Canadian Solar Annual Report 2015

Plain-text annual report

Use these links to rapidly review the documentTable of Contents CANADIAN SOLAR INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTSTable of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549Form 20-FCommission file number: 001-33107CANADIAN SOLAR INC.(Exact name of Registrant as specified in its charter)N/A(Translation of Registrant's name into English)Canada(Jurisdiction of incorporation or organization)545 Speedvale Avenue WestGuelph, Ontario, Canada N1K 1E6(Address of principal executive offices)Michael G. Potter, Chief Financial Officer545 Speedvale Avenue WestGuelph, Ontario, Canada N1K 1E6Tel: (1-519) 837-1881Fax: (1-519) 837-2550(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)Securities registered or to be registered pursuant to Section 12(b) of the Act:Securities registered or to be registered pursuant to Section 12(g) of the Act:(Mark One) o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 ORý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2015 ORo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ORo SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company reportTitle of Each Class Name of Each Exchange on Which RegisteredCommon shares with no par value The NASDAQ Stock Market LLC (The NASDAQ Global Select Market)None(Title of Class)Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None(Title of Class) Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report. 55,965,443 common shares issued and outstanding which were not subject to restrictions on voting, dividend rights and transferability, as of December 31, 2015. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý 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 of1934. Yes o No ý Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant toRule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of theExchange Act. (Check one): Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP ý International Financial Reporting Standards as issued by the International Accounting Standards Board o Other o If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 o Item 18 o If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution ofsecurities under a plan confirmed by a court. Yes o No oLarge accelerated filer ý Accelerated filer o Non-accelerated filer oTable of Contents Table of Contents Page INTRODUCTION 1 FORWARD-LOOKING INFORMATION 2 PART I 3 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 3 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE 3 ITEM 3. KEY INFORMATION 3 ITEM 4. INFORMATION ON THE COMPANY 41 ITEM 4A. UNRESOLVED STAFF COMMENTS 66 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 66 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 103 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 120 ITEM 8. FINANCIAL INFORMATION 121 ITEM 9. THE OFFER AND LISTING 125 ITEM 10. ADDITIONAL INFORMATION 126 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 135 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 136 PART II 137 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 137 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OFPROCEEDS 137 ITEM 15. CONTROLS AND PROCEDURES 137 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT 139 ITEM 16B. CODE OF ETHICS 139 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 140 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 140 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 140 ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT 140 ITEM 16G. CORPORATE GOVERNANCE 140 ITEM 16H. MINE SAFETY DISCLOSURE 140 PART III 141 ITEM 17. FINANCIAL STATEMENTS 141 ITEM 18. FINANCIAL STATEMENTS 141 ITEM 19. EXHIBITS 141 SIGNATURES 143 Table of Contents INTRODUCTION Unless otherwise indicated, references in this annual report on Form 20-F to:•"CSI," "we," "us," "our company" and "our" are to Canadian Solar Inc., a Canadian company, its predecessor entities and its consolidatedsubsidiaries; •"$," "US$" and "U.S. dollars" are to the legal currency of the United States of America, or U.S.; •"RMB" and "Renminbi" are to the legal currency of China; •"C$" and "Canadian dollars" are to the legal currency of Canada; •"€" and "Euro" are to the legal currency of the Economic and Monetary Union of the European Union; •"£" and "British pounds" are to the legal currency of the United Kingdom; •"¥," "JPY" and "Japanese yen" are to the legal currency of Japan; •"W," "kW," "MW" and "GW" are to watts, kilowatts, megawatts and gigawatts, respectively; •"AC" and "DC" are to alternating current and direct current, respectively; •"PV" is to photovoltaic. The photovoltaic effect is a process by which sunlight is converted into electricity; •"EPC" is to engineering, procurement and construction; •"O&M services" is to operation and maintenance services; •"shares" and "common shares" are to common shares, with no par value, of Canadian Solar Inc.; •"China" and the "PRC" are to the People's Republic of China, excluding, for the purposes of this annual report on Form 20-F, Taiwan and thespecial administrative regions of Hong Kong and Macau; and •"EU" refers to the European Union. This annual report on Form 20-F includes our audited consolidated financial statements for the years ended December 31, 2013, 2014 and 2015 and as ofDecember 31, 2014 and 2015. We use the noon buying rate in The City of New York for cable transfers in Renminbi, Euros, British pounds, Japanese yen and Canadian dollars per U.S.dollar as certified for customs purposes by the Federal Reserve Bank of New York to translate Renminbi, Euros, British pounds, Japanese yen and Canadiandollars to U.S. dollars not otherwise recorded in our consolidated financial statements and included elsewhere in this annual report. Unless otherwise stated,the translation of Renminbi, Euros, British pounds, Japanese yen and Canadian dollars into U.S. dollars was made by the noon buying rate in effect onDecember 31, 2015, which was RMB6.4778 to $1.00, €0.9209 to $1.00, £0.6782 to $1.00, ¥120.27 to $1.00 and C$1.3839 to $1.00. We make norepresentation that the Renminbi, Euro, British pounds, Japanese yen, Canadian dollar or U.S. dollar amounts referred to in this annual report on Form 20-Fcould have been or could be converted into U.S. dollars, Euros, British pounds, Japanese yen, Canadian dollars or Renminbi, as the case may be, at anyparticular rate or at all. See "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Industry—Fluctuations in exchange ratescould adversely affect our business, including our financial condition and results of operations."1Table of Contents FORWARD-LOOKING INFORMATION This annual report on Form 20-F contains forward-looking statements that relate to future events, including our future operating results, our prospectsand our future financial performance and condition, results of operations, business strategy and financial needs, all of which are largely based on our currentexpectations and projections. These forward-looking statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation ReformAct of 1995. You can identify these statements by terminology such as "may," "will," "expect," "anticipate," "future," "intend," "plan," "believe," "estimate,""is/are likely to" or similar expressions. Forward-looking statements involve inherent risks and uncertainties. These forward-looking statements include,among other things, statements relating to:•our expectations regarding the worldwide demand for electricity and the market for solar power; •our beliefs regarding the importance of environmentally friendly power generation; •our expectations regarding governmental support for solar power; •our beliefs regarding the rate at which solar power technologies will be adopted and the continued growth of the solar power industry; •our beliefs regarding the competitiveness of our solar power products and services; •our expectations with respect to increased revenue growth and improved profitability; •our expectations regarding the benefits to be derived from our supply chain management and vertical integration manufacturing strategy; •our ability to continue developing our in-house solar components production capabilities and our expectations regarding the timing andproduction capacity of our internal manufacturing programs; •our ability to secure adequate volumes of silicon, solar wafers and cells at competitive cost to support our solar module production; •our beliefs regarding the effects of environmental regulation; •our future business development, results of operations and financial condition; •competition from other manufacturers of solar power products and conventional energy suppliers; •our ability to expand our products and services and to successfully grow our energy development and electricity generation segments; •our ability to develop, build and sell solar power projects in Canada, the U.S., Japan, China, Brazil, the United Kingdom and elsewhere; and •our beliefs with respect to the outcome of the investigations and litigation to which we are a party. Known and unknown risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from anyfuture results, performance or achievements expressed or implied by forward-looking statements. See "Item 3. Key Information—D. Risk Factors" for adiscussion of some of the risk factors that may affect our business and results of operations. These risks are not exhaustive. Other sections of this annual reportmay include additional factors that could adversely influence our business and financial performance. Moreover, because we operate in an emerging andevolving industry, new risk factors may emerge from time to time. We cannot predict all risk factors, nor can we assess the impact of all or any of these factorson our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those expressed or implied inany forward-looking statement. We do not undertake any obligation to update or revise the forward-looking statements except as required under applicablelaw.2Table of Contents PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. ITEM 3. KEY INFORMATION A. Selected Financial DataSelected Consolidated Financial and Operating Data The following selected statement of operations data for the years ended December 31, 2013, 2014 and 2015 and balance sheet data as of December 31,2014 and 2015 have been derived from our consolidated financial statements, which are included elsewhere in this annual report on Form 20-F. You shouldread the selected consolidated financial and operating data in conjunction with those financial statements and the related notes and "Item 5. Operating andFinancial Review and Prospects" included elsewhere in this annual report on Form 20-F. Our selected consolidated statement of operations data for the years ended December 31, 2011 and 2012 and our consolidated balance sheet data as ofDecember 31, 2011, 2012 and 2013 were derived from our consolidated financial statements that are not included in this annual report. All of our financial statements are prepared and presented in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. Our historicalresults are not necessarily indicative of results for any future periods.3 For the years ended, or as of, December 31, 2011 2012 2013 2014 2015 (In thousands of $, except share and per share data, and operating dataand percentages) Statement of operations data: Net revenues 1,898,922 1,294,829 1,654,356 2,960,627 3,467,626 Income (loss) from operations 6,833 (142,516) 130,816 366,314 247,371 Net income (loss) (90,903) (195,155) 45,565 243,887 173,316 Net income (loss) attributable to CanadianSolar Inc. (90,804) (195,469) 31,659 239,502 171,861 Earnings (loss) per share, basic (2.11) (4.53) 0.68 4.40 3.08 Shares used in computation, basic 43,076,489 43,190,778 46,306,739 54,408,037 55,728,903 Earnings (loss) per share, diluted (2.11) (4.53) 0.63 4.11 2.93 Shares used in computation, diluted 43,076,489 43,190,778 50,388,284 59,354,615 60,426,056 Other financial data: Gross margin 9.6% 7.0% 16.7% 19.6% 16.6%Operating margin 0.4% (11.0)% 7.9% 12.4% 7.1%Net margin (4.8)% (15.1)% 2.8% 8.2% 5.0%Table of ContentsB. Capitalization and Indebtedness Not applicable.C. Reasons for the Offer and Use of Proceeds Not applicable.D. Risk FactorsRisks Related to Our Company and Our IndustryWe may be adversely affected by volatile solar power market and industry conditions; in particular, the demand for our solar power products and servicesmay decline, which may reduce our revenues and earnings. Our business is affected by conditions in the solar power market and industry. In 2010, as the effects of the global financial crisis subsided, demand forsolar power products increased and many manufacturers increased their production capacity accordingly. In 2011, a decrease in payments to solar powerproducers in the form of feed-in tariffs and other reimbursements, a reduction in available financing and an excess supply of solar modules worldwide putsevere downward pressure on solar module prices in European and other markets. As a result, many solar power project developers, solar system installers andsolar power product distributors that purchase solar power products, including solar modules from manufacturers like us, were adversely affected and theirfinancial condition weakened. Although our shipments of solar modules increased year-over-year in 2013, 2014 and 2015, average selling prices for our solarmodules declined. Over the past several quarters, oversupply conditions across the value chain, difficult economic conditions in Europe and foreign tradedisputes in the U.S., Europe, India and China have affected industry-wide demand and put pressure on average4 For the years ended, or as of, December 31, 2011 2012 2013 2014 2015 (In thousands of $, except share and per share data, and operating dataand percentages) Selected operating data: Solar power products sold (in MW) —Module segment(1) 1,291.5 1,528.9 1,809.0 2,436.4 4,085.0 —Energy development and electricitygeneration segments(2) 31.0 14.2 85.0 376.2 298.8 Total 1,322.5 1,543.1 1,894.0 2,812.6 4,383.8 Average selling price (in $ per watt) —Solar module 1.34 0.77 0.67 0.67 0.58 Balance Sheet Data: Net current assets (liabilities) 59,131 (98,046) (59,003) 366,621 (392,231)Total assets 1,879,809 2,259,313 2,453,735 3,072,424 4,417,254 Net assets 466,978 301,583 401,498 729,574 832,510 Long-term borrowings 88,249 214,563 151,392 134,300 606,577 Convertible notes 950 — — 150,000 150,000 Common shares 502,403 502,562 561,242 675,236 677,103 Number of shares outstanding 43,155,767 43,242,426 51,034,343 55,161,856 55,965,443 (1)Numbers are calculated after inter-segmentation elimination and represent solar power products sold to third parties. (2)Numbers are calculated after inter-segmentation elimination.Table of Contentsselling prices, resulting in lower revenue for many industry participants. If the supply of solar modules grows faster than demand, and if governmentscontinue to reduce financial support for the solar industry and impose trade barriers, demand for our products, as well as our average selling price, could bematerially and adversely affected. The solar power market is still at a relatively early stage of development and future demand for solar power products and services is uncertain. Marketdata for the solar power industry is not as readily available as for more established industries, where trends are more reliably assessed from data gathered overa longer period of time. In addition, demand for solar power products and services in our targeted markets, including Europe, the U.S., Japan, China, Canada,Brazil and India may not develop or may develop to a lesser extent than we anticipate. Many factors may affect the viability of solar power technology andthe demand for solar power products, including:•the cost-effectiveness, performance and reliability of solar power products and services, including our solar power projects, compared toconventional and other renewable energy sources and products and services; •the availability of government subsidies and incentives to support the development of the solar power industry; •the availability and cost of capital, including long-term debt and tax equity, for solar power projects; •the success of other alternative energy technologies, such as wind power, hydroelectric power, geothermal power and biomass fuel; •fluctuations in economic and market conditions that affect the viability of conventional and other renewable energy sources, such as increasesor decreases in the prices of oil, gas and other fossil fuels; •capital expenditures by end users of solar power products and services, which tend to decrease when the economy slows; and •the availability of favorable regulation for solar power within the electric power industry and the broader energy industry. If solar power technology is not suitable for widespread adoption or if sufficient demand for solar power products and services does not develop or takeslonger to develop than we anticipate, our revenues may suffer and we may be unable to sustain our profitability. Demand in Europe generally remains weakas a result of reductions in feed-in-tariffs in Germany and the elimination of feed-in-tariffs in Italy, the two largest European markets over the past severalyears. Although demand in other regions, including China, Japan, the U.S. and India, as well as many other emerging markets in Asia, the Middle East andAfrica, has offset the decline in European demand, we cannot assure you that this demand will be sustainable or that any recent positive trends in supply ordemand balance will persist.We are preparing to potentially form a global Yieldco investment vehicle for our solar power business. If the formation of Yieldco or our management ofYieldco is not successful, our future growth and results of operations may be materially hindered. We are preparing to potentially form a globally diversified, dividend growth-oriented partnership, or Yieldco, to own, operate and acquire long-termcontracted renewable energy generation assets with consistent cash flows in attractive markets. If successful, we expect to own a general partner interest inYieldco and offer economic interests to public shareholders. The cash produced from projects owned by the operating subsidiaries of Yieldco will bedistributed up to Yieldco, which will in turn distribute the cash to Yieldco's public shareholders and, in certain circumstances, to us. Yieldco's strategy is torapidly expand and diversify its portfolio of assets by acquiring, from us and unaffiliated third parties,5Table of Contentsutility-scale solar projects and commercial and industrial distributed solar energy assets, as well as other renewable energy generation assets equipped withproven and reliable technologies. We expect that Yieldco's initial target markets will be Canada, Japan, Spain, the United Kingdom and the United States,and other select markets, primarily within the member countries of Organization for Economic Cooperation and Development, or OECD countries. Yieldco would have a right of first offer with respect to certain solar power projects developed by us and we expect that it will grow its portfolio throughacquiring these projects, as well as acquiring other solar power and renewable energy projects from third parties. We are expected to continue to provideYieldco with the opportunity to acquire additional qualifying projects, subject to certain conditions. In November 2015, we confidentially submitted a draftregistration statement on Form S-1 to the Securities and Exchange Commission, or the SEC, relating to the proposed initial public offering of Yieldco, or theYieldco IPO. We expect to launch the Yieldco IPO subject to market and other conditions. While we intend to complete the Yieldco IPO, the offering may be significantly delayed or may not take place at all because of legal, accounting,commercial or marketing risks and considerations. We remain flexible on whether and when to launch Yieldco and our management constantly monitors themarket conditions and evaluates other strategic alternatives to Yieldco. If the Yieldco IPO is not successful, we may not be able to recuperate the financialand human resources we have invested in the formation of Yieldco and our growth strategy for our solar power business may be disrupted, which wouldadversely affect our results of operation and distract our management from the operation of our company's other businesses. In the event the market conditionfor the proposed Yieldco IPO remains unfavorable, we may consider selling stakes in our Yieldco projects and/or selling entire projects to third parties. Inaddition, we have no experience in operating or managing Yieldcos. If the Yieldco IPO is completed, we, as the sponsor of Yieldco, may not succeed indelivering satisfactory results to us or the public shareholders of Yieldco, in which case the stock price of Yieldco may fall, which could in turn materiallyaffect our financial conditions and results of operations.The execution of our growth strategy depends upon the continued availability of third-party financing arrangements for our customers, which is affectedby general economic conditions. Tight credit markets could depress demand or prices for solar power products and services, hamper our expansion andmaterially affect our results of operations. Most solar power projects, including our own, require financing for development and construction with a mixture of equity and third party funding. Thecost of capital affects both the demand and price of solar power systems. A high cost of capital may materially reduce the internal rate of return for solar powerprojects and therefore put downward pressure on the prices of both solar systems and solar modules, which typically comprise a major part of the cost of solarpower projects. Furthermore, solar power projects compete for capital with other forms of fixed income investments such as government and corporate bonds. Someclasses of investors compare the returns of solar power projects with bond yields and expect a similar or higher internal rate of return, adjusted for risk andliquidity. Higher interest rates could increase the cost of existing funding and present an obstacle for potential funding that would otherwise spur the growthof the solar power industry. In addition, higher bond yields could result in increased yield expectations for solar power projects, which would result in lowersystem prices. In the event that suitable funding is unavailable, our customers may be unable to pay for products they have agreed to purchase. It may also bedifficult to collect payments from customers facing liquidity challenges due to either customer defaults or financial institution defaults on project loans.Constricted credit markets may impede our expansion and materially and adversely affect our results of operations. Concerns about government deficits anddebt in the EU have increased bond spreads in certain solar markets, such as Greece, Spain, Italy and Portugal. The cash flow of a solar power project is oftenderived from government-funded or6Table of Contentsgovernment-backed feed-in tariffs. Consequently, the availability and cost of funding solar power projects is determined in part based on the perceivedsovereign credit risk of the country where a particular project is located. Therefore, credit agency downgrades of nations in the EU or elsewhere coulddecrease the credit available for solar power projects, increase the expected rate of return compared to bond yields, and increase the cost of debt financing forsolar power projects in countries with a higher perceived sovereign credit risk. In light of the uncertainty in the global credit and lending environment, we cannot make assurances that financial institutions will continue to offerfunding to solar power project developers at reasonable costs. An increase in interest rates or a decrease in funding of capital projects within the globalfinancial market could make it difficult to fund solar power systems and potentially reduce the demand for solar modules and/or reduce the average sellingprices for solar modules, which may materially and adversely affect our business, results of operations, financial condition and prospects.Our future success depends partly on our ability to expand the pipeline of our energy development and electricity generation segments in several keymarkets, which exposes us to a number of risks and uncertainties. Historically, our module segment has accounted for the majority of our net revenues, including 80.4%, 59.0% and 71.8% in 2013, 2014 and 2015,respectively. However, we have, in recent years, increased our investment in, and management attention on, (a) our energy development segment, whichconsists primarily of solar power project development, EPC services and O&M services, and (b) our electricity generation segment, which consists primarilyof holding solar power plants for the purpose of generating and selling electricity to local and national grids. In the future, we intend to grow our energy development and electricity generation segments by holding and operating more solar projects, includingboth those that we develop and those we acquire from third-parties. As we do, we will be increasingly exposed to the risks associated with these businesses.Further, our future success largely depends on our ability to expand our solar power project pipeline. The risks and uncertainties associated with our energydevelopment and electricity generation segments, and our ability to expand our solar power project pipeline include:•the uncertainty of being able to sell the projects, receive full payment for them upon completion, or receive payment in a timely manner; •the need to raise significant additional funds to develop greenfield or purchase late-stage solar power projects, which we may be unable toobtain on commercially reasonable terms or at all; •delays and cost overruns as a result of a number of factors, many of which are beyond our control, including delays in regulatory approvals,construction, grid-connection and customer acceptance testing; •delays or denial of required regulatory approvals by relevant government authorities; •diversion of significant management attention and other resources; and •failure to execute our project pipeline expansion plan effectively. If we are unable to successfully expand our energy development and electricity generation segments, and, in particular, our solar power project pipeline,we may be unable to expand our business, maintain our competitive position, improve our profitability and generate cash flows.Governments may revise, reduce or eliminate subsidies and economic incentives for solar energy, which could cause demand for our products to decline. The market for on-grid applications, where solar power supplements the electricity a customer purchases from the utility network or sells to a utilityunder a feed-in tariff, depends largely on the availability and size of government subsidy programs and economic incentives. At present, the cost of7Table of Contentssolar power exceeds retail electricity rates in many locations. Government incentives vary by geographic market. Governments in many countries, mostnotably Germany, Italy, the Czech Republic, the U.S., Japan, Canada (Ontario), South Korea, India, France, Australia and the United Kingdom, have providedincentives in the form of feed-in tariffs, rebates, tax credits, renewable portfolio standards and other incentives. These governments have implementedmandates to end-users, distributors, system integrators and manufacturers of solar power products to promote the use of solar energy in on-grid applicationsand to reduce dependency on other forms of energy. Some of these government mandates and economic incentives have been or are scheduled to be reducedor eliminated altogether. It is likely that this trend will continue, possibly until subsidies for solar energy are phased out completely. While solar power projects may continue to offer attractive internal rates of return, it is unlikely internal rates of return will be as high as they were in thepast. If internal rates of return fall below an acceptable rate for project investors, and governments continue to reduce or eliminate subsidies, this may cause adecrease in demand and considerable downward pressure on solar systems and therefore negatively impact both solar module prices and the value of our solarpower projects. The reduction, modification or elimination of government mandates and economic incentives in one or more of our markets could thereforematerially and adversely affect the growth of such markets or result in increased price competition, either of which could cause our revenues to decline andharm our financial results.General global economic conditions may have an adverse impact on our operating performance and results of operations. The demand for solar power products and services is influenced by macroeconomic factors, such as global economic conditions, demand for electricity,supply and prices of other energy products, such as oil, coal and natural gas, as well as government regulations and policies concerning the electric utilityindustry, the solar and other alternative energy industries and the environment. As a result of global economic conditions, some governments may implementmeasures that reduce the feed-in tariffs and other subsidies designed to benefit the solar industry. During 2013, 2014 and 2015, a decrease in solar powertariffs in many markets placed downward pressure on the price of solar systems in most regions. In addition, reductions in oil and coal prices may reduce thedemand for and the prices of solar power products and services. For instance, in recent months, oil prices globally have experienced high volatility and, atpoints, have recorded historical lows. We cannot assure you that such volatility and significant reductions in the global price of oil will not have a materialadverse effect on the demand for and prices of our products. Our growth and profitability depend on the demand for and the prices of solar power productsand services. If these negative market and industry trends continue and demand for solar power projects and solar power products and services weakens as aresult, our business and results of operations may be adversely affected.Imposition of anti-dumping and countervailing duty orders or safeguard measures in one or more markets may result in additional costs to our customers,which could materially or adversely affect our business, results of operations, financial conditions and future prospects. We have been in the past, and may be in the future, subject to the imposition of anti-dumping and countervailing duty orders in one or more of themarkets in which we sell our products. In particular, we have been subject to the imposition of anti-dumping and countervailing duty orders in the U.S., theEU and Canada and have, as a result, been party to lengthy proceedings related thereto. See "Item 8. Financial Information—A. Consolidated Statements andOther Financial Information—Legal and Administrative Proceedings." The U.S., EU and Canada are important markets for us. Ongoing proceedings relatingto, and the imposition of any new, anti-dumping and countervailing duty orders or safeguard measures in these markets may result in additional costs to usand/or our customers, which may materially and adversely affect our business, results of operations, financial conditions and future prospects.8Table of ContentsOur project development and construction activities may not be successful, projects under development may not receive required permits, property rights,power purchase agreements, or PPAs, interconnection and transmission arrangements, and financing or construction of projects may not commence orcontinue as scheduled, all of which could increase our costs, delay or cancel a project, and have a material adverse effect on our revenue and profitability. The development and construction of solar power projects involve known and unknown risks. We may be required to invest significant amounts ofmoney for land and interconnection rights, preliminary engineering, permitting, legal and other expenses before we can determine whether a project isfeasible. Success in developing a particular project is contingent upon, among other things:•securing land rights and related permits, including satisfactory environmental assessments; •receipt of required land use and construction permits and approvals; •receipt of rights to interconnect to the electric grid; •availability of transmission capacity, potential upgrade costs to the transmission grid and other system constraints; •payment of interconnection and other deposits (some of which are non-refundable); •negotiation of satisfactory EPC agreements; and •obtaining construction financing, including debt, equity and tax credits. In addition, successful completion of a particular project may be adversely affected by numerous factors, including:•delays in obtaining and maintaining required governmental permits and approvals; •potential challenges from local residents, environmental organizations, and others who may not support the project; •unforeseen engineering problems; subsurface land conditions; construction delays; cost over-runs; labor, equipment and materials supplyshortages or disruptions (including labor strikes); •additional complexities when conducting project development or construction activities in foreign jurisdictions, including compliance withthe U.S. Foreign Corrupt Practices Act and other applicable local laws and customs; and •force majeure events, including adverse weather conditions and other events beyond our control. If we are unable to complete the development of a solar power project or we fail to meet any agreed upon system-level capacity or energy outputguarantees or warranties (including 25 year power output performance guarantees) or other contract terms, or our projects cause grid interference or otherdamage, the EPC or other agreements related to the project may be terminated and/or we may be subject to significant damages, penalties and otherobligations relating to the project, including obligations to repair, replace or supplement materials for the project. We may enter into fixed-price EPC agreements in which we act as the general contractor for our customers in connection with the installation of theirsolar power systems. All essential costs are estimated at the time of entering into the EPC agreement for a particular project, and these costs are reflected in theoverall fixed price that we charge our customers for the project. These cost estimates are preliminary and may or may not be covered by contracts between usand the subcontractors, suppliers and other parties involved in the project. In addition, we require qualified, licensed subcontractors to install most of oursolar power systems. Shortages of skilled labor could significantly delay a project or otherwise increase our costs. Should miscalculations in planning aproject occur, including those due to unexpected increases in commodity prices or labor costs, or delays in execution9Table of Contentsoccur and we are unable to increase the EPC sales price commensurately, we may not achieve our expected margins or our results of operations may beadversely affected.Developing solar power projects exposes us to different risks than producing solar modules. In recent years, we have placed a greater focus on our energy development segment, which includes the development of solar power projects. Theseprojects can take many months or years to complete and may be delayed for reasons beyond our control. They often require us to make significant up-frontpayments for, among other things, land rights and permitting in advance of commencing construction, and revenue from these projects may not berecognized for several additional months following contract signing. Any inability or significant delays in entering into sales contracts with customers aftermaking such up-front payments could adversely affect our business and results of operations. Furthermore, we may become constrained in our ability tosimultaneously fund our other business operations and the investment in these projects. In contrast to developing solar modules, developing solar power projects requires more management attention to negotiate the terms of our engagementand monitor the progress of the projects which may divert management's attention from other matters. Our revenue and liquidity may be adversely affected tothe extent the market for solar power projects weakens or we are not able to successfully complete the customer acceptance testing due to technicaldifficulties, equipment failure, or adverse weather, and we are unable to sell our solar power projects at prices and on terms and timing that are acceptable tous.We have a limited history operating our electricity generation segment as an independent power producer, or IPP, and may not be successful in growingthis segment. In recent years, we have started operating as an IPP and increasing our investment in our electricity generation segment. Our electricity generationsegment consists primarily of holding solar power projects for the purpose of generating and selling electricity to the local or national grid or other powerpurchasers. As an IPP, we are subject to a variety of risks associated with intense market competition, changing regulations and policies, insufficient demandfor solar power, technological advancements and the failure of our power generation facilities. We face competition from conventional and other renewable energy companies. The solar and renewable energy power industry is highly competitiveand continually evolving as market participants strive to distinguish themselves within their markets and compete with large incumbent utilities and newmarket entrants. See "—Because the markets in which we compete are highly competitive and quickly evolving, because many of our competitors havegreater resources than we do or are more adaptive, and because we have a limited track record in our energy development and electricity generation segments,we may not be able to compete successfully and we may not be able to maintain or increase our market share." The market for electricity generation in the areas where we operate our electricity generation segment is heavily influenced by national, regional andlocal regulations and policies concerning the electric utility industry. See "—We are subject to numerous laws and regulations at the national, regional andlocal levels of government in the areas where we do business. Any changes to these regulations and policies may present technical, regulatory and economicbarriers to the purchase and use of solar power products, solar projects and solar electricity, which may significantly reduce demand for our products andservices or otherwise adversely affect our financial performance."10 Table of Contents The solar power market is still at a relatively early stage of development and future demand for solar power is uncertain. Market data for the solar powerindustry is not as readily available as for more established industries, where trends are more reliably assessed from data gathered over a longer period of time.In addition, demand for solar power in our targeted markets, including the United States, Japan, Canada, Spain and the United Kingdom, may not develop ormay develop to a lesser extent than we anticipate. The electricity industry is undergoing a transformative change. Technological advancements such as energy storage and distributed generation maychange the nature of energy generation and delivery. These changes may materially affect our business model as an IPP and our ability to compete with newenergy generation and delivery business models. In addition, our power generation facilities may require periodic upgrading and improvement. Anyunexpected operational or mechanical failure, including failure associated with breakdowns and forced outages, and any decreased operational ormanagement performance, could reduce our facilities' generating capacity below expected levels, thereby reducing our revenues.We may not be able to enter into PPAs or face delays in entering into PPAs or may not be able to replace expiring PPAs with contracts on similar terms. We may not be able to enter into PPAs for our solar power projects due to intense competition, increased supply of electricity from other sources,reduction in retail electricity price or other factors. There is a limited pool of potential buyers for electricity generated by our solar power plants since thetransmission and distribution of electricity is either monopolized or highly concentrated in most jurisdictions. The willingness of buyers to purchaseelectricity from an IPP may be based on a number of factors and not solely on pricing and surety of supply. If we cannot enter into PPAs on terms favorable tous, or at all, it would negatively impact our revenue and our decisions regarding the development of additional power plants. Generally, to the extent offtakers are not required to acquire the output from our solar power projects under tariff regulations, renewable portfoliostandards or other arrangements, the decision by an end user to buy energy from our solar power projects is primarily driven by a deficit of available energy insuch markets and the availability of domestic resources to meet those needs in a timely fashion. The end user's decision may also be affected by the cost ofother conventional and alternative energy sources. Decreases in the retail prices of electricity supplied by utilities or other alternative energy sources couldharm our ability to offer competitive pricing and to sign new customers. An increase in the availability of electricity or reduction in retail electricity prices inour target markets would make the purchase of solar energy less economically attractive. If the availability of energy were to increase or the price ofelectricity were to decrease in the markets in which we operate, we would be at a competitive disadvantage, we may be unable to attract new customers for ourelectricity generation segment and its growth may be limited. We may experience delays in entering into PPAs for some of our solar power projects or may not be able to replace an expiring PPA with a contract onequivalent terms and conditions, or otherwise at prices that permit operation of the related facility on a profitable basis. Any delay in entering into PPAs mayadversely affect our ability to enjoy the cash flows generated by such projects. If we are unable to replace an expiring PPA with an acceptable new PPA, theaffected site may temporarily or permanently cease operations, which could materially and adversely affect our electricity generation segment, our financialcondition, results of operations and cash flows.11Table of ContentsCounterparties to our PPAs may not fulfill their obligations, which could result in a material adverse impact on our business, financial condition, resultsof operations and cash flows. Substantially all of the electric power generated by our solar power projects will be sold under long-term PPAs with public utilities, licensed suppliers orcommercial, industrial or government end users and we expect our future projects will also have long-term PPAs or similar offtake arrangements such as tariffprograms. If, for any reason, any of the purchasers of power under these contracts are unable or unwilling to fulfill their related contractual obligations or ifthey refuse to accept delivery of power delivered thereunder or if they otherwise terminate such agreements prior to the expiration thereof, our assets,liabilities, business, financial condition, results of operations and cash flows could be materially and adversely affected. Further, to the extent any of ourpower purchasers are, or are controlled by, governmental entities, our facilities may be subject to legislative or other political action that may impair theircontractual performance or contain contractual remedies that do not provide adequate compensation in the event a counterparty defaults.Our PPAs and project-level financing arrangements may contain price adjustment, termination, buy-out, acceleration or other clauses that couldmaterially and adversely affect our electricity generation segment, our financial condition, results of operations and cash flows. Some of our PPAs are subject to price adjustments over time. If the price under any of our PPAs is reduced below a level that makes a projecteconomically viable, our electricity generation segment, financial conditions, cash flow and results of operations could be materially and adversely affected.Further, some of our long-term PPAs do not include inflation-based price increases. To the extent that the countries in which we conduct our businessexperience high rates of inflation, thereby increasing our operating costs in those countries, we may not be able to generate sufficient revenues to offset theeffects of inflation. Certain of the PPAs for our projects and those for projects that we have acquired and may acquire in the future contain or may contain provisions thatallow the offtake purchaser to terminate or buy out the project or require us to pay liquidated damages upon the occurrence of certain events. In addition,certain of our project financing arrangements provide for acceleration upon the occurrence of such events. If these provisions are exercised, our electricitygeneration segment, financial condition, results of operations and cash flows could be materially and adversely affected. Additionally, certain of the project-level financing arrangements for projects allow, and certain of the projects that we may acquire in the future may allow, the lenders or investors to acceleratethe repayment of the financing arrangement in the event that a PPA is terminated or if certain operating thresholds or performance measures are not achievedwithin specified time periods. We are therefore subject to the risk of lender or investor termination based on such criteria. Certain of our PPAs and project-level financing arrangements include, and in the future may include, provisions that would permit the counterparty toterminate the contract or accelerate maturity in the event we own, directly or indirectly, less than 50% of the combined voting power or, in some cases, if wecease to be the majority owner, directly or indirectly, of the applicable project subsidiary. Generally, these provisions are, or will be, triggered in the eventthat we own, directly or indirectly, less than 50% of the combined voting power or, in some cases, cease to be the majority owner, directly or indirectly, of theapplicable project subsidiary. As a result, if we cease to control or, in some cases, to be the majority owner of the project subsidiary, the counterparties couldterminate the PPAs or accelerate the maturity of the financing arrangements. The termination of any of our PPAs or the acceleration of the maturity of any ofour financing arrangements as a result of a change-in-control event could have a material adverse effect on our electricity generation segment, its financialcondition, results of operations and cash flows.12Table of ContentsIf the supply of solar wafers and cells increases in line with increases in the supply of polysilicon, then the corresponding oversupply of solar cells andmodules may cause substantial downward pressure on the prices of our products and reduce our revenues and earnings. Silicon production capacity has expanded rapidly in recent years. As a result of this expansion, coupled with the global economic downturn, the solarindustry has experienced an oversupply of high-purity silicon since the beginning of 2009. This has contributed to an oversupply of solar wafers, cells andmodules and resulted in substantial downward pressure on prices throughout the value chain. Demand for solar power products remained soft through 2012but began to pick up in the second half of 2013, and continued to grow in 2014 and 2015. The average selling price of our solar modules decreased from$1.34 per watt in 2011 to $0.77 per watt in 2012, $0.67 per watt in 2013 and 2014 and $0.58 per watt in 2015, in large part because the increase in the supplyof solar cells and modules was greater than the increase in the demand, thereby putting pressure on solar power products across all stages of the value chain.As a result of the decline in the selling prices of our solar modules, our revenue declined in 2012, even though our solar module shipment volume for the yearincreased. In addition, because solar module selling prices declined at a rapid rate, we suffered losses in the form of inventory write-downs, as the market priceof solar modules consistently fell below the carrying cost of our inventory. Lower price realizations and inventory write-downs in 2012 put downwardpressure on our gross profit and operating margins. While we believe that there is a relative balance between capacity and demand at low prices due toindustry consolidation, increases in solar module production in excess of market demand may result in further downward pressure on the price of solar wafers,cells and modules, including our products. Increasing competition could also result in us losing sales or market share. Moreover, due to fluctuations in thesupply and price of solar power products throughout the value chain, we cannot assure you that we will be able, on an ongoing basis, to procure silicon,wafers and cells at reasonable costs if any of the above risks materializes. If we are unable, on an ongoing basis, to procure silicon, solar wafers and solar cellsat reasonable prices or mark up the price of our solar modules to cover our manufacturing and operating costs, our revenues and margins will be adverselyimpacted, either due to higher costs compared to our competitors or due to further write-downs of inventory, or both. In addition, our market share coulddecline if our competitors are able to price their products more competitively.Long-term supply agreements may make it difficult for us to adjust our raw material costs should prices decrease. Also, if we terminate any of theseagreements, we may not be able to recover all or any part of the advance payments we have made to these suppliers and we may be subject to litigation. We have entered into a number of long-term supply agreements with several silicon and wafer suppliers in order to secure a stable supply of raw materialsto meet our production requirements. These suppliers included GCL-Poly Energy Holdings Limited, or GCL, Neo Solar Power Corp., or Neo Solar, DeutscheSolar AG, or Deutsche Solar, Jiangxi LDK Solar Hi-Tech Co., Ltd., or LDK, and a UMG-Si supplier. In 2009 and thereafter, we amended our agreements with certain of these suppliers to adjust the purchase price to prevailing market prices at the time weplace a purchase order and to reduce the quantity of products that we were required to purchase. Under our supply agreements with certain suppliers, andconsistent with historical industry practice, we make advance payments prior to scheduled delivery dates. These advance payments are made withoutcollateral and are credited against the purchase prices payable by us. As of December 31, 2015, the balance of the advance payments that we have made toGCL, Deutsche Solar, LDK and the UMG-Si supplier totaled $32.1 million. Under our 12-year wafer supply agreement with Deutsche Solar, we purchased the contracted volume for 2009 but did not purchase the contractedvolumes for 2010 and 2011. The agreement contains a provision stating that, if we do not order the contracted volume in a given year, Deutsche Solar caninvoice us for the difference at the full contract price. We believe that the take-or-pay13Table of Contentsprovisions of the agreement are void under German law. In December 2011, Deutsche Solar gave notice to us to terminate the agreement with immediateeffect. Deutsche Solar stated that the reason for the termination was an alleged breach of the agreement by us. In the notice, Deutsche Solar reserved its rightto claim damages of €148.6 million in court. As a result of the termination, we reclassified the accrued loss on firm purchase commitments reserve of$27.9 million as of December 31, 2011 to loss contingency accruals. In addition, we made a full bad debt allowance of $17.4 million against the balance ofadvance payments to Deutsche Solar. The accrued amount of $27.9 million represents our best estimate for our loss contingency. Deutsche Solar did notspecify the basis for its claimed damages of €148.6 million in the notice. In 2007, we entered into a three-year agreement, or the 2007 Supply Contract, with LDK under which we purchased specified quantities of silicon wafersand LDK converted our reclaimed silicon feedstock into wafers. In June 2008, we entered into two 10-year wafer supply agreements, or the 2008 SupplyContracts, with LDK, under which we agreed to purchase specified volumes of wafers at pre-determined prices each year, commencing January 1, 2009. InApril 2010, we gave LDK a termination notice for the 2007 Supply Contract and 2008 Supply Contracts on the grounds that they refused to deduct from theselling price the deposits paid by us previously. We also initiated arbitration proceedings against LDK under the supply contracts, seeking a refund of theinitial deposits that we paid to them. In December 2012, Shanghai International Economic and Trade Arbitration Commission, formerly known as CIETACShanghai Branch, awarded RMB248.9 million ($38.4 million) plus RMB2.32 million ($0.4 million) in arbitration expenses in favor of LDK, includingRMB60.0 million ($9.3 million) of previously paid deposits, or the 2012 Arbitral Award. In February 2013, LDK filed for enforcement of the 2012 ArbitralAward with Jiangsu Suzhou Intermediate People's Court, or the Suzhou Intermediate Court. In 2013, LDK initiated two separate proceedings against us inJiangxi Xinyu Intermediate People's Court, or the Xinyu Intermediate Court, claiming that we had forfeited our rights to the initial deposits under the 2007Supply Contract and 2008 Supply Contracts because of the alleged breaches under these contracts. On October 18, 2013, the Xinyu Intermediate Courtstayed these proceedings pending the decision by the Suzhou Intermediate Court as to the 2012 Arbitral Award. On September 9, 2015, the SuzhouIntermediate Court ruled in favor of LDK. On October 19, 2015, we reached a settlement agreement with LDK, or the 2015 Settlement Agreement. Under the2015 Settlement Agreement, we agreed to pay RMB132.7 million ($20.8 million) to LDK and to purchase 64.3 million pieces of silicon wafers from LDK atmarket price over a three year period starting in or around December 2015, in exchange for which LDK (a) would release us from the 2012 Arbitration Awardand waive its rights and claims thereunder and (b) would withdraw its complaints from the Xinyu Intermediate Court and terminate such proceedings. TheSuzhou Intermediate Court reviewed and approved the 2015 Settlement Agreement and terminated the enforcement proceeding relating to the 2012 ArbitralAward. We have already paid the required amounts and fulfilled our obligations under the 2015 Settlement Agreement. See "Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal and Administrative Proceedings." We recorded a charge of $20.8 million related to the2015 Settlement Agreement in general and administrative expense in the third quarter of 2015. Although we have reached the 2015 Settlement Agreementwith LDK, we cannot assure you that LDK will not attempt to bring additional claims against us, the outcomes of which could potentially have an adverseeffect on our results of operations and financial condition. In March 2014, LDK filed an application for arbitration with CIETAC, seeking compensation andenforcement expenses for damages LDK claimed to have suffered from the alleged breaches under the 2008 Supply Contracts between October 2010 andDecember 2013. We filed counterclaims against LDK in July 2014. On December 22, 2015, CIETAC ruled to reject both LDK's claims and our counterclaims. Due to the default of a UMG-Si supplier in delivering its contracted volumes for 2010 and concerns regarding its financial position, we concluded thatwe were not likely to purchase any14Table of Contentssignificant quantity of UMG-Si from this supplier in the future and made a full bad debt allowance against the advance payments of RMB59 million($9.1 million) to the UMG-Si supplier in 2010. We have in the past entered, and may in the future, enter into long-term supply agreements for silicon wafers or solar cells with fixed price and quantityterms. If, during the term of these agreements, the price of materials decreases significantly and we are unable to renegotiate favorable terms with oursuppliers, we may be placed at a competitive disadvantage compared to our competitors, and our earnings could decline. In addition, if demand for our solarpower products decreases, yet our supply agreements require us to purchase more silicon wafers and solar cells than required to meet customer demand, wemay incur costs associated with carrying excess inventory. To the extent that we are not able to pass these increased costs on to our customers, our business,cash flows, financial condition and results of operations may be materially and adversely affected. If our suppliers file lawsuits against us for earlytermination of these contracts, such events could be costly, may divert management's attention and other resources away from our business, and could have amaterial and adverse effect on our reputation, business, financial condition, results of operations and prospects.We are subject to numerous laws and regulations at the national, regional and local levels of government in the areas where we do business. Any changesto these regulations and policies may present technical, regulatory and economic barriers to the purchase and use of solar power products, solar projectsand solar electricity, which may significantly reduce demand for our products and services or otherwise adversely affect our financial performance. We are expanding our international operations and are subject to a variety of laws and regulations, some of which may conflict with each other and all ofwhich are subject to change, including energy regulations, export and import restrictions, tax laws and regulations, environmental regulations, labor laws andother government requirements, approvals, permits and licenses. We also face trade barriers and trade remedies such as export requirements, tariffs, taxes andother restrictions and expenses, which could increase the prices of our products and make us less competitive in some countries. See "—Imposition of anti-dumping and countervailing duty orders or safeguard measures in one or more markets may result in additional costs to our customers, which couldmaterially or adversely affect our business, results of operations, financial conditions and future prospects." In the counties where we do business, the market for solar power products, solar projects and solar electricity is heavily influenced by national, state andlocal government regulations and policies concerning the electric utility industry, as well as policies disseminated by electric utilities. These regulations andpolicies often relate to electricity pricing and technical interconnection of customer-owned electricity generation, and could deter further investment in theresearch and development of alternative energy sources as well as customer purchases of solar power technology, which could result in a significant reductionin the potential demand for our solar power products, solar projects and solar electricity. In our module segment, we expect that our solar power products and their installation will continue to be subject to national, state and local regulationsand policies relating to safety, utility interconnection and metering, construction, environmental protection, and other related matters. Any new regulationsor policies pertaining to our solar power products may result in significant additional expenses to us, our resellers and customers, which could cause asignificant reduction in demand for our solar power products. In our energy development and electricity generation segments, we are subject to numerous national, regional and local laws and regulations, includingthe Federal Power Act, or FPA, the Environmental Protection Act (Ontario) and other statutes altered by the Green Energy and Green Economy Act (Ontario),or GEGEA, in Ontario, Canada, the Electricity Business Act (Denki Jiygo Ho) in Japan and E.U. directives and other regulations in respect of our Europebased projects.15Table of ContentsChanges in applicable energy laws or regulations, or in the interpretations of these laws and regulations, could result in increased compliance costs or theneed for additional capital expenditures. If we fail to comply with these requirements, we could also be subject to civil or criminal liability and theimposition of fines. Further, national, regional or local regulations and policies could be changed to provide for new rate programs that undermine theeconomic returns for both new and existing projects by charging additional, non-negotiable fixed or demand charges or other fees or reductions in thenumber of projects allowed under net metering policies. National, regional or local government energy policies, law and regulation supporting the creation ofwholesale energy markets is currently, and may continue to be, subject to challenges, modifications and restructuring proposals, which may result inlimitations on the commercial strategies available to us for the sale of our power. Regulatory changes in a jurisdiction where we are developing a project may make the continued development of the project infeasible or economicallydisadvantageous and any expenditure we have made to date on such project may be wholly or partially written off. Any of these changes could significantlyincrease the regulatory related compliance and other expenses incurred by the projects and could significantly reduce or entirely eliminate any potentialrevenues that can be generated by one or more of the projects or result in significant additional expenses to us, our offtakers and customers, which couldmaterially and adversely affect our business, financial condition, results of operations and cash flows. We also face regulatory risks imposed by various transmission providers and operators, including regional transmission operators and independentsystem operators, and their corresponding market rules. These regulations may contain provisions that limit access to the transmission grid or allocate scarcetransmission capacity in a particular manner, which could materially and adversely affect our business, financial condition, results of operations and cashflows. We are also subject to the Foreign Corrupt Practices Act of 1977, or the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S.Travel Act, the USA PATRIOT Act, and other anti-bribery and anti-money laundering laws in countries in which we conduct activities. We face significantliabilities if we fail to comply with the FCPA and other anticorruption laws that prohibit companies and their employees and third-party intermediaries fromauthorizing, offering, or providing, directly or indirectly, improper payments or benefits to foreign government officials, political parties, and private-sectorrecipients for the purpose of obtaining or retaining business. We may have direct or indirect interactions with officials and employees of governmentagencies or state-owned or affiliated entities. For example, in China, we may contract with and sell electricity to the national grid, a state-owned enterprise. Inother countries where we develop, acquire or sell solar projects, we need to obtain various approvals, permits and licenses from the local or nationalgovernments. We can be held liable for the illegal activities of our employees, representatives, contractors, partners, and agents, even if we do not explicitlyauthorize such activities. Any violation of the FCPA, other applicable anticorruption laws, and anti-money laundering laws could result in whistleblowercomplaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, which could have a material adverse effect onour business, financial condition, cash flows and reputation. In addition, responding to any enforcement action may result in the diversion of management'sattention and resources, significant defense costs and other professional fees.Because the markets in which we compete are highly competitive and quickly evolving, because many of our competitors have greater resources than wedo or are more adaptive, and because we have a limited track record in our energy development and electricity generation segments, we may not be able tocompete successfully and we may not be able to maintain or increase our market share. We face intense competition in our module, energy development and electricity generation segments. We have a large number of competitors in our solarmodules business, including non-China-based competitors such as First Solar, Inc., or First Solar, and SunPower Corporation, or SunPower,16Table of Contentsand China-based competitors such as Trina Solar Limited, or Trina, JinkoSolar Holding Co., Limited, or Jinko, JA Solar Co., Limited, or JA Solar, andHanwha Q Cells Co., Ltd., or Hanwha Q Cells. Some of our competitors are developing or are currently producing products based on new solar powertechnologies that may ultimately have costs similar to or lower than our projected costs. These include products based on thin film PV technology, whichrequires either no silicon or significantly less silicon to produce than crystalline silicon solar modules, such as the ones that we produce, and is lesssusceptible to increases in silicon costs. Some of our competitors have longer operating histories, greater name and brand recognition, access to largercustomer bases, greater resources and significantly greater economies of scale than we do. In addition, some of our competitors may have strongerrelationships or may enter into exclusive relationships with some of the key distributors or system integrators to whom we sell our products. As a result, theymay be able to respond more quickly to changing customer demands or devote greater resources to the development, promotion and sales of their products.Some of our competitors have more diversified product offerings, which may better position them to withstand a decline in demand for solar power products.Some of our competitors are more vertically integrated than we are, from upstream silicon wafer manufacturing to solar power system integration. This mayallow them to capture higher margins or have lower costs. In addition, new competitors or alliances among existing competitors could emerge and rapidlyacquire significant market share. If we fail to compete successfully, our business will suffer and we may not be able to maintain or increase our market share. For our energy development segment, we compete in a more diversified and complicated landscape since the commercial and regulatory environmentsfor solar power project development and operation vary significantly from region to region and country to country. Our primary competitors are local andinternational developers and operators of solar power projects. Some of our competitors may have advantages over us in terms of greater experience orresources in the operation, financing, technical support and management of solar power projects, in any particular markets or in general. We only starteddeveloping solar power projects and growing our energy development segment in recent years. Our energy development segment has a global footprint and develops solar power projects primarily in Canada, Japan, the U.S., China, Brazil and theUnited Kingdom. There is no guarantee that we can compete successfully in the markets we currently operate or the ones we plan to enter in the future. Forexample, in certain of our target markets, such as China, state-owned and private companies have emerged to take advantage of the significant marketopportunity created by attractive financial incentives and favorable regulatory environment provided by the governments. State-owned companies may havestronger relationships with local governments in certain regions and private companies may be more focused and experienced in developing solar powerprojects in the markets where we compete. Accordingly, we need to continue to be able to compete against both state-owned and private companies in thesemarkets. Our energy development segment also provides EPC and/or O&M services in China, Canada, Australia and other countries. We face intensecompetition from other service providers in those markets. For our electricity generation segment, we believe that our primary competitors in the electricity generation markets in which we operate are theincumbent utilities that supply energy to our potential customers under highly regulated rate and tariff structures. We compete with these conventionalutilities primarily based on price, predictability of price, reliability of delivery and the ease with which customers can switch to electricity generated by oursolar energy projects. If we cannot offer compelling value to our customers based on these factors, then our energy-based business will not grow.Conventional utilities generally have substantially greater financial, technical, operational and other resources than we do. As a result, these competitors maybe able to devote more resources to the research, development, promotion and sale of their products or respond more quickly to evolving industry standardsand changes in market conditions than we can. Conventional utilities could also offer other value-added products or services that could help them tocompete with us even if the cost of17Table of Contentselectricity they offer is higher than ours. In addition, a majority of conventional utilities' sources of electricity is non-renewable, which may allow them to sellelectricity more cheaply and deliver energy more consistently or reliably than electricity generated by our solar power projects. We also face risks that conventional utilities could change their volumetric-based (i.e., cents per kilowatt-hour, or kWh) rate and tariff structures to makedistributed solar generation and other renewable forms of energy less economically attractive to their retail customers. For example, net metering programsare currently utilized in most states in the U.S. to support the growth of distributed generation solar by requiring conventional utilities to reimburse theirretail customers who are home and business owners for the excess power they generate at the level of the utilities' retail rates rather than the rates at whichthose utilities buy power at wholesale. However, Arizona has allowed its largest conventional utility to assess a surcharge on customers that reduces theeconomic returns for the excess electricity that the solar power systems produce. These types of changes or other types of changes that could reduce oreliminate the economic benefits of net-metering could be implemented by state public utility commissions or state legislatures in the other states throughoutthe United States that utilize net-metering programs, and could significantly change the economic benefits of solar energy as perceived by conventionalutilities' retail customers. As the solar power and renewable energy industry grows and evolves, we will also face new competitors who are not currently in the market. Our failureto adapt to changing market conditions and to compete successfully with existing or new competitors will limit our growth and will have a material adverseeffect on our business and prospects.We face risks associated with the marketing, distribution and sale of our solar power products and services internationally. The international marketing, distribution and sale of our products expose us to a number of risks, including:•fluctuating sources of revenues; •difficulties in staffing and managing overseas operations; •fluctuations in foreign currency exchange rates; •differing regulatory and tax regimes across different markets; •the increased cost of understanding local markets and trends and developing and maintaining an effective marketing and distribution presencein various countries; •the difficulty of providing customer service and support in various countries; •the difficulty of managing our sales channels effectively as we expand beyond distributors to include direct sales to systems integrators, endusers and installers; •the difficulty of managing the development, construction and sale of our solar power projects on a timely and profitable basis as a result oftechnical difficulties, commercial disputes with our customers and changes in regulations, among other factors; •the difficulties and costs of complying with the different commercial, legal and regulatory requirements in the overseas markets in which weoperate; •any failure to develop appropriate risk management and internal control structures tailored to overseas operations; •any inability to obtain, maintain or enforce intellectual property rights; •any unanticipated changes in prevailing economic conditions and regulatory requirements; and18Table of Contents•any trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could increase the prices of our productsand make us less competitive in some countries. If we are unable to effectively manage these risks, our ability to expand our business abroad could suffer. Our revenue sources have fluctuated significantly over recent years. For example, in 2008, 89.5% of our revenues were attributable to Europe, while only4.6% and 5.9% were attributable to the Americas and Asia and others, respectively. However, in 2014, the Americas contributed 60.6% and Asia contributed30.6% of our revenues, while Europe and other regions contributed only 8.8%; and in 2015, the Americas contributed 50.5% and Asia contributed 39.9% ofour revenues, while Europe and other regions contributed 9.6%. As we shift the focus of our operations between different regions of the world, we havelimited time to prepare for and address the risks identified above. Furthermore, some of these risks, such as currency fluctuations, will increase as our revenuecontribution from certain global regions becomes more prominent. This may adversely influence our financial performance.Our future business depends in part on our ability to make strategic acquisitions, investments and divestitures and to establish and maintain strategicrelationships, and our failure to do so could have a material and adverse effect on our market penetration and revenue growth. We frequently look for and evaluate opportunities to acquire other businesses, make strategic investments or establish strategic relationships with thirdparties to improve our market position or expand our products and services. When market conditions permit and opportunities arise, we may also considerdivesting part of our current business to focus management attention and improve our operating efficiency. Investments, strategic acquisitions andrelationships with third parties could subject us to a number of risks, including risks associated with integrating their personnel, operations, services, internalcontrols and financial reporting into our operations as well as the loss of control of operations that are material to our business. If we divest any material partof our business, particularly our upstream manufacturing business or downstream energy development and electricity generation businesses, we may not beable to benefit from our investment and experience associated with that part of the business and may be subject to intensified concentration risks with lessflexibility to respond to market fluctuations. Moreover, it could be expensive to make strategic acquisitions, investments, divestitures and establish andmaintain relationships, and we may be subject to the risk of non-performance by a counterparty, which may in turn lead to monetary losses that materiallyand adversely affect our business. We cannot assure you that we will be able to successfully make strategic acquisitions and investments and successfullyintegrate them into our operations, or make strategic divestitures or establish strategic relationships with third parties that will prove to be effective for ourbusiness. Our inability to do so could materially and adversely affect our market penetration, our revenue growth and our profitability.Our significant international operations expose us to a number of risks, including unfavorable political, regulatory, labor and tax conditions in thecountries where we operate. We intend to continue to extend our global reach and capture market share in various global markets. In doing so, we will be exposed to various risks,including political, regulatory, labor and tax risks. Furthermore, we may need to make substantial investments in our overseas operations, both initially andon an ongoing basis, in order to attain longer-term sustainable returns. These investments could negatively impact our financial performance beforesustainable profitability is recognized.19Table of ContentsWe face risks related to private securities litigation. Our company and certain of our directors and executive officers were named as defendants in class action lawsuits in the U.S. and Canada alleging thatour financial disclosures during 2009 and early 2010 were false or misleading and in violation of U.S. federal securities laws and Ontario securities laws,respectively. The lawsuits in the U.S. were consolidated into one class action, which was dismissed with prejudice by the district court in March 2013, andsubsequently affirmed by the circuit court in December 2013. The lawsuit in Canada continues. As a preliminary matter, we challenged the Ontario Court'sjurisdiction to hear the plaintiff's claim, but this motion was unsuccessful. In September 2014, the plaintiff obtained an order granting him leave to assert thestatutory cause of action under the Ontario Securities Act for certain of his misrepresentation claims. In January 2015, the plaintiff obtained an order for classcertification in respect of the claims for which he obtained leave to assert the statutory cause of action under the Ontario Securities Act, for certain negligentmisrepresentation claims and for oppression remedy claims advanced under the Canada Business Corporations Act, or CBCA. The Court dismissed CSI'sapplication for leave to appeal. The class action has moved to the merits stage. See "Item 8. Financial Information—A. Consolidated Statements and OtherFinancial Information—Legal and Administrative Proceedings." There is no guarantee that we will not become party to additional lawsuits. If the case goes totrial, the Canadian action could require significant management time and attention and result in significant legal expenses. In addition, we are generallyobligated, to the extent permitted by law, to indemnify our directors and officers who are named defendants in these lawsuits. If we were to lose a class actionlawsuit, we may be required to pay judgments or settlements and incur expenses in aggregate amounts that could have a material and adverse effect on ourfinancial condition or results of operations.Our quarterly operating results may fluctuate from period to period. Our quarterly operating results may fluctuate from period to period based on a number of factors, including:•the average selling prices of our solar power products and services; •the timing of completion of construction of our solar power projects; •changes in payments from power purchasers of solar power plants already in operation; •the rate and cost at which we are able to expand our internal production capacity; •the availability and cost of solar cells and wafers from our suppliers and toll manufacturers; •the availability and cost of raw materials, particularly high-purity silicon; •changes in government incentive programs and regulations, particularly in our key and target markets; •the unpredictable volume and timing of customer orders; •the loss of one or more key customers or the significant reduction or postponement of orders; •the availability and cost of external financing for on-grid and off-grid solar power applications; •acquisition and investment costs; •the timing of successful completion of customer acceptance testing of our solar power projects; •geopolitical turmoil and natural disasters within any of the countries in which we operate; •foreign currency fluctuations, particularly in Euro, RMB, Canadian dollar and Japanese yen; •our ability to establish and expand customer relationships;20Table of Contents•changes in our manufacturing costs; •the timing of new products or technology introduced or announced by our competitors; •fluctuations in electricity rates due to changes in fossil fuel prices or other factors; •allowances for doubtful accounts and advances to suppliers; •inventory write-downs; •long-lived asset impairment; •depreciation charges relating to under-utilized assets; •loss on firm purchase commitments under long-term supply agreements; and •construction progress of solar power projects and related revenue recognition. We base our planned operating expenses in part on our expectations of future revenues. A significant portion of our expenses will be fixed in the short-term. If our revenues for a particular quarter are lower than we expect, we may not be able to reduce our operating expenses proportionately, which wouldharm our operating results for the quarter. As a result, our results of operations may fluctuate from quarter to quarter and our interim and annual financialresults may differ from our historical performance.Fluctuations in exchange rates could adversely affect our business, including our financial condition and results of operations. The majority of our sales in 2014 and in 2015 were denominated in U.S. dollars, Canadian dollars and Japanese yen, with the remainder in othercurrencies such as Renminbi, Euros and Australian dollars. Our Renminbi costs and expenses are primarily related to the sourcing of solar cells, silicon wafersand silicon, other raw materials, toll manufacturing fees, labor costs and local overhead expenses within the PRC. From time to time, we enter into loanarrangements with Chinese commercial banks that are denominated primarily in Renminbi or U.S. dollars. Most of our cash and cash equivalents andrestricted cash are denominated in Renminbi. Fluctuations in exchange rates, particularly between the U.S. dollar, Euro, Renminbi, Canadian dollar andJapanese yen, may result in foreign exchange gains or losses. We recorded net foreign exchange losses of $51.5 million and $32.2 million in 2013 and 2014,respectively, and a net foreign exchange gain of $22.9 million in 2015. The value of the Renminbi against the U.S. dollar, Euro and other currencies is affected by, among other things, changes in China's political andeconomic conditions and China's foreign exchange policies. In late 2005, China amended its policy of tracking the value of the Renminbi to the U.S. dollarto instead fluctuate against a basket of foreign currencies, which caused the Renminbi to appreciate significantly against the U.S. dollar over the followingthree years. In June 2010, the PRC government announced that it would allow greater flexibility for the Renminbi to fluctuate against the U.S. dollar, whichresulted in further appreciation of the Renminbi, although in 2014, the value of the Renminbi depreciated against the U.S. dollar. In 2015, the PRCgovernment changed the way it calculates the mid-point price of Renminbi against the U.S. dollar, requiring the market-makers who submit for the People'sBank of China's reference rates to consider the previous day's closing spot rate and foreign-exchange demand and supply, as well as changes in majorcurrency rates. This change resulted in further depreciation of the Renminbi against the U.S. dollar. We cannot provide any assurances that the policy of thePRC government will not affect or the manner in which it may affect the exchange rate between the Renminbi and the U.S. dollar or other foreign currenciesin the future. Since 2008, we have hedged part of our foreign currency exposures against the U.S. dollar using foreign currency forward or option contracts. In additionto collateral requirements to enter into hedging contracts, there are notional limits on the size of the hedging transactions that we may enter21Table of Contentsinto with any particular counterparty at any given time. The effectiveness of our hedging program may be limited due to cost effectiveness, cashmanagement, exchange rate visibility and downside protection. We recorded gains on change in foreign currency derivatives of $10.8 million and$19.7 million in 2013 and 2014, respectively, and a loss on change in foreign currency derivatives of $3.7 million in 2015. The gains or losses on change inforeign currency derivatives are related to our hedging program. Volatility in foreign exchange rates will hamper, to some extent, our ability to plan our pricing strategy. To the extent that we are unable to pass alongincreased costs resulting from exchange rate fluctuations to our customers, our profitability may be adversely impacted. As a result, fluctuations in foreigncurrency exchange rates could have a material and adverse effect on our financial condition and results of operations.A change in our effective tax rate can have a significant adverse impact on our business. A number of factors may adversely impact our future effective tax rates, such as the jurisdictions in which our profits are determined to be earned andtaxed; changes in the valuation of our deferred tax assets and liabilities; adjustments to provisional taxes upon finalization of various tax returns;adjustments to the interpretation of transfer pricing standards; changes in available tax credits; changes in stock-based compensation expenses; changes intax laws or the interpretation of such tax laws (for example, proposals for fundamental U.S. international tax reform); changes in U.S. GAAP; expiration or theinability to renew tax rulings or tax holiday incentives; and the repatriation of non-U.S. earnings for which we have not previously provided for U.S. taxes. Achange in our effective tax rate due to any of these factors may adversely influence our future results of operations.Seasonal variations in demand linked to construction cycles and weather conditions may influence our results of operations. Our business is subject to seasonal variations in demand linked to construction cycles and weather conditions. Purchases of solar power products andservices tend to decrease during the winter months in our key markets, such as Canada, due to adverse weather conditions that can complicate the installationof solar power systems and negatively impact the construction schedules of our solar power projects. Demand from other countries, such as the U.S. andChina, may also be subject to significant seasonality. Seasonal variations could adversely affect our results of operations and make them more volatile andunpredictable.Our future success depends partly on our ability to maintain and expand our solar components manufacturing capacity, which exposes us to a number ofrisks and uncertainties. Our future success depends partly on our ability to maintain and expand our solar components manufacturing capacity. If we are unable to do so, we maybe unable to expand our business, maintain our competitive position, and improve our profitability. Our ability to expand our solar components productioncapacity is subject to risks and uncertainties, including:•the need to raise significant additional funds to purchase raw materials and to build additional manufacturing facilities, which we may beunable to obtain on commercially reasonable terms or at all; •delays and cost overruns as a result of a number of factors, many of which are beyond our control, including delays in equipment delivery byvendors; •delays or denial of required regulatory approvals by relevant government authorities; •diversion of significant management attention and other resources; and •failure to execute our expansion plan effectively. If we are unable to maintain and expand our internal production capacity, we may be unable to expand our business as planned. Moreover, even if we domaintain and expand our production capacity, we might still not be able to generate sufficient customer demand for our solar power products to support theincreased production levels.22 Table of ContentsWe may be unable to generate sufficient cash flows or have access to external financing necessary to fund planned operations and make adequate capitalinvestments. We anticipate that our operating and capital expenditures requirements may increase. To develop new products, support future growth, achieve operatingefficiencies and maintain product quality, we may need to make significant capital investments in manufacturing technology, facilities and capitalequipment, research and development, and product and process technology. We also anticipate that our operating costs may increase as we expand ourmanufacturing operations, hire additional personnel, increase our sales and marketing efforts, invest in joint ventures and acquisitions, and continue ourresearch and development efforts with respect to our products and manufacturing technologies. Our operations are capital intensive. We rely on working capital financing primarily from PRC commercial banks for our manufacturing operations.Although we are currently able to obtain new working capital financing from PRC commercial banks, we cannot guarantee that we will continue to be able todo so on commercially reasonable terms or at all. See "—Our dependence on Chinese banks to extend our existing loans and provide additional loansexposes us to funding risks, which may materially and adversely affect our operations." Also, even though we are a publicly-traded company, we may not beable to raise capital via public equity and debt issuances due to market conditions and other factors, many of which are beyond our control. Our ability toobtain external financing is subject to a variety of uncertainties, including:•our future financial condition, results of operations and cash flows; •general market conditions for financing activities by manufacturers of solar power products; and •economic, political and other conditions in the PRC and elsewhere. If we are unable to obtain funding in a timely manner and on commercially acceptable terms, our growth prospects and future profitability may beadversely affected. Construction of our solar power projects may require us to obtain project financing. There can be no assurance that we will be able to do so on termsacceptable to us or at all. If we are unable to obtain project financing, or if it is only available on terms which are not acceptable to us, we may be unable tofully execute our business plan. In addition, we generally expect to sell our projects to tax-oriented, strategic industry and other investors. Such investorsmay not be available or may only have limited resources, in which case our ability to sell our projects may be hindered or delayed and our business, financialcondition, and results of operations may be adversely affected. There can be no assurance that we will be able to generate sufficient cash flows, find othersources of capital to fund our operations and solar power projects, make adequate capital investments to remain competitive in terms of technologydevelopment and cost efficiency required by our projects. If adequate funds and alternative resources are not available on acceptable terms, our ability tofund our operations, develop and construct solar power projects, develop and expand our manufacturing operations and distribution network, maintain ourresearch and development efforts or otherwise respond to competitive pressures would be significantly impaired. Our inability to do the foregoing could havea material and adverse effect on our business and results of operations.We have substantial indebtedness and may incur substantial additional indebtedness in the future, which could adversely affect our financial health andour ability to generate sufficient cash to satisfy our outstanding and future debt obligations. We have substantial indebtedness and may incur substantial additional indebtedness in the future, which could adversely affect our financial health andour ability to generate sufficient cash to satisfy23Table of Contentsour outstanding and future debt obligations. Our substantial indebtedness could have important consequences to us and our shareholders. For example, itcould:•limit our ability to satisfy our debt obligations; •increase our vulnerability to adverse general economic and industry conditions; •require us to dedicate a substantial portion of our cash flow from operations to servicing and repaying our indebtedness, thereby reducing theavailability of our cash flow to fund working capital, capital expenditures and for other general corporate purposes; •limit our flexibility in planning for or reacting to changes in our businesses and the industry in which we operate; •place us at a competitive disadvantage compared with our competitors that have less debt; •limit, along with the financial and other restrictive covenants of our indebtedness, among other things, our ability to borrow additional funds;and •increase the cost of additional financing. In the future, we may from time to time incur substantial additional indebtedness and contingent liabilities. If we incur additional debt, the risks that weface as a result of our already substantial indebtedness and leverage could intensify. Our ability to generate sufficient cash to satisfy our outstanding and future debt obligations will depend upon our future operating performance, whichwill be affected by prevailing economic conditions and financial, business and other factors, many of which are beyond our control. We cannot assure youthat we will be able to generate sufficient cash flow from operations to support the repayment of our current indebtedness. If we are unable to service ourindebtedness, we will be forced to adopt an alternative strategy that may include actions such as reducing or delaying capital expenditures, selling assets,restructuring or refinancing our indebtedness or seeking equity capital. These strategies may not be instituted on satisfactory terms, if at all. In addition,certain of our financing arrangements impose operating and financial restrictions on our business, which may negatively affect our ability to react to changesin market conditions, take advantage of business opportunities we believe to be desirable, obtain future financing, fund required capital expenditures, orwithstand a continuing or future downturn in our business. Any of these factors could materially and adversely affect our ability to satisfy our debtobligations.We must comply with certain financial and other covenants under the terms of our debt instruments and the failure to do so may put us in default underthose instruments. Many of our loan agreements include financial covenants and broad default provisions. The financial covenants primarily include current ratios, quickratios, debt to asset ratios, contingent liability ratios and minimum equity requirements, which, in general, govern our existing long-term debt and debt wemay incur in the future. These covenants could limit our ability to plan for or react to market conditions or to meet our capital needs in a timely manner andcomplying with these covenants may require us to curtail some of our operations and growth plans. In addition, any global or regional economicdeterioration may cause us to incur significant net losses or force us to assume considerable liabilities, which would adversely impact our ability to complywith the financial and other covenants of our outstanding loans. If our creditors refuse to grant waivers for any non-compliance with these covenants, suchnon-compliance will constitute an event of default which may accelerate the amounts due under the applicable loan agreements. Some of our loanagreements also contain cross-default clauses, which could enable creditors under our debt instruments to declare an event of default should there be an eventof default on our other loan agreements. We cannot assure you that we will be able to remain in compliance with these covenants in the future. We may not beable to cure future24Table of Contentsviolations or obtain a waiver on a timely basis. An event of default under any agreement governing our existing or future debt, if not cured by us or waivedby our creditors, could have a material adverse effect on our liquidity, financial condition and results of operations.Our dependence on Chinese banks to extend our existing loans and provide additional loans exposes us to funding risks, which may materially andadversely affect our operations. We require significant cash flow and funding to support our operations. As a result, we rely on short-term borrowings to provide working capital for ourdaily operations. Since the majority of our short-term borrowings come from Chinese banks, we are exposed to lending policy changes by the Chinese banks.In 2013, 2014 and 2015, we successfully extended our short-term borrowings and, as of December 31, 2015, we had outstanding short-term borrowings of$828.0 million with Chinese banks. Between January 1, 2016 and March 31, 2016, we obtained new borrowings of approximately $362.0 million fromChinese banks, including $161.9 million with due dates beyond December 31, 2016. Also, between January 1, 2016 and March 31, 2016, we renewedexisting bank facilities of approximately $146.4 million from Chinese banks with due dates beyond December 31, 2016. If the Chinese government changes its macroeconomic policies and forces Chinese banks to tighten their lending practices, or if Chinese banks are nolonger willing to provide financing to solar power companies, including us, we may not be able to extend our short-term borrowings or make additionalborrowings in the future. As a result, we may not be able to fund our operations to the same extent as in previous years, which may have a material andadverse effect on our operations.Cancellations of customer orders may make us unable to recoup any prepayments made to suppliers. In the past, we were required to make prepayments to certain suppliers of silicon wafers and cells and silicon raw materials. Although we require certaincustomers to make partial prepayments, there is generally a lag between the due date for the prepayment of purchased silicon wafers and cells and silicon rawmaterials and the time that our customers make prepayments. In the event that our customers cancel their orders, we may not be able to recoup prepaymentsmade to suppliers, which could adversely influence our financial condition and results of operations.Credit terms offered to some of our customers expose us to the credit risks of such customers and may increase our costs and expenses, which could in turnmaterially and adversely affect our revenues, liquidity and results of operations. We offer unsecured short-term or medium-term credit to some of our customers based on their creditworthiness and market conditions. As a result, ourclaims for payments and sales credits rank as unsecured claims, which expose us to credit risk if our customers become insolvent or bankrupt. From time to time, we sell our products to high credit risk customers in order to gain early access to emerging or promising markets, increase our marketshare in existing key markets or because of the prospects of future sales with a rapidly growing customer. There are high credit risks in doing business withthese customers because they are often small, young and high-growth companies with significant unfunded working capital, inadequate balance sheets andcredit metrics and limited operating histories. If these customers are not able to obtain satisfactory working capital, maintain adequate cash flow, or obtainconstruction financing for the projects where our solar products are used, they may be unable to pay for the products for which they have ordered or of whichthey have taken delivery. Our legal recourse under such circumstances may be limited if the customer's financial resources are already constrained or if wewish to continue to do business with that customer. Revenue recognition for this type of customer is deferred until cash is received. If more customers towhom we extend credit are unable to pay for our products, our revenues, liquidity and results of operations could be materially and adversely affected.25Table of ContentsOur dependence on a limited number of suppliers of silicon wafers, cells and silicon, and the limited number of suppliers for certain other components,such as silver metallization paste, solar module back-sheet, and ethylene vinyl acetate encapsulant, could prevent us from delivering our products to ourcustomers in the required quantities or in a timely manner, which could result in order cancellations and decreased revenues. We purchase silicon raw materials, which include solar grade silicon, silicon wafers and solar cells, from a limited number of third-party suppliers. Ourlargest supplier of raw materials by dollar amount of purchases accounted for approximately 23.8%, 19.6% and 23.4% of our total raw materials purchases in2013, 2014 and 2015, respectively. In 2015, we purchased the large majority of the silicon wafers used in our solar modules from third parties, and our major silicon wafers suppliers wereGCL (who accounted for 79.7% of our silicon wafer purchases), Yichang CSG Polysilicon Co., Ltd., or Yichang, and LDK. Our major suppliers of solar cellsin 2015 included Motech Industries, Inc., or Motech, Neo Solar and Tongwei Solar Co., Ltd., or Tongwei. These suppliers may not always be able to meet ourquantity requirements, or keep pace with the price reductions or quality improvements, necessary for us to price our products competitively. Supply may alsobe interrupted by accidents, disasters or other unforeseen events beyond our control. The failure of a supplier, for whatever reason, to supply silicon wafers,solar cells, silicon raw materials or other essential components that meet our quality, quantity and cost requirements in a timely manner could impair ourability to manufacture our products or increase our costs. The impact could be more severe if we are unable to access alternative sources on a timely basis oron commercially reasonable terms, and could prevent us from delivering our products to our customers in the required quantities and at prices that areprofitable. Problems of this kind could cause order cancellations, reduce our market share, harm our reputation and cause legal disputes with our customers.We are developing and commercializing higher conversion efficiency cells, but we may not be able to mass-produce these cells in a cost effective way, if atall. Higher efficiency cell structures are becoming an increasingly important factor in cost competitiveness and brand recognition in the solar powerindustry. Such cells may yield higher power outputs at the same cost to produce as lower efficiency cells, thereby lowering the manufactured cost per watt.The ability to manufacture and sell solar modules made from such cells may be an important competitive advantage because solar system owners can obtain ahigher yield of electricity from the modules that have a similar infrastructure, footprint and system cost compared to systems with modules using lowerefficiency cells. Higher conversion efficiency solar cells and the resulting higher output solar modules are one of the considerations in maintaining a pricepremium over thin-film products. However, while we are making the necessary investments to develop higher conversion efficiency solar power products,there is no assurance that we will be able to commercialize some or any of these products in a cost effective way, or at all. In the near term, such products maycommand a modest premium. In the longer term, if our competitors are able to manufacture such products and we cannot do the same at all or in a costefficient manner, we will be at a competitive disadvantage, which will likely influence our product pricing and our financial performance.We may be subject to unexpected warranty expense that may not be adequately covered by our insurance policies. Our warranty against defects in materials and workmanship is for ten years and, effective June 1, 2015, we guarantee that, for a period of 25 years, ourpolycrystalline modules will maintain the following performance levels:•during the first year, the actual power output of the module will be no less than 97.5% of the labeled power output; •from year 2 to year 24, the actual annual power output decline will be no more than 0.7%; and26Table of Contents•by the end of year 25, the actual power output of the module will be no less than 80.7% of the labeled power output. Effective June 1, 2015, we guarantee that, for a period of 25 years, our monocrystalline modules will maintain the following performance levels:•during the first year, the actual power output of the module will be no less than 97% of the labeled power output; •from year 2 to year 24, the actual annual power output decline will be no more than 0.7%; and •by the end of year 25, the actual power output of the module will be no less than 80.2% of the labeled power output. In addition, effective January 1, 2015, we lengthened the warranty against decline in our Dymond modules to 30 years. We guarantee that, for a period of30 years, our Dymond modules will maintain the following performance levels:•during the first year, the actual power output of the module will be no less than 97.5% of the labeled power output; •from year 2 to year 29, the actual annual power output decline will be no more than 0.5%; and •by the end of year 30, the actual power output of the module will be no less than 83% of the labeled power output. We believe our warranty periods are consistent with industry practice. Due to the long warranty period, we bear the risk of extensive warranty claims longafter we have shipped our products and recognized revenue. We began selling specialty solar products in 2002 and began selling standard solar modules in2004. Any increase in the defect rate of our products would require us to increase our warranty reserves and would have a corresponding negative impact onour results of operations. Although we conduct quality testing and inspection of our solar module products, our solar module products have not been andcannot be tested in an environment simulating the up-to-25-year warranty periods. In particular, unknown issues may surface after extended use. These issuescould potentially affect our market reputation and adversely affect our revenues, giving rise to potential warranty claims by our customers. As a result, wemay be subject to unexpected warranty costs and associated harm to our financial results as long as 25 years after the sale of our products. In addition, forutility-scale solar power projects built by us, we provide a limited workmanship or balance of system warranty against defects in engineering, design,installation and construction under normal use, operation and service conditions for a period of up to five years following the energizing of the solar powerplant. In resolving claims under the workmanship or balance of system warranty, we have the option of remedying through repair, refurbishment orreplacement of equipment. We have also entered into similar workmanship warranties with our suppliers to back up our warranties. See "Item 5. Operating andFinancial Review and Prospects—A. Operating Results—Critical Accounting Policies—Warranty Costs." As part of our energy development and electricity generation businesses, before energizing solar power plants, we conduct performance testing toconfirm that they meet the operational and capacity expectations set forth in the agreements. In limited cases, we also provide an energy generationperformance test designed to demonstrate that the actual energy generation for up to the first three years meets or exceeds the modeled energy expectation. Inthe event that the energy generation performance test performs below expectations, we may incur liquidated damages capped at a percentage of the contractprice. We have entered into agreements with a group of insurance companies with high credit ratings to back up our warranties. Under the terms of theinsurance policies, which are designed to match the27Table of Contentsterms of our solar module product warranty policy, the insurance companies are obliged to reimburse us, subject to certain maximum claim limits and certaindeductibles, for the actual product warranty costs that we incur under the terms of our solar module product warranty policy. We record the insurancepremiums initially as prepaid expenses and amortize them over the respective policy period of one year. Each prepaid policy provides insurance againstwarranty costs for panels sold within that policy year. However, potential warranty claims may exceed the scope or amount of coverage under this insuranceand, if they do, they could materially and adversely affect our business.We may not continue to be successful in developing and maintaining a cost-effective solar cell manufacturing capability. We plan to continue expanding our in-house solar cell manufacturing capabilities to support our solar module manufacturing business. Our annual solarcell production capacity was at 2.7 GW as of December 31, 2015. To remain competitive going forward, we intend to expand our annual solar cell productioncapacity to meet expected growth in demand for our solar modules. However, we only have limited and recent operating experience in this area and may facesignificant product development challenges in our solar cell operations. Manufacturing solar cells is a complex process and we may not be able to producesolar cells of sufficient quality to meet our solar module manufacturing standards. Minor deviations in the manufacturing process can cause substantialdecreases in yield and in some cases cause no yield output or production to be suspended. We will need to make capital expenditures to purchasemanufacturing equipment for solar cell production and will also need to make significant investments in research and development to keep pace withtechnological advances in solar power technology. Any failure to successfully develop and maintain cost-effective solar cell manufacturing capability mayhave a material and adverse effect on our business and prospects. For example, we have in the past purchased a large percentage of solar cells from thirdparties. This negatively affected our margins compared with those of our competitors since it is less expensive to produce cells internally than to purchasethem from third parties. Because third party solar cell purchases are usually made in a period of high demand, prices tend to be higher and availabilityreduced. Although we intend to continue direct purchasing of solar cells and toll manufacturing arrangements through a limited number of strategic partners, ourrelationships with our solar cell suppliers may be disrupted if we engage in the large-scale production of solar cells ourselves. If solar cell suppliersdiscontinue or reduce the supply of solar cells to us, through direct sales or through toll manufacturing arrangements, and we are not able to compensate forthe loss or reduction by manufacturing our own solar cells, our business and results of operations may be adversely affected.We may not achieve acceptable yields and product performance as a result of manufacturing problems. We need to continuously enhance and modify our ingot and silicon wafer production capabilities in order to improve yields and product performance.Microscopic impurities such as dust and other contaminants, difficulties in the manufacturing process, disruptions in the supply of utilities or defects in thekey materials and tools used to manufacture silicon wafers can cause a percentage of the silicon wafers to be rejected, which would negatively affect ouryields. We may experience manufacturing difficulties that cause production delays and lower than expected yields. Problems in our facilities, including but not limited to production failures, human errors, weather conditions, equipment malfunction or processcontamination, may limit our ability to manufacture products, which could seriously harm our operations. We are also susceptible to floods, droughts, powerlosses and similar events beyond our control that would affect our facilities. A disruption in any step of the manufacturing process will require us to repeateach step and recycle the silicon debris, which would adversely affect our yields and manufacturing cost.28Table of ContentsIf we are unable to attract, train and retain technical personnel, our business may be materially and adversely affected. Our future success depends, to a significant extent, on our ability to attract, train and retain technical personnel. Recruiting and retaining capablepersonnel, particularly those with expertise in the solar power industry, are vital to our success. There is substantial competition for qualified technicalpersonnel, and there can be no assurance that we will be able to attract or retain sufficient technical personnel. If we are unable to attract and retain qualifiedemployees, our business may be materially and adversely affected.Our dependence on a limited number of customers and our lack of long-term customer contracts in our solar modules business may cause significantfluctuations or declines in our revenues. We sell a substantial portion of our solar module products to a limited number of customers, including distributors, system integrators, project developersand installers/EPC companies. Our top five customers by revenues collectively accounted for approximately 38.3%, 33.6% and 26.8% of our net revenues in2013, 2014 and 2015, respectively. We anticipate that our dependence on a limited number of customers will continue for the foreseeable future.Consequently, any of the following events may cause material fluctuations or declines in our revenues:•reduced, delayed or cancelled orders from one or more of our significant customers; •the loss of one or more of our significant customers; •a significant customer's failure to pay for our products on time; and •a significant customer's financial difficulties or insolvency. As we continue to expand our business and operations, our top customers continue to change. We cannot assure that we will be able to develop aconsistent customer base.There are a limited number of purchasers of utility-scale quantities of electricity, which exposes us and our utility-scale solar power projects to additionalrisk. Since the transmission and distribution of electricity is either monopolized or highly concentrated in most jurisdictions, there are a limited number ofpossible purchasers for utility-scale quantities of electricity in a given geographic location, including transmission grid operators, state and investor-ownedpower companies, public utility districts and cooperatives. As a result, there is a concentrated pool of potential buyers for electricity generated by our solarpower plants and projects, which may restrict our ability to negotiate favorable terms under new PPAs and could impact our ability to find new customers forthe electricity generated by our generation facilities should this become necessary. Furthermore, if the financial condition of these utilities and/or powerpurchasers deteriorates or government policies or regulations to which they are currently subject that compel them to source renewable energy supplieschange, demand for electricity produced by our plants could be negatively impacted. In addition, provisions in our PPAs or applicable laws may provide forthe curtailment of delivery of electricity for various reasons, including preventing damage to transmission systems, system emergencies, force majeure oreconomic reasons. Such curtailment would reduce revenues to us from PPAs. If we cannot enter into PPAs on terms favorable to us, or at all, or if the purchaserunder our PPAs were to exercise its curtailment or other rights to reduce purchases or payments under such arrangements, our revenues from electricitygeneration segment and our decisions regarding development of additional projects in the energy development segment may be adversely affected.29Table of ContentsProduct liability claims against us could result in adverse publicity and potentially significant monetary damages. We, along with other solar power product manufacturers, are exposed to risks associated with product liability claims if the use of our solar powerproducts results in injury. Since our products generate electricity, it is possible that users could be injured or killed by our products due to productmalfunctions, defects, improper installation or other causes. Although we carry limited product liability insurance, we may not have adequate resources tosatisfy a judgment if a successful claim is brought against us. The successful assertion of product liability claims against us could result in potentiallysignificant monetary damages and require us to make significant payments. Even if the product liability claims against us are determined in our favor, wemay suffer significant damage to our reputation.Our founder, Dr. Shawn Qu, has substantial influence over our company and his interests may not be aligned with the interests of our other shareholders. As of March 31, 2016, Dr. Shawn Qu, our founder, Chairman, President and Chief Executive Officer, beneficially owned 13,611,336 common shares, or23.6% of our outstanding shares. As a result, Dr. Qu has substantial influence over our business, including decisions regarding mergers and acquisition,consolidations and the sale of all or substantially all of our assets, the election of directors and other significant corporate actions. This concentration ofownership may discourage, delay or prevent a change in control of our company, which could deprive our other shareholders of an opportunity to receive apremium for their shares as part of a sale of our company and might reduce the price of our common shares.We may be exposed to infringement, misappropriation or other claims by third parties, which, if determined adversely to us, could require us to paysignificant damage awards. Our success depends on our ability to develop and use our technology and know-how and sell our solar power products and services without infringingthe intellectual property or other rights of third parties. The validity and scope of claims relating to solar power technology patents involve complexscientific, legal and factual questions and analyses and are therefore highly uncertain. We may be subject to litigation involving claims of patentinfringement or the violation of intellectual property rights of third parties. Defending intellectual property suits, patent opposition proceedings and relatedlegal and administrative proceedings can be both costly and time-consuming and may significantly divert the efforts and resources of our technical andmanagement personnel. Additionally, we use both imported and China-made equipment in our production lines, sometimes without sufficient supplierguarantees that our use of such equipment does not infringe third-party intellectual property rights. This creates a potential source of litigation orinfringement claims. An adverse determination in any such litigation or proceedings to which we may become a party could subject us to significant liabilityto third parties or require us to seek licenses from third parties, pay ongoing royalties, redesign our products or subject us to injunctions prohibiting themanufacture and sale of our products or the use of our technologies. Protracted litigation could also defer customers or potential customers or limit theirpurchase or use of our products until such litigation is resolved.Compliance with environmental laws and regulations can be expensive, and noncompliance with these regulations may result in adverse publicity andpotentially significant monetary damages, fines and the suspension or even termination of our business operations. We are required to comply with all national and local environmental regulations. Our business generates noise, wastewater, gaseous wastes and otherindustrial waste in our operations and the risk of incidents with a potential environmental impact has increased as our business has expanded. We believe thatwe comply with all relevant environmental laws and regulations and have all necessary environmental permits to conduct our business as it is presentlyconducted. However, if more stringent30Table of Contentsregulations are adopted in the future, the costs of complying with these new regulations could be substantial. If we fail to comply with present or futureenvironmental regulations, we may be required to pay substantial fines, suspend production or cease operations. Our solar power products must comply with the environmental regulations of the jurisdictions in which they are installed, and we may incur expenses todesign and manufacture our products to comply with such regulations. If compliance is unduly expensive or unduly difficult, we may lose market share andour financial results may be adversely affected. Any failure by us to control our use or to restrict adequately the discharge, of hazardous substances couldsubject us to potentially significant monetary damages, fines or suspensions of our business operations.We may not be successful in establishing our brand name in important markets and the products we sell under our brand name may compete with theproducts we manufacture on an original equipment manufacturer, or OEM, basis for our customers. We sell our products primarily under our own brand name but also on an OEM basis. In certain markets, our brand may not be as prominent as other moreestablished solar power product vendors, and there can be no assurance that the brand names "Canadian Solar," or "CSI" or any of our possible future brandnames will gain acceptance among customers. Moreover, because the range of products that we sell under our own brands and those we manufacture for ourOEM customers may be substantially similar, we may end up directly or indirectly competing with our OEM customers, which could negatively affect ourrelationship with them.Failure to protect our intellectual property rights in connection with new solar power products may undermine our competitive position. As we develop and bring to market new solar power products, we may need to increase our expenditures to protect our intellectual property. Our failureto protect our intellectual property rights may undermine our competitive position. As of March 31, 2016, we had 468 patents and 165 patent applicationspending in the PRC for products that contribute a relatively small percentage of our net revenues. We have seven U.S. patents. We also have three patents inEurope. We have registered the "Canadian Solar" trademark in the U.S., Australia, Canada, Europe, South Korea, Japan, the United Arab Emirates, Hong Kongand Peru and we have applied for registration of the "Canadian Solar" trademark in a number of other countries. As of March 31, 2016, we had 60 registeredtrademarks and nil trademark applications pending in the PRC, and 44 registered trademarks and 23 trademark applications pending outside of China. Theseintellectual property rights afford only limited protection and the actions we take to protect our rights as we develop new solar power products may not beadequate. Policing the unauthorized use of proprietary technology can be difficult and expensive. In addition, litigation, which can be costly and divertmanagement attention, may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of theproprietary rights of others.31Table of ContentsWe have limited insurance coverage and may incur significant losses resulting from operating hazards, product liability claims or business interruptions. Our operations involve the use, handling, generation, processing, storage, transportation and disposal of hazardous materials, which may result in fires,explosions, spills and other unexpected or dangerous accidents causing personal injuries or death, property damages, environmental damages and businessinterruption. Although we currently carry third-party liability insurance against property damages, the policies for this insurance are limited in scope and maynot cover all claims relating to personal injury, property or environmental damage arising from incidents on our properties or relating to our operations. See"Item 4. Information on the Company—B. Business Overview—Insurance." Any occurrence of these or other incidents which are not insured under ourexisting insurance policies could have a material adverse effect on our business, financial condition or results of operations. We are also exposed to risks associated with product liability claims in the event that the use of our solar power products results in injury. See "—Productliability claims against us could result in adverse publicity and potentially significant monetary damages." Although we carry limited product liabilityinsurance, we may not have adequate resources to satisfy a judgment if a successful claim is brought against us. In addition, the normal operation of our manufacturing facilities may be interrupted by accidents caused by operating hazards, power supply disruptions,equipment failure, as well as natural disasters. While our manufacturing plants in China and elsewhere are covered by business interruption insurance, anysignificant damage or interruption to these plants could still have a material and adverse effect on our results of operations.If our internal control over financial reporting or disclosure controls and procedures are not effective, investors may lose confidence in our reportedfinancial information, which could lead to a decline in our share price. We are subject to the reporting obligations under U.S. securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, hasadopted rules requiring every public company to include a management report on its internal control over financial reporting in its annual report, whichcontains management's assessment of the effectiveness of its internal control over financial reporting. In addition, an independent registered publicaccounting firm must report on the effectiveness of our internal controls over financial reporting. As of December 31, 2015, our management concluded thatour internal control over financial reporting was effective. However, we cannot assure you that material weaknesses in our internal controls over financialreporting will not be identified in the future. Any material weaknesses in our internal controls could cause us not to meet our periodic reporting obligationsin a timely manner or result in material misstatements in our financial statements. Material weaknesses in our internal controls over financial reporting couldalso cause investors to lose confidence in our reported financial information, leading to a decline in the market price of our common shares.The audit report included in our annual report on Form 20-F was prepared by auditors who are not inspected by the Public Company AccountingOversight Board and, as a result, you are deprived of the benefits of such inspection. The independent registered public accounting firm that issues the audit reports included in our annual reports filed with the SEC, as auditors ofcompanies that are traded publicly in the U.S. and a firm registered with the Public Company Accounting Oversight Board (United States), or the PCAOB, isrequired by the laws of the U.S. to undergo regular inspections by the PCAOB to assess its compliance with the laws of the U.S. and professional standards.Because our auditors are located in32Table of Contentsthe PRC, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the PRC authorities, our auditors are notcurrently inspected by the PCAOB. Inspections of other firms that the PCAOB has conducted outside China have identified deficiencies in those firms' audit procedures and quality controlprocedures, which may be addressed as part of the inspection process to improve future audit quality. This lack of PCAOB inspections in China prevents thePCAOB from regularly evaluating our auditor's audits and its quality control procedures. As a result, investors may be deprived of the benefits of PCAOBinspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor's auditprocedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. As a result, investors may loseconfidence in our reported financial information and procedures and the quality of our financial statements.If additional remedial measures are imposed on the big four PRC-based accounting firms, including our independent registered public accounting firm, inadministrative proceedings brought by the SEC alleging the firms' failure to meet specific criteria set by the SEC, with respect to requests for theproduction of documents, we could be unable to timely file future financial statements in compliance with the requirements of the Exchange Act. Beginning in 2011, the Chinese affiliates of the "big four" accounting firms (including our independent registered public accounting firm) were affectedby a conflict between the U.S. and Chinese law. Specifically, for certain U.S. listed companies operating and audited in the PRC, the SEC and the PCAOBsought to obtain access to the audit work papers and related documents of the Chinese affiliates of the "big four" accounting firms. The accounting firmswere, however, advised and directed that, under Chinese law, they could not respond directly to the requests of the SEC and the PCAOB and that suchrequests, and similar requests by foreign regulators for access to such papers in China, had to be channeled through the China Securities RegulatoryCommission, or CSRC. In late 2012, this impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the "big four" accounting firms (including our independent registered public accounting firm). A first instance trial of theseproceedings in July 2013 in the SEC's internal administrative court resulted in an adverse judgment against the firms. The administrative law judge proposedpenalties on the firms, including a temporary suspension of their right to practice before the SEC. Implementation of the latter penalty was postponedpending review by the SEC Commissioners. On February 6, 2015, before a review by the Commissioner had taken place, the firms reached a settlement withthe SEC. Under the settlement, the SEC accepts that future requests by the SEC for the production of documents will normally be made to the CSRC. Thefirms will receive matching Section 106 requests, and are required to abide by a detailed set of procedures with respect to such requests, which in substancerequire them to facilitate production via the CSRC. If the firms fail to follow these procedures and meet certain other specified criteria, the SEC retains theauthority to impose a variety of additional remedial measures, including, as appropriate, an automatic six-month bar on a firm's ability to perform certainaudit work, commencement of new proceedings against a firm or, in extreme cases, the resumption of the current administrative proceeding against all fourfirms. In the event that the SEC restarts administrative proceedings, depending upon the final outcome, listed companies in the U.S. with major PRC operationsmay find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in their financial statements beingdetermined to not be in compliance with the requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including possibledelisting. Moreover, any negative news about any33Table of Contentssuch future proceedings against the firms may cause investor uncertainty regarding China-based, U.S.-listed companies and the market price of their sharesmay be adversely affected. If our independent registered public accounting firm was denied, even temporarily, the ability to practice before the SEC and we were unable to timelyfind another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined not tobe in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting of our shares from the NASDAQStock Market LLC, or Nasdaq, or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our shares inthe U.S.Our independent registered public accounting firm, Deloitte China, recently advised our audit committee that they had identified a matter that raisedconcerns in relation to the SEC's auditor independence rules. The Spanish Member Firm of Deloitte Touche Tohmatsu Limited, or Deloitte Spain, provided an element of impermissible services as part of certainotherwise permissible tax compliance services to our subsidiary in Spain, or the Spanish Subsidiary, which only became our subsidiary after we acquiredRecurrent Energy, LLC, or Recurrent, in March 2015. These impermissible services were not consistent with the SEC's auditor independence rules.Specifically, it was discovered that Deloitte Spain processed certain tax payments at the request of the Spanish Subsidiary, after management had reviewedand approved such payments, which included cash handling by Deloitte Spain. These impermissible services continued through early September 2015, whenupon identification they were promptly terminated. The fees paid to Deloitte Spain for such services were insignificant. Deloitte Touche Tohmatsu CertifiedPublic Accountants LLP, or Deloitte China, informed our audit committee that, during the period that these services were being provided by Deloitte Spain,Deloitte China's audit team was not aware that these impermissible services were provided to the Spanish Subsidiary. As a measure taken in response to thematter described above, Deloitte China performed procedures to verify that the amount of cash handled related solely to the tax compliance services, that theamount of cash remitted to the tax authority equated to amounts included in tax filings and that cash was remitted to the tax authority timely. Accordingly,for the reasons noted above, Deloitte China advised our audit committee that their objectivity, integrity, and impartiality was not impaired with respect toplanning and executing the audits during 2015. Our audit committee also reviewed and considered the impact that these matters may have had on Deloitte China's independence with respect to it underthe applicable SEC and PCAOB independence rules. After considering all the facts and circumstances, our audit committee determined that the matter wouldnot impair Deloitte China's ability to exercise objective and impartial judgment on all issues encompassed within their audit engagements during 2015.Risks Related to Doing Business in ChinaThe enforcement of the labor contract law and increases in labor costs in the PRC may adversely affect our business and our profitability. The Labor Contract Law came into effect on January 1, 2008, and was later revised on December 28, 2012; the Implementation Rules and the amendmentthereunder became effective on September 18, 2008 and July 1, 2013, respectively. The Labor Contract Law and the Implementation Rules imposed stringentrequirements on employers with regard to executing written employment contracts, hiring temporary employees, dismissing employees, consultation with thelabor union and employee assembly, compensation upon termination and overtime work, collective bargaining and labor dispatch business. In addition,under the Regulations on Paid Annual Leave for Employees, which came into effect on January 1, 2008, and their Implementation Measures, which werepromulgated and became effective on September 18, 2008, employees who have served for more than one year with an34Table of Contentsemployer are entitled to a paid vacation ranging from five to 15 days, depending on their length of service. Employees who waive such vacation time at therequest of the employer must be compensated for each vacation day waived at a rate equal to three times their normal daily salary. According to the InterimProvisions on Labor Dispatching, which came into effect on March 1, 2014, the number of dispatched workers used by an employer shall not exceed 10% ofits total number of workers. Our labor costs are expected to continue to increase due to these new laws and regulations. Higher labor costs and labor disputeswith our employees stemming from these new rules and regulations could adversely affect our business, financial condition, and results of operations.In recent years, our subsidiaries have lost certain tax benefits and we expect to pay additional PRC taxes as a result, which could have a material andadverse impact on our financial condition and results of operations. On January 1, 2008, the Enterprise Income Tax Law, or the EIT Law, came into effect in China. Under the EIT Law, both foreign-invested enterprises anddomestic enterprises are subject to a uniform enterprise income tax rate of 25%. The EIT Law provides for preferential tax treatment for certain categories ofindustries and projects that are strongly supported and encouraged by the state. For example, enterprises qualified as a "High and New TechnologyEnterprise," or HNTE, are entitled to a 15% enterprise income tax rate provided that such HNTE satisfies other applicable statutory requirements. Certain of our PRC subsidiaries, such as CSI New Energy Holding Co., Ltd. (formerly, CSI Solar Manufacture Inc.), or CSI New Energy Holding, CSICells Co., Ltd., or CSI Cells, Canadian Solar Manufacturing (Luoyang) Inc., or CSI Luoyang Manufacturing, Canadian Solar Manufacturing (Changshu) Inc.,or CSI Changshu Manufacturing, once enjoyed preferential tax benefits, such as a reduced enterprise income tax rate of 12.5%,however, these benefits wereexpired. In 2015, only our partially owned subsidiary, Suzhou Sanysolar Materials Technology Co., Ltd., or Suzhou Sanysolar, which was qualified as anHNTE and satisfied applicable statutory requirements, enjoyed a reduced enterprise income tax rate of 15%. As most of the preferential tax benefits enjoyedby our PRC subsidiaries expired, their effective tax rates increased significantly.There are significant uncertainties regarding our tax liabilities with respect to our income under the EIT Law. We are a Canadian company with a significant portion of our manufacturing operations in China. Under the EIT Law and its implementation regulations,both of which became effective on January 1, 2008, enterprises established outside China whose "de facto management body" is located in China areconsidered PRC tax residents and will generally be subject to the uniform 25% enterprise income tax rate on their global income. Under the implementationregulations, the term "de facto management body" is defined as substantial and overall management and control over aspects such as the production andbusiness, personnel, accounts and properties of an enterprise. The Circular on Identification of China-controlled Overseas-registered Enterprises as ResidentEnterprises on the Basis of Actual Management Organization, or Circular 82, further provides certain specific criteria for determining whether the "de factomanagement body" of a PRC-controlled offshore incorporated enterprise is located in the PRC. The criteria include whether (a) the premises where the seniormanagement and the senior management bodies responsible for the routine production and business management of the enterprise perform their functions aremainly located within the PRC, (b) decisions relating to the enterprise's financial and human resource matters are made or subject to approval byorganizations or personnel in the PRC, (c) the enterprise's primary assets, accounting books and records, company seals, and board and shareholders' meetingminutes are located or maintained in the PRC and (d) 50% or more of voting board members or senior executives of the enterprise habitually reside in thePRC. Although Circular 82 only applies to offshore enterprises controlled by enterprises or enterprise groups located within the PRC, the determining criteriaset forth in the Circular 82 may reflect the tax authorities' general position on how the "de facto management body" test may be35Table of Contentsapplied in determining the tax resident status of offshore enterprises. As the tax resident status of an enterprise is subject to the determination by the PRC taxauthorities, uncertainties remain with respect to the interpretation of the term "de facto management body" as applicable to our offshore entities. As asubstantial number of the members of our management team are located in China, we may be considered as a PRC tax resident under the EIT Law and,therefore, subject to the uniform 25% enterprise income tax rate on our global income, but dividends received by us from our PRC subsidiaries may beexempt from the income tax. If our global income is subject to PRC enterprise income tax at the rate of 25%, our financial condition and results of operationmay be materially and adversely affected.Dividends paid by us to our non-PRC shareholders and gains on the sale of our common shares by our non-PRC shareholders may be subject to PRCenterprise income tax liabilities or individual income tax liabilities. Under the EIT Law and its implementation regulations, dividends paid to a non-PRC investor are generally subject to a 10% PRC withholding tax, ifsuch dividends are derived from sources within China and the non-PRC investor is considered to be a non-resident enterprise without any establishment orplace within China or if the dividends paid have no connection with the non-PRC investor's establishment or place within China, unless such tax iseliminated or reduced under an applicable tax treaty. Similarly, any gain realized on the transfer of shares by such investor is also subject to a 10% PRCwithholding tax if such gain is regarded as income derived from sources within China, unless such tax is eliminated or reduced under an applicable tax treaty. The implementation regulations of the EIT Law provide that (a) if the enterprise that distributes dividends is domiciled in the PRC, or (b) if gains arerealized from transferring equity interests of enterprises domiciled in the PRC, then such dividends or capital gains shall be treated as China-sourced income. Currently there are no detailed rules applicable to us that govern the procedures and specific criteria for determining the meaning of being "domiciled" inthe PRC. As a result, it is not clear how the concept of domicile will be interpreted under the EIT Law. Domicile may be interpreted as the jurisdiction wherethe enterprise is incorporated or where the enterprise is a tax resident. As a result, if we are considered a PRC "resident enterprise" for tax purposes, it ispossible that the dividends we pay with respect to our common shares to non-PRC enterprises, or the gain non-PRC enterprises may realize from the transferof our common shares or our convertible notes, would be treated as income derived from sources within China and be subject to the PRC withholding tax at arate of 10% or a lower applicable treaty rate for enterprises. Under the Law of the People's Republic of China on Individual Income Tax, or the IIT Law, individual income tax is payable on PRC-source dividendincome. The implementation regulations of the IIT Law provide that income from dividends derived from companies, enterprises and other economicorganizations in China as well as income realized from transfer of properties in China is considered derived from sources inside China, regardless of whetherthe place of payment was inside China. Therefore, if we are treated as a company in China for tax purposes, any dividends we pay to our non-PRC individualshareholders as well as any gains realized by our non-PRC individual shareholders or our non-PRC individual note holders from the transfer of our commonshares or our convertible notes may be regarded as China-sourced income and, consequently, be subject to PRC withholding tax at a rate of up to 20% or alower applicable treaty rate for individuals. The investment returns of our non-PRC investors may be materially and adversely affected if any dividends wepay, or any gains realized on a transfer of our common shares, are subject to PRC tax.36Table of ContentsWe face uncertainty from the PRC State Administration of Taxation's Announcement on Several Issues Concerning the Enterprise Income Tax on IndirectProperty Transfer by Non-Resident Enterprises. The PRC State Administration of Taxation, or the SAT, issued the Circular on Strengthening the Management of Enterprise Income Tax Collection ofIncome Derived by Non-resident Enterprises from Equity Transfers, or Circular 698, on December 10, 2009. Under Circular 698, an overseas investor (actualcontrolling party) who "indirectly transfers" the equity of a PRC resident enterprise, is required to report such transfer to the PRC tax authority if certainstatutory requirements are satisfied. In March 2015, the SAT issued the Announcement on Several Issues Concerning the Enterprise Income Tax on IndirectProperty Transfer by Non-Resident Enterprises, or Announcement 7, which further regulated and strengthened the administration of enterprise income tax onindirect transfer of properties such as equity in a Chinese resident enterprise, and the above stipulations of Circular 698 were repealed simultaneously. Under Announcement 7, where a non-resident enterprise indirectly transfers properties, such as equity of Chinese resident enterprises, without anyreasonable commercial purposes with the aim of avoiding payment of enterprise income tax, such indirect transfer shall be reclassified as a direct transfer ofequity of a Chinese resident enterprise. Properties such as equity in Chinese resident enterprises mentioned in Announcement 7 mean the properties, orChinese taxable properties, which are directly held by non-resident enterprises and subject the transfer income to enterprise income tax in China according tothe provisions of Chinese tax law. Indirect transfers of Chinese taxable properties are transactions which transfer the equity and other similar interests(hereinafter referred to as "equity") of enterprises abroad that directly or indirectly hold Chinese taxable properties (not including Chinese resident enterprisesregistered abroad). To estimate reasonable commercial purposes, all arrangements related to the indirect transfer of Chinese taxable properties must beconsidered comprehensively and certain factors, such as whether the main value of the equity of enterprises abroad is directly or indirectly from the Chinesetaxable properties, must be comprehensively analyzed. Except for the circumstances stipulated therein, the overall arrangements related to the indirecttransfer of Chinese taxable properties that fall in any of the following circumstances simultaneously are deemed as having no reasonable commercialpurposes: (a) more than 75% of the equity of enterprises abroad is directly or indirectly from Chinese taxable properties; (b) more than 90% of the total assets(not including cash) of enterprises abroad are directly or indirectly composed of investment in the territory of China at any time in the year before the indirecttransfer of Chinese taxable properties, or more than 90% of the income of enterprises abroad is directly or indirectly from the territory of China in the yearbefore the indirect transfer of Chinese taxable properties; (c) although the enterprises abroad and their subordinate enterprises directly or indirectly holdChinese taxable properties have registered in the host country (region) in order to satisfy the organization form required by law, the functions actuallyperformed and the risks undertaken are limited and are not sufficient to prove the economic essence; or (d) the burden of income tax of indirect transfer ofChinese taxable properties payable abroad is lower than the possible burden of taxation in China as for the direct transfer of Chinese taxable properties.However, a non-resident enterprise's income obtained from indirect transfer of Chinese taxable properties by purchasing and selling equity of the same listedenterprise abroad in the open market will not be taxed under Announcement 7. There is uncertainty as to the application of Announcement 7 and it is understood that the relevant PRC tax authorities have jurisdiction regardingreasonable commercial purposes. As a result, we may become at risk of being taxed under Announcement 7 and we may be required to expend valuableresources to comply with Announcement 7 or to establish that we should not be taxed under Announcement 7, which may materially adversely affect ourfinancial condition and results of operations. We do not believe that the transfer of our common shares or the convertible notes by our non-PRC shareholders would be treated as an indirect transfer ofequity in our PRC subsidiaries37Table of Contentssubject to Announcement 7. However, there is uncertainty as to the interpretation and application of Announcement 7 by the PRC tax authorities in practice.If you are required to pay PRC tax on the transfer of our common shares or convertible notes, your investment in us may be materially and adversely affected.In addition, we cannot predict how Announcement 7 will affect our financial condition or results of operations.Restrictions on currency exchange may limit our ability to receive and use our revenues effectively. Certain of our revenues and expenses are denominated in Renminbi. If our revenues denominated in Renminbi increase or our expenses denominated inRenminbi decrease in the future, we may need to convert a portion of our revenues into other currencies to meet our foreign currency obligations. UnderChina's existing foreign exchange regulations, our PRC subsidiaries are able to pay dividends in foreign currencies without prior approval from the StateAdministration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. However, we cannot assure you that the PRC governmentwill not take further measures in the future to restrict access to foreign currencies for current account transactions. Foreign exchange transactions by our PRC subsidiaries under most capital accounts continue to be subject to significant foreign exchange controls andrequire the approval of or registration with PRC governmental authorities. In particular, if we finance our PRC subsidiaries by means of additional capitalcontributions, certain government authorities, including the Ministry of Commerce or its local counterparts, must approve these capital contributions. Theselimitations could affect the ability of our PRC subsidiaries to obtain foreign exchange through equity financing.Uncertainties with respect to the Chinese legal system could materially and adversely affect us. We conduct a significant portion of our manufacturing operations through our subsidiaries in China. These subsidiaries are generally subject to laws andregulations applicable to foreign investment in China and, in particular, laws applicable to wholly foreign-owned enterprises and joint venture companies.The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, PRClegislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since these lawsand regulations are relatively new and the PRC legal system is still developing, the implementation and enforcement of many laws, regulations and rules maybe inconsistent, which may limit legal protections available to us. In addition, any litigation in China may be protracted and may result in substantial costsand divert our resources and the attention of our management.Risks Related to Our Common SharesWe may issue additional common shares, other equity or equity-linked or debt securities, which may materially and adversely affect the price of ourcommon shares. Hedging activities may depress the trading price of our common shares. We may issue additional equity, equity-linked or debt securities for a number of reasons, including to finance our operations and business strategy(including in connection with acquisitions, strategic collaborations or other transactions), to satisfy our obligations for the repayment of existingindebtedness, to adjust our ratio of debt to equity, to satisfy our obligations upon the exercise of outstanding warrants or options or for other reasons. Anyfuture issuances of equity securities or equity-linked securities could substantially dilute the interests of our existing shareholders and may materially andadversely affect the price of our common shares. We cannot predict the timing or size of any future issuances or sales of equity, equity-linked or debtsecurities, or the effect, if any, that such38Table of Contentsissuances or sales, may have on the market price of our common shares. Market conditions could require us to accept less favorable terms for the issuance ofour securities in the future.The market price for our common shares may be volatile. The market price for our common shares has been highly volatile and subject to wide fluctuations. During the period from November 9, 2006, the firstday on which our common shares were listed on the Nasdaq Global Market, until December 31, 2015, the market price of our common shares ranged from$1.95 to $51.80 per share. From January 1, 2015 to December 31, 2015, the market price of our common shares ranged from $14.16 to $40.08 per share. Theclosing market price of our common shares on December 31, 2015 was $28.96 per share. The market price of our common shares may continue to be volatileand subject to wide fluctuations in response to a wide variety of factors, including the following:•announcements of technological or competitive developments; •regulatory developments in our target markets affecting us, our customers or our competitors; •actual or anticipated fluctuations in our quarterly operating results; •changes in financial estimates by securities research analysts; •changes in the economic performance or market valuations of other solar power companies; •the departure of executive officers and key research personnel; •patent litigation and other intellectual property disputes; •litigation and other disputes with our long-term suppliers; •fluctuations in the exchange rates between the U.S. dollar, the Euro and the RMB; •the release or expiration of lock-up or other transfer restrictions on our outstanding common shares; and •sales or anticipated sales of additional common shares. In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operatingperformance of particular companies. These market fluctuations may also have a material and adverse effect on the price of our common shares.Substantial future sales of our common shares in the public market, or the perception that such sales could occur, could cause the price of our commonshares to decline. Sales of our common shares in the public market, or the perception that such sales could occur, could cause the market price of our common shares todecline. As of December 31, 2015, we had 55,965,443 common shares outstanding. The number of common shares outstanding and available for sale willincrease when our employees and former employees who are holders of restricted share units and options to acquire our common shares become entitled tothe underlying shares under the terms of their units or options. In addition, in connection with a $180 million senior loan facility, we issued warrants topurchase up to 1,348,040 of our common shares at an exercise price of $24.48 per share in October 2015, and we issued additional warrants to purchase up to940,171 of our common shares at an exercise price of $28.08 per share in December 2015. The warrant holders are entitled to request to participate in anypublic offering of our common shares for which we undertake any marketing efforts. To the extent these shares are sold into the market, the market price ofour common shares could decline.39Table of ContentsYour right to participate in any future rights offerings may be limited, which may cause dilution to your holdings. We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make these rights availablein the United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registrationrequirements is available. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause aregistration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act.Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.Our articles of continuance contain anti-takeover provisions that could adversely affect the rights of holders of our common shares. The following provisions in our amended articles of continuance may deprive our shareholders of the opportunity to sell their shares at a premium overthe prevailing market price by delaying or preventing a change of control of our company:•Our board of directors has the authority, without approval from the shareholders, to issue an unlimited number of preferred shares in one ormore series. Our board of directors may establish the number of shares to be included in each such series and may fix the designations,preferences, powers and other rights of the shares of a series of preferred shares. •Our board of directors is entitled to fix and may change the number of directors within the minimum and maximum number of directorsprovided for in our articles. Our board of directors may appoint one or more additional directors to hold office for a term expiring no later thanthe close of the next annual meeting of shareholders, subject to the limitation that the total number of directors so appointed may not exceedone-third of the number of directors elected at the previous annual meeting of shareholders.You may have difficulty enforcing judgments obtained against us. We are a corporation organized under the laws of Canada and a substantial portion of our assets are located outside of the United States. A substantialportion of our current business operations is conducted in the PRC. In addition, a majority of our directors and officers are nationals and residents of countriesother than the United States and a substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult foryou to effect service of process within the United States upon these persons. It may also be difficult for you to enforce judgments obtained in U.S. courtsbased on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, many of whom are not residents of theUnited States and whose assets are located in significant part outside of the United States. In addition, there is uncertainty as to whether the courts of Canadaor the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities lawsof the United States or any state. In addition, it is uncertain whether such Canadian or PRC courts would be competent to hear original actions brought inCanada or the PRC against us or such persons predicated upon the securities laws of the United States or any state.We may be classified as a passive foreign investment company, which could result in adverse United States federal income tax consequences to UnitedStates Holders of our common shares. Based on the current 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 United States federal income tax purposes for our taxable year ended December 31, 2015. The structuring of the Yieldco IPO is not40Table of Contentscomplete and our PFIC status for 2016 or any future taxable year may depend, in part, on the manner in which we operate our current and future solar powerproject assets, Therefore, we currently cannot express a view as to whether we will be a PFIC for the current taxable year ending December 31, 2016 or anyfuture taxable year, even though we will use reasonable efforts to structure the Yieldco IPO and operate our current and future solar power projects to mitigatethe risk that we will be a PFIC for the current taxable year ending December 31, 2016. A non-United States corporation such as ourselves will be treated as aPFIC for United States federal income tax purposes for any taxable year if, applying applicable look-through rules, either (a) at least 75% of its gross incomefor such year is passive income or (b) at least 50% of the value of its assets (determined based on a quarterly average) during such year is attributable to assetsthat produce or are held for the production of passive income. The determination of PFIC status is based on an annual determination that cannot be madeuntil the close of a taxable year, involves extensive factual investigation, including ascertaining the fair market value of all of our assets on a quarterly basisand the character of each item of income that we earn, and is subject to uncertainty in several respects. In particular, the application of the PFIC rules tocertain of our business lines is complex and unclear, and we cannot guarantee that the United States Internal Revenue Service, or IRS, will agree with anypositions that we ultimately take. Accordingly, we cannot assure you that we will not be treated as a PFIC for any taxable year or that the U.S. IRS will nottake a contrary position. Changes in the composition of our income or composition of our assets may cause us to become a PFIC. The determination of whether we will be a PFICfor any taxable year may depend in part upon the value of our goodwill and other unbooked intangibles not reflected on our balance sheet (which maydepend upon the market value of the common shares from time to time, which may be volatile) and also may be affected by how, and how quickly, we spendour liquid assets. Further, while we believe our classification methodology and valuation approach is reasonable, it is possible that the IRS may challenge ourclassification or valuation of our goodwill and other unbooked intangibles. If we are a PFIC for any taxable year during which a United States Holder (as defined in "Item 10. Additional Information—E. Taxation—United StatesFederal Income Taxation") holds a common share, certain adverse United States federal income tax consequences could apply to such United States Holder.See "Item 10. Additional Information—E. Taxation—United States Federal Income Taxation—Passive Foreign Investment Company." ITEM 4. INFORMATION ON THE COMPANY A. History and Development of the Company Our legal and commercial name is Canadian Solar Inc. We were incorporated under the laws of the Province of Ontario, Canada in October 2001. Wechanged our jurisdiction by continuing under the Canadian federal corporate statute, the Canada Business Corporations Act, or CBCA, effective June 1,2006. As a result, we are governed by the CBCA. See "—C. Organizational Structure" for additional information on our corporate structure, including a list ofour major subsidiaries. Our principal executive office and principal place of business is located at 545 Speedvale Avenue West, Guelph, Ontario, Canada N1K 1E6. Ourtelephone number at this address is (1-519) 837-1881 and our fax number is (1-519) 837-2550. All inquiries to us should be directed at the address and telephone number of our principal executive office set forth above. Our website iswww.canadiansolar.com. The information contained on or accessible through our website does not form part of this annual report.41Table of ContentsB. Business OverviewOverview We are one of the world's largest and leading solar power companies. We are a leading vertically integrated provider of solar power products, services andsystem solutions with operations in North America, South America, Europe, Africa, the Middle East, Australia and Asia. We design, develop, and manufacture solar wafers, solar cells and solar power products. Our solar power products include standard solar modules andspecialty solar products. We are incorporated in Canada and conduct most of our manufacturing operations in China. Our products include a range of solarmodules built to general specifications for use in a wide range of residential, commercial and industrial solar power generation systems. Specialty solarproducts consist of customized solar modules that our customers incorporate into their own products and complete specialty products, such as portable solarhome systems. We sell our products primarily under our "Canadian Solar" brand name. In recent years, we have increased our investment in, and management attention on, our energy development and electricity generation segments. Ourenergy development segment consists primarily of solar power project development, EPC services and O&M services. Our electricity generation segmentconsists primarily of holding solar power projects for the purpose of generating and selling electricity to the local or national grid or other power purchasers.As we have continued to expand our business into this downstream portion of the industry, our energy development and electricity generation segmentscombined have grown to 28.2% of our net revenues in 2015, compared to 41.0% in 2014 and 19.6% in 2013. In the future, we intend to grow our energydevelopment segment by growing our project pipeline and the number of customers of our EPC services and O&M services. We also plan to grow ourelectricity generation segment by holding more projects to generate revenue from the sales of electricity. In March 2015, we significantly increased our solarproject pipeline when we acquired Recurrent, a leading solar energy developer with solar power projects located principally in California and Texas. As ofDecember 31, 2015, we had a total solar project pipeline of 10.3 GWp and a late-stage project pipeline, comprising self-owned and joint venture projects andEPC contracts, in Canada, Japan, the U.S., the United Kingdom, Brazil and China, totaling 2.0 GWp. See "—Sales, Marketing and Customers—EnergyDevelopment Segment—Solar Project Development" for a description of the status of our solar power projects. We are preparing to potentially form a globally diversified, dividend growth-oriented partnership, or Yieldco, to own, operate and acquire long-termcontracted renewable energy generation assets with consistent cash flows in attractive markets. If successful, we expect to own a general partner interest inYieldco and offer economic interests to public shareholders. The cash produced from projects owned by the operating subsidiaries of Yieldco will bedistributed up to Yieldco, which will in turn distribute the cash to Yieldco's public shareholders and, in certain circumstances, to us. Yieldco's strategy is torapidly expand and diversify its portfolio of assets by acquiring, from us and unaffiliated third parties, utility-scale solar projects and commercial andindustrial distributed solar energy assets, as well as other renewable energy generation assets equipped with proven and reliable technologies. We expect thatYieldco's initial target markets will be Canada, Japan, Spain, the United Kingdom and the United States, and other selected markets primarily within OECDcountries. In November 2015, we confidentially submitted a draft registration statement on Form S-1 to the SEC relating to the proposed initial publicoffering of the Yieldco. The initial public offering process is subject to the SEC review process and market and other conditions. We believe that we offer one of the broadest crystalline silicon solar power product lines in the industry. Our product lines range from modules ofmedium power to high efficiency, high-power output mono-crystalline modules, as well as a range of specialty products. We currently sell our products to adiverse customer base in various markets worldwide, including China, Japan, the U.S., Germany, Spain,42Table of ContentsItaly, France, the Czech Republic, Canada, India and the United Kingdom. Our customers primarily include distributors, system integrators, projectdevelopers and installers/EPC companies. We employ a flexible vertically integrated business model that combines internal manufacturing capacity with direct material purchases of both cellsand wafers. We believe this approach has benefited us by lowering the cost of materials of our solar module products. We also believe that this approachprovides us with greater flexibility to respond to short-term demand increases. As of December 31, 2015, we had:•4.33 GW of total annual solar module manufacturing capacity, approximately 500 MW of which is located in Ontario, Canada, 330 MW inSouth East Asia and the rest in China; •2.7 GW of total annual solar cell manufacturing capacity located in China; and •400 MW of total annual ingot and wafer manufacturing capacity located in China. We plan to expand our wafer, cell and module capacities to 1.0 GW, 3.9 GW and 5.73 GW, respectively, by December 31, 2016. We intend to use substantially all of the silicon wafers that we manufacture to supply our own solar cell plants and to use substantially all of the solarcells that we manufacture to produce our own solar module products. We also intend to use some of the solar modules we produce in our energy developmentand electricity generation segments. Our total manufacturing costs in China, including purchased polysilicon, wafers and cells, decreased from $0.52 per wattin December 2013 to $0.48 per watt in December 2014 and to $0.40 per watt in December 2015. We expect to continue to decrease the manufacturing costsfor our production of wafers, cells and modules. We continue to focus on reducing our manufacturing costs by improving solar cell conversion efficiency, enhancing manufacturing yields and reducingraw material costs. In January 2009, we established a new solar cell efficiency research center to develop more efficient cell structures, and we have beenmaking ongoing improvements in solar cell conversion efficiency and product cost control. We began shipping new products, such as higher efficiencymodules, in late 2011. We have successfully developed and launched additional new high efficiency cells and modules in the past few years and expect toincrease the sales volumes of these products in the future.Our Products and Services Our business consists of the following three business segments: (a) module segment, (b) energy development segment and (c) electricity generationsegment. Our module segment primarily involves the design, development, manufacturing and sale of a wide range of solar power products, includingstandard solar modules and specialty solar products, and solar system kits. Our energy development segment consists of solar power project development,EPC services and O&M services. Our electricity generation segment consists of holding solar power projects for the purpose of generating income from thesale of electricity to the local or national grid or other power purchasers.Products Offered in Our Module SegmentStandard Solar Modules Our standard solar modules are arrays of interconnected solar cells in weatherproof encapsulation. We produce a wide variety of standard solar modules,ranging from 3 W to over 335 W in power and using multi-crystalline or mono-crystalline cells in several different design patterns. Our mainstream solarmodules include standard CS6V (50 cells), CS6P/CS6K (60 cells), CS6X/CS6XA (72 cells), Dymond CS6K-P-FG (60 cells, double-glass) and Dymond CS6X-P-FG (72 cells, double-glass) modules, all using 6-inch solar wafers with the majority being multi-crystalline. The mainstream modules are43Table of Contentsdesigned for residential, commercial and utility applications. Small modules are for specialty applications. We launched our Quartech modules in March 2013. Quartech modules use 4-busbar solar cell technology which improves module reliability andefficiency. We produced and shipped Quartech modules in large volume in 2014. CS6P (6 × 10 cell layout) Quartech modules have power output between255 W and 270 W, which enables us to offer customers modules with high power. We launched and started shipping Dymond modules in October 2014.Dymond modules are designed with double-glass encapsulation, which is more reliable for harsh environments and ready for 1500V solar systems. We launched and started shipping SmartDC modules in September 2015. SmartDC modules feature an innovative integration of our module technologyand power optimization for grid-tied PV applications. By replacing the traditional junction-box, SmartDC modules eliminate module power mismatch,mitigate shading losses and optimize power output at module-level. SmartDC modules also provide module-level data to minimize operational costs and topermit effective system management. In March 2016, we launched our new Quintech SuperPower mono modules. Quintech SuperPower mono modules are made of cells with PERCtechnology and significantly improve module efficiency and reliability. CS6K (6 × 10 cell layout aligned with mainstream dimensions) QuintechSuperPower mono modules have a power output between 285 W and 295 W and are high efficiency and high reliability. We expect to start commercialproduction of Quintech modules with conventional multi and mono cells in the second quarter of 2016. At the beginning of 2015, we started commercial production of Onyx cells with our in-house developed black silicon technology, Onyx technology.Onyx technology employs a nano-texturing process to make the multi-crystalline cell almost fully black, increasing cell efficiency and module wattage at thesame time. We started increasing the production volume of Onyx cells in 2016, which have been incorporated into our Quartech and Quintech modulefamilies. We design our standard solar modules to be durable under harsh weather conditions and easy to transport and install. We sell our standard solar modulesprimarily under our brand name. Since we began selling our solar module products in March 2002, we have increased our annual module production capacityto 4.33 GW as of December 31, 2015.Specialty Solar Products Our specialty solar products are mainly Andes Solar Home System, or Andes SHS, and Maple Solar System, or Maple SS. Andes SHS is an off-grid solar system, designed to provide an economical source of electricity to homes and communities without access to gridelectricity or where electricity supply is scarce. The Andes SHS is portable, light-weight, and easy to set-up, making it ideal for situations where emergencypower is required. Maple SS is an economical, safe and clean energy solution for families who burn kerosene for lighting when darkness falls. It is a very convenient mobilepower source for outdoor activities, such as camping, boating and hiking. Maple SS includes a solar panel, energy-efficient LED lights, Li-ion batteries andmultiple cell phone charger plugs.Solar System Kits A solar system kit is a ready-to-install package consisting of solar modules produced by us and components, such as inverters, racking system and otheraccessories, supplied by third parties. We began selling solar system kits in 2010 and in 2015 sold them primarily to customers in Japan and Europe.44Table of ContentsProducts and Services Offered in Our Energy Development SegmentSolar Project Development We develop, build and sell solar power projects. Our solar project development activities have grown over the past several years through a combinationof organic growth and acquisitions. Our global solar power project business develops projects primarily in Canada, Japan, the U.S., China, Brazil and theUnited Kingdom. Our team of experts specializes in project development, evaluations, system designs, engineering, managing, project coordination andorganizing financing. See "—Sales, Marketing and Customers—Solar Project Development" for a description of the status of our solar power projects.EPC Services Our EPC services include engineering, procurement and construction work for solar power projects owned either by us or by third-parties. In late 2010,we began providing EPC services primarily in Canada and China. In 2015, we provided EPC services for 153.5MW of solar projects in Canada, China andAustralia. The EPC services in China were provided through our affiliated company, Suzhou Gaochuangte New Energy Sources Development Co., Ltd., orGaochuangte, in which we own a 40% equity interest.O&M Services Our O&M services include inspections, repair and replacement of plant equipment, site management and administrative support services. In the secondhalf of 2012, we started to provide O&M services for solar power projects in commercial operation. In 2015, we provided O&M services primarily to theNorth American market.Products and Services Offered in Our Electricity Generation Segment In the fourth quarter of 2014, we began to operate certain of our solar projects in China for the purpose of generating income from the sale of electricity.As of December 31, 2015, we had a fleet of solar power plants in operation with an aggregate capacity of approximately 398.1 megawatt peak, or MWp.Revenue from the sale of electricity in 2015 totaled $32.1 million, compared to $2.9 million in 2014. In the future, we plan to expand our electricitygeneration segment by increasing the number of solar projects we hold and operate, either by retaining solar projects we develop or acquiring solar projectsfrom third-parties.Supply Chain ManagementModule Segment Our module segment depends on our ability to obtain a stable and cost-effective supply of polysilicon, silicon wafers and solar cells. In 2015, wepurchased the large majority of the silicon wafers used in our solar modules from third parties, and our major silicon wafers suppliers were GCL (whoaccounted for 79.7% of our silicon wafer purchases), Yichang and LDK. Our major suppliers of solar cells in 2015 include Motech, Neo Solar and Tongwei.See "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Industry—Long-term supply agreements may make it difficult for usto adjust our raw material costs should prices decrease. Also, if we terminate any of these agreements, we may not be able to recover all or any part of theadvance payments we have made to these suppliers and we may be subject to litigation." Since 2011, the supply of polysilicon and silicon wafers has generally exceeded demand, particularly polysilicon. Polysilicon prices increased fromapproximately $17.89 per kilogram by December 31, 2013 to approximately $20.6 per kilogram by December 31, 2014 due to more balanced supply anddemand, but then significantly decreased to $13.7 per kilogram by December 31, 2015 due to a modest45Table of Contentsoversupply. In the future, we expect that polysilicon prices will remain low. We plan to continue to purchase all of our polysilicon requirements externally.Although we plan to increase our solar wafer manufacturing capacity, we expect to continue purchasing most of our silicon wafer requirements externally. Weexpect to continue to diversify our wafer and polysilicon suppliers, with a focus on top tier international suppliers.Silicon Raw Materials and Solar Wafers Silicon feedstock, which consists of high-purity solar grade silicon, is the starting point of the silicon based solar module supply chain. Our silicon wafer agreements set forth price and quantity information, delivery terms and technical specifications. These agreements usually set forthspecific price terms. However, most agreements also include mechanisms to adjust the prices, either upwards or downwards, based on market conditions. We have entered into a number of long-term supply agreements with several silicon and wafer suppliers in order to secure a stable supply of raw materialsto meet our production requirements. These suppliers included GCL, Neo Solar, Deutsche Solar, LDK and a UMG-Si supplier. In 2009 and thereafter, weamended our agreements with certain of these suppliers to adjust the purchase price to prevailing market prices at the time we place a purchase order and toreduce the quantity of products that we are required to purchase. Under our supply agreements with certain suppliers, and consistent with historical industrypractice, we make advance payments prior to scheduled delivery dates. These advance payments are made without collateral and are credited against thepurchase prices payable by us. See "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Industry—Long-term supplyagreements may make it difficult for us to adjust our raw material costs should prices decrease. Also, if we terminate any of these agreements, we may not beable to recover all or any part of the advance payments we have made to these suppliers and we may be subject to litigation."Solar Cells In addition to manufacturing our own solar cells and having toll manufacturing arrangements with our solar cell suppliers, we purchase solar cells from anumber of international and local suppliers. Our solar cell agreements set forth price and quantity information, delivery terms and technical specifications. These agreements generally provide for aperiod of time during which we can inspect the product and request the seller to make replacements for damaged goods. We generally require the seller tobear the costs and risks of transporting solar cells until they have been delivered to the location specified in the agreement. We currently do not have anylong-term supply agreements for solar cells with fixed price or quantity terms. As we expand our business, we expect to increase our solar cell manufacturing capacity and diversify our solar cell supply channel to ensure we have theflexibility to adapt to future changes in the supply of, and demand for, solar cells.Energy Development Segment Our module segment supplies part of the solar modules used in our energy development segment. We also use our own engineers, construction workersand plant managers or hire third party contractors to build and operate the plants prior to sale.46 Table of ContentsElectricity Generation Segment Of the power plants that we hold and operate to generate revenues from the sale of electricity, 308.8 MWp are solar power projects that we builtourselves, and 89.3 MWp are operating solar power projects that we acquired from third parties.Manufacturing, Construction and OperationModule Segment We assemble our solar modules by interconnecting multiple solar cells by tabbing and stringing them into a desired electrical configuration. We lay theinterconnected cells, laminate them in a vacuum, cure them by heating and package them in a protective lightweight anodized aluminum frame. We seal andweatherproof our solar modules to withstand high levels of ultraviolet radiation, moisture and extreme temperatures. We selectively use automation to enhance the quality and consistency of our finished products and to improve the efficiency of our manufacturingprocesses. Key equipment in our manufacturing process includes automatic laminators, simulators and solar cell testers. The design of our assembly linesprovides flexibility to adjust the ratio of automated equipment to skilled labor in order to maximize quality and efficiency.Energy Development Segment We design, construct and maintain solar power projects primarily in China, Canada, Japan, U.S., China, Brazil and the United Kingdom. We engage in allaspects of the development and operation of solar power projects, including project selection, design, permitting, engineering, procurement, construction,installation, monitoring, operation and maintenance. We also provide EPC and O&M services to third-parties. Our solar power projects development process primarily consists of the following stages:•Market Due Diligence and Project selection. We search for project opportunities globally with the goal of maintaining a robust andgeographically diversified project portfolio. Our business team closely monitors the global solar power projects market and gathers marketintelligence to identify project development opportunities. Our development team prepares market analysis reports, financial models andfeasibility studies to guide us in evaluating and selecting solar power projects. As we consider undertaking new solar power projects, we weigha number of factors including location, local policies and regulatory environment, financing costs and potential internal rate of returns. •Project financing. We typically include project financing plans in our financial models and feasibility studies. We finance our projectsthrough our working capital and debt financing from local banks or international financing sources that require us to pledge project assets. •Permitting and approval. We either obtain the permits and approvals necessary for solar projects ourselves or we acquire projects that havealready received the necessary permits and approvals. The permitting and approval process for solar power projects varies from country tocountry and often among local jurisdictions within a country. •Project design, engineering, procurement and construction. Our engineering team generally designs solar power projects to optimizeperformance while minimizing construction and operational costs and risks. The engineering design process includes the site layout andelectrical design as well choosing the appropriate technology, in particular module and inverter types. We use solar modules produced by usand by third party manufacturers, and procure inverters and other equipment from third party suppliers. We generally construct solar projectsin China through47Table of ContentsGaochuangte, our affiliate in which we own a 40% equity interest and engage third-party contractors in some other countries.Electricity Generation Segment We operate and maintain our solar power projects in United Kingdom, United States, Canada, China, Japan and Spain. We sign grid-connectionagreements and/or PPAs with the local grid companies. After a project is connected to the grid, we regularly inspect, monitor and manage the project site withthe intention to maximize the utilization rate, rate of power generation and system life of the project.Quality Control and CertificationsModule Segment We have registered our quality control system according to the requirements of ISO 9001:2008 and ISO/TS 16949 standards. TUV Rheinland Group, aleading international service company that documents the safety and quality of products, systems and services, audits our quality systems. We inspect andtest incoming raw materials to ensure their quality. We monitor our manufacturing processes to ensure quality control and we inspect finished products byconducting reliability and other tests. We have obtained IEC 61215 and IEC 61730 (previously TUV Class II safety) European standards for sales in Europe. We have also obtainedcertifications of CAN ORD-UL 1703 and UL 1703, which allow us to sell products in North America. In 2009, we obtained the necessary certifications to sellour modules in Japan, South Korea and Great Britain and to several of the Chinese solar programs, including Golden Sun. In 2011, we completed IEC 61215,IEC 61730 and UL1703 certification for modules designed to be assembled from metal wrap-through cells. We also completed DLG ammoniac resistancetesting and obtained the salt mist certification for our leading module CS6P-P in 2011. In 2012, we achieved the highest ratings possible in the two mostsignificant standard tests for ammonia resistance of solar modules, which were the IEC 62716 draft C ammonia corrosion test and the DLG standard test. In2013, we extended the salt mist certification under IEC 61701 ed.2 Severity 1 to all of our standard modules at VDE (Verband Deutscher Elektrotechniker). Inaddition, we were able to register more key module types at JET for Japan; enhanced the maximum system voltage up to 1000V for our CSA (CanadianStandards Association) certification (North America), allowing significant cost reduction for our EPC partners; and again raised the ranking of CEC PTCratings. In 2013, we extended our IEC and UL certifications to cover higher-power modules, up to 275 W for 60 cell models and 330 W for 72 cell models,through key technology improvements such as introduction of 4 bus bar cell design. We also again improved our CEC PTC ratings for the spearhead CS6P-Pmodel, and have demonstrated suitability of our product portfolio for reliable long-term operation under various climates, through SGS IEC 60068-2-68 sandblowing certification and extensive Potential Induced Degradation, or PID, resistance testing at respected laboratories, such as Fraunhofer ISE, VDE and TUVSUD (Technischer Überwachungs-Verein Südteil Deutschland). In 2012, the new half-cell module designed by our R&D team was fully certified by CSA and VDE, two worldwide recognized certification bodies. Wealso started providing our customers with third-party-approved PAN files (testing per IEC 61853-1) for all our key module series, allowing more accurateenergy yield simulation and better return-on-investment analysis for their projects. In 2013, we obtained certifications for double glasses and DC-to-ACmodule designs. We will continue our efforts for general improvements in module and component designs and seek to obtain corresponding certifications.With the emergence of new markets that we are expanding into, we have made and expect to make efforts to comply with new certification schemes thatapply to us, such as INMETRO for Brazil and the UNI9177 fire test for Italy that we have now complied with.48Table of Contents In 2014, we received JET certification for our new high efficiency module series CS6V targeting the residential market, and also extended the highestpower range of our mainstream CS6P-P model to 275 W in JET. We also completed full certification for our new Quartech (4 busbar cells), coveringVDE/CSA/MCS-BBA/JET, which allows us to launch these products worldwide. Several state-of-the-art demonstration trials were implemented, such as a 5kW system located in the desert-like environment of Australian Alice Springs DKASC center. In 2015, we received several product certifications that support our new product launches. Our 60 and 72 cell double glass module series were certifiedby VDE, CSA and MCS-BBA, which allows us to launch these products worldwide. We also completed VDE and TUV-Rheinland certification(IEC61215/61730) of our new PERC mono 5 busbar premium module series. The PV connector T4 designed by us was certified by TUV-Rheinland and CSAto satisfy the latest and most stringent standards, namely IEC61852 and UL6703. We have updated our mainstream modules Life Cycle Analysis evaluationand have been granted verification certificate from TUV SUD to meet the PAS2050 and ISO14067 standards. To support our electricity generation segment, we started implementing a state-of-the-art OPCT (On-going Performance Characterization Testing)program in cooperation with PVEL-DNVGL laboratory in 2015, which delivered extensive module performance characterization per IEC61853 seriesstandards. Our PV test laboratory is registered with the ISO 17025 quality improvement program, and has been accepted for the Mutual Data Acceptance Programby the CSA in Canada, VDE in Germany, Intertek in the U.S. and CGC in China (China General Certification Center). The PV test laboratory allows us toconduct some product certification testing in-house, which should decrease time-to-market and certification costs.Energy Development and Electricity Generation Segments As of the end of 2015, we have received global certifications of ISO 9001: 2008, ISO 14001: 2004 and OHSAS 18001: 2007 for development andengineering with management of construction and O&M services of solar power solutions in the Americas and Asia-Pacific regions. Our residential energy storage system (ESS) product, specifically conceived for the Australian market, has been certified by TUV SUD and SAA(Standards Australia International Limited), according to standards IEC62109 and IEC62040.Sales, Marketing and Customers The following table sets forth, for the periods indicated, certain information relating to our total net revenues derived from our customers categorized bytheir geographic locations for the periods indicated:49 Years Ended December 31, 2013 2014 2015 Region Total NetRevenues % Total NetRevenues % Total NetRevenues % (In thousands of $, except for percentages) Asia 870,189 52.6 905,092 30.6 1,384,243 39.9 Americas 588,279 35.6 1,795,490 60.6 1,750,000 50.5 Europe and others 195,888 11.8 260,045 8.8 333,383 9.6 Total 1,654,356 100.0 2,960,627 100.0 3,467,626 100.0 Table of ContentsModule Segment Our primary customers are distributors, system integrators, project developers and installers/EPC companies. A small number of customers havehistorically accounted for a major portion of our net revenues. In 2013, 2014 and 2015, our top five customers by net revenues collectively accounted forapproximately 38.3%, 33.6% and 26.8%, respectively, of our total net revenues. Sales to our largest customer in those years accounted for 13.3%, 7.4% and7.4%, respectively, of our total net revenues. We market and sell solar modules worldwide for residential, commercial and utility-scale solar energy solutions. We primarily sell our products todistributors and large-scale installers through our own, home-grown sales teams, who operate throughout Europe, the Americas, the Middle East and the Asia-Pacific regions. Our marketing activities include brand sponsorship, social media discussions and digital marketing. Our teams also develop channel marketing programsto support our customers' marketing of our business and products, while also providing various services such as product training, new product briefing, andsales training. Additionally, our marketing team focuses heavily on public relations and crisis management to safeguard our public image. By workingclosely with our sales teams and other leading solar research companies, our marketing team provides up-to-date market information on a constant basis,supporting the efforts of our sales team. Our marketing staff is located throughout the U.S., Canada, Europe, Japan, Australia, and South Korea. We sell our standard solar module products primarily under three types of arrangements: (a) sales contracts to distributors; (b) sales to systems integrators,installers/EPC companies and project developers; and (c) OEM/tolling manufacturing arrangements. We target our sales and marketing efforts for our specialty solar products at companies in selected industry sectors, including the automotive,telecommunications and light-emitting diode, or LED, lighting sectors. As standard solar modules increasingly become commoditized and technologyadvancements allow solar power to be used in more off-grid applications, we intend to expand our sales and marketing focus on our specialty solar productsand capabilities. Our sales and marketing team works with our specialty solar products development team to take into account changing customer preferencesand demands to ensure that our sales and marketing team is able to effectively communicate to customers our product development changes and innovations.We intend to establish additional relationships in other market sectors as the specialty solar products market expands. As we expand our manufacturing capacity and enhance our brand name, we continue to develop new customer relationships in a wider range ofgeographic markets to decrease our market concentration. In 2013, we significantly increased our total number of customers and achieved a leading marketshare in Canada, Japan, Thailand and the Central America, which we maintained in 2014. In 2015, we both maintained our leading market share in thosemarkets and expanded our customer base in several emerging solar markets, such as Southeast Asia. We plan to expand into Middle East and Africa. While weexpect to expand into new markets, we expect that our near term major markets will be North America and the Asia Pacific region. In 2010, we commenced the sale of solar system kits. A solar system kit is a ready-to-install package consisting of solar modules produced by us andcomponents, such as inverters, racking system and other accessories, supplied by third parties. In 2015, we sold approximately 89.7 MW of system kitsprimarily in Japan and Europe.Energy Development Segment We develop and sell solar projects primarily in Canada, Japan, U.S., China, Brazil and the United Kingdom. We provide EPC services primarily inCanada, China and Australia, and O&M services50Table of Contentsprimarily in Canada. We sell our projects to large utility companies and other power producers. Customers of our EPC and O&M services are solar projectdevelopers and owners. In order to continue to grow our energy development segment, we conduct market due diligence, routinely meet with industry players and interestedinvestors and attend industry conferences and events to identify project development opportunities. Our energy development segment team has extensiveindustry expertise and significant experience in working with government authorities and developing new projects for our target markets.Solar Project Development We divide our solar power project pipeline into early- to mid-stage pipeline and late-stage pipeline. Early- to mid-stage pipeline includes projects thatare under assessment for co-development and acquisition, or are being developed by us, that have identified or secured the land for development, and thathave signed energy off-take agreements or have a reasonable probability to sign such agreements. Late-stage pipeline includes nearly all projects that haveenergy off-take agreements and are expected to be built within the next 2-4 years. However, some of the late-stage projects may not be completed due tofailure to secure permits or grid connection, among other risks. In March 2015, we acquired Recurrent, a leading solar energy developer with solar powerprojects located principally in California and Texas for approximately $261 million. The acquisition increased our total solar project pipeline byapproximately 4.0 GWp, and our late-stage, utility-scale solar project pipeline by approximately 1.0 GWp. As of March 10, 2016, we had a geographicallydiverse solar project pipeline totaling 10.3 GWp, of which 2.0 GWp were in late-stage of development and 8.3 GWp in early- to mid-stage of development.Our project pipeline included approximately 2.6 GWp of projects under development by Recurrent in the U.S., which are expected to be constructed over thenext five years and qualify for the investment tax credit.In Canada During 2015, we completed the construction and grid connection of nine solar power projects totaling 127 MWp. We sold seven of these projectstotaling approximately 98.3 MWp. We intend to own and operate the remaining two projects, Alfred and Beam Light.In Japan During 2015, we completed the construction and grid connection of ten solar power plants, with a total capacity of approximately 20 MWp. As ofMarch 10, 2016, our pipeline of projects under development was approximately 582.2 MWp, of which 81.5 MWp was in construction and 107.4 MWp at theready-to-build stage. Pursuant to a recent regulatory change, the Ministry of Economy, Trade and Industry will give developers a grace period to submit asigned grid-connection contract in order for existing projects under development to lock in the feed-in-tariff. Projects that are not able to reach this milestonewithin the grace period will have their respective feed-in-tariff rates reduced to the applicable rate at that time. The exact length of this grace period is still tobe announced. We have signed interconnection agreements for projects totaling approximately 200 MWp, and believe we can sign interconnectionagreements for an additional 170-215 MWp within the next 12 months. We will reassess the options for the projects that do not secure interconnectionagreements within this grace period.51Table of ContentsIn the U.S. The following table summarizes the status of our project pipeline in the U.S. as of March 10, 2016: During 2015, we sold controlling interests in three solar power projects, Tranquillity, Roserock and Garland, to Southern Power, a subsidiary of SouthernCompany (NYSE: SO). By the end of January 2016, we had secured debt commitments totaling $1.8 billion with a syndicate of banks and tax-equityinvestment commitments totaling $1.3 billion from several investors to fund the build-out of all of our utility-scale projects currently under construction.In China In China, we recently connected eight solar power plants to the grid, including five solar plants totaling 85.1 MWp in the fourth quarter of 2015 andthree solar plants totaling 15.7 MWp in the first quarter of 2016. The following table summarizes the status of our project pipeline in China as of March 10, 2016, which are expected to be connected to grid in 2016:In Brazil In Brazil, our late-stage solar project pipeline was 384.0 MWp as of March 10, 2016. We expect our solar power plants in Brazil to be connected to gridin 2017 and 2018. Once connected, the electricity generated will be purchased by a Brazilian government entity under a 20-year PPA.In the United Kingdom During 2015, we completed the construction of nine solar power projects totaling approximately 63.1 MWp. Our pipeline of solar power projects totaled57.0 MWp as of March 10, 2016, all of which we expect to be connected to the grid in 2016.52Late-stage Pipeline GrossMW (DC) Net(1)MW (DC) State Status ExpectedCODAstoria 1 130.8 130.8 CA In Construction 2016Astoria 2 100.0 100.0 CA In Construction 2016Barren Ridge 78.0 62.4 CA In Construction 2016Mustang 134.4 114.2 CA In Construction 2016Tranquillity 257.7 126.3 CA In Construction 2016Roserock 212.1 103.9 TX In Construction 2016Garland 272.1 133.3 CA In Construction 2016Total 1,185.1 770.9 (1)Reflects our net ownership after sales and tax equity financing.Late-stage Pipeline MW (DC) Northern China 45 Eastern China 75 Xinjiang Province 20 Yunnan Province 10 Total 150 Table of ContentsEPC Services Beginning in late 2010, we started entering into EPC contracting arrangements in Canada and China. Under these arrangements, the solar power projectdeveloper owns the projects and we are contracted to perform the EPC work. We completed the EPC contracts in China through our affiliated company,Gaochuangte, in which we own a 40% equity interest. In 2013, we completed approximately 30.2 MWp of solar system EPC contracts in Ontario, Canada. In 2014, we completed approximately 180.5 MWpand 3.1 MW (DC) of solar system EPC contracts in Ontario, Canada and Australia, respectively. In 2015, we completed approximately 152.1 MW (DC) and1.4 MW (DC) of solar system EPC contracts in Ontario, Canada and Australia, respectively.O&M Services Since 2012, we have started to provide O&M services for solar power projects in commercial operation. Our O&M services include inspections, repairand replacement of plant equipment, site management and administrative support services.Electricity Generation Segment We operate solar power projects and sell electricity to local customers in the United Kingdom, United States, Canada, China, Japan and Spain. Weusually enter into PPAs with and sell electricity to public utilities, licensed suppliers or commercial, industrial or government end users. As of March 10, 2016, our operating solar power plants totaled approximately 398.1 MWp, of which 308.8 MWp were developed and built by us and89.3 MWp were acquired from third parties, as set out in the table below:Customer Support and Service We typically sell our standard solar modules with a ten-year warranty against defects in materials and workmanship and a linear power performancewarranty that guarantees the actual power output of our modules. For utility-scale solar power projects built by us, we provide a limited workmanship or balance of system warranty against defects in engineering, design,installation and construction under normal use, operation and service conditions for a period of up to five years following the energizing of the solar powerplant. In resolving claims under the workmanship or balance of system warranty, we have the option of remedying through repair, refurbishment orreplacement of equipment. We have also entered into similar workmanship warranties with our suppliers to back up our warranties. As part of our energy development and electricity generation segments, before energizing solar power plants, we conduct performance testing to confirmthat they meet the operational and capacity expectations set forth in the agreements. In limited cases, we also provide an energy generation53Solar Power Plants in Operation MW (DC) China 196.2 Canada 100.1 United Kingdom 63.3 Japan 21.2 U.S. 12.5 Spain 4.8 Total 398.1 Table of Contentsperformance test designed to demonstrate that the actual energy generation for up to the first three years meets or exceeds the modeled energy expectation. Inthe event that the energy generation performance test performs below expectation, we may incur liquidated damages capped at a percentage of the contractprice. In addition, a bonus payment may be received if the energy generation performance test results in over performance. Our customer support and service handles technical inquiries and warranty-related issues. In 2015, we expanded our capacity in these areas to betterenable us to handle our customer's questions and concerns in a timely and professional manner. In 2015, we renewed our product warranty insurance coverage to provide additional security to our customers. See "—Insurance" below. The customersupport and service function will continue to expand and to improve services to our customers.CompetitionModule Segment The market for solar power products is competitive and evolving. We compete with American companies, such as First Solar and SunPower, and China-based companies such as Trina, Jinko, JA Solar and Hanwha Q Cells. Some of our competitors are developing or producing products based on alternativesolar technologies, such as thin film PV materials, that may ultimately have costs similar to, or lower than, our projected costs. Solar modules produced usingthin film materials, such as cadmium telluride and copper indium gallium selenide technology, generally have lower conversion efficiency but do not usesilicon for production, compared to our crystalline silicon solar module products, and as such are less susceptible to increases in the costs of silicon. Some ofour competitors have also become vertically integrated, from upstream polysilicon manufacturing to solar system integration. In addition, the solar powermarket in general competes with other sources of renewable and alternative energy as well as conventional power generation. We believe that the key competitive factors in the market for solar power products include:•price; •the ability to deliver products to customers on time and in the required volumes; •product quality and associated service issues; •nameplate power and other performance parameters of the module, such as power tolerances; •value-added services such as system design and installation; •value-added features such as those that make a module easier or cheaper to install; •additional system components such as mounting systems, delivered as a package or bundle; •brand equity and any good reputation resulting from the above items, including the willingness of banks to finance projects using modulesproduced by a particular supplier; •customer relationships and distribution channels; and •the aesthetic appearance of solar power products. In the immediate future, we believe that our ability to compete depends on delivering a cost-effective product in a timely manner and developing andmaintaining a strong brand name based on high quality products and strong relationships with downstream customers. Our competiveness also depends onour ability to effectively manage our cash flow and balance sheet and to maintain our relationships with the financial institutions that fund solar powerprojects. Consolidation of the solar industry is already occurring and is expected to continue in the near future. We believe that such54Table of Contentsconsolidation will benefit our company in the long-term. We believe that the key to competing successfully in the long-term is to produce innovative, highquality products at competitive prices and develop an integrated sales approach that includes services, ancillary products, such as mounting systems andinverters, and value-added product features. We believe that a good marketing program and the strong relationships that we are building with customers andsuppliers will support us in this competitive environment.Energy Development Segment Our energy development segment is a capital intensive business with numerous industry participants. We face competition from a large and diversegroup of local and international project developers, financial investors and certain utility companies. These competitors range in terms of size, geographicfocus, financial resources and operating capabilities and are active in Canada, Japan, the U.S., China, Brazil, the United Kingdom and other markets where weoperate or intend to enter. We compete in a diversified and complicated landscape since the commercial and regulatory environments for solar power projectdevelopment and operation vary significantly from region to region and country to country. Our primary competitors are local and international developersand operators of solar power projects. We believe the key competitive factors in the global solar power project development industry include:•vertical integration with upstream manufacturing; •permit and project development experience and expertise; •reputation and track record; •relationship with government authorities and knowledge of local policies; •strong internal working capital and good relationship with banks and international organizations that enhance access to external financing; •experienced technicians and executives who are familiar with the industry and the implementation of our business plans; and •expertise and experience in providing EPC and O&M services. However, we cannot guarantee that some of our competitors do not or will not have advantages over us in terms of greater operational, financial,technical, management or other resources in particular markets or in general.Electricity Generation Segment Currently, we operate our electricity generation segment in the United Kingdom, the U.S., Canada, China, Japan and Spain. We compete to supplyenergy to our potential customers with a limited number of utilities and providers of distributed generation in these markets. If we wish to enter into newPPAs for our solar power projects upon termination of previous PPAs, we compete with conventional utilities primarily based on cost of capital, generationlocated at customer sites, operations and management expertise, price (including predictability of price), green attributes of power, the ease by whichcustomers can switch to electricity generated by our energy systems and our open architecture approach to working within the industry, which facilitatescollaboration and project acquisitions. If we cannot offer compelling value to our customers based on these factors, then our energy-based business will notgrow. The decision by an end-user to buy electricity from our solar power projects is primarily driven by a deficit of available energy in the applicable marketand the availability of domestic resources to meet those needs in a timely fashion. An increase in the availability of electricity or reduction in retailelectricity prices in our target markets would make the purchase of solar energy less economically attractive.55 Table of Contents For further discussion of the competitive risks that we face, see "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and OurIndustry—Because the markets in which we compete are highly competitive and quickly evolving, because many of our competitors have greater resourcesthan we do or are more adaptive, and because we have a limited track record in our energy development and electricity generation segments, we may not beable to compete successfully and we may not be able to maintain or increase our market share."Insurance We maintain property risk insurance policies with reputable insurance companies to cover our equipment, facilities, buildings and inventories. Thecoverage of these insurance policies includes losses due to natural hazards and losses arising from unforeseen accidents. Our manufacturing plants in Chinaand elsewhere are covered by business interruption insurance. However, significant damage or interruption to any of our manufacturing plants, whether as aresult of fire or other causes, could still have a material and adverse effect on our results of operations. We also maintain commercial general liability(including product liability) coverage. We have been actively working with China Export & Credit Insurance Corporation, or Sinosure. Credit insurance isdesigned to offset the collection risk of our account receivables for certain customers within the credit limits approved by Sinosure. Risks related to marine,air and inland transit for the export of our products and domestic transportation of materials and products are covered under cargo transportation insurance.We also maintain director and officer liability insurance. In April 2010, we began entering into agreements with a group of insurance companies to reduce some of the risks associated with our warranties. Underthe terms of the insurance policies, the insurance companies are obliged to reimburse us, subject to certain maximum claim limits and certain deductibles, forthe actual product warranty costs that we incur under the terms of our warranty against defects in workmanship and material and our warranty relating topower output. The warranty insurance is renewable annually. We believe that our warranty improves the marketability of our products and our customers arewilling to pay more for products with warranties backed by insurance.Environmental Matters Except as disclosed in the "Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China," we believe we have obtained theenvironmental permits necessary to conduct the business currently carried on by us at our existing manufacturing facilities. We have also conductedenvironmental studies in conjunction with our solar power projects to assess and reduce the environmental impact of such projects. Our products must comply with the environmental regulations of the jurisdictions in which they are installed. We make efforts to ensure that ourproducts comply with the EU's Restriction of Hazardous Substances Directive, which took effect in July 2006, by reducing the amount of lead and otherrestricted substances used in our solar module products. Our operations are subject to regulation and periodic monitoring by local environmental protection authorities. If we fail to comply with present orfuture environmental laws and regulations, we could be subject to fines, suspension of production or cessation of operations.Government Regulations This section sets forth a summary of certain significant regulations or requirements that affect our business activities in China or our shareholders' right toreceive dividends and other distributions from us.56Table of ContentsRenewable Energy Law and Other Government Directives In February 2005, China enacted its Renewable Energy Law, which became effective on January 1, 2006 and was revised in December 2009. The revisedRenewable Energy Law, which became effective on April 1, 2010, sets forth policies to encourage the development and use of solar energy and other non-fossil energy and their on-grid generation. It also authorizes the relevant pricing authorities to set favorable prices for the purchase of electricity generated bysolar 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 coolingsystems, solar PV systems and other solar energy utilization systems. It also provides financial incentives, such as national funding, preferential loans and taxpreferences for the development of renewable energy projects subject to certain regulations of the relevant authorities. In November 2005, the National Development and Reform Commission, or the NDRC, promulgated the Renewable Energy Industry DevelopmentGuidance Catalogue, in which solar power figured prominently. In January 2006, the NDRC promulgated two implementation directives with respect to theRenewable Energy Law. In January 2007, the NDRC promulgated another related implementation directive. These directives set forth specific measures forsetting the price of electricity generated by solar and other renewable power generation systems, for sharing additional expenses, and for allocatingadministrative and supervisory authority among different government agencies at the national and provincial levels. They also stipulate the responsibilitiesof electricity grid companies and power generation companies with respect to the implementation of the Renewable Energy Law. In August 2007, the NDRC promulgated the Medium and Long-Term Development Plan for the Renewable Energy Industry. This plan sets forth nationalpolicy to provide financial allowance and preferential tax regulations for the renewable energy industry. A similar demonstration of the PRC government'scommitment to renewable energy was also stipulated in the Eleventh Five-Year Plan for Renewable Energy Development, which was promulgated by theNDRC in March 2008. The Outline of the Twelfth Five-Year Plan for National Economic and Social Development of the PRC, which was approved by theNational People's Congress in March 2011, the Twelfth Five-Year Plan for Renewable Energy Development, which was promulgated by the NDRC in July2012, and the Twelfth Five-Year Plan for Solar Power Generation, which was promulgated by the National Energy Administration in July 2012 alsodemonstrates a commitment to promote the development of renewable energy to enhance the competitiveness of the renewable energy industry, includingthe solar energy industry. China's Ministry of Housing and Urban-Rural Development (formerly, the Ministry of Construction) also issued a directive in June 2005 which seeks toexpand the use of solar energy in residential and commercial buildings and encourages the increased application of solar energy in different townships.Similarly, China's State Council promulgated a directive in July 2005, which sets forth specific measures to conserve energy resources. In November 2005,China's Ministry of Housing and Urban-Rural Development promulgated the Administrative Provisions on Energy Conservation for Civil Constructionswhich encourages the development of solar energy. In August 2006, the State Council issued the Decision on Strengthening the Work of EnergyConservation which encourages the great development of the solar energy and other renewable energy. In addition, on April 1, 2008, the PRC EnergyConservation Law came into effect. Among other objectives, this law encourages the installation of solar power facilities in buildings to improve energyefficiency. In July 2009, China's Ministry of Finance and Ministry of Housing and Urban-Rural Development jointly promulgated "the Urban DemonstrationImplementation Program of the Renewable Energy Building Construction" and "the Implementation Program of Acceleration in Rural Application of theRenewable Energy Building Construction" to support the development of the new energy industry and the new energy-saving industry.57Table of Contents On March 8, 2011, China's Ministry of Finance and Ministry of Housing and Urban-Rural Development jointly promulgated the Notice on FurtherApplication of Renewable Energy in Building Construction, which aims to raise the percentage of renewable energy used in buildings. In September 2009, the PRC State Council approved and circulated the Opinions of the National Development and Reform Commission and other NineGovernmental Authorities on Restraining the Production Capacity Surplus and Duplicate Construction in Certain Industries and Guiding the Industries forHealthy Development. These opinions concluded that polysilicon production capacity in China has exceeded the demand and adopted the policy ofimposing more stringent requirements on the construction of new polysilicon manufacturing projects in China. These opinions also stated in general termsthat the government should encourage polysilicon manufacturers to enhance cooperation and affiliation with downstream solar product manufacturers toextend their product lines. However, these opinions do not provide any detailed measures for the implementation of this policy. As we are not a polysiliconmanufacturer and do not expect to manufacture polysilicon in the future, we believe the issuance and circulation of these opinions will not have any materialimpact on our business or our silicon wafer, solar cell and solar module capacity expansion plans. On August 21, 2012, China's Ministry of Finance and Ministry of Housing and Urban-Rural Development jointly promulgated the Notice on ImprovingPolicies for Application of Renewal Energy in Building and Adjusting Fund Allocation and Management Method, which aims to promote the use of solarenergy and other new energy products in public facilities and residences, further amplifying the effect of the policies for application of renewable energy inbuildings. In June 2014, the General Office of the State Council issued its Notice on Printing and Distributing the Action Plan for the Solar project Strategy (2014-2020), which requested accelerating the development of solar power generation, including promoting the construction of photovoltaic base construction,among others. In April 2015, China's Ministry of Finance promulgated the Interim Measures for Administration of the Special Fund for the Development of RenewableEnergy Sources, which stipulated the division of regulation of special fund for the development of renewable energy sources and the main scopes to besupported. In December 2015, the NDRC issued the Circular on Improving the On-Grid Benchmark Price Policy for Onshore Wind Power and Photovoltaic Power,which aims to promote sound and healthy development of the onshore wind power and PV power industry by regulating the price of wind power and PVpower.Environmental Regulations As we have expanded our ingot, silicon wafer and solar cell manufacturing capacities, we have begun to generate material levels of noise, wastewater,gaseous wastes and other industrial waste. Additionally, as we expand our internal solar components production capacity, our risk of facility incidents thatwould negatively affect the environment also increases. We are subject to a variety of governmental regulations related to the storage, use and disposal ofhazardous materials. The major environmental laws and regulations applicable to us include the PRC Environmental Protection Law, which became effectivein 1989, as amended and promulgated in 2014, the PRC Law on the Prevention and Control of Noise Pollution, which became effective in 1997, the PRCLaw on the Prevention and Control of Air Pollution, which became effective in 1988, as amended and promulgated in 1995, 2000 and 2015, the PRC Law onthe Prevention and Control of Water Pollution, which became effective in 1984, as amended and promulgated in 1996 and 2008, the PRC Law on thePrevention and Control of Solid Waste Pollution, which became effective in 1996, as amended and promulgated in 2004, 2013 and 2015, the PRC Law onEvaluation of Environmental Affects, which became effective in 2003, the PRC Law on Promotion of Clean Production, which became effective in 2003, asamended and promulgated58Table of Contentsin 2012, and the Regulations on the Administration of Construction Project Environmental Protection, which became effective in 1998. Some of our PRC subsidiaries are located in Suzhou, China, which is adjacent to Taihu Lake, a nationally renowned and protected body of water. As aresult, production at these subsidiaries is subject to the Regulations on the Administration of Taihu Basin, which became effective on 2011, the Regulationof Jiangsu Province on Preventing Water Pollution in Taihu Lake, which became effective in 1996 and was further revised and promulgated in 2007, 2010and 2012, and the Implementation Plan of Jiangsu Province on Comprehensive Treatment of Water Environment in Taihu Lake Basin, which waspromulgated in February 2009. Because of these regulations, the environmental protection requirements imposed on nearby manufacturing projects,especially new projects, have increased noticeably, and Jiangsu Province has stopped approving construction of new manufacturing projects that increase theamount of nitrogen and phosphorus released into Taihu Lake.Admission of Foreign Investment The principal regulation governing foreign ownership of solar power businesses in the PRC is the Foreign Investment Industrial Guidance Catalogue.Under the current catalogue, which was amended in March 2015 and became effective on April 10, 2015, the solar power related business is classified as an"encouraged foreign investment industry." Companies that operate in encouraged foreign investment industries and satisfy applicable statutory requirementsare eligible for preferential treatment, including exemption from customs of certain self-used equipment and priority consideration in obtaining land userights provided by certain local governments. While the 2004 catalogue only applied to the construction and operation of solar power stations, the 2007 catalogue expanded its application alsoapplies to the production of solar cell manufacturing machines, the production of solar powered air conditioning, heating and drying systems and themanufacture of solar cells, and the 2011 catalogue and the current 2015 catalogue also covers the manufacture of solar light collector glass and etc.Administration of Foreign Invested Companies The establishment, approval, registered capital requirement and day-to-day operational matters of wholly foreign-owned enterprises, are regulated by theWholly Foreign-Owned Enterprise Law of the PRC, effective in 1986 and amended in 2000, and the Implementation Rules of the Wholly Foreign-ownedEnterprise Law of the PRC, effective in 1990 and amended in 2001 and 2014. The establishment, operation and management of corporate entities in Chinaare governed by the Company Law of the PRC, or the Company Law, effective in 1994 and amended in 1999, 2004, 2005 and 2013. The Company Law isapplicable to our PRC subsidiaries unless PRC laws on foreign investment stipulate otherwise.Income Tax and VAT PRC enterprise income tax is calculated based on taxable income determined under PRC accounting principles. Our major operating subsidiaries, CSISolartronics (Changshu) Co., Ltd., or CSI Solartronics, CSI New Energy Holding, CSI Cells, CSI Solar Technologies Inc., or CSI Technologies, CSI ChangshuManufacturing and CSI Luoyang Manufacturing, are governed by the EIT Law, which became effective on January 1, 2008. Under the EIT Law, both foreign-invested enterprises and domestic enterprises are subject to a uniform enterprise income tax rate of 25%. The EIT Lawprovides for preferential tax treatment for certain categories of industries and projects that are strongly supported and encouraged by the state. For example,enterprises qualified as HNTEs are entitled to a 15% enterprise income tax rate, provided that such HNTEs satisfy other applicable statutory requirements.59Table of Contents Certain of our subsidiaries, such as CSI New Energy Holding, CSI Cells, CSI Luoyang Manufacturing and CSI Changshu Manufacturing, once enjoyedpreferential tax benefits, such as a reduced enterprise income tax rate of 12.5%, however, these benefits were expired. In 2015, only our partially ownedsubsidiary, Suzhou Sanysolar, which was qualified as an HNTE and satisfied applicable statutory requirements, enjoyed a reduced enterprise income tax rateof 15%. As most of the preferential tax benefits enjoyed by our PRC subsidiaries expired, their effective tax rates increased significantly. The EIT Law also provides that enterprises established outside China whose "de facto management body" is located in China are considered PRC taxresidents and will generally be subject to the uniform 25% enterprise income tax rate on their global income. Under the implementation regulations, the term"de facto management body" is defined as substantial and overall management and control over aspects such as the production and business, personnel,accounts and properties of an enterprise. Circular 82 further provides certain specific criteria for determining whether the "de facto management body" of aPRC-controlled offshore incorporated enterprise is located in the PRC. The criteria include whether (a) the premises where the senior management and thesenior management bodies responsible for the routine production and business management of the enterprise perform their functions are mainly locatedwithin the PRC, (b) decisions relating to the enterprise's financial and human resource matters are made or subject to approval by organizations or personnelin the PRC, (c) the enterprise's primary assets, accounting books and records, company seals, and board and shareholders' meeting minutes are located ormaintained in the PRC and (d) 50% or more of voting board members or senior executives of the enterprise habitually reside in the PRC. Although Circular82 only applies to offshore enterprises controlled by enterprises or enterprise groups located within the PRC, the determining criteria set forth in the Circular82 may reflect the tax authorities' general position on how the "de facto management body" test may be applied in determining the tax resident status ofoffshore enterprises. As the tax resident status of an enterprise is subject to the determination by the PRC tax authorities, uncertainties remain with respect tothe interpretation of the term "de facto management body" as applicable to our offshore entities. As a substantial number of the members of our managementteam are located in China, we may be considered as a PRC tax resident under the EIT Law and, therefore, subject to the uniform 25% enterprise income taxrate on our global income. Under the EIT Law and implementing regulations issued by the State Council, the PRC withholding tax rate of 10% is generally applicable to interestand dividends payable to investors from companies that are not "resident enterprises" in the PRC, to the extent such interest or dividends have their sourceswithin the PRC. If our Canadian parent entity is deemed a PRC tax resident under the EIT Law based on the location of our "de facto management body,"dividends distributed from our PRC subsidiaries to our Canadian parent entity could be exempt from Chinese dividend withholding tax. However, in thatcase, dividends from us to our shareholders may be regarded as China-sourced income and, consequently, be subject to Chinese withholding tax at the rate of10%, or at a lower treaty rate if applicable. Similarly, if we are considered a PRC tax resident, any gain realized by our shareholders from the transfer of ourcommon shares is also subject to Chinese withholding tax at the rate of 10% if such gain is regarded as income derived from sources within the PRC. It isunclear whether any dividends that we pay on our common shares or any gains that our shareholders may realize from the transfer of our common shareswould be treated as income derived from sources within the PRC and subject to PRC tax. In addition, under Announcement 7, where a non-resident enterprise indirectly transfers properties, such as equity in Chinese resident enterprises,without any reasonable commercial purposes with the aim of avoiding payment of enterprise income tax, such indirect transfer shall be reclassified as a directtransfer of equity in a Chinese resident enterprise. Properties such as equity in Chinese resident enterprises mentioned in Announcement 7 mean theproperties, or Chinese taxable properties,60Table of Contentswhich are directly held by non-resident enterprises and subject the transfer income to enterprise income tax in China according to the provisions of Chinesetax law. Indirect transfers of Chinese taxable properties are transactions which transfer the equity of enterprises abroad that directly or indirectly hold Chinesetaxable properties (not including Chinese resident enterprises registered abroad). To estimate reasonable commercial purposes, all arrangements related to theindirect transfer of Chinese taxable properties must be considered comprehensively and certain factors, such as whether the main value of the equity ofenterprises abroad is directly or indirectly from the Chinese taxable properties, must be comprehensively analyzed. Except for the circumstances stipulatedtherein, the overall arrangements related to the indirect transfer of Chinese taxable properties that fall in any of the following circumstances simultaneouslyare deemed as having no reasonable commercial purposes: (a) more than 75% of the equity of enterprises abroad is directly or indirectly from Chinese taxableproperties; (b) more than 90% of the total assets (not including cash) of enterprises abroad is directly or indirectly composed of investment in the territory ofChina at any time in the year before the indirect transfer of Chinese taxable properties, or more than 90% of the income of enterprises abroad is directly orindirectly from the territory of China in the year before the indirect transfer of Chinese taxable properties; (c) although the enterprises abroad and theirsubordinate enterprises directly or indirectly hold Chinese taxable properties have registered in the host country (region) in order to satisfy the organizationform required by law, the functions actually performed and the risks undertaken are limited and are not sufficient to prove the economic essence; or (d) theburden of income tax of indirect transfer of Chinese taxable properties payable abroad is lower than the possible burden of taxation in China as for the directtransfer of Chinese taxable properties. However, a non-resident enterprise's income obtained from indirect transfer of Chinese taxable properties bypurchasing and selling equity of the same listed enterprise abroad in the open market will not be taxed under Announcement 7. There is uncertainty as to the application of Announcement 7 and it is understood that the relevant PRC tax authorities have jurisdiction regardingreasonable commercial purposes. As a result, we may become at risk of being taxed under Announcement 7 and we may be required to expend valuableresources to comply with Announcement 7 or to establish that we should not be taxed under Announcement 7, which may materially adversely affect ourfinancial condition and results of operations. Pursuant to a November 2008 amendment to the Provisional Regulation of the PRC on Value Added Tax issued by the PRC State Council, all entitiesand individuals that are engaged in the sale of goods, the provision of repairs and replacement services and the importation of goods in China are required topay VAT. Gross proceeds from sales and importation of goods and provision of services are generally subject to VAT at a rate of 17%, with exceptions forcertain categories of goods that are taxed at a rate of 13%. When exporting certain goods, the exporter is entitled to a refund of a portion or all of the VATthat it has already paid or borne. Under the amended Provisional Regulation of the PRC on Value Added Tax and its implementation rules, which became effective in 2009 and wereamended in 2011, and relevant regulations, fixed assets (mainly including equipment and manufacturing facilities) are now eligible for credit for input VAT.Previously, input VAT on fixed assets purchases was not deductible from the current period's output VAT derived from the sales of goods, but had to beincluded in the cost of the assets. The new rule permits this deduction except in the case of equipment purchased for non-taxable projects or tax-exemptedprojects where the deduction of input VAT is not allowed. However, the qualified fixed assets could also be eligible for input VAT if the fixed assets are usedfor both taxable projects and non-taxable projects or tax-exempted projects. Presently, no further detailed rules clarify under what circumstance the fixedassets are considered as being used for both taxable and non-taxable or tax exempt projects. Because of the new VAT rules, our PRC subsidiaries may benefitfrom future input VAT credit on our capital expenditures.61Table of Contents Under the former rules, equipment imported for qualified projects was entitled to an import VAT exemption and domestic equipment purchased forqualified projects were entitled to a VAT refund. However, such exemption and refund were both eliminated as of January 1, 2009.Foreign Currency Exchange Foreign currency exchange regulation in China is primarily governed by the Foreign Currency Administration Rules, which became effective in 1996and were amended in 1997 and 2008, and the Settlement, Sale and Payment of Foreign Exchange Administration Rules (1996), or the Settlement Rules. Currently, the Renminbi is convertible for current account items, including the distribution of dividends, interest payments, trade and service-relatedforeign exchange transactions. Conversion of the Renminbi for most capital account items, such as security investment and repatriation of investment,however, is still subject to limitation and requires the approval by or registration with SAFE. However, SAFE began to reform the foreign exchange administration system and issued the Notice on Reforming the Administrative ApproachRegarding the Settlement of the Foreign Exchange Capitals of Foreign-invested Enterprises on March 30, 2015, which allows foreign invested enterprises tosettle their foreign exchange capital on a discretionary basis according to the actual needs of their business operation and allows a foreign-invested enterprisewith a business scope including "investment" to use the RMB capital converted from foreign currency registered capital for equity investments within thePRC. On February 13, 2015, SAFE promulgated the Circular on Further Simplifying and Improving the Policies Concerning Foreign Exchange Control onDirect Investment, or SAFE Circular No. 13, which delegates the authority to enforce the foreign exchange registration in connection with the inbound andoutbound direct investment under relevant SAFE rules to certain banks and therefore further simplifies the foreign exchange registration procedures forinbound and outbound direct investment.Dividend Distribution The principal regulations governing distribution of dividends paid by wholly foreign owned enterprises include the Wholly Foreign-Owned EnterpriseLaw of the PRC, effective in 1986 and amended in 2000, the Implementation Rules of the Wholly Foreign-Owned Enterprise Law of the PRC, effective in1990 and amended in 2001 and 2014, the Company Law effective in 1994 and amended in 1999, 2004, 2005 and 2013 and the EIT Law and itsimplementation rules, both effective in 2008. Under these laws, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance withPRC accounting standards and regulations. In addition, a wholly foreign owned enterprise in China is required to set aside at least 10% of its after-tax profitsdetermined in accordance with PRC accounting standards each year to its general reserves until the accumulative amount of such reserves reach 50% of itsregistered capital. These reserves are not distributable as cash dividends. The board of directors of a foreign-invested enterprise has the discretion to allocate aportion of its after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation.Employment The major laws and regulations governing the employment relationship, including wage and hour requirements, working and safety conditions, socialinsurance, housing funds and other welfare. The PRC Labor Law which became effective on January 1, 1995 and amended on August 27, 2009, the LaborContract Law of the People's Republic of China, which became effective on January 1, 2008, and was later revised on December 28, 2012, its ImplementingRegulation and the amendment thereunder,62Table of Contentswhich became effective on September 18, 2008 and July 1, 2013, respectively, permit workers in both state-owned and private enterprises in the PRC tobargain collectively. The PRC Labor Law and the PRC Labor Contract Law provide for collective contracts to be developed through collaboration betweenthe labor unions (or worker representatives in the absence of a union) and management that specify such matters as working conditions, wage scales, andhours of work. The PRC Labor Contract Law and its Implementing Regulation impose certain requirements with respect to human resources management,including, among other things, signing labor contracts with employees, terminating labor contracts, paying remuneration and compensation and makingsocial insurance contributions. In addition, the PRC Labor Contract Law requires employers to provide remuneration packages that meet the relevant localminimum standards. The PRC Labor Contract Law has enhanced rights for the nation's workers, including permitting open-ended labor contracts andseverance payments. It requires employers to provide written contracts to their workers, restricts the use of temporary labor and makes it harder for employersto lay off employees. It also requires that employees with fixed-term contracts be entitled to an indefinite-term contract after a fixed-term contract is renewedtwice or the employee has worked for the employer for a consecutive ten-year period. According to the Interim Provisions on Labor Dispatching, which cameinto effect on January 3, 2014, the number of dispatched workers used by an employer shall not exceed 10% of its total number of workers. Under applicable PRC laws, rules and regulations, including the Social Insurance Law promulgated by the Standing Committee of the National People'sCongress and effective as of July 1, 2011, the Rules on Implementing the Social Insurance Law issued by Ministry of Human Resource and Social Securityand effective as of July 1, 2011, the Interim Regulations on the Collection and Payment of Social Security Funds promulgated by the State Council andeffective as of January 22, 1999, the Interim Measures Concerning Maternity Insurance promulgated by the Ministry of Labor and effective as of January 1,1995, the Regulations on Occupational Injury Insurance promulgated by the State Council and effective as of January 1, 2004 and amended on December 20,2010, and the Regulations on the Administration of Housing Accumulation Funds promulgated by the State Council and effective as of April 3, 1999 andamended on March 24, 2002, employers are required to contribute, on behalf of their employees, to a number of social security funds, including funds forbasic pension insurance, unemployment insurance, basic medical insurance, occupational injury insurance, maternity leave insurance, and to housingaccumulation funds. These payments are made to local administrative authorities and any employer who fails to contribute may be fined and ordered toremediate on payments within a stipulated time period.63Table of ContentsC. Organizational Structure The following table sets out our major subsidiaries, including their place of incorporation and our ownership interest, as of March 31, 2016.64Name of entity Place ofincorporation Ownershipinterest CSI Solartronics (Changshu) Co., Ltd. PRC 100%CSI Solar Technologies Inc. PRC 100%CSI New Energy Holding Co., Ltd. PRC 100%Canadian Solar Manufacturing (Luoyang) Inc. PRC 100%Canadian Solar Manufacturing (Changshu) Inc. PRC 100%CSI Cells Co., Ltd. PRC 100%Canadian Solar (USA) Inc. USA 100%CSI Project Consulting GmbH Germany 70%Canadian Solar Japan K.K. Japan 100%Canadian Solar Solutions Inc. Canada 100%CSI Solar Power (China) Inc. PRC 100%Canadian Solar EMEA GmbH Germany 100%Canadian Solar (Australia) Pty Limited Australia 100%Canadian Solar International Limited Hong Kong 100%Canadian Solar O and M (Ontario) Inc. Canada 100%Suzhou Sanysolar Materials Technology Co., Ltd. PRC 76%Canadian Solar South East Asia Pte. Ltd. Singapore 100%Canadian Solar South Africa Pty., Ltd. South Africa 100%Canadian Solar Brazil Commerce, Import and Export of Solar Panels Ltd. Brazil 100%Canadian Solar Middle East Limited United Arab Emirates 100%Canadian Solar (Thailand) Ltd. Thailand 100%Canadian Solar Construction (USA) LLC USA 100%Canadian Solar Project K.K. Japan 100%CSI-GCL Solar Manufacturing (Yancheng) Co., Ltd. PRC 80%Canadian Solar UK Ltd United Kingdom 100%Canadian Solar UK Projects Ltd United Kingdom 100%Changshu Tegu New Material Technology Co., Ltd. PRC 75%Changshu Tlian Co., LTD PRC 100%Canadian Solar Trading (Changshu) Inc. PRC 100%Canadian Solar Energy Acquisition Co. USA 100%Canadian Solar UK Intermediate Limited United Kingdom 100%Canadian Solar UK Securities Limited United Kingdom 100%Canadian Solar UK Strategies Limited United Kingdom 100%Recurrent Energy, LLC USA 100%PT. Canadian Solar Indonesia Indonesia 67%Canadian Solar Manufacturing Vietnam Co., Ltd Vietnam 100%Canadian Solar Energy Private Limited India 100%Canadian Solar Australia 1 Pty Ltd Australia 100%Canadian Solar Energy Holding Company Limited Hong Kong 100%Canadian Solar UK Holding Limited United Kingdom 100%Canadian Solar UK Parent Limited United Kingdom 100%Canadian Solar UK Investment Limited United Kingdom 100%Canadian Solar Manufacturing (Thailand) Co.,Ltd. Thailand 99.99992%Table of ContentsD. Property, Plant and Equipment The following is a summary of our material properties, including information on our manufacturing facilities and office buildings as of the date of thisannual report:•CSI Changshu Manufacturing holds a land use rights certificate for approximately 40,000 square meters of land in Changshu, on which wehave built manufacturing facilities of approximately 23,559 square meters. Production in these facilities began in April 2008. We alsoconstructed a canteen, a dormitory for employees and a liquefied gas station in September 2010 with a total floor area of 11,316 square meters.The property ownership certificates were granted in 2011. •CSI Changshu Manufacturing also holds a land use rights certificate for approximately 180,000 square meters of land in Changshu, on whichwe have built two module manufacturing facilities, two warehouses and other buildings with a total floor area of approximately 60,576 squaremeters. Construction of the central warehouses was completed in April 2010. We also completed the construction of a module manufacturingfacility with an additional warehouse and three other buildings, which have approximately 46,539 square meters of floor area, in the first halfof 2011. •CSI Luoyang Manufacturing holds a land use rights certificate for approximately 35,345 square meters of land in Luoyang (Phase I), on whichwe have constructed manufacturing facilities. The floor area of Phase I is approximately 6,761 square meters. The property ownershipcertificates were granted in June 2008. In 2008, CSI Luoyang Manufacturing obtained the land use rights for approximately 79,685 squaremeters of adjacent land (Phase II), on which we have constructed manufacturing facilities. The floor area of Phase II is approximately 29,811square meters. The property ownership certificates were granted in September 2013. •CSI Cells holds a land use rights certificate for approximately 65,661 square meters of land in Suzhou. We completed the construction of ourfirst solar cell manufacturing facilities on this site in the first quarter of 2007. The Phase I manufacturing facilities have 14,077 square meters,for which we obtained the property ownership certificate. The Phase II cell manufacturing facilities, with 30,102 square meters of workshopspace, were completed in 2009. The Phase III cell manufacturing facilities, with a total floor area of approximately 21,448 square meters ofmanufacturing and office space, were completed in August 2011. We have passed the required inspection and are in the process of obtainingproperty ownership certificate from the competent government authority. CSI Cells merged with CSI Solar New Energy (Suzhou) Co., Ltd. in2012. CSI Solar New Energy (Suzhou) Co., Ltd. had a land use rights certificate for approximately 10,000 square meters of land in Suzhou anda property ownership certificate for approximately 4,833 square meters of floor area. The process of recertification of the land use rightscertificate and property ownership certificate have been completed and both are now registered under the name of CSI Cells. •The construction of cell manufacturing facilities (Phase I) of CSI-GCL Solar Manufacturing (Yancheng) Co., Ltd., or CSI-GCL SolarManufacturing, was completed in Yancheng in 2015. The floor area of Phase I is approximately 19,360 square meters. CSI-GCL SolarManufacturing currently leases the manufacturing facilities but has the right and expects to purchase those facilities and obtain the land userights certificate between 2018 and 2020. CSI-GCL Solar Manufacturing commenced commercial production in the first quarter of 2016. CSI-GCL Solar Manufacturing was established under a strategic partnership agreement with GCL-Poly Solar System Integration (China) Co., Ltd.and is 80% owned by us. •In Ontario, we lease approximately 14,851 square meters of manufacturing facilities in Guelph, Ontario, Canada for a term of 10 yearscommencing September 1, 2010 and approximately 8,685 square meters of manufacturing facilities in London, Ontario, Canada for a term offive years65Table of Contentscommencing October 1, 2013. We also lease a warehouse of 7,912 square meters and an office building of 1,146 square meters on the samepremises as the Guelph, Ontario, Canada manufacturing facilities for the same term.•In Vietnam, we lease approximately 15,784 square meters of manufacturing facilities in Haiphong City, Vietnam for a term of three yearscommencing August 1, 2015. ITEM 4A. UNRESOLVED STAFF COMMENTS None. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidatedfinancial statements and the related notes thereto included elsewhere in this annual report on Form 20-F. This discussion may contain forward-lookingstatements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in theseforward-looking statements as a result of various factors, including those set forth under "Item 3. Key Information—D. Risk Factors" or in other parts of thisannual report on Form 20-F.A. Operating ResultsFactors Affecting Our Results of Operations The most significant factors that affect our financial performance and results of operations are:•solar power products pricing; •solar wafers and cells and silicon raw materials costs relative to the selling prices of modules; •government subsidies and the availability of financing for solar projects; •industry and seasonal demand; •impact of certain of our long-term purchase commitments; •solar power project development and EPC services; •the growth of our electricity generation segment; and •foreign exchange.Solar Power Products Pricing Before 2004, all of our net revenues were generated from sales of specialty solar modules and products. We began selling standard solar modules in 2004.In 2013, we generated net revenues of 80.4% from our module segment, which primarily comprises the design, development, manufacture and sale of solarpower products and solar system kits, 19.5% from our energy development segment, which involves solar power project development, EPC serves and O&Mservices, and 0.1% from our electricity generation segment, which holds solar power projects for the purpose of generating income from the sale of electricity.In 2014 and 2015, we generated 59.0% and 71.8%, respectively, of our net revenues from our module segment, 40.9% and 27.3%, respectively, from ourenergy development segment, and 0.1% and 0.9%, respectively, from our electricity generation segment. Our standard solar modules are priced based on either the actual flash test result or the nameplate capacity of our panels, expressed in watts-peak. Theactual price per watt is affected by overall demand in the solar power industry and increasingly also by the total power of the module. Higher-powered66Table of Contentsmodules usually command slightly higher prices per watt. We price our standard solar modules based on the prevailing market price at the time we enter intosales contracts with our customers, taking into account the size of the contract, the strength and history of our relationship with each customer and our siliconwafer, solar cell and silicon raw materials costs. During the first few years of our operations, the average selling prices for standard solar modules rose year-to-year across the industry, primarily because of high demand. Correspondingly, the average selling price of our standard solar module products ranged from$3.62 to $4.23 during the period from 2004 to 2008. Following a peak in the third quarter of 2008, the industry-wide average selling price of solar modulesdeclined sharply, as market demand declined and competition increased due to the worldwide credit crisis, reduction in subsidies in certain solar markets andincreased manufacturing output. In 2009, the average selling price of our standard solar modules continued to fall, with an average selling price of $1.93 perwatt in the fourth quarter of 2009. Thereafter, the average selling price of our standard solar modules has generally continued to fall due to an oversupply ofsolar modules. In 2013 and 2014, the average selling price was $0.67 per watt and, in 2015, it was approximately $ 0.58 per watt. We expect the averagingselling price of standard solar modules to continue to drop, albeit at a moderate rate, mainly resulting from efficiency enhancements and other innovations.Solar Wafers and Cells and Silicon Raw Materials Costs Relative to the Pricing of Modules We produce solar modules, which are an array of interconnected solar cells encased in a weatherproof frame, and products that use solar modules. Solarcells are the most important component of solar modules. Our solar cells are currently made from mono-crystalline and multi-crystalline silicon wafersthrough multiple manufacturing steps. Silicon wafers are the most important material for making solar cells. If we are unable to procure silicon, wafers andcells at prices that decline in line with our solar module pricing, our revenues and margins could be adversely impacted, either due to relatively high costscompared to our competitors or further write-downs of inventory, or both. Our market share could decline if competitors are able to offer better pricing thanwe are.Government Subsidies and the Availability of Financing for Solar Projects 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 subsidiesand economic incentives, and the availability and cost of financing for solar projects. For a detailed discussion of the impact of government subsidies and incentives, possible changes in government policy and associated risks to ourbusiness, see "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Industry—Governments may revise, reduce or eliminatesubsidies and economic incentives for solar energy, which could cause demand for our products to decline." and "Item 4. Information on the Company—B.Business Overview—Sales, Marketing and Customers." For a detailed discussion of the impact of the continuing weak global economy and uncertain global economic outlook, especially in Europe, andassociated risks to the availability and cost of debt or equity for solar power projects and our customers' ability to finance the purchase of our products or toconstruct solar power projects, see "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Industry—The execution of ourgrowth strategy depends upon the continued availability of third-party financing arrangements for our customers, which is affected by general economicconditions. Tight credit markets could depress demand or prices for solar power products and services, hamper our expansion and materially affect our resultsof operations."67Table of ContentsIndustry and Seasonal Demand Our business and revenue growth depend on the demand for solar power. Although solar power technology has been used for several decades, the solarpower market has only started to grow significantly in the past few years. See "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company andOur Industry—We may be adversely affected by volatile solar power market and industry conditions; in particular, the demand for our solar power productsand services may decline, which may reduce our revenues and earnings." Industry demand is affected by seasonality. Demand tends to be lower in winter,particularly in Europe, where adverse weather conditions can complicate the installation of solar power systems, thereby decreasing demand for solarmodules. Seasonal changes can also significantly impact the construction schedules of our solar power projects in countries such as Canada, the U.S. andChina thereby also decreasing demand. See "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Industry—Seasonalvariations in demand linked to construction cycles and weather conditions may influence our results of operations."Impact of Certain of Our Long-term Purchase Commitments Currently, we acquire a large percentage of our requirements of solar wafers through purchasing arrangements. We also acquire a large portion of ourrequirements of solar cells through purchase arrangements. See "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Industry—Long-term supply agreements may make it difficult for us to adjust our raw material costs should prices decrease. Also, if we terminate any of theseagreements, we may not be able to recover all or any part of the advance payments we have made to these suppliers and we may be subject to litigation."Solar Power Project Development and EPC Services In 2015, 27.3% of our total net revenues were generated from our energy development segment. The majority of these revenues came from the sale ofsolar power projects and the provision of EPC services. Our solar power project development activities have grown over the past several years through acombination of organic growth and acquisitions. Solar power project development and EPC services involve numerous risks and uncertainties. For a detailed discussion of these risks and uncertainties,see "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Industry—Our future success depends partly on our ability toexpand the pipeline of our energy development and electricity generation segments in several key markets, which exposes us to a number of risks anduncertainties" and "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Industry—Our project development and constructionactivities may not be successful, projects under development may not receive required permits, property rights, power purchase agreements, or PPAs,interconnection and transmission arrangements, and financing or construction of projects may not commence or continue as scheduled, all of which couldincrease our costs, delay or cancel a project, and have a material adverse effect on our revenue and profitability." In 2015, we recognized $947.2 million of revenues from our energy development segment, including the sale of solar power projects and the provision ofEPC services. See "Item 4. Information on the Company—B. Business Overview" for additional information on our solar power project development and EPCservices.Growth of Electricity Generation Segment In 2015, 0.9% of our total net revenues were generated from our electricity generation segment. We began operating certain of our solar project in Chinafor the purpose of generating income from the sale of electricity in the fourth quarter of 2014 and we anticipate increasing the amount and size of68Table of Contentsthese projects going forward. See "Item 4. Information on the Company—B. Business Overview" for additional information on our energy developmentsegment.Foreign Exchange The majority of our sales in 2015 were denominated in U.S. dollars, Canadian dollars and Japanese yen, with the remainder in other currencies such asRenminbi , Euros and Australian dollars. Our Renminbi costs and expenses are primarily related to the sourcing of solar cells, silicon wafers and silicon, otherraw materials, toll manufacturing fees, labor costs and local overhead expenses within the PRC. From time to time, we enter into loan arrangements withChinese commercial banks that are denominated primarily in Renminbi or U.S. dollars. The greater part of our cash and cash equivalents and restricted cashare denominated in Renminbi. See "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Industry—Fluctuations in exchangerates could adversely affect our business, including our financial condition and results of operations."New Segment Reporting We use the management approach to determine operating segments. The management approach considers the internal organization and reporting usedby our chief operating decision maker for making decisions, allocating resources and assessing performance. We have identified our chief executive officer asour chief operating decision maker, as he reviews consolidated and segment results when making decisions about allocating resources and assessingperformance for us. With our decision to expand our business in both building and selling and building and operating project assets, beginning in 2015, we report ourfinancial performance based on the following three segments:•Module Segment. The module segment primarily involves the design, development, manufacture and sales of solar power products and solarsystem kits; •Energy Development Segment. The energy development segment primarily involves solar power project development, EPC services, andO&M services; and •Electricity Generation Segment. The electronic generation segment primarily holds solar power projects for the purpose of generating incomefrom the sale of electricity.Overview of Financial Results We evaluate our business using a variety of key financial measures.Net RevenuesModule Segment Revenues generated from our module segment accounted for 80.4%, 59.0% and 71.8% of our net revenues in 2013, 2014 and 2015, respectively. Themain factors affecting our net revenues from our module segment include average selling prices per watt and unit volumes shipped, both of which depend onproduct supply and demand.Energy Development Segment Revenues generated from our energy development segment accounted for 19.5%, 40.9% and 27.3% of our net revenues in 2013, 2014 and 2015,respectively. Our revenues in the energy development segment are affected by the timing of the completion of solar power projects. See "Item 4. Informationon the Company—B. Business Overview—Sales, Marketing and Customers—Solar Project Development" for a description of the status of our solar powerprojects.69Table of Contents Revenue recognition for our energy development segment, especially our solar power projects, are, in many cases, not linear in nature due to the timingof when all relevant revenue recognition criteria have been met. During 2015, we recognized $557.1 million of revenue from the sale of solar power projectsusing the full accrual method and $0.9 million of revenue from the percentage-of-completion method. Our revenue recognition policies for the solar powerproject development are described in "—Critical Accounting Policies—Revenue Recognition." Our revenues from sales to customers are recorded net of estimated returns.Electricity Generation Segment Revenues contributed by our electricity generation segment represented 0.1%, 0.1% and 0.9% of our net revenues in 2013, 2014 and 2015, respectively.Our revenues in the electricity generation segment are primarily affected by the operation capacity of our solar power system and average electricity sellingprice. Our revenue recognition policies for the electricity generation segment are described in "—Critical Accounting Policies—Revenue Recognition."Cost of RevenuesModule Segment The cost of revenues of our module segment consists primarily of the costs of:•solar cells; •silicon wafers; •high purity and solar grade silicon materials; •materials used in solar cell production, such as metallic pastes; •other materials for the production of solar modules such as glass, aluminum frames, EVA (ethylene vinyl acetate, an encapsulant used to sealthe module), junction boxes and polymer back sheets; •production labor, including salaries and benefits for manufacturing personnel; •warranty costs; •overhead, including utilities, production equipment maintenance, share-based compensation expenses for options granted to employees in ourmanufacturing department and other support expenses associated with the manufacture of our solar power products; •depreciation and amortization of manufacturing equipment and facilities, which are increasing as we expand our manufacturing capabilities; •inventory write-downs; and •depreciation charges relating to under-utilized assets. Our cost of revenues increased in 2013, 2014 and 2015, in each instance in line with the change in net revenues for the year. Before June 2009, we typically sold our standard solar modules with a two-year guarantee for defects in materials and workmanship and a 10-year and25-year warranty against declines of more than 10% and 20%, respectively, from the initial minimum power generation capacity at the time of delivery. InJune 2009, we increased our warranty against defects in materials and workmanship to six years. Effective August 1, 2011, we increased our warranty againstdefects in materials and workmanship to70Table of Contentsten years and we guarantee that, for a period of 25 years, our standard solar modules will maintain the following performance levels:•during the first year, the actual power output of the module will be no less than 97% of the labeled power output; •from year 2 to year 24, the actual annual power output decline of the module will be no more than 0.7%; and •by the end of year 25, the actual power output of the module will be no less than 80% of the labeled power output. Effective June 1, 2015, we guarantee that, for a period of 25 years, our polycrystalline modules will maintain the following performance levels:•during the first year, the actual power output of the module will be no less than 97.5% of the labeled power output; •from year 2 to year 24, the actual annual power output decline will be no more than 0.7%; and •by the end of year 25, the actual power output of the module will be no less than 80.7% of the labeled power output. Effective June 1, 2015, we guarantee that, for a period of 25 years, our monocrystalline modules will maintain the following performance levels:•during the first year, the actual power output of the module will be no less than 97% of the labeled power output; •from year 2 to year 24, the actual annual power output decline will be no more than 0.7%; and •by the end of year 25, the actual power output of the module will be no less than 80.2% of the labeled power output. Effective January 1, 2016, we lengthened the warranty against decline in our Dymond modules to 30 years. We guarantee that, for a period of 30 years,our Dymond modules will maintain the following performance levels:•during the first year, the actual power output of the module will be no less than 97.5% of the labeled power output; •from year 2 to year 29, the actual annual power output decline will be no more than 0.5%; and •by the end of year 30, the actual power output of the module will be no less than 83% of the labeled power output. In resolving claims under the workmanship warranty, we have the option of remedying through repair, refurbishment or replacement of equipment. Inresolving claims under the performance warranty, we have the right to repair or replace solar modules at our option. We maintain warranty reserves to cover potential liabilities that could arise under these guarantees and warranties. We currently take a 1% warrantyprovision against our revenue for sales of solar power products. In April 2010, we began entering into agreements with a group of insurance companies with high credit ratings to back up our warranties. Under theterms of the insurance policies, which are designed to match the terms of our solar module product warranty policy, the insurance companies are obliged toreimburse us, subject to certain maximum claim limits and certain deductibles, for the actual product warranty costs that we incur under the terms of our solarmodule product warranty policy. We record the insurance premiums initially as prepaid expenses and amortize them over the respective policy71Table of Contentsperiod of one year. Each prepaid policy provides insurance against warranty costs for panels sold within that policy year. The warranty insurance is renewableannually. See "—Critical Accounting Policies—Warranty Costs." Total write-downs of inventory included in our cost of revenue were $0.7 million, $17.0 million and $23.0 million in 2013, 2014 and 2015, respectively. On occasion, we enter into firm purchase commitments to acquire materials from our suppliers. A firm purchase commitment represents an agreement thatspecifies all significant terms, including the price and timing of the transactions, and includes a disincentive for non-performance that is sufficiently large tomake performance probable. This disincentive is generally in the form of a take-or-pay provision, which requires us to pay for committed volumes regardlessof whether we actually acquire the materials. We evaluate these agreements and record a loss, if any, on firm purchase commitments using the same lower ofcost or market approach as that used to value inventory. We record the expected loss only as it relates to the succeeding year, as we are unable to reasonablyestimate future market prices beyond one year, in cost of revenues in the consolidated statements of operations. As a result, changes in the cost of materials orsales price of modules will directly affect the computation of the estimated loss on firm purchase commitments and our consolidated financial statements inthe following years. We did not record a loss on firm purchase commitments for the years ended December 31, 2013, 2014 and 2015. In addition, see "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Industry—Long-term supply agreements may makeit difficult for us to adjust our raw material costs should prices decrease. Also, if we terminate any of these agreements, we may not be able to recover all orany part of the advance payments we have made to these suppliers and we may be subject to litigation."Energy Development Segment The cost of revenues of our energy development segment consists primarily of the costs of:•acquisition of solar power projects; •development of solar power projects, including interconnection fees and permitting costs; •project management and engineering; •EPC (consisting of costs of the components of solar power system other than solar modules, such as inverters, electrical and mountinghardware, trackers, grid interconnection equipment, wiring and other devices); •interest capitalized for solar power projects during construction period; and •site-specific costs. For utility-scale solar power projects built by us, we provide a limited workmanship or balance of system warranty against defects in engineering design,installation and construction under normal use, operation and service conditions for a period of up to five years following the energizing of the solar powerplant. In resolving claims under the workmanship or balance of system warranty, we have the option of remedying through repair, refurbishment orreplacement of equipment. We have entered into similar workmanship warranties with our suppliers to back up our warranties. We maintain warranty reservesto cover potential liabilities that could arise under these guarantees and warranties.72Table of ContentsElectricity Generation Segment The cost of revenues of our electricity generation segment consists primarily of the costs of:•depreciation and amortization of solar projects equipment and facilities; •labor, including salaries and benefits for operational and maintenance personnel; and •other operational and maintenance costs of solar power projects.Gross Profit/Gross Margin Our gross profit is affected by a number of factors, including the success of and contribution from all three of our operating segments, the average sellingprice of our solar power products, our product mix, loss on firm purchase commitments under long-term supply agreements, and our ability to cost-effectivelymanage our supply chain.Operating Expenses Our operating expenses include selling expenses, general and administrative expenses, and research development expenses. Our operating expensesdecreased in 2013, increased in 2014 and 2015. We expect our operating expenses to increase as our net revenues grow in the future. On a percentage basis,however, we expect our operating expenses to remain constant with the growth of our operations.Selling Expenses Selling expenses consist primarily of salaries and benefits, transportation and customs expenses for delivery of our products, sales commissions for oursales personnel and sales agents, advertising, promotional and trade show expenses, and other sales and marketing expenses. Our selling expenses decreasedin 2013, increased in 2014 and increased in 2015. We expect as we increase our sales volumes in the future, our selling expenses will increase as we hireadditional sales personnel, target more markets and initiate additional marketing programs to reach our goal of continuing to be a leading global brand.General and Administrative Expenses General and administrative expenses consist primarily of salaries and benefits for our administrative and finance personnel, consulting and professionalservice fees, government and administration fees and insurance fees. Our general and administrative expenses decreased in 2013, increased in 2014 andincreased in 2015. We expect our general and administrative expenses to increase to support the anticipated growth of our business.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 forresearch and development personnel and prototype and equipment costs related to the design, development, testing and enhancement of our products and oursilicon reclamation program. In 2013, 2014 and 2015, our research and development expenses accounted for 0.7%, 0.4% and 0.5% of our total net revenues.We expect that our research and development expenses will increase as we devote more efforts to research and development in the future.73Table of ContentsShare-based Compensation Expenses Under our share incentive plan, as of December 31, 2015, we had outstanding:•675,709 stock options; •349,500 restricted shares; and •1,311,410 restricted share unit. For a description of the stock options, restricted share units and restricted shares granted, including the exercise prices and vesting periods, see "Item 6.Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—Share-based Compensation—Share Incentive Plan."We recognize share-based compensation to employees as expenses in our statement of operations based on the fair value of the equity awarded on the date ofthe grant. The compensation expense is recognized over the period in which the recipient is required to provide services in exchange for the equity award. We have made an estimate of expected forfeitures and are recognizing compensation costs only for those equity awards that we expect to vest. Weestimate our forfeitures based on past employee retention rates and our expectations of future retention rates. We will prospectively revise our forfeiture ratesbased on actual history. Our share-based compensation expenses may change based on changes to our actual forfeitures. For the year ended December 31, 2015, we recorded share-based compensation expenses of approximately $6.0 million, compared to approximately$5.1 million for the year ended December 31, 2014. We have categorized these share-based compensation expenses in our:•cost of revenues; •selling expenses; •general and administrative expenses; and •research and development expenses, depending on the job functions of the individuals to whom we granted the options, restricted shares and restricted share units. The following table setsforth, for the periods indicated, the allocation of our share-based compensation expenses both in absolute amounts and as a percentage of total share-basedcompensation expenses. We expect to incur additional share-based compensation expenses as we expand our operations.Interest Expense Interest expense consists primarily of interest incurred with respect to our short and long-term borrowings from Chinese commercial banks, borrowingsfrom international banks and $150 million convertible senior notes issued in February 2014.74 Years Ended December 31, 2013 2014 2015 (In thousands of $, except for percentages) Share-based compensation expenses included in: Cost of revenues 740 16.4% 807 15.9% 697 11.7%Selling expenses 760 16.9 974 19.1 1,088 18.2 General and administrative expenses 2,661 59.0 3,008 59.1 3,889 65.2 Research and development expenses 347 7.7 298 5.9 292 4.9 Total share-based compensation expenses 4,508 100.0% 5,087 100.0% 5,966 100.0% Table of ContentsGain (Loss) on Change in Fair Value of Derivatives We have entered into foreign currency derivatives to hedge part of the risks of our expected cash flows, mainly in Japanese yen, Euros, Canadian dollarsand Renminbi. We had a gain on the change in fair value of derivatives in our 2013 and 2014 associated with our hedging activities. In 2015, we had a losson the change in fair value of derivatives of $12.2 million, which included a $3.7 million loss on change in fair value of foreign currency derivatives, a$8.9 million loss on change in fair value of warrants and a $0.4 million gain in change in fair value of interest rate swap/swaption contracts. The warrantswere issued in conjunction with the $180 million in financing arranged by Credit Suisse AG, Singapore Branch, or Credit Suisse, in the fourth quarter of2015. These warrants can be settled in cash at the discretion of the holder and as a result they are derivative liabilities that were recorded at fair value atissuance and subsequently marked to market at the end of each reporting period.Income Tax Expense We recognize deferred tax assets and liabilities for temporary differences between the financial statement and income tax bases of assets and liabilities.Valuation allowances are provided against deferred tax assets when management cannot conclude that it is more likely than not that some portion or alldeferred tax assets will be realized. We are governed by the CBCA, a federal statute of Canada and are registered to carry on business in Ontario. This subjects us to both Canadian federaland Ontario provincial corporate income taxes. Our combined tax rates were all 26.5% for the years ended 2013, 2014 and 2015. PRC enterprise income tax is calculated based on taxable income determined under PRC accounting principles with a uniform enterprise income tax rateof 25%. Our major operating subsidiaries, CSI Solartronics, CSI New Energy Holding, CSI Cells, CSI Luoyang Manufacturing, CSI Technologies and CSIChangshu Manufacturing, are subject to taxation in China. Certain of these subsidiaries once enjoyed preferential tax benefits, such as a reduced enterpriseincome tax rate of 12.5%. However, these benefits have now expired. In 2015, only our partially owned subsidiary, Suzhou Sanysolar, which was recognizedas an HNTE and satisfied applicable statutory requirements, enjoyed a reduced enterprise income tax rate of 15%. As most of the preferential tax benefitsenjoyed by our PRC subsidiaries expired, their effective tax rates increased significantly. The EIT Law provides that enterprises established outside China whose "de facto management body" is located in China are considered PRC taxresidents and will generally be subject to the uniform 25% enterprise income tax rate on their global income. Under the implementation regulations, the term"de facto management body" is defined as substantial and overall management and control over such aspects as the production and business, personnel,accounts and properties of an enterprise. Circular 82 further provides certain specific criteria for determining whether the "de facto management body" of aPRC-controlled offshore incorporated enterprise is located in the PRC. The criteria include whether (a) the premises where the senior management and thesenior management bodies responsible for the routine production and business management of the enterprise perform their functions are mainly locatedwithin the PRC, (b) decisions relating to the enterprise's financial and human resource matters are made or subject to approval by organizations or personnelin the PRC, (c) the enterprise's primary assets, accounting books and records, company seals, and board and shareholders' meeting minutes are located ormaintained in the PRC and (d) 50% or more of voting board members or senior executives of the enterprise habitually reside in the PRC. AlthoughCircular 82 only applies to offshore enterprises controlled by enterprises or enterprise groups located within the PRC, the determining criteria set forth in theCircular 82 may reflect the tax authorities' general position on how the "de facto management body" test may be applied in determining the tax residentstatus of offshore enterprises. As the tax resident status of an enterprise is subject to the determination by the PRC tax authorities, uncertainties remain withrespect to the interpretation of the term "de facto management75Table of Contentsbody" as applicable to our offshore entities. As a substantial number of the members of our management team are located in China, we may be considered as aPRC tax resident under the EIT Law and, therefore, subject to the uniform 25% enterprise income tax rate on our global income. Under the EIT Law and implementing regulations issued by the State Council, the PRC withholding tax rate of 10% is generally applicable to interestand dividends payable to investors that are not "resident enterprises" in the PRC, to the extent such interest or dividends have their sources within the PRC.We consider the undistributed earnings of our PRC subsidiaries (approximately $197.6 million as of December 31, 2015) to be indefinitely reinvested inChina, and, consequently, we have made no provision for withholding taxes for those amounts.Critical Accounting Policies We prepare financial statements in accordance with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect (a) thereported amounts of our assets and liabilities, (b) the disclosure of our contingent assets and liabilities at the end of each fiscal period and (c) the reportedamounts of revenues and expenses during each fiscal period. We regularly evaluate these estimates based on our own historical experience, knowledge andassessment of current business and other conditions, our expectations regarding the future based on available information and reasonable assumptions, whichtogether form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integralcomponent of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree ofjudgment than others in their application. When reviewing our financial statements, the following should be considered: (a) our selection of critical accounting policies, (b) the judgment andother uncertainties affecting the application of such policies and (c) the sensitivity of reported results to changes in conditions and assumptions. We believethe following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements.Revenue RecognitionModule Segment We recognize revenues for solar product sales when persuasive evidence of an arrangement exists, delivery of the product has occurred and title and riskof loss has passed to the customers, the sales price is fixed or determinable and the collectability of the resulting receivable is reasonably assured. Ifcollectability is not reasonably assured, we recognize revenue only upon collection of cash. Revenues also include reimbursements received from customersfor shipping and handling costs. Sales agreements typically contain the customary product warranties but do not contain any post-shipment obligations norany return or credit provisions. A majority of our contracts provide that products are shipped under the terms of free on board, or FOB, ex-works, or cost, insurance and freight, or CIF,and delivered duty paid, or DDP. Under FOB, we fulfill our obligation to deliver when the goods have passed over the ship's rail at the named port ofshipment. The customer has to bear all costs and risks of loss or damage to the goods from that point. Under ex-works, we fulfill our obligation to deliverwhen we have made the goods available at our premises to the customer. The customer bears all costs and risks involved in taking the goods from ourpremises to the desired destination. Under CIF, we must pay the costs, marine insurance and freight necessary to bring the goods to the named port ofdestination but the risk of loss of or damage to the goods as well as any additional costs due to events occurring after the time the goods have been deliveredon board the vessel, is transferred to the customer when the goods pass the ship's rail in the port of shipment. Under DDP, we are responsible for making a safedelivery of goods to a named76Table of Contentsdestination, paying all transportation expenses and the duty. We bear the risks and costs associated with supplying the goods to the delivery location. As of December 31, 2013, 2014 and 2015, we had inventories of $8.2 million, $7.5 million and $7.3 million, respectively, relating to sales to customerswhere revenues were not recognized because the collection of payment was not reasonably assured. The delivered products remain as inventories on ourconsolidated balance sheets, regardless of whether title has been transferred. In such cases, we recognize revenues, adjust inventories and recognize cost ofrevenues when payment is collected from customers. Our revenues from sales to customers are recorded net of estimated returns. We periodically accrue an estimate for sales returns at the time of sale usingour judgment based on historical results and anticipated returns as a result of current period sales. As of December 31, 2013, 2014 and 2015, we had a salesreturn reserve of $0.2 million, $0.1 million and nil, respectively. To the extent actual returns differ from these estimates, revisions may be required. We enter into toll manufacturing arrangements in which we receive cells and returns finished modules. In such cases, the title of the cells received andrisk of loss remains with the seller. As a result, we do not recognize inventory on the consolidated balance sheets. We recognize a service fee as revenue whenthe processed modules are delivered. During the years ended December 31, 2013, 2014 and 2015, we recognized revenue of $14.0 million, $16.6 million and$6.8 million, respectively, under the toll manufacturing arrangements.Energy Development Segment We use the percentage-of-completion method to recognize revenues for which we provide EPC services and development services, unless we cannotmake reasonably dependable estimates of the costs to complete the contract, in which case we would use the completed contract method. The percentage-of-completion method is considered appropriate in circumstances in which reasonably dependable estimates can be made and in which all the followingconditions exist: (a) contracts executed by the parties normally include provisions that clearly specify the enforceable rights regarding goods or services tobe provided and received by the parties, the consideration to be exchanged, and the manner and terms of settlement; (b) the buyer can be expected to satisfyall obligations under the contract; and (c) the contractor can be expected to perform all contractual obligations. We use the cost-to-cost method to measurethe percentage of completion and recognize revenue based on the estimated progress to completion. We periodically revise our profit estimates based onchanges in facts, and immediately recognize any losses that are identified on contracts. Incurred costs include all direct material, labor, subcontractor cost,and other associated costs. We recognize job material costs as incurred costs when the job materials have been permanently attached or fitted to the solarpower projects as required by the engineering design. The construction periods normally extend beyond six months and less than one year. The percentage-of-completion method of revenue recognition requires us to make estimates of net contract revenues and costs to complete contracts. Inmaking such estimates, management judgments are required to evaluate significant assumptions including the amount of net contract revenues, the cost ofmaterials and labor, expected labor productivity, the impact of potential variances in schedule completion, and the impact of any penalties, claims, changeorders, or performance incentives. If estimated total costs on any contract are greater than the net contract revenues, we recognize the entire estimated loss in the period the loss becomesknown. The cumulative effect of the revisions to estimates related to net contract revenues and costs to complete contracts, including penalties, claims,change orders, performance incentives, anticipated losses, and others are recorded in the period in which revisions to the estimates are identified and theamounts can be reasonably estimated. The effect of the changes on future periods are recognized as if the revised estimates had been used since77Table of Contentsrevenue was initially recognized under the contract. Such revisions could occur in any reporting period, and the effects may be material depending on thesize of the contracts or the changes in estimates. We recognize revenue from the sale of project assets in accordance with Accounting Standards Codification, or ASC, 360-20, Real Estate Sales. For thesetransactions, we have determined that the project assets, which represent the costs of constructing solar power projects, represent "integral" equipment and assuch, the entire transaction is in substance the sale of real estate and subject to the revenue recognition guidance under ASC 360-20 Real Estate Sales. Werecord the sale as revenue using one of the following revenue recognition methods, based upon evaluation of the substance and form of the terms andconditions of such real estate sales arrangements: (i) Full accrual method. We record revenue for certain sales arrangements after construction of discreteportions of a project or after the entire project is substantially complete. We recognize revenue and profit using the full accrual method when all of thefollowing requirements are met: (a) the sales are consummated; (b) the buyer's initial and continuing investments are adequate to demonstrate its commitmentto pay; (c) the receivable is not subject to any future subordination; and (d) we have transferred the usual risk and rewards of ownership to the buyer.Specifically, we consider the following factors in determining whether the sales have been consummated: (a) the parties are bound by the terms of a contract;(b) all consideration has been exchanged; (c) permanent financing for which the seller is responsible has been arranged; and (d) all conditions precedent toclosing have been performed, and we do not have any substantial continuing involvement with the project. (ii) Percentage-of-completion method. We applythe percentage-of-completion method, as further described below, to certain real estate sales arrangements where we convey control of land or land rights,(a) when a sale has been consummated; (b) we have transferred the usual risks and rewards of ownership to the buyer; (c) the initial and continuing investmentcriteria have been met; (d) we have the ability to estimate its costs and progress toward completion, and (e) all other revenue recognition criteria have beenmet. The initial and continuing investment requirements, which demonstrate a buyer's commitment to honor their obligations for the sales arrangement, cantypically be met through the receipt of cash or an irrevocable letter of credit from a highly creditworthy lending institution. When evaluating whether theusual risks and rewards of ownership have transferred to the buyer, we consider whether we have or may be contingently required to have any prohibitedforms of continuing involvement with the project. Prohibited forms of continuing involvement in a real estate sales arrangement may include us retainingrisks or rewards associated with the project that are not customary with the range of risks or rewards that an EPC contractor may assume. (iii) Installmentmethod. Depending on whether the initial and continuing investment requirements have been met, and whether collectability from the buyer is reasonablyassured, we may align our revenue recognition and release of project assets or deferred project costs to cost of sales with the receipt of payment from the buyerif the sale has been consummated and we have transferred the usual risks and rewards of ownership to the buyer. (iv) Financing method. On occasionally wesell an interest in the project assets to a third party with an option to repurchase those assets in the future. We consider that there are continuing involvementsin the projects, and thus no profit or sales is recognized. All the project assets remain on our consolidated balance sheets. The total proceeds from the buyersare reflected as other non-current liabilities on the consolidated balance sheets. The buyer's shares of earnings in the projects, during each period are reflectedas interest expenses with a corresponding increase to the respective financing liabilities. Further distributions from the partnership are reflected as a decreaseto the other non-current liabilities. As of December 31, 2015, we recorded $3.2 million included in other non-current liabilities on the consolidated balancesheet. There were no distributions during the year ended December 31, 2015. During 2015, we recognized $557.1 million and $0.9 million of revenue from the sale of solar power projects using the full accrual method andpercentage-of-completion method, respectively. We allocate revenue for transactions involving multiple-element arrangements to each unit of accounting on a relative fair value basis. We estimate fairvalue on each unit of accounting on the78Table of Contentsfollowing basis (a) vendor-specific objective evidence of selling price, if it exists, otherwise, (b) third-party evidence of selling price. If neither (a) nor(b) exists, management's best estimate of the selling price for that unit of accounting is used. We recognize revenue for each unit of accounting when therevenue recognition criteria have been met.Electricity Generation Segment Electricity revenue is generated primarily from various non-affiliated parties under long-term PPAs and performance based energy incentives. Werecognize electricity revenue when persuasive evidence of an arrangement exists, electricity has been generated and transmitted to the grid, the price ofelectricity is fixed or determinable and the collectability of the resulting receivable is reasonably assured. Performance-based energy incentives are awarded under certain state programs for the delivery of renewable electricity. We recognize performance-basedenergy incentives of electricity revenue generated from solar power systems when the condition attached to it has been met and there is reasonable assurancethat the grant will be received. During the year ended December 31, 2015, we recognized government subsidy of $16.1 million related to electricitygenerated from solar power systems in revenue. Certain PPAs are accounted for as operating leases in accordance with ASC 840-20, Operating Leases. Minimum lease payments are recognized over theterm of the lease and contingent rents are recorded when the achievement of the contingency becomes probable in accordance with the U.S. GAAP. None ofour operating leases have minimum lease payments, so revenue from these contracts is recognized as energy and any related renewable energy attributes aredelivered. During the year ended December 31, 2015, the total lease income recognized was $6.1 million related to PPAs.Warranty Costs Before June 2009, we typically sold our standard solar modules with a two-year guarantee for defects in materials and workmanship and a 10-year and25-year warranty against declines of more than 10% and 20%, respectively, from the initial minimum power generation capacity at the time of delivery. InJune 2009, we have increased our warranty against defects in materials and workmanship to six years. Effective June 1, 2015, we guarantee that, for a periodof 25 years, our polycrystalline modules will maintain the following performance levels:•during the first year, the actual power output of the module will be no less than 97.5% of the labeled power output; •from year 2 to year 24, the actual annual power output decline will be no more than 0.7%; and •by the end of year 25, the actual power output of the module will be no less than 80.7% of the labeled power output. Effective June 1, 2015, we guarantee that, for a period of 25 years, our monocrystalline modules will maintain the following performance levels:•during the first year, the actual power output of the module will be no less than 97% of the labeled power output; •from year 2 to year 24, the actual annual power output decline will be no more than 0.7%; and •by the end of year 25, the actual power output of the module will be no less than 80.2% of the labeled power output.79Table of Contents In addition, effective January 1, 2015, we lengthened the warranty against decline in our Dymond modules to 30 years. We guarantee that, for a period of30 years, our Dymond modules will maintain the following performance levels:•during the first year, the actual power output of the module will be no less than 97.5% of the labeled power output; •from year 2 to year 29, the actual annual power output decline will be no more than 0.5%; and •by the end of year 30, the actual power output of the module will be no less than 83% of the labeled power output. In resolving claims under the workmanship warranty, we have the option of remedying through repair, refurbishment or replacement of equipment. Inresolving claims under the performance warranty, we have the right to repair or replace solar modules, at our option. For utility-scale solar power projects built by us, we provide a limited workmanship or balance of system warranty against defects in engineering design,installation and construction under normal use, operation and service conditions for a period of up to five years following the energizing of the solar powerplant. In resolving claims under the workmanship or balance of system warranty, we have the option of remedying through repair, refurbishment orreplacement of equipment. We have entered into similar workmanship warranties with our suppliers to back up our warranties. We maintain warranty reserves to cover potential liabilities that could arise under these guarantees and warranties. Due to limited warranty claims todate, we accrue the estimated costs of warranties based on an assessment of our competitors' and our own actual claim history, industry-standard acceleratedtesting, estimates of failure rates from our quality review, and other assumptions that we believe to be reasonable under the circumstances. Actual warrantycosts are accumulated and charged against the accrued warranty liability. To the extent that accrual for warranty costs differs from the estimates, we willprospectively revise our accrual rate. We currently record a 1% warranty provision against our revenue for sales of solar power products. In April 2010, we began entering into agreements with a group of insurance companies with high credit ratings to back up our warranties. Under theterms of the insurance policies, which are designed to match the terms of our solar module product warranty policy, the insurance companies are obliged toreimburse us, subject to certain maximum claim limits and certain deductibles, for the actual product warranty costs that we incur under the terms of our solarmodule product warranty policy. We record the insurance premiums initially as prepaid expenses and amortize them over the respective policy period of oneyear. Each prepaid policy provides insurance against warranty costs for panels sold within that policy year. The warranty obligations we record relate to defects that existed when the product was sold to the customer. The event which we are insured againstthrough our insurance policies is the sale of products with these defects. Accordingly, we view the insured losses attributable to the shipment of defectiveproducts covered under its warranty as analogous to potential claims, or claims that have been incurred as of the product ship date, but not yet reported. Weexpect to recover all or a portion of its obligation through insurance claims. Therefore, our accounting policy is to record an asset for the amount determinedto be probable of recovery from the insurance claims (not to exceed the amount of the total losses incurred), consistent with the guidance set forth atASC 410-30. We consider the following factors in determining whether an insurance receivable that is probable and recoverability can be reasonably estimated:•reputation and credit rating of the insurance company;80Table of Contents•comparison of the solar module product warranty policy against the terms of the insurance policies, to ensure valid warranty claims submittedby customers will be covered by the policy and therefore reimbursed by the insurance companies; and •with respect to specific claims submitted, written communications from the insurance company are monitored to ensure the claim has beenpromptly submitted to and accepted by the insurance company, and reimbursements have been subsequently collected. The successfullyprocessed claims provide further evidence that the insurance policies are functioning as anticipated. To the extent uncertainties regarding the solvency of insurance carriers or the legal sufficiency of insurance claims (including if they became subject tolitigation) were to arise, we will establish a provision for uncollectible amounts based on the specific facts and circumstances. To date, no provision had beendetermined to be necessary. In addition, to the extent that accrual for warranty costs differs from the estimates and we prospectively revise our accrual rate,this change may result in a change to the amount expected to be recovered from insurance. As the warranty obligation and related recovery asset do not meet the criteria for offsetting, the gross amounts are reported in our consolidated balancesheets. The asset is expected to be realized over the life of the warranty obligation, which is 25 years and is treated as a non-current asset consistent with theunderlying warranty obligation. When a specific claim is submitted, and the corresponding insurance proceeds will be collected within twelve months of thebalance sheet date, we will reclassify that portion of the receivable as being current. The insurance receivable amounts were $43.4 million and $56.6 millionat the end of 2014 and 2015, respectively, and were included as a component of other non-current assets. We made downward adjustments to our accrued warranty costs of $9.1 million and other non-current assets of $5.0 million, for the year endedDecember 31, 2015, to reflect the general declining trend of the average selling price of solar modules, which is a primary input into the estimated warrantycosts. Accrued warranty costs (net effect of adjustments) of $(16.5) million, $18.6 million and $15.9 million are included in cost of revenues for the yearsended December 31, 2013, 2014 and 2015, respectively.Impairment of Long-lived Assets We assess the recoverability of the carrying value of long-lived assets when an indicator of impairment has been identified. We review the long-livedassets each reporting period to assess whether impairment indicators are present. For purposes of recognition and measurement of an impairment loss, a long-lived asset or assets is grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flowsof other assets and liabilities. For long-lived assets, when impairment indicators are present, we compare undiscounted future cash flows, including theeventual disposition of the asset group at market value, to the asset group's carrying value to determine if the asset group is recoverable. Assessments alsoconsider changes in asset group utilization, including the temporary idling of capacity and the expected timing of placing this capacity back intoproduction. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets, we will recognize an impairment loss based onthe fair value of the assets. We recorded impairment charges of $3.7 million, $1.6 million and $7.0 million related to the write-down of mono-crystallineingot furnaces in 2013, wafer sorting machine and other fixed assets in China in 2014 and certain idle assets in China and Canada in 2015, respectively.Allowance for Doubtful Accounts We conduct credit evaluations of our customers and generally do not require collateral or other security from them. We establish allowances for doubtfulaccounts primarily based upon the age of our81Table of Contentsreceivables and factors surrounding the credit risk of specific customers. As of December 31, 2013, 2014 and 2015, an allowance for doubtful accountsreceivable of $38.5 million, $31.8 million and $28.2 million, respectively, was established for certain customers for whom management sees a credit risk onthe collection of accounts receivable balances. The allowance for doubtful accounts receivable as of December 31, 2013, 2014 and 2015 included$19.2 million, $14.8 million and $14.0 million, respectively, relating to one customer in China with severe liquidity issues. We began purchasing insurancefrom Sinosure since 2009 for certain of its accounts receivable trade in order to reduce its exposure to bad debt loss. We establish allowances for all doubtfulaccounts according to our allowance policy regardless of whether such accounts are covered by Sinosure insurance. For the amounts recoverable fromSinosure, we recorded $0.5 million, $0.6 million and $0.4 million in prepaid expenses and other current assets as of December 31, 2013, 2014 and 2015,respectively. With respect to advances to suppliers, primarily suppliers of solar cells, solar wafers and silicon raw materials, we perform ongoing credit evaluations oftheir financial condition. We generally do not require collateral or security against advances to suppliers, as they tend to be recurring supply partners.However, we maintained a reserve for potential credit losses for advances to suppliers as of December 31, 2013, 2014 and 2015 of $40.0 million,$37.7 million and $28.6 million, respectively. The reserves as of December 31, 2015 include allowances on advances to a UMG-Si supplier of $9.1 millionand allowances on advances to Deutsche Solar of $14.6 million.Inventories Inventories are stated at the lower of cost or market. Cost is determined by the weighted-average method. Cost of inventories consists of direct materialsand, where applicable, direct labor costs, tolling costs and those overhead costs that have been incurred in bringing the inventories to their present locationand condition. Adjustments are recorded to write down the cost of obsolete and excess inventories to the estimated market value based on historical and forecastdemand. The write-down of inventories for the years ended December 31, 2013, 2014 and 2015 were $0.7 million, $17.0 million and $23.0 million,respectively. We outsource portions of our manufacturing process. These outsourcing arrangements may or may not include transfer of title of the raw materialsinventory to third-party manufacturers. Such raw materials are recorded as raw materials inventory when purchased from suppliers. For those outsourcingarrangements in which the title is not transferred, we maintain such inventory on our consolidated balance sheets as raw materials inventory while it is inphysical possession of the third-party manufacturer. Upon receipt, processed inventory is reclassified to work-in-process inventory and a processing fee ispaid to the third-party manufacturer. For those outsourcing arrangements, characterized as sales, in which title (including risk of loss) is transferred to the third-party manufacturer, we areconstructively obligated, through raw materials sales agreements and processed inventory purchase agreements, which have been entered into with the third-party manufacturer simultaneously, to repurchase the inventory once processed. In this case, the raw materials remain classified as raw material inventorywhile in physical possession of the third-party manufacturer and cash is received, which is classified as "advances from customers" on the consolidatedbalance sheets and not as revenue or deferred revenue. Cash payments for outsourcing arrangements, which require prepayments for repurchase of theprocessed inventory, are classified as "advances to suppliers" on the consolidated balance sheets. There is no right of offset for these arrangements andaccordingly, "advances from customers" and "advances to suppliers" remain on the consolidated balance sheets until the processed inventory is repurchased. On occasion, we enter into firm purchase commitments to acquire materials from its suppliers. A firm purchase commitment represents an agreement thatspecifies all significant terms, including the82Table of Contentsprice and timing of the transactions, and includes a disincentive for non-performance that is sufficiently large to make performance probable. Thisdisincentive is generally in the form of a take-or-pay provision, which requires us to pay for committed volumes regardless of whether we actually acquire thematerials. 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 usedto value inventory. We record the expected loss only as it relates to the succeeding year, as we are unable to reasonably estimate future market prices beyondone year, in cost of revenues in the consolidated statements of operations. As a result, changes in the cost of materials or sales price of modules will directlyaffect the computation of the estimated loss on firm purchase commitments and our consolidated financial statements in the following years.Project Assets Project assets consist primarily of capitalized costs relating to solar power projects in various stages of development prior to the intended sale of the solarpower projects to a third party. These costs include certain acquisition costs, land costs and costs for developing and constructing a solar power system.Development costs can include legal, consulting, permitting, and other similar costs. Construction costs can include execution of field construction,installation of solar equipment, solar modules and related equipment. Interest costs incurred on debt during the construction phase and all deferred financingcosts amortized during the construction phase are also capitalized within project assets. Solar power projects were preliminarily classified as solar power systems unless we have intention to sell them to third parties. In that case, they will beclassified as project assets on the balance sheets. During the development phase, these solar power projects are accounted for in accordance with therecognition, initial measurement and subsequent measurement subtopics of ASC 970-360, as they are considered in substance real estates. While the solarpower projects are in the development phase, they are generally classified as non-current assets, unless it is anticipated that construction will be completedand the sale will occur within one year. Once the development of the solar power projects is substantially complete and the projects reach Commercial Operation Date, or COD, appropriatenessof the classification of project assets is assessed based on the circumstances at that time. Solar power projects that we intend to sell to third parties aretransferred from solar power systems to project assets during the period. Solar power projects that we intend to hold and operate to generate electricity incomeare still classified as solar power systems. Project assets are classified as current assets on the consolidated balance sheets when the criteria in ASC 360-10-45-9 are met. We review project assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Weconsider a project commercially viable or recoverable if it is anticipated to be sold for a profit once it is either fully developed or fully constructed. Weconsider a partially developed or partially constructed project commercially viable or recoverable if the anticipated selling price is higher than the carryingvalue of the related project assets. We examine a number of factors to determine if the project will be recoverable, the most notable of which include whetherthere are any changes in environmental, ecological, permitting, market pricing or regulatory conditions that impact the project. Such changes could cause thecosts of the project to increase or the selling price of the project to decrease. If a project is not considered recoverable, we impair the respective project assetsand adjust the carrying value to the estimated recoverable amount, with the resulting impairment recorded within operations. We recorded impairmentcharges for project assets of $1.6 million, $2.3 million and nil for the years ended December 31, 2013, 2014 and 2015, respectively. The cash flows associated with the acquisition, construction, and sale of projects assets are classified as operating activities in the consolidatedstatements of cash flows. Project assets are often83Table of Contentsheld in separate legal entities which are formed for the special purpose of constructing the project assets, which we refer to as "project companies". Weconsolidate project companies as described in Note 2 "Summary of Principal Accounting Policies—(b) Basis of consolidation" to our consolidated financialstatements for the year ended December 31, 2015 included in this annual report on Form 20-F. The cash paid to the non-controlling interest in connectionwith disposal of such project companies was recorded as a financing activity in the consolidated statement of cash flows. We do not depreciate the project assets, when they are considered held for sale. Any revenue generated from a solar power system connected to the gridwould be considered incidental revenue and accounted for as a reduction of the capitalized project costs for development. If circumstances change, and wewill begin to operate the project assets for the purpose of generating income from the sale of electricity, the project assets will be reclassified to property,plant and equipment. In 2015, we determined to expand our business model to both building and selling and building and operating certain projects. As aresult, project assets amounted $347.2 million were reclassified to solar power systems.Income Taxes Deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financialstatements, net tax loss carry-forwards and credits using the enacted tax rates expected to apply to taxable income in the periods in which the deferred taxliability or asset is expected to be settled or realized. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that someportion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxableincome during the periods in which those temporary differences become deductible for tax purposes. We have recognized a valuation allowance of$53.0 million and $56.0 million as of December 31, 2014 and 2015, respectively. Current income taxes are provided for in accordance with the laws of the relevant taxing jurisdictions. The components of the deferred tax assets andliabilities are individually classified as current and non-current based on the characteristics of the underlying assets and liabilities, or the expected timing oftheir use when they do not relate to a specific asset or liability. Income tax expense includes (a) deferred tax expense, which generally represents the net change in the deferred tax asset or liability balance during theyear plus any change in valuation allowances; (b) current tax expense, which represents the amount of tax currently payable to or receivable from a taxingauthority; and (c) non-current tax expense, which represents the increases and decreases in amounts related to uncertain tax positions from prior periods andnot settled with cash or other tax attributes. We only recognize tax benefits related to uncertain tax positions when such positions are more likely than not ofbeing sustained upon examination. For such positions, the amount of tax benefit that we recognize is the largest amount of tax benefit that is more than fiftypercent likely of being sustained upon the ultimate settlement of such uncertain tax position. We record penalties and interests associated with the uncertaintax positions as a component of income tax expense.Recently Issued Accounting Pronouncements In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Updates, or ASU, 2014-09, Revenue from Contractswith Customers (Topic 606), to clarify the principles of recognizing revenue and create common revenue recognition guidance between U.S. GAAP andInternational Financial Reporting Standards. An entity has the option to apply the provisions of ASU 2014-09 either retrospectively to each prior reportingperiod presented or retrospectively with the cumulative effect of initially applying this standard recognized at the date of initial application. ASU 2014-09 iseffective for fiscal years and interim periods within those years84Table of Contentsbeginning after December 15, 2016, and early adoption is not permitted. In August, 2015, the FASB updated this standard to ASU 2015-14, the amendmentsin this Update defer the effective date of Update 2014-09, that the Update should be applied to annual reporting periods beginning after December 15, 2017and earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within thatreporting period. We are still in the process of assessing the potential financial impact the adoption will have to us. In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810)—Amendments to the Consolidation Analysis. ASU 2015-02 modifiesexisting consolidation guidance related to (i) limited partnerships and similar legal entities, (ii) the evaluation of variable interests for fees paid to decisionmakers or service providers, (iii) the effect of fee arrangements and related parties on the primary beneficiary determination, and (iv) certain investment funds.These changes are expected to limit the number of consolidation models and place more emphasis on risk of loss when determining a controlling financialinterest. ASU 2015-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2015. Early adoption is permitted. Weare still in the process of assessing the potential financial impact to us. In April 2015, the FASB issued ASU 2015-03 as part of its simplification initiative. Under the ASU, an entity presents such costs in the balance sheet as adirect deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. The requirement to presentdebt issuance costs as a direct reduction of the related debt liability (rather than as an asset) is consistent with the presentation of debt discounts underU.S. GAAP. In August 2015, the FASB issued ASU 2015-15 related with the presentation and subsequent measurement of debt issuance costs associated withline-of-credit arrangements, under which the SEC staff stated it would not object to an entity deferring and presenting debt issuance costs as an asset andsubsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are anyoutstanding borrowings on the line-of-credit arrangement. We plan to adopt the new standard for the year beginning January 1, 2016 retrospectively, and donot expect the adoption to have a significant net impact on the financial statements. In July, 2015, the FASB issued ASU 2015-11 as part of its simplification initiative. The ASU changes the way of measurement on inventory, whichcurrently requires an entity to measure inventory at the lower of cost or market. The amendments in this Update require an entity to measure inventory withinthe scope of this Update at the lower of cost and net realizable value. We plan to adopt the new standard for the year beginning January 1, 2016, and are stillin the process of assessing the potential financial impact to us. In September 2015, the FASB issued ASU 2015-16 related to the accounting for measurement period adjustments recognized in a business combination.Under the previous standard, when adjustments were made to amounts previously reported as part of a business combination during the measurement period,entities were required to revise comparative information for prior periods. Under the new standard, entities must recognize these adjustments in the reportingperiod in which the amounts are determined rather than retrospectively. We have early adopted the new standard during the fourth quarter of 2015, which didnot have a significant impact on the financial statements. In November 2015, the FASB issued ASU 2015-17 as part of its simplification initiative. To simplify the presentation of deferred income taxes, theamendments in this Update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. We plan toadopt the new standard for the year beginning January 1, 2016 retrospectively, and do not expect the adoption to have a significant net impact on thefinancial statements.85 Table of Contents In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10)—Recognition and Measurement of Financial Assetsand Financial Liabilities. ASU 2016-01 changes how entities measure certain equity investments and present changes in the fair value of financial liabilitiesmeasured under the fair value option that are attributable to their own credit. The guidance also changes certain disclosure requirements and other aspects ofcurrent U.S. GAAP. ASU 2016-01 is effective for fiscal years and interim periods within those years beginning after December 15, 2017, and certainprovisions of the guidance may be early adopted. We are still evaluating the impact ASU 2016-01 will have on the consolidated financial statements andassociated disclosures. In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)". This update requires an entity to recognize lease assets and lease liabilities onthe balance sheet and to disclose key information about the entity's leasing arrangements. ASU 2016-02 is effective for annual reporting periods, and interimperiods therein, beginning after December 15, 2018, with early application permitted. A modified retrospective approach is required. We are currentlyevaluating the impact of the adoption this standard on the financial statements. In March 2016, the FASB issued ASU 2016-09, "Compensation—Stock Compensation (Topic 718) Improvements to Employee Share-Based PaymentAccounting". This guidance is intended to simplify the employee share-based payment accounting regarding several aspects, including the income taxconsequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public business entities, theamendments in this ASU are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoptionis permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflectedas of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the sameperiod. We are in the process of evaluating the impact of the standard on the financial statements.86Table of ContentsResults 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 ofour total net revenues. Our historical results presented below are not necessarily indicative of the results that may be expected for any future period.87 For the years ended December 31, 2013 2014 2015 (in thousands of $, except percentages) Net revenues $1,654,356 100.0%$2,960,627 100.0%$3,467,626 100.0%Module segment 1,483,751 89.7% 2,034,626 68.7% 2,672,689 77.1%Energy development segment 322,927 19.5% 1,210,036 40.9% 947,188 27.3%Electricity generation segment 1,327 0.1% 2,863 0.1% 32,059 0.9%Elimination (153,649) (9.3)% (286,898) (9.7)% (184,310) (5.3)%Cost of revenues 1,378,661 83.3% 2,379,633 80.4% 2,890,856 83.4%Module segment 1,298,949 78.5% 1,721,474 58.1% 2,277,904 65.7%Energy development segment 233,159 14.1% 929,741 31.4% 760,283 21.9%Electricity generation segment 564 0.0% 2,020 0.1% 18,668 0.5%Elimination (154,011) (9.3)% (273,602) (9.2)% (165,999) (4.7)%Gross profit 275,695 16.7% 580,994 19.6% 576,770 16.6%Module segment 184,802 11.2% 313,152 10.6% 394,785 11.4%Energy development segment 89,768 5.4% 280,295 9.5% 186,905 5.4%Electricity generation segment 763 0.0% 843 0.0% 13,391 0.4%Elimination 362 0.1% (13,296) (0.5)% (18,311) (0.6)%Operating expenses: Selling expenses 88,426 5.3% 125,797 4.2% 149,710 4.3%General and administrative expenses 44,768 2.7% 76,826 2.6% 162,633 4.7%Research and development expenses 11,685 0.7% 12,057 0.4% 17,056 0.5%Total operating expenses 144,879 8.8% 214,680 7.3% 329,399 9.5%Income from operations 130,816 7.9% 366,314 12.4% 247,371 7.1%Other income (expenses) Interest expense (46,244) (2.8)% (48,906) (1.7)% (54,148) (1.6)%Interest income 11,973 0.7% 14,363 0.5% 16,831 0.5%Gain (loss) on change in fair value ofderivatives 10,764 0.7% 19,656 0.7% (12,196) (0.4)%Investment income — —% — —% 2,342 0.1%Foreign exchange gain (loss) (51,469) (3.1)% (32,219) (1.1)% 22,882 0.7%Others 428 0.03% 1,623 0.1% 389 0.0%Income before income taxes and equity inearnings (loss) of unconsolidated investees 56,268 3.4% 320,831 10.9% 223,471 6.4%Income tax expense (7,639) (0.5)% (77,431) (2.6)% (49,512) (1.4)%Equity in earnings (loss) of unconsolidatedinvestees (3,064) (0.2)% 487 0.0% (643) 0.0%Net income 45,565 2.8% 243,887 8.2% 173,316 5.0%Less: Net income attributable to non-controllinginterests 13,906 0.8% 4,385 0.1% 1,455 0.0%Net income attributable to Canadian Solar Inc. 31,659 1.9% 239,502 8.1% 171,861 5.0%Table of ContentsYear Ended December 31, 2015 Compared to Year Ended December 31, 2014 Net Revenues. Our total net revenues increased by $507.0 million, or 17.1%, from $2,960.6 million for the year ended December 31, 2014 to$3,467.6 million for the year ended December 31, 2015. The increase was primarily due to higher shipments from our module segment from 2,436 MW for theyear ended December 31, 2014 to 4,085 MW for the year ended December 31, 2015, partially offset by a decrease in the average selling price of our solarmodules and a decrease in revenue contribution from sales of solar power projects. In the year ended December 31, 2015, Europe and others accounted for9.6% of our net revenues, while the Americas contributed 50.5% and Asia contributed 39.9%. Our top five customers by revenues collectively accounted for26.8% of our net revenues in the year ended December 31, 2015.•Solar Modules. Revenues generated from our module segment increased by $638.1 million, or 31.4%, from $2,034.6 million for the yearended December 31, 2014 to $2,672.7 million for year ended December 31, 2015. The increase was primarily due to an increase of$1,111.4 million attributable to the 72.5% increase in shipments of our solar modules, partially offset by a decrease of $341.9 millionattributable to the 12.9% decline in average selling price of our solar modules.Our total solar module shipments were 4,384 MW for the year ended December 31, 2015, an increase of 55.9% from 2,813 MW for the yearended December 31, 2014. Shipments to non-European markets increased by 1,391.0 MW from 2,453.9 MW for the year ended December 31,2014 to 3,844.9 MW for the year ended December 31, 2015, primarily to customers in India and China. Shipments to European marketsincreased by 180.2 MW from 358.7 MW for the year ended December 31, 2014 to 538.9 MW for the year ended December 31, 2015.The average selling price of our solar modules declined from $0.67 for the year ended December 31, 2014 to $0.58 for the year endedDecember 31, 2015. The decline was primarily due to the supply of solar products exceeding demand, change in the geographic mix ofrevenues and the depreciation of the Canadian dollar, Euro, Japanese yen and Renminbi against the US dollar.•Energy Development. Revenues generated from our solar project segment decreased by $262.8 million, or 21.7%, from $1,210.0 million forthe year ended December 31, 2014 to $947.2 million for the year ended December 31, 2015. This decrease was primarily due to a decrease insales of solar power projects of $333.9 million, though partially offset by a $69.7 million increase in revenue from project developmentservices. •Electricity Generation. Revenues generated from our electricity generation segment increased by $29.2 million, or 1,019.8%, from$2.9 million for the year ended December 31, 2014 to $32.1 million for the year ended December 31, 2015. This increase was primarily due toan increase in the number of solar power plants which we own and operate. Cost of Revenues. Our total cost of revenues increased by $511.2 million, or 21.5%, from $2,379.6 million for the year ended December 31, 2014 to$2,890.9 million for the year ended December 31, 2015. The increase was primarily due to increased shipments from our module segment, growth of ourelectricity generation segment, partially offset by lower manufacturing costs of solar modules and a decrease in sales of solar power projects. Total cost ofrevenues as a percentage of total net revenues slightly increased from 80.4% for the year ended December 31, 2014 to 83.4% for the year ended December 31,2015.•Solar Modules. Cost of revenues incurred by our module segment increased by $556.4 million, or 32.3%, from $1,721.5 million for the yearended December 31, 2014 to $2,277.9 million for the year ended December 31, 2015. This increase was primarily due to increased shipmentsfrom our88Table of Contentsmodule segment, partially offset by lower solar module manufacturing costs. Our total manufacturing costs in China, including purchasedpolysilicon, wafers and cells was $0.40 per watt in December 2015.In addition, in the year ended December 31, 2015, approximately $111.9 million of cash deposits we made relating to countervailing and anti-dumping rulings in the U.S. were charged to our cost of revenues.•Energy Development. Cost of revenues incurred by our solar project segment decreased by $169.5 million, or 18.2%, from $929.7 million forthe year ended December 31, 2014 to $760.3 million for the year ended December 31, 2015. This decrease was primarily due to fewer projectssold, though partially offset by an increase in revenue from project development services. •Electricity Generation. Cost of revenues incurred by our electricity generation segment increased by $16.6 million, or 824.2%, from$2.0 million for the year ended December 31, 2014 to $18.7 million for the year ended December 31, 2015. This increase was in line with theincrease in revenue generated from our electricity generation segment. Gross Profit. As a result of the foregoing, our total gross profit decreased by $4.2 million, or 0.7%, from $581.0 million for the year ended December 31,2014 to $576.8 million for the year ended December 31, 2015. Our total gross margin decreased from 19.6% for the year ended December 31, 2014 to 16.6%for the year ended December 31, 2015.•Solar Modules. Gross profit for our module segment increased by $81.6 million, or 26.1%, from $313.2 million for the year endedDecember 31, 2014 to $394.8 million for the year ended December 31, 2015, primarily due to increased solar module shipments and continueddecrease in our solar module manufacturing costs, partially offset by the decrease in the average selling price of our solar modules as well ascharges relating to the countervailing and anti-dumping rulings. Gross margin decreased from 15.4% for the year ended December 31, 2014 to14.8% for the year ended December 31, 2015, primarily due to a decrease in the average selling price of our solar modules, though partiallyoffset by a decrease in our solar module manufacturing costs. •Energy Development. Gross profit for our solar project segment decreased by $93.4 million, or 33.3%, from $280.3 million for the year endedDecember 31, 2014 to $186.9 million for the year ended December 31, 2015, primarily due to the decrease in sales of solar power projects.Gross margin decreased from 23.2% for the year ended December 31, 2014 to 19.7% for the year ended December 31, 2015, primarilyattributable to lower margins from the sales of solar power projects. •Electricity Generation. Gross profit for our energy generation segment increased by $12.5 million, or 1,488.5%, from $0.8 million for the yearended December 31, 2014 to $13.4 million for the year ended December 31, 2015, primarily due to the increased number of solar power plantswhich we own and operate. Gross margin increased from 29.4% for the year ended December 31, 2014 to 41.8% for the year endedDecember 31, 2015, primarily due to higher margins generated from our solar power projects in North America and Europe. Operating Expenses. Our operating expenses increased by $114.7 million, or 53.4%, from $214.7 million for the year ended December 31, 2014 to$329.4 million for the year ended December 31, 2015. Operating expenses as a percentage of our total net revenues increased from 7.3% for the year endedDecember 31, 2014 to 9.5% for the year ended December 31, 2015. Selling Expenses. Our selling expenses increased by $23.9 million, or 19.0%, from $125.8 million for the year ended December 31, 2014 to$149.7 million for the year ended December 31, 2015. The increase was primarily due to a $17.3 million increase in shipping and handling expenses and a89Table of Contents$8.7 million increase in external sales commissions. Selling expenses as a percentage of our net total revenues slightly increased from 4.2% for the yearended December 31, 2014 to 4.3% for the year ended December 31, 2015. General and Administrative Expenses. Our general and administrative expenses increased by $85.8 million, or 111.7%, from $76.8 million for the yearended December 31, 2014 to $162.6 million for the year ended December 31, 2015. The increase was primarily due to (a) the consolidation of Recurrent'sgeneral and administrative expenses of $29.5 million, (b) a $20.8 million charge related to the LDK arbitration case, (c) a 5.4 million increase in impairmentfor property, plant and equipment and (d) a $12.2 million increase in bad debt expenses. General and administrative expenses as a percentage of our total netrevenues increased from 2.6% for the year ended December 31, 2014 to 4.7% for the year ended December 31, 2015. Research and Development Expenses. Our research and development expenses increased by $5.0 million, or 41.5%, from $12.1 million for the yearended December 31, 2014 to $17.1 million for the year ended December 31, 2015. Research and development expenses as a percentage of our total netrevenues were 0.4% for the year ended December 31, 2014 and 0.5% for the year ended December 31, 2015. Interest Expense, Net. Our interest expense, net, increased by $2.8 million, or 8.0%, from $34.5 million for the year ended December 31, 2014 to$37.3 million for the year ended December 31, 2015. Interest expense increased by $5.2 million, or 10.7%, from $48.9 million for the year endedDecember 31, 2014 to $54.1 million for the year ended December 31, 2015. Interest income increased by $2.5 million, or 17.2%, from $14.4 million for theyear ended December 31, 2014 to $16.8 million for the year ended December 31, 2015. Gain/(Loss) On Change in Fair value of Derivatives. We recorded a loss of $12.2 million on change in fair value of derivatives for the year endedDecember 31, 2015, compared to a gain of $19.7 million for the year ended December 31, 2014. The loss on change in fair value of derivatives for the yearended December 31, 2015 were primarily due to a $8.9 million loss on change in fair value of warrants and a $3.7 million loss on change in fair value offoreign currency derivatives. The warrants were issued in conjunction with the $180 million financing arranged by Credit Suisse in the fourth quarter of2015. These warrants can be settled in cash at the discretion of the holder and as a result they are liability derivatives that were recorded at fair value atissuance and subsequently marked to market at the end of each reporting period. The loss on change in fair value of foreign currency derivatives for the yearended December 31, 2015 was attributable to loss on foreign currency forward contracts that we purchased to hedge part of the impact of changes inexchange rates of foreign currencies, mainly the Canadian dollar, Renminbi and Japanese yen. Foreign Exchange Gain/(Loss). We recorded a foreign exchange gain of $22.9 million for the year ended December 31, 2015, compared to a loss of$32.2 million for the year ended December 31, 2014. The gain for the year ended December 31, 2015 was primarily due to the depreciation of the Renminbiand Canadian dollar against the U.S. dollar. Income Tax Expense. We recorded an income tax expense of $49.5 million for the year ended December 31, 2015, compared to $77.4 million for theyear ended December 31, 2014. The decrease in income tax provision in 2015 was primarily due to our lower profit before income tax. Equity in Earnings/(Loss) of Unconsolidated Investees. Our share of the earnings of unconsolidated investees was net loss of $0.6 million for the yearended December 31, 2015, compared to net earnings of $0.5 million for the year ended December 31, 2014. Net Income Attributable to Non-Controlling Interest. The net income attributable to non-controlling interest is the share of net income attributable tothe interests of non-controlling shareholders in90Table of Contentscertain of our subsidiaries in Canada, China, Germany, Japan and the U.S. In many cases, we acquire or establish project companies in which third partieshold minority equity interests, which are reported as non-controlling interests in our consolidated financial statements. When the projects are sold to thirdparties, we allocate the percentage attributable to non-controlling interests accordingly. No net income was generated in connection with the sale of projectassets which was attributable to non-controlling interests for the year ended December 31, 2015. Net Income Attributable to Canadian Solar Inc. As a result of the foregoing, we recorded net income of $171.9 million for the year ended December 31,2015, which was a decrease of $67.6 million, or 28.2%, compared to our net income of $239.5 million for the year ended December 31, 2014.Year Ended December 31, 2014 Compared to Year Ended December 31, 2013 Net Revenues. Our total net revenues increased by $1,306.3 million, or 79.0%, from $1,654.4 million for the year ended December 31, 2013 to$2,960.6 million for the year ended December 31, 2014. The increase was primarily due to an increase in revenue contribution from our energy developmentand electricity generation segment, combined with higher shipments from our module segment from 1,809 MW in 2013 to 2,436 MW in 2014.•Solar Modules. Revenues generated from our module segment increased by $550.9 million, or 37.1%, from $1,483.8 million in 2013 to$2,034.6 million in 2014. The increase was primarily due to an increase of $404.5 million attributed to the 35.9% increase of shipments of oursolar modules.Our total solar module shipments were 2,813 MW in 2014, an increase of 48.5% from 1,894 MW in 2013. Shipments to non-European marketsincreased by 848.7 MW from 1,605.2 MW in 2013 to 2,453.9 MW in 2014, primarily to customers in the U.S. and Japan. Shipments toEuropean markets increased by 69.7 MW from 289.0 MW in 2013 to 358.7 MW in 2014.The average selling price of our solar modules in 2014 was $0.67, the same as in 2013.•Energy Development. Revenues generated from our energy development segment increased by $887.1 million, or 274.7%, from$322.9 million in 2013 to $1,210.0 million in 2014. The increase was primarily due to increases in revenue from both sales of solar powerprojects and EPC services. •Electricity Generation. Revenues generated from our electricity generation segment increased by $ 1.5 million, or 115.7%, from $1.3 millionfor the year ended December 31, 2013 to $2.9 million for the year ended December 31, 2014. This increase was primarily due to an increase inthe number of projects in operation. Cost of Revenues. Our cost of revenues increased by $1,001.0 million, or 72.6%, from $1,378.7 million in 2013 to $2,379.6 million in 2014. Theincrease was primarily due to further growth of our energy development and electricity generation segments and increased shipments from our modulesegment. Cost of revenues as a percentage of total net revenues decreased from 83.3% in 2013 to 80.4%.•Solar Modules. Cost of revenues incurred by our module segment increased by $422.5 million, or 32.5%, from $1,298.9 million for the yearended December 31, 2013 to $1,721.5 million for the year ended December 31, 2014. This increase was primarily due to increased shipmentsfrom our module segment, partially offset by lower solar module manufacturing costs. Our total manufacturing costs in China, includingpurchased polysilicon, wafers and cells was $0.48 per watt for the year ended December 31, 2014. •Energy Development. Cost of revenues incurred by our solar project segment increased by $696.6 million, or 298.8%, from $233.2 million forthe year ended December 31, 2013 to91Table of Contents$929.7 million for the year ended December 31, 2014. The increase was in line with the increase in revenue generated from our energydevelopment segment.•Electricity Generation. Cost of revenues incurred by our electricity generation segment increased by $1.5 million, or 258.2%, from$0.6 million for the year ended December 31, 2013 to $2.0 million for the year ended December 31, 2014. This increase was in line withincrease in revenue generated from our electricity generation segment. Gross Profit. As a result of the foregoing, our gross profit increased by $305.3 million, or 110.7%, from $275.7 million in 2013 to $581.0 million in2014. Our gross profit margin increased from 16.7% in 2013 to 19.6% in 2014, primarily due to the increased contribution of our higher margin energydevelopment and electricity generation segments, increased shipments from our module segment and continued decrease in our solar module manufacturingcosts, partially offset by cash deposits of approximately $36.0 million related to countervailing and anti-dumping rulings in the U.S that were charged to ourcost of revenues. See "Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal and Administrative Proceedings."•Solar Modules. Gross profit for our module segment increased by $128.4 million, or 69.5%, from $184.8 million for the year endedDecember 31, 2013 to $313.2 million for the year ended December 31, 2014, primarily due to increased shipments from our module segmentand continued decrease in our solar module manufacturing costs, partially offset by the charges relating to the countervailing and anti-dumping rulings. Gross margin increased from 12.5% for the year ended December 31, 2013 to 15.4% for the year ended December 31, 2014,primarily due to continued decreases in our solar module manufacturing costs. •Energy Development. Gross profit for our solar project segment increased by $190.5 million, or 212.2%, from $89.8 million for the year endedDecember 31, 2013 to $280.3 million for the year ended December 31, 2014, primarily due to increased sales of solar power projects andprovision of EPC services. Gross margin decreased from 27.8% for the year ended December 31, 2013 to 23.2% for the year endedDecember 31, 2014, primarily due to lower margins from the sales of solar power projects. •Electricity Generation. Gross profit for our energy generation segment increased by $0.1 million, or 10.5%, from $0.8 million for the yearended December 31, 2013 to $0.8 million for the year ended December 31, 2014, primarily due to the increased number of solar power projectswe own and operate. Gross margin decreased from 57.5% for the year ended December 31, 2013 to 29.4% for the year ended December 31,2014, primarily due to lower margins generated from our operating solar power projects in China. Operating Expenses. Our operating expenses increased by $69.8 million, or 48.2%, from $144.9 million in 2013 to $214.7 million in 2014. Operatingexpenses as a percentage of our total net revenues decreased from 8.8% in 2013 to 7.3% in 2014. Selling Expenses. Our selling expenses increased by $37.4 million, or 42.3%, from $88.4 million in 2013 to $125.8 million in 2014. The increase wasprimarily due to $21.7 million increase in shipping and handling costs, $10.3 million increase in salary and bonus and $3.4 million increase in storagecharges. Selling expenses as a percentage of our net total revenues decreased from 5.3% in 2013 to 4.2% in 2014. General and Administrative Expenses. Our general and administrative expenses increased by $32.1 million, or 71.6%, from $44.8 million in 2013 to$76.8 million in 2014. The increase was primarily due to $31.5 million reversal in 2013 of provision for the unfavorable arbitration award related to LDK,$8.3 million increase in salary and bonus and $4.4 million increase in professional service fee, partially92Table of Contentsoffset by $8.5 million reversal of bad debt allowance. General and administrative expenses as a percentage of our total net revenues decreased from 2.7% in2013 to 2.6% in 2014. Research and Development Expenses. Our research and development expenses increased by $0.4 million, or 3.2%, from $11.7 million in 2013 to$12.1 million in 2014. Research and development expenses as a percentage of our total net revenues were 0.7% in 2013 and 0.4% in 2014. Interest Expense, Net. Our interest expense, net, increased by $0.3 million, or 0.8%, from $34.3 million in 2013 to $34.5 million in 2014. Interestexpense increased by $2.7 million, or 5.8%, from $46.2 million in 2013 to $48.9 million in 2014. The increase was primarily due to interest expenses relatedto the convertible senior notes of $150 million issued in February 2014. Interest income increased by $2.4 million, or 20.0%, from $12.0 million in 2013 to$14.4 million. Gain/(Loss) On Change in Fair Value of Derivatives. We recorded a gain of $19.7 million on change in fair value of derivatives in 2014, compared to again of $10.8 million in 2013. The gain in 2014 was attributable to gains on foreign currency forward contracts that we purchased to mitigate the impact ofchanges in exchange rates of foreign currencies, mainly Japanese yen, Euro, Canadian dollar and Renminbi. Foreign Exchange Loss. We recorded a foreign exchange loss of $32.2 million in 2014, compared to a loss of $51.5 million in 2013. The loss in 2014was primarily attributable to the depreciation of Renminbi, Japanese yen and Canadian dollar against the U.S. dollar. Income Tax Expense. Our income tax expense was $77.4 million in 2014, compared to an expense of $7.6 million in 2013. The increase in income taxprovision in 2014 was primarily due to our higher profit before income tax. Equity in Earnings (Loss) of Unconsolidated Investees. Our share of the earnings of unconsolidated investees was net earnings of $0.5 million in 2014,compared to a net loss of $3.1 million in 2013. Net Income Attributable to Non-Controlling Interest. The net income attributable to non-controlling interest is the share of net income attributable tothe interests of non-controlling shareholders in certain of our subsidiaries in Canada, China, Germany, Japan and the U.S. In many cases, we acquire orestablish project companies in which third parties hold minority equity interests, which are reported as non-controlling interests in our consolidated financialstatements. When the projects are sold to third parties, we allocate the percentage attributable to non-controlling interests accordingly. The amounts of netincome generated in connection with the sale of project assets which was attributable to non-controlling interests was $4.4 million in 2014 and $13.9 millionin 2013. Net Income (Loss) Attributable to Canadian Solar Inc. As a result of the foregoing, we recorded net income of $239.5 million in 2014, which was a$207.8 million, or 656.5%, increase over our net income of $31.7 million in 2013.B. Liquidity and Capital ResourcesCash Flows and Working Capital We are generally required to make prepayments to suppliers of silicon raw materials. Even though we require some customers to make partialprepayments, there is typically a lag between the time we make our prepayments for silicon raw materials and the time our customers make their prepayments. Our energy development and electricity generation segments required increased funding and use of working capital in 2015 and are expected tocontinue to require significant funding and use of working capital in the future. The time cycles of our solar power project development and operation canvary substantially and take many years. As a result, we may need to make significant up-front investments of93Table of Contentsresources before the collection of any cash from the sale or operation of these projects. These investments include payment of interconnection and otherdeposits, posting of letters of credit, and incurring engineering, permitting, legal and other expenses. In addition, we may have to use our existing bankfacilities to finance the construction of these solar power projects. Depending on the size and number of solar power projects that we are developing and self-financing, our liquidity requirements could be significant. Delays in constructing or completing the sale of any of our solar power projects which we are self-financing could also impact our liquidity. In 2015, we financed our operations primarily through cash flows from operations, short-term and long-term borrowings and proceeds from offerings ofcommon shares. As of December 31, 2015, we had $553.1 million in cash and cash equivalents. Our cash and cash equivalents consist primarily of cash onhand, bank balances and demand deposits, which are unrestricted as to withdrawal and use, and have original maturities of three months or less. As of March 31, 2016, we had contractual credit lines with an aggregate limit of approximately $2,905.9 million, of which $1,035.6 million had beendrawn down with due dates beyond December 31, 2016 and $1,012.7 million had been drawn down with due dates before December 31, 2016. In addition, wehad non-binding credit lines of approximately $527.1 million, of which $347.9 million had been drawn down with due dates before December 31, 2016,$60.0 million had been drawn down with due dates beyond December 31, 2016 and $119.2 million was subject to the lenders' discretion upon request foradditional draw downs. Non-binding credit lines represent non-legally binding facility limits granted by lenders, which can be changed unilaterally by thelenders. As of March 31, 2016, we had approximately $818.2 million of long-term borrowings (non-current portion), of which $769.1 million was secured byequity, current assets, project assets and property, plant and equipment, and $128.7 million of long-term borrowings (current portion), of which$117.1 million was secured by equity, property, plant and equipment and project assets. As of March 31, 2016, we had approximately $1,138.1 million ofshort-term borrowings, of which $846.8 million was secured by restricted cash, inventory, land use rights, equity, project assets and property, plant andequipment. The long-term borrowings (non-current portion) will mature during the period from the second quarter of 2017 to the first quarter of 2036 andbear interests ranging from nil to 9.11% per annum. The long-term borrowings (current portion) and the short-term borrowings will mature during 2016through the first quarter of 2017 and bear interests ranging from nil to 13.0% per annum. Our bank lines contain no specific extension terms but, historically,we have been able to obtain new short-term borrowings with similar terms shortly before they mature. On May 20, 2013, we entered into a RMB270 million loan agreement with China Development Bank. The loan facility has a fifteen-year maturity,including a grace period of one year and was used to finance the construction of a 30 MW solar power project and its ancillary facility in the western part ofChina, which was completed in December 2013. On December 4, 2013, we entered into a $40 million loan agreement with Harvest North Star Capital, which was amended and restated in November 2014and in September 2015. The loan facility is used to finance the development of several ground-mounted solar power projects totaling approximately 153.2MW DC in Japan. In February 2014, we completed an offering of our common shares and convertible senior notes. Pursuant to the offering, we sold 3,194,700 commonshares at a price of $36.00 per share and $150 million aggregate principal amount of 4.25% convertible senior notes. We received aggregate net proceeds ofapproximately $255.7 million from these offerings, after deducting discounts and commissions, but before offering expenses. The proceeds were used forgeneral corporate purposes, including expanding manufacturing capacity, the development of solar power projects and working capital. In January 2016, webought back $15 million convertible senior notes at weighted average price of $85.13 per $100 par value.94Table of Contents In May 2015, we signed a $210.0 million three-year term loan agreement and a $40.0 million one-year letter of credit facility agreement with ChinaMinsheng Bank. This loan facility was primarily used to finance the acquisition of Recurrent and the construction of the utility-scale solar projects in theUnited States. In May 2015, we closed a £35.0 million ($51.7 million) project financing facility with Investec Bank plc for a portfolio of four operating solar powerplants with installed capacities totaling 40.2 MW in the United Kingdom. In June 2015, we signed a credit agreement pursuant to which Deutsche Bank AG, Canada Branch agreed to provide C$71.6 million ($51.8 million) ofnon-recourse, short-term construction financing for the construction of two solar power plants with a capacity of 10 MW AC each in Ontario, Canada. Thetwo power plants commenced commercial operation in the second half of 2015. In September 2015, we closed on a debt facility with Santander Bank, N.A., or Santander Bank, and a tax equity investment commitment with U.S.Bancorp Community Development Corporation, or USBCDC, securing financing for the 100 MW Mustang solar power project in California, United States.Under the agreement, Santander Bank provided $165.0 million in construction lending, a tax equity bridge loan and a term loan option for the Mustangproject, which commenced construction in 2015 and is expected to be completed in the third quarter of 2016. In September 2015, we closed on a combined construction and term debt facility, with a syndicate of six banks, including Rabobank, Santander Bank,KeyBanc, CIT Bank and CIBC, which provided project-level construction debt, letter of credit facilities and a bank-leveraged term facility, totaling$337.0 million, for the 200 MW Tranquility solar power project in California, United States. The Tranquility project commenced construction in 2015 and isexpected to be completed in the third quarter of 2016. In October 2015, we signed a loan agreement for a $100.0 million two-year senior secured term loan arranged by Credit Suisse. In December 2015, weraised the second and final tranche of $80 million for this term loan, bringing the total loan amount to $180.0 million. The term loan was used for generalcorporate purposes. In connection with this term loan, we issued Credit Suisse warrants to purchase up to approximately 2.3 million of our common shares atan exercise price ranging from $24.48 to $28.08 per share with a term of two years. In November 2015, we secured a construction loan of $115.0 million with a consortium of banks and a tax equity investment commitment with U.S.Bancorp Community Development Corporation, to finance the 60 MW AC Barren Ridge project under construction in California, United States and expectto be completed in 2016. In November 2015, we closed on a tax equity investment commitment with GE Energy Financial Services, for the 100 MW Astoria 1 solar power projectin California, United States. Santander Bank was the coordinating lead arranger of a five-member bank club, including NORD/LB, Rabobank, Key Bank andCIT Bank, which provided project-level construction debt, a letter of credit facility and a back-leveraged term loan facility, totaling approximately$260.0 million. The Astoria 1 project commenced construction in 2015 and is expected to be completed in 2016. In November 2015, we closed on a combined construction and term debt facility, with a syndicate of five banks, including Key Bank, Rabobank,Santander Bank, NORB/LB and CIT Bank, totaling approximately $275.0 million, for the 157.5 MW AC Roserock solar power project in Texas, UnitedStates, which commenced construction in 2015 and is expected to be completed in the fourth quarter of 2016.95Table of Contents In December 2015, we closed on a combined construction and term debt facility, with a syndicate of five banks, including NORD/LB, CIT Bank, KeyBank, Rabobank and Santander Bank, which provided project-level construction debt, letter of credit facilities and a bank-leveraged term facility, totalingapproximately $480.0 million, for the 200 MW AC Garland solar power project in California, United States. The Garland project commenced construction in2015 and is expected to be completed in 2016. In December 2015, we signed a financing agreement pursuant to which Deutsche Bank AG, Tokyo Branch, agreed to provide a JPY12.0 billion($99.8 million) senior non-recourse project finance credit facility for the construction of our 48MWp Kumamoto Mashiki solar power plant in Japan. In January 2016, we closed on a tax equity investment commitment with GE Energy Financial Services, for the 75 MW Astoria 2 solar power project inCalifornia, United States. Santander Bank was the coordinating lead arranger of a five-member bank club, including NORD/LB, Rabobank, Key Bank andCIT Bank, which provided project-level construction debt, a letter of credit facility and a back-leveraged term loan facility, totaling approximately$180.0 million. The Astoria 2 project commenced construction in 2015 and is expected to be completed in 2016. In January 2016, we signed a $60.0 million loan facility agreement with International Finance Corporation, a member of World Bank Group, or IFC, tofund the construction of our solar cell and module production facilities in Vietnam and other countries approved by IFC. The loan facility will expire in June2020. On the same day, we signed a subscription agreement with IFC pursuant to which IFC agreed to subscribe for 529,661 of our common shares at $18.88per share. The subscription was completed in February 2016 and the proceeds of approximately $10.0 million will be used for the construction, operation andgeneral corporate purpose of our solar cell and module production facilities in countries approved by IFC. In February 2016, we secured a credit facility with Ping An Bank, pursuant to which Ping An Bank agreed to provide up to $300 million to Recurrent forits solar power project development, construction and operation activities. The credit facility has a three-year maturity. In February 2016, we entered into a financing agreement, pursuant to which Goldman Sachs Japan Co., Ltd. agreed to arrange a JPY3.0 billion($24.9 million) project finance bond with a maturity of 20 years and a fixed coupon rate of 1.4% for the construction of the 10.2 MWp Aomori-Misawa solarpower project in Japan, which is expected to be completed in December 2016. The Aomori-Misawa project is our first solar power plant to receive aninvestment grade rating of "A" from Japan Credit Rating Agency, Ltd. Although no assurance can be given, we believe that we will be able to fully execute our business plans and to renew substantially all our existing bankborrowings as they become due, if needed. We believe that adequate sources of liquidity will exist to fund our working capital and capital expendituresrequirements and to meet our short-term debt obligations and other liabilities and commitments as they become due. As of the date of this annual report, wewere in compliance with all material terms of our borrowing agreements. We expect that our accounts receivable, inventories and project assets, three of the principal components of our current assets, will increase in line withincreases in our net revenues. Due to market competition, in many cases, we offer credit terms to our customers ranging from 30 days up to 120 days withsmall advance payments ranging from 5% to 20% of the sale prices. The prepayments are recorded as current liabilities under advances from customers, andamounted to $112.0 million as of December 31, 2014 and $76.2 million as of December 31, 2015. As the market demand for our products has changed and aswe have diversified our geographical markets, we have increased and may continue to increase credit term sales to certain creditworthy customers after carefulreview of their96Table of Contentscredit standings and acceptance of export credit insurance by Sinosure, or other risk mitigation channels such as local credit insurance or factoring. The following table sets forth a summary of our cash flows for the periods indicated:Operating Activities Net cash provided by operating activities was $413.7 million in 2015, compared to $265.1 million in 2014. The change was primarily due to improvedworking capital management, partially offset by a decrease in net income from $243.9 million to $173.3 million. Net cash provided by operating activities was $265.1 million in 2014, compared to a net cash provided by operating activities of $229.5 million in2013. The change was primarily due to a significant increase in net income from $45.6 million in 2013 to $243.9 million in 2014, partially offset by increasein working capital investments.Investing Activities Net cash used in investing activities was $999.1 million in 2015, compared to $116.0 million in 2014. The change was primarily due to an increase inpayments of $551.9 million for construction of our solar power systems, the net payments of $196.8 million to acquire subsidiaries, as well as an increase inrestricted cash mainly used as collateral to secure our bank acceptances and borrowings. Net cash used in investing activities was $116.0 million in 2014, compared to $37.5 million in 2013. The change was primarily due to an increase inpayments to acquire property, plant and equipment, an increase in restricted cash used as collateral to secure our bank acceptances and borrowings as well asan increase in loans receivable.Financing Activities Net cash provided by financing activities was $619.5 million in 2015, compared to $191.9 million in 2014. The change was primarily due to a netincrease in bank borrowings during 2015. Net cash provided by financing activities was $191.9 million in 2014, compared to $104.9 million used in financing activities in 2013. The change wasprimarily due to receipt of net proceeds of $108.9 million and $144.9 million from our offerings of common shares and convertible notes, respectively,during 2014. As of December 31, 2015, we had total outstanding credit facilities of $3,287.8 million, of which $1,290.1 million was undrawn and available. Webelieve that our current cash and cash equivalents, anticipated cash flow from operations and existing banking facilities will be sufficient to meet ouranticipated cash needs, including our cash needs for working capital and capital expenditures, for the 12 months ending December 31, 2016. We may,however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we maydecide to pursue.97 As of December 31, 2013 2014 2015 (in thousands of $) Net cash provided by (used in) operating activities 229,549 265,106 413,658 Net cash used in investing activities (37,509) (116,049) (999,104)Net cash provided by (used in) financing activities (104,900) 191,947 619,483 Net increase in cash and cash equivalents 86,282 321,293 3,536 Cash and cash equivalents at the beginning of the year 141,968 228,250 549,543 Cash and cash equivalents at the end of the year 228,250 549,543 553,079 Table of Contents As of December 31, 2015, we had outstanding short-term borrowings of $828.0 million with Chinese banks. Between January 1, 2016 and March 31,2016, we obtained new borrowings of $362.0 million from Chinese banks, including $161.9 million with due dates beyond December 31, 2016. Also,between January 1, 2016 and March 31, 2016, we renewed existing bank facilities of $146.4 million from Chinese banks with due dates beyondDecember 31, 2016. The availability of commercial loans from Chinese commercial banks may be affected by administrative policies of the PRCgovernment, which in turn may affect our plans for business expansion. If our existing cash or the availability of commercial bank borrowings is insufficientto meet our requirements, we may seek to sell additional equity securities or debt securities or borrow from other sources. We cannot assure that financing willbe available in the amounts we need or on terms acceptable to us, if at all. The issuance of additional equity securities, including convertible debt securities,would dilute the holdings of our shareholders. The incurrence of debt would divert cash for working capital and capital expenditures to service debtobligations and could result in operating and financial covenants that restrict our operations and our ability to pay dividends to our shareholders. If we areunable to obtain additional equity or debt financing as required, our business operations and prospects may suffer.Capital Expenditures We made capital expenditures of $23.1 million, $65.1 million and $642.8 million in 2013, 2014 and 2015, respectively. Our capital expenditures wereprimarily to maintain and increase our ingot, wafer, cell and module manufacturing capacity and to develop solar power systems to generate electricityrevenue. As of December 31, 2015, our commitments for the purchase of property, plant and equipment and solar power systems were $61.9 million and$473.1 million, respectively.Restricted Net Assets Our PRC subsidiaries are required under PRC laws and regulations to make appropriations from net income as determined under accounting principlesgenerally accepted in the PRC, or PRC GAAP, to non-distributable reserves, which include a general reserve, staff welfare and bonus reserve. The generalreserve is required to be made at not less than 10% of the profit after tax as determined under PRC GAAP. The board of directors of our PRC subsidiariesdetermines the staff welfare and bonus reserve. The general reserve is used to offset future extraordinary losses. Our PRC subsidiaries may, upon a resolutionof their board of directors, convert the general reserve into capital. The staff welfare and bonus reserve is used for the collective welfare of the employees ofthe PRC subsidiaries. These reserves represent appropriations of the retained earnings determined under PRC law. In addition to the general reserve, our PRCsubsidiaries are required to obtain approval from the local government authorities prior to decreasing and distributing any registered share capital to theirshareholders. Accordingly, both the appropriations to general reserve and the registered share capital of our PRC subsidiaries are considered as restricted netassets. These restricted net assets amounted to $365.0 million, $393.5 million and $396.3 million as of December 31, 2013, 2014 and 2015, respectively. Our operations in China are subject to certain restrictions on the transfer and use of cash within our company. Transfers of cash between our PRCsubsidiaries and the Canadian parent company are restricted to normal trade business payments and any further capital contribution from the Canadian parentcompany may only be made under China's existing foreign currency regulations. Foreign exchange transactions by our PRC subsidiaries under most capitalaccounts continue to be subject to significant foreign exchange controls and require the approval of or registration with PRC governmental authorities. Inparticular, if we finance our PRC subsidiaries by means of additional capital contributions, certain government authorities, including the Ministry ofCommerce or its local counterparts, must approve these capital contributions. These limitations could affect the ability of our Chinese subsidiaries to obtainforeign exchange through equity financing.98Table of Contents As of December 31, 2015, $197.6 million of undistributed earnings in our PRC subsidiaries are considered to be indefinitely reinvested so that noprovision of withholding taxes has been provided in our consolidated financial statements. Our PRC subsidiaries are required to make appropriations of atleast 10% of net income, as determined under accounting principles generally accepted in the PRC, to a non-distributable general reserve. After making thisappropriation, the balance of the $197.6 million of undistributed earnings is distributable. Should our PRC subsidiaries subsequently distribute thedistributable earnings, they are subject to applicable withholding taxes to the PRC State Administration of Tax.C. Research and Development We have two research and development centers with state-of-the-art equipment—the Center for Solar Cell Research and the Center for PhotovoltaicTesting and Reliability Analysis. The Center for Solar Cell Research is focused on developing new high efficiency solar cells and advanced solar cellprocessing technologies. The Center for Photovoltaic Testing and Reliability Analysis has been accredited and running according to ISO/IEC17025 standardsince 2009 and is focused on solar module and module components reliability testing and qualification, and solar module performance analysis. The Centerfor Photovoltaic Testing and Reliability Analysis actively participates in and contributes to IEC standard development on solar modules, such as IEC 62804test method on PID and has been qualified by VDE, CSA, Intertek and TUV Rheinland in their Test Data Acceptance Programs. As of December 31, 2015, we had approximately 202 employees in research, product development and engineering. Our research and development activities are generally focused on the following areas:•continuously improving solar cell conversion efficiency and developing new structures and technologies for higher efficiencies; •developing modules with improved design and assembly methods to have higher power output; •improving manufacturing yield and reliability of solar modules and reducing manufacturing costs; •developing smart modules integrated with optimizer or micro-inverters; •testing, data tracing and analysis for module performance and reliability; •designing and developing customized solar modules and products to meet customer requirements; and •developing new methods and equipment for analysis and quality control of incoming materials (such as polysilicon, wafers, cells and othermodule components). Going forward, we will focus on the following research and development initiatives which we believe will enhance our competitiveness:•High efficiency cells. We have begun commercializing our in-house developed black silicon technology, Onyx technology, on multi wafers.This self-developed wet chemical texturing is a unique, IP-protected and cost effective technology and will significantly increase solar cellefficiency due to advanced light absorption and surface passivation. We also have developed PERC (passivated emitter and rear cell)technology in order to further increase cell efficiency. Mass production of PERC commenced in our Yancheng facility in March 2016. We alsohave very focused research and development initiatives on N-type bifacial cell, heterojunction cell, IBC cell and other high efficiency celldesigns. With these advanced technologies, we can significantly lower the LCOE (levelized cost of energy) on the system level and improveour products' market competitiveness.99Table of Contents•Solar module manufacturing technologies. Since the opening of our Center for Photovoltaic Testing and Reliability Analysis, we havefocused on developing state-of-the-art testing and diagnostic techniques that improve solar module production yield, efficiency andreliability. We are among the first to begin mass production of four bus-bars cells and modules. We will extend our product competitiveness byintroducing to volume production of our 5 bus-bar cell and modules (Quintech Modules) with higher module wattage in the second quarter of2016. We have developed new technology for PID-resistant modules, which have received certification by the TUV SUD and the VDE testingand certification institutes. Our black silicon and Quintech module technology has improved the output power. We also started massproduction of double-glass modules that are market-leading in yield, cell-to-module power loss and cost. •Power system integration and solar application products. We began to explore power system integration products and expanded our researchand development efforts in solar application products and commercial sales of such products started in 2015. •Solar power system development, energy storage system, off-grid power system, micro grid system and smart grid system. As we continue tomove into the downstream energy development and electricity generation segments, we hired additional engineering staff and increasedinvestment in these areas in 2015.D. Trend Information Other than as disclosed elsewhere in this annual report on Form 20-F, we are not aware of any trends, uncertainties, demands, commitments or events thatare reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that caused the disclosedfinancial information to be not necessarily indicative of future operating results or financial conditions.E. Off Balance Sheet Arrangements We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder's equity, or that are not reflected in ourconsolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that servesas 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.100Table of ContentsF. Tabular Disclosure of Contractual ObligationsContractual Obligations and Commercial Commitments The following table sets forth our contractual obligations and commercial commitments as of December 31, 2015: The above table excludes uncertain tax liabilities of $14.5 million, as we are unable to reasonably estimate the timing of future payments due touncertainties in the timing of the effective settlement of these tax positions. For additional information, see the notes to our consolidated financialstatements, included herein. Other than the contractual obligations and commercial commitments set forth above, we did not have any long-term debt obligations, operating leaseobligations, purchase obligations or other long-term liabilities as of December 31, 2015.G. Safe Harbor This annual report on Form 20-F contains forward-looking statements that relate to future events, including our future operating results, our prospectsand our future financial performance and condition, results of operations, business strategy and financial needs, all of which are largely based on our currentexpectations and projections. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Youcan identify these forward-looking statements by terminology such as "may," "will," "expect," "anticipate," "future," "intend," "plan," "believe," "estimate,""is/are likely to" or similar expressions. Forward-looking statements involve inherent risks and uncertainties. These forward-looking statements include,among other things, statements relating to:•our expectations regarding the worldwide supply and demand for solar power products and the market demand for our products; •our beliefs regarding the importance of environmentally friendly power generation; •our expectations regarding governmental support for solar power; •our beliefs regarding the fluctuation in availability of silicon, solar wafers and solar cells;101 Payment Due by Period Total Less Than1 Year 1-3 Years 3-5 Years More Than5 Years (In thousands of $) Short-term debt obligations 1,156,576 1,156,576 — — — Interest related to short-term debt obligations(1) 49,964 49,964 — — — Operating lease obligations 145,666 10,163 13,018 10,412 112,073 Capital lease obligations 29,222 10,126 19,096 — — Purchase obligations(2) 2,015,142 941,423 1,063,863 9,856 — Long-term debt obligations 606,577 — 499,638 6,930 100,009 Interest related to long-term debt obligations(3) 28,812 — 23,733 329 4,750 Total 4,031,959 2,168,252 1,619,348 27,527 216,832 (1)Interest rates range from 1.15% to 6.73% per annum for short-term debt obligations. (2)Includes commitments to purchase $61.9 million of production equipment, $473.1 million solar power systems and $1,480.1 millionof raw materials. (3)Interest rates range from 0% to 13% per annum for long-term debt obligations.Table of Contents•our beliefs regarding our ability to resolve our disputes with suppliers with respect to our long-term supply agreements; •our beliefs regarding the continued growth of the solar power industry; •our beliefs regarding the competitiveness of our solar module products; •our expectations with respect to increased revenue growth and improved profitability; •our expectations regarding the benefits to be derived from our supply chain management and vertical integration manufacturing strategy; •our beliefs and expectations regarding the use of UMG-Si and solar power products made of this material; •our ability to continue developing our in-house solar components production capabilities and our expectations regarding the timing andproduction capacity of our internal manufacturing programs; •our ability to secure adequate silicon and solar cells to support our solar module production; •our beliefs regarding the effects of environmental regulation; •our beliefs regarding the changing competitive landscape in the solar power industry; •our future business development, results of operations and financial condition; •competition from other manufacturers of solar power products and conventional energy suppliers; •our ability to expand our products and services and to successfully grow our energy development and electricity generation segments; •our ability to develop, build and sell solar power projects in Canada, the U.S., Japan, China, Brazil, the United Kingdom and elsewhere; and •our beliefs with respect to the outcome of the investigations and litigation to which we are a party. Known and unknown risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from anyfuture results, performance or achievements expressed or implied by forward-looking statements. See "Item 3. Key Information—D. Risk Factors" for adiscussion of some risk factors that may affect our business and results of operations. These risks are not exhaustive. Other sections of this annual report mayinclude additional factors that could adversely influence our business and financial performance. Moreover, because we operate in an emerging and evolvingindustry, new risk factors may emerge from time to time. We cannot predict all risk factors, nor can we assess the impact of these factors on our business or theextent to which any factor, or combination of factors, may cause actual result to differ materially from those expressed or implied in any forward-lookingstatement. We do not undertake any obligation to update or revise the forward-looking statements except as required under applicable law.102Table of Contents ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. Directors and Senior Management The following table sets forth information regarding our directors and executive officers as of the date of this annual report on Form 20-F.Directors Dr. Shawn (Xiaohua) Qu has served as our chairman, president and chief executive officer since founding our company in October 2001. Through hisleadership, we became a public listed company on the Nasdaq in 2006 and have since firmly established ourselves among the top ranked manufacturers ofsolar PV products globally. Prior to founding Canadian Solar, Dr. Shawn Qu held various positions in product engineering, business development andstrategic planning at ATS Automation Tooling Systems, Inc., or ATS, and its solar subsidiary Photowatt International S.A. Prior to ATS, Dr. Shawn Qu was aresearch scientist at Ontario Power Generation where he worked as a process leader in its solar product commercialization team. In 2011, Dr. Shawn Qubecame a visiting professor at Tsinghua University, one of the most prestigious universities in China. Dr. Shawn Qu has published research articles inacademic journals including IEEE Quantum Electronics, Applied Physics Letter and Physical Review. He received a Ph.D. in material sciences in 1995 fromthe University of Toronto, focusing on semiconductor super lattice and optical effects. He also holds a Master of Science in physics from University ofManitoba and a Bachelor of Science in applied physics from Tsinghua University in Beijing. Mr. Robert McDermott has served as lead independent director of our company since August 2006. Mr. McDermott is a corporate director and consultant.Before July 2011, he was a partner with McMillan LLP, a business law firm based in Canada, where he practiced business law, with an emphasis on mergersand acquisitions, securities and corporate finance, and advised boards and special committees of public companies on corporate governance matters. He isnow a counsel to the firm. Mr. McDermott was admitted to the Ontario Bar in Canada in 1968. He has a Juris Doctor degree from the University of Toronto in1966 and a Bachelor of Arts degree from the University of Western Ontario in 1963. Mr. Lars-Eric Johansson has served as an independent director of our company since August 2006. Mr. Johansson has worked in finance and controlspositions for more than thirty years in Sweden and Canada. He has been the president and chief executive officer of Ivanhoe Mines Ltd. (formerlyIvanplats Inc. and Ivanhoe Nickel & Platinum Ltd.), a Canadian public mining company since May 1, 2007. From 2004 to 2007, Mr. Johansson was a directorand chairperson of the audit committee of103Name Age Position/TitleShawn (Xiaohua) Qu 52 Chairman of the Board, President and Chief Executive OfficerRobert McDermott 74 Lead Independent DirectorLars-Eric Johansson 69 Independent DirectorHarry E. Ruda 57 Independent DirectorAndrew (Luen Cheung) Wong 58 Independent DirectorMichael G. Potter 49 Senior Vice President and Chief Financial OfficerGuangchun Zhang 58 Chief Operations OfficerYan Zhuang 52 Senior Vice President and Chief Commercial OfficerArthur (Jian) Chien 55 Senior Vice President and Chief Strategy Officer, President of Energy GroupHuifeng Chang 50 Senior Vice President, Corporate Strategy, Business Development and FinanceJianyi Zhang 58 Senior Vice President and General CounselTable of ContentsHarry Winston Diamond Corporation, a specialist diamond company with assets in the mining and retail segments of the diamond industry. From May 2004to April 2006, he was an executive vice president and the chief financial officer of Kinross Gold Corporation, a gold mining company dually listed on theToronto Stock Exchange and the New York Stock Exchange. Between June 2002 and November 2003, Mr. Johansson was an executive vice president andchief financial officer of Noranda Inc., a Canadian mining company dually listed on the Toronto Stock Exchange and the New York Stock Exchange. UntilMay 2004, Mr. Johansson served as a special advisor at Noranda Inc. From 1989 to May 2002, he was the chief financial officer and senior vice president ofFalconbridge Limited, a mining and metals company in Canada listed on the Toronto Stock Exchange. He has chaired the audit committee of Golden StarResources Ltd., a gold mining company dually listed on the Toronto Stock Exchange and American Stock Exchange, from 2006 to 2010. From 2002 to 2003,he was also a director of Novicor Inc., a company formerly listed on the Toronto Stock Exchange. Mr. Johansson holds an MBA, with a major in finance andaccounting, from Gothenburg School of Economics in Sweden. Dr. Harry E. Ruda has served as an independent director of our company since July 2011. He is the Director of the Centre for Advanced Nanotechnology,the Stanley Meek Chair in Nanotechnology and Professor of Applied Science and Engineering at the University of Toronto, Canada. From 1982 to 1984, hedeveloped one of the first theories for electron transport in selectively doped two dimensional electron gas heterostructures, while working as an IBM post-doctoral fellow. From 1984 to 1989, he was a senior scientist at 3M Corporation, developing some of the first models for electronic transport and opticalproperties of wide bandgap II-VI semiconductors. Dr. Ruda joined the faculty of the University of Toronto in 1989 in the Materials Science and Engineeringand Electrical and Computer Engineering Departments. His research interests focus on the fabrication and modeling of semiconductor nanostructures withapplications in the fields of optoelectronics, energy and sensing. Dr. Ruda was one of the founders of a Canadian National Centre of Excellence in Photonics.He has served on the National Science and Engineering Council of Canada and on other government panels, including those of the Department of Energy,Environmental Protection Agency, National Science Foundation in the U.S. and the Royal Academy of Engineering and Engineering Physical SciencesResearch Council in the United Kingdom. Dr. Ruda is a Fellow of the Royal Society of Canada, a Fellow of the Institute of Physics and a Fellow of theInstitute of Nanotechnology. He obtained his Ph.D. in semiconductor physics from the Massachusetts Institute of Technology in 1982. Mr. Andrew (Luen Cheung) Wong has served as an independent director of our company since August 2014. Mr. Wong currently serves as the senioradvisor to the vice chairman of the board of directors of Henderson Land Development Company Limited. Mr. Wong has served as a director and a member ofthe audit committee, nomination and remuneration committee of China CITIC Bank Corporation Limited, a company listed on The Stock Exchange of HongKong, since 2013. He has also served as a director of Ace Life Insurance Company Ltd. since 2008, and a director and a member of the audit committee andremuneration committee of Shenzhen Yantian Port (Group) Co. Ltd. since 2008. He is also a member of the board of directors of The Tsinghua UniversityEducation Foundation (HKSAR) Ltd. Previously, Mr. Wong was the director of Intime Retail (Group) Co. Ltd., a company listed on The Stock Exchange ofHong Kong, between 2013 and 2014, and was the director and a member of audit committee, risk management committee, nomination and remunerationcommittee of China Minseng Bank, a company listed on The Stock Exchange of Hong Kong, from 2006 to 2012. From 1982 to 2006, Mr. Wong held seniorpositions at the Royal Bank of Canada, the Union Bank of Switzerland, Citicorp International Limited, a merchant banking arm of Citibank, Hang Seng BankLimited and DBS Bank Limited, Hong Kong. Mr. Wong was awarded the National Excellent Independent Director by the Shanghai Stock Exchange in 2010and received the Medal of Honour (Hong Kong SAR) from the Hong Kong SAR Government in 2011. Mr. Wong obtained his Bachelor of Social Sciences(Honours) degree from the University of Hong Kong in 1980 and a Master of Philosophy degree from Hong Kong Buddhist College in 1982.104Table of ContentsExecutive Officers Mr. Michael G. Potter served as an independent director of our company from September 2007 until he was appointed our senior vice president and chieffinancial officer in July 2011. He continued as a director until his resignation on November 11, 2013. Mr. Potter has worked in finance, controlling and auditpositions with a variety of multinational companies for over 20 years. From February 2009 to April 2011, he served as the corporate vice president and chieffinancial officer of Lattice Semiconductor Corporation, a Nasdaq-listed semiconductor device company. Prior to that, he was senior vice president and chieffinancial officer of NYSE-listed NeoPhotonics Corporation, a leading provider of photonic integrated circuit-based modules, components and subsystems foruse in optical communications networks with extensive operations in Shenzhen, China. Before joining NeoPhotonics Corporation in May 2007, he was thesenior vice president and chief financial officer of STATS ChipPAC, a semiconductor assembly and test services company based in Singapore and listed onthe Nasdaq and Singapore Stock Exchange. Before that, he held a variety of executive positions at NYSE-listed Honeywell Inc. Mr. Potter is a CharteredProfessional Accountant (CPA, CA) and holds a Bachelor of Commerce degree from Concordia University, Canada and a Diploma of Public Accountancyfrom McGill University, Canada. Mr. Guangchun Zhang has served as our chief operations officer since December 2012 and has over 18 years of experience in the PV industry. Prior tojoining us, Mr. Zhang worked for Suntech Power Holdings Co., Ltd, as senior vice president for research and development and industrialization ofmanufacturing technology since December 2005. Prior to joining Suntech, Mr. Zhang previously worked at the Centre for Photovoltaic Engineering at theUniversity of New South Wales in Australia and Pacific Solar Pty. Limited from June 1994 to November 2005. Mr. Zhang was an associate professor inShandong Technology University in China from February 1982 to May 1994. Mr. Zhang received his bachelor degree in 1982 from the School of ElectronicEngineering at Shandong Industrial Institute. Mr. Yan Zhuang has served as our chief commercial officer since May 2012. He also served as our senior vice president of global sales and marketingsince July 2011, and prior to that as our vice president of global sales and marketing since June 2009. He was an independent director of our company fromSeptember 2007 to June 2009. Mr. Zhuang has worked in corporate branding, sales and marketing positions with, or provided consulting services to, avariety of multinational companies for over 15 years. In 2008, he founded and became a director of INS Research and Consulting. Mr. Zhuang was the headof Asia for Hands-on Mobile, Inc., a global media and entertainment company with operations in China, South Korea and India, from 2006 to 2007. Hepreviously served as our senior vice president of business operations and marketing in Asia. Before joining Hands-on Mobile, Inc., he held various marketingand business operation positions with Motorola Inc., including as its Asia Pacific regional director of marketing planning and consumer insight. Prior to that,he was a marketing consultant in Canada and China. Mr. Zhuang holds a bachelor's degree in electrical engineering from Northern Jiaotong University,China, a Master of Science degree in applied statistics from the University of Alberta, Canada and a Master of Science degree in marketing management fromthe University of Guelph, Canada. Mr. Arthur (Jian) Chien brings more than two decades of experience across investment, capital markets, large scale manufacturing management, andrenewable energy project development. In the summer of 2015, Arthur joined our company as chief strategy officer, senior vice president, and president of ourenergy group. From 2007 to 2010, he served as Canadian Solar's Chief Financial Officer and held other positions throughout the Company. Between thesetwo periods of service with Canadian Solar, Arthur was the CEO and Managing Director of Talesun Solar, a Chinese based solar project developer and EPCcontractor. Earlier in his career, Arthur held various management positions across companies in Canada, Europe and China, including CFO of the GreaterChina regional office of the Bekeart Group of Belgium, CFO of China Grand Enterprise Ltd., and Managing Director of Beijing Encon Investment. He hasalso served as a board director with two Chinese listed companies.105Table of ContentsArthur graduated with a Science degree from the University of Science and Technology of China in 1982. He received a Master's degree in Economics andwas a Ph.D. candidate from the University of Western Ontario, Canada. Dr. Huifeng Chang joined our company in the beginning of 2016 as senior vice president of corporate strategy, business development and finance. Hehas 17 years of experiences in capital markets, financial investment and risk management. He was the Co-Head of Sales & Trading at the U.S. subsidiary ofCICC (China International Capital Corp) from 2010 to 2015. Prior to that, he was the CEO of CSOP Asset Management based in Hong Kong from early 2008to 2010, investing funds from China in the international markets. From 2000 to 2008, Dr. Chang was Vice President and an equity proprietary trader atCitigroup Equity Proprietary Investments in New York. Before going to New York, Dr. Chang was a risk consultant at Kamakura Corp in Hawaii, advisingbanks, insurers, pensions in Asia. He received a Ph.D. in soil physics and MBA from University of Hawaii in the early 1990s, M.S. degree from AcademiaSinica in 1987 and B.S. degree from Nanjing Agricultural University in 1984. Mr. Jianyi Zhang joined our company at the end of February 2016 as senior vice president and chief legal officer. After graduation from WashingtonUniversity School of Law, Mr. Zhang worked at Troutman Sanders LLP as an associate from June 1993 to September 1994. Thereafter, he formed a law firmSu & Zhang in Los Angeles, California. He rejoined Troutman Sanders LLP as an associate in April 1995, became a partner in September of 1999 and workedin that position until December 2001. From January 2002 to June 2005, Mr. Zhang worked at Walmart Stores, Inc. first as a senior corporate counsel II andthen as senior assistant general counsel. From July 2005 to February 2016, he served, consecutively, as senior advisor to Chinese law firms of Jingtian &Gongcheng Law Firm, Runbo Law Firm, East Associates Law Firm and East & Concord Partners in Beijing. Mr. Jianyi Zhang received his B.A. degree andM.A. degree from the University of Helsinki, Finland in 1982 and 1983 respectively. After graduation from the University of Helsinki in 1983, Mr. Zhangworked at the Chinese Foreign Ministry until September 1989. Thereafter, he went to study at Washington University School of Law in St. Louis, Missouriand received his J.D. degree in 1992.Duties of Directors Under our governing statute, our directors have a duty of loyalty to act honestly and in good faith with a view to our best interests. They also have a dutyto exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. A shareholder has the right to seekdamages if a duty owed by our directors is breached. The functions and powers of our board of directors include:•convening shareholder meetings and reporting to shareholders at such meetings; •declaring dividends and authorizing other distributions to shareholders; •appointing officers and determining the term of office of officers; •exercising the borrowing powers of our company and mortgaging the property of our company; and •approving the issuance of shares.B. Compensation of Directors and Executive OfficersCash Compensation We paid our directors and executive officers aggregate cash remuneration, including salaries, bonuses and benefits in kind, of approximately$3.7 million for 2015. Of this amount, we paid106Table of Contentsapproximately $0.3 million to our three independent directors and approximately $3.4 million to our executive officers. The total amount set aside oraccrued by us and our subsidiaries to provide pension, retirement or similar benefits for our directors and executive officers was approximately $0.01 millionin 2015.Share-based CompensationShare Incentive Plan In March 2006, we adopted a share incentive plan, or the Plan. The purpose of the Plan is to promote the success and enhance the value of our company by linking the personal interests of the directors, employees andconsultants to those of the shareholders and providing the directors, employees and consultants with an incentive for outstanding performance to generatesuperior returns to the shareholders. The Plan is also intended to motivate, attract and retain the services of the directors, employees and consultants uponwhose judgment, interest and effort the successful conduct of our operations is largely dependent. In September 2010, the shareholders approved an amendment to the Plan to increase the maximum number of common shares which may be issuedpursuant to all awards of restricted shares, options and restricted share units under the Plan to the sum of (i) 2,330,000 plus (ii) the sum of (a) 1% of thenumber of our outstanding common shares on the first day of each of 2007, 2008 and 2009 plus (b) 2.5% of our outstanding common shares on the first dayof each calendar year after 2009. As at March 31, 2016, the maximum number of common shares which may be issued pursuant to all awards of restrictedshares, options and restricted share units under the Plan was 11,583,000 common shares, of which 566,190 restricted shares, 3,379,093 options, and3,266,368 restricted share units (in each case net of forfeitures) have been awarded, leaving 4,371,349 common shares available to be issued. The following describes the principal terms of the Plan. Types of Awards. We may make the following types of awards under the Plan:•restricted shares, which are common shares that are subject to certain restrictions and may be subject to risk of forfeiture or repurchase; •options, which entitle the holder to purchase our common shares; and •restricted share units, which entitle the holder to receive our common shares Plan Administration. The Compensation Committee of our board of directors administers the Plan, except with respect to awards made to our non-employee directors, where the entire board of directors administers the Plan. The Compensation Committee or the full board of directors, as appropriate,determines the provisions, terms, and conditions of each award. Award Agreement. Awards are evidenced by an award agreement that sets forth the terms, conditions and limitations for each award. Eligibility. We may grant awards to employees, directors and consultants of our company or any of our related entities, which include our subsidiariesand any entities in which we hold a substantial ownership interest. We may, however, grant options that are intended to qualify as incentive share optionsonly to our employees. Acceleration of Awards upon Corporate Transactions. Outstanding awards will accelerate upon a change-of-control where the successor entity doesnot assume our outstanding awards. In such event, each outstanding award will become fully vested and immediately exercisable, the transfer restrictions107Table of Contentson the awards will be released and the repurchase or forfeiture rights will terminate immediately before the date of the change-of-control transaction. Exercise Price and Term of Options. In general, the Compensation Committee determines the exercise price of an option and sets out the price in theaward agreement. The exercise price may be a fixed or variable price related to the fair market value of our common shares. If we grant an incentive shareoption to an employee who, at the time of that grant, owns shares representing more than 10% of the voting power of all classes of our share capital, theexercise price cannot be less than 110% of the fair market value of our common shares on the date of that grant and the share option is exercisable for no morethan five years from the date of that grant. The term of an award may not exceed ten years from the date of the grant. Vesting Schedule. In general, the Compensation Committee determines the vesting schedule.Restricted Shares The following table summarizes, as of March 31, 2016, the restricted shares granted under the Plan to our executive officers and to other individuals,individually and each as a group. We have not granted any restricted shares to our directors. The restricted shares granted in May 2006 vested over a two-yearperiod beginning in March 2006. The vesting periods for all other restricted shares are indicated in the notes below.108Name RestrictedSharesGranted RestrictedSharesVested RestrictedSharesForfeited Date of Grant Expiration Employees Twelve individuals as a group 330,860 330,860 — May 30, 2006 May 29, 2016 Hanbing Zhang(3) 116,500(4) 116,500 — July 28, 2006 July 27, 2016 Employees as a group 447,360 447,360 — Other Individuals One individual 2,330(1) 2,330 — May 30, 2006 May 29, 2016 One individual 116,500(2) 116,500 — June 30, 2006 June 29, 2016 Other Individuals as a group 118,830 118,830 — Total Restricted Shares 566,190 566,190 — (1)Vest on accelerated termination. (2)Vest over a two-year period from the date of grant. (3)The wife of Dr. Shawn Qu, our founder, Chairman, President and Chief Executive Officer. (4)Vest over a four-year period from the date of grant. Table of ContentsOptions The following table summarizes, as of March 31, 2016, the options granted under the Plan to our directors and executive officers and to otherindividuals, individually and as a group. The options granted in May 2006 vest over a four-year period beginning in March 2006. The options granted to ourindependent directors vest immediately. Unless otherwise noted, all other options granted vest over a four-year period (one-quarter on each anniversary date)from the date of grant, and exercise prices are equal to the average of the trading prices of the common shares for the five trading days preceding the date ofgrant.109Name CommonSharesUnderlyingOptionsGranted CommonSharesUnderlyingOptionsExercised CommonSharesUnderlyingOptionsForfeited CommonSharesUnderlyingOptionsOutstanding ExercisePrice($ perShare) Date of Grant Date ofExpiration Directors: Shawn (Xiaohua) Qu 20,000 — — 20,000 3.18 March 12, 2009 March 11, 2019 25,000 — — 25,000 11.33 August 27, 2010 August 26, 2020 18,779 — — 18,779 9.33 May 20, 2011 May 19, 2021 Robert McDermott 46,600(1) 46,600 — — 15.00(3) August 8, 2006 August 7, 2016 23,300(2) 23,300 — — 9.88 July 1, 2007 June 30, 2017 23,300(2) — — 23,300 41.75(4) June 26, 2008 June 25, 2018 23,300(2) — — 23,300 13.75(4) June 29, 2009 June 28, 2019 23,300(2) — — 23,300 12.09(4) September 20, 2010 September 19, 2020 23,300(2) 23,300 — — 9.81(4) June 27, 2011 June 26, 2021 23,300(2) 23,300 — — 3.03(4) June 11, 2012 June 10, 2022 23,300(2) 23,300 — — 8.29(4) June 7, 2013 June 6, 2023 Lars-Eric Johansson 46,600(2) 46,600 — — 15.00(3) August 8, 2006 August 7, 2016 23,300(2) 23,300 — — 9.88(4) July 1, 2007 June 30, 2017 23,300(2) — — 23,300 41.75(4) June 26, 2008 June 25, 2018 23,300(2) 23,300 — — 13.75(4) June 29, 2009 June 28, 2019 23,300(2) 23,300 — — 12.09(4) September 20, 2010 September 19, 2020 23,300(2) 23,300 — — 9.81(4) June 27, 2011 June 26, 2021 23,300(2) 23,300 — — 3.03(4) June 11, 2012 June 10, 2022 23,300(2) — — 23,300 8.29(4) June 7, 2013 June 6, 2023 Harry E. Ruda 23,300(2) 23,300 — — 8.31(4) August 14, 2011 August 13, 2021 23,300(2) 23,300 — — 3.03(4) June 11, 2012 June 10, 2022 23,300(2) — — 23,300 8.29(4) June 7, 2013 June 6, 2023 Directors as a Group 553,079 349,500 — 203,579 Executive Officers: Michael G. Potter 23,300(2) 23,300 — — 7.36(4) September 24, 2007 September 23, 2017 23,300(2) — — 23,300 41.75(4) June 26, 2008 June 25, 2018 23,300(2) 23,300 — — 13.75(4) June 29, 2009 June 28, 2019 23,300(2) — — 23,300 12.09(4) September 20, 2010 September 19, 2020 23,300(2) 23,300 — — 9.81(4) June 27, 2011 June 26, 2021 60,688 45,516 — 15,172 9.52 July 20, 2011 July 19, 2021 Yan Zhuang 23,300(2) 23,300 — — 7.36 September 24, 2007 September 23, 2017 23,300(2) — — 23,300 41.75 June 26, 2008 June 25, 2018 80,000 80,000 — — 9.37 May 23, 2009 May 22, 2019 15,000 15,000 — — 11.33 August 27, 2010 August 26, 2020 11,268 11,268 — — 9.33 May 20, 2011 May 19, 2021 Arthur (Jian) Chien 46,600(1) 46,600 — — 4.29 August 8, 2006 August 7, 2016 23,300(2) 23,300 — — 9.88 July 1, 2007 June 30, 2017 46,600 34,950 11,650 — 7.36(4) September 24, 2007 September 23, 2017 20,000 5,000 15,000 — 3.18 March 12, 2009 March 11, 2019 15,000 — 15,000 — 11.33 August 27, 2010 August 26, 2020 Executive Officers as aGroup 481,556 354,834 41,650 85,072 Table of Contents110Name CommonSharesUnderlyingOptionsGranted CommonSharesUnderlyingOptionsExercised CommonSharesUnderlyingOptionsForfeited CommonSharesUnderlyingOptionsOutstanding ExercisePrice($ perShare) Date of Grant Date ofExpiration Employees: Ten employees as a group 791,035 553,375 121,160 116,500 2.12 May 30, 2006 May 29, 2016 Twenty-eight employees asa group 126,170 92,968 33,202 — 4.29 May 30, 2006 May 29, 2016 One employee 2,330(6) 2,330 — — 4.29 May 30, 2006 May 29, 2016 Two employees as a group 51,260 51,260 — — 4.29 June 30, 2006 June 29, 2016 One employee 64,075 64,075 — — 4.29 July 17, 2006 July 16, 2016 Hanbing Zhang(7) 46,600 — — 46,600 4.29 July 28, 2006 July 27, 2016 One employee 58,250 14,563 — 43,687 12.00(8) August 8, 2006 August 7, 2016 Three employees as agroup 11,650 9,903 1,747 — 12.00(8) August 31, 2006 August 30, 2016 Three employees as agroup 79,900 58,250 21,650 — 12.10 March 1, 2007 February 28, 2017 One employee 6,990 1,748 5,242 — 12.10 March 1, 2007 February 28, 2017 Five employees as a group 52,280 5,413 46,867 — 8.21 August 17, 2007 August 16, 2017 Eight employees as agroup 39,208 34,376 4,832 — 7.36 September 24, 2007 September 23, 2017 Twelve employees as agroup 170,145 116,813 53,332 — 7.36 September 24, 2007 September 23, 2017 Six employees as a group 36,136 25,000 11,136 — 19.55 February 28, 2008 February 27, 2018 One employee 10,000 — 10,000 — 19.40 March 3, 2008 March 2, 2018 Two employees as a group 18,000 — 18,000 — 20.67 March 31, 2008 March 30, 2018 One employee 30,000 — 30,000 — 46.28 June 26, 2008 June 25, 2018 Four employees as a group 30,000 5,000 25,000 — 27.88 August 7, 2008 August 6, 2018 Seventy-eight employeesas a group 400,200 232,890 132,110 35,200 3.18 March 12, 2009 March 11, 2019 Hanbing Zhang(7) 6,000 — — 6,000 3.18 March 12, 2009 March 11, 2019 One employee 20,000 20,000 — — 5.26 March 30, 2009 March 29, 2019 Eighteen employees as agroup 59,400 37,600 18,800 3,000 9.37 May 23, 2009 May 22, 2019 One employee 10,000 — 10,000 — 11.58 May 31, 2009 May 30, 2019 Seven employees as agroup 30,800 13,200 17,600 — 15.18 August 6, 2009 August 5, 2019 Fourteen employees as agroup 82,600 60,600 22,000 — 16.10 November 8, 2009 November 7, 2019 One hundred and thirty-oneemployees as a group 483,600 224,550 239,675 19,375 11.33 August 27, 2010 August 26, 2020 Hanbing Zhang(7) 12,000 — — 12,000 11.33 August 27, 2010 August 26, 2020 One employee 100,000 — 100,000 — 15 October 8, 2010 October 7, 2020 One hundred and fifty-threeemployees as a group 236,000 119,650 94,500 21,850 15.24 November 14, 2010 November 13, 2020 Five employees as a group 32,900 24,650 4,200 4,050 13.99 March 5, 2011 March 4, 2021 Seventy-three employees asa group 353,064 161,386 137,094 54,584 9.33 May 20, 2011 May 19, 2021 Hanbing Zhang(7) 7,512 — — 7,512 9.33 May 20, 2011 May 19, 2021 Five employees as a group 150,000 33,750 105,000 11,250 8.94 June 1, 2011 May 31, 2021 Twenty employees as agroup 74,000 25,250 44,500 4,250 3.03 November 14, 2011 November 13, 2021 Employees as a group 3,682,105 1,988,600 1,307,647 385,858 Two individuals as a group 11,650 11,650 — — 15.00(3) April 13, 2007 April 12, 2017 Individuals as a group 11,650 11,650 — — Total Options 4,728,390 2,704,584 1,349,297 674,509 (1)Vest in two equal installments, the first upon the date of grant and the second upon the first year anniversary of the date of grant as long as the director remains in service. (2)Vest immediately upon the date of grant. (3)The initial public offering price of the common shares. (4)Exercise price equal to the average of the trading prices of the common shares for the 20 trading days preceding the date of grant. (5)Vest one year after the date of grant. (6)Vesting accelerated on termination. (7)The wife of Dr. Shawn Qu, our founder, Chairman, President and Chief Executive Officer. (8)80% of the initial public offering price of the common shares.Table of Contents Before 2014, we agreed to grant each of our independent directors, Robert McDermott, Lars-Eric Johansson and Harry E. Ruda, options to purchase23,300 of our common shares immediately after each annual shareholder meeting at an exercise price equal to the average of the trading price of our commonshares for the 20 trading days ending on such date. These options vested immediately.Restricted Share Units The following table summarizes, as of March 31, 2016, the restricted share units granted under the Plan to our directors and executive officers and toother individuals, individually and as a group. The restricted share units granted on May 8, 2011 vested on the anniversary of the date of grant. The restrictedshare units granted to our independent directors vest on the earlier of the date that the director ceases to be a member of our board of directors for any reasonand three years after the date of the grant. The other restricted share units granted vest over a four-year period (one-quarter on each anniversary date) from thedate of grant.111Name RestrictedShare UnitsGranted RestrictedShare UnitsVested RestrictedShare UnitsForfeited Date of Grant Expiration Directors: Shawn (Xiaohua) Qu 6,154(1) 6,154 — May 8, 2011 May 7, 2021 13,706(2) 13,706 — May 20, 2011 May 19, 2021 75,075(2) 75,075 — March 16, 2012 March 15, 2022 67,024(2) 50,268 — March 9, 2013 March 8, 2023 11,983(2) 2,996 — May 4, 2014 May 3, 2024 8,274(2) — — May 3, 2015 May 2, 2025 Robert McDermott 1,020(5) — — July 1, 2014 June 20, 2024 800(5) — — October 1, 2014 September 30, 2024 1,274(5) — — January 1, 2015 December 31, 2024 880(5) — — April 1, 2015 March 31, 2025 993(5) — — July 1, 2015 June 30, 2025 1,820(5) — — October 1, 2015 September 30, 2025 1,033(5) — — January 1, 2016 December 31, 2025 Lars-Eric Johansson 1,020(5) — — July 1, 2014 June 20, 2024 800(5) — — October 1, 2014 September 30, 2024 1,274(5) — — January 1, 2015 December 31, 2024 880(5) — — April 1, 2015 March 31, 2025 993(5) — — July 1, 2015 June 30, 2025 1,820(5) — — October 1, 2015 September 30, 2025 1,033(5) — — January 1, 2016 December 31, 2025 Harry E. Ruda 1,020(5) — — July 1, 2014 June 20, 2024 800(5) — — October 1, 2014 September 30, 2024 1,274(5) — — January 1, 2015 December 31, 2024 880(5) — — April 1, 2015 March 31, 2025 993(5) — — July 1, 2015 June 30, 2025 1,820(5) — — October 1, 2015 September 30, 2025 1,033(5) — — January 1, 2016 December 31, 2025 Andrew (Luen Cheung) Wong 610(1) 610 — August 7, 2014 August 6, 2024 800(1) 800 — October 1, 2014 September 20, 2024 1,274(1) 1,274 — January 1, 2015 December 31, 2024 880(1) — — April 1, 2015 March 31, 2025 993(1) — — July 1, 2015 June 30, 2025 1,820(1) — — October 1, 2015 September 30, 2025 1,033(5) — — January 1, 2016 December 31, 2025 Directors as a group 213,086 150,883 — Table of Contents112Name RestrictedShare UnitsGranted RestrictedShare UnitsVested RestrictedShare UnitsForfeited Date of Grant Expiration Executive Officers Michael G. Potter 42,868(2) 42,868 — July 20, 2011 July 19, 2021 45,045(2) 45,045 — March 16, 2012 March 15, 2022 40,214(2) 30,160 — March 9, 2013 March 8, 2023 7,262(2) 1,815 — May 4, 2014 May 3, 2024 5,516(2) — — May 3, 2015 May 2, 2025 Guangchun Zhang 80,000(2) 60,000 — March 9, 2013 March 8, 2023 7,262(2) 1,815 — May 4, 2014 May 3, 2024 5,516(2) — — May 3, 2015 May 2, 2025 Yan Zhuang 2,564(1) 2,564 — May 8, 2011 May 7, 2021 8,224(2) 8,224 — May 20, 2011 May 19, 2021 45,045(2) 45,045 — March 16, 2012 March 15, 2022 40,214(2) 30,160 — March 9, 2013 March 8, 2023 7,988(2) 1,997 — May 4, 2014 May 3, 2024 5,516(2) — — May 3, 2015 May 2, 2025 Arthur (Jian) Chien 13,445(2) — — June 26, 2015 June 25, 2025 Executive Officers as a group 356,679 269,693 — Employees Nine employees as a group 13,844(1) 10,768 3,076 May 8, 2011 May 7, 2021 One hundred and seventy-four employees as a group 423,801(2) 291,519 132,282 May 20, 2011 May 19, 2021 One hundred and forty-seven employees as a group 1,125,044(2) 769,719 355,325 March 16, 2012 March 15, 2022 Four employees as a group 43,000(2) 8,500 32,500 May 6, 2012 May 5, 2022 Three employees as a group 30,000(2) 22,500 — August 16, 2012 August 15, 2022 Two employees as a group 16,006(2) 12,004 — August 17, 2012 August 16, 2022 One hundred and thirty-eight employees as a group 916,223(2) 535,002 229,120 March 9, 2013 March 8, 2023 One employee 20,000(2) 10,000 — June 16, 2013 June 15, 2023 One employee 2,861(2) 1,430 — July 16, 2013 July 15, 2023 One employee 1,952(2) 488 1,464 July 18, 2013 July 17, 2023 Thirteen employees as a group 19,655(2) 9,071 1,890 August 10, 2013 August 9, 2023 Seven hundred and forty-eight employees as a group 126,036(4) 126,036 — August 11, 2013 August 10, 2023 One employee 10,000(2) 5,000 5,000 August 17, 2013 August 16, 2023 One employee 20,000(2) 5,000 15,000 September 3, 2013 September 2, 2023 One employee 1,739(2) 869 — October 31, 2013 October 30, 2023 Four employees as a group 5,933(2) 2,617 1,571 November 8, 2013 November 7, 2023 One employee 1,040(2) 520 — November 25, 2013 November 24, 2023 Hanbing Zhang(3) 1,538(1) 1,538 — May 8, 2011 May 7, 2021 5,482(2) 5,482 — May 20, 2011 May 19, 2021 21,021(2) 21,021 — March 16, 2012 March 15, 2022 18,767(2) 14,075 — March 9, 2013 March 8, 2023 2,796(2) 699 — May 4, 2014 May 3, 2024 2,344(2) — — May 3, 2015 May 2, 2025 One hundred and eighty-five employees as a group 200,661(2) 51,861 38,842 May 4, 2014 May 3, 2024 Three employees as a group 8,574(2) 974 5,554 August 7, 2014 August 6, 2024 Four employees as a group 17,472(2) 8,148 3,228 August 8, 2014 August 7, 2024 One employee 847(2) — 847 September 1, 2014 August 31, 2024 Three employees as a group 2,112(2) 528 594 September 26, 2014 September 25, 2024 Seven employees as a group 39,673(2) 9,917 320 December 26, 2014 December 25, 2024 Ten employees as a group 109,036(2) 24,230 12,115 January 29, 2015 January 28, 2025 Six employees as a group 68,660(2) 6,866 41,196 January 30, 2015 January 29, 2025 Two hundred and seven employees as a group 143,143(2) 1,931 14,619 May 3, 2015 May 2, 2025 Eighty-four employees as a group 81,838(2) — 4,551 June 15, 2015 June 14, 2025 Table of Contents Effective June 23, 2014, we have agreed to grant each of our independent directors, Robert McDermott, Lars-Eric Johansson, Harry E. Ruda and Andrew(Luen Cheung) Wong, restricted share units quarterly in advance on the first day of July, October, January and April in each year of service. The number ofrestricted share units granted quarterly is determined by dividing $30,000 by the average of the closing price of our common shares on each of the fivetrading days preceding the date of the grant. Each restricted share unit will entitle those directors to receive one of our common shares upon vesting. Theserestricted share units vest on the earlier of the date that the director ceases to be a member of our board of directors for any reason and three years after thegrant date. We agree to issue common shares to those directors as soon as practicable, and in any event within 60 days, after the granted restricted share unitsare vested.C. Board Practices In 2015, our board of directors held seven meetings and passed 46 resolutions by unanimous written consent.Terms of Directors and Executive Officers Our officers are appointed by and serve at the discretion of our board of directors. Our current directors have not been elected to serve for a specific termand, unless re-elected, hold office until the close of our next annual meeting of shareholders or until such time as their successors are elected or appointed.Committees of the Board of Directors Our board of directors has established an audit committee, a compensation committee, a nominating and corporate governance committee and atechnology committee.Audit Committee Our audit committee comprises Messrs. Lars-Eric Johansson, Robert McDermott, Harry E. Ruda and Andrew (Luen Cheung) Wong and is chaired byMr. Johansson. Mr. Johansson qualifies as an "audit committee financial expert" as required by the SEC. Each of Messrs. Johansson, McDermott, Ruda andWong satisfies the "independence" requirements of the Nasdaq corporate governance rules and is "financially literate" as required by the Nasdaq rules. Theaudit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company.113Name RestrictedShare UnitsGranted RestrictedShare UnitsVested RestrictedShare UnitsForfeited Date of Grant Expiration Three employees as a group 15,535(2) — — June 26, 2015 June 25, 2025 Thirteen employees as a group 56,124(2) 198 — September 25, 2015 September 24, 2025 Nine employees as a group 22,940(2) — — December 24, 2015 December 23, 2025 Employees as a group 3,595,697 1,958,511 899,094 Total Restricted Share Units 4,165,462 2,379,087 899,094 (1)Vest over a one-year period from the date of grant. (2)Vest over a four-year period from the date of grant. (3)The wife of Dr. Shawn Qu, our founder, Chairman, President and Chief Executive Officer. (4)Vest immediately upon the date of grant. (5)Vest after three years from the date of grantTable of Contents The audit committee is responsible for, among other things:•selecting our independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by our independentauditors; •reviewing with our independent auditors any audit problems or difficulties and management's responses; •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 our 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; •annually reviewing and reassessing the adequacy of our audit committee charter; •such other matters that are specifically delegated to our audit committee by our board of directors from time to time; •meeting separately and periodically with management and our internal and independent auditors; and •reporting regularly to the full board of directors. In 2015, our audit committee held six meetings, and passed three resolutions by unanimous written consent.Compensation Committee Our compensation committee consists of Messrs. Lars-Eric Johansson, Robert McDermott, Harry E. Ruda and Andrew (Luen Cheung) Wong and ischaired by Mr. Wong. Each of Messrs. Johansson, McDermott, Ruda and Wong satisfies the "independence" requirements of the Nasdaq corporategovernance rules. The compensation committee assists the board in reviewing and approving the compensation structure for our directors and executiveofficers, including all forms of compensation to be provided to our directors and executive officers. Members of the compensation committee are notprohibited from direct involvement in determining their own compensation. Our chief executive officer may not be present at any committee meeting duringwhich his compensation is deliberated. The compensation committee is responsible for, among other things:•reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer, evaluating theperformance of our chief executive officer in light of those goals and objectives, and setting the compensation level of our chief executiveofficer based on this evaluation; •reviewing and approving the compensation arrangements for our other executive officers and our directors; and •overseeing and periodically reviewing the operation of our employee benefits plans, including bonus, incentive compensation, stock option,pension and welfare plans. In 2015, our compensation committee held five meetings and passed three resolutions by unanimous written consent.114Table of ContentsNominating and Corporate Governance Committee Our nominating and corporate governance committee consists of Messrs. Lars-Eric Johansson, Robert McDermott, Harry E. Ruda and Andrew (LuenCheung) Wong and is chaired by Mr. McDermott. Each of Messrs. Johansson, McDermott, Ruda and Wong satisfies the "independence" requirements of theNasdaq corporate governance rules. The nominating and corporate governance committee assists the board of directors in identifying individuals qualified tobecome our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee isresponsible for, among other things:•identifying and recommending to the board nominees for election or re-election to the board, or for appointment to fill any vacancy; •reviewing annually with the board the current composition of the board in light of the characteristics of independence, age, skills, experienceand availability of service to us; •identifying and recommending to the board the directors to serve as members of the board's committees; •advising the board periodically with respect to significant developments in the law and practice of corporate governance as well as ourcompliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and onany corrective action to be taken; and •monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures toensure proper compliance. In 2015, our nominating and corporate governance committee held four meetings and did not pass any resolutions by unanimous written consent.Research and Development Committee Our research and development committee consists of Dr. Harry E. Ruda and Dr. Shawn Qu and is chaired by Dr. Ruda. Our chief technical officer is anadvisory member of the committee. The research and development committee advises and assists the board of directors and management on matters relatingto technology and technological innovation and development as it relates to our solar power business. The research and development committee isresponsible for, among other things:•reviewing, evaluating and advising the board of directors and management regarding the quality, scope, direction and effectiveness of ourresearch and development programs and activities; •reviewing, evaluating and advising the board of directors and management regarding our progress in achieving our research and developmentgoals and objectives; •reviewing, evaluating and making recommendations to the board of directors and management on our internal and external investments inscience and technology; •monitoring, identifying, evaluating and advising the board of directors and management regarding competing solar power technologies andnew and emerging developments in solar power science and technology; •reviewing, evaluating and advising the board of directors and our chief executive officer regarding the composition and quality of the researchand development team; and •providing general oversight of matters relating to the protection of our intellectual property. Our research and development committee was formed in November 2014. In 2015, it held three meetings and did not pass any resolutions by unanimouswritten consent.115Table of ContentsInterested Transactions Under the CBCA, a director or officer of a corporation who is a party to a material contract or transaction or proposed material contract or transactionwith the corporation, or is a director or officer (or an individual acting in a similar capacity) of, or has a material interest in, any person who is party to such acontract or transaction, is required to disclose to the corporation in writing or request to have entered into the minutes of meetings of directors the nature andextent of his or her interest in accordance with the requirements of the CBCA. A director may vote on any resolution in respect of such contract or transactiononly if the contract or transaction is: (a) one relating primarily to remuneration as a director, officer, employee or agent of the corporation or an affiliate;(b) one for indemnity or insurance in favor of directors and officers in compliance with the CBCA; or (c) one with an affiliate. In 2015, we did not enter into any interested transactions other than those described in this "Item 6. Directors, Senior Management and Employees" and"Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions."Remuneration and Borrowing Our directors may determine the remuneration to be paid to them. The compensation committee will assist the directors in reviewing and approving thecompensation structure for our directors. Our directors may, without authorization of the shareholders (a) borrow money on our credit, (b) issue, reissue, sell,pledge or hypothecate debt obligations of ours, (c) give a guarantee on our behalf to secure performance of an obligation of any person, and (d) mortgage,hypothecate, pledge or otherwise create a security interest in all or any property of ours, owned or subsequently acquired, to secure any obligation of ours.Qualification Each of our independent directors is asked to hold common shares and/or restricted share units having a value which is at least five times the director'sannual cash retainer. This requirement should be satisfied before the later of July 1, 2017 and three years after he or she becomes a director.Employment Agreements We have entered into employment agreements with each of our executive officers. All of the employment agreements with our executive officers are for an indefinite term. Under the employment agreements, we may terminate anexecutive officer's employment at any time for cause without notice and for any other reason by giving written notice of termination to the executive officer.An executive officer may terminate his employment at any time by giving 30 or 60 days' notice of termination to us. If we terminate an executive officer'semployment for any reason other than cause, or the executive officer terminates his employment for good reason, the executive officer is entitled to continueto receive his salary for a period of six or twelve months following the termination of his employment provided that he continues to comply with hisconfidentiality, inventions and non-competition obligations described below. Each executive officer has agreed not to disclose or use, directly or indirectly, any of our confidential information, including trade secrets andinformation concerning our finances, employees, technology, processes, facilities, products, suppliers, customers and markets, except in the performance ofhis duties and responsibilities or as required pursuant to applicable law. Each executive officer has also agreed to disclose in confidence to us all inventions,designs and trade secrets which he may conceive, develop or reduce to practice during his employment and to assign all right, title and interest116Table of Contentsin them to us. Finally, each executive officer has agreed that he will not, directly or indirectly, during and within one year after the termination of hisemployment:•communicate or have any dealings with our customers or suppliers that would be likely to harm the our business relationship with them; •provide services, whether as a director, officer, employee, independent contractor or otherwise, to a competitor or acquire or hold any interestin, whether as a shareholder, partner or otherwise, in a competitor provided that the executive officer may hold up to 5% of the outstandingshares or other securities of a competitor that is listed on a securities exchange or recognized securities market; and •approach solicit, whether by offer of employment or otherwise, the services of any of our employees. Our compensation committee is required to approve all employment agreements entered into by us with any employee whose base salary is equal to orgreater than $150,000.Director Agreements We have entered into director agreements with our independent directors, pursuant to which we make payments in the form of an annual cash retainer,payable quarterly, and quarterly grants of restricted share units to our independent directors for their services. See "—B. Compensation of Directors andExecutive Officers."Indemnification of Directors and Officers Under the CBCA and pursuant to our by-laws, we may indemnify any present or former director or officer or an individual who acts or has acted at ourrequest as a director or officer, or an individual acting in a similar capacity, of another corporation or entity, against all costs, charges and expenses, includingan amount paid to settle an action or satisfy a judgment, reasonably incurred by such individual in respect of any civil, criminal, administrative, investigativeor other proceeding in which the individual is involved because of that association with us or other entity, provided that the director or officer acted honestlyand in good faith with a view to our best interests, or, as the case may be, to the best interests of the other entity for which he or she acted as a director orofficer or in a similar capacity at our request, and, in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, hadreasonable grounds for believing that his or her conduct was lawful. Such indemnification may be made in connection with a derivative action only withcourt approval. A director or officer is entitled to indemnification from us as a matter of right if the court or other competent authority has judged that he orshe has not committed any fault or omitted to do anything that the individual ought to have done and fulfilled the conditions set forth above. We have entered into indemnity agreements with each of our directors agreeing to indemnify them, to the fullest extent permitted by law, against allliability, loss, harm damage cost or expense, reasonably incurred by the director in respect of any threatened, pending, ongoing or completed claim or civil,criminal, administrative, investigative or other action or proceeding made or commenced against him or in which he is or was involved by reason of the factthat he is or was a director of our company. Our directors and officers are covered by directors' and officers' insurance policies.117Table of ContentsD. Employees As of December 31, 2013, 2014 and 2015, we had 7,736, 8,673 and 8,969 full-time employees, respectively. The following table sets forth the number ofour employees categorized by our areas of operations and as a percentage of our workforce as of December 31, 2015. As of December 31, 2015, we had 2,843 employees at our facilities in Suzhou, 2,912 employees at our facilities in Changshu, 973 employees at ourfacilities in Luoyang, 414 employees at our facilities in Yancheng, and 1,827 employees based in our facilities and offices in Canada, Japan, Australia,Singapore, South Korea, Hong Kong, India, the Philippines, Indonesia, Vietnam, Brazil, United Arab Emirates, South Africa, the Americas and the EU (whichincludes Germany, Italy and France). Our employees are not covered by any collective bargaining agreement. We consider our relations with our employeesto be good. From time to time, we also employ or engage part-time employees or independent contractors to support our manufacturing, research anddevelopment and sales and marketing activities. We plan to hire additional employees as we expand.E. Share Ownership The following table sets forth information with respect to the beneficial ownership of our common shares as of March 31, 2016, the latest practicabledate, by:•each of our directors and executive officers; and •each person known to us to own beneficially more than 5% of our common shares. The calculations in the table below are based on the 57,437,734 common shares outstanding, as of March 31, 2016. Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by aperson and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days from March 31, 2016,including through the exercise of any option, warrant or other right or the conversion of any118 As of December 31, 2015 Number of Employees Percentage of Total Manufacturing 7,182 80.1%General and administrative 952 10.6%Research and development 202 2.2%Sales and marketing 633 7.1%Total 8,969 100%Table of Contentsother security. These shares, however, are not included in the computation of the percentage ownership of any other person.119 Shares BeneficiallyOwned(1) Number % Directors and Executive Officers:(2) Shawn (Xiaohua) Qu(3) 13,611,336 23.6%Robert McDermott(4) 74,900 * Lars-Eric Johansson(5) 51,600 * Harry E. Ruda(6) 23,300 * Andrew (Luen Cheung) Wong(7) 880 * Michael G. Potter(8) 123,436 * Guangchun Zhang(9) 20,784 * Yan Zhuang(10) 47,984 * Arthur (Jian) Chien(11) — — Huifeng Chang(12) — — Jianyi Zhang(13) — — All Directors and Executive Officers as a Group 13,954,220 24.1%Principal Shareholders DNB Asset Management AS(14) 3,270,852 5.7%*The person beneficially owns less than 1% of our outstanding shares. (1)Beneficial ownership is determined in accordance with Rule 13d-3 of the General Rules and Regulations under the Exchange Act, andincludes voting or investment power with respect to the securities. (2)The business address of our directors and executive officers is 545 Speedvale Avenue West, Guelph, Ontario, Canada N1K 1E6. (3)Includes 13,469,096 common shares directly held by Dr. Shawn Qu and Hanbing Zhang, the wife of Dr. Shawn Qu, 135,891 commonshares issuable upon the exercise of options held by Dr. Shawn Qu and Ms. Zhang within 60 days from March 31, 2016, 6,349 sharesissuable upon vesting of restricted share units held by Dr. Shawn Qu and Ms. Zhang within 60 days from March 31, 2016. (4)Includes 5,000 common shares directly held by Mr. McDermott and 69,900 common shares issuable upon exercise of options held byMr. McDermott within 60 days from March 31, 2016. (5)Includes 5,000 common shares directly held by Mr. Johansson and 46,600 common shares issuable upon exercise of options held byMr. Johansson within 60 days from March 31, 2016. (6)Includes 23,300 common shares issuable upon exercise of options held by Mr. Ruda within 60 days from March 31, 2016. (7)Includes 880 shares issuable upon vesting of restricted share units held by Mr. Wong within 60 days from March 31, 2016. (8)Includes 58,469 common shares directly held by Mr. Potter, 61,772 common shares issuable upon exercise of options held byMr. Potter within 60 days from March 31, 2016, and 3,195 shares issuable upon vesting of restricted share units held by Mr. Potterwithin 60 days from March 31, 2016. (9)Includes 17,589 common shares directly held by Mr. Zhang and 3,195 common shares issuable upon vesting of restricted shares unitsheld by Mr. Zhang.Table of Contents None of our shareholders have different voting rights from other shareholders as of the date of this annual report on Form 20-F. We are currently notaware of any arrangement that may, at a subsequent date, result in a change of control of our company. ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. Major Shareholders Please refer to "Item 6. Directors, Senior Management and Employees—E. Share Ownership."B. Related Party TransactionsGuarantees and Loans Dr. Shawn Qu, our Chairman, President and Chief Executive Officer, fully guaranteed one-year loan facilities from Chinese commercial banks ofRMB1,866 million, RMB888 million and RMB896 million in 2013, 2014 and 2015, respectively. Amounts drawn down from the facilities as atDecember 31, 2013, 2014 and 2015 were $30.2 million, $145.1 million and $78.2 million, respectively. Dr. Shawn Qu fully guaranteed a two-year RMB450 million ($69.3 million) loan facility from Chinese commercial banks in 2015. Amounts drawn downfrom the facilities as at December 31, 2015 were $63.1 million. Dr. Shawn Qu fully guaranteed a three-year $150 million loan facility from Chinese commercial banks in 2015. No amounts were drawn down from thesefacilities as at December 31, 2015. In the first quarter of 2015, Dr. Shawn Qu lent our company a $35.0 million loan at an interest rate of 4.25%. We fully repaid the loan, including interestsin March of 2015. As of December 31, 2015, we had no outstanding borrowings with Dr. Shawn Qu. In October 2014, CSI Solar Power (China) Inc., our wholly owned subsidiary, guaranteed loan facilities from Chinese banks for GCL-CSI (Suzhou)Photovoltaic Technology Co., Ltd, a company in which we own a 10% interest, which had an aggregate principal amount of RMB37.2 million and were duewithin three years. As of December 31, 2015, the loan facility was RMB 21.0 million ($3.2 million) in total due within two years. Recurrent entered into buyer payment guaranties with a third party supplier in connection with certain solar module supply agreements of Tranquillityand Garland, our 49% owned affiliates, pursuant to which Recurrent unconditionally guarantees to the third party supplier the timely payment in full whendue and other payment obligations of Tranquillity and Garland required under the solar module120(10)Includes 21,308 common shares directly held by Mr. Zhuang, 23,300 common shares issuable upon exercise of options held byMr. Zhuang within 60 days from March 31, 2016, and 3,376 common shares issuable upon vesting of restricted share units held byMr. Zhuang within 60 days from March 31, 2016. (11)No common shares were held or issuable by Mr. Chien within 60 days from March 31, 2016. (12)No common shares were held or issuable by Mr. Chang within 60 days from March 31, 2016. (13)No common shares were held or issuable by Mr. Zhang within 60 days from March 31, 2016. (14)Represents 3,270,852 common shares of our Company held by DNB Asset Management AS, as reported on Schedule 13G filed byDNB Asset Management AS on January 19, 2016. The percentage of beneficial ownership was calculated based on the total number ofour common shares as of March 31, 2016. The principal business address of DNB Asset Management AS is Dronning Aufemias Gate30, Bygg M-12N 0191 Oslo, Norway.Table of Contentssupply agreements. As of December 31, 2015, the payable balances due by Tranquillity and Garland was $98.2 million and nil, respectively.Sales and purchase contracts with affiliates In 2015, we sold solar power products to Gaochuangte in the amount of RMB39.9 million ($6.5 million), sold solar power products to Roserock andGarland in the amount of $28.1 million, provided development services to Tranquillity, Garland, and Roserock in the amount of $69.7 million. In 2015, we incurred costs of RMB175.3 million ($28.2 million) to Gaochuangte for EPC services related to our solar power projects.Employment Agreements See "Item 6. Directors, Senior Management and Employees—C. Board Practices—Employment Agreements."Share Incentive Plan See "Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—Share-based Compensation—ShareIncentive Plan."C. Interests of Experts and Counsel Not applicable. ITEM 8. FINANCIAL INFORMATION A. Consolidated Statements and Other Financial Information We have appended audited consolidated financial statements filed as part of this annual report.Legal and Administrative ProceedingsClass Action Lawsuits In January 2015, the plaintiff in a class action lawsuit filed against us and certain of our executive officers in the Ontario Superior Court of Justiceobtained an order for class certification in respect of certain claims for which he had obtained leave in September 2014 to assert the statutory cause of actionfor misrepresentation under the Ontario Securities Act, for certain negligent misrepresentation claims and for oppression remedy claims advanced under theCBCA. The Court dismissed our application for leave to appeal and the class action has moved to the merits stage. We believe the Ontario action is withoutmerit and we are defending it vigorously.LDK In July 2010, CSI Cells, one of our wholly-owned subsidiaries, filed a request for arbitration against LDK with Shanghai International Economy andTrade Arbitration Commission (formerly known as CIETAC Shanghai Branch) in relation to wafer supply contracts we entered into with LDK in October2007 (the "2007 Supply Contract") and in June 2008 (the "2008 Supply Contracts"). In December 2012, CIETAC Shanghai Branch awardedRMB248.9 million ($38.4 million) in compensation plus RMB2.32 million ($0.4 million) in arbitration expenses to LDK for the damages LDK claimed tohave suffered from the alleged breaches by us of the 2007 Supply Contract and 2008 Supply Contracts between July 2009 and September 2010 (the "2012Arbitral Award").121Table of Contents In February 2013, LDK filed for enforcement of the 2012 Arbitral Award with Jiangsu Suzhou Intermediate People's Court, or the Suzhou IntermediateCourt. In 2013, LDK initiated two separate proceedings against us in Jiangxi Xinyu Intermediate People's Court, or the Xinyu Intermediate Court, claimingthat we had forfeited our rights to the initial deposits under the 2007 Supply Contract and 2008 Supply Contracts because of the alleged breaches under thesecontracts. On October 18, 2013, the Xinyu Intermediate Court stayed these proceedings pending the decision by the Suzhou Intermediate Court as to the2012 Arbitral Award. On September 9, 2015, the Suzhou Intermediate Court ruled in favor of LDK. On October 19, 2015, we reached a settlement agreementwith LDK, or the 2015 Settlement Agreement. Under the 2015 Settlement Agreement, we agreed to pay RMB132.7 million ($20.8 million) to LDK and topurchase 64.3 million pieces of silicon wafers from LDK at market price over a three year period starting in or around December 2015, in exchange for whichLDK (a) would release us from the 2012 Arbitration Award and waive its rights and claims thereunder and (b) would withdraw its complaints from the XinyuIntermediate Court and terminate such proceedings. The Suzhou Intermediate Court reviewed and approved the 2015 Settlement Agreement and terminatedthe enforcement proceeding relating to the 2012 Arbitral Award. We have already paid the required amounts and fulfilled our obligations under the 2015Settlement Agreement. In March 2014, LDK filed an application for arbitration with CIETAC, seeking compensation and enforcement expenses for damages LDK claimed tohave suffered from the alleged breaches under the 2008 Supply Contracts between October 2010 and December 2013. We filed counterclaims against LDK inJuly 2014. On December 22, 2015, CIETAC ruled to reject both LDK's claims and our counterclaims.U.S. Anti-dumping and Countervailing Duty Proceedings On October 9, 2012, the U.S. Department of Commerce, or USDOC, issued final affirmative determinations in the anti-dumping and countervailing dutyinvestigations on crystalline silicon photovoltaic, or CSPV, cells, whether or not incorporated into modules, from China. On November 7, 2012, theU.S. International Trade Commission, or USITC, ruled that imports of CSPV cells had caused material injury to the U.S. CSPV industry. As a result of theserulings, we were required to pay cash deposits on Chinese-origin CSPV cells imported into the U.S., whether alone or incorporated into modules. Theannounced cash deposit rates applicable to us were 13.94% (anti-dumping duty) and 15.24% (countervailing duty). We paid all the cash deposits due underthese determinations. A number of parties challenged the determinations of the USDOC and the USITC in appeals to the U.S. Court of International Trade. OnAugust 7, 2015, the U.S. Court of International Trade sustained the USITC's final determination and on December 11, 2015, the U.S. Court of InternationalTrade sustained the USDOC's final determination. These cash deposit rates were modified on July 14, 2015, when the USDOC published its final results of the 2012-2013 administrative reviews of theanti-dumping and countervailing duty orders on CSPV cells. As a result of these rulings, the cash deposit rates applicable to us were revised to 9.67% (anti-dumping duty) and 20.94% (countervailing duty). The rates at which duties will be assessed and payable for the 2012-2013 period are subject to ongoinglitigation at U.S. Court of International Trade. Decisions on these appeals are not expected until late 2016 or 2017. The rates at which duties will be assessed and payable for the 2013-2014 period and 2014-2015 period are subject to ongoing administrative reviewsthat are likely to conclude in mid-2016 and mid-2017, respectively. Those reviews may result in duty rates that differ from the announced deposit rates.These duties could materially and adversely affect our affiliated U.S. import operations and increase our cost of selling into the U.S. On December 31, 2013, the U.S. unit of SolarWorld AG filed a new trade action with the USDOC and the USITC accusing Chinese producers of certainCSPV cells and modules of dumping their122Table of Contentsproducts into the U.S. and of receiving countervailable subsidies from the Chinese authorities. This trade action also accused Taiwanese producers of certainCSPV cells and modules of dumping their products into the U.S. Excluded from these new actions were those Chinese-origin solar products covered by the2012 rulings detailed in the prior paragraphs. We were identified as one of a number of Chinese producers exporting subject goods to the U.S. market. On December 15, 2014, the USDOC issued final affirmative determinations in these anti-dumping and countervailing duty investigations. OnJanuary 21, 2015, the USITC ruled that imports of these CSPV products had caused material injury to the U.S. CSPV industry. As a result of these rulings, weare required to pay cash deposits on subject CSPV imports from China. Cash deposit rates for our subject Chinese-origin products were announced as being30.06% (anti-dumping duty) and 38.43% (countervailing duty). A number of parties have appealed these USDOC and USITC rulings to the U.S. Court ofInternational Trade. Decisions on these appeals are not expected until 2016 or later. The rates at which duties will be assessed and payable for the 2014-2015 period are subject to ongoing administrative reviews. Those reviews may resultin duty rates that differ from the announced deposit rates. These duties could materially and adversely affect our affiliated U.S. import operations and increaseour cost of selling into the U.S.European Anti-dumping and Anti-Subsidy Investigations On September 6, 2012, following a complaint lodged by EU ProSun, an ad-hoc industry association of EU CSPV module, cell and wafer manufacturers,the European Commission initiated an anti-dumping investigation concerning EU imports of CSPV modules and key components (i.e., cells and wafers)originating in China. On November 8, 2012, following a complaint lodged by the same parties, the European Commission initiated an anti-subsidyinvestigation on these same products. In each investigation, we were identified as one of a number of Chinese exporting producers of these products to theEU market. On December 6, 2013, the EU imposed definitive anti-dumping and countervailing measures on imports of CSPV modules and key components(i.e., cells) originating in or consigned from China. The European Commission accepted our offer for an undertaking agreement, according to which dutieswere not payable on our products sold into the EU, so long as we respected the terms and conditions of the undertaking, including a volume ceiling andminimum import price arrangement, and until the measures expired or the European Commission withdrew the undertaking agreement. On February 28, 2014, we filed separate actions with the General Court of the EU for annulment of the regulation imposing the definitive anti-dumpingmeasures and of the regulation imposing the definitive countervailing measures (case T-162/14 and joined cases T-158/14, T-161/14, and T-163/14). Theseactions for annulment are ongoing. On June 20, 2014, we filed a request for leave to intervene in two separate actions brought by SolarWorld AG and others before the General Court of theEU for annulment of the undertaking agreement between the European Commission and Chinese exporting producers (cases T-141/14 and T-142/14). OnNovember 28, 2014, we were granted leave to intervene. On February 2, 2015, we filed our observations challenging the admissibility of the actions andrebutting claims that the undertaking agreement violates EU law. On June 4, 2015, the European Commission withdrew the acceptance of our undertaking offer. On November 23, 2015, we submitted to the GeneralCourt of the European Union requests for the withdrawal of our intervention in cases T-141/14 and T-142/14. On February 1, 2016, the General Court of theEU declared both actions brought by SolarWorld AG and others to be inadmissible and accepted our request for the withdrawal of our intervention.123Table of Contents On December 5, 2015, the European Commission initiated expiry (sunset) reviews of the anti-dumping and countervailing measures on imports of CSPVmodules and key components (i.e., cells) originating in or consigned from China. The outcome of the expiry reviews can be only the extension of themeasures at their existing level or their termination; the measures cannot be amended. Also on December 5, 2015, the European Commission initiated aninterim (changed circumstances) review limited to the question whether cells should be excluded from the scope of the measures. The anti-dumping andcountervailing measures on imports of CSPV modules and key components (i.e., cells) originating in or consigned from China will, in any event, remain inforce for the duration of the reviews and may subsequently be extended for up to five years. The reviews must be terminated by March 4, 2017. On December 18, 2015, the European Commission confirmed our status as an interested party in the three review proceedings. We have not requested tobe sampled in the expiry reviews and the European Commission does not intend to apply sampling in the interim review.Canadian Anti-dumping and Countervailing Duties Investigation On June 3, 2015, the Canada Border Services Agency, or CBSA, released final determinations of dumping and subsidization which found dumpingcalculated by way of a Ministerial Specification based on a Non Market Economy finding applicable to all cooperative exporters and ascertained a CanadianSolar-specific subsidies rate of RMB0.014 per Watt. On July 3, 2015 the Canadian International Trade Tribunal determined that a Canadian industry was notnegatively affected as a result of imported modules but was threatened with negative impact. As a result of these findings, definitive duties have beenimposed on imports of Chinese Solar Modules into Canada starting on July 3, 2015. We do not believe the imposition of these duties will have a materialnegative effect upon our results of operations because we have significant module manufacturing capacity in Ontario and do not rely on Chinese solarmodules to serve our Canadian business.Dividend Policy We have never declared or paid any dividends on our common shares, nor do we have any present plan to declare or pay any dividends on our commonshares in the foreseeable future. We currently intend to retain our available funds and any future earnings to operate and expand our business. Our board of directors has complete discretion on whether to pay dividends, subject only to the requirements of the CBCA. Even if our board of directorsdecides to pay dividends, the form, frequency and amount will depend upon our future operations, earnings, capital requirements, surplus, general financialcondition, contractual restrictions, and other factors that our board of directors may deem relevant.B. Significant Changes Between January 1, 2016 and March 31, 2016, an additional 4,132 restricted share units granted under the Plan vested. Except as described above, we have not experienced any significant changes since the date of our audited consolidated financial statements included inthis annual report.124Table of Contents ITEM 9. THE OFFER AND LISTING A. Offering and Listing Details Our common shares have been listed on the Nasdaq under the symbol "CSIQ" since November 9, 2006. The following table sets forth the high and lowtrading prices for our common shares on the Nasdaq for the periods indicated.B. Plan of Distribution Not applicable.C. Markets Our common shares have been listed on the Nasdaq since November 9, 2006 under the symbol "CSIQ."D. Selling Shareholders Not applicable.E. Dilution Not applicable.125 Trading Price High Low $ $ Annual Highs and Lows 2011 16.79 2.07 2012 4.74 1.95 2013 33.25 3.12 2014 44.50 20.64 2015 40.08 14.16 Quarterly Highs and Lows First Quarter 2014 44.50 29.52 Second Quarter 2014 34.38 21.38 Third Quarter 2014 41.12 23.20 Fourth Quarter 2014 35.79 20.64 First Quarter 2015 36.40 18.68 Second Quarter 2015 40.08 27.60 Third Quarter 2015 29.30 14.16 Fourth Quarter 2015 29.83 16.05 First Quarter 2016 28.80 15.62 Monthly Highs and Lows 2015 October 22.75 16.05 November 24.88 20.09 December 29.83 22.54 2016 January 28.80 16.81 February 23.15 15.62 March 23.56 17.95 April (through April 19) 19.32 17.02 Table of ContentsF. Expenses of the Issue Not applicable. ITEM 10. ADDITIONAL INFORMATION A. Share Capital Not applicable.B. Memorandum and Articles of Association We incorporate by reference into this annual report the description of our Amended Articles of Continuance, as amended, contained in our F-1registration statement (File No. 333-138144), as amended, initially filed with the SEC on October 23, 2006.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 onthe Company" or elsewhere in this annual report on Form 20-F.D. Exchange Controls See "Item 4. Information on the Company—B. Business Overview—Government Regulations—Foreign Currency Exchange" and "Item 4. Information onthe Company—B. Business Overview—Government Regulations—Dividend Distribution."E. TaxationPrincipal Canadian Federal Tax ConsiderationsGeneral The following is a summary of the principal Canadian federal income tax implications generally applicable to a U.S. Holder (defined below), who holdsor acquires our common shares, or the Common Shares, and who, at all relevant times, for purposes of the Income Tax Act (Canada), or the Canadian Tax Act,(i) is the beneficial owner of such Common Shares; (ii) has not been, is not and will not be resident (or deemed to be resident) in Canada at any time whilesuch U.S. Holder has held or holds the Common Shares; (iii) holds the Common Shares as capital property; (iv) deals at arm's length with and is not affiliatedwith us; (v) does not use or hold, and is not deemed to use or hold, the Common Shares in the course of carrying on a business in Canada, (vi) is not part of atransaction or event or series of transactions or events that includes the acquisition or holding of Common Shares so as to cause the foreign affiliate dumpingrules in section 212.3 of the Canadian Tax Act to apply; (vii) is not a "specified shareholder" of us as defined subsection 18(5) of the Canadian Tax Act;(viii) is not a financial institution, specified financial institution partnership or trust as defined in the Canadian Tax Act; (ix) is a resident of the United Statesfor purposes of the Canada—United States Income Tax Convention (1980), or the Convention, and is fully entitled to the benefits of the Convention, or aU.S. Holder; and (x) has not, does not and will not have a fixed base or permanent establishment in Canada within the meaning of the Convention at any timewhen such U.S. Holder has held or holds the Common Shares. Special rules that are not addressed in this summary may apply to a U.S. Holder that is aninsurer that carries on, or is deemed to carry on, an insurance business in Canada and elsewhere or that is an authorized foreign bank as defined in theCanadian Tax Act and such U.S. Holders should consult their own tax advisers. This summary assumes that we are a resident of Canada for the purposes of the Canadian Tax Act. Should it be determined that we are not a resident ofCanada for the purposes of the Canadian Tax Act by virtue of being resident in another country (such as the PRC) by virtue of the application of an126Table of Contentsincome tax convention between Canada and that other country, the Canadian income tax consequences to a U.S. Holder will differ from those describedherein and U.S. Holders should consult their own tax advisors. This summary is based on the current provisions of the Canadian Tax Act, and the regulations thereunder, the Convention, and our counsel'sunderstanding of the published administrative practices and policies of the Canada Revenue Agency, all in effect as of the date of this annual report onForm 20-F. This summary takes into account all specific proposals to amend the Canadian Tax Act or the regulations thereunder publicly announced by or onbehalf of the Minister of Finance (Canada) prior to the date of this annual report on Form 20-F. No assurances can be given that such proposed amendmentswill be enacted in the form proposed, or at all. This is not an exhaustive summary of all potential Canadian federal income tax consequences to a U.S. Holderand this summary does not take into account or anticipate any other changes in law or administrative practices, whether by judicial, governmental orlegislative action or decision, nor does it take into account provincial, territorial or foreign tax legislation or considerations, which may differ from theCanadian federal income tax considerations described herein. The Canadian federal income tax consequences of purchasing, owning and disposing of common shares will depend on each U.S. Holder's particularsituation. This summary is not intended to be a complete analysis of or description of all potential Canadian federal income tax consequences, and shouldnot be construed to be, legal, business or tax advice directed at any particular U.S. Holder or prospective purchaser of common shares. Accordingly, U.S.Holders or prospective purchasers of of common shares should consult their own tax advisors for advice with respect to the Canadian federal income taxconsequences of an investment in common shares based on their own particular circumstances.Dividends Amounts paid or credited, or deemed under the Canadian Tax Act to be paid or credited, on account or in lieu of payment of, or in satisfaction of,dividends to a U.S. Holder that has provided the requisite documentation regarding its entitlement to benefits under the Convention will be subject toCanadian non-resident withholding tax at the reduced rate of 15% under the Convention. This rate is further reduced to 5% in the case of a U.S. Holder that isa company for purposes of the Convention that owns at least 10% of our voting shares at the time the dividend is paid or deemed to be paid.Disposition of Our Common Shares A U.S. Holder will not be subject to income tax under the Canadian Tax Act in respect of any capital gain realized on a disposition or deemeddisposition of its Common Shares unless, at the time of disposition, the Common Shares constitute "taxable Canadian property" of the U.S. Holder for thepurposes of the Canadian Tax Act and the U.S. Holder is not otherwise entitled to an exemption under the Convention. Generally, a Common Share owned by a U.S. Holder will not be taxable Canadian property of the U.S. Holder at a particular time provided that, at thattime, the common shares of our company are listed on a designated stock exchange (which currently includes the Nasdaq), unless at any time in the previous60 month period:•the U.S. Holder and persons with whom the U.S. Holder does not deal at arm's length alone or in any combination has owned 25% or more ofthe shares of any class or series of shares in the capital of our company, and •more than 50% of the fair market value of the Common Shares is derived directly or indirectly from one or any combination of real orimmovable property situated in Canada, Canadian resource properties, timber resource properties, and options in respect of, or interest in orrights in any such properties, whether or not such property exists; or127Table of Contents•the Common Shares are otherwise deemed under the Canadian Tax Act to be taxable Canadian property. U.S. Holders for whom the Common Shares are, or may be, taxable Canadian property should consult their own tax advisors.Canada—United States Income Tax Convention The Fifth Protocol to the Convention which came into force on December 15, 2008 includes significant amendments to the limitation on benefitsprovision in the Convention. U.S. Holders are urged to consult their own tax advisors to determine their entitlement to benefits under the Convention.United States Federal Income Taxation The following discussion describes the material United States federal income tax consequences to a United States Holder (as defined below), undercurrent law, of an investment in our common shares. This discussion is based on the federal income tax laws of the United States as of the date of this annualreport on Form 20-F, including the United States Internal Revenue Code of 1986, as amended, or the Code, existing and proposed Treasury Regulationspromulgated thereunder, judicial authority, published administrative positions of the United States Internal Revenue Service, or IRS, and other applicableauthorities, all as of the date of this annual report on Form 20-F. All of the foregoing authorities are subject to change, which change could applyretroactively and could significantly affect the tax consequences described below. We have not sought any ruling from the IRS with respect to the statementsmade and the conclusions reached in the following discussion and there can be no assurance that the IRS or a court will agree with our statements andconclusions. This discussion applies only to a United States Holder (as defined below) that holds common shares as capital assets for United States federal income taxpurposes (generally, property held for investment). The discussion neither addresses the tax consequences to any particular investor nor describes all of thetax consequences applicable to persons in special tax situations such as:•banks; •certain other financial institutions; •insurance companies; •regulated investment companies; •real estate investment trusts; •brokers or dealers in stocks and securities, or currencies; •persons who use or are required to use a mark-to-market method of accounting; •certain former citizens or residents of the United States subject to Section 877 of the Code; •entities subject to the United States anti-inversion rules; •tax-exempt organizations and entities; •persons subject to the alternative minimum tax provisions of the Code; •persons whose functional currency is other than the United States dollar; •persons holding common shares as part of a straddle, hedging, conversion or integrated transaction; •persons that actually or constructively own 10% or more of the total combined voting power of all classes of our voting stock;128Table of Contents•persons who acquired common shares pursuant to the exercise of an employee stock option or otherwise as compensation; •partnerships or other pass-through entities, or persons holding common shares through such entities. If a partnership (including an entity or arrangement treated as a partnership for United States federal income tax purposes) holds the common shares, thetax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. A partnership or partnerin a partnership holding common shares should consult its own tax advisors regarding the tax consequences of investing in and holding the common shares. In addition, the discussion below does not describe any tax consequences arising in respect of the "Foreign Account Compliance Act," or FACTA,regime. THE FOLLOWING DISCUSSION IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR CAREFUL TAXPLANNING AND ADVICE. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THEUNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS, AS WELL AS ANY TAX CONSEQUENCES ARISINGUNDER THE FEDERAL ESTATE OR GIFT TAX LAWS OR THE LAWS OF ANY STATE, LOCAL OR NON-UNITED STATES TAXINGJURISDICTION OR UNDER ANY APPLICABLE TAX TREATY. For purposes of the discussion below, a "United States Holder" is a beneficial owner of the common shares that is, for United States federal income taxpurposes:•an individual who is a citizen or resident of the United States; •a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the lawsof the United States, any state thereof or the District of Columbia; •an estate, the income of which is subject to United States federal income taxation regardless of its source; or •a trust, if (i) a court within the United States is able to exercise primary jurisdiction over its administration and one or more United Statespersons have the authority to control all of its substantial decisions or (ii) in the case of a trust that was treated as a domestic trust under the lawin effect before 1997, a valid election is in place under applicable Treasury Regulations to treat such trust as a domestic trust.Dividends and Other Distributions on the Common Shares Subject to the passive foreign investment company rules discussed below, the gross amount of any distribution that we make to you with respect to thecommon shares (including any amounts withheld to reflect Canadian or PRC withholding taxes) will be taxable as a dividend, to the extent paid out of ourcurrent or accumulated earnings and profits, as determined under United States federal income tax principles. Such income (including any withheld taxes)will be includable in your gross income on the day actually or constructively received by you. Because we do not intend to determine our earnings andprofits on the basis of United States federal income tax principles, any distribution paid generally will be reported as a "dividend" for United States federalincome tax purposes. Such dividends will not be eligible for the dividends-received deduction allowed to qualifying corporations under the Code. Dividends received by a non-corporate United States Holder may qualify for the lower rates of tax applicable to "qualified dividend income," if thedividends are paid by a "qualified foreign corporation" and other conditions discussed below are met. A non-United States corporation is treated as aqualified foreign corporation (a) with respect to dividends paid by that corporation on shares that are readily tradable on an established securities market inthe United States or (b) if such non-United States129Table of Contentscorporation is eligible for the benefits of a qualifying income tax treaty with the United States that includes an exchange of information program. Under apublished IRS Notice, common shares are considered to be readily tradable on an established securities market in the United States if they are listed on theNasdaq Global Market, as our common shares are. In addition, we may be eligible for the benefits of the income tax treaty between the United States andCanada, or, if we are treated as a PRC resident enterprise under the PRC tax law (see "—People's Republic of China Taxation") then we may be eligible for thebenefits of the income tax treaty between the United States and the PRC, and if we are eligible for the benefits of such tax treaty, then dividends that we payon our common shares would, subject to applicable limitations, be eligible for the reduced rates of taxation. However, we will not be treated as a qualifiedforeign corporation if we are a passive foreign investment company in the taxable year in which the dividend is paid or the preceding taxable year. Even if dividends would be treated as paid by a qualified foreign corporation, a non-corporate United States Holder will not be eligible for reduced ratesof taxation if it does not hold our common shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date or if theUnited States Holder elects to treat the dividend income as "investment income" pursuant to Section 163(d)(4) of the Code. In addition, the rate reductionwill not apply to dividends of a qualified foreign corporation if the non-corporate United States Holder receiving the dividend is obligated to make relatedpayments with respect to positions in substantially similar or related property. You should consult your own tax advisors regarding the availability of the lower tax rates applicable to qualified dividend income for any dividendsthat we pay with respect to the common shares, as well as the effect of any change in applicable law after the date of this annual report on Form 20-F. Any Canadian or PRC withholding taxes imposed on dividends paid to you with respect to the common shares generally will be treated as foreign taxeseligible for credit against your United States federal income tax liability, subject to the various limitations and disallowance rules that apply to foreign taxcredits generally. For purposes of calculating the foreign tax credit, dividends paid to you with respect to the common shares will be treated as income fromsources outside the United States and generally will constitute passive category income. The rules relating to the determination of the foreign tax credit arecomplex, and you should consult your tax advisors regarding the availability of a foreign tax credit in your particular circumstances. The amount of any dividend paid in currency other than the United States dollar will be the dividend's United States dollar value calculated by referenceto the exchange rate in effect on the date of receipt, regardless of whether the payment is in fact converted into United States dollars. A United States Holdermay have foreign currency gain or loss, which will be ordinary gain or loss, if any dividend is converted into United States dollars after the date of receipt.Disposition of Common Shares You will recognize gain or loss on a sale or exchange of the common shares in an amount equal to the difference between the amount realized on the saleor exchange and your tax basis in the common shares. Subject to the discussion under "—Passive Foreign Investment Company" below, such gain or lossgenerally will be capital gain or loss. Capital gains of a non-corporate United States Holder, including an individual that has held the common share for morethan one year, currently are eligible for reduced tax rates. The deductibility of capital losses is subject to limitations. Any gain or loss that you recognize on a disposition of the common shares generally will be treated as United States-source income or loss for foreign taxcredit limitation purposes. However, if we are treated as a PRC resident enterprise for PRC tax purposes and PRC tax is imposed on gain from the dispositionof the common shares (see "—People's Republic of China Taxation") then a United States Holder that is eligible for the benefits of the income tax treatybetween the United States and the PRC may elect to treat the gain as PRC-source income for foreign tax credit purposes.130Table of ContentsIf such an election is made, the gain so treated will be treated as a separate class or "basket" of income for foreign tax credit purposes. You should consultyour tax advisors regarding the proper treatment of gain or loss, as well as the availability of a foreign tax credit, in your particular circumstances. A United States Holder that receives currency other than the United States dollar upon the sale or other disposition of common shares will realize anamount equal to the United States dollar value of the foreign currency on the date of such sale or other disposition or, if the common shares are traded on anestablished securities market, in the case of cash basis and electing accrual basis taxpayers, the settlement date. If a United States Holder is not able to treatthe settlement date as the realization date, the United States Holder will recognize currency gain or loss if the United States dollar value of the currencyreceived on the settlement date differs from the amount realized. A United States Holder will have a tax basis in the currency received equal to the UnitedStates dollar amount at the spot rate on the settlement date. Generally, any gain or loss realized by a United States Holder on a subsequent conversion ordisposition of such currency will be United States source ordinary income or loss.Passive Foreign Investment Company Based on the current 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 United States federal income purposes for our taxable year ended December 31, 2015. The structuring of the Yieldco IPO is not complete and ourPFIC status for 2016 or any future taxable year may depend, in part, on the manner in which we operate our current and future solar power projects assets,Therefore, we currently cannot express a view as to whether we will be a PFIC for the current taxable year ending December 31, 2016 or any future taxableyear, even though we will use reasonable efforts to structure the Yieldco IPO and operate our current and future solar power projects to mitigate the risk thatwe will be a PFIC for the current taxable year ending December 31, 2016. The determination of PFIC status is based on an annual determination that cannotbe made until the close of a taxable year, involves extensive factual investigation, including ascertaining the fair market value of all of our assets on aquarterly basis and the character of each item of income that we earn, and is subject to uncertainty in several respects. In particular, the application of thePFIC rules to certain of our business lines is complex and unclear, and we cannot guarantee that the United States Internal Revenue Service, or IRS, will agreewith any positions that we ultimately take. Accordingly, we cannot assure you that we will not be treated as a PFIC for any taxable year or that the IRS willnot take a contrary position. A non-United States corporation such as ourselves will be treated as a PFIC for United States federal income tax purposes for any taxable year if,applying applicable look-through rules, either:•at least 75% of its gross income for such year is passive income; or •at least 50% of the value of its assets (determined based on a quarterly average) during such year is attributable to assets that produce or areheld for the production of passive income. We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which weown, directly or indirectly, more than 25% by value of the stock. The determination of whether we will be a PFIC for any taxable year also may depend in part upon the value of our goodwill and other unbookedintangibles not reflected on our balance sheet (which may be determined based upon the market value of the common shares from time to time, which may bevolatile). Among other matters, if our market capitalization is less than anticipated or subsequently declines, we may become a PFIC for the current or futuretaxable years if our liquid assets and cash (which are for this purpose considered assets that produce passive income) then represent a greater percentage ofour overall assets. Further, while we believe our classification methodology and valuation approach (including, if relevant, any approach taken with respectto our131Table of Contentsmarket capitalization) is reasonable, it is possible that the IRS may challenge our classification or valuation of our goodwill and other unbooked intangibles. If we are a PFIC for any taxable year (which we are currently unable to determine) during which you hold common shares, we will continue to be treatedas a PFIC with respect to you for all succeeding years during which you hold common shares, unless we were to cease to be a PFIC and you make a "deemedsale" election with respect to the common shares. If such election is made, you will be deemed to have sold the common shares you hold at their fair marketvalue and any gain from such deemed sale would be subject to the rules described in the following two paragraphs. After the deemed sale election, so long aswe do not become a PFIC in a subsequent taxable year, your common shares with respect to which such election was made will not be treated as shares in aPFIC and, as a result, you will not be subject to the rules described below with respect to any "excess distribution" you receive from us or any gain from anactual sale or other disposition of the common shares. You are strongly urged to consult your tax advisors as to the possibility and consequences of making adeemed sale election if we are and then cease to be a PFIC and such an election becomes available to you. If we are a PFIC for any taxable year (which we are currently unable to determine) during which you hold common shares, then, unless you make a "mark-to-market" election (as discussed below), you generally will be subject to special and adverse tax rules with respect to any "excess distribution" that youreceive from us and any gain that you recognize from a sale or other disposition, including a pledge, of the common shares. For this purpose, distributionsthat you receive in a taxable year that are greater than 125% of the average annual distributions that you received during the shorter of the three precedingtaxable years or your holding period for the common shares will be treated as an excess distribution. Under these rules:•the excess distribution or recognized gain will be allocated ratably over your holding period for the common shares; •the amount of the excess distribution or recognized gain allocated to the taxable year of distribution or gain, and to any taxable years in yourholding period prior to the first taxable year in which we were treated as a PFIC, will be treated as ordinary income; and •the amount of the excess distribution or recognized gain allocated to each other taxable year will be subject to the highest tax rate in effect forindividuals or corporations, as applicable, for each such year and the resulting tax will be subject to the interest charge generally applicable tounderpayments of tax. If we are a PFIC for any taxable year (which we are currently unable to determine) during which you hold common shares and any of our non-UnitedStates subsidiaries or other corporate entities in which we directly or indirectly own equity interests is also a PFIC, you would be treated as owning aproportionate amount (by value) of the shares of each such non-United States entity classified as a PFIC (each such entity, a lower-tier PFIC) for purposes ofthe application of these rules. You should consult your own tax advisor regarding the application of the PFIC rules to any of our lower tier PFICs. If we are a PFIC for any taxable year (which we are currently unable to determine) during which you hold common shares, then in lieu of being subject tothe tax and interest-charge rules discussed above, you may make an election to include gain on the common shares as ordinary income under a mark-to-market method, provided that the common shares constitute "marketable stock." Marketable stock is stock that is regularly traded on a qualified exchange orother market, as defined in applicable Treasury regulations. Our common shares are listed on the Nasdaq Global Market, which is a qualified exchange orother market for these purposes. Consequently, as long as the common shares are regularly traded, and you are a holder of common shares, we expect that themark-to-market election would be available to you, but no assurances are given in this regard.132Table of Contents Because a mark-to-market election cannot be made for any lower-tier PFICs that we may own, if we were a PFIC for any taxable year, a United StatesHolder that makes the mark-to-market election may continue to be subject to the tax and interest charges under the general PFIC rules with respect to suchUnited States Holder's indirect interest in any investments held by us that are treated as an equity interest in a PFIC for United States federal income taxpurposes. In certain circumstances, a shareholder in a PFIC may avoid the adverse tax and interest-charge regime described above by making a "qualified electingfund" election to include in income its share of the corporation's income on a current basis. However, you may make a qualified electing fund election withrespect to your common shares only if we agree to furnish you annually with a PFIC annual information statement as specified in the applicable Treasuryregulations. We currently do not intend to prepare or provide the information that would enable you to make a qualified electing fund election. A United States Holder that holds the common shares in any year in which we are classified as a PFIC will be required to file an annual report containingsuch information as the United States Treasury Department may require. You should consult your own tax advisor regarding the application of the PFIC rulesto your ownership and disposition of the common shares and the availability, application and consequences of the elections discussed above.Information Reporting and Backup Withholding Information reporting to the IRS and backup withholding generally will apply to dividends in respect of our common shares, and the proceeds from thesale or exchange of our common shares, that are paid to you within the United States (and in certain cases, outside the United States), unless you furnish acorrect taxpayer identification number and make any other required certification, generally on IRS Form W-9 or you otherwise establish an exemption frominformation reporting and backup withholding. Backup withholding is not an additional tax. Amounts withheld as backup withholding generally areallowed as a credit against your United States federal income tax liability, and you may be entitled to obtain a refund of any excess amounts withheld underthe backup withholding rules if you file an appropriate claim for refund with the IRS and furnish any required information in a timely manner. United States Holders should consult their tax advisors regarding the application of the information reporting and backup withholding rules.Information with Respect to Foreign Financial Assets United States Holders who are individuals generally will be required to report our name, address and such information relating to an interest in thecommon shares as is necessary to identify the class or issue of which your common shares are a part. These requirements are subject to exceptions, includingan exception for common shares held in accounts maintained by certain financial institutions and an exception applicable if the aggregate value of all"specified foreign financial assets" (as defined in the Code) does not exceed $50,000. United States Holders should consult their tax advisors regarding the application of these information reporting rules.Medicare Tax Certain United States Holders that are individuals, estates or trusts are required to pay an additional 3.8% tax on, among other things, dividends andgains from the sale or other disposition of capital assets for taxable years beginning after December 31, 2012. United States Holders that are individuals,estates or trusts should consult their tax advisors regarding the effect, if any, of this tax provision on their ownership and disposition of common shares.133Table of ContentsPeople's Republic of China Taxation Under the EIT Law, which took effect as of January 1, 2008, enterprises established under the laws of non-PRC jurisdictions but whose "de factomanagement body" is located in China are considered "resident enterprises" for PRC tax purposes. Under the implementation regulations issued by the StateCouncil relating to the EIT Law, "de facto management bodies" are defined as the bodies that have material and overall management and control over thebusiness, personnel, accounts and properties of an enterprise. The Circular on Identification of China-controlled Overseas-registered Enterprises as ResidentEnterprises on the Basis of Actual Management Organization, or Circular 82, further provides certain specific criteria for determining whether the "de factomanagement body" of a PRC-controlled offshore incorporated enterprise is located in the PRC. The criteria include whether (a) the premises where the seniormanagement and the senior management bodies responsible for the routine production and business management of the enterprise perform their functions aremainly located within the PRC, (b) decisions relating to the enterprise's financial and human resource matters are made or subject to approval byorganizations or personnel in the PRC, (c) the enterprise's primary assets, accounting books and records, company seals, and board and shareholders' meetingminutes are located or maintained in the PRC and (d) 50% or more of voting board members or senior executives of the enterprise habitually reside in thePRC. Although the Circular 82 only applies to offshore enterprises controlled by enterprises or enterprise group located within the PRC, the determiningcriteria set forth in the Circular 82 may reflect the tax authorities' general position on how the "de facto management body" test may be applied indetermining the tax resident status of offshore enterprises. As the tax resident status of an enterprise is subject to the determination by the PRC tax authorities,uncertainties remain with respect to the interpretation of the term "de facto management body" as applicable to us. Most of our management are currentlybased in China, and may remain in China in the future. If we are treated as a "resident enterprise" for PRC tax purposes, we will be subject to PRC income taxon our worldwide income at a uniform tax rate of 25%, but dividends received by us from our PRC subsidiaries may be exempt from the income tax. Under the EIT Law and its implementation regulations, dividends paid to a non-PRC investor are generally subject to a 10% PRC withholding tax, ifsuch dividends are derived from sources within China and the non-PRC investor is considered to be a non-resident enterprise without any establishment orplace within China or if the dividends paid have no connection with the non-PRC investor's establishment or place within China, unless such tax iseliminated or reduced under an applicable tax treaty. Similarly, any gain realized on the transfer of shares or convertible notes by such investor is also subjectto a 10% PRC withholding tax if such gain is regarded as income derived from sources within China, unless such tax is eliminated or reduced under anapplicable tax treaty. The implementation regulations of the EIT Law provide that (a) if the enterprise that distributes dividends is domiciled in the PRC, or (b) if gains arerealized from transferring equity interests of enterprises domiciled in the PRC, then such dividends or capital gains shall be treated as China-sourced income.Currently there are no detailed rules applicable to us that govern the procedures and specific criteria for determining the meaning of being "domiciled" in thePRC. As such, it is not clear how the concept of domicile will be interpreted under the EIT Law. Domicile may be interpreted as the jurisdiction where theenterprise is incorporated or where the enterprise is a tax resident. As a result, if we are considered a PRC "resident enterprise" for tax purpose, it is possible that the dividends we pay with respect to our common shares tonon-PRC enterprises, or the gain non-PRC enterprises may realize from the transfer of our common shares or our convertible notes, would be treated asincome derived from sources within China and be subject to the PRC withholding tax at a rate of 10% or a lower applicable treaty rate for enterprises. Under the IIT Law, individual income tax is payable on PRC-source dividend income. The implementation regulations of the IIT Law provide thatincome from dividends derived from companies, enterprises and other economic organizations in China as well as income realized from134Table of Contentstransfer of properties in China is considered derived from sources inside China, regardless of whether the place of payment was inside China. Therefore, if weare treated as a company in China for tax purposes, any dividends we pay to our non-PRC individual shareholders as well as any gains realized by our non-PRC individual shareholders or our non-PRC individual note holders from the transfer of our common shares or our convertible notes may be regarded asChina-sourced income and, consequently, be subject to PRC withholding tax at a rate of up to 20% or a lower applicable treaty rate for individuals.F. Dividends and Paying Agents Not applicable.G. Statement by Experts Not applicable.H. Documents on Display We previously filed with the SEC our registration statements on Form F-1 (File Number 333-138144), initially filed on October 23, 2006, registrationstatements on Form F-3 (File Number 333-189895), initially filed on July 11, 2013, and registration statements on Form F-3 (File Number 333-208828),initially filed on January 4, 2016. We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required to filereports and other information with the SEC. Specifically, we are required to file annually a Form 20-F within four months after the end of each fiscal year forfiscal years ending on or after December 15, 2011. Copies of reports and other information, when so filed, may be inspected without charge and may beobtained at prescribed rates at the public reference facilities maintained by the Securities and Exchange Commission at 100 F Street, N.E., Room 1580,Washington, D.C. 20549. 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 www.sec.gov that contains reports, proxy and information statements, and other information regardingregistrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules under the ExchangeAct prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from thereporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. Our financial statements have been prepared in accordance with U.S. GAAP. We will furnish our shareholders with annual reports, which will include a review of operations and annual audited consolidated financial statementsprepared in conformity with U.S. GAAP.I. Subsidiary Information For a listing of our subsidiaries, see "Item 4. Information on the Company—C. Organizational Structure." ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Exchange Risk The majority of our sales in 2015 are denominated in U.S. dollars, Canadian dollars and Japanese yen, with the remainder in other currencies such asRenminbi, Euros and Australian dollars, while a substantial portion of our costs and expenses is denominated in Renminbi and U.S. dollars. From time totime, we enter into loan arrangements with Chinese commercial banks that are denominated primarily in Renminbi or U.S. dollars. Most of our cash and cashequivalents and restricted cash are135Table of Contentsdenominated in Renminbi. Therefore, fluctuations in currency exchange rates could have a significant impact on our financial stability. Fluctuations inexchange rates, particularly between the U.S. dollar, Euro, Renminbi, Canadian dollar and Japanese yen, may result in fluctuations in foreign exchange gainsor losses. As of December 31, 2015, we held $426.8 million in accounts receivable, of which $63.4 million were denominated in Japanese yen. Had weconverted all Japanese yen denominated accounts receivable into Japanese yen at Japanese yen 120.27 for $1.00, the noon buying rate as of December 31,2015, our Japanese yen denominated accounts receivable would have been Japanese yen 7,635.8 million as of December 31, 2015. Assuming the Japaneseyen depreciates by a rate of 10.0% to an exchange rate of Japanese yen 132.297 for $1.00, we would record a loss in fair value of accounts receivable of$5.7 million. Since 2008, we have hedged part of our foreign currency exposures against the U.S. dollar using foreign currency forward or option contracts in order tolimit our exposure to fluctuations in foreign exchange rates. We incurred a gain on change in foreign currency derivatives of $10.8 million in 2013, a gain onchange in foreign currency derivatives of $19.7 million in 2014 and a loss on change in foreign currency derivatives of $3.7 million in 2015. The gains orlosses on change in foreign currency derivatives are related to our hedging program. We incurred a foreign exchange loss of $51.5 million and $32.2 millionin 2013 and 2014, respectively, and we recorded a foreign exchange gain of $22.9 million in 2015. We cannot predict the impact of future exchange ratefluctuations on our results of operations and may incur net foreign currency losses in the future. As of December 31, 2015, we had forward contracts of the U.S. dollar against the Renminbi with notional amount of $86.0 million outstanding.Assuming a 10.0% appreciation of the U.S. dollar against the Renminbi, the mark-to-market gain of our outstanding forward contracts of the U.S. dollaragainst the Renminbi would have decreased by approximately $8.6 million. Our financial statements are expressed in U.S. dollars, while some of our subsidiaries use different functional currencies, such as the Renminbi, Euro,Canadian dollar and Japanese yen. The value of your investment in our common shares will be affected by the foreign exchange rate between the U.S. dollarand other currencies used by our subsidiaries. To the extent we hold assets denominated in currencies other than U.S. dollars, any appreciation of suchcurrencies against the U.S. dollars will likely result in an exchange gain while any depreciation will likely result in an exchange loss when we convert thevalue of these assets into U.S. dollar equivalent amounts. On the other hand, to the extent we have liabilities denominated in currencies other than U.S.dollars, any appreciation of such currencies against the U.S. dollar will likely result in an exchange loss while any depreciation will likely result in anexchange gain when we convert the value of these liabilities into U.S. dollar equivalent amounts. These and other effects on our financial conditionsresulting from the unfavorable changes in foreign currency exchange rates could have a material adverse effect on the market price of our common shares, thedividends we may pay in the future, and your investment.Interest Rate Risk Our exposure to interest rate risk primarily relates to interest expense under our short-term and long-term bank borrowings, as well as interest incomegenerated by excess cash invested in demand deposits and liquid investments with original maturities of three months or less. Such interest-earninginstruments carry a degree of interest rate risk. We used derivative financial instruments to manage some of our interest risk exposure. We have not beenexposed nor do we anticipate being exposed to material risks due to changes in interest rates. However, our future interest expense may increase due tochanges in market interest rates. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not applicable.136Table of Contents PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES None of these events occurred in any of the years ended December 31, 2013, 2014 and 2015. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS The following "use of proceeds" information relates to the registration statement on Form F-3 (File number: 333-208828) for our registration of commonshares, preferred shares and warrants for a maximum aggregate offering price of $100 million. This registration statement was effective immediately onJanuary 4, 2016. Between January 4, 2016 and January 6, 2016, we sold 500,000 of our common shares at an average price of $27.73 per share through an at-the-market offering, raising approximately $13.9 million in gross proceeds. We suspended the at-the-market offering on January 20, 2016 and as of the dateof this filing the at-the-market offering remains suspended. The common shares were offered through Credit Suisse as sales agent. We received net proceeds ofapproximately $13.6 million from the offering after deducting the sales agent's commissions and offering expenses. As of March 31, 2016, all of the net offering proceeds from the sale of our common shares had been applied for the uses outlined in the registrationstatement and prospectuses. ITEM 15. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Our management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of ourdisclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, as required byRule 13a-15(b) under the Exchange Act. Based upon that evaluation, our management has concluded that, as of the end of the period covered by this annualreport, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports that we file orsubmit under the Exchange Act was recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and that theinformation required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to ourmanagement, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures.Management's 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) under the Exchange Act, for our company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of consolidated financial statements in accordance with generally accepted accounting principles andincludes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactionsand dispositions of a company's assets; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidatedfinancial statements in accordance with generally accepted accounting principles, and that a company's receipts and expenditures are being made only inaccordance with authorizations of a company's management and directors; and (c) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use, or disposition of a company's assets that could have a material effect on the consolidated financial statements.137Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluationof effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate. As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as promulgated by the Securities and Exchange Commission, ourmanagement assessed the effectiveness of our internal control over financial reporting as of December 31, 2015 using criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, managementconcluded that our internal control over financial reporting was effective as of December 31, 2015. Management excluded from its assessment on the internal control over financial reporting of Recurrent, which we acquired in March 2015 andrepresented 31% of our net assets, 22% of our total assets, 8% of our revenues and 3% of our net income as of and for the year ended December 31, 2015,respectively. Deloitte Touche Tohmatsu Certified Public Accountants LLP, an independent registered public accounting firm, who audited our consolidated financialstatements for the year ended December 31, 2015, has also audited the effectiveness of internal control over financial reporting as of December 31, 2015.Report of the Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Canadian Solar Inc. We have audited the internal control over financial reporting of Canadian Solar Inc. and subsidiaries (the "Company") as of December 31, 2015, based onthe criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over FinancialReporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. As described inManagement's Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting atRecurrent Energy, LLC ("Recurrent"), which was acquired on March 30, 2015 and whose financial statements constitute 31% and 22% of net and total assets,respectively, 8% of revenues and 3% of net income of the consolidated financial statements as of and for the year ended December 31, 2015. Accordingly,our audit did not include the internal control over financial reporting at Recurrent. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures aswe considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive andprincipal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles.138Table of ContentsA company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonabledetail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts andexpenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have amaterial effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management overrideof controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of theeffectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because ofchanges 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, 2015, based onthe criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the TreadwayCommission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financialstatements and financial statement schedule as of and for the year ended December 31, 2015 of the Company and our report dated April 20, 2016 expressedan unqualified opinion on those financial statements and financial statement schedule./s/ Deloitte Touche Tohmatsu Certified Public Accountants LLPShanghai, ChinaApril 20, 2016Changes in Internal Controls Management has evaluated, with the participation of our chief executive officer and chief financial officer, whether any changes in our internal controlover financial reporting that occurred during our last fiscal year have materially affected, or are reasonably likely to materially affect, our internal controlover financial reporting. Based on the evaluation we conducted, management has concluded that no such changes occurred during the period covered by thisannual report on Form 20-F. ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT Our board of directors has determined that Lars-Eric Johansson qualifies as an "audit committee financial expert" as defined in Item 16A of Form 20-F.Each of the members of the audit committee is an "independent director" as defined in the Nasdaq Marketplace Rules. ITEM 16B. CODE OF ETHICS Our board of directors has adopted a code of ethics that applies to our directors, officers, employees and agents, including certain provisions thatspecifically apply to our chief executive officer, chief financial officer, chief operations officer, chief technology officer, vice presidents and any otherpersons who perform similar functions for us. We have posted our code of business conduct on our website www.canadiansolar.com. We hereby undertake toprovide to any person without charge, a copy of our code of business conduct and ethics within ten working days after we receive such person's writtenrequest.139Table of Contents 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 DeloitteTouche Tohmatsu Certified Public Accountants LLP, our principal external auditors, for the periods indicated. We did not pay any other fees to our auditorsduring the periods indicated below. The policy of our audit committee is to pre-approve all audit and non-audit services provided by Deloitte Touche Tohmatsu Certified PublicAccountants LLP, including audit services, audit-related services, tax services and other services as described above, other than those for de minimis serviceswhich are approved by the Audit Committee prior to the completion of the audit. We have a written policy on the engagement of an external auditor. 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 REGISTRANT'S CERTIFYING ACCOUNTANT Not applicable. ITEM 16G. CORPORATE GOVERNANCE None. ITEM 16H. MINE SAFETY DISCLOSURE Not applicable.140 For the Years EndedDecember 31, 2014 2015 Audit fees(1) $1,720,000 $1,720,000 Audit related fees(2) $280,000 $470,000 All other fees(3) $84,131 $4,186,682 (1)"Audit fees" means the aggregate fees billed for professional services rendered by our principal auditors for the annual audit of ourconsolidated financial statements, assurance and related services. In 2014 and 2015, these were mainly for the review and audit of ourconsolidated financial statements. (2)"Audit related fees" represents the aggregate fees billed for assurance and related services by our principal auditors that are reasonablyrelated to the performance of the audit or review of our consolidated financial statements and are not reported as audit fees. (3)"All other fees" represents aggregate fees billed for professional services rendered by our principal auditors for the statutory audit ofour subsidiary's financial statements, consultations and related services. In 2015, "All other fees" mainly includes the audit fee for theYieldco IPO in U.S. with an amount of approximately $4.1 million.Table of Contents 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 Canadian Solar Inc. are included at the end of this annual report. ITEM 19. EXHIBITS 141ExhibitNumber Description of Document1.1 Amended Articles of Continuance (incorporated by reference to Exhibit 3.2 of our registration statement on Form F-1 (File No. 333-138144), as amended, initially filed with the SEC on October 23, 2006)2.1 Registrant's Specimen Certificate for Common Shares (incorporated by reference to Exhibit 4.11 from our F-1registration statement (File No. 333-138144), as amended, initially filed with the Commission on October 23, 2006)4.1 Amended and Restated Share Incentive Plan of the Registrant, dated September 20, 2010 (incorporated by referenceto Exhibit 4.5 of our annual report on Form 20-F for the year ended December 31, 2010 (File No. 001-33107), asamended, initially filed with the SEC on May 17, 2011)4.2 Form of Director Indemnity Agreement (incorporated by reference to Exhibit 4.1 of our annual report on Form 20-Ffor the year ended December 31, 2008 (File No. 001-33107), as amended, initially filed with the SEC on June 8,2009)4.3 Employment Agreement between the Registrant and Dr. Shawn Qu (incorporated by reference to Exhibit 10.2 of ourregistration statement on Form F-1 (File No. 333-138144), as amended, initially filed with the SEC on October 23,2006)4.4 Form of Employment Agreement between the Registrant and its executive officers (incorporated by reference toExhibit 4.7 of our annual report on Form 20-F for the year ended December 31, 2010 (File No. 001-33107), asamended, initially filed with the SEC on May 17, 2011)4.5 Indenture, dated as of February 18, 2014, between the Registrant and The Bank of New York Mellon, as the trustee(incorporated by reference to Exhibit 4.5 of our annual report on Form 20-F for the year ended December 31, 2013(File No. 001-33107), as amended, initially filed with the SEC on April 28, 2014)4.6 Purchase and Sale Agreement by and among Sharp Corporation, Sharp US Holding Inc., Canadian Solar EnergyAcquisition Co. and Canadian Solar Inc., dated as of February 3, 2015 (incorporated by reference to Exhibit 4.6 ofour annual report on Form 20-F for the year ended December 31, 2014 (File No. 001-33107), as amended, initiallyfiled with the SEC on April 23, 2015)4.7*† Silicon Wafer Purchase Contract between CSI Cells Co., Ltd., CSI-GCL Solar Manufacturing (Yancheng) Co., Ltd.and Canadian Solar Manufacturing (Luoyang) Inc., and GCL-Poly (Suzhou) Energy Limited, dated January 29,20168.1* List of Major SubsidiariesTable of Contents142ExhibitNumber Description of Document12.1* CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2* CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1** CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200213.2** CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200215.1* Consent of Deloitte Touche Tohmatsu Certified Public Accountants LLP101* Financial information from registrant for the year ended December 31, 2015 formatted in eXtensible BusinessReporting Language (XBRL):(i) Consolidated Balance Sheets as of December 31, 2014 and 2015; (ii) Consolidated Statements of Operations forthe Years Ended December 31, 2013, 2014 and 2015; (iii) Consolidated Statements of Comprehensive Income forthe Years Ended December 31, 2013, 2014 and 2015; (iv) Consolidated Statements of Changes in Equity for theYears Ended December 31, 2013, 2014 and 2015; (v) Consolidated Statements of Cash Flows for the Years EndedDecember 31, 2013, 2014 and 2015; (vi) Notes to Consolidated Financial Statements; and (vii) AdditionalInformation—Financial Statements Schedule I*Filed herewith. **Furnished herewith. †Confidential treatment is being requested with respect to portions of this exhibit and such confidential treatment portions have beendeleted and replaced with "****" and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under theSecurities Exchange Act of 1934.Table of Contents 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 tosign this annual report on its behalf.Date: April 20, 2016143 CANADIAN SOLAR INC. By: /s/ Shawn (Xiaohua) Qu Name: Shawn (Xiaohua) QuTitle: Chairman, President and Chief Executive Officer By: /s/ Michael G. Potter Name: Michael G. PotterTitle: Senior Vice President and Chief Financial OfficerTable of Contents CANADIAN SOLAR INC.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1Report of Independent Registered Public Accounting Firm F-2Consolidated Balance Sheets as of December 31, 2014 and 2015 F-3Consolidated Statements of Operations for the Years Ended December 31, 2013, 2014 and 2015 F-4Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2013, 2014 and 2015 F-5Consolidated Statements of Changes in Equity for the Years Ended December 31, 2013, 2014 and 2015 F-6Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2014 and 2015 F-7Notes to Consolidated Financial Statements F-9Additional Information—Financial Statement Schedule I F-77Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Canadian Solar Inc. We have audited the accompanying consolidated balance sheets of Canadian Solar Inc. and subsidiaries (the "Company") as of December 31, 2014 and2015, and the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the three years in theperiod ended December 31, 2015. Our audits also included the financial statement schedule included in Schedule I. These financial statements and financialstatement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements andfinancial 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 requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Canadian Solar Inc. andsubsidiaries as of December 31, 2014 and 2015 and the results of their operations and their cash flows for each of the three years in the period endedDecember 31, 2015, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financialstatement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, theinformation set forth therein. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internalcontrol over financial reporting as of December 31, 2015, based on the criteria established in Internal Control—Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our report dated April 20, 2016 expressed an unqualified opinion on theCompany's internal control over financial reporting./s/ Deloitte Touche Tohmatsu Certified Public Accountants LLPShanghai ChinaApril 20, 2016F-2Table of Contents CANADIAN SOLAR INC. CONSOLIDATED BALANCE SHEETS See notes to consolidated financial statements.F-3 December 31,2014 December 31,2015 (In Thousands of U.S.Dollars,except share andper share data) ASSETS Current assets: Cash and cash equivalents 549,543 553,079 Restricted cash—current 439,961 534,707 Accounts receivable trade, net of allowance of $31,817 and $28,156 as of December 31, 2014 and 2015, respectively 366,939 426,803 Accounts receivable, unbilled 27,126 8,206 Amounts due from related parties 4,217 104,579 Inventories 432,325 334,489 Value added tax recoverable 20,271 44,615 Advances to suppliers—current, net of allowance of $9,301 and $6,498 as of December 31, 2014 and 2015, respectively 47,172 31,886 Derivative assets—current 9,643 6,259 Project assets—current 235,228 111,317 Deferred tax assets—current 40,810 30,013 Prepaid expenses and other current assets 142,651 78,140 Total current assets 2,315,886 2,264,093 Restricted cash—non-current 35,224 46,897 Property, plant and equipment, net 372,481 331,052 Solar power systems, net 96,868 1,200,441 Deferred tax assets—non-current 66,856 97,134 Advances to suppliers—non-current, net of allowance of $28,434 and $22,131 as of December 31, 2014 and 2015, respectively 481 27,745 Prepaid land use rights 13,286 29,092 Investments in affiliates 38,823 187,131 Intangible assets, net 6,606 78,938 Goodwill — 7,609 Derivatives assets—non-current — 2,072 Project assets—non-current 69,283 2,814 Other non-current assets 56,630 142,236 TOTAL ASSETS 3,072,424 4,417,254 LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY Current liabilities: Short-term borrowings 725,513 1,156,576 Accounts payable 412,937 512,510 Short-term notes payable 388,052 473,247 Amounts due to related parties 17,592 90,002 Other payables 112,584 159,886 Advances from customers 111,974 76,207 Derivative liabilities—current 445 35,228 Deferred tax liabilities—current 94,711 1,426 Other current liabilities 85,457 151,242 Total current liabilities 1,949,265 2,656,324 Accrued warranty costs 54,644 65,193 Convertible notes 150,000 150,000 Long-term borrowings 134,300 606,577 Derivatives liabilities—non-current — 17,358 Liability for uncertain tax positions 15,579 14,468 Deferred tax liabilities—non-current 10,345 19,030 Loss contingency accruals 26,206 23,500 Other non-current liabilities — 32,294 TOTAL LIABILITIES 2,340,339 3,584,744 Commitments and contingencies (Note 21) Redeemable non-controlling interests 2,511 — Equity: Common shares—no par value: unlimited authorized shares, 55,161,856 and 55,965,443 shares issued and outstanding atDecember 31, 2014 and 2015, respectively 675,236 677,103 Additional paid-in capital (25,682) (17,139)Retained earnings 46,999 218,860 Accumulated other comprehensive income (loss) 20,058 (59,856)Total Canadian Solar Inc. shareholders' equity 716,611 818,968 Non-controlling interests in subsidiaries 12,963 13,542 TOTAL EQUITY 729,574 832,510 TOTAL LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY 3,072,424 4,417,254 Table of Contents CANADIAN SOLAR INC. CONSOLIDATED STATEMENTS OF OPERATIONS See notes to consolidated financial statements.F-4 Years Ended December 31, 2013 2014 2015 (In Thousands of U.S. Dollars, except share and pershare data) Net revenues: —Non-related parties 1,637,966 2,958,058 3,363,274 —Related parties 16,390 2,569 104,352 Total net revenues 1,654,356 2,960,627 3,467,626 Cost of revenues —Non-related parties 1,363,048 2,375,025 2,821,972 —Related parties 15,613 4,608 68,884 Total cost of revenues 1,378,661 2,379,633 2,890,856 Gross profit 275,695 580,994 576,770 Operating expenses: Selling expenses 88,426 125,797 149,710 General and administrative expenses 44,768 76,826 162,633 Research and development expenses 11,685 12,057 17,056 Total operating expenses 144,879 214,680 329,399 Income from operations 130,816 366,314 247,371 Other income (expenses): Interest expense (46,244) (48,906) (54,148)Interest income 11,973 14,363 16,831 Gain (loss) on change in fair value of derivatives 10,764 19,656 (12,196)Foreign exchange gain (loss) (51,469) (32,219) 22,882 Investment income — — 2,342 Others 428 1,623 389 Other expenses, net (74,548) (45,483) (23,900)Income before income taxes and equity in earnings (loss) of unconsolidatedinvestees 56,268 320,831 223,471 Income tax expense (7,639) (77,431) (49,512)Equity in earnings (loss) of unconsolidated investees (3,064) 487 (643)Net income 45,565 243,887 173,316 Less: net income attributable to non-controlling interests 13,906 4,385 1,455 Net income attributable to Canadian Solar Inc. 31,659 239,502 171,861 Earnings per share—basic $0.68 $4.40 $3.08 Shares used in computation—basic 46,306,739 54,408,037 55,728,903 Earnings per share—diluted $0.63 $4.11 $2.93 Shares used in computation—diluted 50,388,284 59,354,615 60,426,056 Table of Contents CANADIAN SOLAR INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME See notes to consolidated financial statements.F-5 Years Ended December 31, 2013 2014 2015 (In Thousands of U.S. Dollars) Net income 45,565 243,887 173,316 Other comprehensive income (net of tax of nil): Foreign currency translation adjustment 1,878 (32,440) (75,687)Gain on commodity hedge — — 2,078 Comprehensive income 47,443 211,447 99,707 Less: comprehensive income attributable to non-controlling interests 12,668 5,798 7,759 Comprehensive income attributable to Canadian Solar Inc. 34,775 205,649 91,948 Table of Contents CANADIAN SOLAR INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY See notes to consolidated financial statements.F-6 CommonShares AdditionalPaid-inCapital RetainedEarnings(AccumulatedDeficit) AccumulatedOtherComprehensiveIncome (loss) EarningsAttributable toCanadianSolar Inc. Non-ControllingInterest TotalEquity Number $ $ $ $ $ $ $ (In Thousands of U.S. Dollars, except share and per share data) Balance at January 1, 2013 43,242,426 502,562 (38,296) (224,162) 50,795 290,899 10,684 301,583 Net income — — — 31,659 — 31,659 13,906 45,565 Foreign currency translationadjustment — — — — 3,116 3,116 (1,238) 1,878 Profit distribution to a non-controlling interest — — — — — — (219) (219)Issuance of ordinary shares, net ofissuance costs 3,772,254 47,887 — — — 47,887 — 47,887 Share-based compensation — — 6,175 — — 6,175 — 6,175 Exercise of share options 4,019,663 10,793 — — — 10,793 — 10,793 Disposal of project companies — — — — — — (12,164) (12,164)Balance at December 31, 2013 51,034,343 561,242 (32,121) (192,503) 53,911 390,529 10,969 401,498 Net income — — — 239,502 — 239,502 4,385 243,887 Foreign currency translationadjustment — — — — (33,853) (33,853) 1,413 (32,440)Profit distribution to a non-controlling interest — — — — — — (649) (649)Issuance of ordinary shares, net ofissuance costs 3,194,700 108,919 — — — 108,919 — 108,919 Deferred tax on issuance costs ofordinary shares — 1,732 — — — 1,732 — 1,732 Share-based compensation — — 5,088 — — 5,088 — 5,088 Tax benefit of share-basedcompensation — — 1,351 — — 1,351 — 1,351 Exercise of share options 932,813 3,343 — — — 3,343 — 3,343 Disposal of project companies — — — — — — (3,155) (3,155)Balance at December 31, 2014 55,161,856 675,236 (25,682) 46,999 20,058 716,611 12,963 729,574 Net income — — — 171,861 — 171,861 1,455 173,316 Foreign currency translationadjustment — — — — (81,992) (81,992) 6,305 (75,687)Profit distribution to non-controlling interests — — — — — — (305) (305)Share-based compensation — — 5,966 — — 5,966 — 5,966 Tax benefit of share-basedcompensation — — 853 — — 853 — 853 Exercise of share options 803,587 1,867 — — — 1,867 — 1,867 Acquisition of non-controllinginterest — — 1,724 — — 1,724 (2,651) (927)Gain on commodity hedge — — — — 2,078 2,078 — 2,078 Disposal of a subsidiary — — — — — — (4,225) (4,225)Balance at December 31, 2015 55,965,443 677,103 (17,139) 218,860 (59,856) 818,968 13,542 832,510 Table of Contents CANADIAN SOLAR INC. CONSOLIDATED STATEMENTS OF CASH FLOWS See notes to consolidated financial statements.F-7 Years Ended December 31, 2013 2014 2015 (In Thousands of U.S. Dollars) Operating activities: Net income 45,565 243,887 173,316 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 80,821 82,627 94,217 Loss on disposal of property, plant and equipment 3,613 1,478 1,801 Impairment loss of property, plant and equipment 3,665 1,573 6,992 Impairment loss of project assets 1,558 2,311 — (Gain) loss on change in fair value of derivatives (10,764) (19,656) 12,196 Equity in loss (earnings) of unconsolidated investees 3,064 (487) 643 Allowance for doubtful accounts (975) (8,528) 3,673 Write-down of inventories 715 16,951 23,013 Share-based compensation 6,175 5,088 5,966 Elimination of profit on sales to unconsolidated investees — — 15,637 Changes in operating assets and liabilities: Accounts receivable trade (11,814) (73,777) (63,352)Accounts receivable, unbilled (9,167) (17,308) 15,642 Amounts due from related parties 5,288 480 (99,893)Inventories 34,667 (252,716) 50,821 Value added tax recoverable (1,405) (4,150) (22,725)Advances to suppliers (5,747) (3,622) 7,967 Project assets (152,871) 89,536 70,943 Prepaid expenses and other current assets (2,333) (38,523) 36,745 Other non-current assets (4,420) (8,446) (22,355)Accounts payable 44,231 135,812 (23,975)Short-term notes payable 117,707 30,593 116,453 Amounts due to related parties 14,492 (2,166) 47,522 Other payables (2,603) 14,498 12,484 Advances from customers 51,357 40,311 (30,123)Other liabilities 14,748 (16,282) 56,542 Accrued warranty costs (19,199) 15,516 12,004 Prepaid land use rights 397 5,319 — Liability for uncertain tax positions 2,495 (1,613) (1,111)Deferred taxes 15,142 9,208 (112,263)Settlement of derivatives 5,147 17,192 24,878 Net cash provided by operating activities 229,549 265,106 413,658 Table of ContentsCANADIAN SOLAR INC.CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) See notes to consolidated financial statements.F-8 Years Ended December 31, 2013 2014 2015 (In Thousands of U.S. Dollars) Investing activities: Increase in restricted cash (10,099) (27,585) (100,935)Investment in affiliates (4,278) (72) (84,389)Return of investment from unconsolidated investees — 337 1,698 Purchase of property, plant and equipment (23,132) (49,660) (90,905)Purchase of solar power systems — (15,480) (551,863)Loan to a third party — (24,382) — Repayment of loan received from a third party — — 24,467 Proceeds from disposal of investment on subsidiaries — — 3,615 Distribution to non-controlling shareholders due to disposal of a subsidiary — — (4,225)Acquisition of subsidiaries, net of cash received — — (196,783)Proceeds from disposal of property, plant and equipment — 793 216 Net cash used in investing activities (37,509) (116,049) (999,104)Financing activities: Proceeds from short-term borrowings 768,381 928,879 1,436,950 Repayment of short-term borrowings (1,073,503) (1,045,596) (1,308,235)Proceeds from long-term borrowings 149,832 56,989 487,228 Profit distribution to a non-controlling interest (219) — (305)Payment to non-controlling interests for sales of project companies (8,071) (5,483) — Gross proceeds from issuance of common shares 50,000 115,009 — Issuance costs paid for common shares offering (2,113) (6,091) — Payment of financing costs — — (39,297)Purchase of shares from non-controlling shareholders — — (927)Proceeds from issuance of warrant — — 16,378 Proceeds from sale of non-controlling interest in a project asset — — 1,685 Proceeds from capital lease — — 25,246 Repayment of capital lease obligation — — (1,107)Proceeds from issuance of convertible notes — 150,000 — Issuance cost paid on convertible notes — (5,103) — Proceeds from exercise of stock options 10,793 3,343 1,867 Net cash provided by (used in) financing activities (104,900) 191,947 619,483 Effect of exchange rate changes (858) (19,711) (30,501)Net increase in cash and cash equivalents 86,282 321,293 3,536 Cash and cash equivalents at the beginning of the year 141,968 228,250 549,543 Cash and cash equivalents at the end of the year 228,250 549,543 553,079 Supplemental disclosure of cash flow information: Interest paid (net of amounts capitalized) 47,344 47,227 49,619 Income taxes paid 23,813 14,016 87,348 Supplemental schedule of non-cash activities: Amounts due from disposal of subsidiaries or affiliates included in prepaidexpenses and other current assets 137 — — Amounts due to non-controlling interests for sales of project companies includedin payables 4,093 1,765 — Property, plant and equipment costs included in other payables 14,057 23,541 34,161 Solar power systems costs included in accounts payables — 339 115,887 Module contribution in exchange for non-controlling interests in affiliates 5,791 — — Reclassification of a partial interest from project assets to investment inconnection with a sale of 51% equity in the project — — 84,200 Table of Contents CANADIAN SOLAR INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015 (In Thousands of U.S. Dollars, unless otherwise indicated) 1. ORGANIZATION AND PRINCIPAL ACTIVITIES Canadian Solar Inc. ("CSI") was incorporated pursuant to the laws of the Province of Ontario in October 2001, and changed its jurisdiction by continuingunder the Canadian federal corporate statute, the Canada Business Corporations Act, or CBCA, effective June 1, 2006. CSI and its subsidiaries (collectively, the "Company") design, develop, and manufacture solar wafers, cells and solar power products. In recent years, theCompany has increased investment in, and management attention on its total solutions business, which consists primarily of solar power projectdevelopment, engineering, procurement and construction, or EPC, services, operating and maintenance, or O&M, services, electricity revenue generation andsales of solar system kits. As of December 31, 2015, major subsidiaries of CSI are included in Appendix 1.2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES(a) Basis of presentation The consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles("U.S. GAAP").(b) Basis of consolidation The consolidated financial statements include the financial statements of the Company and its subsidiaries in which it has a controlling financialinterest. A controlling financial interest is typically determined when a company holds a majority of the voting equity interest in an entity. The Companyevaluates each of its interest in private companies to determine whether or not the investee is a variable interest entity ("VIE"). If the Company demonstratesit both has (i) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and (ii) the obligation to absorb lossesor the right to receive benefits from the VIE that could potentially be significant to the VIE, then the entity is consolidated. All intercompany balances andtransactions between the Company and its subsidiaries have been eliminated in consolidation.(c) Use of estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affectreported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reportedamounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant accounting estimates reflected inthe Company's consolidated financial statements include revenue recognition for sales of solar power projects, EPC services and development servicesaccounted for under the percentage-of-completion method, allowance for doubtful accounts receivable and advances to suppliers, valuation of inventoriesand provision for firm purchase commitments, provision for contingent liability, impairment of long-lived assets and project assets, the estimated useful livesof long-lived assets, determination of assets retirement obligation ("ARO"), accrual for warranty and the recognition of the benefit from the purchasedwarranty insurance, fair value estimate of financial instruments including warrants and other types of derivative, accrual for uncertain tax positions, taxvaluation allowances, applying acquisition method of accounting to businessF-9Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)acquisitions and the grant-date fair value of share-based compensation awards and related forfeiture rates.(d) Cash and cash equivalents and restricted cash Cash and cash equivalents are stated at cost, which approximates fair value. Cash and cash equivalents consist of cash on hand and demand deposits,which are unrestricted as to withdrawal and use, and have original maturities of three months or less when acquired. Restricted cash represents amounts held by banks, which are not available for the Company's general use, as security for issuance of letters of credit, shortterm notes payable and bank borrowings. Upon maturity of the letters of credit, repayment of short-term notes payable or bank borrowings which generallyoccur within one year, the deposits are released by the bank and become available for general use by the Company.(e) Accounts receivable, unbilled Accounts receivable, unbilled represents revenue that has been recognized in advance of billing the customer. The Company uses the percentage-of-completion method to recognize revenue from EPC services, development services and sales of solar power projects when all relevant revenue recognitioncriteria have been met. Under this accounting method, revenue may be recognized in advance of billing the customer, which results in the recording ofaccounts receivable, unbilled. Once the Company meets the billing criteria under such contract, it bills the customer and reclassifies the unbilled balance toaccounts receivable trade. Billing requirements vary by contract, but are generally structured around completion of certain construction milestones.(f) Allowance for doubtful receivables The Company began purchasing insurance from China Export & Credit Insurance Corporation ("Sinosure") since 2009 for certain of its accountsreceivable trade in order to reduce its exposure to bad debt loss. The Company provides an allowance for accounts receivable trade using primarily a specificidentification methodology. An allowance is recorded based on the likelihood of collection from the specific customer regardless whether such account iscovered by Sinosure. At the time the claim is made to Sinosure, the Company records a receivable from Sinosure equal to the expected recovery up to theamount of the specific allowance. The Company had recorded a receivable from Sinosure in prepaid expenses and other current assets of $452, $643 and$442 as of December 31, 2013, 2014 and 2015, respectively and a corresponding reduction in bad debt expense.(g) Advances to suppliers The Company makes prepayments to certain suppliers and such amounts are recorded in advances to suppliers in the consolidated balance sheets.Advances to suppliers expected to be utilized within twelve months as of each balance sheet date are recorded as current assets and the portion expected to beutilized after twelve months are classified as non-current assets in the consolidated balance sheets.F-10Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)(h) Inventories Inventories are stated at the lower of cost or market. Cost is determined by the weighted-average method. Cost of inventories consists of direct materialsand, where applicable, direct labor costs, tolling costs and those overhead costs that have been incurred in bringing the inventories to their present locationand condition. Adjustments are recorded to write down the cost of obsolete and excess inventories to the estimated market value based on historical and forecastdemand. The Company outsources portions of its manufacturing process. These outsourcing arrangements may or may not include transfer of title of the rawmaterials inventory to third-party manufacturers. Such raw materials are recorded as raw materials inventory when purchased from suppliers. For thoseoutsourcing arrangements in which the title is not transferred, the Company maintains such inventory on the Company's consolidated balance sheets as rawmaterials inventory while it is in physical possession of the third-party manufacturer. Upon receipt, processed inventory is reclassified to work-in-processinventory and a processing fee is paid to the third-party manufacturer. For those outsourcing arrangements, characterized as sales, in which title (including risk of loss) is transferred to the third-party manufacturer, theCompany is constructively obligated, through raw materials sales agreements and processed inventory purchase agreements, which have been entered intowith the third-party manufacturer simultaneously, to repurchase the inventory once processed. In this case, the raw materials remain classified as raw materialinventory while in physical possession of the third-party manufacturer and cash is received, which is classified as "advances from customers" on theconsolidated balance sheets and not as revenue or deferred revenue. Cash payments for outsourcing arrangements, which require prepayments for repurchaseof the processed inventory, are classified as "advances to suppliers" on the consolidated balance sheets. There is no right of offset for these arrangements andaccordingly, "advances from customers" and "advances to suppliers" remain on the consolidated balance sheets until the processed inventory is repurchased. On occasion, the Company enters into firm purchase commitments to acquire materials from its suppliers. A firm purchase commitment represents anagreement that specifies all significant terms, including the price and timing of the transactions, and includes a disincentive for non-performance that issufficiently large to make performance probable. This disincentive is generally in the form of a take-or-pay provision, which requires the Company to pay forcommitted volumes regardless of whether the Company actually acquires the materials. The Company evaluates these agreements and records a loss, if any,on firm purchase commitments using the same lower of cost or market approach as that used to value inventory. The Company records the expected loss onlyas it relates to the succeeding year, as it is unable to reasonably estimate future market prices beyond one year, in cost of revenues in the consolidatedstatements of operations.(i) Project assets Project assets consist primarily of capitalized costs relating to solar power projects in various stages of development prior to the intended sale of the solarpower projects to a third party. These costsF-11Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)include certain acquisition costs, land costs and costs for developing and constructing a solar power system. Development costs can include legal,consulting, permitting, and other similar costs. Construction costs can include execution of field construction, installation of solar equipment, solar modulesand related equipment. Interest costs incurred on debt during the construction phase and all deferred financing costs amortized during the construction phaseare also capitalized within project assets. Solar power projects are preliminarily classified as solar power systems unless the Company has intention to sell them to third parties. In that case, theywill be classified as project assets on the balance sheets. During the development phase, these solar power projects are accounted for in accordance with therecognition, initial measurement and subsequent measurement subtopics of ASC 970-360, as they are considered in substance real estates. The costs toconstruct solar power systems are presented as investing activities in the consolidated statement of cash flows. While the solar power projects are in thedevelopment phase, they are generally classified as non-current assets, unless it is anticipated that construction will be completed and the sale will occurwithin one year. Once the development of the solar power projects is substantially complete and the projects reach Commercial Operation Date ("COD"), appropriatenessof the classification of the project assets is assessed based on the circumstances at that time. Solar power projects that the Company intends to sell to thirdparties are transferred from solar power systems to project assets during the period. Solar power projects that the Company intends to hold and operate togenerate electricity income are still classified as solar power systems. In 2015, the Company reclassified $111.3 million solar power systems to project assets—current on the balance sheets. Project assets are classified as current assets on the consolidated balance sheets when the criteria in ASC 360-10-45-9 are met. The Company reviews project assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not berecoverable. The Company considers a project commercially viable or recoverable if it is anticipated to be sold for a profit once it is either fully developed orfully constructed. The Company considers a partially developed or partially constructed project commercially viable or recoverable if the anticipated sellingprice is higher than the carrying value of the related project assets. The Company examines a number of factors to determine if the project will be recoverable,the most notable of which include whether there are any changes in environmental, ecological, permitting, market pricing or regulatory conditions thatimpact the project. Such changes could cause the costs of the project to increase or the selling price of the project to decrease. If a project is not consideredrecoverable, the Company impairs the respective project assets and adjusts the carrying value to the estimated recoverable amount, with the resultingimpairment recorded within operations. The cash flows associated with the acquisition, construction, and sale of projects assets are classified as operating activities in the consolidatedstatements of cash flows. Project assets are often held in separate legal entities which are formed for the special purpose of constructing the project assets,which the Company refers to as "project companies". The Company consolidates project companies as described in note (b) above. The cash paid to the non-controlling interest in connectionF-12Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)with disposal of such project companies was recorded as a financing activity in the consolidated statement of cash flows. The Company does not depreciate the project assets when they are considered held for sale. Any revenue generated from a solar power system connectedto the grid would be considered incidental revenue and accounted for as a reduction of the capitalized project costs for development. If circumstanceschange, and the Company will begin to operate the project assets for the purpose of generating income from the sale of electricity, the project assets will bereclassified to solar power systems. In 2015, the Company determined to expand its business model to both building and selling and building and operatingcertain projects. As a result, project assets amounted $347.2 million were reclassified to solar power systems (see Note 8).(j) Business combination Business combinations are recorded using the acquisition method of accounting and, accordingly, the acquired assets and liabilities are recorded at theirfair market value at the date of acquisition. Any excess of acquisition cost over the fair value of the acquired assets and liabilities, including identifiableintangible assets, is recorded as goodwill. The Company charges acquisition related costs that are not part of the purchase price consideration to general andadministrative expenses as they are incurred. These costs typically include transaction and integration costs, such as legal, accounting, and other professionalfees.(k) Assets acquisition When the Company acquires other entities, if the assets acquired and liabilities assumed do not constitute a business, the transaction is accounted for asan asset acquisition. Assets are recognized based on the cost, which generally includes the transaction costs of the asset acquisition, and no gain or loss isrecognized unless the fair value of noncash assets given as consideration differs from the assets' carrying amounts on the Company's books. The costs of assetacquisitions generally include the direct transaction costs of the asset acquisition. If the consideration given is not in the form of cash (that is, in the form ofnoncash assets, liabilities incurred, or equity interests issued), measurement is based on either the cost to the acquiring entity or the fair value of the assets (ornet assets) acquired, whichever is more clearly evident and, thus, more reliably measurable. The cost of a group of assets acquired in an asset acquisition isallocated to the individual assets acquired or liabilities assumed based on their relative fair value and does not give rise to goodwill.(l) Goodwill Goodwill represents the excess of the purchase price of acquired businesses over the estimated fair value assigned to the individual assets acquired andliabilities assumed. The Company does not amortize goodwill but instead test goodwill for impairment at least annually in the fourth quarter. The Companyperforms impairment tests between scheduled annual tests if facts and circumstances indicate that it is more likely than not that the fair value of a reportingunit that has goodwill is less than its carrying value.F-13Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued) The Company may first make a qualitative assessment of whether it is more likely than not that a reporting unit's fair value is less than its carrying valueto determine whether it is necessary to perform the two-step goodwill impairment test. The qualitative impairment test considers various factors includingmacroeconomic conditions, industry and market conditions, cost factors, a sustained share price or market capitalization decrease, and any reporting unitspecific events. If it is determined through the qualitative assessment that a reporting unit's fair value is more likely than not greater than its carrying value,the two-step impairment test is not required. If the qualitative assessment indicates it is more likely than not that a reporting unit's fair value is not greaterthan its carrying value, the Company proceeds to perform the two-step impairment test. The Company may also elect to proceed directly to the two stepimpairment test without considering such qualitative factors. The first step in a two-step impairment test is the comparison of the fair value of a reporting unit with its carrying amount, including goodwill. Inaccordance with the authoritative guidance over fair value measurements, the Company defines the fair value of a reporting unit as the price that would bereceived to sell the unit as a whole in an orderly transaction between market participants at the measurement date. The Company primarily uses the incomeapproach methodology of valuation, which includes the discounted cash flow method, to estimate the fair values of the reporting units. Significant management judgment is required when estimating the fair value of the reporting units including the forecasting of future operating resultsand the selection of discount and expected future growth rates that the Company uses in discounting cash flows. If the estimated fair value of a reporting unitexceeds its carrying value, goodwill is not impaired and no further analysis is required. If the carrying value of a reporting unit exceeds its estimated fair value in the first step, then the Company is required to perform the second step of theimpairment test. In this step, the Company assigns the fair value of the reporting unit calculated in step one to all of the assets and liabilities of the reportingunit, as if a market participant just acquired the reporting unit in a business combination. The excess of the fair value of the reporting unit determined in thefirst step of the impairment test over the total amount assigned to the assets and liabilities in the second step of the impairment test represents the implied fairvalue of goodwill. If the carrying value of a reporting unit's goodwill exceeds the implied fair value of goodwill, the Company would record an impairmentloss equal to the difference. If there is no such excess, no goodwill impairment is required. The Company performed a qualitative assessment for each of the reporting units in the fourth quarter of 2015 and concluded that it was not more likelythan not that the fair value of each reporting unit was less than its carrying amount. Accordingly, the two-step goodwill impairment test for the Company'sreporting units was not considered necessary.(m) Property, plant and equipment Property, plant and equipment is recorded at cost less accumulated depreciation. The cost of property, plant and equipment comprises its purchase priceand any directly attributable costs, including interest costs capitalized during the period the asset is brought to its working condition and location for itsintended use. The Company expenses repair and maintenance costs as incurred.F-14Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued) Depreciation is computed on a straight-line basis over the following estimated useful lives: Costs incurred in constructing new facilities, including progress payments, capitalized interests and other costs relating to the construction, arecapitalized and transferred to property, plant and equipment on completion and depreciation commences from that time. For property, plant and equipment that has been placed into service, but is subsequently idled temporarily, the Company continues to recorddepreciation expense during the idle period. The Company adjusts the estimated useful life of the idled assets if the estimated useful life has changed.(n) Solar Power Systems Solar power systems are comprised of ground-mounted projects and roof top systems that the Company intends to hold for use. The solar power systemsare stated at cost less accumulated depreciation. The cost consists primarily of direct costs incurred in various stages of development prior to thecommencement of operations. For a self-developed solar power system, the actual cost capitalized is the amount of the expenditure incurred for theapplication of the feed-in tariff ("FIT") or other similar contracts, permits, consents, construction costs, interest costs capitalized, and other costs capitalized.For a solar power system acquired from third parties, the initial costs include the consideration transferred and certain direct acquisition costs. Expendituresfor major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When Solar power systems is retired, or otherwise disposed of, the cost and accumulated depreciation is removed from the balance sheets and anyresulting gain or loss is included in the results of operations for the respective period. Depreciation is recognized using the straight-line method over theestimated useful lives of the solar power systems of 20 to 25 years.(o) Intangible assets Intangible assets primarily represent the technical know-how and computer software purchased from third parties. Intangible assets are recorded at fairvalue at the time of acquisition less accumulated amortization, if applicable. Amortization is recorded according to the following table on a straight-linebasis for all intangible assets:F-15Buildings 20 yearsLeasehold improvements Over the shorter of the lease term or their estimated useful livesMachinery 5-10 yearsFurniture, fixtures and equipment 5 yearsMotor vehicles 5 yearsPower purchase agreement ("PPA") Over the estimated useful livesTechnical know-how 10 yearsComputer software 1-10 yearsTable of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)(p) Prepaid land use rights Prepaid land use rights represent amounts paid for the Company's lease for the use right of lands located in China ("PRC") and Japan. Amounts arecharged to earnings ratably over the lease periods of 20 to 50 years.(q) Investments in affiliates The Company accounts for the investments in affiliates using either the cost or equity method of accounting depending upon whether the Company hasthe ability to exercise significant influence over the affiliates. As part of this evaluation, the Company considers the participating and protective rights in theaffiliates as well as its legal form. The Company records the cost method investments at historical cost and subsequently record any dividends received fromthe net accumulated earnings of the investee as income. Dividends received in excess of earnings are considered a return of investment and are recorded asreductions in the cost of the investment. The Company uses the equity method of accounting for the investments when the Company has the ability tosignificantly influence the operations or financial activities of the investee. The Company records the equity method investments at historical cost andsubsequently adjusts the carrying amount each period for share of the earnings or losses of the investee and other adjustments required by the equity methodof accounting. Dividends received from the equity method investments are recorded as reductions in the cost of such investments. Investments are evaluated for impairment when facts or circumstances indicate that the fair value of the investment is less than its carrying value. Animpairment is recognized when a decline in fair value is determined to be other-than-temporary. The Company reviews several factors to determine whether aloss is other-than-temporary. These factors include, but are not limited to, the: (i) nature of the investment; (ii) cause and duration of the impairment;(iii) extent to which fair value is less than cost; (iv) financial conditions and near term prospects of the affiliates; and (v) ability to hold the security for aperiod of time sufficient to allow for any anticipated recovery in fair value. During the years ended December 31, 2013, 2014 and 2015, the Companyrecorded no impairment charges on its investments.(r) Impairment of long-lived assets The Company assesses the recoverability of the carrying value of long-lived assets when an indicator of impairment has been identified. The Companyreviews the long-lived assets each reporting period to assess whether impairment indicators are present. For purposes of recognition and measurement of animpairment loss, a long-lived asset or assets is grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largelyindependent of the cash flows of other assets and liabilities. For long-lived assets, when impairment indicators are present, the Company comparesundiscounted future cash flows, including the eventual disposition of the asset group at market value, to the asset group's carrying value to determine if theasset group is recoverable. Assessments also consider changes in asset group utilization, including the temporary idling of capacity and the expected timingof placing this capacity back into production. If the sum ofF-16Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)the expected undiscounted cash flows is less than the carrying amount of the assets, the Company will recognize an impairment loss based on the fair value ofthe assets. The Company recorded impairment charges for property, plant and equipment of $3,665, $1,573 and $6,992 for the years ended December 31,2013, 2014 and 2015, respectively.(s) Interest capitalization The Company capitalizes interest costs as part of the historical costs of acquiring or constructing certain assets during the period of time required to getthe assets ready for their intended use or sell the asset to a customer. The Company capitalizes interest costs to the extent that expenditures to acquire,construct, or develop an asset have occurred and interest costs have been incurred. Interest capitalized for property, plant and equipment, or solar powersystems is depreciated over the estimated useful life of the related asset, as the qualifying asset is placed into service. The interest capitalized for projectassets forms part of the cost of revenues when such project assets are sold and all revenue recognition criteria are met. Interest capitalization ceases once aproject is substantially complete or no longer undergoing construction activities to prepare it for its intended use.(t) Assets retirement obligation Certain jurisdictions in which the Company's project assets are located or certain land lease agreements require the removal of the solar power systemswhen the project is decommissioned. ARO for the estimated costs of decommissioning associated with long-lived assets at a future date are accounted for inaccordance with ASC 410-20, Asset Retirement Obligations ("ASC 410-20"). ASC 410-20 requires an entity to recognize the fair value of a liability for anARO in the period in which it is incurred and a reasonable estimate of fair value can be made. Upon initial recognition of a liability for an ARO, the assetretirement cost is capitalized by increasing the carrying amount of the related long-lived asset by the same amount. Over time, the liability is accreted to itsexpected future value, while the capitalized cost is depreciated over the useful life of the related asset. The Company's ARO included in solar power systemswere nil and $7,574 as of December 31, 2014 and 2015, respectively.(u) Contingencies Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that aliability has been incurred and the amount can be reasonably estimated. If a potential material loss contingency is not probable but is reasonably possible, oris probable but the amount cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss ifdeterminable and material, is disclosed. Legal costs incurred in connection with loss contingencies are expensed as incurred.(v) Income taxes Deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financialstatements, net tax loss carry-forwards and credits using the enacted tax rates expected to apply to taxable income in the periods in which theF-17Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)deferred tax liability or asset is expected to be settled or realized. Deferred tax assets are reduced by a valuation allowance when it is more likely than not thatsome portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxingauthorities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on the characteristics of theunderlying assets and liabilities, or the expected timing of their use when they do not relate to a specific asset or liability. Income tax expense includes (i) deferred tax expense, which generally represents the net change in the deferred tax asset or liability balance during theyear plus any change in valuation allowances; (ii) current tax expense, which represents the amount of tax currently payable to or receivable from a taxingauthority; and (iii) non-current tax expense, which represents the increases and decreases in amounts related to uncertain tax positions from prior periods andnot settled with cash or other tax attributes. The Company only recognizes tax benefits related to uncertain tax positions when such positions are more likelythan not of being sustained upon examination. For such positions, the amount of tax benefit that the Company recognizes is the largest amount of tax benefitthat is more than fifty percent likely of being sustained upon the ultimate settlement of such uncertain tax position. The Company records penalties andinterests associated with the uncertain tax positions as a component of income tax expense.(w) Revenue recognitionSolar power products The Company recognizes revenues for solar product sales when persuasive evidence of an arrangement exists, delivery of the product has occurred andtitle and risk of loss has passed to the customers, the sales price is fixed or determinable and the collectability of the resulting receivable is reasonablyassured. If collectability is not reasonably assured, the Company recognizes revenue only upon collection of cash. Revenues also include reimbursementsreceived from customers for shipping and handling costs. Sales agreements typically contain the customary product warranties but do not contain any post-shipment obligations nor any return or credit provisions. A majority of the Company's contracts provide that products are shipped under the term of free on board ("FOB"), ex-works, or cost, insurance and freight("CIF") and delivered duty paid ("DDP"). Under FOB, the Company fulfills its obligation to deliver when the goods have passed over the ship's rail at thenamed port of shipment. The customer has to bear all costs and risks of loss or damage to the goods from that point. Under ex-works, the Company fulfills itsobligation to deliver when it has made the goods available at its premises to the customer. The customer bears all costs and risks involved in taking the goodsfrom the Company's premises to the desired destination. Under CIF, the Company must pay the costs, marine insurance and freight necessary to bring thegoods to the named port of destination but the risk of loss of or damage to the goods as well as any additional costs due to events occurring after the time thegoods have been delivered on board the vessel, is transferred to the customer when the goods pass the ship's rail in the port of shipment. Under DDP, theCompany is responsible for making a safe delivery of goods to a named destination, paying all transportationF-18Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)expenses and the duty. The Company bears the risks and costs associated with supplying the goods to the delivery location. As of December 31, 2013, 2014 and 2015, the Company had inventories of $8.2 million, $7.5 million and $7.3 million, respectively, relating to sales tocustomers where revenues were not recognized because the collection of payment was not reasonably assured. The delivered products remain as inventorieson consolidated balance sheets, regardless of whether title has been transferred. In such cases, the Company recognizes revenue, adjusts inventories andrecognizes cost of revenues when payment is collected from customers. Revenues from sales to customers are recorded net of estimated returns. The Company enters into toll manufacturing arrangements in which the Company receives cells and returns finished modules. In such cases, the title ofthe cells received and risk of loss remains with the seller. As a result, the Company does not recognize inventory on the consolidated balance sheets. TheCompany recognizes a service fee as revenue when the processed modules are delivered. During the years ended December 31, 2013, 2014 and 2015, theCompany recognized revenue of $13,953, $16,578 and $6,764, respectively, under toll manufacturing arrangements.EPC services and development services The Company uses the percentage-of-completion method to recognize revenues for which the Company provides EPC services and developmentservices, unless the Company cannot make reasonably dependable estimates of the costs to complete the contract, in which case the Company would use thecompleted contract method. The percentage-of-completion method is considered appropriate in circumstances in which reasonably dependable estimates canbe made and in which all the following conditions exist: (i) contracts executed by the parties normally include provisions that clearly specify the enforceablerights regarding goods or services to be provided and received by the parties, the consideration to be exchanged, and the manner and terms of settlement;(ii) the buyer can be expected to satisfy all obligations under the contract; and (iii) the contractor can be expected to perform all contractual obligations. TheCompany uses the cost-to-cost method to measure the percentage of completion and recognize revenue based on the estimated progress to completion. TheCompany periodically revises its profit estimates based on changes in facts, and immediately recognizes any losses that are identified on contracts. Incurredcosts include all direct material, labor, subcontractor cost, and other associated costs. The Company recognizes job material costs as incurred costs when thejob materials have been permanently attached or fitted to the solar power projects as required by the engineering design. The construction periods normallyextend beyond six months and less than one year. The percentage-of-completion method of revenue recognition requires the Company to make estimates of net contract revenues and costs to completecontracts. In making such estimates, management judgments are required to evaluate significant assumptions including the amount of net contract revenues,the cost of materials and labor, expected labor productivity, the impact of potential variances in schedule completion, and the impact of any penalties,claims, change orders, or performance incentives.F-19Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued) If estimated total costs on any contract are greater than the net contract revenues, the Company recognizes the entire estimated loss in the period the lossbecomes known. The cumulative effect of the revisions to estimates related to net contract revenues and costs to complete contracts, including penalties,claims, change orders, performance incentives, anticipated losses, and others are recorded in the period in which revisions to the estimates are identified andthe amounts can be reasonably estimated. The effect of the changes on future periods are recognized as if the revised estimates had been used since revenuewas initially recognized under the contract. Such revisions could occur in any reporting period, and the effects may be material depending on the size of thecontracts or the changes in estimates.Solar power projects The Company recognizes revenue from the sale of project assets in accordance with ASC 360-20, Real Estate Sales. For these transactions, the Companyhas determined that the project assets, which represent the costs of constructing solar power projects, represent "integral" equipment and as such, the entiretransaction is in substance the sale of real estate and subject to the revenue recognition guidance under ASC 360-20 Real Estate Sales. The Company recordsthe sale as revenue using one of the following revenue recognition methods, based upon evaluation of the substance and form of the terms and conditions ofsuch real estate sales arrangements:(i)Full accrual method. The Company records revenue for certain sales arrangements after construction of discrete portions of a project or afterthe entire project is substantially complete. The Company recognizes revenue and profit using the full accrual method when all of thefollowing requirements are met: (a) the sales are consummated; (b) the buyer's initial and continuing investments are adequate to demonstrateits commitment to pay; (c) the receivable is not subject to any future subordination; and (d) the Company has transferred the usual risk andrewards of ownership to the buyer. Specifically, the Company considers the following factors in determining whether the sales have beenconsummated: (a) the parties are bound by the terms of a contract; (b) all consideration has been exchanged; (c) permanent financing for whichthe seller is responsible has been arranged; and (d) all conditions precedent to closing have been performed, and the Company does not haveany substantial continuing involvement with the project. (ii)Percentage-of-completion method. The Company applies the percentage-of-completion method, as further described below, to certain realestate sales arrangements where the Company conveys control of land or land rights, (a) when a sale has been consummated; (b) the Companyhas transferred the usual risks and rewards of ownership to the buyer; (c) the initial and continuing investment criteria have been met; (d) theCompany has the ability to estimate its costs and progress toward completion, and (e) all other revenue recognition criteria have been met. Theinitial and continuing investment requirements, which demonstrate a buyer's commitment to honor their obligations for the sales arrangement,can typically be met through the receipt of cash or an irrevocable letter of credit from a highly creditworthy lending institution. Whenevaluating whether the usual risks and rewards of ownership have transferred to the buyer, the Company considers whether it has or may beF-20Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)contingently required to have any prohibited forms of continuing involvement with the project. Prohibited forms of continuing involvementin a real estate sales arrangement may include the Company retaining risks or rewards associated with the project that are not customary withthe range of risks or rewards that an EPC contractor may assume.(iii)Installment method. Depending on whether the initial and continuing investment requirements have been met, and whether collectability fromthe buyer is reasonably assured, the Company may align its revenue recognition and release of project assets or deferred project costs to cost ofsales with the receipt of payment from the buyer if the sale has been consummated and the Company has transferred the usual risks and rewardsof ownership to the buyer. (iv)Financing method. On occasion the Company sells an interest in the project assets to a third party with an option to repurchase those assets inthe future. The Company considers that there are continuing involvements in the projects, and thus no profit or sales is recognized. All theproject assets remain on the Company's consolidated balance sheets. The total proceeds from the buyers are reflected as other non-currentliabilities on the consolidated balance sheets. The buyer's shares of earnings in the projects, during each period are reflected as interestexpenses with a corresponding increase to the respective financing liabilities. Further distributions from the partnership are reflected as adecrease to the other non-current liabilities. As of December 31, 2015, the Company recorded $3.2 million included in other non-currentliabilities on the consolidated balance sheet. There were no distributions during the year ended December 31, 2015. During 2013, 2014 and 2015, the Company recognized $211,123, $754,210 and $557,132 of revenue from the sale of solar power projects using the fullaccrual method and recognized $81,234, $137,726 and $863 from sales of power projects using percentage-of-completion method, respectively. The Company allocates revenue for transactions involving multiple-element arrangements to each unit of accounting on a relative fair value basis. TheCompany estimates fair value on each unit of accounting on the following basis (i) vendor-specific objective evidence of selling price, if it exists, otherwise,(ii) third-party evidence of selling price. If neither (i) nor (ii) exists, management's best estimate of the selling price for that unit of accounting is used. TheCompany recognizes revenue for each unit of accounting when the revenue recognition criteria have been met.Electricity revenue Electricity revenue is generated primarily from various non-affiliated parties under long-term PPAs and performance based energy incentives. TheCompany recognizes electricity revenue when persuasive evidence of an arrangement exists, electricity has been generated and transmitted to the grid, theprice of electricity is fixed or determinable and the collectability of the resulting receivable is reasonably assured. Performance-based energy incentives are awarded under certain state programs for the delivery of renewable electricity. The Company recognizesperformance-based energy incentives of electricity revenue generated from solar power systems when the condition attached to it has been met and thereF-21Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)is reasonable assurance that the grant will be received. During the years ended December 31, 2013, 2014 and 2015, the Company recognized performance-based energy incentives of $1.2 million, $2.0 million, and $16.1 million related to electricity generated from solar power systems in revenue. Certain PPAs are accounted for as operating leases in accordance with ASC 840-20, Operating leases. Minimum lease payments are recognized over theterm of the lease and contingent rents are recorded when the achievement of the contingency becomes probable in accordance with the U.S. GAAP. None ofthe Company's operating leases have minimum lease payments, so revenue from these contracts is recognized as energy and any related renewable energyattributes are delivered. During the years ended December 31, 2013, 2014 and 2015, the total lease income recognized were nil, nil, and $6.1 million relatedto PPAs, respectively.(x) Shipping and handling costs Payments received from customers for shipping and handling costs are included in net revenues. Shipping and handling costs relating to sales of$33,938, $55,671 and $73,008, are included in selling expenses for the years ended December 31, 2013, 2014 and 2015, respectively.(y) Research and development Research and development costs are expensed when incurred and amounted to $11,685, $12,057 and $17,056 for the years ended December 31, 2013,2014 and 2015, respectively.(z) Advertising expenses Advertising expenses are expensed when incurred and amounted to $4,669, $6,581 and $5,953 for the years ended December 31, 2013, 2014 and 2015,respectively.(aa) Warranty cost Before June 2009, the Company typically sold its standard solar modules with a two-year guarantee for defects in materials and workmanship and a 10-year and 25-year warranty against declines of more than 10% and 20%, respectively, from the initial minimum power generation capacity at the time ofdelivery. In June 2009, the Company increased its warranty against defects in materials and workmanship to six years. Effective August 1, 2011, the Company has increased its warranty against defects in materials and workmanship to ten years and the Company guaranteethat, for a period of 25 years, its standard solar modules will maintain the following performance levels: (i) during the first year, the actual power output of themodule will be no less than 97% of the labeled power output; (ii) from year 2 to year 24, the actual annual power output decline of the module will be nomore than 0.7%; and (iii) by the end of year 25, the actual power output of the module will be no less than 80% of the labeled power output.F-22 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued) Effective June 1, 2015, the Company guarantee that, for a period of 25 years, its polycrystalline modules will maintain the following performance levels:(i) during the first year, the actual power output of the module will be no less than 97.5% of the labeled power output;(ii) from year 2 to year 24, the actualannual power output decline will be no more than 0.7%; and(iii) by the end of year 25, the actual power output of the module will be no less than 80.7% ofthe labeled power output. Effective June 1, 2015, the Company guarantee that, for a period of 25 years, its monocrystalline modules will maintain the following performancelevels: (i) during the first year, the actual power output of the module will be no less than 97% of the labeled power output;(ii) from year 2 to year 24, theactual annual power output decline will be no more than 0.7%; and (iii) by the end of year 25, the actual power output of the module will be no less than80.2% of the labeled power output. In addition, effective January 1, 2015, the Company lengthened the warranty against decline in its Dymond modules to30 years and the Company guarantee that, for a period of 30 years, the Dymond modules will maintain the following performance levels: (i) during the firstyear, the actual power output of the module will be no less than 97.5% of the labeled power output; (ii) from year 2 to year 29, the actual annual power outputdecline will be no more than 0.5%; and(iii) by the end of year 30, the actual power output of the module will be no less than 83% of the labeled poweroutput. In resolving claims under the workmanship warranty, the Company has the option of remedying through repair, refurbishment or replacement ofequipment. In resolving claims under the performance warranty, the Company has the right to repair or replace solar modules, at the Company's option. For utility-scale solar power projects built by the Company, the Company provides a limited workmanship or balance of system warranty against defectsin engineering design, installation and construction under normal use, operation and service conditions for a period of up to five years following theenergizing of the solar power plant. In resolving claims under the workmanship or balance of system warranty, the Company has the option of remedyingthrough repair, refurbishment or replacement of equipment. The Company has entered into similar workmanship warranties with its suppliers to back up itswarranties. The Company maintains warranty reserves to cover potential liabilities that could arise under these guarantees and warranties. Due to limited warrantyclaims to date, the Company accrues the estimated costs of warranties based on an assessment of its competitors' and its own actual claim history, industry-standard accelerated testing, estimates of failure rates from the Company's quality review, and other assumptions that the Company believes to be reasonableunder the circumstances. Actual warranty costs are accumulated and charged against the accrued warranty liability. To the extent that accrual for warrantycosts differs from the estimates, the Company will prospectively revise its accrual rate. The Company currently records a 1% warranty provision against therevenue for sales of solar power products. In April 2010, the Company began entering into agreements with a group of insurance companies with high credit ratings to back up its warranties.Under the terms of the insurance policies, which are designed to match the terms of its solar module product warranty policy, the insurance companies areobliged to reimburse the Company, subject to certain maximum claim limits and certain deductibles, for the actual product warranty costs that the Companyincurs under the terms of its solar module productF-23Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)warranty policy. The Company records the insurance premiums initially as prepaid expenses and amortizes them over the respective policy period of oneyear. Each prepaid policy provides insurance against warranty costs for panels sold within that policy year. The unamortized carrying amount is $1,083,$1,196 and $1,921 as of December 31, 2013, 2014 and 2015, respectively and was included as a component of prepaid expenses and other current assets. The warranty obligations the Company records relate to defects that existed when the product was sold to the customer. The event which the Company isinsured against through its insurance policies is the sale of products with these defects. Accordingly, the Company views the insured losses attributable to theshipment of defective products covered under its warranty as analogous to potential claims, or claims that have been incurred as of the product ship date, butnot yet reported. The Company expects to recover all or a portion of its obligation through insurance claims. Therefore, the Company's accounting policy isto record an asset for the amount determined to be probable of recovery from the insurance claims (not to exceed the amount of the total losses incurred),consistent with the guidance set forth at ASC 410-30. The Company considers the following factors in determining whether an insurance receivable that is probable and recoverability can be reasonablyestimated: (i) reputation and credit rating of the insurance company; (ii) comparison of the solar module product warranty policy against the terms of theinsurance policies, to ensure valid warranty claims submitted by customers will be covered by the policy and therefore reimbursed by the insurancecompanies; and (iii) with respect to specific claims submitted, written communications from the insurance company are monitored to ensure the claim hasbeen promptly submitted to and accepted by the insurance company, and reimbursements have been subsequently collected. The successfully processedclaims provide further evidence that the insurance policies are functioning as anticipated. To the extent uncertainties regarding the solvency of insurance carriers or the legal sufficiency of insurance claims (including if they became subject tolitigation) were to arise, the Company will establish a provision for uncollectible amounts based on the specific facts and circumstances. To date, noprovision had been determined to be necessary. In addition, to the extent that accrual for warranty costs differs from the estimates and the Companyprospectively revises its accrual rate, this change may result in a change to the amount expected to be recovered from insurance. As the warranty obligation and related recovery asset do not meet the criteria for offsetting, the gross amounts are reported in the Company'sconsolidated balance sheets. The asset is expected to be realized over the life of the warranty obligation, which is 25 years and is treated as a non-currentasset consistent with the underlying warranty obligation. When a specific claim is submitted, and the corresponding insurance proceeds will be collectedwithin twelve months of the balance sheet date, the Company will reclassify that portion of the receivable as being current. The insurance receivable amountswere $43,402 and $56,605 at the end of 2014 and 2015, respectively, and were included as a component of other non-current assets. The Company made downward adjustments to its accrued warranty costs of $9,070 and other non-current assets of $5,024, for the year endedDecember 31, 2015, to reflect the general declining trend of the average selling price of solar modules, which is a primary input into the estimatedF-24Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)warranty costs. Accrued warranty costs (net effect of adjustments) of $(16,465), $18,570 and $15,876 are included in cost of revenues for the years endedDecember 31, 2013, 2014 and 2015, respectively.(ab) Redeemable non-controlling interests Redeemable non-controlling interests are equity interests in common stock of consolidated subsidiaries that have redemption features that are not solelywithin the Company's control. These interests are classified as temporary equity because their redemption is considered probable. These interests aremeasured at the greater of estimated redemption value at the end of each reporting period or the initial carrying amount of the redeemable non-controllinginterests adjusted for cumulative earnings allocations.(ac) Foreign currency translation The United States dollar ("U.S. dollar" or "$"), the currency in which a substantial amount of the Company's transactions are denominated, is used as thefunctional and reporting currency of CSI. Monetary assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollarsat 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 the U.S. dollarat the applicable rates of exchange prevailing on the transaction date. Transaction gains and losses are recognized in the consolidated statements ofoperations. Gains and losses on intra-entity foreign currency transactions that are of a long-term-investment nature (that is, settlement is not planned oranticipated in the foreseeable future) between consolidated entities are not recognized in earnings, but are included as a component of other comprehensiveincome. The financial records of certain of the Company's subsidiaries are maintained in local currencies other than the U.S. dollar, such as Renminbi ("RMB"),Euro, Canadian dollar ("CAD") and Japanese yen, which are their functional currencies. Assets and liabilities are translated at the exchange rates at thebalance sheet date, equity accounts are translated at historical exchange rates and revenues, expenses, gains and losses are translated using the average ratefor the year. Translation adjustments are reported as foreign currency translation adjustment and are shown as a separate component of other comprehensiveincome in the statements of comprehensive income.(ad) Comprehensive income Comprehensive income includes all changes in equity except those resulting from investments by owners and distributions to owners. For the yearspresented, total comprehensive income included (i) net income, (ii) foreign currency translation adjustments, (iii) gains and losses on intra-entity foreigncurrency transactions that are of a long-term-investment nature (that is, settlement is not planned or anticipated in the foreseeable future) betweenconsolidated entities, and (iv) the unrealized gains or losses (effective portion) on derivative instruments that qualify for and have been designated as cashflow hedges.F-25Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)(ae) Foreign currency risk The RMB is not a freely convertible currency. The PRC State Administration for Foreign Exchange, under the authority of the People's Bank of China,controls the conversion of RMB into foreign currencies. The value of the RMB is subject to changes in central government policies and to internationaleconomic and political developments affecting supply and demand in the China foreign exchange trading system market. The Company's cash and cashequivalents and restricted cash denominated in RMB amounted to $497,510, $574,531 and $722,734 as of December 31, 2013, 2014 and 2015, respectively.(af) Concentration of credit risk Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash,accounts receivable, advances to suppliers and amounts due from related parties. All of the Company's cash and cash equivalents are held with financial institutions that Company management believes to have high credit quality. The Company conducts credit evaluations of customers and generally does not require collateral or other security from its customers. The Companyestablishes an allowance for doubtful accounts primarily based upon the age of the receivables and factors surrounding the credit risk of specific customers.With respect to advances to suppliers, such suppliers are primarily suppliers of raw materials. The Company performs ongoing credit evaluations of itssuppliers' financial conditions. The Company generally does not require collateral or security against advances to suppliers, however, it maintains a reservefor potential credit losses and such losses have historically been within management's expectation. The prepayments made by the Company are unsecured and expose the Company to supplier credit risk. As of December 31, 2014 and 2015, grossprepayments made to individual suppliers in excess of 10% of total advances to suppliers are as follows:(ag) Fair Value of Financial Instruments The Company applies authoritative guidance for fair value measurements for its financial assets and liabilities. The guidance defines fair value as an exitprice representing the amount that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between marketparticipants. The guidance also establishes a fair value hierarchy, which prioritized the inputsF-26 At December 31,2014 At December 31,2015 $ $ Supplier A 16,268 18,260 Supplier B 10,459 9,086 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)used in measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. The Company's restricted cashbalance for all periods presented uses level one fair value inputs. Level 2—Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in activemarkets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated byobservable market data by correlation or other means. Level 3—Unobservable inputs reflecting the Company's own assumptions incorporated in valuation techniques used to determine fair value. Theseassumptions are required to be consistent with market participant assumptions that are reasonably available.(ah) Derivatives instruments and hedging activity The Company's primary objective for holding derivative financial instruments is to manage risks. Depending on the terms of the specific derivativeinstruments and market conditions, some of the Company's derivative instruments may be assets and others liabilities at any particular point in time. Therecognition of gains or losses resulting from changes in fair value of these derivative instruments is based on the use of each derivative instrument andwhether it qualifies for hedge accounting. The Company enters into derivatives to hedge its foreign currency risk, exposure to losses from price adjustments of electricity and interest rate risk.When the Company determines to designate a derivative instrument as a cash flow hedge, the Company formally documents the hedging relationship and itsrisk management objective and strategy for undertaking the hedge, the hedging instrument, the hedged item, the nature of the risk being hedged, how thehedging instrument's effectiveness in offsetting the hedged risk will be assessed, and a description of the method of measuring ineffectiveness. The Companyalso formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivative that is used in hedging transactions is highly effective inoffsetting changes in cash flows of hedged items. The effective portion of gains and losses on derivatives designated as cash flow hedges are initially deferredin other comprehensive income before being recognized in the statements of operations in the same period as the hedged transactions are reflected inearnings. Gains and losses on derivatives that are not designated or fail to qualify as effective hedges are recognized in the statements of operations asincurred. Fair value of the derivative instruments is determined using pricing models developed based on the underlying price of the hedged items. The values arealso adjusted to reflect nonperformance risk of the counterparty and the Company, as necessary.F-27Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)(ai) Earnings (loss) per share Basic earnings (loss) per share is computed by dividing income (loss) attributable to holders of common shares by the weighted average number ofcommon shares outstanding during the year. Diluted earnings (loss) per common share reflects the potential dilution that could occur if securities or othercontracts to issue common shares were exercised or converted into common shares. Common share equivalents are not included in the calculation of dilutiveearnings per share if their effects are anti-dilutive.(aj) Share-based compensation The Company's share-based compensation with employees, such as share options, restricted shares and restricted share units ("RSUs"), is measured at thegrant date, based on the fair value of the award, and is recognized as compensation expense, net of estimated forfeitures, over the period during which anemployee is required to provide service in exchange for the award, which is generally the vesting period.(ak) Recently issued accounting pronouncements In May 2014, the Financial Accounting Standards Board (or "FASB") issued Accounting Standards Updates (or "ASU") 2014-09, Revenue from Contractswith Customers (Topic 606), to clarify the principles of recognizing revenue and create common revenue recognition guidance between U.S. GAAP andInternational Financial Reporting Standards ("IFRS"). An entity has the option to apply the provisions of ASU 2014-09 either retrospectively to each priorreporting period presented or retrospectively with the cumulative effect of initially applying this standard recognized at the date of initial application. ASU2014-09 is effective for fiscal years and interim periods within those years beginning after December 15, 2016, and early adoption is not permitted. In August,2015, the FASB updated this standard to ASU 2015-14, the amendments in this Update defer the effective date of Update 2014 –09, that the Update shouldbe applied to annual reporting periods beginning after December 15, 2017 and earlier application is permitted only as of annual reporting periods beginningafter December 15, 2016, including interim reporting periods within that reporting period. The Company is still in the process of assessing the potentialfinancial impact the adoption will have to the Company. In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810)—Amendments to the Consolidation Analysis. ASU 2015-02 modifiesexisting consolidation guidance related to (i) limited partnerships and similar legal entities, (ii) the evaluation of variable interests for fees paid to decisionmakers or service providers, (iii) the effect of fee arrangements and related parties on the primary beneficiary determination, and (iv) certain investment funds.These changes are expected to limit the number of consolidation models and place more emphasis on risk of loss when determining a controlling financialinterest. ASU 2015-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2015. Early adoption is permitted. TheCompany is still in the process of assessing the potential financial impact to the Company.F-28Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued) In April 2015, the FASB issued ASU 2015-03 as part of its simplification initiative. Under the ASU, an entity presents such costs in the balance sheet as adirect deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. The requirement to presentdebt issuance costs as a direct reduction of the related debt liability (rather than as an asset) is consistent with the presentation of debt discounts underU.S. GAAP. In August 2015, the FASB issued ASU 2015-15 related with the presentation and subsequent measurement of debt issuance costs associated withline-of-credit arrangements, under which the SEC staff stated it would not object to an entity deferring and presenting debt issuance costs as an asset andsubsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are anyoutstanding borrowings on the line-of-credit arrangement. The Company plans to adopt the new standard for the year beginning January 1, 2016retrospectively, and does not expect the adoption to have a significant net impact on the financial statements. In July, 2015, the FASB issued ASU 2015-11 as part of its simplification initiative. The ASU changes the way of measurement on inventory, whichcurrently requires an entity to measure inventory at the lower of cost or market. The amendments in this Update require an entity to measure inventory withinthe scope of this Update at the lower of cost and net realizable value. The Company plans to adopt the new standard for the year beginning January 1, 2016,and is still in the process of assessing the potential financial impact to the Company. In September 2015, the FASB issued ASU2015-16 related to the accounting for measurement period adjustments recognized in a business combination.Under the previous standard, when adjustments were made to amounts previously reported as part of a business combination during the measurement period,entities were required to revise comparative information for prior periods. Under the new standard, entities must recognize these adjustments in the reportingperiod in which the amounts are determined rather than retrospectively. The Company adopted the new standard during the fourth quarter of 2015, which didnot have a significant impact on the financial statements. In November 2015, the FASB issued ASU2015-17 as part of its simplification initiative. To simplify the presentation of deferred income taxes, theamendments in this Update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. TheCompany plans to adopt the new standard for the year beginning January 1, 2016 retrospectively, and does not expect the adoption to have a significant netimpact on the financial statements. In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10)—Recognition and Measurement of Financial Assetsand Financial Liabilities. ASU 2016-01 changes how entities measure certain equity investments and present changes in the fair value of financial liabilitiesmeasured under the fair value option that are attributable to their own credit. The guidance also changes certain disclosure requirements and other aspects ofcurrent U.S. GAAP. ASU 2016-01 is effective for fiscal years and interim periods within those years beginning after December 15, 2017, and certainprovisions of the guidance may be early adopted. The Company is still evaluating the impact ASU 2016-01 will have on the consolidated financialstatements and associated disclosures. In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)". This update requires an entity to recognize lease assets and lease liabilities onthe balance sheet and to disclose key informationF-29Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)about the entity's leasing arrangements. ASU 2016-02 is effective for annual reporting periods, and interim periods therein, beginning after December 15,2018, with early application permitted. A modified retrospective approach is required. The Company is currently evaluating the impact of the adoption thisstandard on its consolidated financial statements. In March 2016, the FASB issued ASU2016-09, "Compensation—Stock Compensation (Topic 718) Improvements to Employee Share-Based PaymentAccounting". This guidance is intended to simplify the employee share-based payment accounting regarding several aspects, including the income taxconsequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public business entities, theamendments in this ASU are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoptionis permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflectedas of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the sameperiod. The Company is in the process of evaluating the impact of the standard on its consolidated financial statements.3. BUSINESS COMBINATIONAcquisition of Recurrent On March 30, 2015, the Company acquired 100% of the equity interests in Recurrent Energy, LLC ("Recurrent"), a limited liability company organizedand existing under the laws of the State of Delaware. Through its subsidiaries, Recurrent engages in developing, building, operating and sales of utility scaleand commercial solar systems. Subsequent to the acquisition, Recurrent has become a wholly owned subsidiary of the Company and operates and developsits major solar project pipeline in the United States. The purchase price of Recurrent was allocated to identifiable assets acquired and liabilities assumed on their estimated fair values at the date ofacquisition. The excess of the purchase price over fair value of net assets acquired was allocated to goodwill. The Company acquired Recurrent for a total cash consideration of approximately $261.4 million. The fair values assigned are based on reasonablemethods applicable to the nature of the assetsF-30Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)3. BUSINESS COMBINATION (Continued)acquired and liabilities assumed. The following table summarized the estimated fair values of assets acquired and liabilities assumed at the date ofacquisition. The goodwill is allocated to each project under Recurrent with respect to their fair value. None of the goodwill recognized from the acquisition ofRecurrent is expected to be deductible for income tax purposes. Goodwill recognized from this acquisition reflects the current value of the expected futureincome resulting from synergies of the combined operations. Revenue of the Company for the year ended December 31, 2015 included $266.9 million generated from Recurrent since acquisition day, and netincome of the Company for the year ended December 31, 2015 included $3.5 million net income from Recurrent since acquisition, respectively. Bank fees, legal costs and accounting costs associated with the acquisition of $4.2 million have been expensed and recorded within general andadministrative expenses in the consolidated statement of operations for the year ended December 31, 2015.Acquisition of SSM On September 28, 2015, the Company acquired 100% of the equity interests in SSM1 Solar ULC, SSM2 Solar ULC, and SSM3 Solar ULC (together as"SSM"). Subsequent to the acquisition, SSM have become wholly owned subsidiaries of the Company and operates and develops its solar project pipeline inCanada. The Company acquired SSM for a total cash consideration of approximately $59.0 million. The purchase price allocation for this acquisition has not yetbeen finalized. The following table summarizedF-31 In Millions ofU.S. Dollars Recognized identifiable assets acquired and liabilities assumed Cash 108.4 Restricted cash 38.2 Project assets 233.5 Solar power systems, net 46.8 Other assets 40.2 Less : Long term borrowings and notes payable 165.2 Other liabilities 51.4 Total identifiable net assets 250.5 Goodwill 10.9 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)3. BUSINESS COMBINATION (Continued)the preliminary fair value of assets acquired and liabilities assumed at the acquisition date. The final allocation of the purchase price may differ from thispreliminary allocation. Bank fees, legal costs and accounting costs associated with the acquisition of $2.4 million have been expensed and recorded within general andadministrative expenses in the consolidated statement of operations for the year ended December 31, 2015.Pro forma results of acquisitions (unaudited) The following pro forma condensed consolidated financial results of operations are presented as if the acquisitions described above had been completedat the beginning of the comparable annual reporting period. Specifically, the pro forma results give effect as though the acquisition of Recurrent and theacquisition of SSM were consummated on January 1, 2014. The unaudited pro forma net income for the year ended December 31, 2015 excludes the impact of $6.6 million of non-recurring items related totransaction related costs. The pro forma condensed consolidated financial information has been prepared for comparative purposes only and includes certain adjustments, as notedabove. The adjustments do not reflect the effect of costs or synergies that would have been expected to result from the integration of the acquisitions. The proforma information does not purport to be indicative of the results of operations that actually would have resulted had the combinations occurred at thebeginning of each period presented or of future results of the consolidated entities.F-32 In Millions ofU.S. Dollars Recognized identifiable assets acquired and liabilities assumed Cash 8.1 Solar power systems 141.9 Intangible assets 72.0 Other assets 11.7 Less: Short-term borrowings 7.4 Long-term borrowings 134.6 Other liabilities 32.7 Total identifiable net assets 59.0 Years endDecember 31, 2014 2015 (In thousands of U.S. Dollars, expect per share data) Pro forma sales 4,174,232 3,505,324 Pro forma net income attributable to Canadian Solar Inc. 431,539 159,231 Diluted earnings per share attributable to Canadian Solar Inc. 7.35 2.72 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)4. ALLOWANCE FOR DOUBTFUL ACCOUNTS Allowance for doubtful accounts are comprised of allowances for accounts receivable trade, advances to suppliers and other receivables. An analysis of allowances for accounts receivable, trade for the years ended December 31, 2013, 2014 and 2015 is as follows: An analysis of allowances for advances to suppliers for the years ended December 31, 2013, 2014 and 2015 is as follows: An analysis of allowances for other receivables for the years ended December 31, 2013, 2014, 2015 is as follows:F-33 Years Ended December 31, 2013 2014 2015 $ $ $ Beginning of the year 47,582 38,483 31,817 Allowances reversed during the year, net (1,897) (5,843) (1,084)Accounts written-off against allowances (7,878) (9) (858)Foreign exchange effect 676 (814) (1,719)Closing balance 38,483 31,817 28,156 Years Ended December 31, 2013 2014 2015 $ $ $ Beginning of the year 38,545 40,047 37,735 Allowances made during the year, net 855 4 1,291 Accounts written-off against allowances — — (9,465)Foreign exchange effect 647 (2,316) (932)Closing balance 40,047 37,735 28,629 Years EndedDecember 31, 2013 2014 2015 $ $ $ Beginning of the year 756 887 830 Allowances made (reversed) during the year, net 108 (53) 3,257 Foreign exchange effect 23 (4) (202)Closing balance 887 830 3,885 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)5. INVENTORIES Inventories consist of the following: In 2013, 2014 and 2015, inventory was written down by $715, $16,951 and $23,013, respectively, to reflect the lower of cost or market measurement.6. PROJECT ASSETS Project assets consist of the following: The Company recorded impairment charges for project assets of $1,558, $2,311 and nil for the years ended December 31, 2013, 2014 and 2015,respectively.F-34 At December 31,2014 At December 31,2015 $ $ Raw materials 95,224 97,331 Work-in-process 33,207 18,904 Finished goods 303,894 218,254 432,325 334,489 At December 31,2014 At December 31,2015 $ $ Project assets—Acquisition cost 119,060 2,220 Project assets—EPC and other cost 185,451 111,911 304,511 114,131 Current portion 235,228 111,317 Non-current portion 69,283 2,814 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)7. PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, net consist of the following: Depreciation expense of property, plant and equipment was $79,726, $79,895 and $80,642 for the years ended December 31, 2013, 2014 and 2015,respectively. Construction in process primarily represents production facilities under construction and the machinery under installation.8. SOLAR POWER SYSTEMS, NET Solar power systems, net consist of the following: For the years ended December 31, 2014 and 2015, in connection with decisions to hold and operate certain projects to generate revenues from the sale ofelectricity, projects totaling $98.0 million and $347.2 million, respectively, were reclassified to solar power systems, of which $22.7 million and$107.6 million were reclassified to those under construction, respectively. Depreciation expense of solar power systems was nil, $1,173 and $11,340 for theyears ended December 31, 2013, 2014 and 2015, respectively.F-35 At December 31,2014 At December 31,2015 $ $ Buildings 182,889 166,030 Leasehold improvements 6,849 7,755 Machinery 459,272 459,471 Furniture, fixtures and equipment 36,526 39,413 Motor vehicles 3,365 3,907 688,901 676,576 Accumulated depreciation (348,143) (391,635)Impairment (1,605) (8,470) 339,153 276,471 Construction in process 33,328 54,581 Property, plant and equipment, net 372,481 331,052 At December 31,2014 At December 31,2015 $ $ Solar power systems in operation 75,344 508,584 Solar power systems under construction 22,697 706,118 Accumulated depreciation (1,173) (14,261)Solar power systems, net 96,868 1,200,441 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)9. INTANGIBLE ASSETS, NET The following summarizes the Company's intangible assets: The power purchase agreements were acquired as part of the acquisition of SSM, which were preliminarily valued at $72.0 million at the acquisition day,and will be amortized on a straight-line basis over their remaining contractual term of 16 years. Amortization expense for the years ended December 31, 2013, 2014 and 2015 were $1,095, $1,559 and $2,235, respectively. Amortization expenses of the above intangible assets is expected to be approximately $6.5 million, $6.1 million, $5.8 million, $5.5 million and$55.0 million for the years ended December 31, 2016, 2017, 2018, 2019, 2020 and thereafter, respectively.10. FAIR VALUE MEASUREMENT The Company measures at fair value its financial assets and liabilities by using a fair value hierarchy that prioritizes the inputs to valuation techniquesused to measure fair value. Fair value is the price that would be received from the sale of an asset or paid to transfer a liability (i.e., an exit price) on themeasurement date in an orderly transaction between market participants.F-36As of December 31, 2015 Gross CarryingAmount AccumulatedAmortization Net $ $ $ Power purchase agreements 71,770 (37) 71,733 Technical know-how 1,528 (1,164) 364 Computer software 14,226 (7,385) 6,841 Total intangible assets, net 87,524 (8,586) 78,938 As of December 31, 2014 Gross CarryingAmount AccumulatedAmortization Net $ $ $ Technical know-how 1,622 (1,130) 492 Computer software 10,715 (4,601) 6,114 Total intangible assets, net 12,337 (5,731) 6,606 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)10. FAIR VALUE MEASUREMENT (Continued) As of December 31, 2014 and 2015, the following financial assets and liabilities were measured at fair value on a recurring basis in periods subsequent totheir initial recognition using the type of inputs shown as follows: Foreign exchange forward contracts The Company entered into certain foreign currency derivative contracts to protect against volatility of future cash flows caused by the changes in foreignexchange rates. The foreign currency derivative contracts do not qualify for hedge accounting and, as a result, the changes in fair value of the foreigncurrency derivative contracts are recognized in the consolidated statements of operations. The Company's foreign currency derivative instruments relate to foreign exchange option or forward contracts involving major currencies such asJapanese yen, Euro, Canadian dollar and Renminbi. Since its derivative instruments are not traded on an exchange, the Company values themF-37 Fair Value Measurements Using As of December 31, 2015 Total FairValue andCarryingValue on theBalance Sheets Quoted Pricesin ActiveMarkets forIdentical Assets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) $ $ $ $ Assets: Foreign exchange forward contracts 1,924 — 1,924 — Commodity hedge 2,072 — 2,072 — Interest rate swaption 4,335 — 4,335 — Total Assets 8,331 — 8,331 — Liabilities: Interest rate swap 21,546 — 21,546 — Warrants 25,265 — 25,265 — Foreign exchange forward contracts 5,775 — 5,775 — Total Liabilities 52,586 — 52,586 — Fair Value Measurements Using As of December 31, 2014 Total FairValue andCarryingValue on theBalance Sheets Quoted Pricesin ActiveMarkets forIdentical Assets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) $ $ $ $ Assets: Foreign exchange forward contracts 9,643 — 9,643 — Liabilities: Foreign exchange forward contracts 445 — 445 — Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)10. FAIR VALUE MEASUREMENT (Continued)using valuation models. Interest rate yield curves and foreign exchange rates are the significant inputs into these valuation models. These inputs areobservable in active markets over the terms of the instruments the Company holds, and accordingly, the fair value measurements are classified as Level 2 inthe hierarchy. The Company considers the effect of its own credit standing and that of its counterparties in valuations of its derivative financial instruments.Commodity hedge During the year ended December 31, 2015, the Company has entered into a fixed for floating energy commodity swap with a financial institution tohedge cash flows associated with electricity sales of the Astoria project for the period between expected COD and commencement of the long term PPA withthe offtaker in January 2019. The swap contract was designated as a cash flow hedge at inception and is anticipated to be effective through its two-year termthat ends on December 31, 2018. The fair value of the swap contract was $2,072, an asset position, recorded in derivative assets—non-current on the balancesheet at December 31, 2015. The effective portion of gains and losses on derivatives designated as cash flow hedges are initially deferred in othercomprehensive income before being recognized in the statements of operations in the same period as the hedged transactions are reflected in earnings. Gainsand losses on derivatives that are not designated or fail to qualify as effective hedges are recognized in the statements of operations as incurred. Fair value of the commodity swap is determined using pricing models developed based on the underlying commodity price of electricity and adjusted toreflect nonperformance risk of the counterparty and the Company, as necessary, which are considered Level 2 inputs.Interest rate swaption During the year ended December 31, 2015, the Company has entered into an option to purchase a fixed for floating interest rate swap, also known as aswaption, with a financial institution to hedge cash flows associated with interest payments of certain projects of Recurrent. The swaption had not beendesignated as a hedge for accounting purposes. The fair value of the swaption contract was $4,335, an asset position, recorded in derivative assets—currenton the balance sheet at December 31, 2015 and the change in its fair value is recorded in gain (loss) on change in fair value of derivatives during the yearended December 31, 2015. The fair value of the swaption was measured based on observable market data, which are considered Level 2 inputs.Interest rate swap SSM, which the Company acquired on September 28, 2015, entered into fixed for floating interest rate swaps with a financial institution to hedge theinterest rate risk resulting from fluctuations in interest rates on its project construction debts with notional amount totaling CAD186.0 million($133.9 million), which will expire in 2029. The interest rate swaps had not been designated as a hedge for accounting purposes. The total estimated fairvalue of the swap contracts was $21,546, a liability position, recorded in derivative liabilities on the balance sheet at December 31, 2015, and the change inF-38Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)10. FAIR VALUE MEASUREMENT (Continued)its fair value was recorded in gain (loss) on change in fair value of derivatives during the year ended December 31, 2015. The estimated fair value of interest rate swaps was measured based on observable market data, which are considered Level 2 inputs.Warrants The fair value of the warrants (see Note 26) was determined using the Binomial model, with certain inputs significant to the valuation methodologyclassified as Level 2 inputs. The effect of fair value of derivative instruments on the consolidated balance sheets as of December 31, 2014 and 2015 and the effect of derivativeinstruments on consolidated statements of operations for the years ended December 31, 2014 and 2015 are as follows: F-39 Fair Value of Derivative Assets At December 31, 2014 At December 31, 2015 Balance Sheet Location Fair Value Balance Sheet Location Fair Value $ $ Foreign exchange forward contracts Derivatives assets—current 9,643 Derivatives assets—current 1,924 Interest rate swaption — — Derivatives assets—current 4,335 Commodity hedge — — Derivatives assets—non-current 2,072 Total 9,643 Total 8,331 Fair Value of Derivative Liabilities At December 31, 2014 At December 31, 2015 Balance Sheet Location Fair Value Balance Sheet Location Fair Value $ $ Foreign exchange forward contracts Derivatives liabilities—current 445 Derivatives liabilities—current 5,775 Warrants — — Derivatives liabilities—current 25,265 Interest rate swap — — Derivatives liabilities—current 4,188 Interest rate swap — — Derivatives liabilities—non-current 17,358 Total 445 Total 52,586 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)10. FAIR VALUE MEASUREMENT (Continued) The Company measures certain long-lived assets or long-term investments at fair value on a non-recurring basis in periods after initial measurement incircumstances when the fair value of such assets is below its recorded cost and impairment is required. In accordance with ASC 360, the Company's mono-crystalline ingot furnaces with a carrying value of $5.8 million was written down to its fair value$2.1 million, resulting an impairment charge of $3.7 million included in general and administrative expenses in the consolidated statements of operations forthe year ended December 31, 2013. The Company recorded impairment charges for certain idle assets of $1.6 million and $7.0 million for the years endedDecember 31, 2014 and 2015 respectively. The fair value of the assets or investment was measured based on prices offered by unrelated third-party willingbuyers and classified as level 3 fair value measurements as the offering prices are not observable. The Company also holds financial instruments that are not recorded at fair value in the consolidated balance sheets, but whose fair value is required to bedisclosed under U.S. GAAP. The carrying value of cash and cash equivalents, restricted cash, trade receivables, billed and unbilled, amount due from related parties, accounts andshort-term notes payable, amount due to related parties, and short-term borrowings approximate their fair value due to the short-term maturity of theseinstruments. Long-term borrowings are $134,300 and $606,577 as of December 31, 2014 and 2015 respectively, which approximate their fair value sincemost of the borrowings contain variable interest rates. The fair value of long-term borrowings was measured based on discounted cash flow approach, which isclassified as level 2 as the key input can be corroborated with market data. The carrying value of the Company's outstanding convertible notes as of December 31, 2015 was $150.0 million.F-40 Amount of Gain (Loss)Recognized in Statementsof Operations Years Ended December 31 Location ofGain (Loss) Recognizedin Statements of Operations 2013 2014 2015 $ $ $ Foreign exchange forward contracts Gain(Loss) on change in fair value of derivatives 10,460 19,656 (3,738)Foreign exchange option contracts Gain(Loss) on change in fair value of derivatives 304 — — Change in fair value of warrants Gain(Loss) on change in fair value of derivatives — — (8,887)Commodity hedge Gain(Loss) on change in fair value of derivatives — — (7)Interest rate swaption Gain(Loss) on change in fair value of derivatives — — (107)Interest rate swap Gain(Loss) on change in fair value of derivatives — — 543 Total 10,764 19,656 (12,196) Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)11. INVESTMENTS IN AFFILIATES Investments in affiliates consist of the following:Tax equity transactions In 2015, the Company, through its wholly owned subsidiary Recurrent, entered into the following tax equity transactions: In August 2015, the Company completed the sale of 100% of the class A membership interests of RE Tranquillity Holdings LLC, the holding companyof the Tranquillity project entities, to Southern Power ("Southern"), a subsidiary of Southern Company. The Company maintains a 100% ownership in theclass B membership interests of RE Tranquillity Holdings LLC. Southern paid the Company an initial contribution of $100 million in cash for the class Amembership interests in RE Tranquillity Holdings LLC in August 2015. In October 2015, the Company completed the sale of 100% of the class A membership interests of RE Silverlake Holdings LLC, the holding company ofthe Garland project entities, to Southern. The Company maintains a 100% ownership in the class B membership interests of RE Silverlake Holdings LLC.Southern paid the Company an initial contribution of $49 million in cash for the class A membership interests in RE Silverlake Holdings LLC in October2015. In December2015, the Company completed the sale of 100% of the class A membership interests of RE Roserock Holdings LLC, the holding company ofthe Roserock project entities, to Southern. The Company maintains a 100% ownership in the class B membership interests of RE Roserock Holdings LLC.Southern paid the Company an initial contribution of $45 million in cash for the class A membership interests in RE Roserock Holdings LLC in December2015.F-41 At December 31, 2014 2015 CarryingValue OwnershipPercentage CarryingValue OwnershipPercentage $ (%) $ (%) Suzhou Gaochuangte New Energy Co., Ltd. 7,112 40 6,837 40 CSI SkyPower 3,533 50 3,332 50 GCL-CSI (Suzhou) Photovoltaic Technology Co., Ltd. 3,311 10 4,526 10 Foto Light LP ("Foto Light") 2,390 5 1,735 5 Discovery Light LP ("Discovery Light") 2,125 5 1,951 5 City Light LP ("City Light") — — 1,943 5 RE Tranquillity Holdings LLC ("Tranquillity") — — 90,325 49 RE Silverlake Holdings LLC ("Garland") — — 8,599 49 RE Roserock Holdings LLC ("Roserock") — — 34,898 49 Suzhou Financial Leasing Co., Ltd. — — 13,860 6 Others 20,352 21-50 19,125 21-49 Total 38,823 187,131 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)11. INVESTMENTS IN AFFILIATES (Continued) Under the LLC agreement, the class A membership interests and class B membership interests will receive 51% and 49%, respectively, of future cash flowdistributions, and Southern is entitled to substantially all of the projects' federal tax benefits. Effective with the sale of the class A membership interests, the Company ceased having controlling financial interests in Tranquillity, Roserock andGarland, and accounted for the transactions as partial sales of real estate under ASC360-20. The Company also considered that it would continue to exercisesignificant influence over its retained interest in and has accounted for this interest pursuant to the equity method of accounting. In connection these sales to Southern, $190.4 million was recognized as revenue, and with the loss of a controlling financial interest in Tranquillity,Garland and Roserock, the Company derecognized net assets of $93.9 million, $56.4 million and $23.5 million and recognized an investment in affiliatebalance, respectively. Subsequent to sales of the class A membership interests, the Company further contributed $69.5 million to the projects in 2015.Other investments On December 17, 2009, CSI Cells Co., Ltd. ("SZCC", or "CSI Cells") established a joint venture, Suzhou Gaochuangte New Energy Co., Ltd.,("Gaochuangte"), for total cash consideration of $2,929. SZCC holds a 40% voting interests and one of the three board members is designated by SZCC and,as such, SZCC is considered to have significant influence over the investee. On July 4, 2011, Gaochuangte increased its share capital, and SZCC paid $3,119in proportion to its ownership percentage. On July 4, 2011, CSI Solar Power (China) Inc. ("SZSP") acquired a 10% interests in a joint venture, GCL-CSI (Suzhou) PhotovoltaicTechnology Co., Ltd, for cash consideration of $2,549. SZSP is able to exercise significant influence over the investee through its representative in the board. On May 23, 2012, CSI established a joint venture, CSI SkyPower, for cash consideration of $3,429. In August 2013, CSI SkyPower increased its sharecapital, and CSI paid $4,000 in proportion to its ownership percentage. CSI holds a 50% voting interests and two of four board members are designated byCSI and, as such, CSI is considered to have significant influence over the investee. In September 2012, CSI Project Holdco, LLC ("USPH") acquired 21% to 30% equity interests in certain separate utility-scale solar power projects fromthird parties by contribution of solar modules with an aggregate book value of $15,875. In the second quarter of 2013, some solar power projects increasedtheir share capital, and USPH contributed solar modules with an aggregate book value of $5,791 in proportion to its ownership percentage. These equityinterests were recorded at the carrying value of the modules contributed. In December 2014, CSI sold its 95% equity interests in two projects, Discovery Light and Foto Light to a third party buyer. The Company still held 5%equity interests of these two projects.F-42Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)11. INVESTMENTS IN AFFILIATES (Continued) In March 2015, CSI sold its 95% equity interests in one project, City Light to a third party buyer. The Company still held 5% equity interests of thisproject. On September 8, 2015, SZSP established an entity, Suzhou Financial Leasing Co., Ltd., for cash consideration of $13,860, and holds a 6% votinginterests. SZSP is considered not have significant influence over the investee, and the cost method is used in this investment. Equity in earnings (loss) of unconsolidated investees was $(3,064), $487 and $(643) for the years ended December 31, 2013, 2014 and 2015,respectively.12. BORROWINGS As of December 31, 2015, the Company had contractual bank credit facilities of $2,770,957, of which $740,182 has been drawn down with the due datesbeyond December 31, 2016, $894,643 has been drawn down with the due dates before December 31, 2016 and $1,136,132 was available for draw down upondemand. In addition, as of December 31, 2015, the Company also had non-binding bank credit facilities of $516,852, of which $295,735 has been drawndown with the due dates before December 31, 2016 and $154,004 was subject to banks' discretion upon request for additional drawn down. As of December 31, 2015, short-term borrowings of $904,188 and long-term borrowings of $566,448 were secured by property, plant and equipment withcarrying amounts of $114,202, inventories of $49,715, prepaid land use rights of $11,549, equity of $419,374, restricted cash of $80,000, and project assetsand solar power systems of $1,242,238.F-43 At December 31,2014 At December 31,2015 $ $ Bank borrowings 796,739 1,631,858 Analysis as: Short-term 655,926 961,639 Long-term, current portion 37,202 107,392 Subtotal for short-term 693,128 1,069,031 Long-term, non-current portion 103,611 562,827 Borrowings from non-banking institutions 63,074 131,295 Analysis as: Short-term 14,708 53,899 Long-term, current portion 17,677 33,646 Long-term, non-current portion 30,689 43,750 Total 859,813 1,763,153 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)12. BORROWINGS (Continued)a)Short-term The Company's short-term borrowings consist of the following: The average interest rate on short-term borrowings was 4.63% and 4.32% per annum for the years ended December 31, 2014 and 2015, respectively. Theshort-term borrowings are repayable within one year.F-44 At December 31,2014 At December 31,2015 $ $ Bank borrowings Short-term bank borrowings secured by restricted cash 120,772 139,412 Short-term bank borrowings secured by inventories 35,882 12,926 Short-term bank borrowings guaranteed by Dr. Shawn Qu 57,419 — Short-term bank borrowings secured by prepaid land use rights and property, plantand equipment 91,270 302,379 Short-term bank borrowings secured by project assets and solar power systems 45,149 189,222 Short-term borrowings secured by equity — 76,837 Unsecured short-term borrowings 305,434 240,863 Long-term borrowings due within one year Long-term bank borrowings due within one year secured by inventories — 46 Long-term borrowings due within one year secured by prepaid land use rights andproperty, plant and equipment 5,034 13,327 Long-term borrowings due within one year secured by project assets and solar powersystems 587 83,264 Long-term borrowings due within one year secured by restricted cash 19,400 — Long-term bank borrowings due within one year secured by equity — 308 Unsecured long-term borrowings due within one year 12,181 10,447 693,128 1,069,031 Borrowings from non-banking institutions Short-term borrowings secured by restricted cash — 53,899 Long-term borrowings due within one year secured by project assets 16,150 32,568 Unsecured long-term borrowings due within one year 1,527 1,078 Unsecured short-term borrowings 14,708 — 32,385 87,545 Total 725,513 1,156,576 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)12. BORROWINGS (Continued)b)Long-term The Company's long-term borrowings consist of the following: The average interest rate on long-term borrowings was 6.32% and 4.75% per annum for the years ended December 31, 2014 and 2015, respectively. Future principal repayments on the long-term borrowings are as follows: On October 29, 2011, CSI Cells Co., Ltd. entered into a syndicated loan agreement with local Chinese commercial banks, denominated in RMB. Thelatest renewed total credit facility under this agreement equaled $47,225. The facility bears the base interest rate published by People's Bank of China for thesame maturity for RMB denominated borrowings and the interest under both tranches is due quarterly in arrears. Outstanding borrowings under thisagreement equaled $47,225 at December 31, 2015, which requires repayment of $23,774, $23,451 in 2016, 2017 respectively. TheF-45 At December 31,2014 At December 31,2015 $ $ Bank borrowings Unsecured long-term bank borrowings 50,162 10,124 Long-term bank borrowings secured by project assets and solar powersystems 43,749 162,993 Long-term bank borrowings secured by property, plant and equipment — 13,327 Long-term bank borrowings secured by equity — 376,383 Long-term bank borrowings secured by restricted cash 9,700 — Borrowings from non-banking institutions — — Long-term borrowings secured by project assets and solar power systems 15,219 13,745 Unsecured long-term borrowings 15,470 30,005 Total 134,300 606,577 2016 141,038 2017 288,081 2018 211,557 2019 3,696 2020 and thereafter 103,243 Total 747,615 Less: future principal repayment related to long-term borrowings, current portion (141,038)Total long-term portion $606,577 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)12. BORROWINGS (Continued)borrowing under the agreement is guaranteed by CSI Solar Power (China) Inc., Canadian Solar Manufacturing (Luoyang) Inc. and Canadian SolarManufacturing (Changshu) Inc. The agreement does not contain any financial covenants or restrictions. On October 28, 2013, CSI Cells Co., Ltd., entered into a loan agreement, denominated in RMB, with a state-owned trust company about research of solarphotovoltaic technology. The total credit facility under this agreement equaled $1,078, which requires repayment of $1,078 in 2016. The loan is free ofinterest and does not contain any financial covenants or restrictions. On December 4, 2013, Canadian Solar International Project 1 Limited, the Company's 100% owned subsidiary, entered into a loan agreement,denominated in U.S. dollars, with Harvest North Star Capital. The total credit facility under this agreement was $32,410 and will be used to finance thedevelopment of several ground-mounted solar power projects in Japan. Outstanding borrowings under this agreement equaled $32,410 at December 31, 2015,which requires repayment of $32,410 in 2016 respectively. The loan is secured by project assets and guaranteed by Canadian Solar Inc. The agreement doesnot contain any financial covenants or restrictions. On August 28, 2013, CSI Solar Power (China) Inc. entered into a financing agreement, denominated in RMB, with China Development Bank, SuzhouBranch, or CDB, pursuant to which CDB agreed to provide $6,006, in long-term construction financing for the construction of solar power projects in SuzhouNational New and High-tech Industrial Development Zone. Outstanding borrowings under this agreement equaled $6,006 at December 31, 2015, whichrequires repayment of $1,078, $1,078, $1,078, $1,078 and $1,694 in 2016, 2017, 2018, 2019 and, 2020 thereafter, respectively. The loan is secured byproject assets and guaranteed by Canadian Solar Inc. As at December 31, 2015, the Company met all the requirements of the financial covenants. In March 2015, the Company acquired 100% of the equity interests in Recurrent. On November 15, 2010, RE Cranbury Solar 1 LLC, a 100% ownedsubsidiary of Recurrent, entered into a loan agreement, denominated in U.S. dollars, with Macquarie Energy LLC. The total credit facility under thisagreement was $4,000 and will be used to finance the development of several ground-mounted solar power projects in U.S. Outstanding borrowings underthis agreement equaled $4,000 at December 31, 2015, which requires repayment of $4,000 in 2017. The loan is secured by project assets. The agreement doesnot contain any financial covenants or restrictions. In March 2015, the Company acquired 100% of the equity interests in Recurrent. On April 5, 2010, several 100% owned subsidiaries of Recurrententered into a loan agreement, denominated in U.S. dollars, with Kaiser Foundation Hospitals. The total credit facility under this agreement was $9,903 andwill be used to finance the development of several ground-mounted solar power projects in U.S. Outstanding borrowings under this agreement equaled$9,903 at December 31, 2015, which requires repayment of $157, $131, $185, $245 and $9,185 in 2016, 2017, 2018, 2019 and 2020 thereafter respectively.The loan is secured by project. The agreement does not contain any financial covenants or restrictions. On March 27, 2015, CSI New Energy Holding Co., Ltd. entered into a loan agreement with a Chinese commercial bank, Bank of Jiangsu. The bankagreed to provide long-term constructionF-46Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)12. BORROWINGS (Continued)financing to the Company, denominated in RMB, totaling $15,092, for the construction of solar power projects in Peixian Jiangsu. Outstanding borrowingunder this agreement equaled $6,160 at December 31, 2015, which requires repayment of $308, $770, $924, $924 and $3,234 in 2016, 2017, 2018, 2019 and2020 thereafter, respectively. The loan is secured by equity of Peixian Suxin Solartronics CO., Ltd. and guaranteed by CSI Solar Power (China) Inc. Theagreement does not contain any financial covenants or restrictions. On April 30, 2015, Canadian Solar Inc. entered into a loan agreement with China Minsheng Banking Corp,.Ltd. , denominated in U.S. dollars, The totalcredit facility under this agreement was $210,000 for acquisition purposes. Outstanding borrowing under this agreement was $210,000 as of December 31,2015, which requires repayment of $10,000, $10,000 and $190,000 in 2016, 2017 and 2018 respectively. The loan is secured by equity of CSI Solar Power(China) Inc. and guaranteed by Canadian Solar Manufacturing (Changshu) Inc., CSI Cells Co., Ltd., Canadian Solar Manufacturing (Luoyang) Inc. Theagreement does not contain any financial covenants or restrictions. On May 18, 2015, Canadian Solar International Project 2 Limited entered into credit agreement with Rabobank International Hong Kong Branch,dominated in Japanese Yen, the total credit facility under this agreement equaled $29,072 and will be used to finance the development of several ground-mounted solar power projects in Japan. Outstanding borrowings equaled $25,343 at December 31, 2015, which requires repayment of $25,343 in 2017. Theloan is secured by equity and guaranteed by Canadian Solar Inc. The agreement does not contain any financial covenants or restrictions. On June 17, 2015, 2225228 Ontario Inc. 3G Alfred and Beam Light LP, the Company's 100% owned subsidiaries, entered into a loan agreementdenominated in Canadian Dollar, with Deutsche Bank Trust Company Americas. The total credit facility under this agreement is $51,556 and was used tofinance the payment of the project costs. Outstanding borrowings under this agreement equaled $45,386 at December 31, 2015, which requires repayment of$45,386 in 2017. The loan is secured by project assets. The agreement does not contain any financial covenants or restrictions. On August 17, 2015, Canadian Solar New Energy (Kuan Cheng) Co. Ltd., the Company's 100% owned subsidiaries, entered into a loan agreementdenominated in RMB, with a local Chinese commercial bank. The total credit facility under this agreement is $15,400 and was used to finance the paymentof the project costs. Outstanding borrowings under this agreement equaled $6,160 at December 31, 2015, which requires repayment of $308, $1,232, $1,694,$1,694 and $1,232 in 2016, 2017, 2018, 2019 and 2020 thereafter. The loan is secured by project assets. The agreement does not contain any financialcovenants or restrictions. In September 2015, the Company acquired SSM, and assumed project loans originally entered into on September 30, 2011, denominated in CanadianDollar, with Norddeutsche Landesbank Giozentrale. The total credit facility under this agreement is $136,926 and was used to finance the payment of theproject costs. Outstanding borrowings under this agreement equaled $134,304 at December 31, 2015, which requires repayment of $46,967 and $87,337, in2016 and 2019 thereafter. The loan is secured by project assets. The agreement does not contain any financial covenants or restrictions.F-47Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)12. BORROWINGS (Continued) On October 26, 2015, Canadian Solar Inc. entered into a syndicated loan agreement denominated in U.S. dollars, arranged by Credit Suisse. The totalcredit facility under this agreement is $200,000 and was for general corporate purpose. Outstanding borrowings under this agreement equaled $180,000 atDecember 31, 2015, which requires repayment of $180,000 in 2017. The loan is secured by equity of the company's subsidiaries. The borrowing also containssome financial covenants about revenue, assets and liabilities. As at December 31, 2015, the Company met all the requirements of the financial covenants. Inconnection with the loan, the Company issued the lenders warrants to purchase up to 1,348,040 shares of common stock, at an exercise price of $24.48 pershare on October 26, 2015, and warrants to purchase up to 940,171 shares of common stock, at an exercise price of $28.08 per share on December 11, 2015,respectively, subject to adjustment under several special circumstances, including anti-dilution clauses. See Note 26 for warrants disclosure. The borrowings disclosed as above bear floating interest rate from 2.55% to 12.8%. On February 28, 2013, Canadian Solar Japan K.K. entered into a loan agreement with a Japanese bank for working capital, denominated in Japanese yen.The latest renewed total credit facility under this agreement equaled $46. The facility requires repayment of $32 each month. The outstanding borrowingsunder this agreement equaled $46 at December 31, 2015, which requires repayment of $46 in 2016. The agreement does not contain any financial covenantsor restrictions. On June 25, 2014 CSI-GCL (Yancheng) Solar Manufacturing Co., Ltd. ("YCSM"), entered into a financing agreement, denominated in RMB, with localChinese state-owned companies, which agreed to provide $41,579 in long-term construction financing for the construction of solar power projects andproduction line construction in Yancheng, Jiangsu. The facility is composed of two tranches. The first tranche has a credit limit of $23,100 which requiresrepayment within three years and was for working capital purposes. The second tranche has a credit limit of $18,479 for the expansion of solar cellproduction capacity. As of December 31, 2015, YCSM has drawn $11,899 and $18,105 respectively from the first and the second tranche. Both of thetranches are free of security and interest and the agreement does not contain any financial covenants or restrictions. The total outstanding borrowings underthis agreement equaled $30,004 at December 31, 2015, which requires repayment of $12,143 and $17,861 in 2017 and 2018 respectively. The agreementdoes not contain any financial covenants or restrictions. The borrowings disclosed as above bears fixed interest rate from nil to 1.45%.F-48 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)12. BORROWINGS (Continued)c)Interest expense The Company capitalized interest costs incurred into the Company's project assets or property, plant and equipment as follows during the years endedDecember 31, 2013, 2014 and 2015:13. LEASE In September 2015, YCSM leased certain machinery and equipment from a third party (the "purchaser-lessor"). Pursuant to the terms of the contract,YCSM is required to pay to the purchaser-lessor quarterly lease payments over three years and is entitled to obtain the ownership of these machinery andequipment at a nominal price upon the expiration of the lease. The lease was classified as capital lease. As of December 31, 2015, the carrying amount of themachinery and equipment related to this capital lease contract was $28,332, the payable related to this contract was $27,332, of which $9,496 was includedin other payables and $17,836 was included in other non-current liabilities on the consolidated balance sheet. As of December 31, 2015, future minimum lease payments required under non-cancelable capital lease agreements were as follows:14. SHORT-TERM NOTES PAYABLE The Company enters into arrangements with banks whereby the banks issue notes to the Company's vendors, which effectively serve to extend thepayment date of the associated accountsF-49 Years Ended December 31 2013 2014 2015 $ $ $ Interest capitalized—project assets 17,293 10,304 102 Interest capitalized—solar power system — — 23,328 Interest capitalized—property, plant and equipment 348 203 912 Interest expense 46,244 48,906 54,148 Total interest incurred 63,885 59,413 78,490 Year Ending December 31: $ 2016 10,126 2017 10,110 2018 8,986 Total minimum lease payments 29,222 Less: Amount representing interest 2,782 Present value of net minimum lease payments 26,440 Current portion 8,712 Non-current portion 17,728 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)14. SHORT-TERM NOTES PAYABLE (Continued)payable. Vendors may present the notes for payment to a bank, including the bank issuing the note, prior to the stated maturity date, but generally at adiscount from the face amount of the note. The Company is generally required to deposit restricted cash balances with the issuing bank, which are utilized toimmediately repay the bank upon the banks' settlement of the notes. Given the purpose of these arrangements is to extend the payment dates of accountspayable, the Company has recorded such amounts as short-term notes payable. As payments by the bank are immediately repaid by the Company's restrictedcash balances and other deposits with that same bank, the notes payable do not represent cash borrowings from the bank and, as such, the associated cashpayments have been recorded by the Company as an operating activity in the consolidated statements of cash flows. As of December 31, 2014 and 2015,short-term notes payable was $388,052 and $473,247, respectively.15. ACCRUED WARRANTY COSTS The Company's warranty activity is summarized below:16. RESTRICTED NET ASSETS As stipulated by the relevant laws and regulations applicable to China's foreign investment enterprise, the Company's PRC subsidiaries are required tomake appropriations from net income as determined under accounting principles generally accepted in the PRC ("PRC GAAP") to non-distributable reserves,which include a general reserve, an enterprise expansion reserve and staff welfare and bonus reserve. The wholly-owned PRC subsidiaries are not required tomake appropriations to the enterprise expansion reserve but appropriations to the general reserve are required to be made at not less than 10% of the profitafter tax as determined under PRC GAAP. The board of directors determines the staff welfare and bonus reserve. The general reserve is used to offset future losses. The subsidiaries may, upon a resolution passed by the stockholder, convert the general reserve intocapital. The staff welfare and bonus reserve is used for the collective welfare of the employee of the subsidiaries. The enterprise expansion reserve is for theexpansion of the subsidiaries' operations and can be converted to capital subject to approval by the relevant authorities. These reserves representappropriations of the retained earnings determined in accordance with Chinese law. In addition to the general reserve, the Company's PRC subsidiaries are required to obtain approval from the local PRC government prior to distributingany registered share capital. Accordingly, both theF-50 Years Ended December 31, 2013 2014 2015 $ $ $ Beginning balance 58,334 40,605 54,644 Warranty provision (16,465) 18,570 15,876 Warranty costs incurred (951) (2,996) (3,872)Foreign exchange effect (313) (1,535) (1,455)Ending balance 40,605 54,644 65,193 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)16. RESTRICTED NET ASSETS (Continued)appropriations to general reserve and the registered share capital of the Company's PRC subsidiaries are considered as restricted net assets amounting to$396,325 as of December 31, 2015.17. CONVERTIBLE NOTES On February 18, 2014, the Company issued $130,000 of convertible notes (the "2014 Notes"). The Company granted the initial purchasers a 30-dayoption to purchase up to an additional $20,000 aggregate principal amount of the 2014 Notes. On February 18, 2014, the option was fully exercised byinitial purchasers. The key terms of the 2014 Notes are described as follows: Maturity date. The 2014 Notes mature on February 15, 2019. Interest. The 2014 Note holders are entitled to receive interest at 4.25% per annum on the principal outstanding, in semi-annually installments, payablein arrears on February 15 and August 15 of each year, beginning August 15, 2014. Conversion. The initial conversion rate is 22.2222 shares per $1,000 initial principal amount, which represents an initial conversion price ofapproximately $45.00 per share. The 2014 Notes are convertible at any time prior to maturity. The conversion rate is subject to change for certain anti-dilution events and upon a change in control. If the holders elect to convert the 2014 Notes upon a change of control, the conversion rate will increase by anumber of additional shares as determined by reference to an adjustment schedule based on the date on which the change in control becomes effective andthe price paid per common share in the transaction (referred to as the "Fundamental Change Make-Whole Premium"). The Fundamental Make-WholePremium is intended to compensate holders for the loss of time value upon early exercise. Redemption. The Company may redeem for cash all or any portion of the notes, (i) at the Company's option, on or after February 21, 2017 if the lastreported sale price of the Company's common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or notconsecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading dayimmediately preceding the date on which the Company provides notice of redemption or (ii) following the occurrence of certain tax related events, in eachcase, at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, theredemption date. As of December 31, 2015, the carrying value of the convertible notes was $150,000. Issuance costs amounted to $5,103. The debt issuance costs arebeing amortized through interest expense over the period from February 18, 2014, the date of issuance, to February 15, 2019, the date of expiration, using theeffective interest rate method which was 4.98% for the year ended December 31, 2015. The amortization expense was $810 for the year ended December 31,2015. Coupon interest of $6,375 was recorded for the year ended December 31, 2015, of which, $2,387 was not paid and was recorded in other payables.F-51Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)18. INCOME TAXES The provision for income taxes is comprised of the following: The Company mainly operates in Canada, PRC, Japan, Germany, the United States and Hong Kong.Canada The Company was incorporated in Ontario, Canada and is subject to both federal and Ontario provincial corporate income taxes at a rate of 26.5% for theyears ended December 31, 2013, 2014 and 2015. Canadian Solar Solutions Inc. was incorporated in Ontario, Canada and is subject to both federal and Ontario provincial corporate income taxes at a rateof 26.5%, 25% and 25% for the years ended December 31, 2013, 2014 and 2015, respectively.United States Canadian Solar (USA) Inc. was incorporated in Delaware, USA and is subject to federal, California, and other states' corporate income taxes at a rate of38.10%, 37.95% and 38.56% for the years ended December 31, 2013, 2014 and 2015, respectively.F-52 Years Ended December 31, 2013 2014 2015 $ $ $ Income before Income Taxes Canada 41,700 248,666 79,631 Other 11,504 72,652 143,197 53,204 321,318 222,828 Current Tax Canada 1,695 17,721 71,002 Other 9,989 29,018 67,351 11,684 46,739 138,353 Deferred Tax Canada 11,493 40,895 (44,548)Other (15,538) (10,203) (44,293) (4,045) 30,692 (88,841)Total Income Tax (Benefit) Expense Canada 13,188 58,616 26,454 Other (5,549) 18,815 23,058 7,639 77,431 49,512 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)18. INCOME TAXES (Continued)Japan Canadian Solar Japan K.K. was incorporated in Japan and is subject to Japanese corporate income taxes at a normal statutory rate of approximately38.01%, 35.64% and 35.64% for the years ended December 31, 2013, 2014 and 2015, respectively.Germany Canadian Solar EMEA GmbH was incorporated in Munich, Germany and is subject to German corporate income tax at a rate of approximately 33% forthe years ended December 31, 2013, 2014 and 2015, respectively.Hong Kong Canadian Solar International Ltd. ("HKSI") was incorporated in Hong Kong, China, and is subject to Hong Kong profits tax at a rate of 16.5% for theyears ended December 31, 2013, 2014 and 2015, respectively.PRC The other major operating subsidiaries, including CSI Solartronics (Changshu) Co., Ltd., CSI Solar Technologies Inc., CSI Cells Co., Ltd., CanadianSolar Manufacturing (Luoyang) Inc., CSI Solar Power (China) Inc. and Canadian Solar Manufacturing (Changshu) Inc., and Suzhou Sanysolar MaterialsTechnology Co., Ltd. were governed by the PRC Enterprise Income Tax Law ("new EIT Law"). Under the new EIT Law, both foreign-invested enterprises and domestic enterprises are subject to a uniform enterprise income tax rate of 25%. The newEIT Law also provides a five-year transition period for those enterprises established before the promulgation date of the new EIT Law and were entitled topreferential tax treatment under the previous tax law. Enterprises that were subject to an enterprise income tax rate lower than 25% will have the new uniformenterprise income tax rate of 25% phased in over a five-year period from the effective date of the EIT Law. Enterprises that were entitled to exemptions orreductions from the standard income tax rate for a fixed term may continue to enjoy such treatment until the fixed term expires, subject to certain limitations.F-53Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)18. INCOME TAXES (Continued) Accordingly, the enterprise income tax rates applicable to the Company's major operating subsidiaries in China are summarized as follows: The Company makes an assessment of the level of authority for each of its uncertain tax positions (including the potential application of interest andpenalties) based on their technical merits, and has measured the unrecognized benefits associated with such tax positions. This liability is recorded asliability for uncertain tax positions in the consolidated balance sheets. In accordance with its policies, the Company accrues and classifies interest andpenalties associated with such unrecognized tax benefits as a component of its income tax provision. The amount of interest and penalties accrued as ofDecember 31 2014 and 2015 was $4,735 and $4,978, respectively. The Company does not anticipate any significant changes to its liability for unrecognizedtax positions within the next 12 months.F-54Company Applicable enterprise income tax rate under thenew EIT LawCSI Solartronics (Changshu) Co., Ltd. 25%CSI Solar Technologies Inc. 25% for 2013 and onwards; 12.5% for 2012 (half reductionof 25%)CSI Cells Co., Ltd. 25% for 2013 and onwards; 15% for 2012 resulting from itsHigh and New Technology Enterprise ("HNTE") statusCanadian Solar Manufacturing (Luoyang) Inc. 25% for 2012 and onwards;Canadian Solar Manufacturing (Changshu) Inc. 25% for 2013 and onwards; 12.5% for 2012 (half reductionof 25%)CSI Solar Power (China) Inc. 25%Suzhou Sanysolar Materials Technology Co., Ltd. 15% for 2015, 2014 and 2013 resulting from its HNTEstatus; 25% for 2012Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)18. INCOME TAXES (Continued) The following table illustrates the movement and balance of the Company's liability for uncertain tax positions (excluding interest and penalties) for theyears ended December 31, 2013, 2014 and 2015, respectively. The Company is subject to taxation in various jurisdictions where it operates, mainly including Canada and China. Generally, the Company's taxationyears from 2007 to 2014 are open for reassessment to the Canadian tax authorities. The Company's taxation years from 2005 through 2015 are subject toexamination by the Chinese tax authorities due to its permanent establishment in China. According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of income taxes has resultedfrom the computational errors of the taxpayer. The statute of limitations could be extended to five years under special circumstances. Though not beingclearly defined, a special circumstance would suffice where any underpayment of income taxes exceeds RMB100. For income tax adjustments relating totransfer pricing matters, the statute of limitations is ten years. Therefore, the Company's Chinese subsidiaries might be subject to reexamination by theChinese tax authorities on non-transfer pricing matters for taxation years up to 2010 retrospectively, and on transfer pricing matters for taxation years up to2005 retrospectively. There is no statute of limitations in case of tax evasion in China.F-55 Years Ended December 31, 2013 2014 2015 $ $ $ Beginning balance 11,242 13,001 10,844 Addition for tax positions related to the current year 2,403 — 196 Reductions for tax positions from prior years/Statute of limitationsexpirations — (1,368) — Foreign exchange effect (644) (789) (1550)Ending balance 13,001 10,844 9,490 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)18. INCOME TAXES (Continued) The components of the deferred tax assets and liabilities are presented as follows:F-56 At December 31,2014 At December 31,2015 $ $ Deferred tax assets: Accrued warranty costs 10,509 10,548 Bad debt allowance 9,318 8,358 Issuance costs 1,597 1,123 Inventory write-down 5,308 4,239 Future deductible expenses — 13,878 Depreciation and impairment difference of property, plant andequipment, solar power system 26,149 34,248 Accrued liabilities related to countervailing and anti-dumpingduty deposits 13,850 55,115 Deferred tax assets relating to sale of solar power systems 21,097 32,159 Net operating losses carry-forward 65,876 70,637 Others 6,947 7,409 Total deferred tax assets, gross 160,651 237,714 Valuation allowance (52,985) (55,959)Total deferred tax assets, net of valuation allowance 107,666 181,755 Deferred tax liabilities: Foreign currency derivative assets 1,167 4,558 Depreciation difference of property, plant and equipment 5,264 8,327 Deferred profit of projects 70,360 40,793 Basis difference related to acquisitions 26,459 18,339 Others 1,806 3,047 Total deferred tax liabilities, gross 105,056 75,064 Net deferred tax assets (liabilities) 2,610 106,691 Analysis as: Current deferred tax assets 40,810 30,013 Non-current deferred tax assets 66,856 97,134 Current deferred tax liabilities 94,711 1,426 Non-current deferred tax liabilities 10,345 19,030 Net deferred tax assets (liabilities) 2,610 106,691 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)18. INCOME TAXES (Continued) Movement of the valuation allowance is as follows: As of December 31, 2015, the Company has accumulated net operating losses of $307,550, of which $110,346 will expire between 2016 and 2034, andthe remaining can be carried forward indefinitely. The Company considers positive and negative evidence to determine whether some portion or all of the deferred tax assets will not be realized. Thisassessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carry-forward periods, the Company's experience with tax attributes expiring unused and tax planning alternatives. The Company has considered the followingpossible sources of taxable income when assessing the realization of deferred tax assets:•Tax planning strategies; •Future reversals of existing taxable temporary differences; •Further taxable income exclusive of reversing temporary differences and carry-forwards;The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporarydifferences become deductible for tax purposes. As a result, the Company has recognized a valuation allowance of $52,985 and $55,959 as at December 31,2014 and 2015, respectively.F-57 Years Ended December 31, 2013 2014 2015 $ $ $ Beginning balance 54,140 57,190 52,985 Additions (Reversals) 4,671 (4,411) (944)Addition from acquisition of Recurrent — — 4,949 Foreign exchange effect (1,621) 206 (1,031)Ending balance 57,190 52,985 55,959 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)18. INCOME TAXES (Continued) Reconciliation between the provision for income tax computed by applying Canadian federal and provincial statutory tax rates to income before incometaxes and the actual provision and benefit for income taxes is as follows: In accordance with the EIT Law, dividends, which arise from profits of foreign invested enterprises earned after January 1, 2008, are subject to a 10%withholding income tax. Under applicable accounting principles, a deferred tax liability should be recorded for taxable temporary difference attributable toexcess of financial reporting basis over tax basis in the investment in a foreign subsidiary. However, a deferred tax liability is not recognized if the basisdifference is not expected to reverse in the foreseeable future and is expected to be permanent in duration. As of December 31, 2015, all of the undistributedearnings of approximately $197.6 million attributable to the Company's PRC subsidiaries and affiliates are considered to be permanently reinvested, and noprovision for PRC withholding income tax on dividend has been made thereon accordingly. Upon distribution of those earnings generated after January 1,2008, in the form of dividends or otherwise, the Company would be subject to the then applicable PRC tax laws and regulations. Distributions of earningsgenerated before January 1, 2008 are exempt from PRC dividend withholding tax. The amounts of unrecognized deferred tax liabilities for these earnings arein the range of $9.88 million to $19.76 million, as the withholding tax rate of the profit distribution will be 5% or 10% depends on whether the immediateoffshore companies can enjoy the preferential withholding tax rate of 5%.F-58 Years Ended December 31, 2013 2014 2015 Combined federal and provincial income tax rate 27% 27% 27%Effect of permanent difference — — 1%Effect of different tax rate of subsidiary operations in other jurisdiction 1% (2)% (3)%Unrecognized tax benefits 5% — — Valuation allowance 5% (1)% — Change of tax rates in subsequent years (23)% — — Effect of true-up — — (1)%Foreign exchange effect — — (2)% 15% 24% 22%Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)19. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share for the years indicated: The following table sets forth anti-dilutive shares excluded from the computation of diluted earnings per share for the years indicated.F-59 Years Ended December 31, 2013 2014 2015 (In Thousands of US Dollars, except shareand per share data) Numerator: Net income attributable to Canadian Solar Inc.—basic $31,659 $239,502 $171,861 Dilutive effect of interest expense of convertible notes — 4,641 5,275 Net income attributable to Canadian Solar Inc.—diluted $31,659 $244,143 $177,136 Denominator: Denominator for basic calculation—weighted averagenumber of common shares—basic 46,306,739 54,408,037 55,728,903 Diluted effects of share number from share options andRSUs 4,081,545 2,051,601 1,343,162 Diluted effects of share number from warrants — — 20,658 Dilutive effects of share number from convertible notes — 2,894,977 3,333,333 Denominator for diluted calculation—weighted averagenumber of common shares—diluted 50,388,284 59,354,615 60,426,056 Basic earnings per share $0.68 $4.40 $3.08 Diluted earnings per share $0.63 $4.11 $2.93 Years Ended December 31, 2013 2014 2015 Share options and RSUs 434,529 95,422 115,017 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)20. RELATED PARTY BALANCES AND TRANSACTIONSRelated party balances: The amount due from related parties of $104,579 as of December 31, 2015 consists of (i) trade receivable of $1,619 for solar power products sold toGaochuangte, the Company's 40% owned affiliate, (ii) prepayments for bid deposits of $1,836 to CSI Skypower, the Company's 50% owned affiliate, and(iii) trade receivable of $101,124 for solar power products sold and development services provided to the Company's 49% owned affiliates, i.e. Tranquillity,Garland, and Roserock. No amount was due as of December 31, 2015. The amount due from related parties of $4,217 as of December 31, 2014 consists of (i) a trade receivable of $1,499 from Gaochuangte for solar powerproducts sold, (ii) prepayments for bidding of $2,718 to CSI Skypower. No amount was due as of December 31, 2014. The amount due to related parties of $90,002 as of December 31, 2015 consists of (i) advance of $36,982 from the Company's 49% owned affiliates, (ii) atrade payable of $25,827 due to Gaochuangte for the EPC service fees, (iii) advances receipt of development services fee of $27,116 from Tranquillity andRoserock, and (iv) a government award of $77 to Dr. Shawn Qu, Chairman, President, Chief Executive Officer, and major shareholder of the Company, whichwas initially paid to the Company. The amount due to related party of $17,592 as of December 31, 2014 consists of (i) a government award of $82, payable to Dr. Shawn Qu, which wasinitially paid to the Company, and (ii) a trade payable of $17,510 to Gaochuangte for the EPC service fees.Related party transactions:Guarantees and loans Dr. Shawn Qu fully guaranteed a one-year RMB 1,866 million, RMB 888 million and RMB 896 million ($138.0 million) loan facilities from Chinesecommercial banks in 2013, 2014 and 2015, respectively. Amounts drawn down from the facilities as at December 31, 2014 and 2015 were $145,095 and$78,225, respectively. Dr. Shawn Qu fully guaranteed a two-year RMB 450 million ($69.3 million) loan facility from Chinese commercial banks in 2015. Amounts drawn downfrom the facilities as at December 31, 2015 were $63,113. Dr. Shawn Qu fully guaranteed three-year $150 million loan facilities from Chinese commercial banks in 2015. No amounts were drawn down from thefacilities as at December 31, 2015. In the first quarter of 2015, Dr. Shawn Qu loaned the Company $35.0 million at an interest rate of 4.25%. The Company fully repaid the loan, includinginterest of $21 in March of 2015. As of December 31, 2015, the Company had no outstanding borrowings with Dr. Shawn Qu. In January 2014, Dr. Shawn Qu loaned the Company an aggregate of $25.0 million at an interest rate of 4.27%. The Company repaid the loans, includinginterest of $112 in January and February 2014. As of December 31, 2014, the Company had no outstanding borrowings with Dr. Shawn Qu.F-60Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)20. RELATED PARTY BALANCES AND TRANSACTIONS (Continued) In May, June and August of 2013, Dr. Shawn Qu loaned the Company an aggregate of $13.0 million at an interest rate of 4.27%. The Company fullyrepaid the loans, including interest of $242 in November and December 2013 and subsequently had no outstanding borrowings with Dr. Shawn Qu. In October 2014, SZSP guaranteed loan facilities from Chinese banks for GCL-CSI (Suzhou) Photovoltaic Technology Co., Ltd of $6.1 million(RMB37.2 million) in total due within three years. As of December 31, 2015, the loan facility was $3.2 million (RMB21.0 million) in total due within twoyears. No amounts were drawn down from the facilities as at December 31, 2015. Recurrent entered into buyer payment guaranties with a third party supplier in connection with certain solar module supply agreements of Tranquillityand Garland, pursuant to which Recurrent unconditionally guarantees to the third party supplier the timely payment in full when due and other paymentobligations of Tranquillity and Garland required under the solar module supply agreements. As of December 31, 2015, the payable balances due byTranquillity and Garland was $98.2 million and nil, respectively.Sales and purchase contracts with affiliates In 2015, the Company sold solar power products to Gaochuangte in the amount of $6,508 (RMB39,922), sold solar power products to Roserock andGarland in the amount of $28,132, provided development services to Tranquillity, Garland, and Roserock in the amount of $69,712. In 2014, the Company sold solar power products to Gaochuangte in the amount of $2,568 (RMB15,740). In 2015, the Company incurred costs of $28,159 (RMB175,272) to Gaochuangte for EPC services related to the Company's solar power projects. Theseamounts were recorded in project assets. In 2014, the Company incurred costs of $5,515 (RMB33,884) to Gaochuangte for EPC services related to the Company's solar power projects. Theseamounts were recorded in project assets.21. COMMITMENTS AND CONTINGENCIESa)Operating lease commitments The Company has operating lease agreements principally for its office properties in the PRC, Canada, Japan and the United States. Such leases haveremaining terms ranging from 1 to 324 months and are renewable upon negotiation. Rental expenses were $9,603, $12,187 and $15,451 for the years endedDecember 31, 2013, 2014 and 2015, respectively.F-61Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)21. COMMITMENTS AND CONTINGENCIES (Continued) Future minimum lease payments under non-cancelable operating lease agreements at December 31, 2015 were as follows:b)Property, plant and equipment purchase commitments As of December 31, 2015, the commitments for the purchase of property, plant and equipment were $61,879.c)Solar power systems commitments As of December 31, 2015, the commitments for development and construction of the solar power systems were $473,143.d)Supply purchase commitments In order to secure future solar wafers supply, the Company has entered into long-term supply agreements with suppliers in the past several years. Undersuch agreements, the suppliers agreed to provide the Company with specified quantities of solar wafers, and the Company has made prepayments to thesuppliers in accordance with the supply contracts. Total purchases under the long-term agreements were approximately $213,833, $143,197 and $1,480,120 during the years ended December 31, 2013,2014 and 2015, respectively. The following is a schedule, by year, of future minimum obligation, using market prices as of December 31, 2015, under all supply agreements as ofDecember 31, 2015:F-62Year Ending December 31: $ 2016 10,163 2017 6,952 2018 6,066 2019 5,425 2020 4,987 Thereafter 112,073 Total 145,666 Year Ending December 31: $ 2016 428,252 2017 529,585 2018 522,283 Total 1,480,120 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)21. COMMITMENTS AND CONTINGENCIES (Continued)d)ContingenciesDeutsche Solar AG In 2007, the Company entered into a twelve-year wafer supply agreement with Deutsche Solar AG, under which the Company was required to purchase acontracted minimum volume of wafers at pre-determined fixed prices and in accordance with a pre-determined schedule, commencing January 1, 2009. Thefixed prices may be adjusted annually at the beginning of each calendar year by Deutsche Solar AG to reflect certain changes in their material costs. Theagreement also contains a take-or-pay provision, which requires the Company to pay the contracted amount regardless of whether the Company acquires thecontracted annual minimum volumes. In 2009, the Company did not meet the minimum volume requirements under the agreement. Deutsche Solar AGagreed that the Company could fulfill its fiscal 2009 purchase obligation in fiscal 2010. In 2010, the Company fulfilled its 2009 purchase commitment underthe agreement but did not meet the minimum purchase obligation for 2010. In 2011, the Company did not meet its purchase commitment for the respectiveyears. The Company believes that the take-or-pay provisions of the agreement are void under German law and, accordingly, as of December 31, 2010 had notaccrued for the full $21,144 that would otherwise be due under the take-or-pay provision of the agreement. Rather, the Company assumed that it would bepermitted to purchase its 2010 contracted quantity, in addition to its 2011 contracted quantity, in fiscal 2011 and had included the purchase obligation forboth years in its evaluation of the loss on the long-term purchase commitments. The Company did not record a loss on firm purchase commitments in any ofthe three years ended December 31, 2015. In December 2011, Deutsche Solar AG gave notice to the Company to terminate the twelve-year wafer supply agreement with immediate effect. DeutscheSolar AG justified the termination with alleged breach of the agreement by the Company. In the notice, Deutsche Solar AG also reserved its right to claimdamage of Euro148.6 million in court. The agreement was terminated in 2011. As a result, the Company reclassified the accrued loss on firm purchasecommitments reserve of $27,862 as of December 31, 2011 to loss contingency accruals. In addition, the Company made a full bad debt allowance of $17,409against the balance of its advance payments to Deutsche Solar as a result of the termination of the long-term supply contract. As of December 31, 2015, theaccrued amount of $23,500 represents the Company's best estimate for its loss contingency. Deutsche Solar did not specify the basis for its claimed damage ofEuro 148.6 million in the notice.LDK In 2007, the Company entered into a three-year agreement with Jiangxi LDK Solar Hi-Tech Co., Ltd., or LDK, under which the Company purchasedspecified quantities of silicon wafers and LDK converted the Company's reclaimed silicon feedstock into wafers. In June 2008, the Company entered into twolong-term supply purchase agreements with LDK in which the Company was required to purchase a contracted minimum volume of wafers at pre-determinedfixed prices and in accordance with a pre-determined schedule. In April 2010, the Company sent a notice to LDK and announced termination of these twocontracts.F-63Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)21. COMMITMENTS AND CONTINGENCIES (Continued) In July 2010, CSI Cells Co. Ltd., one of the Company's wholly-owned subsidiaries, filed a request for arbitration against LDK with ShanghaiInternational Economy and Trade Arbitration Commission (formerly known as CIETAC Shanghai Branch) in relation to wafer supply contracts the Companyentered into with LDK in October 2007 (the "2007 Supply Contract") and in June 2008 (the "2008 Supply Contracts"). In December 2012, CIETAC ShanghaiBranch awarded RMB248.9 million ($38.4 million) in compensation plus RMB2.32 million($0.4 million) in arbitration expenses to LDK for the damagesLDK claimed to have suffered from the alleged breaches by the Company of the 2007 Supply Contract and 2008 Supply Contracts between July 2009 andSeptember 2010 (the "2012 Arbitral Award"). In December 2012, the Company made a non-cash provision totaling $30.0 million following an arbitrationaward made against the Company by CIETAC Shanghai Branch in favor of LDK. In February 2013, LDK filed for enforcement of 2012 Arbitral Award with Jiangsu Suzhou Intermediate People's Court, (the "Suzhou IntermediateCourt"). In 2013, LDK initiated two separate proceedings against the Company in Jiangxi Xinyu Intermediate People's Court, (the "Xinyu IntermediateCourt"), claiming that the Company had forfeited its rights to the initial deposits under the 2007 Supply Contract and 2008 Supply Contracts because of thealleged breaches under these contracts. Accordingly, the Company reversed the provision of $30.0 million in the first quarter of 2013. On October 18, 2013,the Xinyu Intermediate Court stayed these proceedings pending the decision by the Suzhou Intermediate Court as to the 2012 Arbitral Award. On September 9, 2015, the Suzhou Intermediate Court ruled in favor of LDK. On October 19, 2015, the Company reached a settlement agreement withLDK (the "2015 Settlement Agreement"). Under the 2015 Settlement Agreement, the Company agreed to pay RMB132.7 million ($20.8 million) to LDK andto purchase 64.3 million pieces of silicon wafers from LDK at market price over a three year period starting in or around December 2015, in exchange forwhich LDK (i) would release the Company from the 2012 Arbitration Award and waive LDK's rights and claims thereunder and (ii) would withdraw LDK'scomplaints from the Xinyu Intermediate Court and terminate such proceedings. The Suzhou Intermediate Court reviewed and approved the 2015 SettlementAgreement and terminated the enforcement proceeding relating to the 2012 Arbitral Award. The Company has already paid the required amounts andfulfilled its obligations under the 2015 Settlement Agreement. The $20.8 million paid to LDK was recognized as general and administrative expenses in2015. As of December 31, 2014, the Company had provided a full allowance against the advance to LDK of $9,798, due to the uncertainty of recovery. As ofDecember 31, 2015, the allowance was written-off. In March 2014, LDK filed an application for arbitration with CIETAC, seeking compensation and enforcement expenses for damages LDK claimed tohave suffered from the alleged breaches under the 2008 Supply Contracts between October 2010 and December 2013. The Company filed counterclaimsagainst LDK in July 2014. On December 22, 2015, CIETAC ruled to reject both LDK's claims and the Company's counterclaims.Class Action Lawsuits Following the two subpoenas from the SEC in 2010, six class action lawsuits were filed in the U.S. District Court for the Southern District of New York,or the New York cases, and another class actionF-64Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)21. COMMITMENTS AND CONTINGENCIES (Continued)lawsuit was filed in the U.S. District Court for the Northern District of California, or the California case. The New York cases were consolidated into a singleaction in December 2010. On January 5, 2011, the California case was dismissed by the plaintiff, who became a member of the lead plaintiff group in the NewYork action. On March 11, 2011, a Consolidated Complaint was filed with respect to the New York action. The Consolidated Complaint alleges generallythat the Company's financial disclosures during 2009 and early 2010 were false or misleading; asserts claims under Sections 10(b) and 20(a) of the ExchangeAct and Rule 10b-5 thereunder; and names the Company, its chief executive officer and its former chief financial officer as defendants. The Company filed itsmotion to dismiss in May 2011, which was taken under submission by the Court in July 2011. On March 30, 2012, the Court dismissed the ConsolidatedComplaint with leave to amend, and the plaintiffs filed an Amended Consolidated Complaint against the same defendants on April 19, 2012. On March 29,2013, the Court dismissed with prejudice a class action lawsuit filed against us and certain named defendants alleging that our financial disclosures during2009 and early 2010 were false or misleading and in violation of federal securities law. The court found that the plaintiffs failed to adequately allege asecurities law violation and granted the Company's motion to dismiss all claims against all defendants with prejudice. On December 20, 2013, the UnitedStates Court of Appeals for the Second Circuit affirmed the district court's order dismissing such class action lawsuit. In addition, a similar class action lawsuit was filed against the Company and certain of its executive officers in the Ontario Superior Court of Justice onAugust 10, 2010. The lawsuit alleges generally that the Company's financial disclosures during 2009 and 2010 were false or misleading and brings claimsunder the shareholders' relief provisions of the CBCA, Part XXIII.1 of the Ontario Securities Act as well as claims based on negligent misrepresentation. InDecember 2010, the Company filed a motion to dismiss the Ontario action on the basis that the Ontario Court has no jurisdiction over the claims andpotential claims advanced by the plaintiff. The court dismissed the Company's motion on August 29, 2011. On March 30, 2012, the Ontario Court of Appealdenied the Company's appeal with regard to its jurisdictional motion. On November 29, 2012, the Supreme Court of Canada denied the Company'sapplication for leave to appeal the order of the Ontario Court of Appeal. The plaintiff's motions for class certification and leave to assert the statutory cause ofaction under the Ontario Securities Act were served in January 2013 and initially scheduled for argument in the Ontario Superior Court of Justice in June2013.However, the plaintiff's motions were adjourned in view of the plaintiff's decision to seek an order compelling the Company to file additional evidenceon the motions. On July 29, 2013 the Court dismissed the plaintiff's motion to compel evidence. On September 24, 2013 the plaintiff's application for leaveto appeal from the July 29 order was dismissed. In September 2014, the plaintiff obtained an order granting him leave to assert the statutory cause of actionunder the Ontario Securities Act for certain of his misrepresentation claims. In January 2015, the plaintiff in a class action lawsuit filed against the Company and certain of its executive officers in the Ontario Superior Court ofJustice obtained an order for class certification in respect of certain claims for which he obtained leave to assert the statutory cause of action under theOntario Securities Act, for certain negligent misrepresentation claims and for oppression remedy claims advanced under the Canada Business CorporationsAct. The Court dismissed the Company'sF-65Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)21. COMMITMENTS AND CONTINGENCIES (Continued)application for leave to appeal and the class action has moved to the merits stage. The Company believes the Ontario action is without merit and theCompany is defending it vigorously.Countervailing and anti-dumping duties In October 2011, a trade action was filed with the U.S. Department of Commerce, or USDOC, and the U.S. International Trade Commission, or USITC, bythe U.S. unit of SolarWorld AG and six other U.S. firms, accusing Chinese producers of crystalline silicon photovoltaic cells, or CSPV cells, whether or notincorporated into modules, of selling their products (i.e., CSPV cells or modules incorporating these cells) into the United States at less than fair value, ordumping, and of receiving countervailable subsidies from the Chinese authorities. These firms asked the U.S. government to impose anti-dumping andcountervailing duties on Chinese-origin CSPV cells. The Company was identified as one of a number of Chinese exporting producers of the subject goods tothe U.S. market. The Company also has affiliated U.S. operations that import the subject goods from China. On October 9, 2012, the USDOC issued final affirmative determinations in the anti-dumping and countervailing duty investigations on CSPV cells,whether or not incorporated into modules, from China. On November 7, 2012, the USITC ruled that imports of CSPV cells had caused material injury to theU.S. CSPV industry. As a result of these rulings, the Company is required to pay cash deposits on Chinese-origin CSPV cells imported into the U.S., whetheralone or incorporated into modules. The announced cash deposit rates applicable to the Company were 13.94% (anti-dumping duty) and 15.24%(countervailing duty). The Company paid all the cash deposits due under these determinations. . A number of parties challenged the determinations of theUSDOC and the USITC in appeals to the U.S. Court of International Trade. On August 7, 2015, the U.S. Court of International Trade sustained the USITC'sfinal determination and on December11, 2015, the U.S. Court of International Trade sustained the USDOC's final determination. These cash deposit rates were modified on July 14, 2015, when the USDOC published its final results of the 2012-2013 administrative reviews of theanti-dumping and countervailing duty orders on CSPV cells. As a result of these rulings, the cash deposit rates applicable to us were revised to 9.67% (anti-dumping duty) and 20.94% (countervailing duty). The rates at which duties will be assessed and payable for the 2012-2013 period are subject to ongoinglitigation at U.S. Court of International Trade. Decisions on these appeals are not expected until late 2016 or 2017. The rates at which duties will be assessed and payable for the 2013-2014 period and 2014-2015 period are subject to ongoing administrative reviewsthat are likely to conclude in mid-2016 and mid-2017, respectively. Those reviews may result in duty rates that differ from the announced deposit rates.These duties could materially and adversely affect the Company's affiliated U.S. import operations and increase its cost of selling into the U.S. On December 31, 2013, the U.S. unit of SolarWorld AG filed a new trade action with the USDOC and the USITC accusing Chinese producers of certainCSPV cells and modules of dumping their products into the U.S. and of receiving countervailable subsidies from the Chinese authorities. This trade actionalso accused Taiwanese producers of certain CSPV cells and modules of dumping their products into the U.S. Excluded from these new actions were thoseChinese-origin solar products covered by the 2012 rulings detailed in the prior paragraphs. The Company was identified as one of a number of Chineseproducers exporting subject goods to the U.S. market.F-66 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)21. COMMITMENTS AND CONTINGENCIES (Continued) On December 15, 2014, the USDOC issued final affirmative determinations in these anti-dumping and countervailing duty investigations. OnJanuary 21, 2015, the USITC ruled that imports of these CSPV products had caused material injury to the U.S. CSPV industry. As a result of these rulings, theCompany is required to pay cash deposits on subject CSPV imports from China. Cash deposit rates for the Company's subject Chinese-origin products wereannounced as being 30.06% (anti-dumping duty) and 38.43% (countervailing duty). A number of parties have appealed these USDOC and USITC rulings tothe U.S. Court of International Trade. Decisions on these appeals are not expected until 2016 or later. The rates at which duties will be assessed and payable for the 2014-2015 period are subject to ongoing administrative reviews. Those reviews may resultin duty rates that differ from the announced deposit rates. These duties could materially and adversely affect the Company's affiliated U.S. import operationsand increase the Company's cost of selling into the U.S. In 2015, a total of $128.9 million cash deposits were provided relating to countervailing and anti-dumping rulings in the U.S., of which $111.9 millionwere charged into cost of sales and $17.0 million remained as inventories as at December 31, 2015. Given the significant uncertainty surrounding theinvestigations and their ultimate resolution, the Company is unable to estimate any additional possible loss or range of loss that may arise from this action. On September 6, 2012, following a complaint lodged by EU ProSun, an ad-hoc industry association of EU CSPV module, cell and wafer manufacturers,the European Commission initiated an anti-dumping investigation concerning EU imports of CSPV modules and key components (i.e., cells and wafers)originating in China. On November 8, 2012, following a complaint lodged by the same parties, the European Commission initiated an anti-subsidyinvestigation on these same products. In each investigation, the Company was identified as one of a number of Chinese exporting producers of these productsto the EU market. On December 6, 2013, the EU imposed definitive anti-dumping and countervailing measures on imports of CSPV modules and key components(i.e., cells) originating in or consigned from China. The European Commission accepted the Company's offer for an undertaking agreement, according towhich duties were not payable on the Company's products sold into the EU, so long as the Company respected the terms and conditions of the undertaking,including a volume ceiling and minimum import price arrangement, and until the measures expired or the European Commission withdrew the undertakingagreement. On February 28, 2014, the Company filed separate actions with the General Court of the EU for annulment of the regulation imposing the definitive anti-dumping measures and of the regulation imposing the definitive countervailing measures (case T-162/14 and joined cases T-158/14, T-161/14, and T-163/14). These actions for annulment are ongoing. On June 20, 2014, the Company filed a request for leave to intervene in two separate actions brought by SolarWorld AG and others before the GeneralCourt of the EU for annulment of the undertaking agreement between the European Commission and Chinese exporting producers (cases T-141/14 and T-142/14). On November 28, 2014, the Company was granted leave to intervene. OnF-67Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)21. COMMITMENTS AND CONTINGENCIES (Continued)February 2, 2015, the Company filed its observations challenging the admissibility of the actions and rebutting claims that the undertaking agreementviolates EU law. On June 4, 2015, the European Commission withdrew the acceptance of the Company's undertaking offer. On November 23, 2015, the Company submitted to the General Court of the European Union requests for the withdrawal of the Company's interventionin cases T-141/14 and T-142/14. On February 1, 2016, the General Court of the EU declared both actions brought by SolarWorld AG and others to beinadmissible and accepted the Company's request for the withdrawal of the its intervention. On December 5, 2015, the European Commission initiated expiry (sunset) reviews of the anti-dumping and countervailing measures on imports of CSPVmodules and key components (i.e., cells) originating in or consigned from China. The outcome of the expiry reviews can be only the extension of themeasures at their existing level or their termination; the measures cannot be amended. Also on December 5, 2015, the European Commission initiated aninterim (changed circumstances) review limited to the question whether cells should be excluded from the scope of the measures. The anti-dumping andcountervailing measures on imports of CSPV modules and key components (i.e., cells) originating in or consigned from China will, in any event, remain inforce for the duration of the reviews and may subsequently be extended for up to five years. The reviews must be terminated by March 4, 2017. On December 18, 2015, the European Commission confirmed the Company's status as an interested party in the three review proceedings. The Companyhas not requested to be sampled in the expiry reviews and the European Commission does not intend to apply sampling in the interim review. On June 3, 2015, the CBSA released final determinations of dumping and subsidization which found dumping calculated by way of a MinisterialSpecification based on a Non Market Economy finding applicable to all cooperative exporters and ascertained a Canadian Solar-specific subsidies rate ofRMB 0.014 per Watt. On July 3, 2015 the Canadian International Trade Tribunal determined that a Canadian industry was not negatively affected as a resultof imported modules but was threatened with negative impact. As a result of these findings, definitive duties have been imposed on imports of Chinese SolarModules into Canada starting on July 3, 2015. The Company does not believe the imposition of these duties will have a material negative effect upon itsresults of operations because it has significant module manufacturing capacity in Ontario and do not rely on Chinese solar modules to serve its Canadianbusiness.22. SEGMENT INFORMATION The Company uses the management approach to determine operating segments. The management approach considers the internal organization andreporting used by the Company's chief operating decision maker for making decisions, allocating resources and assessing performance. The Company's chiefoperating decision maker ("CODM") has been identified as the Chief Executive Officer of theF-68Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)22. SEGMENT INFORMATION (Continued)Company, who reviews consolidated and segment results when making decisions about allocating resources and assessing performance of the Company. The Company operates its business in three principal reportable business segments, i.e., module segment, energy development segment and electricitygeneration segment. The module segment primarily involves design, development, manufacture and sales of solar power products and solar system kits. Theenergy development segment involves solar power project development, EPC services, developments services and O&M services. The electricity generationsegment primarily holds the solar power projects for the purpose of generating income from the sale of electricity. The sales from module segment to energysegment have terms and conditions similar to sales to third parties. The Company's CODM reviews net revenue and gross profit and does not review balancesheet information by segment. The following table summarizes the Company's revenues and gross profit generated from each segment: F-69 Years Ended December 31, 2015 Module EnergyDevelopment ElectricityGeneration Elimination Total $ $ $ $ $ Net revenues 2,672,689 947,188 32,059 (184,310) 3,467,626 Cost of revenues 2,277,904 760,283 18,668 (165,999) 2,890,856 Gross profit 394,785 186,905 13,391 (18,311) 576,770 Years Ended December 31, 2014 Module EnergyDevelopment ElectricityGeneration Elimination Total $ $ $ $ $ Net revenues 2,034,626 1,210,036 2,863 (286,898) 2,960,627 Cost of revenues 1,721,474 929,741 2,020 (273,602) 2,379,633 Gross profit 313,152 280,295 843 (13,296) 580,994 Years Ended December 31, 2013 Module EnergyDevelopment ElectricityGeneration Elimination Total $ $ $ $ $ Net revenues 1,483,751 322,927 1,327 (153,649) 1,654,356 Cost of revenues 1,298,949 233,159 564 (154,011) 1,378,661 Gross profit 184,802 89,768 763 362 275,695 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)22. SEGMENT INFORMATION (Continued) The following table summarizes the Company's net revenues generated from different geographic locations. The information presented below is based onthe location of customers' headquarters:F-70 Years Ended December 31, 2013 2014 2015 $ $ $ Europe and other regions: —United Kingdom 32,901 59,878 98,800 —France 26,406 9,990 97,398 —Germany 72,186 137,012 75,912 —Netherlands 12,882 9,166 12,859 —Spain 16,135 1,125 8,246 —Others 35,378 42,874 40,168 195,888 260,045 333,383 The Americas: —United States 215,262 604,537 903,748 —Canada 371,841 1,182,091 747,100 —Others 1,176 8,862 99,152 588,279 1,795,490 1,750,000 Asia: —Japan 483,788 623,692 578,173 —PRC 199,664 163,658 402,180 —India 68,731 63,817 262,536 —Singapore 36,743 18,021 24,131 —Others 81,263 35,904 117,223 870,189 905,092 1,384,243 Total net revenues 1,654,356 2,960,627 3,467,626 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)22. SEGMENT INFORMATION (Continued) The following table summarizes the Company's long-lived assets, including property, plant and equipment, project assets, solar power systems, prepaidland use rights and intangible assets at December 31, 2014 and 2015 by geographic region, based on the physical location of the assets: The following table summarizes the Company's revenues generated from each product or service:23. MAJOR CUSTOMERS Details of customers accounting for 10% or more of total net revenues are as follows: The accounts receivable from the three customers with the largest receivable balances represents 18%, 5% and 4% of the balance of the account atDecember 31, 2015, and 9%, 8% and 5% of the balance of the account at December 31, 2014, respectively. The balance from the customer with the largestreceivable balance is $78,630 and $35,569 as of December 31, 2015 and at December 31, 2014 respectively.F-71 At December 31,2014 At December 31,2015 $ $ PRC 456,184 412,583 United States 505 627,724 Canada 29,236 300,482 United Kingdom 6,934 115,797 Others 65,665 185,751 Total long-lived assets 558,524 1,642,337 Years Ended December 31, 2013 2014 2015 $ $ $ Solar power products 1,143,247 1,550,386 2,303,287 Solar system kits 149,768 104,215 93,406 Solar power projects 292,024 891,920 557,995 EPC services and development services 29,879 316,572 385,882 Electricity 1,327 2,863 32,059 O&M services 1,024 1,544 3,310 Others 37,087 93,127 91,687 Total net revenues 1,654,356 2,960,627 3,467,626 Years Ended December 31 2013 2014 2015 $ $ $ Company A 220,566 214,347 160,183 Company B 196,538 218,631 7,544 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)24. EMPLOYEE BENEFIT PLANS Employees of the Company located in the PRC are covered by the retirement schemes defined by local practice and regulations, which are essentiallydefined contribution schemes. The calculation of contributions for these eligible employees is based on 20% of the applicable payroll cost in 2014. Theexpense paid by the Company to these defined contributions schemes was $4,740, $5,806 and $6,189 for the years ended December 31, 2013, 2014 and2015, respectively. In addition, in 2015, the Company is required by PRC law to contribute approximately 10%, 8%, 2% and 2% of applicable salaries for medical insurancebenefits, housing funds, unemployment and other statutory benefits, respectively. The PRC government is directly responsible for the payment of the benefitsto these employees. The amounts contributed for these benefits were $5,461, $5,980 and $8,193 for the years ended December 31, 2013, 2014 and 2015,respectively.25. SHARE-BASED COMPENSATION In March 2006, the Company adopted a share incentive plan, or the Plan. The purpose of the Plan is to promote the success and enhance the value of theCompany by linking the personal interests of the directors, employees and consultants to those of the shareholders and providing the directors, employeesand consultants with an incentive for outstanding performance to generate superior returns to the shareholders. The Plan is also intended to motivate, attractand retain the services of the directors, employees and consultants upon whose judgment, interest and effort the successful conduct of the Company'soperations is largely dependent. In September 2010, the shareholders approved an amendment to the Plan to increase the maximum number of commonshares which may be issued pursuant to all awards of options, restricted shares and RSUs under the Plan to the sum of (i) 2,330,000 plus (ii) the sum of (a) 1%of the number of outstanding common shares of the Company on the first day of each of 2007, 2008 and 2009 and (b) 2.5% of the number of outstandingcommon shares of the Company outstanding on the first day of each calendar year after 2009. The Plan will expire on, and no awards may be granted after,May 8, 2021. Under the terms of the Plan, options are generally granted with an exercise price equal to the fair market value of the Company's ordinary sharesand expire ten years from the date of grant.Options to Employees As of December 31, 2015, there was $44 in total unrecognized compensation expense related to share-based compensation awards, which is expected tobe recognized over a weighted-average period of 0.42 years. During the years ended December 31, 2013, 2014 and 2015, $2,186, $1,321 and $355 wasrecognized as compensation expense, respectively. The Company utilizes the Binomial option-pricing model to estimate the fair value of stock options.F-72Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)25. SHARE-BASED COMPENSATION (Continued) The following assumptions were used to estimate the fair value of stock options granted in 2013. No stock options were granted in 2014 and 2015. The Company used the market yield of U.S. dollar dominated Chinese International government bonds with maturity periods that can cover thecontractual life of the shares option for the risk-free rates. In 2013, since the Company has been listed for approximately 7 years and its share price history ismore comparable to the life of the issued options, the Company estimated the expected volatility based on the annualized standard deviation of its dailystock price return from the date of listing to the valuation date. The Company's dividend policy is to retain earnings for reinvestment purpose and theCompany does not intend to distribute dividends, thus the dividend yield is assumed to be zero. The Company estimated the annual exit rates based on thehistorical general exit rate of staff at different levels. The Company estimated the exercise multiple based on the historical exercise pattern of prior employeestock options granted by the Company. A summary of the option activity is as follows: The weighted average grant-date fair value of options granted in 2013, 2014 and 2015 was $6.07, nil and nil, respectively. The total intrinsic value ofoptions exercised during the years ended December 31, 2013, 2014 and 2015 was $20,439, $7,493 and $3,422, respectively.F-73 2013 Risk free rate 2.47%Volatility ratio 89.60%Dividend yield — Annual exit rate 3.58%Exercise multiple 4.10 Numberof Options WeightedAverageExercisePrice WeightedAverageRemainingContractTerms AggregateIntrinsic Value $ In Thousands ofU.S. Dollars Options outstanding at January 1, 2015 846,113 12.21 5 years 11,794 Granted — — Exercised (167,587) 11.14 Forfeited (2,817) 9.33 Options outstanding at December 31, 2015 675,709 12.44 3 years 12,354 Options vested or expected to be vested at December 31,2015 673,105 12.45 3 years 12,302 Options exercisable at December 31, 2015 664,459 12.50 3 years 12,129 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)25. SHARE-BASED COMPENSATION (Continued)RSUs to Employees The Company granted 1,361,623, 283,862 and 574,488 RSUs to employees in 2013, 2014 and 2015, respectively. The RSUs entitle the holders toreceive the Company's common shares upon vesting. The RSUs were granted for free and generally vest over periods from one to four years based on thespecific terms of the grants. The fair market value of the Company's ordinary shares at the date of grant resulted in total compensation cost of approximately$4.9 million, $7.3 million and $13.2 million that will be recognized ratably over the vesting period for the RSUs granted in 2013, 2014 and 2015,respectively. In the years ended December 31, 2013, 2014 and 2015, the Company recognized $2,321, $3,767 and $5,611 in compensation expenseassociated with these awards, respectively. As of December 31, 2015, there was $17,178 of total unrecognized share-based compensation related to unvested RSUs, which is expected to berecognized over a weighted-average period of 1.87 years. A summary of the RSU activity is as follows: The total fair value of RSUs vested during the years ended December 31, 2013, 2014 and 2015 was $1,944, $2,965 and $4,641, respectively.26. WARRANTS In connection with $180 million of two-year senior secured term syndicated loan arranged by Credit Suisse, the Company issued the lenders warrants topurchase up to 1,348,040 shares of common stock, at an exercise price of $24.48 per share on October 26, 2015, and warrants to purchase up to 940,171shares of common stock, at an exercise price of $28.08 per share on December 11, 2015, respectively (the "Warrants"), subject to adjustment under severalspecial circumstances, including anti-dilution clauses. The Warrants can be settled in cash at the discretion of the holder. As a result, they were accounted for as derivative liabilities which were fair valued atissuance and are subsequently marked to market at the end of each reporting period, until such time as the warrant is exercised or expired. On the issuance dates of the Warrants, the Company recorded them at the fair value of $16,378 with an offset to the borrowing proceeds. The Companyrecognized a loss of $8,887 from change in fairF-74 Number ofShares Weighted AverageGrant-DateFair Value $ Unvested at January 1, 2015 1,610,219 7.76 Granted 574,488 27.34 Vested (636,000) 7.27 Forfeited (237,297) 14.39 Unvested at December 31, 2015 1,311,410 15.75 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)26. WARRANTS (Continued)value of the Warrants in the consolidated statements of operations for the year ended December 31, 2015. The Company utilizes the Binomial model to estimate the fair value of the Warrants. The following assumptions were used to estimate the fair value ofthe Warrants as of the dates that the Warrants were originally issued and as of December 31, 2015: The Company used the market yield of U.S. Government Bonds with maturity October 31, 2017 as of the valuation date for the risk-free interest rate. TheCompany's dividend policy is to retain earnings for reinvestment purpose and the Company does not intend to distribute dividends, thus the dividend yieldis assumed to be zero. Expected volatility is based on the historical share price movement of the Company for the period of time close to the expected time toexercise. The expected life is based on the remaining term of the Warrants. The following is a reconciliation of the beginning and ending balances of the Warrants measured at fair value on a recurring basis using Level 2 inputs:27. SUBSEQUENT EVENTS In January 2016, the Company closed an offering of 500,000 common shares and received net proceeds of approximately $13.6 million from thisoffering, after deducting discounts and commissions but before offering expenses. In January 2016, the Company closed on a tax equity investment commitment with GE (NYSE: GE) unit GE Energy Financial Services for the 75megawatt (MWac) Astoria 2 solar power project. The Company also closed a debt facility for the Astoria 2 project, currently under construction in California.The Company will be the managing member of the Astoria 2 solar power project and plans to own and operate the facility. The led club including NORD/LB,Rabobank, Key Bank, and CITF-75 As of October 26,2015 As of December 11,2015 As of December 31,2015Exercise price $24.48 $28.08 $24.48 ~ $28.08Risk-free interest rate 0.672% 0.935%1.036% ~ 1.057%Dividend yield — — —Time to maturity 2 2 1.82 ~ 1.95Expected volatility 67.24% 65.13%63.38% ~ 63.88%Derivative Liabilities At December 31,2015 $ Beginning balance — Warrants issued 16,378 Fair value change of the Warrants included in earnings 8,887 Ending balance 25,265 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 and 2015(In Thousands of U.S. Dollars, unless otherwise indicated)27. SUBSEQUENT EVENTS (Continued)Bank will provide project-level construction debt, a letter of credit facility and a back-leveraged term loan facility, totaling approximately $180 million. In January 2016, the Company bought back $15 million convertible notes at weighted average price of $85.13 per $100 par value. On January 28, 2016, the Company signed a $60.0 million loan facility agreement with International Finance Corporation ("IFC"), a member of WorldBank Group, to fund the construction of the Company's solar cell and module production facilities in Vietnam and other countries approved by IFC. The loanfacility will expire in June 2020. On the same day, the Company signed a subscription agreement with IFC pursuant to which IFC agreed to subscribe529,661 of the Company's common shares at $18.88 per share. The subscription was completed in February 2016.F-76Table of Contents Additional Information—Financial Statement Schedule I Canadian Solar Inc. Schedule I has been provided pursuant to the requirements of Rule 12-04(a) and 4-08(e)(3) of Regulation S-X, which require condensed financialinformation as to financial position, changes in financial position and results of operations of a parent company as of the same dates and for the same periodsfor which audited consolidated financial statements have been presented as the restricted net assets of Canadian Solar Inc.'s consolidated and unconsolidatedsubsidiaries not available for distribution to Canadian Solar Inc. as of December 31, 2015 of $396,325, exceeded the 25% threshold. The condensed financial information has been prepared using the same accounting policies as set out in the consolidated financial statements, exceptthat the equity method has been used to account for investments in subsidiaries.F-77Table of Contents FINANCIAL INFORMATION OF PARENT COMPANY BALANCE SHEETS F-78 December 31,2014 December 31,2015 (In Thousands of U.S. Dollars,except shareand per share data) ASSETS Current assets: Cash and cash equivalents 3,455 34,206 Restricted cash — 6,512 Accounts receivable trade, net of allowance for doubtful accounts of $4,302 and $3,852 atDecember 31, 2014 and 2015, respectively 4,006 2,268 Inventories 443 146 Amounts due from related parties—current 252,570 725,063 Derivative assets—current — 1,030 Advances to suppliers, net 1,991 226 Prepaid expenses and other current assets 5,852 13,809 Total current assets 268,317 783,260 Investment in subsidiaries 534,849 765,880 Deferred tax assets, net 3,655 2,204 Amount due from related parties—non-current 150,000 — Other non-current assets 48,219 62,897 TOTAL ASSETS 1,005,040 1,614,241 LIABILITIES AND EQUITY Current liabilities: Short-term borrowings — 10,000 Accounts payable 5 8 Amounts due to related parties 99,011 202,359 Derivative liabilities—current — 27,029 Other current liabilities 6,825 12,661 Total current liabilities 105,841 252,057 Accrued warranty costs 18,273 15,331 Convertible notes 150,000 150,000 Long-term borrowings — 364,680 Liability for uncertain tax positions 14,315 13,205 TOTAL LIABILITIES 288,429 795,273 Equity: Common shares—no par value: unlimited authorized shares, 55,161,856 and 55,965,443shares issued and outstanding at December 31, 2014 and 2015, respectively 675,236 677,103 Additional paid-in capital (25,682) (17,139)Retained earnings 46,999 218,860 Accumulated other comprehensive income 20,058 (59,856)TOTAL EQUITY 716,611 818,968 TOTAL LIABILITIES AND EQUITY 1,005,040 1,614,241 Table of Contents FINANCIAL INFORMATION OF PARENT COMPANY STATEMENTS OF OPERATIONS F-79 Years Ended December 31 2013 2014 2015 (In Thousands of U.S. Dollars) Net revenues 11,802 15,900 23,302 Cost of revenues 5,282 4,401 15,850 Gross profit 6,520 11,499 7,452 Operating expenses: Selling expenses 3,521 4,000 3,309 General and administrative expenses 5,724 8,331 29,124 Research and development expenses 715 416 450 Total operating expenses 9,960 12,747 32,883 Loss from operations (3,440) (1,248) (25,431)Other income (expenses): Interest expense — (6,329) (17,241)Interest income 12,022 10,369 34,471 Loss on change in fair value of derivatives — — (13,571)Foreign exchange gain (loss) (8,455) (5,335) 1,324 Others 427 47 — Other income (expenses), net: 3,994 (1,248) 4,983 Profit (loss) before income taxes and equity in earnings (loss) of subsidiaries andunconsolidated investees 554 (2,496) (20,448)Income tax expense (1,275) (1,005) (1,231)Equity in earnings of subsidiaries 35,132 243,283 193,813 Equity in loss of unconsolidated investees (2,752) (280) (273)Net Income 31,659 239,502 171,861 Table of Contents FINANCIAL INFORMATION OF PARENT COMPANY STATEMENTS OF COMPREHENSIVE INCOME (LOSS) F-80 Years Ended December 31, 2013 2014 2015 (In Thousands of U.S. Dollars) Net income 31,659 239,502 171,861 Other comprehensive income (net of tax of nil): Foreign currency translation adjustment 3,116 (33,853) (79,913)Comprehensive income 34,775 205,649 91,948 Table of Contents FINANCIAL INFORMATION OF PARENT COMPANY STATEMENTS OF CASH FLOWS F-81 Years Ended December 31, 2013 2014 2015 (In Thousands of U.S.Dollars) Operating activities: Net Income 31,659 239,502 171,861 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 5 1 32 Loss on disposal of property, plant and equipment — 4 — Loss on change in fair value of derivatives — — 13,571 Allowance for doubtful debts 1,872 11,434 1,535 Equity in earnings of subsidiaries (35,132) (243,283) (193,813)Equity in loss of unconsolidated investees 2,752 280 273 Share-based compensation 6,175 5,088 5,966 Changes in operating assets and liabilities: Inventories 2,828 (286) 296 Accounts receivable trade 627 (5,244) 2,189 Amounts due from related parties 85,993 3,905 228,284 Advances to suppliers (283) (11,836) (226)Prepaid expenses and other current assets 8,312 (2,260) (7,106)Other non-current assets 6,860 (19,727) (14,710)Accounts payable 9 (9) 3 Advances from customers (122) (657) 1,352 Amounts due to related parties (18,332) (42,128) 103,348 Accrued warranty costs (14,644) 84 (2,941)Other current liabilities (2,558) 3,544 4,484 Liability for uncertain tax positions 142 633 (1,111)Deferred taxes 406 1,208 1,451 Net settlement of foreign currency derivatives — — (3,950)Net cash provided by (used in) operating activities 76,569 (59,747) 310,788 Investing activities: Increase in restricted cash — — (6,513)Investment in subsidiaries (10,602) (39,668) (116,840)Purchases of property, plant and equipment — (5) — Funding of loans to subsidiaries — (128,213) (550,776)Net cash used in investing activities (10,602) (167,886) (674,129)Financing activities: Proceeds from short-term borrowings — — 10,000 Repayment of short-term borrowings (55,754) (12,246) — Proceeds from long-term borrowings — — 364,680 Repayment of long-term borrowings (53,670) (16,393) — Proceeds from issuance of warrants — — 16,378 Investment on minority shares — — (918)Proceeds from issuance of common shares offering 50,000 115,009 — Issuance costs paid for common shares offering (2,113) (6,090) — Proceeds from issuance of convertible notes — 150,000 — Issuance cost paid on convertible notes — (5,103) — Proceeds from exercise of stock options 10,793 3,342 1,867 Net cash provided by (used in) financing activities (50,744) 228,519 392,007 Effect of exchange rate changes 3,115 (27,016) 2,085 Net increase (decrease) in cash and cash equivalents 18,338 (26,130) 30,751 Cash and cash equivalents at the beginning of the year 11,247 29,585 3,455 Cash and cash equivalents at the end of the year 29,585 3,455 34,206 Supplemental disclosure of cash flow information: Interest paid (net of amounts capitalized) — 3,942 15,299 Income taxes paid 298 736 — Table of Contents Appendix 1 Major Subsidiaries of CSI The following table sets forth information concerning CSI's major subsidiaries:F-82Subsidiary Place anddateof Incorporation AttributableEquityInterest Held Principal ActivityCSI Solartronics (Changshu) Co., Ltd. PRCNovember 23, 2001 100% Developing solar power projectCSI Solar Technologies Inc. PRCAugust 8, 2003 100% Research and developing solar modulesCSI New Energy Holding Co., Ltd. PRCJanuary 7, 2005 100% Investment holdingCanadian Solar Manufacturing (Luoyang) Inc. PRCFebruary 24, 2006 100% Manufacture of solar modules, ingots and wafersCanadian Solar Manufacturing (Changshu) Inc. PRCAugust 1, 2006 100% Production of solar modulesCSI Cells Co., Ltd. PRCAugust 23, 2006 100% Manufacture of solar cellsCanadian Solar (USA) Inc. USAJune 8, 2007 100% Sales and marketing of modulesCSI Project Consulting GmbH GermanyMay 26, 2009 70% Developing solar power projectCanadian Solar Japan K.K. JapanJune 21, 2009 100% Sales and marketing of modulesCanadian Solar Solutions Inc. CanadaJune 22, 2009 100% Developing solar power project and manufacture of solar modulesCSI Solar Power (China) Inc. PRCJuly 7, 2009 100% Investment holdingCanadian Solar EMEA GmbH GermanyAugust 21, 2009 100% Sales and marketing of modulesCanadian Solar (Australia) Pty Limited AustraliaFebruary 3, 2011 100% Developing solar power project, sales and marketing of modulesCanadian Solar International Limited Hong KongMarch 25, 2011 100% Sales and marketing of modulesCanadian Solar O and M (Ontario) Inc. CanadaMay 10, 2011 100% Solar farm operating and maintenance serviceSuzhou Sanysolar MaterialsTechnology Co., Ltd. PRCAugust 17, 2011 80% Production of solar module materialsCanadian Solar South East Asia Pte. Ltd. SingaporeSeptember 19, 2011 100% Sales and marketing of modulesCanadian Solar South Africa Pty., Ltd. South AfricaJune 22, 2012 100% Sales and marketing of modulesCanadian Solar Brazil Commerce, Import andExport of Solar Panels Ltd. BrazilNovember 14, 2012 100% Sales and marketing of solar modules, and provide solar energysolution to customerCanadian Solar Middle East Limited United Arab EmiratesDecember 10, 2012 100% Sales and marketing of modulesCanadian Solar (Thailand) Ltd. ThailandMarch 29, 2013 100% Sales and marketing of modulesCanadian Solar Construction (USA) LLC USAMay 20, 2014 100% Solar farm operating and maintenance serviceCanadian Solar Project K.K. JapanMay 20, 2014 100% Developing solar power projectCSI-GCL Solar Manufacturing(Yancheng) Co., Ltd. PRCMay 29, 2014 80% Research and developing, manufacture and sales of solar cells, andsolar power projects developmentCanadian Solar UK Ltd United KingdomMay 29, 2014 100% Sales and marketing of modulesCanadian Solar UK Projects Ltd United KingdomAugust 29, 2014 100% Developing solar power projectTable of ContentsF-83Subsidiary Place anddateof Incorporation AttributableEquityInterest Held Principal ActivityChangshu Tegu New MaterialTechnology Co., Ltd. PRCSeptember 2, 2014 75% EVA solar packaging film research and development, production, andsalesChangshu Tlian Co., LTD PRCDecember 26, 2014 100% Junction box and connector research, development, production andsalesCanadian Solar Trading (Changshu) Inc. PRCJanuary 22, 2015 100% Sales of solar wafers, cells and other photovoltaic productsCanadian Solar Energy Acquisition Co. USAJanuary 22, 2015 100% Developing solar power projectCanadian Solar UK Securities Limited United KingdomFebruary 5, 2015 100% Investment holdingCanadian Solar UK Intermediate Limited United KingdomFebruary 5, 2015 100% Investment holdingCanadian Solar UK Strategies Limited United KingdomFebruary 6, 2015 100% Project management and financingRecurrent Energy, LLC USAMarch 31, 2015 100% Developing solar power projectPT. Canadian Solar Indonesia IndonesiaFebruary 26, 2015 67% Production of solar modulesCanadian Solar Manufacturing Vietnam Co., Ltd VietnamJune 25, 2015 100% Production of solar modulesCanadian Solar Energy Private Limited IndiaMay 06, 2015 100% Sales and marketing of modulesCanadian Solar Australia 1 Pty Ltd AustraliaAugust 03, 2015 100% Sales and marketing of modulesCanadian Solar Energy Holding CompanyLimited Hong KongSeptember 22, 2015 100% Investment holdingCanadian Solar UK Holding Limited United KingdomOctober 7, 2015 100% Investment holdingCanadian Solar UK Investment Limited United KingdomOctober 8, 2015 100% Investment holdingCanadian Solar UK Parent Limited United KingdomOctober 8, 2015 100% Investment holdingCanadian Solar Manufacturing(Thailand) Co.,Ltd. ThailandNovember 20, 2015 99.99992% Cells and module productionExhibit 4.7[Translation] Silicon Wafer Purchase Contract Contract Number: CSI-GCL-20160120 This Silicon Wafer Procurement Contract (this “Contract”) is entered into by and among the following parties in Suzhou New District: Party A-1 (Purchaser 1): CSI Cells Co., Ltd. Domicile: No. 199 Lushan Road, Suzhou New District Party A-2 (Purchaser 2): CSI-GCL Solar Manufacturing (Yancheng) Co., Ltd. Domicile: No. 88 GCL Avenue, Funing Economic Development Zone Party A-3 (Purchaser 3): Canadian Solar Manufacturing (Luoyang) Inc. Domicile: No. 10 Guanlin Avenue, Luolong District, Luoyang, Henan Province Party A-1, Party A-2 and Party A-3 are hereinafter collectively referred to as “Party A”. Party B (Seller): GCL-Poly (Suzhou) Energy Limited Domicile: Unit 1901, Building 24, Times Square, Huachi Street, Suzhou Industrial Park, Jiangsu Province After thorough consultation and based on the principles of long-term cooperation and mutual benefit, Party A and Party B hereby, in accordance with theprovisions of the Contract Law of the People’s Republic of China, reach agreement on the following terms and enter into this Contract in relation to thesupply of multi-crystalline silicon wafers and mono-crystalline silicon wafers (i.e. the subject matter hereof, hereinafter referred to as “Products” or“Goods”) by Party B to Party A during the effective term of this Contract. 1 Effective Term This Contract shall be effective during the term from May 2016 to December 2018. In the event that the contract has yet to be implemented when theeffective term expires, the contract shall automatically terminate. However, if the last order of Products has been validly placed but has not beenfilled or paid for before the end of the effective term of the Contract, then the effective term of the Contract shall be automatically extended to thetime when the last order has been filled or paid for . 1 2 Purchase Amount 2.1 2016 Purchase Plan: The purchase amount/supply amount for the period from May 1, 2016 to December 31, 2016 is agreed by Party A and Party Bas below (the total amount shall be subject to the following tables, while the the actual monthly purchase amount/supply amount shall be subject tothe Supplementary Agreement for each current month; and the actual purchase of mono-crystalline silicon wafers shall be conducted after Party B’smass production and Party A’s inspection of the Products of Party B to be qualified): Purchase Amount/Supply Amount of Mono-crystalline Silicon Wafers: (Unit: 10,000 Pieces) MonthJulyAugustSeptemberOctoberNovemberDecemberTotalAmount[****]*[****]*[****]*[****]*[****]*[****]*[****]* Purchase Amount/Supply Amount of Multi-crystalline Silicon Wafers: (Unit: 10,000 Pieces) MonthMayJuneJuly August September October November December TotalAmount[****]*[****]*[****]* [****]* [****]* [****]* [****]* [****]* [****]* 2.2 It is agreed by Party A and Party B that the minimum total purchase amount/supply amount of multi-crystalline silicon wafers and mono-crystallinesilicon wafers for both 2017 and 2018 is [****]*. Both parties shall consult with each other and reach agreement on the actual total purchase/supplyamount and the purchase/supply amount of each month for 2017 or 2018 before the twentieth day of the last month of the previous year. After theyearly and monthly purchase/supply amounts for 2017 or 2018 are confirmed, both parties shall have the rights, obligations and responsibilitiespursuant to the provisions of this Contract; provided that the obligations and responsibilities to be assumed shall be based on the difference betweenthe actual purchase/supply amount and the minimum purchase/supply amount. If both parties fail to reach agreement after consultation, theminimum total purchase/supply amount shall prevail. 3 Unit Price of Products, Payment Methods and Prepayment 3.1 Both parties shall consult on the unit purchase price for the following month before the twentieth day of each month in 2016. The unit price shallinclude, among others, 17% value-added tax, product package fees, and the freight and insurance fees for the transportation of Products to the agreedplace of delivery. 3.2 If Party A and Party B fail to reach agreement on the unit price for the current month, the unit price can be adjusted in the following way: 3.2.1 [****]* shall be the transaction price for the current month. * This portion of the Silicon Wafer Purchase Contract has been omitted and filed separately with the Securities and Exchange Commission, pursuant toRule 24b-2 under the Securities Exchange Act of 1934. 2 3.2.2 Party A shall, according to its own production and operation plan and the market condition, send to Party B on a monthly basis theSupplementary Agreement to this Contract for the current month in written form (including but not limited to by email, facsimile or writtennotice). After receiving the Supplementary Agreement, Party B shall promptly confirm in written form (including but not limited to byemail, facsimile or written notice), and thereafter the Supplementary Agreement shall take effect. Party B shall also timely send theSupplementary Agreement with its company chop or contract chop affixed back to Party A by mail or courier. If Party B fails to reply inthree business days after receiving the Supplementary Agreement, it shall be deemed as not accepting the Supplementary Agreement. Thewritten contest proposed or reasons provided in written notice by Party B within three business days after receiving the SupplementaryAgreement from Party A shall not go against the purpose and the relevant provisions of this Contract. In case of any discrepancy betweenthe amount under the Supplementary Agreement and the actual amount received by Party A, the actual amount received by Party A shallprevail for the settlement of the contract price. Supplementary Agreements to this Contract include but not limited to purchase orders,arrival plans, delivery notices and other written documents containing delivery particulars. 3.3 Payment Method: Party A shall make the payment within fifteen days after receiving the Goods delivered by Party B by wire or with a bankacceptance bill with a maturity of six months or less. Party B shall issue the corresponding invoice (with a tax rate of 17%) to Party A within ten daysafter receipt of payment In the event that the Goods delivered by Party B are confirmed by both parties to be returned or replaced in the whole batch,then the latest receiving time shall prevail. 3.4 Prepayment: The total amount of prepayment under this Contract is [****]*. Party A has signed with Party B and its affiliates the Solar GradeSilicon Wafer Purchase Contract (contract number: CSI-ZN80818-B) and the supplementary agreement thereto (purchaser contract number: CSI07-09-P0066), the Supplementary Agreement to Solar Grade Silicon Wafer Supply Contract (contract number: CSI-ZN100323), contracts numbered“Supplementary Agreement to Solar Grade Silicon Wafer Supply Contract (2)” to “Supplementary Agreement to Solar Grade Silicon Wafer SupplyContract (82)” (all contracts and supplementary agreements above are collectively referred to as the “Original Contracts”). The prepayment of[****]* made by Party A under the Original Contracts shall be converted into the prepayment under this Contract when this Contract takes effect.Both parties will separately enter into a supplementary agreement in relation to the deduction of the prepayment. 4 Delivery of Products 4.1 Time of Delivery: subject to the Supplementary Agreement. 4.2 Way of Delivery: Party B shall be responsible for the delivery. * This portion of the Silicon Wafer Purchase Contract has been omitted and filed separately with the Securities and Exchange Commission, pursuant toRule 24b-2 under the Securities Exchange Act of 1934. 3 4.3 Location of Delivery: the warehouse at Party A’s domicile; but if the Supplementary Agreement stipulates otherwise, the Supplementary Agreementshall prevail. Once the location of delivery is determined, Party A shall not unilaterally change such location. If Party A proposes to change thelocation of delivery, Party B may decide whether to accept such change at its own discretion. Upon Party B’s acceptance of such change, Party Ashall be liable for any costs and risks resulting from such change of location. If Party B refuses to accept such change, it has the right to deliver theGoods to the original location or request Party A to pick up the Goods at such location as designated by Party B, in which case any risks associatedwith the Goods shall be transferred to Party A upon Party B’s refusal to accept the proposed change of location of delivery. Notwithstanding theforegoing provisions, Party B shall not unreasonably withhold its consent to the reasonable change of location proposed by Party A (to the extentthat the proposed new location is within Jiangsu or Henan province). 4.4 Upon the transportation of the Goods to the agreed location by Party B, Party A shall be responsible for unloading the Goods and assuming anycosts incurred in connection therewith. 5 Packaging Requirements and Assumption of Costs 5.1 Party B shall package the Products in such a manner as in consistent with the customary industry practices and in compliance with the requirementsfor protection of the Products hereunder and suitability for long distance transportation. 5.2 Party B shall be responsible for any costs incurred in connection with such packaging, as well as any rust or damage of the Products resulting fromimproper packaging or transportation by the carrier designated by Party B. Any transportation costs and risks with respect to the transportation of theProducts hereunder to Party A’s domicile shall be borne by Party B. 6 Technical Standards and Requirements for Quality The quality of Party B’s products shall meet the requirements for quality as agreed by the parties (attached hereto as Appendix: Multi-Wafer SSeries Specification). The Mono-crystalline Silicon Wafer Specification will be agreed upon by the parties by entering into a SupplementaryAgreement prior to Party B’s supply of the Products. 7 Acceptance Criteria, Contestable Period and Quality Assurance 7.1 Party A shall carry out the product acceptance procedures in accordance with the criteria and requirements hereunder within 7 business daysfollowing the date of delivery. If any issue is found with respect to the quantity, quality or other aspects of the Products, Party A shall raise itsobjection within 7 business days following the date of delivery, or it shall be deemed that the acceptance criteria have been met with respect to theProducts, unless Party A suffers from any event of force majeure and informs Party B of such event with a prior written notice to obtain Party B’sconsent. Within the period as agreed upon by the parties, if Party B preliminarily determines that there is quality defect in the Products, it shallpromptly take remedial measures, such as replacing or returning the defective products, or offering discounts. 4 7.2 Party B shall respond to Party A’s objection and propose solutions thereto within 7 business days following the receipt of such objection. If Party Backnowledges that any nonconformity to the quality criteria hereunder with respect to the Products delivered is attributable to Party B, Party B shalltake remedial measures within such period as agreed upon by the parties, such as sorting, offering discounts for, replacing or replenishing, orproviding compensation for the Products. 7.3 Party A understands that the Products are prone to suffer from break or damage during the transportation due to its nature of fragility. As such, PartyA agrees that Party B shall be exempt from the liability to replace the broken Products if the damage rate upon unpacking does not exceed 0.3% ofthe quantity of the batch delivered. If such rate exceeds 0.3%, then Party B shall be liable for replacing the excessive part. If Party A does not raiseany objection within such 7 business days, it shall be deemed that the damage rate upon unpacking satisfies the requirements hereunder. 7.4 In case of any dispute between the parties over the conformity of the Products supplied by Party B with the quality criteria, Party B has the right torequire a re-inspection by both parties jointly or a separate inspection by Party B at the place where the Products are located. If the parties still fail toreach an agreement on the result of the joint re-inspection or the separate inspection by Party B, then a third party renowned testing institution thatis mutually recognized by both parties shall be engaged to conduct the test. The quality of the Products in dispute shall be subject to the test reportissued by such testing institution, and any costs incurred in connection with the third party test shall be borne by the party against whom the reportrules unfavorably. 8 Confidentiality and Intellectual Property Right 8.1 During the process of entering into and performing this Contract, either party may be required to disclose the information in relation to itscommercial activities, products, services, intellectual property rights, technical details and performance, corporate organization and management,and other information to the other party. Such information shall be deemed as the confidential information of the disclosing party. The receivingparty shall keep such information confidential and shall not unilaterally disclose or reveal such information to any third party, or publicize suchinformation, or use such information for any purpose other than performing this Contract, otherwise the receiving party shall be liable for damages;provided that the affiliates of both parties shall be exempt from such constraints. The confidentiality obligations hereunder shall survive for a periodof two years following the termination of this Contract. 8.2 Party B warrants that it has legitimate ownership and intellectual property rights of the Products supplied hereunder. In case of any third party claimsagainst Party A resulting from any breach of the intellectual property rights of others, Party B shall deal with such claims promptly and ensure tokeep Party A from any loss. However, if Party A suffers from any loss therefrom, Party B shall indemnify Party A against such loss. 9 Anti-corruption and No Commercial Fraud 9.1 Each party and its employees hereby acknowledge and undertake that it will not engage in any of the following activities: 5 (1) to provide labor or efforts for any personnel of the other party for personal purpose, to fund any entertainment, birthday party, wedding,banquet for, or to offer gift (including but not limited to cash cards, stocks, valuables, or other articles of value) to, any personnel of the otherparty, or to engage in any other activity in violation of the laws and the rules of discipline; (2) to engage the staff of the other party (in service or within one year following of the termination of employment) in any manner to work for suchparty. Each party also hereby undertakes that there is no family kinship or other special relationship between the shareholders and the keymanagement personnel of such party, on one hand, and the executives of the other party, on the other hand. (3) Party B undertakes that it will offer exactly the same prices for the same Products hereunder to Party A (as a subsidiary or an affiliate ofCanadian Solar Inc.), Canadian Solar Inc. and all other affiliates of Canadian Solar Inc. on the terms and conditions no favorable than thosehereunder. The trading of silicon wafers with foreign companies shall be limited to FCA Shanghai only. If Party B offers any relativelyfavorable price to one company, then such price automatically applies to other affiliates. Party B shall not offer any higher price to oneindividual company, except for special circumstances with Party A’s consent. 9.2 If any party provides false registration information, qualification certificates or information in violation of the principle of good faith, or concealsthe truth of fact to deceive the other party into entering into transactions with such party, the defaulting party shall be liable for an amount ofliquidated damages equal to 10% of the contract value, with a cap of RMB100,000 in total. 9.3 Each party shall comply with the laws and regulations applicable to this Contract. Each party acknowledges that it does not and will not offer,promise to offer, pay or authorize others to pay any money or articles of value, directly or indirectly, to any official or his or her family members, orfacilitate any payment in any manner to influence the decisions of such official, i.e., (i) to induce such official to act against his or her statutoryduties; (2) to induce such official to use his or her influence to impact the decision making of any government or relevant authority; (3) to obtainany other improper benefit. Such officials include but not limited to the officials or candidates of any political party, or officials of any publicinternational organizations. 10 Environmental Safety Party A and Party B shall strictly comply with the national, local or industrial laws and regulations relating to environment, health and safety in thelocality where the other party resides. If any personnel of either party are required by work to enter into the plant area of the other party, the otherparty shall specifically inform such personnel of the precautions relating to safety and environment, and to comply with the operation rules of theplant area of such other party, and obey the directions of such other party. If either party or any of personnel causes any environmental pollution andsafety accident, the parties shall deal with the situation pursuant to law. 6 11 Default Liabilities 11.1 (Default liabilities for late delivery of Goods) If Party B fails to deliver any Goods as scheduled, then after delivery is delayed for 15 days, Party Bshall be liable to Party A for an amount of daily liquidated damages equal to 0.05% of the payment for the overdue Goods, until when the overdueGoods are fully delivered; and if the delivery is delayed for 60 days or more, Party A is entitled to terminate this Contract. If the actual annual supplyamount of Party B is lower than the minimum annual supply amount stipulated in the contract, and no shortfall of the minimum annual supplyamount is made up for within the three-month grace period, Party B shall pay Party A an amount of daily liquidated damages equal to 0.05% of thecontract value of the shortfall between the actual annual supply amount and the minimum annual supply stipulated in this Contract; provided thatthe total amount of liquidated damages shall not exceed 10% of the contract value of the shortfall between the actual annual supply amount and theminimum annual supply amount stipulated in this Contract. 11.2 (Default Liabilities for late payment) If Party A delays in payment, then after the payment is overdue for 15 days, Party A shall be liable to Party Bfor an amount of daily liquidated damages equal to 0.05% of the overdue payment, until when the overdue payment is made in full; if the paymentis overdue for 60 days or more, Party B is entitled to terminate this Contract. 11.3 If the actual annual purchase amount of Party A is lower than the minimum purchase amount stipulated in this Contract, and no shortfall of theannual minimum purchase amount stipulated in the contract is made up for within the three-month grace period, Party A shall pay Party B an amountof daily liquidated damages equal to 0.05% of the contract value of the shortfall between the actual annual purchase amount and the minimumpurchase amount stipulated in this Contract; provided that the total amount of liquidated damages shall not exceed 10% of the contract value of theshortfall between the actual annual purchase amount and the minimum purchase amount stipulated in this Contract. 11.4 If either party is late in the performance of this Contract due to the breach of contract or anticipatory breach of contract by the other party, such partyshall not assume any default liabilities for its late performance. 11.5 Neither party shall be liable for any profit loss, indirect, special, incidental or consequential damages caused to the other party due to theperformance or breach of any provisions of this Contract. 11.6 An affiliate of Party B may supply Goods to Party A; provided that the Goods provided by such affiliate shall be supplied only after inspection byParty A. 12 Force Majeure 12.1 If an event of force majeure occurs to Party B during the performance of this Contract, such as earthquake, snow storm, war, rebellion, riot, interimgovernmental decree, order or governmental action (expropriation, requisition, etc.), or any other abnormal social event (such as strikes, chaos, etc.),except for the third party breach of contract, which causes Party B’s late delivery of or failure to deliver Goods, Party B shall not assume anyliabilities (including liquidated damages), and if conditions permit, Party B shall immediately notify Party A of such event, and submit to Party Athe certification evidencing such event issued by the relevant authority in the locality where the event occurs as a proof as soon as possible after theevent occurs. In this case, Party B shall, subject to its own situation, take necessary measures to perform its responsibility of delivery as soon aspossible; if the event lasts for more than one month, Party A is entitled to terminate this Contract. 7 12.2 If an event of force majeure occurs to Party A during the performance of this Contract, such as earthquake, snow storm, war, etc., or any bank faultoccurs, which causes Party A’s late payment, Party A shall not assume any liabilities (including liquidated damages); provided that Party A shallimmediately notify Party B of such event, and submit to Party B the certification evidencing such event issued by the relevant authority in thelocality where the event occurs as a proof as soon as possible after the event occurs. In this case, Party A shall remain liable for making payment assoon as possible. If the event lasts for more than one month, Party B is entitled to terminate this Contract. 13 Dispute Resolution The execution, performance, and termination of this Contract shall be governed by the laws of the People’s Republic of China. Any dispute arisingfrom this Contract shall be resolved by the parties through friendly consultations; if it cannot be resolved through consultations, either party mayfile a lawsuit to the competent People’s Court at the locality where the Contract is signed. If such dispute is resolved through litigation, the losing party shall assume the travel expenses, legal fees, court fees (the case acceptance fee, thepreservation fees) and other directly related fees incurred by the winning party in the course of dealing with such dispute. 14 Effectiveness of Contract and Miscellaneous 14.1 This Contract shall take effect from the date on which it is executed and sealed by the authorized representatives of the parties. This Contract shallbe made in duplicate, with each party holding one copy. This Contract may be executed by facsimile, where Party A and Party B shall attach theirsignatures, company seals or contract seals on the space specified in this Contract, and then facsimile it back to the other party, after which thisContract shall become effective. 14.2 During the effective term of this Contract, the parties may update the Multi-Wafer S Series Specification through written consensus, and send theupdated version to the other party via email or facsimile. Upon the written consent of the other party, the updated Multi-Wafer S Series Specificationshall be deemed as effective. 14.3 With respect to the matters that are not covered by this Contract, the parties shall enter into a supplementary agreement in writing through friendlyconsultations. 8 (Signature Page of this Contract) Party A-1: CSI Cells Co., Ltd.Party B: GCL-Poly (Suzhou) Energy Limited (Seal)(Seal) /Contract Seal of CSI Cells Co., Ltd. affixed //Contract Seal of GCL-Poly (Suzhou) Energy Limited affixed / Signing Representative: /s/(Signature) Party A-2: CSI-GCL Solar Manufacturing (Yancheng) Co., Ltd.Signing Date: January 29, 2016 (Seal) /Contract Seal of CSI-GCL Solar Manufacturing (Yancheng) Co., Ltd.affixed / Party A-3: Canadian Solar Manufacturing (Luoyang) Inc. (Seal) /Contract Seal of Canadian Solar Manufacturing (Luoyang) Inc. affixed / Signing Representative:(Signature) Signing Date: 2016 9 GCL-Poly Energy Holding Limited (PV) Multi-Wafer S Series SpecificationWafer Dimention156mm * 156mmDocument number—Version Number2013-3-18 Property Specification Instrument/Standard RemarkMaterial propertiesCrystal Growth MethodDSS-Conductivity Type/DopantP/BoronASTM F42Oxygen Concentration<5.0 x10 atoms/cm (10ppma)ASTM F1188Carbon Concentration<8.0 x 10 atoms/cm(16ppma)ASTM F1391Electrical propertiesResistivity1~3 W · cmASTM F43, ASTM F84Brick Lifetime>4msASTM F528Geometry & SurfaceThickness180 ±18mm200 ±20mmASTM F533TTV<30mmASTM F533, F657Saw marks<15mmCCD/SJ-201(301)Warpage<50mmASTM F657Width156 ±0.5mmCaliper/CCDRight Angle90° ±0.3°CCDChamfer Hypotenuse0.5~2.0mmVernier Caliper/CCDChamfer Cathetus0.35-1.42mmMicrocrackNot allowedNVCD (IR)Edge ChipDepth <0.3mm, Length <0.5mm, Max 2 pieces/wafer; V-shape crack unacceptableVisual/CCDMicrograinSingle Area <3x3mm. TotalArea <3x3cmVisual/CCDSurface qualityNo surface stains, water marks,breakage or hole allowedVisual/CCDPackage & LabelsPackageGCL standard packing method: 100pcs/unit, 400pcs/box,6bxs/CTN, 16CTNs/palletLabelsLot No., Thickness, Wafer Quantity, Resistivity, Size etc.17317322OBFOut-of-Box Failure rateOBF<0.3%Out-of-Box Failure rate (included broken, chip, edge defect, shortshipment and microcrack) <0.3% 10EXHIBIT 8.1 LIST OF MAJOR SUBSIDIARIES (As of March 31, 2016) Name of Major Subsidiaries Place of Incorporation Ownership Interest CSI Solartronics (Changshu) Co., Ltd. People’s Republic of China100%CSI Solar Technologies Inc. People’s Republic of China100%CSI New Energy Holding Co., Ltd. People’s Republic of China100%Canadian Solar Manufacturing (Luoyang) Inc.People’s Republic of China100%Canadian Solar Manufacturing (Changshu) Inc.People’s Republic of China100%CSI Cells Co., Ltd. People’s Republic of China100%Canadian Solar (USA) Inc. United States of America100%CSI Project Consulting GmbHGermany70%Canadian Solar Japan K.K. Japan100%Canadian Solar Solutions Inc. Canada100%CSI Solar Power (China) Inc. People’s Republic of China100%Canadian Solar EMEA GmbHGermany100%Canadian Solar (Australia) Pty LimitedAustralia100%Canadian Solar International Limited Hong Kong100%Canadian Solar O and M (Ontario) Inc. Canada100%Suzhou Sanysolar Materials Technology Co., Ltd. People’s Republic of China76%Canadian Solar South East Asia Pte. Ltd. Singapore100%Canadian Solar South Africa Pty., Ltd.South Africa100%Canadian Solar Brazil Commerce, Import and Export of Solar Panels Ltd.Brazil100%Canadian Solar Middle East LimitedUnited Arab Emirates100%Canadian Solar (Thailand) Ltd.Thailand100%Canadian Solar Construction (USA) LLCUnited States of America100%Canadian Solar Project K.K.Japan100%CSI-GCL Solar Manufacturing (Yancheng) Co., Ltd.People’s Republic of China80%Canadian Solar UK LtdUnited Kingdom100%Canadian Solar UK Projects LtdUnited Kingdom100%Changshu Tegu New Material Technology Co., Ltd.People’s Republic of China75%Changshu Tlian Co., LTDPeople’s Republic of China100%Canadian Solar Trading (Changshu) Inc.People’s Republic of China100%Canadian Solar Energy Acquisition Co.United States of America100%Canadian Solar UK Intermediate LimitedUnited Kingdom100%Canadian Solar UK Securities LimitedUnited Kingdom100%Canadian Solar UK Strategies LimitedUnited Kingdom100%Recurrent Energy, LLCUnited States of America100%PT. Canadian Solar IndonesiaIndonesia67%Canadian Solar Manufacturing Vietnam Co., LtdVietnam100%Canadian Solar Energy Private LimitedIndia100%Canadian Solar Australia 1 Pty LtdAustralia100%Canadian Solar Energy Holding Company LimitedHong Kong100%Canadian Solar UK Holding LimitedUnited Kingdom100%Canadian Solar UK Parent LimitedUnited Kingdom100%Canadian Solar UK Investment LimitedUnited Kingdom100%Canadian Solar Manufacturing (Thailand) Co.,Ltd.Thailand99.99992% EXHIBIT 12.1 Certification by the Chief Executive OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Shawn (Xiaohua) Qu, certify that: 1. I have reviewed this annual report on Form 20-F of Canadian Solar Inc. (the “Company”); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; 4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by otherswithin those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the periodcovered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financialreporting; and 5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’sinternal control over financial reporting. Date: April 20, 2016 By:/s/ Shawn (Xiaohua) QuName:Shawn (Xiaohua) QuTitle:Chief Executive Officer EXHIBIT 12.2 Certification by the Chief Financial OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Michael G. Potter, certify that: 1. I have reviewed this annual report on Form 20-F of Canadian Solar Inc. (the “Company”); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; 4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by otherswithin those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the periodcovered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financialreporting; and 5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, tothe Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’sinternal control over financial reporting. Date: April 20, 2016 By:/s/ Michael G. PotterName:Michael G. PotterTitle:Chief Financial Officer EXHIBIT 13.1 Certification by the Chief Executive OfficerPursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report of Canadian Solar Inc. (the “Company”) on Form 20-F for the year ended December 31, 2015 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), I, Shawn (Xiaohua) Qu, Chief Executive Officer of the Company, certify, pursuant to18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. Date: April 20, 2016 By:/s/ Shawn (Xiaohua) QuName:Shawn (Xiaohua) QuTitle:Chief Executive Officer EXHIBIT 13.2 Certification by the Chief Financial OfficerPursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report of Canadian Solar Inc. (the “Company”) on Form 20-F for the year ended December 31, 2015 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), I, Michael G. Potter, Chief Financial Officer of the Company, certify, pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. Date: April 20, 2016 By:/s/ Michael G. PotterName:Michael G. PotterTitle:Chief Financial Officer EXHIBIT 15.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in Registration Statement Nos. 333-147042, 333-178187 and 333-201766 on Form S-8 andRegistration Statement Nos. 333-189895 and 333-208828 on Form F-3 of our reports dated April 20, 2016, relating to the financial statements and financialstatement schedule of Canadian Solar Inc. and subsidiaries (the “Company”), and the effectiveness of the Company’s internal control over financialreporting, appearing in this Annual Report on Form 20-F of the Company for the year ended December 31, 2015. /s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP Shanghai, ChinaApril 20, 2016

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