Form 20-F
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(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, 2010
OR
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o |
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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, Senior Director, 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 6023
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 |
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:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
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.
3,969,986,404 ordinary shares, par value $0.00001 per share, as of December 31,
2010.
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 þ
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Accelerated filer o
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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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ADRs refers to the American depository receipts, which, if issued, evidence our
ADSs; |
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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, 2008, 2009 and 2010.
This annual report contains translations of certain Renminbi amounts into U.S. dollars at the
rate of RMB6.6000 to $1.00, the noon buying rate in effect on December 31, 2010 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 April 8, 2011, the noon buying rate was
RMB6.5350 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. On November 22,
2010, our ADRs started trading on the Singapore Exchange GlobalQuote Board under the symbol
K3KD.
3
PART I
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Item 1. |
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Identity of Directors, Senior Management and Advisers |
Not Applicable.
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Item 2. |
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Offer Statistics and Expected Timetable |
Not Applicable.
A. Selected Financial Data |
The following selected consolidated statement of operations data for the years ended December
31, 2008, 2009 and 2010 and the selected consolidated balance sheet data as of December 31, 2008,
2009 and 2010 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, 2006
and 2007 and our consolidated balance sheets as of December 31, 2006 and 2007 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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2006 |
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2007 |
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2008(1) |
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2009(1) |
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2010 |
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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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$ |
114,500 |
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$ |
301,819 |
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$ |
831,901 |
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$ |
845,136 |
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$ |
1,857,689 |
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Cost of revenues |
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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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1,273,328 |
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Gross profit |
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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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584,361 |
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Operating expenses: |
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Selling expenses |
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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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75,677 |
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General and administrative expenses |
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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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72,711 |
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Research and development expenses |
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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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18,625 |
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Total operating expenses |
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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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167,013 |
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Income from continuing operations |
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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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417,348 |
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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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(36,156 |
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Interest expense |
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(2,137 |
) |
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(7,551 |
) |
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(24,558 |
) |
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(27,095 |
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(33,952 |
) |
Interest income |
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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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2,590 |
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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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9,476 |
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Other (expense) income |
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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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216 |
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Income before income taxes |
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14,962 |
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33,655 |
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65,348 |
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120,922 |
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359,522 |
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Income tax (expense) benefit |
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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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48,069 |
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Net income from continuing operations |
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13,174 |
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35,362 |
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60,739 |
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96,226 |
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311,453 |
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Net Income (loss) from discontinued operations |
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(753 |
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368 |
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Net income |
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$ |
12,421 |
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$ |
35,730 |
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$ |
60,739 |
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$ |
96,226 |
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$ |
311,453 |
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4
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Year Ended December 31, |
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2006 |
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2007 |
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2008(1) |
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2009(1) |
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2010 |
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(in thousands, except for share, per share, operating data and percentages) |
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Earnings per ordinary share from continuing operations: |
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Basic |
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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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0.09 |
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Diluted |
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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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0.08 |
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Earnings per ADS from continuing
operations(2): |
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Basic |
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0.49 |
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0.76 |
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1.23 |
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1.77 |
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4.58 |
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Diluted |
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0.48 |
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0.75 |
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1.20 |
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1.69 |
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4.18 |
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Earnings per ordinary share: |
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Basic |
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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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0.09 |
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Diluted |
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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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0.08 |
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Earnings per ADS(2): |
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Basic |
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0.46 |
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0.77 |
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1.23 |
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1.77 |
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4.58 |
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Diluted |
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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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4.18 |
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Weighted average ordinary shares outstanding: |
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Basic |
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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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3,402,701,503 |
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Diluted |
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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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3,833,713,796 |
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Weighted average ADS outstanding(2): |
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Basic |
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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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68,054,030 |
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Diluted |
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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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76,674,276 |
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Consolidated Financial Data |
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Gross margin |
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26.2 |
% |
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22.4 |
% |
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19.8 |
% |
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28.1 |
% |
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31.5 |
% |
Net margin of continuing operations |
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11.5 |
% |
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11.7 |
% |
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7.3 |
% |
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11.4 |
% |
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16.8 |
% |
Consolidated Operating Data |
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PV modules shipped (in MW) |
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27.4 |
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75.9 |
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201.0 |
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399.0 |
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1,057.0 |
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Average selling price ($/W) |
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$ |
3.98 |
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$ |
3.80 |
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$ |
3.92 |
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$ |
2.10 |
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$ |
1.75 |
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5
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As of December 31, |
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2006 |
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2007 |
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2008(1) |
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2009(1) |
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2010 |
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(in thousands) |
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Consolidated Balance Sheet Data |
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Cash and cash equivalents |
|
$ |
93,380 |
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$ |
59,696 |
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|
$ |
132,224 |
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|
$ |
406,058 |
|
|
$ |
752,748 |
|
Restricted cash |
|
|
5,004 |
|
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|
103,375 |
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|
|
44,991 |
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|
|
72,006 |
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|
|
38,035 |
|
Inventories |
|
|
32,230 |
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|
58,548 |
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|
|
85,687 |
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|
|
81,154 |
|
|
|
79,126 |
|
Accounts receivable, net |
|
|
29,353 |
|
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|
72,323 |
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|
|
105,193 |
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|
287,950 |
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|
|
377,317 |
|
Total current assets |
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|
197,801 |
|
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|
342,402 |
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|
419,883 |
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|
|
927,517 |
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|
1,415,139 |
|
Property, plant and equipment, net |
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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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|
571,467 |
|
Total assets |
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|
251,745 |
|
|
|
600,674 |
|
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|
940,116 |
|
|
|
1,548,698 |
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|
2,132,089 |
|
Short-term borrowings |
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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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|
|
158,652 |
|
Accounts payable |
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|
9,147 |
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|
42,691 |
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|
|
62,504 |
|
|
|
186,535 |
|
|
|
188,000 |
|
Total current liabilities |
|
|
88,068 |
|
|
|
220,485 |
|
|
|
335,714 |
|
|
|
515,401 |
|
|
|
600,070 |
|
Accrued warranty costs |
|
|
1,400 |
|
|
|
4,486 |
|
|
|
12,473 |
|
|
|
21,023 |
|
|
|
38,711 |
|
Long-term borrowings |
|
|
5,122 |
|
|
|
8,214 |
|
|
|
14,631 |
|
|
|
182,516 |
|
|
|
299,977 |
|
Total shareholders equity |
|
|
157,154 |
|
|
|
367,489 |
|
|
|
436,501 |
|
|
|
679,312 |
|
|
|
1,173,647 |
|
Total liabilities and
shareholders equity |
|
$ |
251,745 |
|
|
$ |
600,674 |
|
|
$ |
940,116 |
|
|
$ |
1,548,698 |
|
|
|
2,132,089 |
|
|
|
|
(1) |
|
On January 10, we adopted ASC 470-20 (former EITF 09-1, Accounting for Own Share Lending Agreements in Contemplation of Convertible Debt Issuance or Other Financing), which resulted in additional interest expenses of $621,246 and $1,357,813 in 2008 and 2009, respectively. Please see Note 20 to our consolidated financial statements for more details. |
|
(2) |
|
Reflects ADS ratio change effective January 2010. |
B. Capitalization and Indebtedness |
C. Reasons for the Offer and Use of Proceeds |
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. Beginning in late
2008, 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 price range of
long-term polysilicon supply contracts decreased to $52-$57 per kilogram by the fourth quarter of
2010, and spot prices for solar grade polysilicon decreased to $75-$85 per kilogram by the end of
2010. Decreases in polysilicon prices and corresponding increases in PV module production would
result in substantial downward pressure on the price of PV modules. The average selling price per
watt of our PV modules, for example, has decreased from $3.92 per watt in 2008 to $2.10 per watt in
2009 and $1.75 per watt in 2010. Such price reductions could have a negative impact on our
revenues and earnings, and materially and adversely affect our business and results of operations.
6
In addition, the price of polysilicon may not continue to decline or remain at its current
levels. Increases in the price of polysilicon have in the past increased our cost of revenues, and
any significant price increase in the future may adversely impact our business and results of
operations. We purchase polysilicon from a limited number of international and domestic suppliers.
Consistent with market practice, our medium and long-term supply contracts generally contain price
adjustment provisions that offer both parties the right to adjust contract price when the
fluctuation of market price during a specified period has exceeded a threshold as agreed to by both
parties. If the market price of polysilicon increases significantly in the future, our
counterparties will be able to renegotiate contract prices with us based on the then market price.
If there is a significant increase in polysilicon price and the contract prices are renegotiated,
our cost of revenues may be materially adversely affected. If such polysilicon price increase
cannot be passed onto our customers by increasing the price of modules, our margins may also be
materially adversely affected. We cannot assure you that our polysilicon procurement strategy will
be successful in ensuring an adequate supply of polysilicon at commercially viable prices to meet
our solar module production requirements.
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 and prices of polysilicon and reclaimable silicon raw materials caused a
decline in the prices of solar power products. As the effect of the global economic crisis
subsided through 2009, the combination of increased availability of financing for downstream
buyers, decreased average selling prices of solar power products and deadlines for cuts in feed-in
tariffs contributed to an overall increase in demand during the second half of 2009 and 2010 for
solar power products. 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.
Currently, we have an annual manufacturing capacity of ingots and wafers of approximately 750
MW and cells and modules of approximately 1,200 MW. We plan to increase our annual manufacturing
capacity of ingots and wafers to approximately 1.2 GW and cells and modules to approximately 1.9 GW
in the second half of 2011. However, if demand for our solar power products does not increase
proportionally with our manufacturing
capacity, we may not be able to benefit from intended economies of scale and our business and
results of operations may be materially and adversely affected.
7
Additionally, the demand for solar power products is influenced by macroeconomic factors such
as global economic conditions, the supply and prices of other energy products such as oil, coal and
natural gas, and government regulations and policies concerning the electric utility industry. A
decrease in oil prices, for example, may reduce demand for investment in alternative energy.
Global economic conditions, which affect the availability of financing, may also contribute to the
demand for solar power products and the number of solar project. If these negative market and
industry trends occur 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.
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 compared to 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.
8
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.
9
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. Additionally, in December 2010, the Spanish government introduced a decree that reduced
the maximum allowable annual operating hours for which PV systems could earn feed-in-tariff
payments, applicable to both new and existing installations. In 2009, the German government reduced
solar feed-in tariffs by 9%. In January, July and October of 2010, Germany introduced further
solar feed-in tariffs reductions of approximately 2426% for rooftop systems and 2025% for
ground-based systems. In addition, further mid-year tariff cuts are being discussed for 2011,
which may result in a significant fall in the price of PV products to support continued demand. In
2008, 2009 and 2010, Germany accounted for 23.9%, 33.9% and 24.1% of our net revenues,
respectively, based on record country of sales. In 2008, 2009 and 2010, Spain accounted for 32.5%,
12.1% and 21.8% of our net revenues, respectively, based on record country of sales. We believe
that uncertainty in political and policy developments may lead to increased competition among solar
manufacturers. 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.
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 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.
10
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.
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., Mitsubishi
Electric Corporation and GCL Solar Energy Technology Holdings Inc. 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.
11
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.
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 2008, 2009 and 2010, sales to our top five customers accounted for approximately 41.9%, 36.9%
and 24.9%, respectively, of our total net revenues. Our top customer contributed approximately
9.5% of our net revenues in 2010. 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:
|
|
|
reduction, delay or cancellation of orders from one or more of our significant
customers; |
|
|
|
selection of competing products by one or more of our significant customers; |
|
|
|
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;
and |
|
|
|
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. Starting in February 2009, all of
our overseas sales have been insured by China Export & Credit Insurance Corporation, or Sinosure.
As of December 31, 2010, $361.2 million, or 95.7% of total accounts receivable, was 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. However, we cannot assure you
that all our accounts receivable are sufficiently covered. 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.
12
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 2011, we believe a majority of our
revenues will 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.
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
product manufacturing facilities and 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, 2010, we had $752.7 million in cash and cash
equivalents, $38.0 million in restricted cash and $458.6 million in outstanding borrowings, of
which approximately $158.7 million was due within one year. Additionally, holders of our
convertible senior notes may require us to repurchase all or a portion of the notes on July 15,
2011 or upon certain change in control events. 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 $380
million in 2011 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.
13
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 750
MW and cells and modules of approximately 1,200 MW. We plan to increase our annual manufacturing
capacity of ingots and wafers to approximately 1.2 GW and cells and modules to approximately 1.9 GW
in the second half of 2011. 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.
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
14
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.
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. Our warranty
provision for the years ended December 31, 2008, 2009 and 2010 were $8.0 million, $8.5 million and
$17.9 million, respectively. 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.
15
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 high-efficiency square
monocrystalline modules, 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.
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.
16
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, Belgium, the United States,
Australia, India, Israel, China, the Czech Republic, France, 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. |
17
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 2010, thin-film technologies represented
13.5% of the solar market, compared to 86.5% 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.
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.
18
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, South Korea 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.
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.
19
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.
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.
20
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 2008,
2009 and 2010, we sold approximately 96.3%, 97.1% and 96.2%, 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.
We may be exposed to intellectual property 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
issues 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.
21
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.
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, 2010. 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. 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.
22
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.
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.
23
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. However, from July 2008 until June 2010, the RMB traded stably within a
narrow range against the U.S. dollar. In June 2010, the Peoples Bank of China announced that the
PRC government would reform the RMB exchange rate regime and increase the flexibility of the
exchange rate. We cannot predict how this new policy will impact the RMB exchange rate.
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 loss of approximately $36.2
million in 2010. 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
fluctuation 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. 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.
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, 2010, we had foreign currency forward contracts with a total contract value of
approximately 985.8 million ($1,310.8 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.
24
We may be classified as a passive foreign investment company, which could result in adverse U.S.
federal income tax consequences to U.S. Holders of our ADSs or ordinary shares.
Based on the market price of our ADSs, the value of our assets, and the composition of our
income and assets, we do not believe we were a passive foreign investment company, or PFIC, for
U.S. federal income tax purposes for our taxable year ended December 31, 2010. However, the
application of the PFIC rules is subject to uncertainty in several respects, and we cannot assure
you the U.S. Internal Revenue Service will not take a contrary position. A non-U.S. corporation
will be a PFIC for any taxable year if either (i) at least 75% of its gross income for such year is
passive income or (ii) at least 50% of the value of its assets (based on an average of the
quarterly values of the assets) during such year is attributable to assets that produce passive
income or are held for the production of passive income. We must make a separate determination
after the close of each taxable year as to whether we were a PFIC for that year. Because the value
of our assets for purposes of the PFIC test will generally be determined by reference to the market
price of our ADSs and ordinary shares, fluctuations in the market price of the ADSs and ordinary
shares may cause us to become a PFIC. In addition, changes in the composition of our income or
assets may cause us to become a PFIC. If we are a PFIC for any taxable year during which a U.S.
Holder (as defined in Item 10, Additional InformationTaxationUnited States Federal Income
Taxation) holds an ADS or an ordinary share, certain adverse U.S. federal income tax consequences
could apply to such U.S. Holder. See Item 10, Additional InformationTaxationUnited States
Federal Income TaxationPassive Foreign Investment Company.
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.
25
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.
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, 2010, these general
reserves amounted to $41.3 million,
accounting for 9.1% of the registered capital of Trina China. In addition, under the
Enterprise Income Tax Law and its Implementation Regulations, or the new EIT Law, which became
effective January 1, 2008, dividends from Trina China to us are subject to a 10% withholding tax to
the extent that we are considered a non-resident enterprise under the new EIT Law. 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.
26
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, foreign currency
under current account transactions such as dividend payments and trade-related transactions are
generally convertible. Accordingly, 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.
SAFE regulations may limit our ability to finance our PRC subsidiaries effectively and affect the
value of your investment and may make it more difficult for us to pursue growth through
acquisition.
If we finance our PRC subsidiaries through additional capital contributions, the Ministry of
Commerce in China or its local counterpart must approve the amount of these capital contributions.
On August 29, 2008, SAFE promulgated Circular 142, a notice regulating the conversion by a
foreign-invested company of foreign currency into Renminbi by restricting how the converted
Renminbi may be used. The notice requires that Renminbi converted from the foreign
currency-denominated capital of a foreign-invested company may only be used for purposes within the
business scope approved by the applicable governmental authority and may not be used for equity
investments in the PRC unless otherwise provided by laws and regulations. In addition, SAFE
strengthened its oversight of the flow and use of Renminbi funds converted from the foreign
currency denominated capital of a foreign-invested company. The use of such Renminbi may not be
changed without approval from SAFE, and may not be used to repay Renminbi loans if the proceeds of
such loans have not yet been used for purposes within the companys approved business scope.
Violations of
Circular 142 may result in severe penalties, including substantial fines as set forth in the
Foreign Exchange Administration Regulations. We cannot assure you that we will be able to complete
the necessary government registrations or obtain the necessary government approvals on a timely
basis, if at all, with respect to future loans by us to our PRC subsidiaries or with respect to
future capital contributions by us to our PRC subsidiaries. If we fail to complete such
registrations or obtain such approvals, our ability to contribute additional capital to fund our
PRC operations may be negatively affected, which could materially adversely affect our liquidity
and our ability to fund and expand our business.
27
Our business benefits from certain PRC government tax incentives, and expiration of, or changes to,
these incentives.
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. 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 2010 was 15.0%. 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.
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.
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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. The State Tax Administration issued the Notice Regarding the Determination of
Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis
of De Facto Management Bodies, or SAT Circular 82, on April 22, 2009. SAT Circular 82 provides
certain criteria for determining whether the de facto management body of an offshore-incorporated
enterprise controlled by PRC enterprises is located in China. Although SAT Circular 82 only
applies to offshore enterprises controlled by PRC enterprises and not those controlled by PRC or
foreign individuals or foreign enterprises, the criteria set forth therein may reflect State Tax
Administrations general position on how the de facto management body test should be applied in
determining the tax resident status of offshore enterprises, regardless of whether they are
controlled by PRC or foreign enterprises or individuals. Accordingly, we may be considered a
resident enterprise and may therefore be subject to the enterprise income tax at 25% on our global
income other than dividends from our PRC subsidiaries, which could significantly increase our tax
burden and materially adversely affect our cash flow and profitability. 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.
We face uncertainty with respect to indirect transfers of equity interests in PRC resident
enterprises by their non-PRC holding companies.
Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share
Transfers by Non-PRC Resident Enterprises, or SAT Circular 698, issued by the State Administration
of Taxation on December 10, 2009 with retroactive effect from January 1,
2008, where a non-resident enterprise transfers the equity interests of a PRC resident
enterprise indirectly via disposing of the equity interests of an overseas holding company, or an
Indirect Transfer, and such overseas holding company is located in a tax jurisdiction that: (i) has
an effective tax rate less than 12.5% or (ii) does not tax foreign income of its residents, the
foreign investor shall report to the competent tax authority of the PRC resident enterprise this
Indirect Transfer. Using a substance over form principle, the PRC tax authority may disregard
the existence of the overseas holding company if it lacks a reasonable commercial purpose and was
established for the purpose of avoiding PRC tax. As a result, gains derived from such Indirect
Transfer may be subject to PRC withholding tax at a rate of up to 10%. SAT Circular 698 also
provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident
enterprise to its related parties at a price lower than the fair market value, the relevant tax
authority has the power to make a reasonable adjustment to the taxable income of the transaction.
29
There is uncertainty as to the application of SAT Circular 698. For example, while the term
Indirect Transfer is not clearly defined, it is understood that the relevant PRC tax authorities
have jurisdiction regarding requests for information over a wide range of foreign entities having
no direct contact with China. Moreover, the relevant authority has not yet promulgated any formal
provisions or formally declared or stated how to calculate the effective tax rates in foreign tax
jurisdictions, and the process and format of the reporting of an Indirect Transfer to the competent
tax authority of the relevant PRC resident enterprise. In addition, there are not any formal
declarations with regard to how to determine whether a foreign investor has adopted an abusive
arrangement in order to avoid PRC tax. As a result, we may become at risk of being taxed under SAT
Circular 698 and we may be required to expend valuable resources to comply with SAT Circular 698 or
to establish that we should not be taxed under SAT Circular 698, which may materially adversely
affect our financial condition and results of operations.
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 and was amended on June 22, 2009.
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.
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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. For example, Chinas State Council promulgated the Notice of the General Office of the
State Council on the Establishment of the Security Review System for Mergers and Acquisitions of
Domestic Enterprises by Foreign Investors on March 3, 2011. According to the Notice, if the target
company of merger and acquisition activities by foreign investors is an enterprise: (i)
manufacturing military products; (ii) located around the key or sensitive military areas or (ii)
related to state safety; or if the foreign investors intend to control an enterprise involved in
industries involving: (i) key agriculture; (ii) key energy and resourses; (iii) key fundamental
facilities and equipment; (iv) key technologies; or (v) material equipment by merger and
acquisition, the transaction will be subject to review by MOFCOM. 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.
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.
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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, are 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 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.
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.
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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; |
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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.
33
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.
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.
34
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.
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
35
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.
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Item 4. |
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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 a follow-on public offering of 5,175,000
ADSs. In March 2010, we completed another follow-on public offering of 9,085,000 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 8517-6023. 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.
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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 W to 185 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 United States, Belgium, Australia, India, China, the
Czech Republic, France, Israel, Japan and South Korea. 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 Proysectos Integrales Solares S.L., Enerl S.r.l., Enerray
S.p.A., Phoenix Solar AG and TRE Tozzi Renewable Energy.
As of December 31, 2010, we had an annual manufacturing capacity of ingots and wafers of
approximately 750 MW and cells and modules of approximately 1,200 MW. In 2009 and 2010, 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.
37
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 2008, 2009 and 2010, we generated net revenues of $831.9 million,
$845.1 million and $1,857.7 million, respectively, and net income from our continuing operations of
$60.7 million, $96.2 million $311.5 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 185 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.
Manufacturing
We manufacture ingots, wafers, cells and modules. As of December 31, 2010, we had an annual
manufacturing capacity of ingots and wafers of approximately 750 MW and cells and modules of
approximately 1,200 MW. We plan to increase our annual manufacturing capacity of ingots and wafers
to approximately 1,200 MW and cells and modules to approximately 1,900 MW in the second half of
2011. 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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|
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|
|
Estimated Maximum |
|
|
|
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|
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|
Annual |
|
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|
Annual |
|
|
|
|
|
|
Manufacturing |
|
|
Manufacturing |
|
Manufacturing |
|
|
Production Output |
|
|
Capacity as of |
Manufacturing |
|
Commencement |
|
Capacity as of |
|
|
for the Year Ended |
|
|
December 31, |
Facility |
|
Date |
|
December 31, 2010 |
|
|
December 31, 2010 |
|
|
2011 |
Silicon ingots |
|
August 2005 |
|
|
750 |
(1) |
|
|
705 |
(2) |
|
1,200 MW |
Silicon wafers |
|
February 2006 |
|
|
750 |
(1) |
|
|
718 |
(2) |
|
1,200 MW |
Solar cells |
|
April 2007 |
|
|
1,200 |
(1) |
|
|
973 |
(2) |
|
1,900 MW |
PV modules |
|
November 2004 |
|
|
1,200 |
(1) |
|
|
1,048 |
(2) |
|
1,900 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, 2010. |
38
|
|
|
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 2010, we had an
average silicon usage of
approximately 5.9 grams per watt, compared to approximately 6.0 and 6.3 grams per watt in
the fourth quarters of 2009 and 2008, respectively. |
|
|
|
Ingots. We began manufacturing monocrystalline ingots in August 2005 with silicon
crystal growing furnaces. As of December 31, 2010, 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 90 directional solidification
system, or DSS, furnaces for the manufacturing of multicrystalline ingots, which can yield
640 MW of modules annually based on current manufacturing processes. |
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,
2010 was approximately 750 MW of modules based on current manufacturing processes. |
39
|
|
|
Solar cells. We currently produce our own solar cells for use in our PV modules. 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 19.5% as of December 31, 2010 on a test production line basis. In
November 2007, we began producing multicrystalline cells and achieved a conversion
efficiency of up to 18.0% as of December 31, 2010 on a test production line basis. We
currently have 34 production lines with an annual manufacturing capacity of approximately
1,200 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.
We have also selectively entered into short-term purchase agreements for solar cells with
commercially favorable terms to meet the excess PV module demand from new and existing
customer segments and geographies.
|
|
|
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 1,200 MW per year as of December 31, 2010. We currently have 71 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 and 2010, 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.
40
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 $450-$475 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.
According to Solarbuzz, the average price range of long-term polysilicon supply contracts had
decreased to $52-$57 per kilogram by the fourth quarter of 2010, and spot prices for solar grade
polysilicon had decreased to $75-$85 per kilogram by the end of 2010. However, we cannot assure
you that the price of polysilicon will continue to decline or remain at its current levels.
We have executed agreements with suppliers to obtain our silicon raw material requirements to
support our estimated production output in 2011. 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 from 2009 to 2012 and a fixed price or a price to be determined on an annual or
quarterly 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.
41
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 wholly-owned subsidiary of GCL-Poly Energy Holdings Limited, a supplier
of polysilicon based in Jiangsu Province, China. In August 2009, we extended the term of
this supply agreement by another five years. Under this agreement and its supplemental agreements,
GCL-Poly is expected to supply us with polysilicon and wafers sufficient to produce approximately
7,500 MW of solar
modules from 2011 to 2020. 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.
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 outgoing 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 product and reliability testing on all of our products.
42
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
|
|
ISO 14001:2004 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, April 2010, December 2010, January 2011, February 2011
|
|
ICIM product certification
|
|
PV modules sold in Europe |
August 2006, June 2007, July 2007, February 2009, April 2009, May 2009, June 2009, November 2009, October 2010, December 2010, February 2011
|
|
TÜV Rheinland product certification
|
|
PV modules sold in Europe |
February 2009, May 2009, September 2009, December 2010
|
|
Korean module certificate
|
|
PV modules sold in Korea |
March 2009, October 2009, May 2010, October 2010, February 2011
|
|
JET product certification
|
|
PV modules sold in Japan |
December 2009
|
|
RoHS certification
|
|
PV modules sold in Europe |
April 2010
|
|
ISO/IEC17025 CNAS laboratory accreditation certification
|
|
Photovoltaic product testing center |
December 2010
|
|
OHSAS18001:2007 occupational health and safety management system certification
|
|
Manufacturing and sales of silicon, ingots, casting, silicon wafers, solar cells and PV modules |
December 2010
|
|
ISO 9001:2008 quality management system certification
|
|
Manufacturing and sales of silicon, ingots, casting, silicon wafers, solar cells and PV modules |
December 2010
|
|
ISO 14001:2004 environmental management system
|
|
Manufacturing and sales of silicon, ingots, casting, silicon wafers, solar cells and PV modules |
January 2011
|
|
CSA certification(UL1703)
|
|
PV modules sold in the United States |
February 2011
|
|
UL certification(UL1703)
|
|
PV modules sold in the United States |
February 2011
|
|
Clean Energy Council (CEC)
|
|
PV modules sold in Australia |
In May 2010, we entered into a strategic partnership agreement with TÜV Rheinland Group,
Underwriters Laboratories Inc. and China General Certification Center, three of the leading
certification bodies. Under the agreement, TÜV Rheinland, UL and CGC will perform product
certification tests at our Changzhou PV testing Center and other facilities, allowing us to
introduce our newest certified product lines in the shortest time to our customers.
43
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
2010 included Proyectos Integrales Solares, S.L., Enerl S.r.l., Enerray S.p.A., Phoenix Solar AG
and TRE Tozzi Renewable Energy. 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.
A small number of customers have historically accounted for a majority of our net sales. Our
top five customers collectively accounted for approximately 41.9%, 36.9% and 24.9% of our net
revenues in 2008, 2009 and 2010, respectively. Our top customer contributed approximately 9.5% of
our net revenues in 2010.
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
Italy, Belgium, Spain, France and the United Kingdom. In 2008, 2009 and 2010, we signed several
agreements with well-recognized companies in Spain and Italy. 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 has made annual
reductions in 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, Australia, Japan, the United
States, Thailand, India and Israel. For example, in February 2010, we entered into an agreement
with Southern California Edison Company, a large electric utility in Southen California in the
United States, to provide 45 MW of PV modules from May of 2010 through calendar year 2012, in
connection with the utilitys solar photovoltaic projects. Southern California Edison Company
recently asked us to provide additional amounts of supply as may be agreed by the parties by our
ongoing discussions. Additionally, to enhance the our sales capabilities in the European and
United States markets, we established regional headquarters in Switzerland and San Jose,
California. We also plan to drive our sales growth through expansion into downstream arrangements
in major markets such as system integrations and project developments. We believe these actions
will help reduce the negative effects of reduced incentives in countries like Germany and Spain.
44
The following table sets forth our total net revenues by geographical region, based on record
country of sales, for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
Total Net |
|
|
|
|
|
|
Total Net |
|
|
|
|
|
|
Total Net |
|
|
|
|
Region |
|
Revenues |
|
|
Percent |
|
|
Revenues |
|
|
Percent |
|
|
Revenues |
|
|
Percent |
|
|
|
(in thousands, except for percentages) |
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany |
|
$ |
198,529 |
|
|
|
23.9 |
% |
|
$ |
286,220 |
|
|
|
33.9 |
% |
|
$ |
447,316 |
|
|
|
24.1 |
% |
Italy |
|
|
149,685 |
|
|
|
18.0 |
% |
|
|
166,062 |
|
|
|
19.6 |
% |
|
|
409,561 |
|
|
|
22.0 |
% |
Spain |
|
|
270,549 |
|
|
|
32.5 |
% |
|
|
101,849 |
|
|
|
12.1 |
% |
|
|
404,131 |
|
|
|
21.8 |
% |
Others |
|
|
136,641 |
|
|
|
16.4 |
% |
|
|
234,021 |
|
|
|
27.7 |
% |
|
|
175,115 |
|
|
|
9.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe Total |
|
|
755,404 |
|
|
|
90.8 |
% |
|
|
788,152 |
|
|
|
93.3 |
% |
|
|
1,436,122 |
|
|
|
77.3 |
% |
China |
|
|
30,390 |
|
|
|
3.7 |
% |
|
|
24,435 |
|
|
|
2.9 |
% |
|
|
70,783 |
|
|
|
3.8 |
% |
USA |
|
|
14,699 |
|
|
|
1.8 |
% |
|
|
13,238 |
|
|
|
1.6 |
% |
|
|
262,300 |
|
|
|
14.1 |
% |
Others |
|
|
31,408 |
|
|
|
3.8 |
% |
|
|
19,311 |
|
|
|
2.3 |
% |
|
|
88,485 |
|
|
|
4.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
831,901 |
|
|
|
100.0 |
% |
|
$ |
845,136 |
|
|
|
100 |
% |
|
$ |
1,857,689 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. As of
December 31, 2010, $361.2 million, or
95.7% of total accounts receivable, was insured by Sinosure. The remaining balance of $7.0 million
was guaranteed by letters of credit or bank deposits.
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.
45
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 2011 to make rooftop installation of solar power products easier
for residential segments. 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 United States,
Australia, India, Israel, China, the Czech Republic, France, Japan, Thailand and South Korea. 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. We also
opened sales offices in Japan and South Korea in 2010. Our localized offices will continue to be
supported by our centralized operations and administration located in Changzhou, China.
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. In May 2010, we became a sponsor and partner of the Renault
Formula One Team, which we believe will increase our brand awareness and enhance our marketing
efforts.
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.
46
As of December 31, 2010, we had 121 issued patents and 211 patent applications pending in
China. We obtained an additional 22 patents in 2011. 323 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. 27 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, the EU, Japan, Singapore,
Switzerland, Morocco, Taiwan, Thailand, Croatia, South Korea, the Philippines, Australia, the
United States and the United Arab Emirates. We also have registered as a trademark the logo
Trinasolar in China, the United States, the EU, Australia, the United Arab Emirates, Thailand,
the Philippines, Japan, Singapore, Switzerland, Morocco, Taiwan, South Korea and Turkey. We have
pending trademark registration applications for the logos Trina and Trinasolar in India,
Indonesia 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 trademark registration applications for the logo Trinasolar
in China, the EU,
Croatia, South Korea, Singapore, Japan and several other countries. Additionally, we have filed
the trademark registration applications for the logos
individually with the trademark office in the PRC in November 2009.
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. |
47
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.
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 $2.4 million in
insurance premiums in 2010. The increase in premium was largely due to an increase in the scope of
our insurance coverage, including our purchase of business interruption insurance.
48
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 $4.5 million in 2010.
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 and was amended on December 26, 2009. 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.
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.
On September 4, 2006, Chinas Ministry of Finance and Ministry of Construction jointly
promulgated the Interim Measures for Administration of Special Funds for Application of Renewable
Energy in Building Construction, which provides that the Ministry of Finance will arrange special
funds to support the application of renewable energy in building construction in order to enhance
building energy efficiency, protect the ecological environment and reduce the consumption of fossil
energy. These special funds provide significant support for the application of solar energy in hot
water supply, refrigeration and heating, PV technology and lighting integrated into building
construction materials.
49
In August 2007, the National Development Reform Commission issued the Medium and Long-term
Development Plan for Renewable Energy which describes the national governments financial
incentives for the renewable energy industry for the multi-year period ending 2020, with an
estimated required investment amount of approximately US$300 billion. The plan also calls for
increasing the overall installation capacity for solar energy to 300 MW by 2010 and 1.8 GW by 2020.
Recent policy statements have indicated that these targets may rise to 400 MW to 500 MW by 2010
and 2 GW by 2020.
On April 1, 2008, the PRC Energy Conservation Law came into effect. Among other objectives,
this law encourages the utilization and installation of solar power facilities in buildings for
energy-efficiency purposes.
In March 2009, Chinas Ministry of Finance promulgated the Interim Measures for Administration
of Government Subsidy Funds for Application of Solar Photovoltaic Technology in Building
Construction, or the Interim Measures, to support the demonstration
and the promotion of solar PV applications in China. Local governments are encouraged to
issue and implement supporting policies for the development of solar PV technology. These Interim
Measures, set forth subsidy funds set at RMB20 per watt for 2009 to cover solar PV systems
integrated into building construction that have a minimum capacity of 50 kilowatt peak.
In April 2009, the Ministry of Finance and the Ministry of Housing and Urban-Rural Development
jointly issued the Guidelines for Declaration of Demonstration Project of Solar Photovoltaic
Building Applications. These guidelines created a subsidy of up to RMB20 (about US$2.93) per watt
for building integrated PV or BIPV projects using solar-integrated building materials and
components and up to RMB15 (about US$2.20) per watt for BIPV projects using solar-integrated
materials for rooftops or walls.
In July 2010, the Ministry of Housing and Urban-Rural Development issued the City Illumination
Administration Provisions or the Illumination Provision. The Illumination Provisions encourage
the installation and use of renewable energy system such as PV systems in the process of
construction and re-construction of city illumination projects.
Environmental Regulations
We are subject to a variety of governmental regulations related to environmental protection
and the prevention and control of water, air, solid waste and noise pollution. 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 and the PRC Law on Appraising Environment
Impacts.
Labor Laws and Regulations
The Work Safety Law, or the WSL, was adopted at the 28th meeting of the Standing Committee of
the Ninth Peoples Congress on June 29, 2002, and was promulgated for implementation as of November
1, 2002. The WSL is applicable to the work safety for entities engaging in manufacturing and
business operation activities within the PRC. Such entities must comply with the WSL and other
relevant laws and regulations concerning work safety and strengthen the administration of work
safety, establish and perfect the system of responsibility for work safety and ensure safe
manufacturing conditions.
50
The PRC Labor Contract Law was promulgated on June 29, 2007 and became effective on January 1,
2008. This law governs the establishment of employment relationships between employers and
employees, and the conclusion, performance and termination of, and the amendment to, employment
contracts. To establish an employment relationship, a written employment contract must be signed.
In the event that no written employment contract is signed at the time of establishment of an
employment relationship, a written employment contract must be signed within one month after the
date on which the employer engages the employee. To establish an employment relationship, a written
employment contract must be signed. In the event that no written employment contract is signed at
the time of establishment of an employment relationship, a written employment contract must be
signed within one month after the date on which the employer engages the employee. All employers
must compensate their employees with wages equal to at least the local minimum wage standards. All
employers are required to establish a system for labor safety and sanitation, strictly abide by
state rules and standards and provide employees with workplace safety training. Violations of the
PRC Labor Contract Law may result in the imposition of fines and other administrative liabilities.
Criminal liability may arise for serious violations.
In addition, employers in China are obliged to provide employees with welfare schemes covering
pension insurance, unemployment insurance, maternity insurance, work-related injury insurance,
medical insurance and housing funds.
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
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, 2009 and 2010, our income tax rate was 15%.
51
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.
Moreover, under the new EIT Law, enterprises organized under the laws of jurisdictions outside
China with de facto management bodies located within China may be considered PRC resident
enterprises and therefore subject to a 25% PRC enterprise income tax on their worldwide income. The
Implementing Rules define de facto management body as the management body that exercises full and
substantial control and overall management over the business, productions, personnel, accounts and
properties of an enterprise. In addition, SAT Circular 82 provides that a foreign enterprise
controlled by a PRC company or a PRC company group will be classified as a resident enterprise
with its de facto management bodies located within China if the following requirements are
satisfied: (i) the senior management and core management departments in charge of its daily
operations function mainly in the PRC; (ii) its financial and human resource decisions are subject
to determination or approval by persons or bodies in the PRC; (iii) its major assets, accounting
books, company seals, and minutes and files of its board and shareholders meetings are located or
kept in the PRC; and (iv) more than half of the enterprises directors or senior management with
voting rights reside in the PRC. Although the SAT Circular 82 only applies to offshore enterprises
controlled by PRC enterprises and not those controlled by PRC individuals, foreigners or foreign
enterprises, the determining criteria set forth in the Identification Circular may reflect the
State Administration of Taxations general position on how the de facto management body test
should be applied in determining the tax resident status of offshore enterprises, regardless of
whether they are controlled by PRC or foreign enterprises or individuals.
Pursuant to SAT Circular 698, issued by the State Administration of Taxation on December 10,
2009, if a non-resident enterprise transfers the equity interests of a PRC resident enterprise
indirectly via disposing of the equity interests of an overseas holding company, or Indirect
Transfer, and such overseas holding company is located in a tax jurisdiction that: (i) has an
effective tax rate less than 12.5% or (ii) does not tax foreign income of its residents, the
foreign investor shall report to the competent tax authority of the PRC resident enterprise this
Indirect Transfer. Using a substance over form principle, the PRC tax authority may disregard the
existence of the overseas holding company if it lacks a reasonable commercial purpose and was
established for the purpose of avoiding PRC tax. As a result, gains derived from such Indirect
Transfer may be subject to PRC withholding tax at a rate of up to 10%. SAT Circular 698 also
provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident
enterprise to its related parties at a price lower than the fair market value, the relevant tax
authority has the power to make a
reasonable adjustment to the taxable income of the transaction. SAT Circular 698 is
retroactively effective on January 1, 2008.
52
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.
On August 29, 2008, SAFE promulgated Circular 142, a notice regulating the conversion by a
foreign-invested company of foreign currency into Renminbi by restricting how the converted
Renminbi may be used. Pursuant to Circular 142, the RMB fund from the settlement of foreign
currency capital of a foreign-invested enterprise must be used within the business scope as
approved by the examination and approval department of the government, and cannot be used for
domestic equity investment unless it is otherwise provided for. Documents certifying the purposes
of the RMB fund from the settlement of foreign currency capital, including a business contract,
must also be submitted for the settlement of the foreign currency. In addition, SAFE strengthened
its oversight of the flow and use of the RMB capital converted from foreign currency registered
capital of a foreign-invested company. The use of such RMB capital may not be altered without
SAFEs approval, and such RMB capital may not in any case be used to repay RMB loans if the
proceeds of such loans have not been used. Violations of the Circular 142 could result in severe
monetary fines or penalties.
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).
53
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. As of December 31, 2010, the restricted portion of our PRC
subsidiaries net assets was $497.3 million, which consists of their registered capital and statutory reserves.
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.
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 |
% |
Trina Solar (Hong Kong) Enterprise 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 |
% |
Trina Solar Energy Development Pte. Ltd. |
|
Singapore |
|
|
100 |
% |
Trina Solar Energy (Shanghai) Co., Ltd. |
|
China |
|
|
100 |
% |
Trina Solar (U.S.) Development LLC |
|
United States |
|
|
100 |
% |
TP-CA-South LLC |
|
United States |
|
|
100 |
% |
Trina Solar (Changzhou) Science and
Technology Co., Ltd. |
|
China |
|
|
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.
54
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
366,834 square meters for the facilities currently owned and operated by us. We have also occupied
a site area of approximately 453,068 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 750 MW to 1,200 MW
and cells and PV modules from the current approximately 1,200 MW to approximately 1,900 MW in the
second half of 2011. 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.
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, 2010:
|
|
|
|
|
|
|
|
|
Manufacturing |
|
|
|
No. of Units in Operation as of |
|
|
|
Facility |
|
Major Equipment |
|
December 31, 2010 |
|
|
Source (Country) |
Silicon ingots |
|
Silicon crystal growing furnaces |
|
|
110 |
|
|
China |
|
|
|
|
|
|
|
|
|
|
|
DSS furnaces |
|
|
90 |
|
|
United States |
Silicon wafers |
|
Wafer sawing machines |
|
|
112 |
|
|
Japan, Switzerland |
Solar cells |
|
Diffusion furnaces (tube) |
|
|
34 |
|
|
Germany |
|
|
|
|
|
|
|
|
|
|
|
Screen print machine sets |
|
|
34 |
|
|
Italy |
PV modules |
|
Automatic laminators |
|
|
71 |
|
|
China |
We have purchased wafer sawing machines from Meyer Burger AG since 2007. In September 2007,
we entered into an agreement with GT Solar, which was subsequently amended in March 2009, to
purchase a certain number of DSS furnaces. Under this agreement and the subsequent amendment, the
first set of these DSS furnaces were delivered in 2008, and the remaining furnaces were delivered
in 2009. In December 2010, we entered
into two additional agreements with GT Solar to purchase additional DSS furnaces for delivery
in 2011.
With respect to encumbrances, as of December 31, 2010, we pledged our equipment of a total
appraised value of RMB1,244.9 million ($188.0 million) to secure repayment of our borrowings of
RMB513.0 million ($77.5 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.
55
|
|
|
Item 4A. |
|
Unresolved Staff Comments |
None.
|
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|
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 G.
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.
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 185 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 United States, Australia, India, Israel, China, the Czech Republic, France, Japan, Thailand
and South Korea. We sell our products to distributors, wholesalers, power
plant developers and operators and PV system integrators, including Proysectos Integrales
Solares S.L., Enerl S.r.l., Enerray S.p.A., Phoenix Solar AG and TRE Tozzi Renewable Energy.
In 2010, our net revenues were $1,857.7 million, compared to $845.1 million in 2009 and $831.9
million in 2008. Our net revenues increased primarily due to increased shipments that offset
decreased average selling prices. In addition, we recorded net income
of $311.5 million in 2010, compared to net income of $96.2 million in
2009 and $60.7 million in
2008.
The most significant factors that affect the financial performance and results of operations
of our solar power products business are:
|
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government subsidies and economic incentives; |
56
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vertically integrated manufacturing capabilities; and |
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|
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
80% from approximately 1.75 gigawatts, or GW, in 2006 to approximately 18.23 GW in 2010. 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 36.4 GW in 2015, and
solar power industry revenue may increase from $82.1 billion in 2010 to $96.2 billion in 2015,
which we believe will be driven largely by growing market demand, rising grid prices and government
initiatives.
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 and prices of
polysilicon caused a decline in the prices of solar power products. The average selling price per
watt of our PV modules decreased from $3.92 in 2008 to $2.10 in 2009 and $1.75 in 2010.
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 2011 will exceed the demand for solar power products in
2010 or that the oversupply of solar power products will not continue to exist in 2011. Please 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 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. Additionally, countries such as India, China, Australia, the
United Kingdom, Israwl and Portugal have recently introduced or favorably revised feed-in tariff
policies. 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.
57
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 2010 with a market size of 7.74 GW, which accounted for 42% of the global PV market
demand in 2010 and represents an increase of 100% from 2009. Italy had a market size of 3.74 GW,
an increase of 386% from 2009, and accounted for 20.5% of the global PV market demand in 2010.
The expansion of the German market in 2010 was largely driven by urgency by downstream players
to make deadlines for cuts in feed-in tariffs and a fear of tightening of incentive levels. In
2009, the German government reduced solar feed-in tariffs by 9%. In January, July and October of
2010, Germany introduced further solar feed-in tariffs reductions of
approximately 24-26% for rooftop systems and 20-25% for ground-based systems. In addition, further mid-year tariff cuts
are being discussed for 2011, which may result in a significant fall in the price of PV products
supporting continued demand. The rapid rise of the Italian market in 2010 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 Italian market in 2010 was driven by small to
large rooftop installations, BIPV systems and ground-mounted PV parks and an expectation of
worsening funding levels in 2011.
The Spanish market has declined dramatically in recent years, 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. However, the Spanish market expanded in 2010 because quota allocations made in 2009 were
required to be installed and registered within 12 months to qualify for subsidies.
In 2010, Germany, Italy and Spain accounted for 24.1%, 22.0% and 21.8% of our net revenues,
respectively. As a result of the expiring incentives in Germany and Spain, our net revenues
generated from these two countries as a percentage of our total net revenues have decreased from
56% in 2008 to 46% in 2010. We seek to counteract the impact of the expiring incentives by
enhancing our brand recognition and shifting some of our sales focus to other markets such as
Italy, the United States and more than 20 other emerging markets, including France, South Korea,
Greece, the Czech Republic and Australia. To enhance our sales capabilities in the European and
United States markets, we established regional headquarters in Switzerland and San Jose,
California.
58
Furthermore, we believe that although the expiration of incentive policies in Germany and
Spain will likely result in a decrease in average selling price globally, global demand will have a
positive upward trend. According to Solarbuzz, the average sales price of modules in 2011 will
decrease by approximately 6.3%, from $2.07/W in 2010 to $1.94/W in 2011, but volume globally will
increase by approximately 18.6% from 9.7 GW in 2010 to 11.5 GW in 2011. We believe that reduced
feed-in tariffs will force customers to concentrate even more on quality and price, which we
believe will be to our advantage given our favorable rankings by TÜV Reinland, a global independent
safety and quality testing agency for solar modules, and Photon International, an international
solar power magazine. We were ranked in the top two out of 14 participating international module
manufacturers for specific energy yield during TUV Reinlands Energy Yield 2008 testing period from
September 1 to September 30, 2008. In 2009, we were ranked in the top three out of 12 international
brands for power output measurement in the test performed by Photon International. To further
offset possible decline in feed-in tariffs, we are continuing to enter into long-term silicon
supply contracts to manage its raw material costs and to reduce its non-silicon manufacturing cost
through technology development, transfer and manufacturing process improvements, cell conversion
improvements, wafer and cell breakage reduction and economies of scale in production.
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 solar power products as a result of the global economic crisis. As a result,
increased manufacturing capacity combined with decreased demand and prices of polysilicon and
reclaimable silicon raw materials caused to a decline in the average selling price of PV modules.
The demand for solar power products is influenced by macroeconomic factors such as global economic
conditions, the supply and prices of other energy products such as oil, coal and natural gas and
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 decreased from $3.92 in 2008 to $2.10 in
2009 and $1.75 in 2010. The decrease in the average selling price of our PV modules in 2010 was
primarily due to decreased prices of polysilicon and reclaimable silicon raw materials and
increased manufacturing capacity. 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.
59
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. As of
December 31, 2010, $361.2 million, or 95.7% of total accounts receivable, was insured by Sinosure.
The remaining balance of $7.0 million was guaranteed by letters of credit or bank deposits.
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. |
Starting from 2008, we have met nearly all of our solar cell needs with our in-house
production capabilities. Currently, we have an annual manufacturing capacity of approximately 750
MW for ingots and wafers and approximately 1,200 MW for cells and modules.
In 2009 and 2010, 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 Raw Materials
Polysilicon is an essential raw material for our business. We purchase polysilicon raw
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.
60
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. According to Solarbuzz, the average price range
of long-term polysilicon supply contracts had decreased to $52-$57 per kilogram by the fourth
quarter of 2010, and spot
prices for solar grade polysilicon had decreased to $75-$85 per kilogram by the end of 2010.
However, the price of polysilicon may not continue to decline. 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 from 2009 to 2012 and a
fixed price or a price to be determined on an annual or quarterly 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. Historically, we have also used reclaimable silicon raw
materials for our polysilicon needs.
We have secured most of our polysilicon requirements to support our estimated production
output through the end of 2011 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.
Suppliers of polysilicon 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.
61
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 2008, 2009 and 2010, sales to our top five customers accounted for approximately 41.9%,
36.9% and 24.9% of our net revenues, respectively, and sales to our top customer accounted for
9.8%, 9.5% 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 OverviewGovernment Subsidies and Economic
Incentives for more details about government policies of Spain and Germany. In 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 the United States, Australia,
India, Israel, China, the Czech Republic, France, Japan, Thailand and South Korea. We expect to
continue to expand our customer base geographically in 2011.
62
The following table sets forth our total net revenues by geographical region, based on record
country of sales, for the periods indicated:
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|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
Total Net |
|
|
|
|
|
|
Total Net |
|
|
|
|
|
|
Total Net |
|
|
|
|
Region |
|
Revenues |
|
|
Percent |
|
|
Revenues |
|
|
Percent |
|
|
Revenues |
|
|
Percent |
|
|
|
(in thousands, except for percentages) |
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany |
|
$ |
198,529 |
|
|
|
23.9 |
% |
|
$ |
286,220 |
|
|
|
33.9 |
% |
|
$ |
447,316 |
|
|
|
24.1 |
% |
Italy |
|
|
149,685 |
|
|
|
18.0 |
% |
|
|
166,062 |
|
|
|
19.6 |
% |
|
|
409,561 |
|
|
|
22.0 |
% |
Spain |
|
|
270,549 |
|
|
|
32.5 |
% |
|
|
101,849 |
|
|
|
12.1 |
% |
|
|
404,131 |
|
|
|
21.8 |
% |
Others |
|
|
136,641 |
|
|
|
16.4 |
% |
|
|
234,021 |
|
|
|
27.7 |
% |
|
|
175,115 |
|
|
|
9.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe Total |
|
|
755,404 |
|
|
|
90.8 |
% |
|
|
788,152 |
|
|
|
93.3 |
% |
|
|
1,436,122 |
|
|
|
77.3 |
% |
China |
|
|
30,390 |
|
|
|
3.7 |
% |
|
|
24,435 |
|
|
|
2.9 |
% |
|
|
70,782 |
|
|
|
3.8 |
% |
USA |
|
|
14,699 |
|
|
|
1.8 |
% |
|
|
13,238 |
|
|
|
1.6 |
% |
|
|
262,300 |
|
|
|
14.1 |
% |
Others |
|
|
31,408 |
|
|
|
3.8 |
% |
|
|
19,311 |
|
|
|
2.3 |
% |
|
|
88,485 |
|
|
|
4.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
831,901 |
|
|
|
100.0 |
% |
|
$ |
845,136 |
|
|
|
100 |
% |
|
$ |
1,857,689 |
|
|
|
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. Starting from 2010, 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 and 2010, 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. |
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|
|
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. |
63
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 increased from 19.8% in 2008 to 28.1% in 2009 and 31.5% in 2010. The margin increase from
2009 to 2010 was primarily due to decreases in silicon purchase prices and reduced non-silicon
manufacturing costs per watt in 2010. 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 increased from 2.4% in 2008 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, and increased to 4.1%
in 2010 due to increased sales efforts, including hiring additional sales personnel, targeting of
new markets, establishing representative offices and subsidiaries and additional marketing programs
to continue to build our brand. We expect our selling expenses to increase in the near term
consistent with the growth of our revenues.
64
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 as a percentage of net revenues increased from 5.0% in 2008
to 7.7% in 2009 primarily due to allowance for doubtful accounts for certain suppliers and
customers, and decreased to 3.9% in 2010 due to measures to control our expenses undertaken in
2010. We expect our general and administrative expenses to moderately increase in 2011, 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.
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. In 2010, our research efforts
focused on further increasing our cell efficiencies and improving the performance of our module. In
June 2010, we announced our research agreement with Solar Energy Research Institute of Singapore to
develop an all-back-contact high-efficiency silicon wafer solar cell using our monocrystalline
wafers. 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, 2010, we achieved a conversion efficiency of monocrystalline
cells of up to 19.5% and multicrystalline cells of up to 18.0% 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 monocrystalline modules and large-size modules.
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 46,288,982 restricted shares
and 39,445,389 share options were outstanding as of March 15, 2011. 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. 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.
65
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, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
(in thousands, except for percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
$ |
111 |
|
|
|
2.8 |
% |
|
$ |
62 |
|
|
|
1.4 |
% |
|
$ |
63 |
|
|
|
1.1 |
% |
Selling expenses |
|
|
512 |
|
|
|
12.7 |
% |
|
|
678 |
|
|
|
15.9 |
% |
|
|
484 |
|
|
|
8.1 |
% |
General and administrative expenses |
|
|
3,297 |
|
|
|
81.9 |
% |
|
|
3,295 |
|
|
|
77.0 |
% |
|
|
5,131 |
|
|
|
86.1 |
% |
Research and development |
|
|
105 |
|
|
|
2.6 |
% |
|
|
244 |
|
|
|
5.7 |
% |
|
|
278 |
|
|
|
4.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expenses |
|
$ |
4,025 |
|
|
|
100 |
% |
|
$ |
4,279 |
|
|
|
100 |
% |
|
|
5,955 |
|
|
|
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 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%. Our EIT rate for 2010 was 15.0%.
66
Our subsidiary in Switzerland, Trina Solar (Schweiz) AG, serves as our European sales center
and was subject to an income tax rate of 10.12% in 2010. Our United States subsidiaries were
subject to an income tax rate of 40% in 2010.
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.
In 2009, in response to the financing constraints, our customers requested longer credit
terms. As a result, we began granting extended credit terms to customers with whom we had positive
historical collection experience and overall creditworthiness. 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. To assess the creditworthiness of our
customers, we generally obtain credit information from reputable third-party sources, including
Dunn & Bradstreet and insurance companies that ultimately insure us against customer credit
default. Our senior management also performs on-site customer visits, monitors customer payments
and adjusts customer credit limits as appropriate. Using the information collected, we further
evaluate the potential effect of a delay in financing on the customers liquidity and financial
position, their ability to draw down financing as well as their ability and intention to pay should
it not obtain the related financing. Based on this analysis, we determine what credit terms, if
any, to offer to each customer individually. If our assessment indicates a likelihood of collection
risk, we do not sell the products or sell on a cash or prepayment basis. Therefore, based on our
strict credit assessment, we attempt to conduct business with those customers we believe have the
ability and intent to pay.
67
We believe that the extension of longer payment terms is in line with changes in the industry
and is not necessarily an indication that our customers are less likely to satisfy their
obligations. In late 2008, due to the impact of the economic recession, banks decreased financing
activities and extended the length of the approval process. Furthermore, banks restricted our
customers ability to draw down financing for solar projects until they were substantially
completed and grid-connected. Given the negative cash flow implications of these changes, our
customers began seeking longer payment terms. We believe that such changes generally reflect a
change in the macro environment as opposed to reflecting a decline in our customers
creditworthiness. Based on this and the procedures that we performed around customer credit and
collectability, we believe that collectability continued to be reasonably assured and, accordingly,
such extended credit terms did not affect revenue recognition.
We 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. We are 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 we have 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, we accrue the estimated cost of the unperformed
obligations.
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. Warranty costs primarily consist of replacement costs for parts and materials and
labor costs for maintenance personnel.
We maintain warranty reserves (recorded as accrued warranty costs) to cover potential
liabilities that could arise from our warranties. Due to our limited solar module manufacturing
history, we do not have a significant history of warranty claims. Our accrued warranty cost
reflects our best estimate of the probability of incurring warranty claims and costs associated
with those warranty claims. These significant estimates are determined based on a number of
factors, primarily including (1) an ongoing analysis of our actual historical costs incurred in
connection with our warranty claims, (2) an assessment of our competitors accrual and claim
history and (3) analysis of academic research results, available from industry research
publications and papers, and other assumptions that we believes to be reasonable under the
circumstances. We acknowledge that such estimates are subjective and we will continue to analyze
our claim history and the performance of our products compared to our competitors and future
academic research results to determine whether the accrual is appropriate. To the extent that
actual warranty costs differ from the estimates, or our expectations of future costs change, we
will prospectively revise our accrual rate and/or the accrual balance. Such adjustments could have
a material effect on our consolidated results of operations. For example, an increase or decrease
of 0.1% accrual rate (i.e., to 1.1% or 0.9%) would have resulted in an in corresponding increase or
decrease in warranty expense of $1.8 million for the year ended December 31, 2010.
68
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.
Generally, our actual shipments for a given year is lower than the manufacturing capacity for
that year. We believe that there is sufficient evidence that demand for our PV products will
increase and, accordingly, we will continue to ramp up our manufacturing capacity through the end
of 2011. We view under-utilization of our capacity as a potential indicator of impairment, and we
will continue to evaluate our capacity utilization in determining whether our assets are
recoverable. However, we have effectively utilized most, if not all, of our capacity in the past
and have been forced to outsource production from 2006 to 2010 in order to meet demand.
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. 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.
69
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. Additionally, market
conditions are subject to change and actual consumption of our inventory could differ from
forecasted demand. When evaluating expected demand, we largely consider third-party industry
forecasts, seasonality fluctuations, customer backlog and regulatory changes. Historically, our
estimates of future demand have been materially accurate and, as a result, we were not required to
make significant revision to such estimates. Our inventories have a long life cycle and
obsolescence has not historically been a significant factor in their valuation.
We have entered into firm purchase commitments to acquire materials from our suppliers. A firm
purchase commitment represents an agreement that specifies all significant terms, including the
price and timing of the transactions, and includes a penalty for non-performance that is
sufficiently large to make performance probable, such as prepayment. We evaluate these agreements
and record a loss, if any, on firm purchase commitments using the same lower of cost or market
approach as that used to value inventory.
Project Assets
Project assets consist primarily of costs relating to solar power projects in various stages
of development that are capitalized prior to the sale of the solar power project. These costs
include modules, installation and other development costs, such as legal, consulting and
permitting. Once we enter into a definitive sales agreement, the project assets are reclassified to
deferred project costs on the consolidated balance sheets until all criteria for sale recognition
have been met. While the project assets are not constructed for any specific customers, we intend
to sell the project assets upon their completion.
70
We review project assets for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. In determining whether or not the project assets
are recoverable, we consider a number of factors, including changes in environmental, ecological,
permitting, or regulatory conditions that affect the project. Such changes may cause the cost of
the project to increase or the selling price of the project to decrease.
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 2008, 2009 and 2010,
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.
We recognize a tax benefit associated with an uncertain tax position when, in our judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, we initially and subsequently measure the tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. Our liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of the tax audits, case law developments and new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. Our effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by management. We classify interest and penalties recognized on the liability for unrecognized tax benefits as income tax expense.
Derivative Financial Instruments
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, 2009 and 2010, we entered into a series of forward foreign currency exchange
contracts with several 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
forward foreign currency exchange 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 losses in fair value of derivatives related to forward foreign currency
exchange contracts of $1.1 million and $1.6 million, respectively. In 2010, we recorded a gain in
fair value of derivatives related to forward foreign currency exchange contracts of $9.5 million.
These losses and gain are included in the line item Gain (loss) on change in fair value of
derivative in the consolidated statements of operations.
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.
71
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, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
(in thousands, except for percentages) |
|
Net revenues |
|
$ |
831,901 |
|
|
|
100.0 |
% |
|
$ |
845,136 |
|
|
|
100.0 |
% |
|
$ |
1,857,689 |
|
|
|
100 |
% |
Cost of revenues |
|
|
667,459 |
|
|
|
80.2 |
% |
|
|
607,982 |
|
|
|
71.9 |
% |
|
|
1,273,328 |
|
|
|
68.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
164,442 |
|
|
|
19.8 |
% |
|
|
237,154 |
|
|
|
28.1 |
% |
|
|
584,361 |
|
|
|
31.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses |
|
|
20,302 |
|
|
|
2.4 |
% |
|
|
30,940 |
|
|
|
3.7 |
% |
|
|
75,677 |
|
|
|
4.1 |
% |
General and administrative expenses |
|
|
41,114 |
|
|
|
5.0 |
% |
|
|
65,406 |
|
|
|
7.7 |
% |
|
|
72,711 |
|
|
|
3.9 |
% |
Research and development expenses |
|
|
3,039 |
|
|
|
0.4 |
% |
|
|
5,439 |
|
|
|
0.6 |
% |
|
|
18,625 |
|
|
|
1.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
64,455 |
|
|
|
7.8 |
% |
|
|
101,785 |
|
|
|
12.0 |
% |
|
|
167,013 |
|
|
|
9.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
99,987 |
|
|
|
12.0 |
% |
|
|
135,369 |
|
|
|
16.0 |
% |
|
|
417,348 |
|
|
|
22.5 |
% |
Foreign exchange gain (loss) |
|
|
(11,802 |
) |
|
|
(1.5 |
%) |
|
|
9,958 |
|
|
|
1.2 |
% |
|
|
(36,156 |
) |
|
|
(1.9 |
%) |
Interest expense |
|
|
(24,558 |
) |
|
|
(3.0 |
%) |
|
|
(27,095 |
) |
|
|
(3.1 |
%) |
|
|
(33,952 |
) |
|
|
(1.8 |
%) |
Interest income |
|
|
2,944 |
|
|
|
0.4 |
% |
|
|
1,667 |
|
|
|
0.2 |
% |
|
|
2,590 |
|
|
|
0.1 |
% |
Gain (loss) on change in fair value of
derivative |
|
|
(1,067 |
) |
|
|
(0.1 |
%) |
|
|
(1,590 |
) |
|
|
(0.2 |
%) |
|
|
9,476 |
|
|
|
0.5 |
% |
Other (expense) income |
|
|
(156 |
) |
|
|
(0.0 |
%) |
|
|
2,613 |
|
|
|
0.3 |
% |
|
|
216 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
65,348 |
|
|
|
7.8 |
% |
|
|
120,922 |
|
|
|
14.5 |
% |
|
|
359,522 |
|
|
|
19.4 |
% |
Income tax expense |
|
|
4,609 |
|
|
|
0.5 |
% |
|
|
24,696 |
|
|
|
2.9 |
% |
|
|
48,069 |
|
|
|
2.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from operations |
|
|
60,739 |
|
|
|
7.3 |
% |
|
|
96,226 |
|
|
|
11.6 |
% |
|
|
311,453 |
|
|
|
16.8 |
% |
Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
Net Revenues. Our total net revenues increased by $1,012.6 million, or 119.8%, from $845.1
million in 2009 to $1,857.7 million in 2010, primarily due to increased shipments from 399.0 MW in
2009 to 1,057.0 MW in 2010, an increase of 164.9%, offset by decreased average selling prices. Our
average selling price decreased from $2.10 per watt in 2009 to $1.75 per watt in 2010. The
decrease in the average selling price of our PV modules in 2010 was primarily due to decreased
prices of polysilicon raw materials and increased manufacturing capacity.
Cost of Revenues. Our cost of revenues increased by $665.3 million, or 109.4%, from $608.0
million in 2009 to $1,273.3 million in 2010, primarily due to increased production and shipments. As a percentage of our total net revenues, our cost of revenues decreased
from 71.9% to 68.5% during the same periods.
Gross Profit. As a result of the foregoing, our gross profit increased by $347.2 million, or
146.4%, from $237.2 million in 2009 to $584.4 million in 2010. Our gross margin increased from
28.1% to 31.5% during the same period, primarily due to decreases in silicon purchase prices and
non-silicon manufacturing costs per watt in 2010 that exceeded declines in average selling price per watt in 2010.
Operating Expenses. Our operating expenses increased by $65.2 million, or 64.1%, from $101.8
million in 2009 to $167.0 million in 2010. The increase in operating expenses was due to increases
in selling expenses and research and development expenses. As a percentage of total net revenues,
operating expenses decreased from 12.0% in 2009 to 9.0% in 2010. Share-based compensation expenses
allocated to our selling expenses, general and administrative expenses and research and development
expenses in 2010 were $0.5 million, $5.1 million and $0.3 million, respectively, based on the
respective departments where such employees worked at the time of the grant.
72
Selling Expenses. Our selling expenses increased by $44.7 million, or 144.6%, from $30.9
million in 2009 to $75.7 million in 2010, primarily due to an increase in export expenses and our
overseas expansion in connection with the continued growth of our solar module business. Selling
expenses as a percentage of net revenues increased from 3.7% to 4.1%.
General and Administrative Expenses. Our general and administrative expenses increased by
$7.3 million, or 11.2%, from $65.4 million in 2009 to $72.7 million in 2010. The increase in
general and administrative expenses was primarily due to increased salaries and benefits and costs
related to the development and expansion of our overseas offices. General and administrative
expenses as a percentage of net revenues decreased from 7.7% to 3.9%.
Research and Development Expenses. Our research and development expenses increased by $13.2
million, or 242.4%, from $5.4 million in 2009 to $18.6 million in 2010, primarily due to increased
headcount of our research and development personnel, salaries and investments in research and
development projects. Research and development expenses as a percentage of net revenues increased
from 0.6% to 1.0%.
Foreign Exchange Gain (Loss). We had a foreign exchange loss of $36.2 million in 2010,
compared to a gain of $10.0 million in 2009. The change is primarily due to the depreciation of the
Euro against the U.S. dollar.
Interest Expenses, Net. Our interest expenses, net, increased from $25.4 million in 2009 to
$31.4 million in 2010, primarily due to additional bank borrowings to support our announced
capacity expansion.
Gain (Loss) on the Change in Fair Value of Derivative. In 2010, we had a gain on the change
in fair value of derivatives of $9.5 million, compared to a loss of $1.6 million in 2009, primarily
due to foreign currency forward contracts between the Euro and the U.S. dollar used to mitigate the
effects of exchange rate volatility. See Critical Accounting PoliciesDerivative Financial
Instruments for more details.
Income Tax Expenses. Our income tax expenses increased by $23.4 million, or 94.6%, from $24.7
million in 2009 to $48.1 million in 2010, primarily due to our increased profitability. Our
effective tax rates decreased from 20.4% in 2009 to 13.4% in 2010,
primarily due to profits before tax of
$200.3 million in Switzerland, where we were subject to an effective profit tax rate of 10.12% in 2010.
Net Income. As a result of the foregoing, our net income increased from $96.2 million in 2009
to $311.5 million in 2010, representing an increase of 223.7%. Our net margin increased from 11.6%
in 2009 to 16.8% in 2010, primarily due to improved gross margins and reduced operating expenses as
a percentage of net revenues in 2010.
73
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, 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 and defective silicon feedstock, 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.
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%.
74
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 $25.4 million in 2009, compared to
$21.6 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 increased from 7.1% in 2008 to 20.4% in 2009, primarily due to the expiration of the tax holiday on
taxable income related to registered capital contributions in 2008.
Net Income. As a result of the foregoing, our net income increased significantly from $60.7
million in 2008 to $96.2 million in 2009, representing an increase of 58.4%. Our net margin
increased from 7.3% in 2008 to 11.4% in 2009, primarily due to our improved gross margin in 2009.
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, our
follow-on offerings of ADSs in July 2009 and March 2010, 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.
75
As of December 31, 2008, 2009 and 2010, we had $132.2 million, $406.1 million and $752.7
million, respectively, in cash and cash equivalents, $45.0 million, $72.0 million and $38.0 million
in restricted cash and $401.2 million, $588.0 million and $596.6 million, respectively, in
outstanding borrowings
(inclusive of convertible senior notes outstanding of $138.0 million).
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, 2010, we have committed
approximately $164.8 million to capacity expansion project at our 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 $483.9 million, $893.9 million and $1,741.6 million with
various banks, of which $282.5 million, $510.4 million and $650.9 million were drawn down and
$201.4 million, $383.5 million and $1,090.7 million were available as of December 31, 2008, 2009
and 2010, respectively. As of December 31, 2010, we had $138.0 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, 2010, we had long-term silicon procurement advances
of $93.2 million, compared to $105.2 million as of December 31, 2009, due to the requirements
stipulated in our long-term silicon supply contracts. We also had the current portion of advances
to suppliers of $81.2 million in 2010, an increase from $41.3 million in 2009. 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.
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.
76
Cash Flows and Working Capital
The following table sets forth a summary of our cash flows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
(in thousands) |
|
Net cash provided by (used in) operating activities |
|
$ |
(30,920 |
) |
|
$ |
101,150 |
|
|
$ |
263,929 |
|
Net cash used in investing activities |
|
|
(118,523 |
) |
|
|
(156,377 |
) |
|
|
(102,852 |
) |
Net cash provided by financing activities |
|
|
221,788 |
|
|
|
329,036 |
|
|
|
186,045 |
|
Effect of exchange rate changes |
|
|
183 |
|
|
|
25 |
|
|
|
(433 |
) |
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
72,528 |
|
|
|
273,834 |
|
|
|
346,690 |
|
Cash and cash equivalents at the beginning of the year |
|
|
59,696 |
|
|
|
132,224 |
|
|
|
406,058 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the year |
|
$ |
132,224 |
|
|
$ |
406,058 |
|
|
$ |
752,748 |
|
|
|
|
|
|
|
|
|
|
|
Operating Activities
Net cash provided by operating activities amounted to $263.9 million in 2010, compared to net
cash provided by operating activities of $101.2 million in 2009. The net cash provided by
operating activities in 2010 was primarily due to higher net income offset by (1) an increase in account receivables of $94.8 million due to
increased sales, (2) an increase in advances to suppliers of $28.2 million due to increase in
prepayments to our polysilicon suppliers to secure polysilicon feedstock, and (3) an increase in
project assets of $33.0 million due to the development of solar power projects in Europe.
Net cash provided by operating activities amounted to $101.2 million in 2009, compared to net
cash used by operating activities of $30.9 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.
77
Investing Activities
Net cash used in investing activities amounted to $102.9 million in 2010, compared to $156.4
million in 2009. The net cash used in investing activities in 2010 was primarily a result of an
increase in property, plant and equipment expenditures of $144.1 million, comprised mainly of
purchases of cell, ingot and wafer production equipment, and a decrease in restricted cash of $34.0
million.
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 $136.5 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.
Financing Activities
Net cash provided by financing activities amounted to $186.0 million in 2010, which consisted
primarily of net proceeds received from our follow-on public offering of $176.3 million completed
in March 2010 and proceeds of $117.5 million from long-term bank borrowings, offset by net
repayment of short-term bank borrowings of $108.8 million.
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 $221.8 million in 2008, which consisted
primarily of net proceeds received from our public offering of convertible senior notes of $130.4
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.
78
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 $248.6 million, $267.4
million and $158.7 million as of December 31, 2008, 2009 and 2010. Our short-term borrowings
outstanding as of December 31, 2008, 2009 and 2010 bore an average interest rate of 7.11%, 5.14%
and 4.04%, 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, 2010, we pledged our equipment of a total
appraised value of RMB1,244.9 million ($188.0 million) to secure repayment of our borrowings of
RMB513.0 million ($77.5 million).
We had $14.6 million, $182.5 million and $300.0 million of long-term borrowings as of December
31, 2008, 2009 and 2010, respectively. 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. As of December 31, 2010, we had drawn down $275.1 million under
the facility. In January 2010, we entered into a 15-year credit facility with China Development
Bank under which we can draw down up to 100.0 million ($133.0 million) within one year commencing
in March 2010. The facility will expire in March 2025 and bears an interest rate of the six-month
Euro Interbank Offered Rate plus 3%. As of December 31, 2010, we had drawn down 50.0 million under
the facility.
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.
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. Holders of our convertible senior notes may require us to repurchase all or a
portion of the notes on July 15, 2011 or upon certain change in control
events. As such, we classified the notes as a current liability on our consolidated
balance sheets as of December 31, 2010.
The notes are convertible at any time prior to maturity, which is on July 15, 2013, unless
previously redeemed at the option of the holders into our ADSs at a conversion price of $16.94 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.
79
In
June 2009, we secured from Standard Chartered Bank (China) Limited revolving 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 five-year 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, 2010, we had drawn down approximately $275.1 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 5.53% for the year ended December 31, 2010. 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, 2010 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.
As of December 31, 2010, we had drawn down approximatedly US$66.5 million under the facility. 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.
80
Capital Expenditures
We had capital expenditures of $165.4 million, $136.5 million and $164.8 million in 2008, 2009
and 2010, 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
2011 will be approximately $380.0 million for manufacturing capacity expansion. As of December 31,
2010, we had an annual manufacturing capacity of ingots and wafers of approximately 750 MW and
cells and modules of approximately 1,200 MW. We plan to increase our annual manufacturing capacity
of ingots and wafers to approximately 1,200 MW and cells and modules to approximately 1,900 MW in
the second half of 2011. 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
81
In December 2010, the FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma
Information for Business Combinations. This ASU specifies that if a public company presents
comparative financial statements, the entity should only disclose revenue and earnings of the
combined entity as though the business combinations that occurred during the current year had
occurred as of the beginning of the comparable prior annual reporting period. ASU 2010-29 is
effective prospectively for business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December 15, 2010, with early
adoption permitted. The adoption of ASU 2010-29 will not impact our financial position, results of
operations, or cash flows, as its requirements only pertain to financial statement footnote
disclosure.
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, 2010, we had a total of 343 employees involved in
our research and development activities. Among them, 69 employees are under our technology
development department and are dedicated to research and development. We also have a team of 274
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 currently under
construction 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 have also formed a world-class academic committee dedicated to creating a technology
platform for the development of photovoltaic technologies. We are one of the two solar companies
in China commissioned by the PRC government to establish and operate research and development
centers.
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 2010, our average silicon
usage was approximately 5.9 grams per watt, compared to approximately 6.0 and 6.3 grams per watt in
the fourth quarters of 2009 and 2008, respectively.
Currently, we slice monocrystalline and multicrystalline wafers to a 180 micron thickness,
while maintaining a low breakage rate.
82
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. In April 2010, we announced our new
utility-scale TSM-PC14 solar module, our most powerful module to date with expected power output
targets ranging from 265 W to 290 W.
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 19.5% in monocrystalline solar cells and 18.0% in
multicrystalline solar cells in 2010 on a test production line basis, and plan to increase the
efficiencies to up to 18.5% in multicrystalline solar cells on a test production line basis by the end of 2011. In June 2010, we
announced our research agreement with Solar Energy Research Institute of Singapore to develop an
all-back-contact high-efficiency silicon wafer solar cell using our monocrystalline wafers. We
have a team of 29 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, 2008, 2009 and 2010, our research and
development expenditures were $3.0 million, $5.4 million and $18.6 million, representing
0.4%, 0.6% and 1.0% of our total revenues for 2008, 2009 and 2010, 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, 2010 to December 31,
2010 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.
83
F. Contractual Obligations and Commercial Commitments
The following table sets forth our contractual obligations and commercial commitments as of December 31, 2010:
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Payment Due by Period |
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Less than |
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More than |
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Total |
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1 Year |
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1-3 Years |
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3-5 Years |
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|
5 Years |
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|
(in thousands) |
|
Long-term borrowings(1) |
|
$ |
388,075 |
|
|
$ |
58,437 |
|
|
$ |
201,285 |
|
|
$ |
112,319 |
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|
$ |
16,034 |
|
Purchase obligations(2) |
|
$ |
14,813,811 |
|
|
$ |
1,030,825 |
|
|
$ |
2,188,066 |
|
|
$ |
3,195,023 |
|
|
$ |
8,399,897 |
|
Convertible senior notes(3) |
|
$ |
139,190 |
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|
$ |
139,190 |
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|
$ |
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Other long-term liabilities reflected
on our balance sheet(4) |
|
$ |
58,396 |
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$ |
19,685 |
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$ |
38,711 |
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Total |
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$ |
15,399,472 |
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|
$ |
1,228,452 |
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$ |
2,409,036 |
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$ |
3,307,342 |
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$ |
8,454,642 |
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(1) |
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Includes interests that are derived using an average rate of 5.25% per annum for long-term borrowings. |
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(2) |
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Consists of raw material and equipment purchase commitments and operating lease commitments. |
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(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. |
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(4) |
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Consists of accrued warranty costs for solar modules. |
Since December 31, 2010, 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 ProspectsA. Operating ResultsOverviewAvailability and
Price of Reclaimable Silicon Raw Materials and Polysilicon and Item 4. Information on the
CompanyBusiness OverviewSilicon 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.
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.
84
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.
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Item 6. |
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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.
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Directors and Executive Officers |
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Age |
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Position/Title |
Jifan Gao
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46 |
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Chairman and Chief Executive Officer |
Liping Qiu
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46 |
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Independent Director |
Jerome Corcoran
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61 |
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Independent Director |
Junfeng Li
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54 |
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Independent Director |
Peter Mak
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49 |
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Independent Director |
Qian Zhao
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42 |
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Independent Director |
Yeung Kwok On
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49 |
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Independent Director |
Terry Wang
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51 |
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Chief Financial Officer |
Suping Chen
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45 |
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Vice President of Manufacturing, East Campus |
Benjamin Hill
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40 |
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Vice President of Sales and Marketing (Europe) |
Qiang Huang
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37 |
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Vice President of Technology |
Chen Chung Yu
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45 |
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Senior Vice President of Operations |
Yu Zhu
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36 |
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Vice President of Project Development |
Diming Qiu
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|
70 |
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Head of Technology Committee |
Yang Shao
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45 |
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Chief Human Resources Officer |
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* |
|
Mr. Tzou has resigned as our chief strategy officer effective from October 27, 2010. |
85
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.
Independent Directors
Mr. Liping Qiu has been a director of our company since May 2006 and an independent director
of our company since 2010. He is a co-founder of Milestone Capital, a China-focused private equity
investment company, and the general partner of Milestone China Opportunities Fund I and Fund II,
L.P, a partnership that invests 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 worked at Merrill Lynchs direct investment group
and corporate finance group in Beijing and Hong Kong. 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.
Mr. Jerome Corcoran has been an independent director of our company since December 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.
86
Mr. Peter Mak has been an independent director and audit committee chairman of our company
since December 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.
Mr. Qian Zhao has been an independent director of our company since May 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.
Dr. Yeung Kwok On has been an independent director of our company since August 2010. Dr. Yeung
is the Philips Chair Professor of Human Resource Management, Associate Dean, and Director of Centre
of Organization and People Excellence at China Europe International Business School. He founded CEO
Learning Consortium, a learning platform where CEOs from more than thirty leading firms in China
joined together to share the best business practices in China. Between January 1999 and June 2002,
Dr. Yeung served as chief learning officer and chief human resources officer of Acer Group. Dr.
Yeung currently serves as a board director at Kingdee International Software Group, a company
listed on the Hong Kong Stock Exchange, and as an independent director of three private companies.
Dr. Yeung
received his bachelor and master degrees in management from the University of Hong Kong and
Ph.D. in human resource management from the University of Michigan.
87
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.
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.
88
Mr. Chen Chung Yu has been our senior vice president of operations since June 2010, before
which he had served as 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.
Ms. Yang Shao has been our Chief Human Resources Officer since September 2010. Prior to
joining us, Ms. Shao worked at Colgate-Palmolive (New York) in various roles, including the
position of Global Employee Relations & Engagement Director. Prior to Colgate-Palmolive, Ms. Shao
worked at Bristol-Myers Squibb and The Dun & Bradstreet Corporation serving roles relating to human
resources, marketing and business development. Ms. Shao holds a doctorate degree in social and
organizational psychology from Rutgers
University and received an Executive Education in Marketing Management at the Graduate School
of Business of Columbia University in New York.
B. Compensation of Directors and Executive Officers
Compensation of Directors and Executive Officers
For the year ended December 31, 2010, the aggregate cash compensation that we paid to
directors and executive officers was $3.1 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.
89
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, as amended by our board of directors in February 2007, May 2008 and August
2010, reserves 352,718,350 shares for issuance.
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.
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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. |
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|
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. |
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|
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. |
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.
90
Restricted Shares
As of March 15, 2011, our directors, officers, employees and consultants held an aggregate of
46,288,982 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, and restricted shares
granted to our chief executive officer and chief financial officer, which completely vest at grant
date. 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.
91
The following table summarizes, as of March 15, 2011, 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 |
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 |
Yeung Kwok On |
|
|
* |
|
|
|
0.00001 |
|
|
August 6, 2010 |
|
August 6, 2013 |
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 |
Yang Shao |
|
|
* |
|
|
|
0.00001 |
|
|
September 15, 2010 |
|
September 15, 2015 |
Directors and executive officers
as a group |
|
|
15,991,270 |
|
|
|
|
|
|
|
|
|
Other
individuals as a group |
|
|
30,297,712 |
|
|
|
0.00001 |
|
|
July 24, 2006 to |
|
September 15, 2010 |
|
|
|
|
|
|
|
|
|
|
February 14, 2011 |
|
to February 14, 2016 |
|
|
|
* |
|
Less than 1% of outstanding restricted shares. |
92
Share Options
As of March 15, 2011, our directors, officers, employees and consultants held an aggregate of
32,597,839 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.
The following table summarizes, as of March 15, 2011, 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 |
Jerome Corcoran |
|
|
|
|
|
|
|
|
|
|
|
|
Junfeng Li |
|
|
|
|
|
|
|
|
|
|
|
|
Peter Mak |
|
|
|
|
|
|
|
|
|
|
|
|
Liping Qiu |
|
|
|
|
|
|
|
|
|
|
|
|
Qian Zhao |
|
|
|
|
|
|
|
|
|
|
|
|
Yeung Kwok On |
|
|
|
|
|
|
|
|
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary |
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
|
|
|
|
Underlying |
|
|
Exercise |
|
|
|
|
|
|
|
Outstanding |
|
|
Price |
|
|
|
|
|
Directors and Executive Officers |
|
Options |
|
|
($ per ADS) |
|
|
Date of Grant |
|
Final Expiration Date |
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 |
Yang Shao |
|
|
|
|
|
|
|
|
|
|
|
|
Directors and executive officers as
a group |
|
|
16,015,526 |
|
|
|
|
|
|
|
|
|
Other individuals as a group |
|
|
16,582,313 |
|
|
|
|
|
|
March 2, 2008 to |
|
March 2, 2011 to |
|
|
|
|
|
|
|
|
|
|
May 19, 2010 |
|
May 19, 2013 |
|
|
|
* |
|
Less than 1% of total outstanding options. |
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 August
2010, Mr. Jifan Gao and Mr. Qian Zhao 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.
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.
94
Audit Committee
Our audit committee consists of Mr. Liping Qiu, Mr. Peter Mak and Mr. Qian Zhao. Mr. Qiu, 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. 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 2010, our audit committee held meetings four times.
Compensation Committee
Our compensation committee consists of Mr. Jerome Corcoran, Dr. Yeung Kwok On 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. |
In 2010, our compensation committee held one meeting and passed written resolutions once.
95
Corporate Governance and Nominating Committee
Our corporate governance and nominating committee consists of Mr. Jerome Corcoran, Dr. Yeung
Kwok On 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 2010, our corporate governance and nominating committee held one meeting and passed
resolutions once.
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.
96
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 4,604, 7,891 and 12,863 employees as of December 31, 2008, 2009 and 2010, respectively.
As of December 31, 2010, we had 12,820 full-time employees, including 11,261 in manufacturing, 343
in research and development, 90 in sales and marketing and 1,126 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 15, 2011 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) |
|
|
256,036,099 |
|
|
|
6.44 |
% |
Liping Qiu |
|
|
* |
|
|
|
* |
|
Jerome Corcoran |
|
|
* |
|
|
|
* |
|
Junfeng Li |
|
|
* |
|
|
|
* |
|
Peter Mak |
|
|
* |
|
|
|
* |
|
Qian Zhao |
|
|
* |
|
|
|
* |
|
Yeung Kwok On |
|
|
* |
|
|
|
* |
|
Terry Wang |
|
|
* |
|
|
|
* |
|
Suping Chen |
|
|
* |
|
|
|
* |
|
Benjamin Hill |
|
|
* |
|
|
|
* |
|
Qiang Huang |
|
|
* |
|
|
|
* |
|
Cheng Chung Yu |
|
|
* |
|
|
|
* |
|
Yu Zhu |
|
|
* |
|
|
|
* |
|
Diming Qiu |
|
|
* |
|
|
|
* |
|
Yang Shao |
|
|
* |
|
|
|
* |
|
All Directors and Executive Officers as a Group(4) |
|
|
287,916,504 |
|
|
|
7.24 |
% |
|
|
|
|
|
|
|
|
|
Principal Shareholders: |
|
|
|
|
|
|
|
|
Wonder World Limited(5) |
|
|
242,587,083 |
|
|
|
6.31 |
% |
|
|
|
* |
|
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. |
97
|
|
|
(2) |
|
The percentage of beneficial ownership is calculated by dividing the number of shares
beneficially owned by such person or group by 3,974,454,192 ordinary shares, being the number
of shares outstanding as of March 15, 2011. |
|
(3) |
|
Includes 2,976,504 ordinary shares issuable upon the exercise of options exercisable within
60 days of the date of this annual report, 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, 3,614,388 ordinary shares held by Ms.
Chunyan Wu, 292,625 ordinary shares issuable upon the exercise of options held by Ms. Wu
exercisable within 60 days of this annual report and 1,194,812 restricted shares held by Ms.
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 15, 2011, 3,974,454,192 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 3,583,858,600 ordinary shares, or approximately 90.2% of our issued and outstanding shares,
were held by the record shareholders in the United States, represented by 71,677,172 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.
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Item 7. |
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Major Shareholders and Related Party Transactions |
A. Major Shareholders
Please refer to Item 6. Directors, Senior Management and EmployeesE. Share Ownership.
B. Related Party Transactions
Transactions with Certain Directors, Shareholders and Affiliates
Loans and Guarantees
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
that existed during the last three fiscal years include the following:
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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. |
98
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
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.
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, 2010, we had
drawn down approximately $275.1 million under the facility.
Purchase Contract
In 2008, 2009 and 2010, Trina China entered into wafer purchase contracts for a total price of
RMB79.4 million, RMB37.0 million and RMB69.9 million ($10.6 million), respectively, with Changzhou
Youze S&T Co., Ltd., a company controlled by the brother-in-law of Mr. Jifan Gao. The purchase
price was determined based on the current market price, and the transaction was approved by our
audit committee.
In 2010, Trina China purchased equipment maintenance services for a total price of RMB10.8
million ($1.6 million) from Changzhou Junhe Mechanical Co., Ltd., a company controlled by the
brother-in-law of Mr. Jifan Gao. The transaction was approved by our audit committee.
In 2010, Trina China provided PV technical consulting services for a total price of RMB3.0
million ($0.5 million) to Shanghai Zhenhe New Energy S&T Development Co., Ltd., a company in which
Trina China holds a 20% equity interest. The transaction was approved by our audit committee.
Amounts due to related parties were nil, nil and $0.7 million as of December 31, 2008, 2009
and 2010.
Employment Agreements
See Item 6. Directors, Senior Management and EmployeesManagementEmployment Agreements.
Share Incentive Plan
See Item 6. Directors, Senior Management and EmployeesManagementShare Incentive Plan.
99
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.
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Item 8. |
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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 June 2010, we received a notice of arbitration from Targray CZR s.r.o. in relation to a
contract dated August 26, 2008 for the sale of polysilicon raw materials, alleging that the quality
of products we supplied to Targray did not meet contracted specifications and claiming $4.1 million
in refunds and damages. The arbitration hearing is scheduled for September 2011.
Other than the aforementioned, 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.
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.
100
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Item 9. |
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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 April 13, 2011, the trading price of our ADSs on the
New York Stock Exchange has ranged from $2.86 to $35.43 per ADS.
The following table provides the high and low trading prices for our ADSs on the New York
Stock Exchange for the periods specified.
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Sales Price |
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High |
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Low |
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Annual High and Low |
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2006 (from December 19, 2006) |
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$ |
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 |
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27.79 |
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2.98 |
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2010 |
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31.89 |
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10.45 |
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Quarterly High and Low |
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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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First Quarter 2010 |
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31.19 |
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19.53 |
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Second Quarter 2010 |
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27.57 |
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14.85 |
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Third Quarter 2010 |
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30.59 |
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17.06 |
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Fourth Quarter 2010 |
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31.89 |
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22.05 |
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Monthly High and Low |
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September 2010 |
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30.59 |
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25.70 |
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October 2010 |
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31.89 |
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25.77 |
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November 2010 |
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29.84 |
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22.05 |
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December 2010 |
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24.88 |
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22.10 |
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January 2011 |
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29.89 |
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22.90 |
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February 2011 |
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31.08 |
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25.91 |
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April 2011 (through April 13, 2011) |
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30.43 |
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27.62 |
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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.
101
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
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Item 10. |
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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.
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.
102
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.
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.
103
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.
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.
104
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.
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.
105
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. The State Tax Administration issued the Notice
Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax
Resident Enterprises on the Basis of De Facto Management Bodies, or SAT Circular 82, on April 22,
2009. SAT Circular 82 provides certain criteria for determining whether the de facto management
body of an offshore-incorporated enterprise controlled by PRC enterprises is located in China.
Although SAT Circular 82 only applies to offshore enterprises controlled by PRC enterprises and not
those controlled by PRC or foreign individuals or foreign enterprises, the criteria set forth
therein may reflect State Tax Administrations general position on how the de facto management
body test should be applied in determining the tax resident status of offshore enterprises,
regardless of whether they are controlled by PRC or foreign enterprises or individuals.
Accordingly, we may be considered a resident enterprise and may therefore be subject to the
enterprise income tax at 25% on our global income other than dividends from our PRC subsidiaries,
which could significantly increase our tax burden and materially and adversely affect our cash flow
and profitability. 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 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.
106
Pursuant to SAT Circular 698, where a non-resident enterprise transfers the equity interests
of a PRC resident enterprise indirectly via disposing of the equity interests of an overseas
holding company, or an Indirect Transfer, and such overseas holding company is located in a tax
jurisdiction that: (i) has an effective tax rate less than 12.5% or (ii) does not tax foreign
income of its residents, the foreign investor shall report to the competent tax authority of the
PRC resident enterprise this Indirect Transfer. Using a substance over form principle, the PRC
tax authority may disregard the existence of the overseas holding company if it lacks a reasonable
commercial purpose and was established for the purpose of avoiding PRC tax. As a result, gains
derived from such Indirect Transfer may be subject to PRC withholding tax at a rate of up to 10%.
SAT Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity
interests in a PRC resident enterprise to its related
parties at a price lower than the fair market value, the relevant tax authority has the power
to make a reasonable adjustment to the taxable income of the transaction.
United States Federal Income Taxation
The following discussion describes certain U.S. federal income tax consequences to U.S.
Holders (as defined below) under present law of an investment in the ADSs or ordinary shares. This
discussion applies only to U.S. Holders that hold the ADSs or ordinary shares as capital assets
(generally, property held for investment) and that have the U.S. dollar as their functional
currency. This discussion is based on the tax laws of the United States as of 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.
The following discussion neither deals with the tax consequences to any particular investor
nor describes all of the tax consequences applicable to persons in special tax situations such as:
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certain financial institutions; |
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regulated investment companies; |
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real estate investment trusts; |
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traders that elect to mark to market; |
107
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persons liable for alternative minimum tax; |
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persons holding an ADS or ordinary share as part of a straddle, hedging,
conversion or integrated transaction; |
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persons that actually or constructively own 10% or more of the total combined
voting power of all classes of our voting stock; |
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persons who acquired ADSs or ordinary shares pursuant to the exercise of any
employee share option or otherwise as compensation; or |
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partnerships or pass-through entities, or persons holding ADSs or ordinary shares through such entities. |
INVESTORS 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, LOCAL, NON-U.S. AND OTHER TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF ADSs OR ORDINARY SHARES.
The discussion below of the U.S. federal income tax consequences to U.S. Holders will apply
to you if you are the beneficial owner of ADSs or ordinary shares and you are, for U.S. federal
income tax purposes,
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an individual who is a citizen or 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) created or organized in the United States or under the laws of the
United States, any State thereof or the District of Columbia; |
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an estate, the income of which 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 primary supervision of a court within the
United States and the control of one or more U.S. persons for all substantial
decisions or (2) has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person. |
The discussion below assumes the representations contained in the deposit agreement are true
and that the obligations in the deposit agreement and any related agreement have been and will be
complied with in accordance with their terms. If you own ADSs, you should be treated as the owner
of the underlying ordinary shares represented by those ADSs for U.S. federal income tax purposes.
The U.S. Treasury has expressed concerns that intermediaries in the chain of ownership between
the holder of an ADS and the issuer of the security underlying the ADS may be taking actions that
are inconsistent with the beneficial ownership of the underlying security (for example,
pre-releasing ADSs to persons that do not have the beneficial ownership of the securities
underlying the ADSs). Accordingly, the creditability of any PRC taxes and the availability of the
reduced tax rate for dividends received by certain non-corporate U.S. Holders, including
individuals U.S. Holders (as discussed below), could be affected by actions taken by intermediaries
in the chain of ownership between the holders of ADSs and our company if as a result of such
actions the holders of ADSs are not properly treated as beneficial owners of underlying ordinary
shares.
108
Taxation of Dividends and Other Distributions on the ADSs or Ordinary Shares
Subject to the PFIC rules discussed below, the gross amount of any distributions we make to
you with respect to the ADSs or ordinary shares generally will be includible in your gross income
as 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 the distribution is paid
out of our current or accumulated earnings and profits (as determined under U.S. federal
income tax principles). Any such dividends will not be eligible for the dividends-received
deduction allowed to corporations in respect of dividends received from other U.S. corporations.
To the extent the amount of the distribution exceeds our current and accumulated earnings and
profits (as determined under U.S. federal income tax principles), such excess amount will be
treated first as a tax-free return of your tax basis in your ADSs or ordinary shares, and then, to
the extent such excess amount exceeds your tax basis in your ADSs or ordinary shares, as capital
gain. We currently do not, and 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 will
generally be 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.
With respect to certain non-corporate U.S. Holders, including individual U.S. Holders, for
taxable years beginning before January 1, 2013, any dividends may be taxed at the lower capital
gains rate applicable to qualified dividend income, provided (1) either (a) the ADSs are readily
tradable on an established securities market in the United States or (b) 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 neither a PFIC nor treated as such with respect to you (as
discussed below) for the taxable year in which the dividend was paid and the preceding taxable
year, and (3) certain holding period requirements are met. Under U.S. Internal Revenue Service
authority, ADSs will be considered for purposes 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. However, based on existing guidance, it is not entirely clear whether
dividends you receive with respect to the ordinary shares will be taxed as qualified dividend
income, because the ordinary shares are not themselves listed on a U.S. exchange. If we are
treated as a resident enterprise for PRC tax purposes under the new EIT Law, we may be eligible
for the benefits of the income tax treaty between the United States and the PRC. You should
consult your tax advisors regarding the availability of the lower capital gains rate applicable to
qualified dividend income for any dividends paid with respect to our ADSs or ordinary shares.
Any dividends will constitute foreign source income for foreign tax credit limitation
purposes. If the dividends are taxed as qualified dividend income (as discussed above), the amount
of the dividend taken into account for purposes of calculating the foreign tax credit limitation
will in general be limited to the gross amount of the dividend, multiplied by the reduced tax rate
applicable to qualified dividend income and divided by the highest tax rate normally applicable to
dividends. The limitation on foreign taxes eligible for credit is calculated separately with
respect to specific classes of income. For this purpose, dividends distributed by us with respect
to the ADSs or ordinary shares will generally constitute passive category income but could, in
the case of certain U.S. Holders, constitute general category income.
109
If PRC withholding taxes apply to any dividends paid to you with respect to our ADSs or
ordinary shares, the amount of the dividend would include withheld PRC taxes and,
subject to certain conditions and limitations, such PRC withholding taxes generally will be
treated as foreign taxes eligible for credit against your U.S. federal income tax liability. The
rules relating to the determination of the foreign tax credit are complex, and you should consult
your tax advisors regarding the availability of a foreign tax credit in your particular
circumstances, including the effects of any applicable income tax treaties.
Taxation of Disposition of ADSs or Ordinary Shares
Subject to the PFIC 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 for the ADS or ordinary share and your tax basis in the ADS or ordinary
share. The gain or loss generally will be capital gain or loss. If you are a non-corporate U.S.
Holder, including an individual U.S. Holder, that has held the ADS or ordinary share for more than
one year, you may be eligible for reduced tax rates. The deductibility of capital losses is
subject to limitations. Any gain or loss you recognize on a disposition of ADSs or ordinary shares
will generally be treated as U.S. source income or loss for foreign tax credit limitation purposes.
However, if we are treated as a resident enterprise for PRC tax purposes, 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 the 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 the gain as PRC source income for foreign tax credit purposes. You should
consult your tax advisors regarding the proper treatment of gain or loss in your particular
circumstances, including the effects of any applicable income tax treaties.
Passive Foreign Investment Company
Based on the market price of our ADSs, the value of our assets, and the composition of our
income and assets, we do not believe we were a PFIC for U.S. federal income tax purposes for our
taxable year ended December 31, 2010. However, the application of the PFIC rules is subject to
uncertainty in several respects, and we cannot assure you that the U.S. Internal Revenue Service
will not take a contrary position. A non-U.S. corporation will be a PFIC for U.S. federal income
tax purposes for any taxable year if either:
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at least 75% of its gross income for such year is passive income; 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 such year is attributable to assets that produce
passive income or are held for the production of passive income. |
For this purpose, 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, more than 25% (by value) of the stock. In applying this rule, while it is not clear, we
believe the contractual arrangements between us and our affiliated entities should be treated as
ownership of stock.
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A separate determination must be made after the close of each taxable year as to whether we
were a PFIC for that year. Because the value of our assets for purposes of the PFIC test will
generally be determined by reference to the market price of our ADSs and ordinary shares,
fluctuations in the market price of the ADSs and ordinary shares may cause us to become a PFIC. In
addition, changes in the composition of our income or assets may cause us to become a PFIC.
If we are a PFIC for any taxable year during which you hold ADSs or ordinary shares, we
generally will continue to be treated as a PFIC with respect to you for all succeeding years during
which you hold ADSs or ordinary shares, unless we cease to be a PFIC and you make a deemed sale
election with respect to the ADSs or ordinary shares. If such election is made, you will be deemed
to have sold ADSs or ordinary shares you hold at their fair market value on the last day of the
last taxable year in which we qualified as a PFIC, and any gain from such deemed sale would be
subject to the consequences described in the following two paragraphs. After the deemed sale
election, your ADSs or ordinary shares with respect to which the deemed sale election was made will
not be treated as shares in a PFIC unless we subsequently become a PFIC.
For each taxable year that we are treated as a PFIC with respect to you, you will be subject
to special tax rules with respect to any excess distribution you receive and any gain you
recognize 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 recognized 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 years in your
holding period prior to the first taxable year in which we were 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 individuals or corporations, as applicable, for each such
year and the interest charge generally applicable to underpayments of tax will be
imposed on the resulting tax attributable to each such year. |
The tax liability for amounts allocated to taxable 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 or other disposition of the ADSs or ordinary shares cannot be treated
as capital, even if you hold the ADSs or ordinary shares as capital assets.
If we are treated as a PFIC with respect to you for any taxable year, to the extent any of our
subsidiaries are also PFICs or we make direct or indirect equity investments in other entities that
are PFICs, you may be deemed to own shares in such lower-tier PFICs that are directly or indirectly
owned by us in that proportion which the value of the ADSs or ordinary shares you own bears to the
value of all of our ADSs or ordinary shares, and you may be subject to the adverse tax consequences
described in the preceding two paragraphs with respect to the shares of such lower-tier PFICs that
you would be deemed to own. You should consult your tax advisors regarding the application of the
PFIC rules to any of our subsidiaries.
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A U.S. Holder of marketable stock (as defined below) in a PFIC may make a mark-to-market
election for such stock to elect out of the PFIC rules described above regarding excess
distributions and recognized gains. If you make a mark-to-market election for the ADSs or ordinary
shares, you will include in income for each year we are a PFIC 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 will be 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 will be 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, will be treated as ordinary
income. Ordinary loss treatment will also apply 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 other
disposition of the ADSs or ordinary shares, to the extent 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, any distributions we make would generally be subject to the rules
discussed above under Taxation of Dividends and Other Distributions on the ADSs or Ordinary
Shares, except the lower rate applicable to qualified dividend income would not apply.
The mark-to-market election is available only for marketable stock, which is stock that is
regularly traded on a qualified exchange or other market, as defined in applicable U.S. Treasury
regulations. Our ADSs are listed on the New York Stock Exchange, which is a qualified exchange or
other market for these purposes. Consequently, if the ADSs continue to be listed on the New York
Stock Exchange and are regularly traded, and you are a holder of ADSs, we expect the mark-to-market
election would be available to you if we were to become a PFIC. Because a mark-to-market election
cannot be made for equity interests in any lower-tier PFICs that we own, a U.S. Holder may continue
to be subject to the PFIC rules with respect to its indirect interest in any investments held by us
that are treated as an equity interest in a PFIC for U.S. federal income tax purposes. You should
consult your tax advisors as to the availability and desirability of a mark-to-market election, as
well as the impact of such election on interests in any lower-tier PFICs.
Alternatively, if a non-U.S. corporation is a PFIC, a holder of shares in that corporation may
avoid taxation under the PFIC rules described above regarding excess distributions and recognized
gains by making a qualified electing fund election to include in income its share of the
corporations income on a current basis. However, you may make a qualified electing fund election
with respect to your ADSs or ordinary shares only if we agree to furnish you annually with certain
tax information, and we currently do not intend to prepare or provide such information.
Under newly enacted legislation, unless otherwise provided by the U.S. Treasury, each U.S.
Holder of a PFIC is required to file an annual report containing such information as the U.S.
Treasury may require. If we are or become a PFIC, you should consult your tax advisor regarding
any reporting requirements that may apply to you.
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You are strongly 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
Any dividend payments with respect to ADSs or ordinary shares and proceeds from the sale,
exchange or redemption of ADSs or ordinary shares may be subject to information reporting to the
U.S. Internal Revenue Service and possible U.S. backup withholding. Backup withholding will not
apply, however, to a U.S. Holder that furnishes a correct taxpayer identification number and makes
any other required certification or that is otherwise exempt from backup withholding. U.S. Holders
that are required to establish their exempt status generally must provide such certification on
U.S. Internal Revenue Service 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 U.S. Internal Revenue Service and furnishing any required information in a timely manner.
Additional Reporting Requirements
For taxable years beginning after March 18, 2010, certain U.S. Holders who are individuals are
required to report information relating to an interest in our ADSs or ordinary shares, subject to
certain exceptions (including an exception for ADSs or ordinary shares held in accounts maintained
by certain financial institutions). U.S. Holders should consult their tax advisers regarding the
effect, if any, of these rules on their ownership and disposition of the ADSs and ordinary shares.
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.
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Item 11. |
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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 5.9% in 2008, -0.7% in
2009 and 3.3% in 2010. 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 Renminbi, with
the remainder in U.S. dollars. 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, 2008, 2009 and 2010, we held $105.2 million, $288.0 million
and $377.3 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 RMB6.6000 for $1.00, the exchange rate as of December 31, 2010, our accounts
receivable would have been RMB694.3 million, RMB1,900.5 million and RMB2,490.3 million as of
December 31, 2008, 2009 and 2010, respectively. Assuming that Renminbi appreciates by a rate of
10% to an exchange rate of RMB5.94 to $1, 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 RMB624.8 million, RMB1,710.4 million and RMB2,241.3 million in accounts receivable
as of December 31, 2008, 2009 and 2010, respectively. These amounts would therefore reflect a
theoretical loss of RMB69.5 million, RMB190.1 million and RMB249.0 million for our accounts
receivable as of December 31, 2008, 2009 and 2010, 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 $71.9 million, $125.6 million and $309.6
million as of December 31, 2008, 2009 and 2010, 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. In 2008 and 2010, we had a foreign exchange loss of $11.8
million and $36.1 million, respectively. In 2009, we had a foreign exchange gain of $10.0 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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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, 2010, we had foreign currency forward contracts with a total contract value of
approximately 985.8 million ($1,310.8 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,
2010, we recorded a change in fair value of forward foreign currency exchange contracts of $36.2
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.
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 $0.3
million in interest income from the assumed average cash and cash equivalent balance in 2010. 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.
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Item 12. |
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Description of Securities Other than Equity Securities |
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
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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.
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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 2010, we
received $176,940 from the depositary in reimbursements relating to
the ADS facility.
PART II
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Item 13. |
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Defaults, Dividend Arrearages and Delinquencies |
None.
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Item 14. |
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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 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 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 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.
Use of Proceeds
In August 2009, we completed a 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 option to purchase additional
ADSs. The ordinary shares underlying the ADSs offered and sold were registered pursuant to our
automatic shelf registration statement on Form F-3 (File number: 333-160826) filed with the SEC on
July 27, 2009. Goldman Sachs (Asia) L.L.C. and Credit Suisse Securities (USA) LLC acted as joint
bookrunners, and Piper Jaffray
& Co acted as a co-manager for the offering. The aggregate price of the offering amount
registered and sold was approximately $148.8 million, of which we received net proceeds of
approximately $141.5 million.
We have used all of the proceeds from this offering for the purposes indicated in the
prospectus of this offering.
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In March 2010, we completed another follow-on offering of our ADSs. In this follow-on public
offering, we issued and sold an aggregate of 454,250,000 ordinary shares, in the form of ADSs, at
$20.25 per ADS on March 24, 2010. The ordinary shares underlying the ADSs offered and sold were
registered pursuant to our automatic shelf registration statement on Form F-3 (File number:
333-160826) filed with the SEC on July 27, 2009. Credit Suisse Securities (USA) LLC, Goldman Sachs
(Asia) L.L.C. and Barclays Capital Inc. acted as bookrunners of the offering. The aggregate price
of the offering amount registered and sold was approximately $184.0 million, of which we received
net proceeds of approximately $176.3 million, after deducting underwriting discounts and
commissions and estimated offering expenses payable by our company. The net proceeds from this
follow-on public offering were allocated as follows:
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approximately $100 million for capacity expansion; |
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approximately $50 million for research and development purposes, including the
expansion of our research and development center; and |
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the remaining amount for general corporate purposes. |
As of December 31, 2010, our cash resources amounted to $725.7 million, comprising of cash on
hand and demand deposits.
|
|
|
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.
119
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, 2010. 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, 2010.
Attestation Report of the Registered Public Accounting Firm
The effectiveness of internal control over financial reporting as of December 31, 2010 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,
2010. The attestation report issued by Deloitte Touche Tohmatsu CPA Ltd. can be found on page F-3
of this annual report.
Changes in Internal Controls
There were no changes in our internal control over financial reporting that occurred during
the year ended December 31, 2010 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
|
|
|
Item 16A. |
|
Audit Committee Financial Expert |
Mr. Peter Mak qualifies as an audit committee financial expert as defined in Item 16A of
Form 20-F. All the members of our audit committee, namely, Mr. Liping Qiu, Mr. Peter 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.
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.
120
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
Audit fees (1) |
|
$ |
973,902 |
|
|
$ |
1,184,260 |
|
Audit-related fees(2) |
|
$ |
151,103 |
|
|
$ |
150,543 |
|
Tax fees(3) |
|
$ |
185,552 |
|
|
$ |
201,810 |
|
All other fees |
|
|
|
|
|
|
|
|
|
|
|
(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 2009 involve principally the issuance of a comfort letter, providing listing advice
in connection with our follow-on public offering. Services comprising the
fees disclosed under the category of Audit-related fees in 2010 involve principally the
issuance of a comfort letter, providing listing advice in connection with our public offering
of ADSs in March 2010. |
|
(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. |
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.
121
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.
|
|
|
|
|
|
1.1 |
|
|
Amended and Restated Memorandum and Articles of Association of the
Registrant (incorporated by reference to Exhibit 1.1 of our Annual Report
on Form 20-F filed with the Securities and Exchange Commission on March
17, 2010) |
|
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) |
122
|
|
|
|
|
|
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 |
|
|
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) |
|
4.6 |
|
|
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) |
|
4.7 |
|
|
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) |
|
4.8 |
|
|
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) |
|
4.9 |
|
|
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). |
|
4.10 |
|
|
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). |
|
4.11 |
|
|
Supplemental Polysilicon Supply Agreement II between Jiangsu Zhongneng
Polysilicon Technology Development Co., Ltd. and Trina China dated August
24, 2009 (incorporated by reference to Exhibit 4.23 of our Annual Report
on Form 20-F filed with the Securities and Exchange Commission on March
17, 2010) |
|
4.12 |
|
|
Syndicated Loan Agreement among Trina China, Agricultural Bank of China
and various parties mentioned therein dated September 28, 2009
(incorporated by reference to Exhibit 4.24 of our Annual Report on Form
20-F filed with the Securities and Exchange Commission on March 17, 2010) |
|
4.13 |
|
|
Maximum Amount Property Mortgage Contract between Trina China and
Agricultural Bank of China dated September 28, 2009 (incorporated by
reference to Exhibit 4.25 of our Annual Report on Form 20-F filed with the
Securities and Exchange Commission on March 17, 2010) |
|
4.14 |
|
|
Letter of Guarantee and Undertaking entered into among Trina, Agricultural
Bank of China and various parties mentioned therein dated September 28,
2009 (incorporated by reference to Exhibit 4.26 of our Annual Report on
Form 20-F filed with the Securities and Exchange Commission on March 17,
2010) |
|
4.15 |
|
|
Letter of Guarantee entered into among Jifan Gao, Chunyan Wu, Agricultural
Bank of China and various parties mentioned therein dated September 28,
2009 (incorporated by reference to Exhibit 4.27 of our Annual Report on
Form 20-F filed with the Securities and Exchange Commission on March 17,
2010) |
|
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 |
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.
|
|
|
|
|
|
Trina Solar Limited
|
|
|
By: |
/s/ Jifan Gao |
|
|
|
Name: |
Jifan Gao |
|
|
|
Title: |
Chairman and Chief Executive Officer |
|
Date: April 18, 2011
124
EXHIBIT INDEX
|
|
|
|
|
|
1.1 |
|
|
Amended and Restated Memorandum and Articles of Association of the
Registrant (incorporated by reference to Exhibit 1.1 of our Annual Report
on Form 20-F filed with the Securities and Exchange Commission on March
17, 2010) |
|
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 |
|
|
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) |
|
4.6 |
|
|
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) |
|
4.7 |
|
|
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) |
125
|
|
|
|
|
|
4.8 |
|
|
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) |
|
4.9 |
|
|
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). |
|
4.10 |
|
|
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). |
|
4.11 |
|
|
Supplemental Polysilicon Supply Agreement II between Jiangsu Zhongneng
Polysilicon Technology Development Co., Ltd. and Trina China dated August
24, 2009 (incorporated by reference to Exhibit 4.23 of our Annual Report
on Form 20-F filed with the Securities and Exchange Commission on March
17, 2010) |
|
4.12 |
|
|
Syndicated Loan Agreement among Trina China, Agricultural Bank of China
and various parties mentioned therein dated September 28, 2009
(incorporated by reference to Exhibit 4.24 of our Annual Report on Form
20-F filed with the Securities and Exchange Commission on March 17, 2010) |
|
4.13 |
|
|
Maximum Amount Property Mortgage Contract between Trina China and
Agricultural Bank of China dated September 28, 2009 (incorporated by
reference to Exhibit 4.25 of our Annual Report on Form 20-F filed with the
Securities and Exchange Commission on March 17, 2010) |
|
4.14 |
|
|
Letter of Guarantee and Undertaking entered into among Trina, Agricultural
Bank of China and various parties mentioned therein dated September 28,
2009 (incorporated by reference to Exhibit 4.26 of our Annual Report on
Form 20-F filed with the Securities and Exchange Commission on March 17,
2010) |
|
4.15 |
|
|
Letter of Guarantee entered into among Jifan Gao, Chunyan Wu, Agricultural
Bank of China and various parties mentioned therein dated September 28,
2009 (incorporated by reference to Exhibit 4.27 of our Annual Report on
Form 20-F filed with the Securities and Exchange Commission on March 17,
2010) |
|
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 |
126
TRINA SOLAR LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-6 |
|
|
|
|
|
|
|
|
|
F-7 |
|
|
|
|
|
|
|
|
|
F-8 |
|
|
|
|
|
|
|
|
|
F-10 |
|
|
|
|
|
|
|
|
|
F-53 |
|
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, 2008, 2009, and 2010, 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, 2010 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, 2008, 2009, and 2010,
and the results of their operations and their cash flows for each of the three years in the period
ended December 31, 2010, 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,
2010, based on the criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 18, 2011
expressed an unqualified opinion on the Companys internal control over financial reporting.
/s/ DELOITTE TOUCHE TOHMATSU CPA LTD.
Shanghai, China
April 18, 2011
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 of Trina Solar Limited and subsidiaries
(the Company) as of December 31, 2010, 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, 2010, 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, 2010, of the
Company and our report dated April 18, 2011 expressed an unqualified opinion on those financial statements and financial statement
schedule.
/s/ DELOITTE TOUCHE TOHMATSU CPA LTD.
Shanghai, China
April 18, 2011
F-3
TRINA SOLAR LIMITED
CONSOLIDATED BALANCE SHEETS
(In U.S. dollars, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
132,223,776 |
|
|
|
406,057,906 |
|
|
|
752,747,586 |
|
Restricted cash |
|
|
44,991,233 |
|
|
|
72,005,449 |
|
|
|
38,035,171 |
|
Investment in securities |
|
|
|
|
|
|
4,034,296 |
|
|
|
295,715 |
|
Inventories |
|
|
85,687,407 |
|
|
|
81,153,759 |
|
|
|
79,126,066 |
|
Project assets |
|
|
|
|
|
|
1,938,519 |
|
|
|
34,979,030 |
|
Accounts receivable, net of allowance for doubtful accounts
of $1,810,284, $13,859,407 and $19,295,063 as of December 31,
2008, 2009 and 2010, respectively |
|
|
105,192,782 |
|
|
|
287,950,162 |
|
|
|
377,317,525 |
|
Current portion of advances to suppliers, net of allowance
of $7,944,150, 5,980,338 and $6,143,783 as of December 31,
2008, 2009 and 2010, respectively |
|
|
42,247,209 |
|
|
|
41,303,271 |
|
|
|
81,230,496 |
|
Deferred tax assets |
|
|
2,109,095 |
|
|
|
5,543,246 |
|
|
|
10,258,325 |
|
Prepaid expenses and other current assets |
|
|
7,431,877 |
|
|
|
27,530,847 |
|
|
|
41,149,147 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
419,883,379 |
|
|
|
927,517,455 |
|
|
|
1,415,139,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances to suppliers |
|
|
130,351,513 |
|
|
|
105,188,020 |
|
|
|
93,248,404 |
|
Property, plant and equipment, net |
|
|
357,593,802 |
|
|
|
476,857,803 |
|
|
|
571,466,625 |
|
Prepaid land use right |
|
|
26,915,217 |
|
|
|
27,422,386 |
|
|
|
37,047,547 |
|
Deferred tax assets |
|
|
2,807,488 |
|
|
|
9,926,063 |
|
|
|
14,667,435 |
|
Other noncurrent assets |
|
|
2,564,428 |
|
|
|
1,786,358 |
|
|
|
520,360 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
|
940,115,827 |
|
|
|
1,548,698,085 |
|
|
|
2,132,089,432 |
|
|
|
|
|
|
|
|
|
|
|
(Continued)
F-4
TRINA SOLAR LIMITED
CONSOLIDATED BALANCE SHEETS
(In U.S. dollars, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
As adjusted |
|
|
As adjusted |
|
|
|
|
|
|
|
(Note 20) |
|
|
(Note 20) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings, and current portion
of long-term bank borrowings |
|
|
248,557,724 |
|
|
|
267,427,776 |
|
|
|
158,652,178 |
|
Accounts payable |
|
|
62,503,917 |
|
|
|
186,535,492 |
|
|
|
188,000,260 |
|
Amount due to related parties |
|
|
|
|
|
|
|
|
|
|
668,983 |
|
Income tax payable |
|
|
3,648,772 |
|
|
|
12,873,979 |
|
|
|
34,156,619 |
|
Accrued expenses and other current liabilities |
|
|
21,003,231 |
|
|
|
48,564,078 |
|
|
|
82,328,955 |
|
Convertible notes |
|
|
|
|
|
|
|
|
|
|
136,262,524 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
335,713,644 |
|
|
|
515,401,325 |
|
|
|
600,069,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term bank borrowings |
|
|
14,631,434 |
|
|
|
182,516,037 |
|
|
|
299,977,412 |
|
Convertible notes |
|
|
129,803,300 |
|
|
|
133,035,624 |
|
|
|
|
|
Accrued warranty costs |
|
|
12,473,142 |
|
|
|
21,023,381 |
|
|
|
38,710,874 |
|
Other noncurrent liabilities |
|
|
10,993,042 |
|
|
|
17,409,664 |
|
|
|
19,684,535 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
503,614,562 |
|
|
|
869,386,031 |
|
|
|
958,442,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 17) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares ($0.00001 par value;
73,000,000,000 shares authorized,
2,958,183,059, 3,486,901,296 and 3,964,085,356 shares
issued and outstanding as of December 31, 2008, 2009 and 2010,
respectively) |
|
|
29,581 |
|
|
|
34,869 |
|
|
|
39,641 |
|
Additional paid-in capital |
|
|
312,964,326 |
|
|
|
459,519,178 |
|
|
|
642,829,691 |
|
Retained earnings |
|
|
112,091,214 |
|
|
|
208,317,651 |
|
|
|
519,770,631 |
|
Accumulated other comprehensive income |
|
|
11,416,144 |
|
|
|
11,440,356 |
|
|
|
11,007,129 |
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
436,501,265 |
|
|
|
679,312,054 |
|
|
|
1,173,647,092 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
940,115,827 |
|
|
|
1,548,698,085 |
|
|
|
2,132,089,432 |
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-5
TRINA SOLAR LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(In U.S. dollars, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
As adjusted |
|
|
As adjusted |
|
|
|
|
|
|
|
(Note 20) |
|
|
(Note 20) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
831,900,852 |
|
|
|
845,135,575 |
|
|
|
1,857,689,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
667,459,287 |
|
|
|
607,981,677 |
|
|
|
1,273,328,214 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
164,441,565 |
|
|
|
237,153,898 |
|
|
|
584,361,060 |
|
|
|
|
|
|
|
|
|
|
|
Selling expenses |
|
|
20,302,251 |
|
|
|
30,939,366 |
|
|
|
75,677,623 |
|
General and administrative expenses |
|
|
41,113,257 |
|
|
|
65,406,239 |
|
|
|
72,710,154 |
|
Research and development expenses |
|
|
3,039,154 |
|
|
|
5,438,909 |
|
|
|
18,624,846 |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
64,454,662 |
|
|
|
101,784,514 |
|
|
|
167,012,623 |
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
99,986,903 |
|
|
|
135,369,384 |
|
|
|
417,348,437 |
|
Foreign exchange (loss) gain |
|
|
(11,801,559 |
) |
|
|
9,957,597 |
|
|
|
(36,155,829 |
) |
Interest expense |
|
|
(24,557,701 |
) |
|
|
(27,095,079 |
) |
|
|
(33,952,126 |
) |
Interest income |
|
|
2,943,611 |
|
|
|
1,666,878 |
|
|
|
2,590,210 |
|
(Loss) gain on change in fair value of derivative |
|
|
(1,067,079 |
) |
|
|
(1,590,098 |
) |
|
|
9,475,794 |
|
Other (expense) income, net |
|
|
(155,614 |
) |
|
|
2,613,586 |
|
|
|
215,692 |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
65,348,561 |
|
|
|
120,922,268 |
|
|
|
359,522,178 |
|
Income tax expense |
|
|
4,609,535 |
|
|
|
24,695,831 |
|
|
|
48,069,198 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
60,739,026 |
|
|
|
96,226,437 |
|
|
|
311,452,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per ordinary share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.02 |
|
|
|
0.04 |
|
|
|
0.09 |
|
Diluted |
|
|
0.02 |
|
|
|
0.03 |
|
|
|
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
2,501,202,680 |
|
|
|
2,724,185,761 |
|
|
|
3,402,701,503 |
|
Diluted |
|
|
2,690,723,390 |
|
|
|
3,131,505,181 |
|
|
|
3,833,713,796 |
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other |
|
|
Total |
|
|
|
|
|
|
Ordinary shares |
|
|
Additional |
|
|
Retained |
|
|
comprehensive |
|
|
shareholders |
|
|
Comprehensive |
|
|
|
Shares |
|
|
Amount |
|
|
paid-in capital |
|
|
earning |
|
|
income |
|
|
equity |
|
|
income |
|
|
Balance at January 1, 2008 |
|
|
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 |
|
|
|
4,061,927 |
|
|
|
|
|
|
|
|
|
|
|
4,066,000 |
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,739,026 |
|
|
|
|
|
|
|
60,739,026 |
|
|
|
60,739,026 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
182,679 |
|
|
|
182,679 |
|
|
|
182,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008, as adjusted
(Note 20) |
|
|
2,958,183,059 |
|
|
|
29,581 |
|
|
|
312,964,326 |
|
|
|
112,091,214 |
|
|
|
11,416,144 |
|
|
|
436,501,265 |
|
|
|
60,921,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,226,437 |
|
|
|
|
|
|
|
96,226,437 |
|
|
|
96,226,437 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,212 |
|
|
|
24,212 |
|
|
|
24,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009, as adjusted
(Note 20) |
|
|
3,486,901,296 |
|
|
|
34,869 |
|
|
|
459,519,178 |
|
|
|
208,317,651 |
|
|
|
11,440,356 |
|
|
|
679,312,054 |
|
|
|
96,250,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
5,955,047 |
|
|
|
|
|
|
|
|
|
|
|
5,955,047 |
|
|
|
|
|
Issuance of restricted shares to employees |
|
|
27,528,391 |
|
|
|
275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
275 |
|
|
|
|
|
Issuance of ordinary shares pursuant to
share option plan |
|
|
4,503,300 |
|
|
|
45 |
|
|
|
1,088,931 |
|
|
|
|
|
|
|
|
|
|
|
1,088,976 |
|
|
|
|
|
Repurchase of restricted shares |
|
|
(9,097,633 |
) |
|
|
(91 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(91 |
) |
|
|
|
|
Issuance of ordinary shares, net of issue costs |
|
|
454,250,000 |
|
|
|
4,543 |
|
|
|
176,266,535 |
|
|
|
|
|
|
|
|
|
|
|
176,271,078 |
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
311,452,980 |
|
|
|
|
|
|
|
311,452,980 |
|
|
|
311,452,980 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(433,227 |
) |
|
|
(433,227 |
) |
|
|
(433,227 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
|
3,964,085,354 |
|
|
|
39,641 |
|
|
|
642,829,691 |
|
|
|
519,770,631 |
|
|
|
11,007,129 |
|
|
|
1,173,647,092 |
|
|
|
311,019,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-7
TRINA SOLAR LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
As adjusted |
|
|
As adjusted |
|
|
|
|
|
|
|
(Note 20) |
|
|
(Note 20) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
60,739,026 |
|
|
|
96,226,437 |
|
|
|
311,452,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income
to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
20,139,856 |
|
|
|
34,120,465 |
|
|
|
52,279,855 |
|
Share-based compensation |
|
|
4,024,780 |
|
|
|
4,278,502 |
|
|
|
5,955,047 |
|
(Gain) loss on change in fair value of investment in securities |
|
|
|
|
|
|
(484,008 |
) |
|
|
812,929 |
|
Loss (gain) on change in fair value of derivative |
|
|
1,067,079 |
|
|
|
1,590,098 |
|
|
|
(9,475,794 |
) |
Loss on disposal of property, plant and equipment |
|
|
341,911 |
|
|
|
210,039 |
|
|
|
1,772,161 |
|
Allowance for accounts receivable, net of recoveries |
|
|
1,467,471 |
|
|
|
12,307,522 |
|
|
|
5,435,656 |
|
Allowance for other receivables |
|
|
118,567 |
|
|
|
2,708,554 |
|
|
|
1,542,083 |
|
Inventory write-down |
|
|
21,516,138 |
|
|
|
23,127,176 |
|
|
|
10,195,272 |
|
Allowance for (recovery of) advances to suppliers |
|
|
5,866,999 |
|
|
|
(1,963,812 |
) |
|
|
163,445 |
|
Amortization of convertible bond issuance costs |
|
|
1,783,387 |
|
|
|
3,905,195 |
|
|
|
3,899,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
(48,656,015 |
) |
|
|
(18,593,528 |
) |
|
|
(8,167,579 |
) |
Project assets |
|
|
|
|
|
|
|
|
|
|
(33,040,511 |
) |
Accounts receivable |
|
|
(34,304,622 |
) |
|
|
(195,064,903 |
) |
|
|
(94,803,019 |
) |
Prepaid expenses and other current assets |
|
|
(3,069,452 |
) |
|
|
(26,230,849 |
) |
|
|
(4,935,390 |
) |
Investment in securities |
|
|
|
|
|
|
380,331 |
|
|
|
2,925,652 |
|
Advances to suppliers |
|
|
(81,775,315 |
) |
|
|
24,140,624 |
|
|
|
(28,151,054 |
) |
Amount due from related parties |
|
|
613,925 |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
4,503,708 |
|
|
|
106,769,263 |
|
|
|
(2,406,437 |
) |
Accrued expenses and other current liabilities |
|
|
7,110,807 |
|
|
|
27,560,847 |
|
|
|
33,764,877 |
|
Accrued warranty costs |
|
|
7,987,007 |
|
|
|
8,550,239 |
|
|
|
17,687,493 |
|
Other noncurrent liabilities |
|
|
803,699 |
|
|
|
(1,060,183 |
) |
|
|
(5,179,337 |
) |
Income tax payable |
|
|
2,242,882 |
|
|
|
9,225,207 |
|
|
|
21,282,640 |
|
Deferred taxes |
|
|
(3,442,023 |
) |
|
|
(10,552,726 |
) |
|
|
(9,456,451 |
) |
Prepaid land use right |
|
|
|
|
|
|
|
|
|
|
(9,625,161 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
(30,920,185 |
) |
|
|
101,150,490 |
|
|
|
263,929,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(165,420,697 |
) |
|
|
(136,482,581 |
) |
|
|
(144,124,272 |
) |
Prepaid land use right |
|
|
(21,675,312 |
) |
|
|
(507,169 |
) |
|
|
|
|
Subsidies of government for property, plant
and equipment |
|
|
10,189,345 |
|
|
|
7,476,804 |
|
|
|
7,454,208 |
|
Proceeds from disposal of property,
plant and equipment |
|
|
|
|
|
|
150,388 |
|
|
|
3,622 |
|
Increase in investments in affiliates |
|
|
|
|
|
|
|
|
|
|
(155,888 |
) |
Decrease (increase) in restricted cash |
|
|
58,384,248 |
|
|
|
(27,014,216 |
) |
|
|
33,970,278 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(118,522,416 |
) |
|
|
(156,376,774 |
) |
|
|
(102,852,052 |
) |
|
|
|
|
|
|
|
|
|
|
(Continued)
F-8
TRINA SOLAR LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
As adjusted |
|
|
As adjusted |
|
|
|
|
|
|
|
(Note 20) |
|
|
(Note 20) |
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of share options |
|
|
|
|
|
|
744,732 |
|
|
|
1,088,976 |
|
Proceeds from issuance of ordinary shares,
net of issuance costs |
|
|
|
|
|
|
141,536,815 |
|
|
|
176,271,078 |
|
Proceeds from issuance of convertible
notes, net of issuance costs of $7,624,301 |
|
|
130,375,699 |
|
|
|
|
|
|
|
|
|
Proceeds from short-term bank borrowings |
|
|
191,281,784 |
|
|
|
536,530,305 |
|
|
|
375,979,373 |
|
Repayment of short-term bank borrowings |
|
|
(106,287,149 |
) |
|
|
(532,291,687 |
) |
|
|
(484,754,971 |
) |
Proceeds from long-term bank borrowings |
|
|
6,417,432 |
|
|
|
182,516,037 |
|
|
|
117,461,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
221,787,766 |
|
|
|
329,036,202 |
|
|
|
186,045,831 |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes |
|
|
182,679 |
|
|
|
24,212 |
|
|
|
(433,227 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
72,527,844 |
|
|
|
273,834,130 |
|
|
|
346,689,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the year |
|
|
59,695,932 |
|
|
|
132,223,776 |
|
|
|
406,057,906 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the year |
|
|
132,223,776 |
|
|
|
406,057,906 |
|
|
|
752,747,586 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid, net of amounts capitalized |
|
|
20,199,372 |
|
|
|
25,896,059 |
|
|
|
29,825,019 |
|
Income taxes paid |
|
|
6,605,810 |
|
|
|
26,023,351 |
|
|
|
33,410,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
included in accounts payable |
|
|
33,880,879 |
|
|
|
51,143,192 |
|
|
|
46,603,004 |
|
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, 2008, 2009 AND 2010
(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, 2010, the major subsidiaries of Trina are included in Appendix
1. |
|
|
Trina Solar Limited, its subsidiaries and variable interest entities (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. |
|
|
In 2009, Trina began entering into arrangements to develop commercial solar power systems
(project assets). For each project, a special purpose vehicle (SPV) is established for
the purpose of holding the project assets and is funded via a nominal equity contribution by
an engineering procurement and construction contractor. Trina, through a series of
contractual arrangements, among other things, (i) supplies all solar modules and other
related products to the SPV, which are a significant component of project asset cost, (ii)
has substantive management rights and oversight in the SPV and the construction process, and
(iii) is contractually required to acquire the project assets upon construction completion.
As a result, Trina has a controlling financial interest in the SPVs and is deemed their
primary beneficiary and, accordingly, the financial position and results of operations, if
any, of the SPVs are included in the consolidated financial statements of the Company. The
details of the project assets are discussed in Note 2(j). All SPVs are included in Appendix
1. |
|
|
On January 19, 2010, the Company changed the ratio of its ordinary
shares to American Depositary Shares (ADSs) from one hundred (100)
ordinary shares to one ADS to fifty (50) ordinary shares to one ADS. Such
transaction has been retroactively reflected for all periods presented. |
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 VIEs. The Company has
eliminated all inter-company transactions and balances during consolidation. |
F-10
TRINA SOLAR LIMITED
2. |
|
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES continued |
|
|
|
The preparation of the consolidated 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 consolidated 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 consolidated
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 derivatives, 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. The Company considers the restricted cash balances as
equivalent to an investment whose return of principal requires the satisfaction of
conditions (i.e., repayment of bank borrowings or settlement of letters of credit)
rather than a withdrawal demand. Therefore, deposits and withdrawals of principal
balances in restricted cash accounts represent the creation or return of investment
and, accordingly, the Company has presented such deposits and withdrawals as investing
activities in the consolidated statements of cash flows. |
F-11
TRINA SOLAR LIMITED
2. |
|
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES continued |
|
(e) |
|
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. |
|
|
|
Level 1 Valuation techniques in which all significant inputs are unadjusted
quoted prices from active markets for assets or liabilities that are identical to the
assets or liabilities being measured. |
|
|
|
Level 2 Valuation techniques in which significant inputs include quoted prices
from active markets for assets or liabilities that are similar to the assets or
liabilities being measured and/or quoted prices for assets or liabilities that are
identical or similar to the assets or liabilities being measured from markets that are
not active. Also, model-derived valuations in which all significant inputs and
significant value drivers are observable in active markets are Level 2 valuation
techniques. |
|
|
|
Level 3 Valuation techniques in which one or more significant inputs or
significant value drivers are unobservable. Unobservable inputs are valuation
technique inputs that reflect the Companys own assumptions about the assumptions that
market participants would use to price an asset or liability. |
|
|
|
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. |
F-12
TRINA SOLAR LIMITED
2. |
|
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES continued |
|
(f) |
|
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. |
|
(g) |
|
Investment in equity affiliates |
|
|
|
Affiliated companies are entities over which the Company has significant influence,
but which it does not control. The Company generally considers an ownership interest
of 20% or higher to represent significant influence. Investments in equity affiliates
are accounted for by the equity method of accounting. Under this method, the Companys
share of the profits or losses of affiliated companies is recognized in the income
statement and its shares of movements in other comprehensive income are recognized in
other comprehensive income. Unrealized gains on transactions between the Company and
its affiliated companies are eliminated to the extent of the Companys interest in the
affiliated companies; unrealized losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred. When the Companys share
of losses in an affiliated company equals or exceeds its interest in the affiliated
company, the Company does not recognize further losses, unless the Company has
incurred obligations or made payments on behalf of the affiliated company. An
impairment loss is recorded when there has been a loss in value of the investment that
is other-than-temporary.
As of December 31, 2010, the Company has equity investment in affiliates with a
carrying amount of $155,888. |
|
(h) |
|
Receivables and Allowance for Doubtful Accounts. |
|
|
|
The Company maintains allowances for doubtful accounts for uncollectible
accounts receivable. Estimated anticipated losses from doubtful accounts are
based on days past due, historical collection history, and other factors. |
F-13
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 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. 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 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, wafers or cells) 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, where they are, in substance tolling
arrangements, 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. |
F-14
TRINA SOLAR LIMITED
2. |
|
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES continued |
|
|
|
Project assets consist primarily of costs relating to solar power projects in various
stages of development that are capitalized prior to the sale of the solar power
project. These costs include modules, installation and other development costs, such
as legal, consulting and permitting. Once the Company enters into a definitive sales
agreement, the project assets are reclassified to deferred project costs on the
consolidated balance sheets until all criteria for sale recognition have been met.
While the project assets are not constructed for a specific customer, the Company
intends to sell the project assets upon their completion. |
|
|
|
Project assets consisted of the following at December 31, 2009 and 2010: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31 |
|
|
|
2009 |
|
|
2010 |
|
|
|
$ |
|
|
$ |
|
Project assets Module cost |
|
|
1,669,040 |
|
|
|
13,350,157 |
|
Project assets Development |
|
|
|
|
|
|
19,609,382 |
|
Project assets Others |
|
|
269,479 |
|
|
|
2,019,491 |
|
|
|
|
|
|
|
|
Total project assets |
|
|
1,938,519 |
|
|
|
34,979,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
12,684,581 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
12,684,581 |
|
|
|
|
|
|
|
|
|
|
|
The Company reviews project assets for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. In determining
whether or not the project assets are recoverable, the Company considers a number of
factors, including changes in environmental, ecological, permitting, or regulatory
conditions that affect the project. Such changes may cause the cost of the project to
increase or the selling price of the project to decrease. |
F-15
TRINA SOLAR LIMITED
2. |
|
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES continued |
|
(k) |
|
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, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
Total interest incurred |
|
|
26,025,305 |
|
|
|
28,527,579 |
|
|
|
35,754,067 |
|
Less: Interest capitalized |
|
|
1,467,604 |
|
|
|
1,432,500 |
|
|
|
1,801,941 |
|
|
|
|
|
|
|
|
|
|
|
Interest expenses |
|
|
24,557,701 |
|
|
|
27,095,079 |
|
|
|
33,952,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company computes depreciation expense using the straight-line method over the
estimated useful lives of the assets presented below. |
|
|
|
|
|
|
|
Years |
|
|
|
|
|
|
Buildings |
|
|
1020 |
|
Plant and machinery |
|
|
510 |
|
Motor vehicles |
|
|
35 |
|
Electronic equipment, furniture and fixtures |
|
|
35 |
|
|
(l) |
|
Prepaid land use right |
|
|
|
The Companys prepaid land use rights are reported at cost and are charged to income
ratably over 50 years, in accordance with the term of the land use right agreement. |
F-16
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. No impairments were recorded during
the years ended December 31, 2008, 2009 and 2010. |
|
|
|
The Company accounts for income taxes using
the asset and liability method whereby the Company calculates
the deferred tax asset or liability account balances at the balance sheet date using
tax laws and rates expected to apply to taxable income in the periods in which
deferred tax assets or liabilities are expected to be realized or settled. 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 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-17
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. Generally, it recognizes sales when the modules have been delivered to the
customers designated point of shipment, which may include commercial docks or
commercial shipping vessels. The Company extends credit terms of up to 90 days to
customers with good creditworthiness as determined by the Companys credit assessment.
For limited sales transactions with customers whose creditworthiness is doubtful, the
Company requests cash payment before delivery and records such receipts as advances
from customers. For customers to whom credit terms are extended, the Company only
recognizes revenue when collectability is reasonably assured. The Company assesses
collectability based on a number of factors, including past customer transaction
history and customer credit analysis. |
|
|
|
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-18
TRINA SOLAR LIMITED
2. |
|
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES continued |
|
(p) |
|
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 $5,951,760,
$11,950,752 and $39,159,748 are included in selling expenses for the years ended
December 31, 2008, 2009 and 2010, respectively. Shipping and handling costs relating
to inventory purchases of $2,689,445, $844,385 and $810,783 are included as a
component of cost of revenues for the years ended December 31, 2008, 2009 and 2010,
respectively. |
|
(q) |
|
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 $975,824, $581,298 and $699,228 of
earned grants as reductions of research and development expenses for the years ended
December 31, 2008, 2009 and 2010, 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 the associated asset. The
Company received government grant for assets of $10,189,345, $7,476,804 and
$7,454,208 during the years ended December 31, 2008, 2009 and 2010, respectively, and
recognized $27,161, $1,160,699 and $4,480,108 as an offset to depreciation expense for
the years ended December 31, 2008, 2009 and 2010, respectively. |
F-19
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, in relation to defects in materials and workmanship,
and 25 years in relation to minimum power output. The Company accrues warranty costs
when recognizing revenue and recognizes such costs as a component of selling expense.
Warranty costs primarily consist of replacement costs for parts and materials and
labor costs for maintenance personnel. Due to its limited solar module manufacturing
history, the Company does not have a significant history of warranty claims. Based on
its best estimates of both future costs and the probability of incurring warranty
claims, the Company currently accrues for product warranties at 1% of solar module
sales. The Company derives its estimates from a number of factors, including (1) an
analysis of actual historical costs incurred in connection with its warranty claims,
(2) an assessment of competitors accrual and claim history and (3) results from
academic research, including industry-standard accelerated testing, and other
assumptions that the Company believes to be reasonable under the circumstances. The
Company acknowledges that such estimates are subjective and will continue to analyze
its claim history and the performance of its products compared to its competitors and
academic research results to determine whether the accrual is adequate. Should the
Company begin to experience warranty claims different from its accrual rate, the
Company will prospectively revise the warranty accrual rate. |
|
(t) |
|
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
currency To respond 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 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. |
F-20
TRINA SOLAR LIMITED
2. |
|
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES continued |
|
(t) |
|
Foreign currency translation and foreign currency risk continued |
|
|
|
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 |