will interpret the PRC tax resident
treatment of an offshore company like Trina, having ownership interest in a PRC enterprise.
103
Moreover, under the new EIT law, a withholding tax at the rate of 10% is applicable to
dividends payable to investors that are non-resident enterprises, which do not have an
establishment or place of business in the PRC, or which have such establishment or place of
business but the relevant income is not effectively connected with the establishment or place of
business, to the extent such interest or dividends have their sources within the PRC unless such
non-resident enterprises can claim treaty protection. As such, these non-resident enterprises
would enjoy a reduced withholding tax from treaty. Similarly, any gain realized on the transfer of
ADSs or shares by such investors is also subject to a 10% withholding tax if such gain is regarded
as income derived from sources within the PRC. If Trina is considered a PRC resident enterprise,
it is unclear whether the dividends Trina pays with respect to Trinas ordinary shares or ADSs, or
the gain you may realize from the transfer of Trinas ordinary shares or ADSs, would be treated as
income derived from sources within the PRC and be subject to PRC withholding tax.
U.S. Federal Income Taxation
The following discussion describes the material U.S. federal income tax consequences under
present law to U.S. Holders (defined below) of our 4% convertible senior notes, or the notes, ADSs
or ordinary shares. This summary applies only to U.S. Holders that hold the notes, ADSs or
ordinary shares as capital assets and that have the U.S. dollar as their functional currency. This
discussion is based on the tax laws of the United States as in effect on the date of this annual
report and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of
this annual report, as well as judicial and administrative interpretations thereof available on or
before such date. All of the foregoing authorities are subject to change, which change could apply
retroactively and could affect the tax consequences described below. This summary does not address
any estate or gift tax consequences.
The following discussion does not deal with the tax consequences to any particular investor or
to persons in special tax situations such as:
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financial institutions; |
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regulated investment companies and real estate investment trusts; |
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traders that elect to mark to market; |
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persons liable for alternative minimum tax; |
104
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persons holding notes, ADSs or ordinary shares as part of a straddle, hedging,
constructive sale, conversion or integrated transaction; |
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persons whose functional currency is not the U.S. dollar; |
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persons that actually or constructively own 10% or more of our voting shares; |
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persons who acquired notes, ADSs or ordinary shares pursuant to the exercise of any
employee share option or otherwise as consideration; or |
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persons holding notes, ADSs or ordinary shares through partnerships or other
pass-through entities for U.S. federal income tax purposes. |
U.S. Holders are urged to consult their tax advisors about the application of the U.S. federal tax
rules to their particular circumstances as well as the state and local and foreign tax consequences
to them of the purchase, ownership and disposition of notes, ADSs or ordinary shares.
The discussion below of the U.S. federal income tax consequences to U.S. Holders will apply
if you are the beneficial owner of notes, ADSs or ordinary shares and you are, for U.S. federal
income tax purposes,
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a citizen or individual resident of the United States; |
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a corporation (or other entity taxable as a corporation for U.S. federal income tax
purposes) organized under the laws of the United States, any State or the District of
Columbia; |
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an estate whose income is subject to U.S. federal income taxation regardless of its
source; or |
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a trust that (1) is subject to the supervision of a court within the United States
and the control of one or more U.S. persons or (2) has a valid election in effect under
applicable U.S. Treasury regulations to be treated as a U.S. person. |
If you are a partner in a partnership or other entity taxable as a partnership that holds
notes, ADSs or ordinary shares, your tax treatment depends on your status and the activities of the
partnership.
Taxation of Notes
Payment of Interest
Interest on a note generally will be taxable to a U.S. Holder as ordinary income at the time
it is paid or accrued in accordance with the U.S. Holders method of accounting for tax purposes.
Interest income on a note generally will constitute foreign source income and generally will
constitute passive category income or, in the case of certain U.S. Holders, general category
income.
105
Additional Interest
We may be required to pay additional interest in certain circumstances. We believe (and the
rest of this discussion assumes) there is only a remote possibility that we will be obligated to
make such additional payments on the notes, and the notes therefore will not be treated as
contingent payment debt instruments under applicable U.S. Treasury regulations. Assuming our
position is respected, any such additional interest would generally be taxable to a U.S. Holder at
the time such payments are received or accrued, in accordance with the U.S. Holders usual method
of accounting for tax purposes. Subject to certain conditions and limitations, any PRC withholding
taxes on interest may be treated as foreign taxes eligible for credit against your U.S. federal
income tax liability. U.S. Holders should consult their tax advisors regarding the creditability
of any PRC withholding tax.
Our determination that the notes are not contingent payment debt instruments is not binding on
the U.S. Internal Revenue Service, or the IRS. If the IRS were to successfully challenge our
determination and the notes were treated as contingent payment debt instruments or as being subject
to the original issue discount rules, a U.S. Holder of notes would be required, among other things,
to include interest in income, regardless of the U.S. Holders method of accounting, in advance of
cash distributions with respect thereto and may also be required to treat as taxable ordinary
income, rather than capital gain, any gain recognized on a sale, exchange or redemption of a note
and the entire amount of realized gain upon a conversion of a note. Our determination that the
notes are not contingent payment debt instruments or subject to the original issue discount rules
is biding on U.S. Holders unless they disclose their contrary position to the IRS in a manner that
is required by applicable U.S. Treasury regulations.
Disposition of Notes
Except as provided below under Conversion of Notes, and subject to the passive foreign
investment company rules discussed below under Taxation of ADSs and Ordinary SharesPassive Foreign
Investment Company, a U.S. Holder will recognize gain or loss on the sale, exchange, redemption,
repurchase or other taxable disposition of a note equal to the difference between the amount
realized upon the disposition (less any amount attributable to accrued but unpaid interest not
previously included income, which will be taxable as such) and the U.S. Holders tax basis in the
note. A U.S. Holders tax basis in a note initially will be the U.S. Holders cost therefor, and
will be increased by amounts included in income by the U.S. Holder under the rules governing market
discount, discussed below, and will be decreased by the amount of any amortized premium, discussed
below, and any principal payments received by such holder. Subject to the discussion of market
discount, below, the gain or loss on a disposition of a note by a U.S. Holder generally will be
capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder has held the
note for more than one year. The net amount of long-term capital gain recognized by a
non-corporate U.S. Holder, including an individual U.S. Holder, is eligible for reduced tax rates.
The deductibility of capital losses is subject to limitations. Any such gain or loss that you
recognize will be treated as U.S. source income or loss (in the case of losses, subject to certain
limitations).
In the event we are a passive foreign investment company, a U.S. Holder generally will be
taxed upon the sale, exchange, redemption or other taxable disposition of a note in the same manner
that such U.S. Holder would be taxed upon the sale, exchange, redemption or other taxable
disposition of ADSs or ordinary shares in a passive foreign investment company, except that the
notes will not be eligible for the mark-to-market election. See the
discussion under Taxation of ADSs and Ordinary SharesPassive Foreign Investment Company,
below.
106
Premium
A U.S. Holder that purchases a note at a cost greater than the notes principal amount will be
considered to have purchased the note at a premium and may elect to amortize the premium as an
offset to interest income, using a constant yield method, over the notes remaining term. This
election generally applies to all debt instruments that the U.S. Holder holds at the time of the
election, as well as any debt instruments held during or after the taxable year for which the
election is made. In addition, the U.S. Holder may not revoke the election without the consent of
the IRS. A U.S. Holder electing to amortize the premium will be required to reduce its tax basis
in the note by the amount of the premium amortized during its holding period. If a U.S. Holder
with a premium does not elect to amortize the premium, the amount of the premium will be included
in the U.S. Holders tax basis in the note, and therefore, if the note is held to maturity, will
generally give rise to capital loss when the note matures.
Market Discount
A U.S. Holder that purchases a note at a cost that is lower than its principal amount will be
considered to have purchased a note with a market discount in the hands of such U.S. Holder
(unless the amount of such excess is less than a specified de minimis amount, in which case the
note will not be considered to have a market discount). If a U.S. Holder acquired a note with
market discount, any gain realized by the U.S. Holder on the disposition of the note generally will
be treated as ordinary interest income to the extent of the market discount that accrued on the
note during the U.S. Holders holding period. In addition, a U.S. Holder may be required to defer
the deduction of a portion of the interest paid on any indebtedness that it incurred or continued
to purchase or carry the note. In general, market discount will be treated as accruing ratably
over the term of the note, or at the U.S. Holders election, under a constant yield method.
A U.S. Holder may elect to include market discount in gross income currently as it accrues (on
either a ratable or constant yield basis), in lieu of treating a portion of any gain realized on a
sale of the note as ordinary income, in which case the interest deduction deferral rule described
above will not apply. If made, this election applies to all market discount debt instruments that
the U.S. Holder acquires on or after the first day of the first taxable year to which the election
applies and may not be revoked without the consent of the IRS.
Conversion of Notes
You generally will not recognize gain or loss upon the conversion of your notes for ADSs
except to the extent of cash received in lieu of a fractional ADS and except to the extent of
amounts received with respect to accrued interest, which will be taxable as such. The amount of
gain or loss you recognize on the receipt of cash in lieu of a fractional ADS will be equal to the
difference between the amount of cash you receive in respect of the fractional ADS and the portion
of your adjusted tax basis in the notes that is allocable to the fractional ADS. Such gain or loss
will be U.S. source gain or loss for U.S. foreign tax credit purposes. The tax basis of the ADSs
received upon a conversion (other than ADSs attributable to accrued interest, the tax basis of
which will equal its fair market value) will equal the adjusted tax basis of the note that was
converted (excluding the portion of the tax
basis that is allocable to any fractional ADS). Your holding period for the ADSs will include
the period during which you held the notes except that the holding period of any ADS received with
respect to accrued interest will commence on the day after the date of receipt.
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Possible Effect of the Change in Conversion Consideration
In certain situations, we may provide for the conversion of the notes into stock, other
securities, other property or assets. Depending on the circumstances, such an adjustment could
result in a deemed taxable exchange to a U.S. Holder and the modified note could be treated as
newly issued at that time, potentially resulting in the recognition of taxable gain or loss. In
addition, the conversion of the note into stock, other securities, other property or assets may
also be taxable for a U.S. Holder.
Constructive Distributions
The conversion rate of the notes will be adjusted in certain circumstances. Adjustments (or
failures to make adjustments) that have the effect of increasing a U.S. Holders proportionate
interest in our assets or earnings may in some circumstances result in a deemed distribution to a
U.S. Holder for U.S. federal income tax purposes. Adjustments to the conversion rate made pursuant
to a bona fide reasonable adjustment formula that has the effect of preventing the dilution of the
interest of the holders of the notes, however, generally will not be considered to result in a
deemed distribution to a U.S. Holder. Certain of the possible conversion rate adjustments provided
in the notes (including, without limitation, adjustments in respect of taxable dividends to holders
of our ordinary shares) will not qualify as being pursuant to a bona fide reasonable adjustment
formula. If such adjustments are made, a U.S. Holder will be deemed to have received a
distribution even though the U.S. Holder has not received any cash or property as a result of such
adjustments. In addition, an adjustment to the conversion rate in connection with a fundamental
change may be treated as a deemed distribution. Any deemed distribution will be taxable as a
dividend, return of capital, or capital gain as described in Taxation of ADSs and Ordinary
SharesTaxation of Dividends and other Distributions on the ADSs or Ordinary Shares, below. It is
not clear whether a constructive dividend deemed paid to a non-corporate U.S. Holder could be
qualified dividend income as discussed below under Taxation of ADSs and Ordinary SharesTaxation
of Dividends and other Distributions on the ADSs or Ordinary Shares.
Taxation of ADSs and Ordinary Shares
The discussion below assumes that the representations contained in the deposit agreement are
true and that the obligations in the deposit agreement and any related agreement will be complied
with in accordance with their terms. If you hold ADSs, you will be treated as the holder of the
underlying ordinary shares represented by those ADSs for U.S. federal income tax purposes.
Accordingly, deposits or withdrawals of ordinary shares for ADSs will not be subject to U.S.
federal income tax.
The U.S. Treasury has expressed concerns that parties to whom ADSs are pre-released may be
taking actions that are inconsistent with the claiming, by U.S. Holders of ADSs, of foreign tax
credits for U.S. federal income tax purposes. Such actions would also be inconsistent with the
claiming of the reduced rate of tax applicable to dividends received by certain non-corporate U.S.
Holders, as described below. Accordingly, the availability of the reduced tax rate for dividends
received by certain non-corporate U.S. Holders could be
affected by future actions that may be taken by the U.S. Treasury or parties to whom ADSs are
pre-released.
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Taxation of Dividends and Other Distributions on the ADSs or Ordinary Shares
Subject to the passive foreign investment company rules discussed below, the gross amount of
all our distributions to you with respect to the ADSs or ordinary shares (including any amounts
withheld to reflect PRC withholding tax) generally will be included in your gross income as foreign
source dividend income on the date of receipt by the depositary, in the case of ADSs, or by you, in
the case of ordinary shares, but only to the extent that the distribution is paid out of our
current or accumulated earnings and profits (as determined under U.S. federal income tax
principles). The dividends will not be eligible for the dividends-received deduction allowed to
corporations in respect of dividends received from other U.S. corporations.
With respect to non-corporate U.S. Holders including individual U.S. Holders, for taxable
years beginning before January 1, 2011, dividends may be taxed at the lower applicable capital
gains rate, and thus may constitute qualified dividend income provided that (1) the ADSs or
ordinary shares are readily tradable on an established securities market in the United States or we
are eligible for the benefits of a qualifying income tax treaty with the United States that
includes an exchange of information program, (2) we are not a passive foreign investment company
(as discussed below) for either our taxable year in which the dividend was paid or the preceding
taxable year, and (3) certain holding period requirements are met. Under IRS authority, ADSs will
be considered for the purpose of clause (1) above to be readily tradable on an established
securities market in the United States if they are listed on the New York Stock Exchange, as are
our ADSs. Based on existing guidance, it is not entirely clear whether dividends that you receive
with respect to our ordinary shares will be taxed as qualified dividend income, because our
ordinary shares are not themselves listed on a U.S. exchange. There can be no assurance that our
ADSs will continue to be considered readily tradable on an established securities market. If we
are treated as a PRC tax resident enterprise under the PRC Enterprise Income Tax Law, we may be
eligible for the benefits of the income tax treaty between the United States and the PRC. See
Item 3. Key InformationD. Risk FactorsRisks Related to Our Company and Our IndustryThe
dividends we receive from our PRC subsidiaries and our global income may be subject to PRC tax
under the new EIT law, which would have a material adverse effect on our results of operations; our
foreign ADS holders may be subject to a PRC withholding tax upon the dividends payable by us and
upon gains realized on the sale of our ADSs, if we are classified as a PRC resident enterprise.
You should consult your tax advisors regarding the availability of the lower rate for dividends
paid with respect to our ADSs or ordinary shares. Dividends paid on our ordinary shares generally
will constitute passive category income but could, in the case of certain U.S. Holders,
constitute general category income. Subject to certain conditions and limitations, any PRC
withholding taxes on dividends may be treated as foreign taxes eligible for credit against your
U.S. federal income tax liability. U.S. Holders should consult their tax advisors regarding the
creditability of any PRC tax.
To the extent, if any, the amount of any such distribution exceeds our current and accumulated
earnings and profits, it will be treated first as a tax-free return of your tax basis in the ADSs
or ordinary shares (thereby increasing the amount of any gain or decreasing the amount of any loss
realized on the subsequent sale or disposition of such ADSs or ordinary shares) and thereafter as
capital gain. However, we do not intend to calculate our earnings and profits under U.S. federal
income tax principles. Therefore, a U.S. Holder should expect
that a distribution generally will be treated (and reported) as a dividend even if that
distribution would otherwise be treated as a non-taxable return of capital or as capital gain under
the rules described above.
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Taxation of Disposition of ADSs or Ordinary Shares
Subject to the passive foreign investment company rules discussed below, you will recognize
taxable gain or loss on any sale, exchange or other taxable disposition of an ADS or ordinary share
equal to the difference between the amount realized (in U.S. dollars) for the ADS or ordinary share
and your tax basis (in U.S. dollars) in the ADS or ordinary share. The gain or loss will generally
be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S.
Holder, who has held the ADS or ordinary share for more than one year, you will be eligible for
reduced tax rates. The deductibility of capital losses is subject to limitations. Any such gain
or loss that you recognize will be treated as U.S. source income or loss (in the case of losses,
subject to certain limitations). However, in the event we are deemed to be a PRC resident
enterprise under PRC tax law, we may be eligible for the benefits of the income tax treaty between
the United States and the PRC. In such event, if PRC tax were to be imposed on any gain from the
disposition of ADSs or ordinary shares, a U.S. Holder that is eligible for the benefits of the
income tax treaty between the United States and the PRC may elect to treat such gain as PRC source
income for U.S. federal income tax purposes. U.S. Holders should consult their tax advisors
regarding the creditability of any PRC tax.
Passive Foreign Investment Company
We believe that for our taxable year ending December 31, 2009 we were not a passive foreign
investment company, or PFIC, for U.S. federal income tax purposes, and we do not expect to become one in the future, although there can be no
assurance in that regard and no ruling from the IRS or opinion of counsel has or will be sought
with respect to our status as a PFIC. A non-U.S. corporation is considered a PFIC for any taxable
year if either:
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at least 75% of its gross income is passive income, or the income test, or |
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at least 50% of the value of its assets (based on an average of the quarterly values
of the assets during a taxable year) is attributable to assets that produce or are held
for the production of passive income, or the asset test. |
We will be treated as owning our proportionate share of the assets and earning our
proportionate share of the income of any other corporation in which we own, directly or indirectly,
at least 25% (by value) of the shares.
We must make a separate determination each year as to whether we are a PFIC. As a result, our
PFIC status may change. In particular, because the total value of our assets for purposes of the
asset test generally will be calculated using the market price of our ADSs and ordinary shares, our
PFIC status may depend in large part on the market price of our ADSs and ordinary shares which may
fluctuate considerably. Accordingly, fluctuations in the market price of our ADSs and ordinary
shares may result in our being a PFIC for any year. In addition, the composition of our income and
assets is affected by how, and how quickly, we spend the cash we raise in any offering. If we are
a PFIC for any year during which you hold ADSs or ordinary shares, we will continue to be treated
as a PFIC for all succeeding years during which you hold ADS or ordinary shares. However, if we
cease to be a PFIC,
you may avoid some of the adverse effects of the PFIC regime by making a deemed sale election
with respect to the ADSs or ordinary shares.
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If we are a PFIC for any taxable year during which you hold ADSs or ordinary shares, you will
be subject to special tax rules with respect to any excess distribution that you receive and any
gain you realize from a sale or other disposition (including a pledge) of the ADSs or ordinary
shares, unless you make a mark-to-market election as discussed below. Distributions you receive
in a taxable year that are greater than 125% of the average annual distributions you received
during the shorter of the three preceding taxable years or your holding period for the ADSs or
ordinary shares will be treated as an excess distribution. Under these special tax rules:
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the excess distribution or gain will be allocated ratably over your holding period
for the ADSs or ordinary shares, |
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the amount allocated to the current taxable year, and any taxable year prior to the
first taxable year in which we became a PFIC, will be treated as ordinary income, and |
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the amount allocated to each other taxable year will be subject to the highest tax
rate in effect for that taxable year and the interest charge generally applicable to
underpayments of tax will be imposed on the resulting tax attributable to each such
taxable year. |
The tax liability for amounts allocated to years prior to the year of disposition or excess
distribution cannot be offset by any net operating losses for such years, and gains (but not
losses) realized on the sale of the ADSs or ordinary shares cannot be treated as capital, even if
you hold the ADSs or ordinary shares as capital assets.
Alternatively, a U.S. Holder of marketable stock (as defined below) in a PFIC may make a
mark-to-market election for such stock of a PFIC to elect out of the tax treatment discussed in the
two preceding paragraphs. If you make a mark-to-market election for the ADSs or ordinary shares,
you will include in income each year an amount equal to the excess, if any, of the fair market
value of the ADSs or ordinary shares as of the close of your taxable year over your adjusted basis
in such ADSs or ordinary shares. You are allowed a deduction for the excess, if any, of the
adjusted basis of the ADSs or ordinary shares over their fair market value as of the close of the
taxable year. However, deductions are allowable only to the extent of any net mark-to-market gains
on the ADSs or ordinary shares included in your income for prior taxable years. Amounts included
in your income under a mark-to-market election, as well as gain on the actual sale or other
disposition of the ADSs or ordinary shares for which a mark-to-market election was made, are
treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any
mark-to-market loss on the ADSs or ordinary shares, as well as to any loss realized on the actual
sale or disposition of the ADSs or ordinary shares for which a mark-to-market election was made,
but only to the extent that the amount of such loss does not exceed the net mark-to-market gains
previously included for such ADSs or ordinary shares. Your basis in the ADSs or ordinary shares
will be adjusted to reflect any such income or loss amounts. If you make a mark-to-market
election, tax rules that apply to distributions by corporations which are not PFICs would apply to
distributions by us (except that the lower applicable capital gains rate would not apply).
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The mark-to-market election is available only for marketable stock which is stock that is
traded in other than de minimis quantities on at least 15 days during each calendar quarter on a
qualified exchange or other market, as defined in applicable Treasury regulations. We expect that
the ADSs will continue to be listed and traded on the New York Stock Exchange, which is a qualified
exchange for these purposes, and, consequently, if you are a holder of ADSs, it is expected that
the mark-to-market election would be available to you were we to become a PFIC. It should also be
noted that only the ADSs and not our ordinary shares will be listed on the New York Stock Exchange.
If you hold ADSs or ordinary shares in any year in which we are a PFIC, you will be required
to file IRS Form 8621 regarding distributions received on the ADSs or ordinary shares and any gain
realized on the disposition of the ADSs or ordinary shares.
You are urged to consult your tax advisor regarding the application of the PFIC rules to your
investment in ADSs or ordinary shares.
Information Reporting and Backup Withholding
Payments of interest with respect to the notes, dividends with respect to ADSs or ordinary
shares and proceeds from the sale, exchange or redemption of notes, ADSs or ordinary shares may be
subject to information reporting to the IRS and possible U.S. backup withholding at a current rate
of 28%. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct
taxpayer identification number and makes any other required certification or who is otherwise
exempt from backup withholding. U.S. Holders who are required to establish their exempt status
must provide such certification on IRS Form W-9. U.S. Holders should consult their tax advisors
regarding the application of the U.S. information reporting and backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be
credited against your U.S. federal income tax liability, and you may obtain a refund of any excess
amounts withheld under the backup withholding rules by filing the appropriate claim for refund with
the IRS and furnishing any required information.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We have previously filed with the Commission our registration statements on Form F-1 (File
Number 333-139144 and File Number 333-142970), as amended, and registration statements on From F-3
(File Number 333-152333 and File Number 333-160826).
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We are subject to the periodic reporting and other informational requirements of the Exchange
Act. Under the Exchange Act, we are required to file reports and other information with the SEC.
Specifically, we are required to file annually a Form 20-F: (1) within six months after the end of
each fiscal year, which is December 31, for fiscal years ending before
December 15, 2011; and (2) within four months after the end of each fiscal year for fiscal
years ending on or after December 15, 2011. Copies of reports and other information, when so
filed, may be inspected without charge and may be obtained at prescribed rates at the public
reference facilities maintained by the Securities and Exchange Commission at Judiciary Plaza, 100 F
Street, N.E., Washington, D.C. 20549, and at the regional office of the Securities and Exchange
Commission located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. The public may obtain information regarding the Washington, D.C. Public Reference Room by
calling the Commission at 1-800-SEC-0330. The SEC also maintains a web site at http://www.sec.gov
that contains reports, proxy and information statements, and other information regarding
registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private
issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content
of quarterly reports and proxy statements, and officers, directors and principal shareholders are
exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the
Exchange Act.
We will furnish The Bank of New York Mellon, the depositary of our ADSs, with our annual
reports, which will include a review of operations and annual audited consolidated financial
statements prepared in conformity with U.S. GAAP, and all notices of shareholders meetings and
other reports and communications that are made generally available to our shareholders. The
depositary will make such notices, reports and communications available to holders of ADSs and,
upon our request, will mail to all record holders of ADSs the information contained in any notice
of a shareholders meeting received by the depositary from us.
In accordance with the New York Stock Exchange Rules 203.01, we will post this annual report
on Form 20-F on our website http://www.trinasolar.com. In addition, we will provide hardcopies of
our annual report free of charge to shareholders and ADS holders upon request.
I. Subsidiary Information
For a listing of our subsidiaries, see Item 4C. Information on the CompanyOrganizational
Structure.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Inflation
According to the National Bureau of Statistics of China, Chinas overall national inflation
rate, as represented by the general consumer price index, was approximately 4.8% in 2007, 5.9% in
2008 and -0.7% in 2009. We have not in the past been materially affected by any such inflation, but
we can provide no assurance that we will not be affected in the future.
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Foreign Exchange Risk
Transaction Risk
Most of our sales are currently denominated in U.S. dollars and Euros, with the remainder in
Renminbi, while a substantial portion of our costs and expenses is denominated in U.S. dollars,
with the remainder in Renminbi. Therefore, fluctuations in currency exchange rates could have an
adverse impact on our financial stability due to a mismatch among various foreign
currency-denominated sales and costs. Fluctuations in exchange rates, particularly among the
U.S. dollars, Renminbi and Euros, affect our gross and net profit margins and could result in
foreign exchange and operating losses. Our exposure to foreign exchange risk primarily relates to
currency gains or losses resulting from timing differences between signing of sales contracts and
settling of these contracts. As of December 31, 2007, 2008 and 2009, we held $72.3 million, $105.2
million and $288.0 million in accounts receivable, respectively, most of which were denominated in
U.S. dollars and Euros. Had we converted all of our accounts receivable as of either date into
Renminbi at an exchange rate of RMB6.8259 for $1.00, the exchange rate as of December 31, 2009, our
accounts receivable would have been RMB493.7 million, RMB718.0 million and RMB1,965.9 million as of
December 31, 2007, 2008 and 2009, respectively. Assuming that Renminbi appreciates by a rate of
10% to an exchange rate of RMB6.1433, we would record a loss in the fair value of our accounts
receivable in Renminbi terms. A 10% appreciation of Renminbi would result in our holding Renminbi
equivalents of RMB444.3 million, RMB646.2 million and RMB1,769.3 million in accounts receivable as
of December 31, 2007, 2008 and 2009, respectively. These amounts would therefore reflect a
theoretical loss of RMB49.4 million, RMB71.8 million and RMB196.6 million for our accounts
receivable as of December 31, 2007, 2008 and 2009, respectively. This calculation model is based
on multiplying our accounts receivable, which are held in U.S. dollars, by a smaller Renminbi
equivalent amount resulting from an appreciation of Renminbi. This calculation model does not take
into account optionality nor does it take into account the use of financial instruments.
In addition, Renminbi is not a freely convertible currency. The SAFE controls the conversion
of Renminbi to foreign currencies. The value of the Renminbi is subject to changes of central
government policies and international economic and political developments affecting supply and
demand in the China foreign exchange trading system market. Our cash and cash equivalents and
restricted cash denominated in Renminbi amounted to $15.7 million, $71.9 million and $125.6 million
as of December 31, 2007, 2008 and 2009, respectively.
Foreign Currency Translation Risk
We are subject to foreign currency translation risk. The U.S. dollar is our functional and
reporting currency. Monetary assets and liabilities denominated in currencies other than the U.S.
dollars are translated into U.S. dollars at the rates of exchange ruling at the balance sheet date.
Transactions in currencies other than the U.S. dollar during the year are converted into U.S.
dollars at the applicable rates of exchange prevailing at the beginning of the month transactions
occurred. Transaction gains and losses are recognized in the statements of operations.
Depending on movements in foreign exchange rates, the foreign currency translation may have an
adverse impact on our consolidated financial statements. We recorded these exchange gains and
losses in the statements of operations. Appreciation of the RMB in 2007 against those currencies
used in transactions during 2007 resulted in our recording of an exchange loss of $2.0 million. In
2008, we had a foreign exchange loss of $11.8 million. As some of our sales contracts were
denominated in Euros, the depreciation of the Euro against
the U.S. dollar, as well as appreciation of the Renminbi against the U.S. dollar in 2008
resulted in our recording of a large exchange loss in 2008.
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Prior to January 1, 2008, the financial records of Trina China, our principal operating
subsidiary in the PRC, were maintained in Renminbi. To respond to the significant changes in
economic facts and circumstances, Trina China changed its functional currency from RMB to the U.S.
dollar, effective January 1, 2008.
In 2007, due to that Trina Chinas functional currency was Renminbi, our exposure to foreign
currency risk was impacted by an embedded foreign currency forward contract entered into by Trina
China. One of our supply contracts provided that the purchase price of the silicon to be acquired
was denominated in U.S. dollars, which was not the functional currency of either of the contracting
parties. Accordingly, the contract contained an embedded foreign currency forward contract, which
was required to be bifurcated and accounted for at fair value in accordance with the provisions of
FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities.
Fluctuations in forward foreign exchange rates impacted our assessment in determining the fair
value of our embedded derivative. In 2007, we recorded a gain on the change in fair value of the
embedded derivative of $0.9 million which was included in the line item Gain (loss) on change in
fair value of derivative in the consolidated statements of operations. After the change in the
functional currency of Trina China, we no long incur any gain or loss caused by the change in fair
value of the embedded derivative.
Risk Management
Our primary objective for holding derivative financial instruments is to manage currency risk.
We record derivative instruments as assets or liabilities, measured at fair value.
Starting from October 2008, we have entered into a series of foreign currency forward
contracts with commercial banks, to hedge our exposure to foreign currency exchange risk. As
of December 31, 2009, we had foreign currency forward contracts with a total contract value of
approximately 137.0 million ($196.6 million). We do not use foreign currency forward contracts to
hedge all of our foreign currency denominated commitments. As with all hedging instruments, there
are risks associated with the use of foreign currency forward contracts. As at December 31, 2009,
we recorded a change in fair value of forward foreign currency exchange contracts of $1.6 million,
which was included in the line item Gain (loss) on change in fair value of derivative in the
consolidated statements of operations. The estimated fair value of forward foreign currency
exchange contracts is based on the estimated amount at which they could be settled based on forward
market exchange rates. While the use of such foreign currency forward contracts provides us with
protection from certain fluctuations in foreign currency exchange, we potentially forgo the
benefits that might result from favorable fluctuations in foreign currency exchange. In addition,
any default by the counterparties to these transactions could adversely affect our financial
condition and results of operations.
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Interest Rate Risk
Our exposure to interest rate risk primarily relates to interest expenses incurred by our
short-term and long-term borrowings, as well as interest income generated by excess cash invested
in demand deposits and liquid investments with original maturities of three months
or less. Such interest-earning instruments carry a degree of interest rate risk. We have not
used any derivative financial instruments to manage our interest rate risk exposure. We have not
been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest
rates. However, our future interest expense may increase due to changes in market interest rates.
If market interest rates for short-term demand deposits increase in the near future, such increase
may cause the amount of our interest income to rise. A hypothetical 10% increase in the average
applicable interest rate for our short-term demand deposits would result in an increase of
approximately $0.2 million in interest income from the assumed average cash and cash equivalent
balance in 2009. We may use derivative financial instruments, such as interest rate swaps, to
mitigate potential risks of interest expense increases due to changes in market interest rates.
Item 12. Description of Securities Other than Equity Securities
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
According to our Deposit Agreement with our ADS depositary, The Bank of New York Mellon, the
depositary collects its fees for issuance and cancellation of ADSs directly from investors
depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting
for them. The depositary collects fees for making distributions to investors by deducting those
fees from the amounts distributed or by selling a portion of distributable property to pay the
fees. The depositary may collect its annual fee for depositary services by deduction from cash
distributions, or by directly billing investors, or by charging the book-entry system accounts of
participants acting for them. The depositary may generally refuse to provide fee-attracting
services until its fees for those services are paid.
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Persons depositing or withdrawing shares |
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must pay: |
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For: |
$5.00 (or less) per 100 ADSs (or portion
of 100 ADSs)
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Issuance of ADSs, including issuances
resulting from a distribution of shares or
rights or other property; or |
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Cancellation of ADSs for the purpose of
withdrawal, including if the deposit
agreement terminates |
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$.02 (or less) per ADS
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Any cash distribution to you |
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A fee equivalent to the fee that would
be payable if securities distributed to
you had been shares and the shares had
been deposited for issuance of ADSs
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Distribution of securities distributed to
holders of deposited securities that are
distributed by the depositary to ADS
holders |
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$.02 (or less) per ADSs per calendar year
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Depositary services |
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Registration or transfer fees
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Transfer and registration of shares on our
share register to or from the name of the
depositary or its agent when you deposit
or withdraw shares |
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Expenses of the depositary
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Cable, telex and facsimile transmissions
(when expressly provided in the deposit
agreement); or |
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Converting foreign currency to U.S. dollars |
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Taxes and other governmental charges the
depositary or the custodian have to pay
on any ADS or share underlying an ADS,
for example, stock transfer taxes, stamp
duty or withholding taxes
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As necessary |
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Any charges incurred by the depositary
or its agents for servicing the
deposited securities
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As necessary |
The fees described above may be amended from time to time.
The depositary has agreed to reimburse us for expenses we incur that are related to
establishment and maintenance of the ADR program, including investor relations expenses and stock
exchange application and listing fees. There are limits on the amount of expenses for which the
depositary will reimburse us, but the amount of reimbursement available to us is not related to the
amounts of fees the depositary collects from investors. In 2009, we did not receive any payments
from the depository or any reimbursement relating to the ADS facility.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
See Item 10. Additional Information for a description of the rights of securities holders,
which remain unchanged except for the changes disclosed below.
In June 2007, we completed our follow-on public offering of ADSs sold by us and certain
selling shareholders. In this follow-on public offering, we issued and sold 360,001,600 ordinary
shares, in the form of ADSs, at $45.00 per ADS on June 6, 2007. The aggregate price of the
offering amount registered and sold was approximately $243.3 million, of which we received net
proceeds of approximately $154.3 million. We did not receive any of the proceeds from the sale of
ADSs by the selling shareholders. We have used all of the proceeds from this follow-on public
offering indicated in the prospectus for such offering.
117
In July 2008, we completed our public offerings of $138 million aggregate principal amount of
convertible senior notes due 2013 and 4,073,194 ADSs, which were borrowed by an affiliate of Credit
Suisse Securities (USA) LLC, one of the joint bookrunners of the notes offering. The notes sold
include $18 million aggregate principal amount of notes issued due to the underwriters exercise in
full of their over-allotment option. The sale of the borrowed ADSs was intended to facilitate
privately negotiated transactions or short sales by which investors in the notes will hedge their
investment in the notes. The ADS borrower will be required to return the borrowed ADSs pursuant to
the ADS lending agreement by the scheduled maturity date of the notes in July 2013. We have used
all of the proceeds from these public offerings indicated in the prospectus for such offerings.
In November 2008, we adopted a shareholder rights plan, or the Rights Plan. One ordinary
share purchase right, or a Right, was distributed with respect to each ordinary share outstanding
at the close of business on December 1, 2008. Subject to limited exceptions, these Rights entitle
the holders to purchase ordinary shares from us at half of the market price at the time of purchase
in the event that a person or group obtains ownership of 15% or more of our ordinary shares
(including by acquisition of the ADSs representing an ownership interest in the ordinary shares) or
enters into an acquisition transaction without the approval of our board of directors. The
exercise price is set at $1.86 per Right to purchase ordinary shares, subject to adjustment when
there is a trigger event. Our board of directors are entitled to redeem the Rights at $0.00001 per
Right at any time before a person or group has acquired 15% or more of our voting securities.
In August 2009, we completed another follow-on public offering of our ADSs. In this follow-on
public offering, we issued and sold 450,000,000 ordinary shares, in the form of ADSs, at $28.75 per
ADS on July 28, 2009. On August 17, 2009, we issued and sold additional 67,500,000 ordinary
shares, following the exercise in full by the underwriters of their over-allotment option. The
aggregate price of the offering amount registered and sold was approximately $148.8 million, of
which we received net proceeds of approximately $142.5 million. The net proceeds from this
follow-on public offering were allocated as follows:
|
|
|
approximately $85 million for capacity expansion; and |
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|
|
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the remaining amount for general corporate purposes. |
In December 2009, our board of directors approved a change in the ratio of one ADS to 100
ordinary shares of our company to one ADS to 50 ordinary shares of our company. Each shareholder
of record at the close of business on January 15, 2010 received one additional ADS on January 19,
2010 for every ADS held on the record date. There was no change to the rights and preferences of
the underlying ordinary shares.
As of December 31, 2009, our cash resources amounted to $406.1 million, comprising of cash on
hand and demand deposits.
118
Item 15. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief
executive officer and our chief financial officer, we carried out an evaluation of the
effectiveness of our disclosure controls and procedures, which is defined in Rules 13a-15(e) of the
Exchange Act, as of the period covered by this annual report. Based on that evaluation, our chief
executive officer and chief financial officer concluded that our disclosure controls and procedures
were effective as of the end of the period covered by this annual report.
Managements Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such item is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act , for our company. Internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
consolidated financial statements in accordance with U.S. GAAP and includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of a companys assets, (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of consolidated
financial statements in accordance with generally accepted accounting principles, and that a
companys receipts and expenditures are being made only in accordance with authorizations of a
companys management and directors, and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of a companys assets that could
have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting is not intended
to provide absolute assurance that a misstatement of our financial statements would be prevented or
detected. Also, projections of any evaluation of effectiveness to future periods are subject to
the risks that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Our management has conducted an assessment, including testing of the design and the
effectiveness of our internal control over financial reporting as of December 31, 2009. In making
its assessment, management used the criteria in Internal Control Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, management concluded that our internal control over financial
reporting was effective as of December 31, 2009.
Attestation Report of the Registered Public Accounting Firm
The effectiveness of internal control over financial reporting as of December 31, 2009 has
been audited by Deloitte Touche Tohmatsu CPA Ltd., an independent registered public accounting
firm, who has also audited our consolidated financial statements for the year ended December 31,
2009. The attestation report issued by Deloitte Touche Tohmatsu CPA Ltd. can be found on page F-3
of this annual report.
119
Changes in Internal Controls
There were no changes in our internal control over financial reporting that occurred during
the year ended December 31, 2009 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Item 16A. Audit Committee Financial Expert
Each of Mr. Jerome Corcoran and Mr. Peter Mak qualifies as an audit committee financial
expert as defined in Item 16A of Form 20-F. Mr. Corcoran, Mr. Mak and Mr. Qian Zhao satisfy the
independence requirements of Section 303A of the Corporate Governance Rules of the New York Stock
Exchange and Rule 10A-3 under the Exchange Act.
Item 16B. Code of Ethics
Our board of directors has adopted a code of ethics that applies to our directors, officers,
employees and agents, including certain provisions that specifically apply to our chief executive
officer, chief financial officer, chief operating officer, chief technology officer, vice
presidents and any other persons who perform similar functions for us. We have filed our code of
business conduct and ethics as an exhibit to Exhibit 99.1 of our registration statement on Form F-1
(file No. 333-139144) filed with the Securities and Exchange Commission on December 19, 2006 and
posted the code on our website http://www.trinasolar.com. We hereby undertake to provide to any
person without charge, a copy of our code of business conduct and ethics within ten working days
after we receive such persons written request.
Item 16C. Principal Accountant Fees and Services
The following table sets forth the aggregate fees by categories specified below in connection
with certain professional services rendered by Deloitte Touche Tohmatsu CPA
Ltd., our principal external auditors, for the periods indicated. We did not pay any tax
related or other fees to our auditors during the periods indicated below.
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2008 |
|
|
2009 |
|
Audit fees (1) |
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$ |
1,150,000 |
|
|
$ |
973,902 |
|
Audit-related fees(2) |
|
$ |
368,654 |
|
|
$ |
151,103 |
|
Tax fees(3) |
|
$ |
96,501 |
|
|
$ |
185,552 |
|
All other fees |
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(1) |
|
Audit fees means the aggregate fees billed in each of the fiscal years listed for
professional services rendered by our principal auditors for the audit of our annual financial
statements. |
|
(2) |
|
Audit-related fees means the aggregate fees billed in each of the fiscal years listed for
assurance and related services by our principal auditors that are reasonably related to the
performance of the audit or review of our financial statements and are not reported under
Audit fees. Services comprising the fees disclosed under the category of Audit-related
fees in 2008 involve principally the issuance of a comfort letter, providing listing advice
in connection with our public offering of convertible senior notes. Services comprising the
fees disclosed under the category of Audit-related fees in 2009 involve principally the
issuance of a comfort letter, providing listing advice in connection with our follow-on public
offering. |
|
(3) |
|
Tax fees means the aggregate fees billed in each of the fiscal years listed for
professional services rendered by our principal auditors for tax compliance, tax advice, and
tax planning. |
120
The policy of our audit committee is to pre-approve all audit and non-audit services provided
by Deloitte Touche Tohmatsu CPA Ltd., including audit services, audit-related services, tax
services and other services as described above, other than those for de minimus services which are
approved by the Audit Committee prior to the completion of the audit.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 16F. Change in Registrants Certifying Accountant
Not applicable.
Item 16G. Corporate Governance
We believe that there are no significant differences between our corporate governance
practices and those of U.S. domestic companies under the listing standards of the New York Stock
Exchange.
PART III
Item 17. Financial Statements
We have elected to provide financial statements pursuant to Item 18.
Item 18. Financial Statements
The consolidated financial statements of Trina, its subsidiaries and its variable interest
entity are included at the end of this annual report.
Item 19. Exhibits
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1.1 |
* |
|
Amended and Restated Memorandum and Articles of Association of the Registrant |
|
2.1 |
|
|
Registrants Form American Depositary Receipt (included in Exhibit 2.3) |
|
2.2 |
|
|
Registrants Specimen Certificate for Ordinary Shares (incorporated by
reference to Exhibit 4.2 of our Registration Statement on Form F-1 (file No.
333-142970) filed with the Securities and Exchange Commission on May 15,
2007) |
|
2.3 |
|
|
Deposit Agreement among the Registrant, the depositary and holder of the
American Depositary Shares (incorporated by reference to Exhibit 1 of our
Post-Effective Amendment No. 1 to the Registration Statement on Form F-6
(file No. 333-139161) filed with the Securities and Exchange Commission on
November 21, 2008) |
|
2.4 |
|
|
Form of Share Transfer Agreement relating to Trina China between the
Registrant and other parties therein dated March 28, 2006 (incorporated by
reference to Exhibit 4.4 of our Registration Statement on Form F-1 (file No.
333-142970) filed with the Securities and Exchange Commission on May 15,
2007) |
|
2.5 |
|
|
Amended and Restated Series A Preferred Share Purchase Agreement among the
Registrant, Trina China and other parties therein dated May 19, 2006
(incorporated by reference to Exhibit 4.5 of our Registration Statement on
Form F-1 (file No. 333-142970) filed with the Securities and Exchange
Commission on May 15, 2007) |
121
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2.6 |
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|
Amended and Restated Shareholders Agreement among the Registrant, Trina
China and other parties therein dated May 30, 2006 (incorporated by
reference to Exhibit 4.6 of our Registration Statement on Form F-1 (file No.
333-142970) filed with the Securities and Exchange Commission on May 15,
2007) |
|
2.7 |
|
|
Amendment to the Amended and Restated Shareholders Agreement among the
Registrant, Trina China and other parties therein dated December 7, 2006
(incorporated by reference to Exhibit 4.7 of our Registration Statement on
Form F-1 (file No. 333-142970) filed with the Securities and Exchange
Commission on May 15, 2007) |
|
2.8 |
|
|
First Supplemental Indenture dated as of July 23, 2008 between Wilmington
Trust Company and the Registrant (incorporated by reference to Exhibit 4.1
of the Report of Foreign Private Issuer on Form 6-K filed by Trina Solar
Limited on July 23, 2008). |
|
2.9 |
|
|
Rights Agreement dated as of November 21, 2008 between Trina Solar Limited
and The Bank of New York Mellon, as Rights Agent (incorporated by reference
to Exhibit 4.1 of the Report of Foreign Private Issuer on Form 6-K filed by
Trina Solar Limited on November 21, 2008). |
|
4.1 |
|
|
Amended and Restated Share Incentive Plan (incorporated by reference to
Exhibit 10.1 of our Registration Statement on Form S-8 (file No. 333-157831)
filed with the Securities and Exchange Commission on March 11, 2009) |
|
4.2 |
|
|
Form of Indemnification Agreement between the Registrant and its officers
and directors (incorporated by reference to Exhibit 10.2 of our Registration
Statement on Form F-1 (file No. 333-142970) filed with the Securities and
Exchange Commission on May 15, 2007) |
|
4.3 |
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|
Form of Employment Agreement between the Registrant and a Senior Executive
Officer of the Registrant (incorporated by reference to Exhibit 10.3 of our
Registration Statement on Form F-1 (file No. 333-142970) filed with the
Securities and Exchange Commission on May 15, 2007) |
|
4.4 |
|
|
Form of Tax Indemnification Agreement between the Registrant and Former
Shareholders dated as of September 15, 2006 (incorporated by reference to
Exhibit 10.4 of our Registration Statement on Form F-1 (file No. 333-142970)
filed with the Securities and Exchange Commission on May 15, 2007) |
|
4.5 |
|
|
Form of Loan Agreement between Trina China and Bank of Communications
(incorporated by reference to Exhibit 10.5 of our Registration Statement on
Form F-1 (file No. 333-142970) filed with the Securities and Exchange
Commission on May 15, 2007) |
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4.6 |
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|
Form of Guarantee Agreement between the Guarantor and Bank of Communications
for Long-term Loans (incorporated by reference to Exhibit 10.6 of our
Registration Statement on Form F-1 (file No. 333-142970) filed with the
Securities and Exchange Commission on May 15, 2007) |
|
4.7 |
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|
Form of Guarantee Agreement between the Guarantor and Bank of Communications
for Short-term Loans (incorporated by reference to Exhibit 10.7 of our
Registration Statement on Form F-1 (file No. 333-142970) filed with the
Securities and Exchange Commission on May 15, 2007) |
|
4.8 |
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|
Form of Short-term Loan Agreement between Trina China and Agriculture Bank
of China (incorporated by reference to Exhibit 10.8 of our Registration
Statement on Form F-1 (file No. 333-142970) filed with the Securities and
Exchange Commission on May 15, 2007) |
|
4.9 |
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|
Form of Guarantee Agreement between the Guarantor and Agriculture Bank of
China for Short-term Loans (incorporated by reference to Exhibit 10.9 of our
Registration Statement on Form F-1 (file No. 333-142970) filed with the
Securities and Exchange Commission on May 15, 2007) |
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4.10 |
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|
Form of Maximum Guarantee Agreement between Guarantors and Agriculture Bank
of China for Short-term Loans (incorporated by reference to Exhibit 10.10 of
our Registration Statement on Form F-1 (file No. 333-142970) filed with the
Securities and Exchange Commission on May 15, 2007) |
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4.11 |
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|
Form of Counter-guarantee Agreement between Guarantors and Changzhou City
Hengtai Investment Co., Ltd. for Maximum Guarantee (incorporated by
reference to Exhibit 10.11 of our Registration Statement on Form F-1 (file
No. 333-142970) filed with the Securities and Exchange Commission on May 15,
2007) |
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4.12 |
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|
Form of Security Agreement between Trina China and Changzhou City Hengtai
Investment Co., Ltd. for Maximum Guarantee (incorporated by reference to
Exhibit 10.12 of our Registration Statement on Form F-1 (file No.
333-142970) filed with the Securities and Exchange Commission on May 15,
2007) |
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4.13 |
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|
Credit Line Agreement between Trina China and Bank of China dated August 28,
2007 (incorporated by reference to Exhibit 4.13 of our Annual Report on Form
20-F filed with the Securities and Exchange Commission on June 26, 2008) |
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4.14 |
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|
Maximum Amount Guarantee between Bank of China and Changzhou City Hengtai
Investment Co., Ltd., dated January 31, 2008 (incorporated by reference to
Exhibit 4.14 of our Annual Report on Form 20-F filed with the Securities and
Exchange Commission on June 26, 2008) |
122
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4.15 |
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Counter-guarantee (Maximum Amount Guarantee Contract) between Jifan Gao and
Changzhou City Hengtai Investment Guarantee Co., Ltd. dated January 28, 2008
(incorporated by reference to Exhibit 4.15 of our Annual Report on Form 20-F
filed with the Securities and Exchange Commission on June 26, 2008) |
|
4.16 |
|
|
Supply Contract and Distribution Agreement between Trina China and IBC SOLAR
AG dated May 26, 2007 (incorporated by reference to Exhibit 4.16 of our
Annual Report on Form 20-F filed with the Securities and Exchange Commission
on June 26, 2008) |
|
4.17 |
|
|
Equipment Supply Contract between Trina China and Meyer Burger AG dated May
30, 2007 and the amendment dated September 17, 2007 (incorporated by
reference to Exhibit 4.17 of our Annual Report on Form 20-F filed with the
Securities and Exchange Commission on June 26, 2008) |
|
4.18 |
|
|
Equipment Supply Contract between Trina China and Meyer Burger AG dated
August 8, 2007 and the amendment dated September 17, 2007 (incorporated by
reference to Exhibit 4.18 of our Annual Report on Form 20-F filed with the
Securities and Exchange Commission on June 26, 2008) |
|
4.19 |
|
|
Polysilicon Supply Agreement between Jiangsu Zhongneng Polysilicon
Technology Development Co., Ltd. and Trina China dated March 29, 2008
(incorporated by reference to Exhibit 4.19 of our Annual Report on Form 20-F
filed with the Securities and Exchange Commission on June 26, 2008) |
|
4.20 |
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|
Supplemental Polysilicon Supply Agreement between Jiangsu Zhongneng
Polysilicon Technology Development Co., Ltd. and Trina China dated August
19, 2008 (incorporated by reference to Exhibit 4.20 of our Annual Report on
Form 20-F filed with the Securities and Exchange Commission on April 30,
2009) |
|
4.21 |
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|
ADS Lending Agreement, dated July 17, 2008, among Credit Suisse Securities
(Europe) Limited, Credit Suisse, London Branch, and the Registrant
(incorporated by reference to Exhibit 99.1 of the Report of Foreign Private
Issuer on Form 6-K filed by Trina Solar Limited on July 23, 2008). |
|
4.22 |
|
|
Standstill Agreement dated as of November 21, 2008 between the Registrant
and Jifan Gao (incorporated by reference to Exhibit 4.2 of the Report of
Foreign Private Issuer on Form 6-K filed by Trina Solar Limited on November
21, 2008). |
|
4.23 |
* |
|
Supplemental Polysilicon Supply Agreement II between Jiangsu Zhongneng
Polysilicon Technology Development Co., Ltd. and Trina China dated August
24, 2009 |
|
4.24 |
* |
|
Syndicated Loan Agreement among Trina China, Agricultural Bank of China and
various parties mentioned therein dated September 28, 2009 |
|
4.25 |
* |
|
Maximum Amount Property Mortgage Contract between Trina China and
Agricultural Bank of China dated September 28, 2009 |
|
4.26 |
* |
|
Letter of Guarantee and Undertaking entered into among Trina, Agricultural
Bank of China and various parties mentioned therein dated September 28, 2009
(included in Exhibit 4.24) |
|
4.27 |
* |
|
Letter of Guarantee entered into among Jifan Gao, Chunyan Wu, Agricultural
Bank of China and various parties mentioned therein dated September 28, 2009
(included in Exhibit 4.24) |
|
8.1 |
* |
|
Subsidiaries of the Registrant |
|
11.1 |
|
|
Code of Business Conduct and Ethics of the Registrant (incorporated by
reference to Exhibit 99.1 of our Registration Statement on Form F-1 (file
No. 333-139144) filed with the Securities and Exchange Commission on
December 19, 2006) |
|
12.1 |
* |
|
CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
12.2 |
* |
|
CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
13.1 |
* |
|
CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
13.2 |
* |
|
CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
15.1 |
* |
|
Consent of Deloitte Touche Tohmatsu CPA Ltd. |
|
|
|
* |
|
Filed with this annual report on Form 20-F |
|
|
|
Confidential treatment is being requested with respect to portions of this exhibit and such
confidential treatment portions have been deleted and replaced with **** and filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934. |
123
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F
and that it has duly caused and authorized the undersigned to sign this annual report on its
behalf.
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Trina Solar Limited
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By: |
/s/
Jifan Gao |
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Name: |
Jifan Gao |
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Title: |
Chairman and Chief Executive Officer |
|
Date:
March 17, 2010
124
EXHIBIT INDEX
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|
|
|
1.1 |
* |
|
Amended and Restated Memorandum and Articles of Association of the Registrant |
|
2.1 |
|
|
Registrants Form American Depositary Receipt (included in Exhibit 2.3) |
|
2.2 |
|
|
Registrants Specimen Certificate for Ordinary Shares (incorporated by
reference to Exhibit 4.2 of our Registration Statement on Form F-1 (file No.
333-142970) filed with the Securities and Exchange Commission on May 15,
2007) |
|
2.3 |
|
|
Deposit Agreement among the Registrant, the depositary and holder of the
American Depositary Shares (incorporated by reference to Exhibit 1 of our
Post-Effective Amendment No. 1 to the Registration Statement on Form F-6
(file No. 333-139161) filed with the Securities and Exchange Commission on
November 21, 2008) |
|
2.4 |
|
|
Form of Share Transfer Agreement relating to Trina China between the
Registrant and other parties therein dated March 28, 2006 (incorporated by
reference to Exhibit 4.4 of our Registration Statement on Form F-1 (file No.
333-142970) filed with the Securities and Exchange Commission on May 15,
2007) |
|
2.5 |
|
|
Amended and Restated Series A Preferred Share Purchase Agreement among the
Registrant, Trina China and other parties therein dated May 19, 2006
(incorporated by reference to Exhibit 4.5 of our Registration Statement on
Form F-1 (file No. 333-142970) filed with the Securities and Exchange
Commission on May 15, 2007) |
|
2.6 |
|
|
Amended and Restated Shareholders Agreement among the Registrant, Trina
China and other parties therein dated May 30, 2006 (incorporated by
reference to Exhibit 4.6 of our Registration Statement on Form F-1 (file No.
333-142970) filed with the Securities and Exchange Commission on May 15,
2007) |
|
2.7 |
|
|
Amendment to the Amended and Restated Shareholders Agreement among the
Registrant, Trina China and other parties therein dated December 7, 2006
(incorporated by reference to Exhibit 4.7 of our Registration Statement on
Form F-1 (file No. 333-142970) filed with the Securities and Exchange
Commission on May 15, 2007) |
|
2.8 |
|
|
First Supplemental Indenture dated as of July 23, 2008 between Wilmington
Trust Company and the Registrant (incorporated by reference to Exhibit 4.1
of the Report of Foreign Private Issuer on Form 6-K filed by Trina Solar
Limited on July 23, 2008). |
|
2.9 |
|
|
Rights Agreement dated as of November 21, 2008 between Trina Solar Limited
and The Bank of New York Mellon, as Rights Agent (incorporated by reference
to Exhibit 4.1 of the Report of Foreign Private Issuer on Form 6-K filed by
Trina Solar Limited on November 21, 2008). |
|
4.1 |
|
|
Amended and Restated Share Incentive Plan (incorporated by reference to
Exhibit 10.1 of our Registration Statement on Form S-8 (file No. 333-157831)
filed with the Securities and Exchange Commission on March 11, 2009) |
|
4.2 |
|
|
Form of Indemnification Agreement between the Registrant and its officers
and directors (incorporated by reference to Exhibit 10.2 of our Registration
Statement on Form F-1 (file No. 333-142970) filed with the Securities and
Exchange Commission on May 15, 2007) |
|
4.3 |
|
|
Form of Employment Agreement between the Registrant and a Senior Executive
Officer of the Registrant (incorporated by reference to Exhibit 10.3 of our
Registration Statement on Form F-1 (file No. 333-142970) filed with the
Securities and Exchange Commission on May 15, 2007) |
|
4.4 |
|
|
Form of Tax Indemnification Agreement between the Registrant and Former
Shareholders dated as of September 15, 2006 (incorporated by reference to
Exhibit 10.4 of our Registration Statement on Form F-1 (file No. 333-142970)
filed with the Securities and Exchange Commission on May 15, 2007) |
|
4.5 |
|
|
Form of Loan Agreement between Trina China and Bank of Communications
(incorporated by reference to Exhibit 10.5 of our Registration Statement on
Form F-1 (file No. 333-142970) filed with the Securities and Exchange
Commission on May 15, 2007) |
|
4.6 |
|
|
Form of Guarantee Agreement between the Guarantor and Bank of Communications
for Long-term Loans (incorporated by reference to Exhibit 10.6 of our
Registration Statement on Form F-1 (file No. 333-142970) filed with the
Securities and Exchange Commission on May 15, 2007) |
|
4.7 |
|
|
Form of Guarantee Agreement between the Guarantor and Bank of Communications
for Short-term Loans (incorporated by reference to Exhibit 10.7 of our
Registration Statement on Form F-1 (file No. 333-142970) filed with the
Securities and Exchange Commission on May 15, 2007) |
|
4.8 |
|
|
Form of Short-term Loan Agreement between Trina China and Agriculture Bank
of China (incorporated by reference to Exhibit 10.8 of our Registration
Statement on Form F-1 (file No. 333-142970) filed with the Securities and
Exchange Commission on May 15, 2007) |
125
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|
|
|
4.9 |
|
|
Form of Guarantee Agreement between the Guarantor and Agriculture Bank of
China for Short-term Loans (incorporated by reference to Exhibit 10.9 of our
Registration Statement on Form F-1 (file No. 333-142970) filed with the
Securities and Exchange Commission on May 15, 2007) |
|
4.10 |
|
|
Form of Maximum Guarantee Agreement between Guarantors and Agriculture Bank
of China for Short-term Loans (incorporated by reference to Exhibit 10.10 of
our Registration Statement on Form F-1 (file No. 333-142970) filed with the
Securities and Exchange Commission on May 15, 2007) |
|
4.11 |
|
|
Form of Counter-guarantee Agreement between Guarantors and Changzhou City
Hengtai Investment Co., Ltd. for Maximum Guarantee (incorporated by
reference to Exhibit 10.11 of our Registration Statement on Form F-1 (file
No. 333-142970) filed with the Securities and Exchange Commission on May 15,
2007) |
|
4.12 |
|
|
Form of Security Agreement between Trina China and Changzhou City Hengtai
Investment Co., Ltd. for Maximum Guarantee (incorporated by reference to
Exhibit 10.12 of our Registration Statement on Form F-1 (file No.
333-142970) filed with the Securities and Exchange Commission on May 15,
2007) |
|
4.13 |
|
|
Credit Line Agreement between Trina China and Bank of China dated August 28,
2007 (incorporated by reference to Exhibit 4.13 of our Annual Report on Form
20-F filed with the Securities and Exchange Commission on June 26, 2008) |
|
4.14 |
|
|
Maximum Amount Guarantee between Bank of China and Changzhou City Hengtai
Investment Co., Ltd., dated January 31, 2008 (incorporated by reference to
Exhibit 4.14 of our Annual Report on Form 20-F filed with the Securities and
Exchange Commission on June 26, 2008) |
|
4.15 |
|
|
Counter-guarantee (Maximum Amount Guarantee Contract) between Jifan Gao and
Changzhou City Hengtai Investment Guarantee Co., Ltd. dated January 28, 2008
(incorporated by reference to Exhibit 4.15 of our Annual Report on Form 20-F
filed with the Securities and Exchange Commission on June 26, 2008) |
|
4.16 |
|
|
Supply Contract and Distribution Agreement between Trina China and IBC SOLAR
AG dated May 26, 2007 (incorporated by reference to Exhibit 4.16 of our
Annual Report on Form 20-F filed with the Securities and Exchange Commission
on June 26, 2008) |
|
4.17 |
|
|
Equipment Supply Contract between Trina China and Meyer Burger AG dated May
30, 2007 and the amendment dated September 17, 2007 (incorporated by
reference to Exhibit 4.17 of our Annual Report on Form 20-F filed with the
Securities and Exchange Commission on June 26, 2008) |
|
4.18 |
|
|
Equipment Supply Contract between Trina China and Meyer Burger AG dated
August 8, 2007 and the amendment dated September 17, 2007 (incorporated by
reference to Exhibit 4.18 of our Annual Report on Form 20-F filed with the
Securities and Exchange Commission on June 26, 2008) |
|
4.19 |
|
|
Polysilicon Supply Agreement between Jiangsu Zhongneng Polysilicon
Technology Development Co., Ltd. and Trina China dated March 29, 2008
(incorporated by reference to Exhibit 4.19 of our Annual Report on Form 20-F
filed with the Securities and Exchange Commission on June 26, 2008) |
|
4.20 |
|
|
Supplemental Polysilicon Supply Agreement between Jiangsu Zhongneng
Polysilicon Technology Development Co., Ltd. and Trina China dated August
19, 2008 (incorporated by reference to Exhibit 4.20 of our Annual Report on
Form 20-F filed with the Securities and Exchange Commission on April 30,
2009) |
|
4.21 |
|
|
ADS Lending Agreement, dated July 17, 2008, among Credit Suisse Securities
(Europe) Limited, Credit Suisse, London Branch, and the Registrant
(incorporated by reference to Exhibit 99.1 of the Report of Foreign Private
Issuer on Form 6-K filed by Trina Solar Limited on July 23, 2008). |
|
4.22 |
|
|
Standstill Agreement dated as of November 21, 2008 between the Registrant
and Jifan Gao (incorporated by reference to Exhibit 4.2 of the Report of
Foreign Private Issuer on Form 6-K filed by Trina Solar Limited on November
21, 2008). |
|
4.23 |
* |
|
Supplemental Polysilicon Supply Agreement II between Jiangsu Zhongneng
Polysilicon Technology Development Co., Ltd. and Trina China dated August
24, 2009 |
|
4.24 |
* |
|
Syndicated Loan Agreement among Trina China, Agricultural Bank of China and
various parties mentioned therein dated September 28, 2009 |
|
4.25 |
* |
|
Maximum Amount Property Mortgage Contract between Trina China and
Agricultural Bank of China dated September 28, 2009 |
|
4.26 |
* |
|
Letter of Guarantee and Undertaking entered into among Trina, Agricultural
Bank of China and various parties mentioned therein dated September 28, 2009
(included in Exhibit 4.24) |
|
4.27 |
* |
|
Letter of Guarantee entered into among Jifan Gao, Chunyan Wu, Agricultural
Bank of China and various parties mentioned therein dated September 28, 2009
(included in Exhibit 4.24) |
126
|
|
|
|
|
|
8.1 |
* |
|
Subsidiaries of the Registrant |
|
11.1 |
|
|
Code of Business Conduct and Ethics of the Registrant (incorporated by
reference to Exhibit 99.1 of our Registration Statement on Form F-1 (file
No. 333-139144) filed with the Securities and Exchange Commission on
December 19, 2006) |
|
12.1 |
* |
|
CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
12.2 |
* |
|
CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
13.1 |
* |
|
CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
13.2 |
* |
|
CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
15.1 |
* |
|
Consent of Deloitte Touche Tohmatsu CPA Ltd. |
|
|
|
* |
|
Filed with this annual report on Form 20-F |
|
|
|
Confidential treatment is being requested with respect to portions of this exhibit and such
confidential treatment portions have been deleted and replaced with **** and filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934. |
127
TRINA SOLAR LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-6 |
|
|
|
|
|
|
|
|
|
F-7 |
|
|
|
|
|
|
|
|
|
F-8 |
|
|
|
|
|
|
|
|
|
F-10 |
|
|
|
|
|
|
|
|
|
F-45 |
|
F-1
TRINA SOLAR LIMITED
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Trina Solar Limited
We have audited the accompanying consolidated balance sheets of Trina Solar Limited and
subsidiaries (the Company) as of December 31, 2007, 2008, and 2009, and the related consolidated
statements of operations, shareholders equity and comprehensive income, and cash flows for each of
the three years in the period ended December 31, 2009 and the related financial statement schedule
included in Schedule I. These financial statements and financial statement schedule are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of Trina Solar Limited and subsidiaries as of December 31, 2007, 2008, and 2009,
and the results of their operations and their cash flows for each of the three years in the period
ended December 31, 2009, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole, presents fairly in all
material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Companys internal control over financial reporting as of December 31,
2009, based on the criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 17,
2010 expressed an unqualified opinion on the Companys internal control over financial reporting.
/s/ DELOITTE TOUCHE TOHMATSU CPA LTD.
Shanghai, China
March 17, 2010
F-2
TRINA SOLAR LIMITED
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Trina Solar Limited
We have audited internal control over financial reporting Trina Solar Limited and subsidiaries (the
Company) as of December 31, 2009, based on the criteria established in
Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Companys management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Managements Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on that risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed by, or under the
supervision of, the companys principal executive and principal financial officers, or persons
performing similar functions, and effected by the companys board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2009, based on the criteria established in
Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance
with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements and the related financial statement
schedule as of and for the year ended December 31, 2009, of the Company and our report dated
March 17, 2010 expressed an unqualified opinion on those financial statements and financial statement
schedule.
/s/ DELOITTE TOUCHE TOHMATSU CPA LTD.
Shanghai, China
March 17, 2010
F-3
TRINA SOLAR LIMITED
CONSOLIDATED BALANCE SHEETS
(In U.S. dollars, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
59,695,932 |
|
|
|
132,223,776 |
|
|
|
406,057,906 |
|
Restricted cash |
|
|
103,375,481 |
|
|
|
44,991,233 |
|
|
|
72,005,449 |
|
Investment in securities |
|
|
|
|
|
|
|
|
|
|
4,034,296 |
|
Inventories |
|
|
58,547,531 |
|
|
|
85,687,407 |
|
|
|
81,153,759 |
|
Accounts receivable, net of allowance for doubtful accounts
of $342,813, $1,810,284 and $13,859,407 as of December 31,
2007, 2008 and 2009, respectively |
|
|
72,322,559 |
|
|
|
105,192,782 |
|
|
|
287,950,162 |
|
Current portion of advances to suppliers, net of allowance
of $2,077,151, $7,944,150 and 5,980,338 as of December 31,
2007, 2008 and 2009, respectively |
|
|
42,952,994 |
|
|
|
42,247,209 |
|
|
|
41,303,271 |
|
Amount due from related parties |
|
|
613,925 |
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
4,860,257 |
|
|
|
9,540,972 |
|
|
|
35,012,612 |
|
Current assets of discontinued operations |
|
|
33,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
342,402,178 |
|
|
|
419,883,379 |
|
|
|
927,517,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances to suppliers |
|
|
53,737,412 |
|
|
|
130,351,513 |
|
|
|
105,188,020 |
|
Property, plant and equipment, net |
|
|
197,123,875 |
|
|
|
357,593,802 |
|
|
|
476,857,803 |
|
Prepaid land use right |
|
|
5,461,529 |
|
|
|
26,915,217 |
|
|
|
27,422,386 |
|
Deferred tax assets |
|
|
1,094,893 |
|
|
|
2,807,488 |
|
|
|
9,926,063 |
|
Other noncurrent assets |
|
|
854,214 |
|
|
|
2,564,428 |
|
|
|
1,786,358 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
|
600,674,101 |
|
|
|
940,115,827 |
|
|
|
1,548,698,085 |
|
|
|
|
|
|
|
|
|
|
|
(To be continued)
F-4
TRINA SOLAR LIMITED
CONSOLIDATED BALANCE SHEETS
(In U.S. dollars, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings |
|
|
163,563,089 |
|
|
|
248,557,724 |
|
|
|
267,427,776 |
|
Accounts payable |
|
|
42,690,835 |
|
|
|
62,503,917 |
|
|
|
186,535,492 |
|
Income tax payable |
|
|
1,405,890 |
|
|
|
3,648,772 |
|
|
|
12,873,979 |
|
Accrued expenses and other current liabilities |
|
|
12,625,904 |
|
|
|
21,003,231 |
|
|
|
48,564,078 |
|
Current liabilities of discontinued operations |
|
|
199,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
220,485,159 |
|
|
|
335,713,644 |
|
|
|
515,401,325 |
|
Long-term bank borrowings |
|
|
8,214,002 |
|
|
|
14,631,434 |
|
|
|
182,516,037 |
|
Convertible notes |
|
|
|
|
|
|
133,248,054 |
|
|
|
135,122,565 |
|
Accrued warranty costs |
|
|
4,486,135 |
|
|
|
12,473,142 |
|
|
|
21,023,381 |
|
Other noncurrent liabilities |
|
|
|
|
|
|
10,993,042 |
|
|
|
17,409,664 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
233,185,296 |
|
|
|
507,059,316 |
|
|
|
871,472,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 17) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares ($0.00001 par value;
73,000,000,000 shares authorized,
2,121,534,728, 2,958,183,059
and 3,488,891,196 shares issued as of
December 31, 2007, 2008 and 2009, respectively; 2,121,534,728, 2,958,183,059 and
3,486,901,296 shares outstanding as of December 31, 2007, 2008 and 2009, respectively) |
|
|
25,533 |
|
|
|
29,581 |
|
|
|
34,869 |
|
Additional paid-in capital |
|
|
304,877,619 |
|
|
|
308,898,326 |
|
|
|
455,453,178 |
|
Retained earnings |
|
|
51,352,188 |
|
|
|
112,712,460 |
|
|
|
210,296,710 |
|
Accumulated other comprehensive income |
|
|
11,233,465 |
|
|
|
11,416,144 |
|
|
|
11,440,356 |
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
367,488,805 |
|
|
|
433,056,511 |
|
|
|
677,225,113 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
600,674,101 |
|
|
|
940,115,827 |
|
|
|
1,548,698,085 |
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-5
TRINA SOLAR LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In U.S. dollars, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
301,819,197 |
|
|
|
831,900,852 |
|
|
|
845,135,575 |
|
Cost of revenues |
|
|
234,190,737 |
|
|
|
667,459,287 |
|
|
|
607,981,677 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
67,628,460 |
|
|
|
164,441,565 |
|
|
|
237,153,898 |
|
|
|
|
|
|
|
|
|
|
|
Selling expenses |
|
|
11,018,549 |
|
|
|
20,302,251 |
|
|
|
30,939,366 |
|
General and administrative expenses |
|
|
17,817,581 |
|
|
|
41,113,257 |
|
|
|
65,406,239 |
|
Research and development expenses |
|
|
2,805,089 |
|
|
|
3,039,154 |
|
|
|
5,438,909 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
31,641,219 |
|
|
|
64,454,662 |
|
|
|
101,784,514 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
35,987,241 |
|
|
|
99,986,903 |
|
|
|
135,369,384 |
|
Foreign exchange gain (loss) |
|
|
(1,999,509 |
) |
|
|
(11,801,559 |
) |
|
|
9,957,597 |
|
Interest expense |
|
|
(7,551,160 |
) |
|
|
(23,936,455 |
) |
|
|
(25,737,266 |
) |
Interest income |
|
|
4,810,390 |
|
|
|
2,943,611 |
|
|
|
1,666,878 |
|
Gain (loss) on change in fair value of derivative |
|
|
854,214 |
|
|
|
(1,067,079 |
) |
|
|
(1,590,098 |
) |
Other (expense) income, net |
|
|
1,554,133 |
|
|
|
(155,614 |
) |
|
|
2,613,586 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income taxes |
|
|
33,655,309 |
|
|
|
65,969,807 |
|
|
|
122,280,081 |
|
Income tax benefit (expense) |
|
|
1,706,713 |
|
|
|
(4,609,535 |
) |
|
|
(24,695,831 |
) |
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations |
|
|
35,362,022 |
|
|
|
61,360,272 |
|
|
|
97,584,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
|
379,188 |
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit |
|
|
(11,272 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) on discontinued operations |
|
|
367,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
35,729,938 |
|
|
|
61,360,272 |
|
|
|
97,584,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per ordinary share from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.02 |
|
|
|
0.02 |
|
|
|
0.04 |
|
Diluted |
|
|
0.02 |
|
|
|
0.02 |
|
|
|
0.03 |
|
Earnings per ordinary share from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.00 |
|
|
|
|
|
|
|
|
|
Diluted |
|
|
0.00 |
|
|
|
|
|
|
|
|
|
Earnings per ordinary share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.02 |
|
|
|
0.02 |
|
|
|
0.04 |
|
Diluted |
|
|
0.02 |
|
|
|
0.02 |
|
|
|
0.03 |
|
Weighted average ordinary shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
2,339,799,657 |
|
|
|
2,501,202,680 |
|
|
|
2,724,185,761 |
|
Diluted |
|
|
2,370,685,156 |
|
|
|
2,690,723,390 |
|
|
|
3,131,505,181 |
|
See notes to consolidated financial statements.
F-6
TRINA SOLAR LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
AND COMPREHENSIVE INCOME
(In U.S. dollars, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Retained |
|
|
comprehensive |
|
|
shareholders |
|
|
Comprehensive |
|
|
|
Ordinary shares |
|
|
paid-in Capital |
|
|
earning |
|
|
income |
|
|
equity |
|
|
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2007 |
|
|
2,121,534,728 |
|
|
|
21,215 |
|
|
|
139,670,637 |
|
|
|
15,622,250 |
|
|
|
1,840,187 |
|
|
|
157,154,289 |
|
|
|
13,998,642 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
1,740,388 |
|
|
|
|
|
|
|
|
|
|
|
1,740,388 |
|
|
|
|
|
Issuance of restricted shares to employees |
|
|
26,704,732 |
|
|
|
267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
267 |
|
|
|
|
|
Repurchase of restricted shares |
|
|
(5,903,277 |
) |
|
|
(59 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59 |
) |
|
|
|
|
Issuance of ordinary shares, net of issue costs |
|
|
411,031,600 |
|
|
|
4,110 |
|
|
|
163,466,594 |
|
|
|
|
|
|
|
|
|
|
|
163,470,704 |
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,729,938 |
|
|
|
|
|
|
|
35,729,938 |
|
|
|
35,729,938 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,393,278 |
|
|
|
9,393,278 |
|
|
|
9,393,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
2,553,367,783 |
|
|
|
25,533 |
|
|
|
304,877,619 |
|
|
|
51,352,188 |
|
|
|
11,233,465 |
|
|
|
367,488,805 |
|
|
|
45,123,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
4,024,780 |
|
|
|
|
|
|
|
|
|
|
|
4,024,780 |
|
|
|
|
|
Issuance of restricted shares to employees |
|
|
17,866,289 |
|
|
|
179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
179 |
|
|
|
|
|
Repurchase of restricted shares |
|
|
(20,370,413 |
) |
|
|
(204 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(204 |
) |
|
|
|
|
Issuance of ordinary shares under share
lending facility |
|
|
407,319,400 |
|
|
|
4,073 |
|
|
|
(4,073 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,360,272 |
|
|
|
|
|
|
|
61,360,272 |
|
|
|
61,360,272 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
182,679 |
|
|
|
182,679 |
|
|
|
182,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
2,958,183,059 |
|
|
|
29,581 |
|
|
|
308,898,326 |
|
|
|
112,712,460 |
|
|
|
11,416,144 |
|
|
|
433,056,511 |
|
|
|
61,542,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
4,278,502 |
|
|
|
|
|
|
|
|
|
|
|
4,278,502 |
|
|
|
|
|
Issuance of restricted shares to employees |
|
|
12,171,467 |
|
|
|
122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122 |
|
|
|
|
|
Issuance of ordinary shares pursuant to
share option plan |
|
|
2,137,800 |
|
|
|
22 |
|
|
|
744,710 |
|
|
|
|
|
|
|
|
|
|
|
744,732 |
|
|
|
|
|
Repurchase of restricted shares |
|
|
(3,091,030 |
) |
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31 |
) |
|
|
|
|
Issuance of ordinary shares, net of issue costs |
|
|
517,500,000 |
|
|
|
5,175 |
|
|
|
141,531,640 |
|
|
|
|
|
|
|
|
|
|
|
141,536,815 |
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,584,250 |
|
|
|
|
|
|
|
97,584,250 |
|
|
|
97,584,250 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,212 |
|
|
|
24,212 |
|
|
|
24,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
3,486,901,296 |
|
|
|
34,869 |
|
|
|
455,453,178 |
|
|
|
210,296,710 |
|
|
|
11,440,356 |
|
|
|
677,225,113 |
|
|
|
97,608,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-7
TRINA SOLAR LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
35,729,938 |
|
|
|
61,360,272 |
|
|
|
97,584,250 |
|
Adjustments to reconcile net income
to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
6,152,258 |
|
|
|
20,139,856 |
|
|
|
34,120,465 |
|
Share-based compensation |
|
|
1,740,388 |
|
|
|
4,024,780 |
|
|
|
4,278,502 |
|
Gain on change in fair value of investment in securities |
|
|
|
|
|
|
|
|
|
|
(484,008 |
) |
Loss (gain) on change in fair value of derivative |
|
|
(854,214 |
) |
|
|
1,067,079 |
|
|
|
1,590,098 |
|
Loss on disposal of property, plant and equipment |
|
|
265,475 |
|
|
|
341,911 |
|
|
|
210,039 |
|
Allowance for (recoveries of) doubtful receivables |
|
|
(200,224 |
) |
|
|
1,586,038 |
|
|
|
15,016,076 |
|
Inventory write-down |
|
|
3,431,813 |
|
|
|
21,516,138 |
|
|
|
23,127,176 |
|
Allowance for (recovery of) advances to suppliers |
|
|
(1,419,899 |
) |
|
|
5,866,999 |
|
|
|
(1,963,812 |
) |
Amortization of convertible bond issuance costs |
|
|
|
|
|
|
1,162,141 |
|
|
|
2,547,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
(26,738,519 |
) |
|
|
(48,656,015 |
) |
|
|
(18,593,528 |
) |
Accounts receivable |
|
|
(38,783,819 |
) |
|
|
(34,304,622 |
) |
|
|
(195,064,903 |
) |
Prepaid expenses and other current assets |
|
|
(2,082,183 |
) |
|
|
(3,069,452 |
) |
|
|
(26,230,849 |
) |
Investment in securities |
|
|
|
|
|
|
|
|
|
|
380,331 |
|
Advances to suppliers |
|
|
(57,522,795 |
) |
|
|
(81,775,315 |
) |
|
|
24,140,624 |
|
Amount due from related parties |
|
|
(613,925 |
) |
|
|
613,925 |
|
|
|
|
|
Accounts payable |
|
|
12,921,027 |
|
|
|
4,503,708 |
|
|
|
106,769,263 |
|
Accrued expenses and other current liabilities |
|
|
5,769,648 |
|
|
|
7,110,807 |
|
|
|
27,560,847 |
|
Accrued warranty costs |
|
|
2,871,722 |
|
|
|
7,987,007 |
|
|
|
8,550,239 |
|
Other noncurrent liabilities |
|
|
|
|
|
|
803,699 |
|
|
|
(1,060,183 |
) |
Income tax payable |
|
|
488,823 |
|
|
|
2,242,882 |
|
|
|
9,225,207 |
|
Deferred taxes |
|
|
(602,552 |
) |
|
|
(3,442,023 |
) |
|
|
(10,552,726 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(59,477,038 |
) |
|
|
(32,082,326 |
) |
|
|
101,150,490 |
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(124,404,349 |
) |
|
|
(165,420,697 |
) |
|
|
(136,482,581 |
) |
Prepaid land use right |
|
|
(2,854,283 |
) |
|
|
(21,675,312 |
) |
|
|
(507,169 |
) |
Subsidies of government for property, plant
and equipment |
|
|
|
|
|
|
10,189,345 |
|
|
|
7,476,804 |
|
Proceeds from disposal of property,
plant and equipment |
|
|
|
|
|
|
|
|
|
|
150,388 |
|
Decrease (increase) in restricted cash |
|
|
(98,025,253 |
) |
|
|
58,384,248 |
|
|
|
(27,014,216 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(225,283,885 |
) |
|
|
(118,522,416 |
) |
|
|
(156,376,774 |
) |
|
|
|
|
|
|
|
|
|
|
(To be continued)
F-8
TRINA SOLAR LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of restricted shares, net |
|
|
208 |
|
|
|
|
|
|
|
|
|
Proceeds from exercise of share options |
|
|
|
|
|
|
|
|
|
|
744,732 |
|
Proceeds from issuance of ordinary shares,
net of issuance costs |
|
|
163,470,704 |
|
|
|
|
|
|
|
141,536,815 |
|
Proceeds from issuance of convertible
notes, net of issuance costs |
|
|
|
|
|
|
131,537,840 |
|
|
|
|
|
Proceeds from short-term bank borrowings |
|
|
257,170,914 |
|
|
|
191,281,784 |
|
|
|
536,530,305 |
|
Repayment of short-term bank borrowings |
|
|
(173,373,427 |
) |
|
|
(106,287,149 |
) |
|
|
(532,291,687 |
) |
Proceeds from long-term bank borrowings |
|
|
7,752,859 |
|
|
|
6,417,432 |
|
|
|
182,516,037 |
|
Repayment of long-term bank borrowings |
|
|
(5,122,492 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
249,898,766 |
|
|
|
222,949,907 |
|
|
|
329,036,202 |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes |
|
|
1,177,877 |
|
|
|
182,679 |
|
|
|
24,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(33,684,280 |
) |
|
|
72,527,844 |
|
|
|
273,834,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the year |
|
|
93,380,212 |
|
|
|
59,695,932 |
|
|
|
132,223,776 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the year |
|
|
59,695,932 |
|
|
|
132,223,776 |
|
|
|
406,057,906 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
|
7,297,293 |
|
|
|
20,199,372 |
|
|
|
25,896,059 |
|
Income taxes paid |
|
|
1,359,636 |
|
|
|
6,605,810 |
|
|
|
26,023,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
included in accounts payable |
|
|
18,571,505 |
|
|
|
33,880,879 |
|
|
|
51,143,192 |
|
Settlement of advances to suppliers in exchange for
investment in securities |
|
|
|
|
|
|
|
|
|
|
3,930,619 |
|
See notes to consolidated financial statements.
F-9
TRINA SOLAR LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
(In U.S. dollars)
1. |
|
ORGANIZATION AND PRINCIPAL ACTIVITIES |
Trina Solar Limited, (Trina) was incorporated under the laws of the Cayman Islands on
March 14, 2006. As of December 31, 2009, the major subsidiaries of Trina are included in
Appendix 1.
Trina Solar Limited, its subsidiaries and variable interest entity (VIE) (collectively
the Company) are principally engaged in the manufacturing and selling of solar modules
in the Peoples Republic of China (the PRC) and overseas.
2. |
|
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES |
|
(a) |
|
Basis of presentation |
The consolidated financial statements are prepared and presented in accordance
with accounting principles generally accepted in the United States of America
(US GAAP) and include the accounts of Trina, its subsidiaries and VIE. The
Company has eliminated all inter-company transactions and balances during
consolidation.
The preparation of financial statements in conformity with US GAAP requires the
Company to make estimates and assumptions that affect reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Significant accounting estimates reflected in the
Companys financial statements include the allowance for doubtful accounts and
advances to suppliers, inventory valuation, the economic useful lives of
long-lived assets, asset impairments, fair value of foreign currency
derivative, provision for uncertain tax positions and tax valuation allowances,
accrued warranty expenses, and certain assumption used in the computation of
share-based compensation and related forfeiture rates.
|
(c) |
|
Cash and cash equivalents |
Cash and cash equivalents consist of cash on hand and demand deposits, which
are unrestricted as to withdrawal and use, and which have maturities of three
months or less when purchased.
Restricted cash is comprised of bank deposits held as collateral for letters of
credit, commercial paper, bank drafts and bank borrowings as well as amounts
held by counterparties under forward contracts. These deposits carry fixed
interest rates and will be released when the bank borrowings are repaid or the
related letters of credit are settled by the Company.
F-10
TRINA SOLAR LIMITED
2. |
|
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES continued |
|
(d) |
|
Fair value of financial instruments |
The Company estimates fair value of financial assets and liabilities as the price that
would be received from the sale of an asset or paid to transfer a liability (an exit
price) on the measurement date in an orderly transaction between market participants.
The fair value measurement guidance establishes a three-level fair value hierarchy
that prioritizes the inputs into the valuation techniques used to measure fair value.
The fair value hierarchy gives the highest priority, Level 1, to measurements based on
unadjusted quoted prices in active markets for identical assets or liabilities and
lowest priority, Level 3, to measurements based on unobservable inputs and classifies
assets and liabilities with limited observable inputs or observable inputs for similar
assets or liabilities as Level 2 measurement. When available, the Company uses quoted
market prices to determine the fair value of an asset or liability. If quoted market
prices are not available, the Company measures fair value using valuation techniques
that use, when possible, current market-based or independently-sourced market
parameters, such as interest rates and currency rates.
|
(e) |
|
Investment in securities |
Investment in securities represents marketable securities acquired principally
for the purpose of sale in the near term and, as a result, is classified as a
trading security. The investment is reported at fair value, with gains or
losses resulting from changes in fair value recognized in earnings.
F-11
TRINA SOLAR LIMITED
2. |
|
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES continued |
The Company reports inventories at the lower of cost or market. The Company
determines cost on a weighted-average basis. These costs include direct
material, direct labor, tolling manufacturing costs, and fixed and variable
indirect manufacturing costs, including depreciation and amortization.
The Company regularly reviews the cost of inventory against its estimated fair
market value and records a lower of cost or market write-down if any
inventories have a cost in excess of estimated market value. In addition, the
Company regularly evaluates the quantity and value of its inventory in light of
current market conditions and market trends and record write-downs for any
quantities in excess of demand and for any product obsolescence. This
evaluation consider historic usage, expected demand, anticipated sales price,
new product development schedules, the effect new products might have on the
sale of existing products, product obsolescence, customer concentrations,
product merchantability and other factors. The Company also writes off silicon
materials that may not meet its required specifications for inclusion in its
manufacturing process. These materials are periodically sold for scrap.
The Company has outsourced portions of its manufacturing process, including
cleaning silicon materials, cutting ingots into wafers, and converting wafers
into solar cells, to various third-party manufacturers. These outsourcing
arrangements may or may not include transfer of title of the raw material
inventory (silicon, ingots or wafers) to the third-party manufacturers.
For those outsourcing arrangements in which title does not transfer, the
Company maintains the inventory in the balance sheet as raw materials inventory
while it is in physical possession of the third-party manufacturers. Upon
receipt of the processed inventory from the third-party manufacturers, it is
reclassified to work-in-progress inventory with the processing fee capitalized
as cost of inventory.
For those outsourcing arrangements in which title (including risk of loss) does
transfer to the third-party manufacturer, the Company is contractually
obligated to repurchase the processed inventory. To accomplish this, it enters
into raw material sales agreements and processed inventory purchase agreements
simultaneously with the third-party manufacturer. In such instances, the
Company retains the inventory in the consolidated balance sheets while it is in
the physical possession of the third-party manufacturer. The cash received from
the third-party manufacturer is recorded as a current liability on the balance
sheet rather than revenue or deferred revenue. Upon receipt of the processed
inventory, it is reclassified from raw materials to work-in-progress inventory
and the processing fee paid to the third-party manufacturer is added to
inventory cost. Cash payments for outsourcing arrangements which require
prepayment for repurchase of the processed inventory are classified as current
assets on the balance sheet. There is no right of offset in these arrangements
and accordingly, the associated assets and liabilities remain on the balance
sheet until the processed inventory is returned to the Company.
F-12
TRINA SOLAR LIMITED
2. |
|
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES continued |
|
(g) |
|
Property, plant and equipment, net |
The Company reports its property, plant and equipment at cost, less accumulated
depreciation. Cost includes the prices paid to acquire or construct the assets,
interest capitalized during the construction period and any expenditure that
substantially extends the useful life of an existing asset. The Company
expenses repair and maintenance costs when they are incurred. A summary of
interest costs incurred is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
Total interest incurred |
|
|
7,551,160 |
|
|
|
25,404,059 |
|
|
|
27,169,766 |
|
Less: Interest capitalized |
|
|
|
|
|
|
1,467,604 |
|
|
|
1,432,500 |
|
|
|
|
|
|
|
|
|
|
|
Interest expenses |
|
|
7,551,160 |
|
|
|
23,936,455 |
|
|
|
25,737,266 |
|
|
|
|
|
|
|
|
|
|
|
The Company computes depreciation expense using the straight-line method over
the estimated useful lives of the assets presented below.
|
|
|
|
|
Years |
|
|
|
Buildings |
|
10-20 |
Plant and machinery |
|
5-10 |
Motor vehicles |
|
3-5 |
Electronic equipment, furniture and fixtures |
|
3-5 |
|
(h) |
|
Prepaid land use right |
The Companys prepaid land use rights are reported at cost and are charged to
income ratably over 50 years, the term of the land use right agreement.
F-13
TRINA SOLAR LIMITED
2. |
|
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES continued |
The Company evaluates its long-lived tangible assets and definite-lived
intangible assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. These
events include but are not limited to significant current period operation or
cash flow losses associated with the use of a long-lived asset or group of
assets combined with a history of such losses, significant changes in the
manner of use of assets and significant negative industry or economic trends.
When these events occur, the Company measures 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, the Company would recognize an impairment loss equal to the excess of
the carrying amount over the fair value of the assets.
The Company accounts for income taxes using the asset and liability method
whereby it calculates a deferred tax asset or liability using current tax laws
and rates in effect at the balance sheet date. The Company establishes
valuation allowances, when necessary, to reduce deferred tax assets to the
extent it is more likely than not that such deferred tax assets will not be
realized. The Company does not provide deferred taxes related to the U.S. GAAP
basis in excess of the U.S. tax basis in the investment in the Companys
foreign subsidiaries to the extent such amounts relate to permanently
reinvested earnings and profits of such foreign subsidiaries.
Income tax expense includes (i) deferred tax expense, which generally
represents the net change in the deferred tax asset or liability balance during
the year plus any change in valuation allowances and (ii) current tax expense,
which represents the amount of tax currently payable to or receivable from a
taxing authority. The Company only recognizes tax benefits related to uncertain
tax positions when such positions are more likely than not of being sustained
upon examination. For such positions, the amount of tax benefit that the
Company recognizes is the largest amount of tax benefit that is more than fifty
percent likely of being sustained upon the ultimate settlement of such
uncertain tax position.
F-14
TRINA SOLAR LIMITED
2. |
|
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES continued |
The Company recognizes revenue for product sales when persuasive evidence of an
arrangement exists, delivery of the product has occurred and title and risk of
loss has passed to the customer, the sales price is fixed or determinable and
the collectability of the resulting receivable is reasonably assured. Its sales
agreements typically contain customary product warranties but do not contain
any post-shipment obligations nor any return or credit provisions.
The Company recognizes sales of its solar modules based on the terms of the
specific sales contract. Generally, it recognizes sales when the Company has
delivered products to its customers designated point of shipment, which may
include commercial docks or commercial shipping vessels.
The Company recognizes revenue related to long-term solar systems integration
on the percentage-of-completion method. The Company estimates its revenues by
using the cost-to-cost method, whereby it derives a ratio by comparing the
costs incurred to date to the total costs expected to be incurred on the
project. The Company applies the ratio computed in the cost-to-cost analysis to
the contract price to determine the estimated revenues earned in each period.
With respect to its short-term solar systems integration, the Company
recognizes the sales on a completed-contract method. The completed-contract
method recognizes income only when the contract is completed, or substantially
so. Accordingly, costs of contracts in process and current billings are
accumulated but there are no interim charges or credits to income other than
provisions for losses. A contract may be regarded as substantially completed
if remaining costs are not significant in amount. When the Company determines
that total estimated costs will exceed total revenues under a contract, it
records a loss accordingly.
The Company may enter into multiple element arrangements which can include, in
addition to solar modules, installation or training, product manuals and
materials and limited technical maintenance support. The Company is not
contractually obligated to provide returns or refunds in the event these
additional elements are not delivered. To date, these additional elements have
been deemed to be inconsequential or perfunctory and the Company has recognized
revenue upon the delivery of the solar modules, the predominant deliverable in
the total contract, provided all other revenue recognition criteria have been
met. Addition, the Company accrues the estimated cost of the unperformed
obligations.
F-15
TRINA SOLAR LIMITED
2. |
|
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES continued |
|
(l) |
|
Shipping and handling costs |
Payments received from customers for shipping and handling costs are included
in net revenues. Shipping and handling costs relating to solar module sales of
$3,779,490, $5,951,760 and $11,950,752 are included in selling expenses for the
years ended December 31, 2007, 2008 and 2009, respectively. Shipping and
handling costs relating to inventory purchases of $869,798, $2,689,445 and
$844,385 are included as a component of cost of revenues for the years ended
December 31, 2007, 2008 and 2009, respectively.
|
(m) |
|
Research and development |
Research and development costs are incurred during the period the Company is
developing new products or refining existing products or technologies. Its
research and development costs consist primarily of compensation and related
costs for personnel, material, supplies, equipment depreciation and laboratory
testing costs. These costs are expensed as incurred until the products have
been developed and tested and are ready for production and sale.
The Company periodically qualifies for grants from the PRC government for
achieving certain research and development milestones. It records these grants
as an offset to its research and development expenses in the periods in which
the Company earns them. Grants that it receives prior to when the Company
achieves the specified milestone are reported as a liability. The Company
recorded $112,431, $975,824 and $581,298 of earned grants as reductions of
research and development expenses for the years ended December 31, 2007, 2008
and 2009, respectively. Government grants related to assets are recorded as
deferred liabilities and are recognize as an offset to depreciation expense on
a straight-line basis over the useful life of associated asset. The
Company received government grant for assets of $nil, $10,189,345 and
$7,476,804 during the years ended December 31, 2007, 2008 and 2009,
respectively, and recognized $nil, $27,161 and $1,160,699 as an offset to
depreciation expense for the years ended December 31, 2007, 2008 and 2009,
respectively.
F-16
TRINA SOLAR LIMITED
2. |
|
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES continued |
The Company provides a limited warranty to the original purchasers of its solar
modules for two or five years following delivery for defects in materials and
workmanship. It provides a minimum power output warranty for up to 25 years
following delivery. The Company accrues warranty costs and recognizes as a component of selling expense, as it recognizes
revenues. Due to its limited solar module manufacturing history, the Company
does not have a significant history of warranty claims. The Company currently
accrues for product warranties at 1% of solar module sales based on its
assessment of industry norms which also represents its best estimate to date.
Should it begin to experience warranty claims differing from its accrual rate,
the Company would prospectively revise the warranty accrual rate.
|
(p) |
|
Foreign currency translation and foreign currency risk |
The United States dollar (US dollar), the currency in which a substantial
portion of the Companys transactions are denominated, is used as the
functional and reporting currency of the Company. Monetary assets and
liabilities denominated in currencies other than the US dollar are translated
into US dollar at the rates of exchange ruling at the balance sheet date.
Transactions in currencies other than the US dollar during the year are
converted into the US dollar at the applicable rates of exchange prevailing on
the date the transactions occurred. Transaction gains and losses are recognized
in the statements of operations.
Prior to January 1, 2008, the financial records of the Companys principal
operating subsidiary in the PRC, Trina China, were maintained in Renminbi
(RMB), the local currencies. To response to the significant changes in
economic facts and circumstances, Trina China changed its functional currency
from RMB to the US dollar, effective January 1, 2008.
The financial records of the Companys subsidiaries are maintained in local
currencies other than the US dollar, such as RMB and Euro, which are their
functional currencies. Assets and liabilities are translated at the exchange
rates at the balance sheet date, equity accounts are translated at historical
exchange rates and revenues, expenses, gains and losses are translated using
the average rate for the year. Translation adjustments are reported as
cumulative translation adjustments and are shown as a separate component of
accumulated other comprehensive income in the statement of shareholders
equity.
The RMB is not a freely convertible currency. The PRC State Administration for
Foreign Exchange, under the authority of the PRC government, controls the
conversion of RMB to foreign currencies. The value of the RMB is subject to
changes of central government policies and international economic and political
developments affecting supply and demand in the China foreign exchange trading
system market. The Companys cash and cash equivalents and restricted cash
denominated in RMB amounted to$15,714,926, $71,936,716 and $125,551,705 as of
December 31, 2007, 2008 and 2009, respectively.
F-17
TRINA SOLAR LIMITED
2. |
|
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES continued |
|
(q) |
|
Concentrations of credit risk |
Financial instruments that potentially expose the Company to concentrations of
credit risk consist principally of accounts receivable and advances to
suppliers. The Company conducts credit evaluations of its customers and
requires advance payments or collateral depending on credit worthiness of the customer.
The Company generally has not required collateral
or other security interests from its suppliers but it performs ongoing credit
evaluations of the suppliers financial condition. The Company raises an
allowance for doubtful accounts primarily based on the age of the receivables
or advances to suppliers, previous loss history and the counterparties current
ability to fulfill its obligation.
The Company has not had significant collections issues for receivables
generated from sales of products or significant default issues related to
advances to suppliers.
|
(r) |
|
Share-based compensation |
The Companys share-based payment transactions with employees, such as restricted
shares and share options, are measured based on the grant-date fair value of the
equity instrument issued. The fair value of the award is recognized as compensation
expense, net of estimated forfeitures, over the period during which an employee is
required to provide service in exchange for the award, which is generally the vesting
period.
|
(s) |
|
Derivative financial instruments |
The Companys primary objective for holding derivative financial instruments is to
manage currency risk. The Company records derivative instruments as assets or
liabilities, measured at fair value. The recognition of gains or losses resulting from
changes in fair values of those derivative instruments is based on the use of each
derivative instrument and whether it qualifies for hedge accounting.
The Company entered into certain foreign exchange contracts to protect against
volatility of future cash flows caused by the changes in foreign exchange rates
associated with outstanding accounts receivable. The foreign exchange hedge contracts
do not qualify for hedge accounting and, as a result, the changes in fair value of the
foreign currency hedge contracts are recognized in the statement of operations.
During the years ended December 31, 2007, 2008 and 2009, the Company recorded change
in fair value of forward foreign currency exchange contracts as $nil, $1,067,079 and $
8,374,563.84 respectively.
F-18
TRINA SOLAR LIMITED
2. |
|
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES continued |
Basic earnings per share is computed by dividing net income by the weighted average
number of ordinary shares outstanding during the period. Diluted earnings per
ordinary share reflects the potential dilution that could occur if securities or other
contracts to issue ordinary shares were exercised or converted into ordinary shares.
Ordinary share equivalents are excluded from the computation in loss periods as their
effects would be anti-dilutive.
The following table sets forth the computation of the basic and diluted income from
continuing operations per share for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
Net income from continuing operations attributable
to ordinary shareholders basic |
|
|
35,362,022 |
|
|
|
61,360,272 |
|
|
|
97,584,250 |
|
Finance charge related to convertible notes |
|
|
|
|
|
|
3,382,254 |
|
|
|
8,067,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations attributable
to ordinary shareholders diluted |
|
|
35,362,022 |
|
|
|
64,742,526 |
|
|
|
105,651,632 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
ordinary shares outstanding basic |
|
|
2,339,799,657 |
|
|
|
2,501,202,680 |
|
|
|
2,724,185,761 |
|
Nonvested restricted shares |
|
|
30,885,499 |
|
|
|
3,158,126 |
|
|
|
|
|
Convertible notes |
|
|
|
|
|
|
186,362,584 |
|
|
|
407,319,420 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
ordinary shares outstanding diluted |
|
|
2,370,685,156 |
|
|
|
2,690,723,390 |
|
|
|
3,131,505,181 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per ordinary share from continuing
operations basic |
|
|
0.02 |
|
|
|
0.02 |
|
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per ordinary share from continuing
operations diluted |
|
|
0.02 |
|
|
|
0.02 |
|
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
|
F-19
TRINA SOLAR LIMITED
2. |
|
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES continued |
|
(t) |
|
Earnings per share continued |
Diluted income per share for the year ended December 31, 2007, 2008 and 2009 excludes
nil, 12,642,079 and 24,337,277 shares issuable upon exercise of share options,
respectively, and excludes 41,139,713 restricted shares for the year ended December
31, 2009, as their inclusion would have been anti-dilutive.
The call option on the Loaned Shares (see Note 11) has been excluded in the
computation of basic EPS as the Company has concluded that the Loaned Shares are not
considered issued for accounting purposes as existing shareholders are not expected to
be affected by the issuance due to (a) the existence of the collateral arrangement and
(b) the requirement that the holders of the Loaned Shares return any dividends
received. The call option on the Loaned Shares has been considered in the computation
of diluted EPS using the treasury stock method with the fair value of the collateral
representing the assumed proceeds for the issuance of the underlying shares. For the
year ended December 31, 2009, there were no incremental shares included in the diluted
EPS computation in regard to the Loaned Shares.
|
(u) |
|
Recently issued accounting pronouncements |
In June 2009, the FASB issued ASC 810-10, Consolidation Overall (previously
SFAS 167, Amendments to FASB Interpretation No. 46(R)). This accounting standard
eliminates exceptions of the previously issued pronouncement to consolidating
qualifying special purpose entities, contains new criteria for determining the primary
beneficiary, and increases the frequency of required reassessments to determine
whether a company is the primary beneficiary of a variable interest entity. This
accounting standard also contains a new requirement that any term, transaction, or
arrangement that does not have a substantive effect on an entitys status as a
variable interest entity, a companys power over a variable interest entity, or a
companys obligation to absorb losses or its right to receive benefits of an entity
must be disregarded in applying the provisions of the previously issued pronouncement.
This accounting standard will be effective for the Companys fiscal year beginning
January 1, 2010. The Company is currently assessing the potential impacts, if any, on
its consolidated financial statements.