Canadian Solar
Annual Report 2016

Plain-text annual report

Use these links to rapidly review the documentTable of Contents CANADIAN SOLAR INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTSTable of Contents UNITED 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)Huifeng Chang, 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:(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, 2016 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)Securities registered or to be registered pursuant to Section 12(g) of the Act:None(Title of Class)Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None(Title of Class) Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report. 57,830,149 common shares issued and outstanding which were not subject to restrictions on voting, dividend rights and transferability, as of December 31, 2016. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act 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, a non-accelerated filer or an emerging growth company. See definition of "accelerated filer," "large acceleratedfiler" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one): If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period forcomplying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. o Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP ý International Financial Reporting Standards as issued by the International Accounting Standards Board o Other o If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 o Item 18 o If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS) Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution ofsecurities under a plan confirmed by a court. Yes o No o †The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.Large accelerated filer ý Accelerated filer o Non-accelerated filer oEmerging growth company o Table 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 38 ITEM 4A. UNRESOLVED STAFF COMMENTS 63 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 63 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 136 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 137 PART II 138 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 138 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OFPROCEEDS 138 ITEM 15. CONTROLS AND PROCEDURES 138 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT 140 ITEM 16B. CODE OF ETHICS 140 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 140 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 141 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 141 ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT 141 ITEM 16G. CORPORATE GOVERNANCE 141 ITEM 16H. MINE SAFETY DISCLOSURE 141 PART III 142 ITEM 17. FINANCIAL STATEMENTS 142 ITEM 18. FINANCIAL STATEMENTS 142 ITEM 19. EXHIBITS 142 SIGNATURES 144 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; •"THB" is to legal currency of Thailand; •"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, 2014, 2015 and 2016 and as ofDecember 31, 2015 and 2016. We use the noon buying rate in The City of New York for cable transfers in Renminbi, Euros, British pounds, Japanese yen, Canadian dollars and ThaiBaht 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,Canadian dollars and Thai Baht 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, Canadian dollars and Thai Baht into U.S. dollars was made by thenoon buying rate in effect on December 30, 2016, which was RMB6.9430 to $1.00, €1.0552 to $1.00, £1.2337 to $1.00, ¥116.78 to $1.00, C$1.3426 to$1.00 and THB35.8100 to $1.00. We make no representation that the Renminbi, Euro, British pounds, Japanese yen, Canadian dollar, Thai Baht orU.S. dollar amounts referred to in this annual report on Form 20-F could have been or could be converted into U.S. dollars, Euros, British pounds, Japaneseyen, Canadian dollars, Thai Baht or Renminbi, as the case may be, at any particular rate or at all. See "Item 3. Key Information—D. Risk Factors—RisksRelated to Our Company and Our Industry—Fluctuations in exchange rates could adversely affect our business, including our financial condition and resultsof operations."1Table 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 beliefs regarding the value of and ability to monetize our portfolio of solar power projects; •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 successfully expand our products and services and to successfully execute plans for our energy segment; •our ability to develop, build and sell solar power projects in Canada, the U.S., Japan, China, Brazil, India, Mexico, the United Kingdom,Australia 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 underapplicable law.2Table 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, 2014, 2015 and 2016 and balance sheet data as of December 31,2015 and 2016 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, 2012 and 2013 and our consolidated balance sheet data as ofDecember 31, 2012, 2013 and 2014 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, 2012 2013 2014 2015 2016 (In thousands of $, except share and per share data, and operating dataand percentages) Statement of operations data: Net revenues 1,294,829 1,654,356 2,960,627 3,467,626 2,853,078 Income (loss) from operations (142,516) 130,816 366,314 247,371 93,164 Net income (loss) (195,155) 45,565 243,887 173,316 65,275 Net income (loss) attributable to CanadianSolar Inc. (195,469) 31,659 239,502 171,861 65,249 Earnings (loss) per share, basic (4.53) 0.68 4.40 3.08 1.13 Shares used in computation, basic 43,190,778 46,306,739 54,408,037 55,728,903 57,524,349 Earnings (loss) per share, diluted (4.53) 0.63 4.11 2.93 1.12 Shares used in computation, diluted 43,190,778 50,388,284 59,354,615 60,426,056 58,059,063 Other financial data: Gross margin 7.0% 16.7% 19.6% 16.6% 14.6%Operating margin (11.0)% 7.9% 12.4% 7.1% 3.3%Net margin (15.1)% 2.8% 8.2% 5.0% 2.3%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, or FITs, and other reimbursements, a reduction in available financing and an excess supply of solar modulesworldwide put severe downward pressure on solar module prices in European and other markets. In December 2016, the National Development and ReformCommission, or the NDRC, announced the reduction in FITs for utility-scale solar plants. The administration of U.S. President Donald Trump is also expectedto have less favorable policies for clean energy industries. As a result, many solar power project developers, solar system installers and solar power productdistributors that purchase solar power products, including solar modules from manufacturers like us, were adversely affected and their financial conditionweakened. Although our shipments of solar modules increased year-over-year in 2014, 2015 and 2016, average selling prices for our solar modules declined.Over the past several quarters, oversupply conditions across the value4 For the years ended, or as of, December 31, 2012 2013 2014 2015 2016 (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) 1,528.9 1,809.0 2,436.4 4,085.0 5,138.1 —Energy segment(2) 14.2 85.0 376.2 298.8 65.7 Total 1,543.1 1,894.0 2,812.6 4,383.8 5,203.8 Average selling price (in $ per watt) —Solar module 0.77 0.67 0.67 0.58 0.51 Balance Sheet Data: Net current assets (liabilities) (98,046) (59,003) 366,621 (392,231) 69,697 Total assets 2,259,313 2,453,735 3,068,115 4,413,928 5,406,606 Net assets 301,583 401,498 729,574 832,510 899,390 Long-term borrowings 214,563 151,392 134,300 606,577 493,455 Convertible notes — — 145,691 146,674 125,569 Common shares 502,562 561,242 675,236 677,103 701,283 Number of shares outstanding 43,242,426 51,034,343 55,161,856 55,965,443 57,830,149 (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 Contentschain, difficult economic conditions in Europe and foreign trade disputes in the U.S., Europe, India and China have affected industry-wide demand and putpressure on average selling prices, resulting in lower revenue for many industry participants. If the supply of solar modules grows faster than demand, and ifgovernments continue to reduce financial support for the solar industry and impose trade barriers, demand for our products, as well as our average sellingprice, could be materially 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 FITs in Germany and the elimination of FITs in Italy, the two largest European markets over the past several years. Althoughdemand in other regions, including China, Japan, the U.S. and India, as well as many other emerging markets in Asia, the Middle East and Africa, has offsetthe decline in European demand, we cannot assure you that this demand will be sustainable or that any recent positive trends in supply or demand balancewill persist.The operating results of our energy segment and the mix of revenues from our module and energy segments may be subject to significant fluctuation due toa number of factors, including our inability to find third party buyers for our solar power projects in a timely manner, on favorable terms and conditions,or at all. Our energy segment develops, constructs, maintains, sells and/or operates solar power projects primarily in Canada, Japan, the U.S., China, Brazil, India,Mexico, the United Kingdom and Australia. Our solar project development activities have grown over the past several years through a combination oforganic growth and acquisitions. After completing the development of solar power projects, we either sell them to third party buyers, or operate them underpower purchase agreements, or PPAs, or5Table of Contentsother contractual arrangements with utility companies or grid operators. Revenues from our energy segment increased by $922.8 million, or 16.4 times, from$56.4 million for the year ended December 31, 2012 to $979.2 million for the year ended December 31, 2015, but then decreased by $868.7 million, or88.7%, to $110.6 million for the year ended December 31, 2016. We intend to monetize the majority of our current portfolio of solar power projects inoperation that have an estimated resale value of approximately $1.6 billion as of February 28, 2017. However, there is no assurance whether and when we canfind suitable buyers for these projects, receive full payment for them in a timely manner or otherwise realize their estimated resale value. The operating results of our energy segment may be subject to significant period-over-period fluctuations for a variety of reasons, including but notlimited to changes in market conditions after we have committed to projects, availability of project financing and changes in government regulations andpolicies, all of which may result in the cancellation of or delays in the development of projects, inability to monetize or delays in monetizing projects, orchanges in amounts realized on monetization of projects. If a project is canceled, abandoned or deemed unlikely to occur, we will charge all prior capitalcosts as an operating expense in the quarter in which such determination is made, which could materially adversely affect operating results. Further, the mix of revenues from our module and energy segments can fluctuate dramatically from quarter to quarter, which may adversely affect ourmargins and financial results in any given period. Any of the foregoing may cause us to miss our financial guidance for a given period, which could adversely impact the market price for our commonstock and our liquidity.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. On December 14, 2016, the Federal Reserve raised interest rates by a quarter of a percentage point to between 0.5% and 0.7%, marking the first timethe Federal Reserve has raised rates since December 2015. On March 15, 2017, the Federal Reserve further raised interest rates by 25 basis points to a range of0.75% to 1.00%. Higher interest rates could increase the cost of existing funding and present an obstacle for potential funding that would otherwise spur thegrowth of the solar power industry. In addition, higher bond yields could result in increased yield expectations for solar power projects, which would result inlower system prices. In the event that suitable funding is unavailable, our customers may be unable to pay for products they have agreed to purchase. It mayalso be difficult to collect payments from customers facing liquidity challenges due to either customer defaults or financial institution defaults on projectloans. Constricted credit markets may impede our expansion and materially and adversely affect our results of operations. Concerns about governmentdeficits and debt in the EU have increased bond spreads in certain solar markets, such as Greece, Spain, Italy and Portugal. The cash flow of a solar powerproject is often derived from government-funded or government-backed FITs. Consequently, the availability and cost of funding solar power6Table of Contentsprojects is determined in part based on the perceived sovereign credit risk of the country where a particular project is located. Therefore, credit agencydowngrades of nations in the EU or elsewhere could decrease the credit available for solar power projects, increase the expected rate of return compared tobond yields, and increase the cost of debt financing for solar 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 segment in several key markets, which exposes us to a number of risksand uncertainties. Historically, our module segment has accounted for the majority of our net revenues, including 59.0%, 71.8% and 96.1% in 2014, 2015 and 2016,respectively. However, we have, in recent years, increased our investment in and management attention on our energy segment, which primarily consists ofsolar power project development and sale, EPC and development services, O&M services and operating solar power projects and sales of electricity. Even though we intend to monetize our current portfolio of solar power projects in operation, in the future, we still intend to grow our energy segment bydeveloping and selling or operating more solar projects, including both those that we develop and those we acquire from third-parties. As we do, we will beincreasingly exposed to the risks associated with these businesses. Further, our future success largely depends on our ability to expand our solar powerproject pipeline. The risks and uncertainties associated with our energy segment, 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 segment, and, in particular, our solar power project pipeline, we may be unable to expand ourbusiness, 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 FIT, depends largely on the availability and size of government subsidy programs and economic incentives. At present, the cost of solar powerexceeds retail electricity rates in many locations. Government incentives vary by geographic market.7Table of ContentsGovernments in many countries, most notably China, Germany, Italy, the Czech Republic, the U.S., Japan, Canada (Ontario), South Korea, India, France,Australia and the United Kingdom, have provided incentives in the form of FITs, rebates, tax credits, renewable portfolio standards and other incentives.These governments have implemented mandates to end-users, distributors, system integrators and manufacturers of solar power products to promote the use ofsolar energy in on-grid applications and to reduce dependency on other forms of energy. Some of these government mandates and economic incentives havebeen or are scheduled to be reduced or eliminated altogether. For example, the NDRC announced reductions in FITs for utility-scale solar projects inDecember 2016. 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 FITs and other subsidies designed to benefit the solar industry. During 2014, 2015 and 2016, a decrease in solar power tariffs inmany markets placed downward pressure on the price of solar systems in most regions. In addition, reductions in oil and coal prices may reduce the demandfor and the prices of solar power products and services. For instance, in recent months, oil prices globally have experienced high volatility. We cannot assureyou that such volatility will not have a material adverse effect on the demand for and prices of our products. Our growth and profitability depend on thedemand for and the prices of solar power products and services. If these negative market and industry trends continue and demand for solar power projectsand solar power products and services weakens as a result, 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.8 Table of ContentsOur project development and construction activities may not be successful, projects under development may not receive required permits, property rights,PPAs, interconnection and transmission arrangements, and financing or construction of projects may not commence or continue as scheduled, all of whichcould 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 execution9Table 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 and operating solar power projects exposes us to different risks than producing solar modules. In recent years, we have placed a greater focus on our energy segment, which includes the development of solar power projects. These projects can takemany months or years to complete and may be delayed for reasons beyond our control. They often require us to make significant up-front payments for,among other things, land rights and permitting in advance of commencing construction, and revenue from these projects may not be recognized for severaladditional months following contract signing. Any inability or significant delays in entering into sales contracts with customers after making such up-frontpayments could adversely affect our business and results of operations. Furthermore, we may become constrained in our ability to simultaneously fund ourother 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 acceptableto us. Our energy segment also includes operating solar power projects and selling electricity to the local or national grid or other power purchasers. As a result,we are subject to a variety of risks associated with intense market competition, changing regulations and policies, insufficient demand for solar power,technological advancements and the failure of our power generation facilities.We face a number of risks involving PPAs and project-level financing arrangements, including failure or delay in entering into PPAs, defaults bycounterparties and contingent contractual terms such as price adjustment, termination, buy-out, acceleration or other clauses, all of which couldmaterially and adversely affect our energy segment, financial condition, results of operations and cash flows. 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, changes in government policies or other factors. There is a limited pool of potential buyers for electricity generated by oursolar power plants since the transmission and distribution of electricity is either monopolized or highly concentrated in most jurisdictions. The willingness ofbuyers to purchase electricity from an independent power producer may be based on a number of factors and not solely on pricing and surety of supply. If wecannot enter into PPAs on terms favorable to us, or at all, it would negatively impact our revenue and our decisions regarding the development of additionalpower plants. 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 acontract on equivalent terms and conditions, or otherwise at prices that permit operation of the related facility on a profitable basis. Any delay in enteringinto PPAs may adversely affect our ability to enjoy the cash flows generated by such projects. If we are unable to replace an expiring PPA with an acceptablenew PPA, the affected site may temporarily or permanently cease operations, which could materially and adversely affect our financial condition, results ofoperations 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 are10Table of Contentsunable or unwilling to fulfill their related contractual obligations or if they refuse to accept delivery of power delivered thereunder or if they otherwiseterminate such agreements prior to the expiration thereof, our assets, liabilities, business, financial condition, results of operations and cash flows could bematerially and adversely affected. Further, to the extent any of our power purchasers are, or are controlled by, governmental entities, our facilities may besubject to legislative or other political action that may impair their contractual performance or contain contractual remedies that do not provide adequatecompensation in the event a counterparty defaults. 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 financial conditions, cash flow and results of operations could be materially and adversely affected. Further, some of our long-termPPAs do not include inflation-based price increases. Certain of the PPAs for our projects and those for projects that we have acquired and may acquire in thefuture contain or may contain provisions that allow the offtake purchaser to terminate or buy out the project or require us to pay liquidated damages upon theoccurrence of certain events. If these provisions are exercised, our financial condition, results of operations and cash flows could be materially and adverselyaffected. Additionally, certain of the project-level financing arrangements for projects allow, and certain of the projects that we may acquire in the future mayallow, the lenders or investors to accelerate the repayment of the financing arrangement in the event that a PPA is terminated or if certain operating thresholdsor performance measures are not achieved within specified time periods. Certain of our PPAs and project-level financing arrangements include, and in thefuture may include, provisions that would permit the counterparty to terminate 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 we cease to be the majority owner, directly or indirectly, of the applicable projectsubsidiary. The termination of any of our PPAs or the acceleration of the maturity of any of our financing arrangements as a result of a change-in-controlevent could have a material adverse effect on our financial condition, results of operations and cash flows.If the supply of solar wafers and cells increases in line with increases in the supply of polysilicon, then the corresponding oversupply of solar wafers, cellsand modules may cause substantial downward pressure on the prices of our products and reduce our revenues and earnings. Silicon production capacity has expanded rapidly in recent years. As a result of this expansion, coupled with the global economic downturn, 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, 2015 and 2016. The average selling price of our solar modules decreasedfrom $0.67 per watt in 2013 and 2014 to $0.58 per watt in 2015 and $0.51 per watt in 2016, in large part because the increase in the supply of solar cells andmodules was greater than the increase in the demand, thereby putting pressure on solar power products across all stages of the value chain. While we believethat there is a relative balance between capacity and demand at low prices due to industry consolidation, increases in solar module production in excess ofmarket demand may result in further downward pressure on the price of solar wafers, cells and modules, including our products. Increasing competition couldalso result in us losing sales or market share. Moreover, due to fluctuations in the supply and price of solar power products throughout the value chain, wecannot 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 weare unable, on an ongoing basis, to procure silicon, solar wafers and solar cells at reasonable prices or mark up the price of our solar modules to cover ourmanufacturing and operating costs, our revenues and margins will be adversely impacted, either due to higher costs compared to our competitors or due tofurther write-downs of inventory, or both. In11Table of Contentsaddition, our market share could decline 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, 2016, the balance of the advance payments that we have made toGCL, Deutsche Solar and LDK totaled $22.1 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-pay provisions of the agreement are void under German law. InDecember 2011, Deutsche Solar gave notice to us to terminate the agreement with immediate effect. Deutsche Solar stated that the reason for the terminationwas an alleged breach of the agreement by us. In the notice, Deutsche Solar reserved its right to claim damages of €148.6 million in court. As a result of thetermination, we reclassified the accrued loss on firm purchase commitments reserve of $27.9 million as of December 31, 2011 to loss contingency accruals. Inaddition, we made a full bad debt allowance of $17.4 million against the balance of advance payments to Deutsche Solar. The accrued amount of$27.9 million represents our best estimate for our loss contingency. Deutsche Solar did not specify the basis for its claimed damages of €148.6 million inthe 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. On October 19, 2015, we reached a settlement agreement with LDK, or the 2015 Settlement Agreement. We have alreadypaid the required amounts and fulfilled our obligations under the 2015 Settlement Agreement. See "Item 8. Financial Information—A. ConsolidatedStatements and Other Financial Information—Legal and Administrative Proceedings." We recorded a charge of $20.8 million related to the 2015 SettlementAgreement in general and administrative expense in the third quarter of 2015. On May 19, 2016, we received a copy of a bill of complaint from XinyuIntermediate Court, in which LDK's receiver applied to the court for an order to revoke the 2015 Settlement Agreement pursuant to PRC bankruptcy law, andrequested us to pay an amount that LDK's receiver alleged to have been waived by LDK under the 2015 Settlement Agreement. On December 1, 2016, XinyuIntermediate Court heard this case, and a decision is now pending.12Table of Contents We have in the past entered into long-term supply agreements for silicon wafers or solar cells with fixed price and quantity terms. If, during the term ofthese agreements, the price of materials decreases significantly and we are unable to renegotiate favorable terms with our suppliers, we may be placed at acompetitive disadvantage compared to our competitors, and our earnings could decline. In addition, if demand for our solar power products decreases, yet oursupply agreements require us to purchase more silicon wafers and solar cells than required to meet customer demand, we may incur costs associated withcarrying excess inventory. To the extent that we are not able to pass these increased costs on to our customers, our business, cash flows, financial conditionand results of operations may be materially and adversely affected. If our suppliers file lawsuits against us for early termination of these contracts, such eventscould be costly, may divert management's attention and other resources away from our business, and could have a material and adverse effect on ourreputation, 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 segment, we are subject to numerous national, regional and local laws and regulations. Changes in applicable energy laws or regulations,or in the interpretations of these laws and regulations, could result in increased compliance costs or the need for additional capital expenditures. If we fail tocomply with these requirements, we could also be subject to civil or criminal liability and the imposition of fines. Further, national, regional or localregulations and policies could be changed to provide for new rate programs that undermine the economic returns for both new and existing projects bycharging additional, non-negotiable fixed or demand charges or other fees or reductions in the number of projects allowed under net metering policies.National, regional or local13Table of Contentsgovernment energy policies, law and regulation supporting the creation of wholesale energy markets is currently, and may continue to be, subject tochallenges, modifications and restructuring proposals, which may result in limitations 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 andcash flows. 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, theU.S. Travel Act, the USA PATRIOT Act, and other anti-bribery and anti-money laundering laws in countries in which we conduct activities. We facesignificant liabilities if we fail to comply with the FCPA and other anticorruption laws that prohibit companies and their employees and third-partyintermediaries from authorizing, offering, or providing, directly or indirectly, improper payments or benefits to foreign government officials, political parties,and private-sector recipients for the purpose of obtaining or retaining business. We may have direct or indirect interactions with officials and employees ofgovernment agencies or state-owned or affiliated entities. For example, in China, we may contract with and sell electricity to the national grid, a state-ownedenterprise. In other countries where we develop, acquire or sell solar projects, we need to obtain various approvals, permits and licenses from the local ornational governments. We can be held liable for the illegal activities of our employees, representatives, contractors, partners, and agents, even if we do notexplicitly authorize such activities. Any violation of the FCPA, other applicable anticorruption laws, and anti-money laundering laws could result inwhistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions, which could have a materialadverse effect on our business, financial condition, cash flows and reputation. In addition, responding to any enforcement action may result in the diversionof management's attention 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 segment, we may not be able to compete successfully and we may not beable to maintain or increase our market share. We face intense competition in our module and energy segments. We have a large number of competitors in our solar modules business, including non-China-based competitors such as First Solar, Inc., or First Solar, and SunPower Corporation, or SunPower, and China-based competitors such as Trina SolarLimited, or Trina, JinkoSolar Holding Co., Limited, or Jinko, JA Solar Co., Limited, or JA Solar, and Hanwha Q Cells Co., Ltd., or Hanwha Q Cells. Some ofour competitors are developing or are currently producing products based on new solar power technologies that may ultimately have costs similar to or lowerthan our projected costs. These include products based on thin film PV technology, which requires either no silicon or significantly less silicon to producethan crystalline silicon solar modules, such as the ones that we produce, and is less susceptible to increases in silicon costs. Some of our competitors havelonger operating histories, greater name and brand recognition,14Table of Contentsaccess to larger customer bases, greater resources and significantly greater economies of scale than we do. In addition, some of our competitors may havestronger relationships or may enter into exclusive relationships with some of the key distributors or system integrators to whom we sell our products. As aresult, they may be able to respond more quickly to changing customer demands or devote greater resources to the development, promotion and sales of theirproducts. Some of our competitors have more diversified product offerings, which may better position them to withstand a decline in demand for solar powerproducts. Some of our competitors are more vertically integrated than we are, from upstream silicon wafer manufacturing to solar power system integration.This may allow them to capture higher margins or have lower costs. In addition, new competitors or alliances among existing competitors could emerge andrapidly acquire significant market share. If we fail to compete successfully, our business will suffer and we may not be able to maintain or increase ourmarket share. For our energy segment, we compete in a more diversified and complicated landscape since the commercial and regulatory environments for solar powerproject development and operation vary significantly from region to region and country to country. Our primary competitors are local and internationaldevelopers and operators of solar power projects. Some of our competitors may have advantages over us in terms of greater experience or resources in theoperation, financing, technical support and management of solar power projects, in any particular markets or in general. We only started developing solarpower projects and growing our energy segment in recent years. Our energy segment has a global footprint and develops solar power projects primarily in Canada, Japan, the U.S., China, Brazil, India, Mexico, theUnited Kingdom and Australia. There is no guarantee that we can compete successfully in the markets we currently operate or the ones we plan to enter in thefuture. For example, in certain of our target markets, such as China, state-owned and private companies have emerged to take advantage of the significantmarket opportunity created by attractive financial incentives and favorable regulatory environment provided by the governments. State-owned companiesmay have stronger relationships with local governments in certain regions and private companies may be more focused and experienced in developing solarpower projects in the markets where we compete. Accordingly, we need to continue to be able to compete against both state-owned and private companies inthese markets. Our energy segment also provides EPC and/or O&M services in China, Canada, Australia and other countries. We face intense competitionfrom other service providers in those markets. Since our energy segment includes electricity generation and sale, we believe that our primary competitors in the electricity generation markets in whichwe operate are the incumbent utilities that supply energy to our potential customers under highly regulated rate and tariff structures. We compete with theseconventional utilities primarily based on price, predictability of price, reliability of delivery and the ease with which customers can switch to electricitygenerated by our solar energy projects. 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;15Table of Contents•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 whichwe operate; •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; and •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 2015, the Americas contributed 50.5% and Asia contributed39.9% of our revenues, while Europe and other regions contributed 9.6%; and in 2016, the Americas contributed 38.7% and Asia contributed 46.9% of ourrevenues, while Europe and other regions contributed 14.4%. As we shift the focus of our operations between different regions of the world, we have limitedtime 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 business, we may not be able to benefit from our investment andexperience associated with that part of the business and may be subject to intensified concentration risks with less flexibility to respond to marketfluctuations. Moreover, it could be expensive to make strategic acquisitions, investments, divestitures and establish and maintain relationships, and we maybe subject to the risk of non-performance by a counterparty, which may in16Table of Contentsturn lead to monetary losses that materially and adversely affect our business. We cannot assure you that we will be able to successfully make strategicacquisitions and investments and successfully integrate them into our operations, or make strategic divestitures or establish strategic relationships with thirdparties that will prove to be effective for our business. Our inability to do so could materially and adversely affect our market penetration, our revenue growthand 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. However, many perceive globalization to be in retreat and protectionism on the rise, as evidenced by thedecision of Great Britain to leave the European Union and the election of Donald Trump as the president of U.S., who has threatened to impose punitivetariffs on goods imported from China. If trade tensions increase among the U.S., China and other countries, it may have a material adverse effect on ourinternational operations. Furthermore, we may need to make substantial investments in our overseas operations, both initially and on an ongoing basis, inorder to attain longer-term sustainable returns. These investments could negatively impact our financial performance before sustainable profitabilityis recognized.We 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; •the timing and pricing of project sales;17Table of Contents•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; •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; •construction progress of solar power projects and related revenue recognition; and •anti-dumping and countervailing duty costs and/or anti-dumping and countervailing duty true-up charges. 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, 2015 and 2016 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 Chinese18Table of Contentscommercial banks that are denominated primarily in Renminbi or U.S. dollars. Most of our cash and cash equivalents and restricted cash are denominated inRenminbi. Fluctuations in exchange rates, particularly between the U.S. dollar, Euro, British pound, Renminbi, Canadian dollar and Japanese yen, may resultin foreign exchange gains or losses. We recorded net foreign exchange losses of $32.2 million in 2014, and net foreign exchange gain of $22.9 million and$25.4 million in 2015 and 2016, respectively. The value of the Renminbi against the U.S. dollar, Euro and other currencies is affected by, among other things, changes in China's political 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. In 2016, the Renminbi continued to depreciate againstthe U.S. dollar, in response to which the Chinese government imposed restrictions on capital outflows. In October 2016, the International Monetary Fundadded the Renminbi into the Special Drawing Rights currency basket. However, the status of the Renminbi as an international currency is still being testedby the market. We cannot provide any assurances that the policy of the PRC government will not affect or the manner in which it may affect the exchangerate between the Renminbi and the U.S. dollar or other foreign currencies in the future. Since 2008, we have hedged part of our foreign currency exposures against the U.S. dollar using foreign currency forward or option contracts. In additionto collateral requirements to enter into hedging contracts, there are notional limits on the size of the hedging transactions that we may enter into with anyparticular counterparty at any given time. The effectiveness of our hedging program may be limited due to cost effectiveness, cash management, exchangerate visibility and downside protection. We recorded gains on change in foreign currency derivatives of $19.7 million in 2014, losses on change in foreigncurrency derivatives of $3.7 million in 2015, and gains on change in foreign currency derivatives of $4.8 million in 2016. 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.19 Table of ContentsSeasonal 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 deliveryby vendors; •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.We 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 substantially from Chinese banks for our manufacturing operations. Wecannot guarantee that we will continue to be able to obtain new working capital financing on commercially reasonable terms or at all. See "—Ourdependence on Chinese banks to extend our existing loans and provide additional loans exposes us to funding risks, which may materially and adverselyaffect our operations." Also, even though we are a publicly-traded company, we may not be able to raise capital via public equity and debt issuances due20Table of Contentsto market conditions and other factors, many of which are beyond our control. Our ability to obtain external financing is subject to a variety of uncertainties,including:•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. If we are unable to obtain project financing, or if it is only availableon terms which are not acceptable to us, we may be unable to fully execute our business plan. In addition, we generally expect to sell our projects to tax-oriented, strategic industry and other investors. Such investors may not be available or may only have limited resources, in which case our ability to sell ourprojects may be hindered or delayed and our business, financial condition, and results of operations may be adversely affected. There can be no assurancethat we will be able to generate sufficient cash flows, find other sources of capital to fund our operations and solar power projects, make adequate capitalinvestments to remain competitive in terms of technology development and cost efficiency required by our projects. If adequate funds and alternativeresources are not available on acceptable terms, our ability to fund our operations, develop and construct solar power projects, develop and expand ourmanufacturing operations and distribution network, maintain our research and development efforts or otherwise respond to competitive pressures would besignificantly impaired. Our inability to do the foregoing could have a 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 satisfy our outstanding and future debt obligations. Our substantial indebtedness could have importantconsequences to us and our shareholders. For example, it could:•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 additionalfunds; 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.21Table of Contents 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 future violations or obtain waivers of non-compliance on a timely basis. An event of default under any agreement governing our existing orfuture debt, if not cured by us or waived by 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 2014, 2015 and 2016, we successfully extended our short-term borrowings and, as of December 31, 2016, we had outstanding short-term borrowings of$611.7 million with Chinese banks. Between January 1, 2017 and March 31, 2017, we obtained new borrowings of approximately $364.9 million fromChinese banks, including $48.1 million with due dates beyond December 31, 2017. Also, between January 1, 2017 and March 31, 2017, we renewed existingbank facilities of approximately $325.3 million from Chinese banks with due dates beyond December 31, 2017. 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 additional22Table of Contentsborrowings 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, primarily suppliers of machinery, silicon raw materials, solar ingots, wafers andcells. Although we require certain customers to make partial prepayments, there is generally a lag between the due date for the prepayment of purchasedmachinery, silicon raw materials, solar ingots, wafers and cells and the time that our customers make prepayments. In the event that our customers cancel theirorders, we may not be able to recoup prepayments made to suppliers, which could adversely influence our financial condition and results of operations.Credit terms offered to some of our customers expose us to the credit risks of such customers and may increase our costs and expenses, which could in 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.Our 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, silicon wafers and solar cells, from a limited number of third-party suppliers. Purchases from GCL, our largest supplierof raw materials by dollar amount of purchases, accounted for approximately 19.6%, 23.4% and 18.9% of our total raw materials purchases in 2014, 2015 and2016, respectively. In 2016, we purchased the majority of the silicon wafers used in our solar modules from third parties. Our major silicon wafer suppliers were GCL (whichaccounted for 58.2% of our silicon wafer purchases) and Yichang CSG Polysilicon Co., Ltd., or Yichang. Our major suppliers of solar cells in 2016 includedInventec Corporation, or Inventec, and Motech Industries, Inc., or Motech. These suppliers may not always be able to meet our quantity requirements, or keeppace with the price reductions or quality improvements, necessary for us to price our products competitively. Supply may also be interrupted by accidents,disasters or other unforeseen events beyond our control. The failure of a supplier, for whatever reason, to supply silicon wafers, solar cells, silicon rawmaterials or other23Table of Contentsessential components that meet our quality, quantity and cost requirements in a timely manner could impair our ability to manufacture our products orincrease our costs. The impact could be more severe if we are unable to access alternative sources on a timely basis or on commercially reasonable terms, andcould prevent us from delivering our products to our customers in the required quantities and at prices that are profitable. Problems of this kind could causeorder 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, ifat all. 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 2015, we warrant 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 the second year to the 24th year, the actual annual power output decline will be no more than 0.7%; and •by the end of the 25th year, the actual power output of the module will be no less than 80.7% of the labeled power output. Effective June 2015, we warrant 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 the second year to the 24th year, the actual annual power output decline will be no more than 0.7%; and •by the end of the 25th year, the actual power output of the module will be no less than 80.2% of the labeled power output.24Table of Contents In addition, effective August 2016, we lengthened the warranty against decline in our Dymond modules to 30 years. We warrant that, for a period of30 years, our Dymond 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 the second year to the 29th year, the actual annual power output decline will be no more than 0.5%; and •by the end of the 30th year, the actual power output of the module will be no less than 83% of the labeled power output. Effective August 2016, we warrant that, for a period of 30 years, our Dymond 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 the second year to the sixth year, the actual annual power output decline will be no more than 0.7%; from the seventh year to the29th year, the actual annual power output decline will be no more than 0.5%; and •by the end of the 30th year, the actual power output of the module will be no less than 81.5% 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, forsolar power projects built by us, we provide a limited workmanship or balance of system warranty against defects in engineering, design, installation andconstruction under normal use, operation and service conditions for a period of up to five years following the energizing of the solar power plant. In resolvingclaims under the workmanship or balance of system warranty, we have the option of remedying through repair, refurbishment or replacement of equipment.We have also entered into similar workmanship warranties with our suppliers to back up our warranties. See "Item 5. Operating and Financial Review andProspects—A. Operating Results—Critical Accounting Policies—Warranty Costs." As part of our energy business, before commissioning solar power projects, we conduct performance testing to confirm that the projects meet theoperational and capacity expectations set forth in the agreements. In limited cases, we also provide for an energy generation performance test designed todemonstrate that the actual energy generation for up to the first three years meets or exceeds the modeled energy expectation. In the event that the energygeneration performance test performs below expectations, the appropriate party (EPC contractor or equipment provider) may incur liquidated damagescapped at a percentage of the contract price. 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 the terms of our solar module product warranty policy, the insurance companies are obliged to reimburse25Table of Contentsus, subject to certain maximum claim limits and certain deductibles, for the actual product warranty costs that we incur under the terms of our solar moduleproduct warranty policy. We record the insurance premiums initially as prepaid expenses and amortize them over the respective policy period of one year.Each prepaid policy provides insurance against warranty costs for panels sold within that policy year. However, potential warranty claims may exceed thescope or amount of coverage under this insurance and, if they do, they could materially and adversely affect our business.We may not continue to be successful in developing and maintaining a cost-effective solar cell, wafer and ingot manufacturing capability. We plan to continue expanding our in-house solar cell, wafer and ingot manufacturing capabilities to support our solar module manufacturing business.Our annual solar cell production capacity was at 2.44 GW as of December 31, 2016. Our annual solar wafer and ingot production capacity was 1.0 GW and0.4 GW, respectively, as of December 31, 2016. To remain competitive going forward, we intend to expand our annual solar cell, wafer and ingot 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. Manufacturing solar cells, wafers and ingots is a complex process and we may not be able to produce a sufficientquality of these items to meet our solar module manufacturing standards. Minor deviations in the manufacturing process can cause substantial decreases inyield and in some cases cause no yield output or production to be suspended. We will need to make capital expenditures to purchase manufacturingequipment for solar cell, wafer and ingot 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 manufacturing capability may have amaterial and adverse effect on our business and prospects. For example, we have in the past purchased a large percentage of solar cells from third parties. Thisnegatively affected our margins compared with those of our competitors since it is less expensive to produce cells internally than to purchase them from thirdparties. Because third party solar cell purchases are usually made in a period of high demand, prices tend to be higher and availability reduced. Although we intend to continue direct purchasing of solar cells, wafers and ingots and toll manufacturing arrangements through a limited number ofstrategic partners, our relationships with our suppliers may be disrupted if we engage in the large-scale production of solar cells, wafers and ingots ourselves.If our suppliers discontinue or reduce the supply of solar cells, wafers and ingots to us, through direct sales or through toll manufacturing arrangements, andwe are not able to compensate for the loss or reduction by manufacturing our own solar cells, wafers and ingots, our business and results of operations may beadversely affected.We may not achieve acceptable yields and product performance as a result of manufacturing problems. We need to continuously enhance and modify our solar module, cell, wafer and ingot production capabilities in order to improve yields and productperformance. Microscopic impurities such as dust and other contaminants, difficulties in the manufacturing process, disruptions in the supply of utilities ordefects in the key materials and tools used to manufacture solar module, cell, ingot and wafers can cause a percentage of the solar module, cell, ingot andwafers to be rejected, which would negatively affect our yields. We may experience manufacturing difficulties that cause production delays and lower thanexpected 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 of26Table of Contentsthe manufacturing process will require us to repeat each step and recycle the silicon debris, which would adversely affect our yields and manufacturing cost.If we are unable to attract, train and retain technical personnel, our business may be materially and adversely affected. Our future success depends, to a significant extent, on our ability to attract, train and retain technical personnel. Recruiting and retaining 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 33.6%, 26.8% and 16.9% of our net revenues in2014, 2015 and 2016, 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 toadditional risk. 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 and our decisionsregarding development of additional projects in the energy segment may be adversely affected.27Table 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, 2017, Dr. Shawn Qu, our founder, Chairman, President and Chief Executive Officer, beneficially owned 13,649,339 common shares, or23.5% 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 substantially comply with all relevant environmental laws and regulations and have all necessary and material environmental permits to conduct ourbusiness as it is presently conducted. However, if28Table of Contentsmore stringent regulations are adopted in the future, the costs of complying with these new regulations could be substantial. If we fail to comply with presentor future environmental 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, 2017, we had 642 patents and 288 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, 2017, we had 63 registeredtrademarks and one trademark application pending in the PRC, and 50 registered trademarks and 17 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.We 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." Any29Table of Contentsoccurrence of these or other incidents which are not insured under our existing 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, 2016, 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 in the PRC, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the PRCauthorities, our auditors are not currently inspected by the PCAOB. Inspections of other firms that the PCAOB has conducted outside China have identified deficiencies in those firms' audit procedures and quality 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 lose30Table of Contentsconfidence 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 allfour firms. 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 any such future proceedings against the firms may cause investor uncertainty regarding China-based, U.S.-listed companies and the market price of their shares may 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.31Table of ContentsRisks 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 an employer are entitled to a paidvacation ranging from five to 15 days, depending on their length of service. Employees who waive such vacation time at the request of the employer must becompensated for each vacation day waived at a rate equal to three times their normal daily salary. According to the Interim Provisions on Labor Dispatching,which came into effect on March 1, 2014, the number of dispatched workers used by an employer shall not exceed 10% of its total number of workers. Ourlabor costs are expected to continue to increase due to these new laws and regulations. Higher labor costs and labor disputes with our employees stemmingfrom 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. The Enterprise Income Tax Law, or the EIT Law, came into effect in China on January 1, 2008 and was amended on February 24, 2017. Under the EITLaw, both foreign-invested enterprises and domestic enterprises are subject to a uniform enterprise income tax rate of 25%. The EIT Law provides forpreferential tax treatment for certain categories of industries and projects that are strongly supported and encouraged by the state. For example, enterprisesqualified as a "High and New Technology Enterprise," or HNTE, are entitled to a 15% enterprise income tax rate provided that such HNTE satisfies otherapplicable 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 2016, 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%. In 2017, Suzhou Sanysolar, CSI Cells and CSIChangshu Manufacturing are qualified as HNTE and are expected to enjoy a reduced enterprise income tax rate of 15%, subject to applicable statutoryrequirements. Our wholly-owned subsidiary, Canadian Solar Sunenergy (Baotou) Co., Ltd. is now applying for preferential tax benefits. As most of thepreferential tax benefits enjoyed by 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 tax32Table of Contentsrate on their global income. Under the implementation regulations, the term "de facto management body" is defined as substantial and overall managementand control over aspects such as the production and business, personnel, accounts and properties of an enterprise. The Circular on Identification of China-controlled Overseas-registered Enterprises as Resident Enterprises on the Basis of Actual Management Organization, or Circular 82, further provides certainspecific criteria for determining whether the "de facto management body" of a PRC-controlled offshore incorporated enterprise is located in the PRC. Thecriteria include whether (a) the premises where the senior management and the senior management bodies responsible for the routine production and businessmanagement of the enterprise perform their functions are mainly located within the PRC, (b) decisions relating to the enterprise's financial and humanresource matters are made or subject to approval by organizations or personnel in the PRC, (c) the enterprise's primary assets, accounting books and records,company seals, and board and shareholders' meeting minutes are located or maintained in the PRC and (d) 50% or more of voting board members or seniorexecutives of the enterprise habitually reside in the PRC. Although Circular 82 only applies to offshore enterprises controlled by enterprises or enterprisegroups located within the PRC, the determining criteria set forth in the Circular 82 may reflect the tax authorities' general position on how the "de factomanagement body" test may be applied in determining the tax resident status of offshore enterprises. As the tax resident status of an enterprise is subject tothe determination by the PRC tax authorities, uncertainties remain with respect to the interpretation of the term "de facto management body" as applicable toour offshore entities. As a substantial number of the members of our management team are located in China, we may be considered as a PRC tax residentunder 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 PRCsubsidiaries may be exempt from the income tax. If our global income is subject to PRC enterprise income tax at the rate of 25%, our financial condition andresults of operation may 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 income33Table of Contentsderived 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 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.We 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 have34Table of Contentsregistered in the host country (region) in order to satisfy the organization form required by law, the functions actually performed and the risks undertaken arelimited and are not sufficient to prove the economic essence; or (d) the burden of income tax of indirect transfer of Chinese taxable properties payable abroadis lower than the possible burden of taxation in China as for the direct transfer of Chinese taxable properties. However, a non-resident enterprise's incomeobtained from indirect transfer of Chinese taxable properties by purchasing and selling equity of the same listed enterprise abroad in the open market will notbe 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 subsidiaries subject to Announcement 7. However, there is uncertainty as to the interpretation and application of Announcement 7 by thePRC 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 bematerially 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 may35Table of Contentsbe protracted and may result in substantial costs and 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 such issuances or sales, may have on the market price of our common shares. Market conditions could require us to acceptless favorable terms for the issuance of our 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 Nasdaq, until December 31, 2016, the market price of our common shares ranged from $1.95 to $51.8 pershare. From January 1, 2016 to December 31, 2016, the market price of our common shares ranged from $10.25 to $28.8 per share. The closing market price ofour common shares on December 30, 2016 was $12.18 per share. The market price of our common shares may continue to be volatile and subject to widefluctuations 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, Euro, Japanese yen, British pound, Canadian dollar and Renminbi; •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.36Table of ContentsSubstantial 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, 2016, we had 57,830,149 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.Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings. We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make these rights availablein the U.S. 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 U.S. A substantial portion ofour current business operations is conducted in the PRC. In addition, a majority of our directors and officers are nationals and residents of countries otherthan the U.S. and a substantial portion of the assets of these persons are located outside the U.S. As a result, it may be difficult for you to effect service ofprocess within the U.S. upon these persons.37Table of ContentsIt may also be difficult for you to enforce judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against usand our officers and directors, many of whom are not residents of the U.S. and whose assets are located in significant part outside of the U.S. In addition, thereis uncertainty as to whether the courts of Canada or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated uponthe civil liability provisions of the securities laws of the U.S. or any state. In addition, it is uncertain whether such Canadian or PRC courts would becompetent to hear original actions brought in Canada or the PRC against us or such persons predicated upon the securities laws of the U.S. or any state.We may be classified as a passive foreign investment company, which could result in adverse United States federal income tax consequences toUnited States 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, 2016. However, because our PFIC status for 2017 or anyfuture taxable year may depend, in part, on the manner in which we operate our renewable energy generation assets, we cannot assure you that we will not bea PFIC for our current taxable year ending December 31, 2017 or any future taxable year. A non-United States corporation such as ourselves will be treated asa PFIC 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 IRS will not take acontrary position. The determination of whether we will be a PFIC for any taxable year may depend in part upon the value of our goodwill and other unbooked intangiblesnot reflected on our balance sheet (which may depend upon the market value of the common shares from time to time, which may be volatile) and also maybe affected by how, and how quickly, we spend our liquid assets. Further, while we believe our classification methodology and valuation approach isreasonable, 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 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.38Table of Contents 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. Our agent for service of process in the United States isCT Corporation System, located at 111 Eighth Avenue, New York, New York 10011. 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. We made capital expenditures of $65.1 million, $642.8 million and $1,111.5 million in 2014, 2015 and 2016, respectively. Our capital expenditureswere primarily to maintain and increase our ingot, wafer, cell and module manufacturing capacity and to develop and construct solar power systems. For moredetails, see "Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Capital Expenditures."B. 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 ingots, wafers, cells, modules and other solar power products. Our solar power products include standard solarmodules and specialty solar products. We are incorporated in Canada and conduct most of our manufacturing operations in China. Our products include arange of solar modules built to general specifications for use in a wide range of residential, commercial and industrial solar power generation systems.Specialty solar products consist of customized solar modules that our customers incorporate into their own products and complete specialty products, such asportable solar home 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 segment. Our energy segment primarily comprises solarpower project development and sale, EPC and development services, O&M services and operating solar power projects and sales of electricity. Our energysegment contributed just 3.9% of our net revenues in 2016, compared to 28.2% in 2015 and 41.0% in 2014. Even though we intend to monetize our currentportfolio of solar power projects in operation, in the future, we still intend to grow our energy segment by growing our project pipeline and the number ofcustomers of our EPC services and O&M services. In March 2015, we significantly increased our solar project pipeline when we acquired RecurrentEnergy, LLC, or Recurrent, a leading solar energy developer with solar power projects located principally in California and Texas. As of February 28, 2017,our late-stage solar project pipeline, which refers to projects that have energy off-take agreements and are expected to be built within the next two to fouryears, totaled approximately 2.1 gigawatt peak, or GWp, with 538.5 megawatt peak, or MWp, in Japan, 401 MWp in the U.S., 400 MWp in China, 399 MWpin Brazil, 132 MWp in India, 118 MWp in Australia, 68 MWp in Mexico, 26 MWp in the United Kingdom and 6 MWp in Africa. In addition to our late-stagesolar project pipeline, as of February 28, 2017, we had a portfolio of solar power projects in operation totaling 1,195.5 MWp with an estimated resale value ofapproximately $1.6 billion as of February 28, 2017. For those projects that are subject to U.S. tax equity deals, only the value of the class B shares held by uswas included in the aforementioned estimate of resale value. See "—Sales, Marketing and Customers—Energy Segment—Solar Project Development andSale" and "—Sales, Marketing and Customers—Energy Segment—Operating Solar Power Projects and Sales of Electricity" for a description of the status ofour solar power projects in operation. We plan to increase our sales of the solar power projects.39Table of Contents 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, Netherlands, France, Australia, Canada, India and theUnited Kingdom. Our customers primarily include distributors, system integrators, project developers 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, 2016, we had:•6.17 GW of total annual solar module manufacturing capacity, approximately 30 MW of which is located in Ontario, Canada, 1,080 MW inSouth East Asia, 360 MW in Brazil and the rest in China; •2.44 GW of total annual solar cell manufacturing capacity located in China; and •1.4 GW of total annual ingot and wafer manufacturing capacity located in China We plan to expand our module, cell, wafer and ingot manufacturing capacities to 6.97 GW, 4.49 GW, 4.0 GW and 1.7 GW, respectively, byDecember 31, 2017. 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 segment. Ourtotal manufacturing costs in China, including purchased polysilicon, wafers and cells, decreased from $0.48 per watt in December 2014 to $0.40 per watt inDecember 2015 and to $0.33 per watt in December 2016. We expect to continue to decrease the manufacturing costs for our production of wafers, cellsand 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 two business segments: module segment and energy segment. Our module segment primarily involves the design,development, manufacturing and sale of a wide range of solar power products, including standard solar modules and specialty solar products, and solarsystem kits. Our energy segment primarily consists of solar power project development and sale, EPC and development services, O&M services and operatingsolar power projects and sales of electricity.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 345 W in power and40Table of Contentsusing multi-crystalline or mono-crystalline cells in several different design patterns. Our mainstream solar modules include standard CS6V (50 cells),CS6P/CS6K (60 cells), CS6X/CS6U/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 are designed for residential, commercial and utilityapplications. 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-crystalline modules. Quintech SuperPower mono-crystalline modules are made of cellswith PERC technology 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 300 W and are high efficiency and high reliability. We started commercial production ofQuintech CS6K and CS6U modules in the second quarter of 2016. These modules have features such as 5 busbar cells, standardized module dimensions andcell and module improvements, resulting in higher wattage production and better performance. These modules are intended for broad base introduction,which covers mono-crystalline cells, multi-crystalline cells and mono-crystalline PERC cells. In July 2016, we launched the new 1500V System Voltage crystalline solar module portfolio. The 1500V System Voltage crystalline module provides arobust and cost-efficient system solution by adding more modules in a string, which decreases the number of combiner boxes, direct current homeruns andtrenching. This unique product design improves the overall system performance and efficiency and reduces labor cost and installation time. 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 6.17 GW as of December 31, 2016.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.41 Table of Contents 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 2016 sold them primarily to customers in Japan, Europe and the U.S.Products and Services Offered in Our Energy SegmentSolar Project Development and Sale 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, India,Mexico, the United Kingdom and Australia. Our team of experts specializes in project development, evaluations, system designs, engineering, managing,project coordination and organizing financing. Our sales team actively identifies and pursues suitable buyers for our solar power projects. See "—Sales,Marketing and Customers—Energy Segment—Solar Project Development and Sale" for a description of the status of our solar power projects.EPC and Development 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. We began providing development services in the U.S. after we acquired Recurrent in 2015.In 2016, we provided EPC services for 5.2 MW of solar projects in Canada and Australia. The EPC services in China were provided through our affiliatedcompany, Suzhou Gaochuangte New Energy Sources Development Co., Ltd., or Gaochuangte, 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 2016, we provided O&M services primarily to theNorth American market.Operating Solar Power Projects and Sales of Electricity In the fourth quarter of 2014, we began to operate certain of our solar projects in China and generate income from the sale of electricity. Although someof these solar projects are developed for sale, we may operate them prior to selling. As of February 28, 2017, we had a fleet of solar power plants in operationwith an aggregate capacity of approximately 1,195.5 MWp.Supply Chain ManagementModule Segment Our module segment depends on our ability to obtain a stable and cost-effective supply of polysilicon, solar ingots, wafers and cells. Our silicon waferagreements set forth price and quantity information, delivery terms and technical specifications. These agreements usually set forth specific42Table of Contentsprice terms. However, most agreements also include mechanisms to adjust the prices, either upwards or downwards, based on market conditions. We haveentered into a number of long-term supply agreements with several silicon and wafer suppliers in order to secure a stable supply of raw materials to meet ourproduction requirements. These suppliers included GCL, Neo Solar, Deutsche Solar, LDK and a UMG-Si supplier. In 2009 and thereafter, we amended ouragreements with certain of these suppliers to adjust the purchase price to prevailing market prices at the time we place a purchase order and to reduce thequantity of products that we are required to purchase. Under our supply agreements with certain suppliers, and consistent with historical industry practice, wemake advance payments prior to scheduled delivery dates. These advance payments are made without collateral and are credited against the purchase pricespayable by us. In 2016, we purchased the majority of the silicon wafers used in our solar modules from third parties Our major silicon wafers suppliers wereGCL and Yichang. Since 2011, the supply of polysilicon and silicon wafers has generally exceeded demand, particularly polysilicon. Polysilicon pricessignificantly decreased from approximately $20.6 per kilogram at December 31, 2014 to $13.7 per kilogram at December 31, 2015 due to oversupply butthen started to increase in the third quarter of 2016 reaching approximately $19.0 per kilogram by December 31, 2016. We plan to increase our in-house solarwafer manufacturing capacity and expect to diversify our external wafer and polysilicon suppliers. We purchase solar cells from a number of international and local suppliers, in addition to manufacturing our own solar cells and having tollmanufacturing arrangements with our solar cell suppliers. Our solar cell agreements set forth price and quantity information, delivery terms and technicalspecifications. These agreements generally provide for a period of time during which we can inspect the product and request the seller to make replacementsfor damaged goods. We generally require the seller to bear the costs and risks of transporting solar cells until they have been delivered to the locationspecified in the agreement. We currently do not have any long-term supply agreements for solar cells with fixed price or quantity terms. In 2016, our majorsuppliers of solar cells included Inventec and Motech. As we expand our business, we expect to increase our solar cell manufacturing capacity and diversifyour solar cell supply channel to ensure we have the flexibility to adapt to future changes in the supply of, and demand for, solar cells. For risks relating to the long-term agreements with our raw material suppliers, see "Item 3. Key Information—D. Risk Factors—Risks Related to OurCompany and Our Industry—Long-term supply agreements may make it difficult for us to adjust our raw material costs should prices decrease. Also, if weterminate any of these agreements, we may not be able to recover all or any part of the advance payments we have made to these suppliers and we may besubject to litigation."Energy Segment Our module segment supplies part of the solar modules used in our energy segment. For the solar power projects that we develop, we have the option ofeither using our engineering and operation teams or hiring third party contractors to build and operate the projects prior to sale.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 process43Table of Contentsincludes automatic laminators, simulators and solar cell testers. The design of our assembly lines provides flexibility to adjust the ratio of automatedequipment to skilled labor in order to maximize quality and efficiency.Energy Segment We develop, construct, maintain, sell and/or operate solar power projects primarily in Canada, Japan, the U.S., China, Brazil, India, Mexico, theUnited Kingdom and Australia. We engage in all aspects 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 through Gaochuangte, our affiliate in which we own a 40% equity interest and engage third-party contractors in some other countries. Currently, we operate and maintain solar power projects in the United Kingdom, the U. S., China, Japan and Spain. We sign grid-connection agreementsand/or PPAs with the local grid companies. After a project is connected to the grid, we regularly inspect, monitor and manage the project site with theintention to maximize the utilization rate, rate of power generation and system life of the project. We operate a monitoring center in Guelph, Ontario, Canada, which adopts the global monitoring platform (CSEye) to manage system alarms and reports.Our proprietary algorithms analyze the performance of the third party power plants that we operate and maintain on a daily basis and identify potentialproblems. For example, they raise alarms when inverters or strings are under-performing.Quality Control and Certifications 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 that44Table of Contentsdocuments the safety and quality of products, systems and services, audits our quality systems. We inspect and test incoming raw materials to ensure theirquality. We monitor our manufacturing processes to ensure quality control and we inspect finished products by conducting reliability and other tests. We have obtained IEC 61215 and IEC 61730 (previously TUV Class II safety) European standards for sales in Europe. We have also 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 busbar 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. With the emergence of new markets that we are expanding into, we have made efforts to comply with new certification schemes that apply tous, such as INMETRO for Brazil and the UNI9177 fire test for Italy that we have now complied with. 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 a5 kW 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.45Table of Contents To support our energy segment, we started implementing a state-of-the-art OPCT (On-going Performance Characterization Testing) program incooperation with PVEL-DNVGL laboratory in 2015, which delivered extensive module performance characterization per IEC61853 series standards. In 2016, we received JET certification for our new PERC mono 5 busbar premium module series. We also extended our VDE and CSA certifications tocover 1500V maximum system voltage on all of our major module products, providing significant system cost reduction opportunities for our customers. Weimplemented full salt mist, ammoniac and PID certification schemes as standard offer for all of our module series, striving for the highest reliabilityobjectives. Our standard and Dymond module series were granted SGS sand blowing qualification for installation in desert environment. Our in-housedesigned junction boxes B20S and B12S were successfully certified by TUV-Rheinland and CSA to satisfy the latest and most stringent internationalstandards, IEC62790 and UL3730. For all of our new module product series targeted for launch in or after 2017, we have started implementing certification tomeet the latest IEC61215 and IEC61730 standards (2016 version) and expect to complete certification for our Generation 3 polycrystalline CS6U-P modulesin the first quarter of 2017. 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.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:Module 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 2014, 2015 and 2016, our top five customers by net revenues collectively accounted forapproximately 33.6%, 26.8% and 16.9%, respectively, of our total net revenues. Sales to our largest customer in those years accounted for 7.4%, 7.4% and5.0%, respectively, of our total net revenues. We market and sell solar modules worldwide for residential, commercial and utility-scale solar energy projects and solutions. We primarily sell ourproducts to distributors and large-scale installers through our own, home-grown sales teams, who operate throughout Europe, the Americas, the Middle Eastand 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 product46 Years Ended December 31, 2014 2015 2016 Region Total NetRevenues % Total NetRevenues % Total NetRevenues % (In thousands of $, except for percentages) Asia 905,092 30.6 1,384,243 39.9 1,338,404 46.9 Americas 1,795,490 60.6 1,750,000 50.5 1,103,509 38.7 Europe and others 260,045 8.8 333,383 9.6 411,165 14.4 Total 2,960,627 100.0 3,467,626 100.0 2,853,078 100.0 Table of Contentsbriefing, and sales training. Additionally, our marketing team focuses heavily on public relations and crisis management to safeguard our public image. Byworking closely with our sales teams and other leading solar research companies, our marketing team provides up-to-date market information on a constantbasis, supporting the efforts of our sales team. Our marketing staff is located throughout the Americas, Europe, India, Japan, Australia, South Africa andSouth 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. In 2016, we achieved a leading market share in Brazil andmaintained our leading market share in Canada, Japan, Thailand and India. While we expect to expand into new markets in Africa, we expect that our nearterm 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 2016, we sold approximately 79.8 MW of system kitsprimarily in Japan, Europe and the U.S.Energy Segment We develop, construct, maintain, sell and/or operate solar projects primarily in Canada, Japan, the U.S., China, Brazil, India, Mexico, theUnited Kingdom and Australia. We provide EPC and development services primarily in Canada, China, Australia and the U.S., and O&M services primarilyin Canada. We sell our projects to large utility companies and other power producers. Customers of our EPC and development services as well as O&Mservices are solar project developers and owners. In order to continue to grow our energy segment, we conduct market due diligence, routinely meet with industry players and interested investors andattend industry conferences and events to identify project development opportunities. Our energy segment team has extensive industry expertise andsignificant experience in working with government authorities and developing new projects for our target markets.Solar Project Development and Sale We divide our solar power project pipeline into early- to mid-stage pipeline and late-stage pipeline. Early- to- mid-stage pipeline includes projects that(a) are under assessment for co-development and acquisition, or are being developed by us, (b) have identified or secured the land for development, and47Table of Contents(c) have signed energy off-take agreements or have a reasonable probability to sign such agreements. Late-stage pipeline includes nearly all projects that(a) have energy off-take agreements and are (b) expected to be built within the next two to four years. However, some of the late-stage projects may not becompleted due to failure to secure permits or grid connection, among other risks. In March 2015, we acquired Recurrent, a leading solar energy developerwith solar power projects located principally in California and Texas for approximately $261 million. As of February 28, 2017, our late-stage solar projectpipeline totaled approximately 2.1 GWp, with 538.5 MWp in Japan, 401 MWp in the U.S., 400 MWp in China, 399 MWp in Brazil, 132 MWp in India,118 MWp in Australia, 68 MWp in Mexico, 26 MWp in the United Kingdom and 6 MWp in Africa.In Canada During 2016, we sold the 10 MW AC BeamLight and 10 MW AC Alfred solar power plants to Concord Green Energy Inc. for C$152.5 million($113.6 million). In February 2017, we completed the sale of three utility-scale solar farm holding companies, SSM 1 Solar ULC, SSM 2 Solar ULC andSSM 3 Solar ULC, totaling 59.8 MW AC, to Fengate Real Asset Investments for over C$257 million ($191.4 million).In Japan During 2016, we completed the construction and grid connection of eight solar power plants, with a total capacity of approximately 42 MWp. We soldthree solar power plants to third parties. As of February 28, 2017, our pipeline of late-stage utility-scale solar power projects totaled approximately538.5 MWp, including 211.8 MWp in construction and 14.8 MWp at the ready-to-build stage. The expected schedule of commercial operation date, or COD,of our late-stage, utility scale solar power projects in Japan as of February 28, 2017 is as follows: As of February 28, 2017, we had signed interconnection agreements for projects totaling 375 MWp that are in construction or under development. AfterFebruary 28, 2017, we signed interconnection agreements for projects totaling an additional 28 MWp, which may be able to secure the current FIT contract ifthe COD deadline is met. Projects with a total capacity of 71.4 MWp are expected to participate in a bid for a utility upgrades and keep their current FITwhile the bid process is underway.In the U.S. Our late-stage, utility-scale solar project pipeline in the U.S. as of February 28, 2017 is as follows: In 2016, seven projects (Tranquillity, Mustang, Barren Ridge, Astoria 1, Astoria 2, Garland and Roserock) totaling 1,185.1 MWp commencedcommercial operation. In addition, the new late-stage 92 MWp IS 42 project acquired during the fourth quarter of 2016 is under construction and expected toreach commercial operation by the end of 2017. Two other projects (Tranquillity 8 and Gaskell48Expected COD Schedule (MWp) 2017 2018 2019 2020 2021 andThereafter Total 105.5 118 112 126 77 538.5 Project MWp Location Status ExpectedCOD IS 42 92 Fayetteville, NC Construction 2017 Gaskell West 1 28 Kern county, CA Development 2018 Tranquillity 8 281 Fresno county, CA Development 2018 Total 401 Table of ContentsWest 1) are currently under development and expected to reach commercial operation before the end of December 2018. In January 2017, 60 MWac of solar power plant Tranquillity 8 Verde signed a 20-year PPA with the Sacramento Municipal Utility District, or SMUD.This project is located in Fresno County, California and is expected to begin construction in mid-2017 and begin delivering power to SMUD by early 2018.Tranquillity 8 Verde is part of the 281 MWdc Tranquillity 8 project. The remaining volume will be purchased by Marin Clean Energy, Pacific Gas & Electricand Southern California Edison, or SCE, under long-term PPAs. In the fourth quarter of 2016, 28 MWdc of solar power plant Gaskell West 1 signed a 20-year PPA for with SCE. This project is expected to beginconstruction in late 2017 and begin delivering power to SCE by mid-2018. Gaskell West 1 is part of the 175 MWdc Gaskell West project located in KernCounty, California.In China During 2016, in China, we connected two solar power plants totaling 21 MWp to the grid and completed the sale of two solar power projects in JiangsuProvince to Shenzhen Energy Nanjing Holding Co., Ltd., or Shenzhen Energy, a subsidiary of Shenzhen Energy Group Co., Ltd., for approximatelyRMB223.5 million ($32.2 million). As of February 28, 2017, our late-stage solar project pipeline in China totaled approximately 400 MWp with expectedCOD by the end of 2017. In March 2017, we completed the sale of two solar power plants in China, totaling approximately 69.5 MWp, to Shenzhen Energy,for approximately RMB687.1 million ($99.0 million).In Brazil Our solar project pipeline in Brazil reached 399 MWp as of February 28, 2017, all of which were late-stage projects including the 192 MWp Pirapora I,115 MWp Pirapora II and 92 MWp Pirapora III (formerly Vazante). Pirapora I project is under construction and expected to commence commercial operationin the third quarter of 2017. Pirapora II and Pirapora III are in the advanced development stage and are expected to commence commercial operation in thefourth quarter of 2017 and 2018, respectively. In October 2016, we sold 80% interest in Pirapora I project to EDF EN do Brasil, a subsidiary of EDF Energies Nouvelles, or EDF. We supply CanadianSolar modules manufactured under OEM contract in Brazil to these three projects. In the first year of commercial operations, these three projects are expectedto generate over 800,000 MWh of electricity and sell their entire outputs under separate 20-year PPAs.In India As of February 28, 2017, we secured PPAs of 25 years for an aggregate 96 MWp of solar power projects with Solar Energy Corporation of India, anofftaker affiliated with the government of India, in the state of Maharashtra. These projects are expected to commence operations by late 2017. Two otherprojects, each with a capacity of 18 MWp, are expected to commence operations in the first half of 2017.In Australia As of February 28, 2017, our late-stage solar project pipeline in Australia reached 118 MWp, of which two solar power projects located in Longreach andOakey, Queensland and totaling approximately 47 MWp were in ready-to-build stage and are expected to commence operation by the second quarterof 2018.49Table of ContentsIn Mexico In August 2016, we signed a PPA for the 63 MWp solar power plant in Aguascalientes, Mexico with the Federal Electricity Commission of Mexico, orCFE. This project is in development stage and expected to be connected to grid by September 2018. CFE, as the off-taker under the PPA, has committed topurchase approximately 141,000 MWh of electricity each year for a 15-year period and an equivalent amount of Clean Energy Certificates (CEL) for a 20-year period. All electricity and CELs generated in excess of this amount will be available for merchant sales.In the United Kingdom During 2016, we completed the construction of 11 solar power projects totaling approximately 62 MWp. Our pipeline of solar power projects totaled26 MWp as of February 28, 2017, all of which are expected to be connected to the grid in 2017.EPC and Development 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 complete the EPC contracts in China through our affiliated company,Gaochuangte, in which we own a 40% equity interest. Since 2014, we have been providing EPC services in Australia. In 2014, we completed approximately 180.5 MWp and 3.1 MW(DC) of solar system EPC contracts in Ontario, Canada and Australia, respectively. In2015, we completed approximately 152.1 MW(DC) and 1.4 MW(DC) of solar system EPC contracts in Ontario, Canada and Australia, respectively. In 2016,we completed approximately 2.1 MW(DC) and 3.1 MW(DC) of solar system EPC contracts in Ontario, Canada and Australia, respectively. We began providing development services in the U.S. after we acquired Recurrent in 2015.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.Operating Solar Power Projects and Sales of Electricity In addition to our late stage, utility-scale solar project pipeline, we had a portfolio of solar power projects in operation totaling 1,195.5 MWp as ofFebruary 28, 2017. The electricity revenue was $68.8 million in 2016. The resale value of these projects was estimated at approximately $1.6 billion as ofFebruary 28, 2017. For those projects that are subject to U.S. tax equity deals, only the value of the class B shares held by us was included in theaforementioned estimate of resale value. We are actively trying to monetize the majority of our solar power projects in operation and we expect a decrease inelectricity revenue in 2017. Our total portfolio of solar power projects in operation as of February 28, 2017 was as follows: In March 2017, we completed the sale of two solar power plants in China, totaling approximately 69.5 MWp, to Shenzhen Energy, for approximatelyRMB687.1 million ($99.0 million).50Projects in Operation (MWp) U.S. Japan U.K. China Other Total 808 59.5 125 198 5 1,195.5 Table of ContentsCustomer 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 solar power projects built by us, we provide a limited workmanship or balance of system warranty against defects in engineering, design, installationand construction under normal use, operation and service conditions for a period of up to five years following the energizing of the solar power project. Inresolving claims under the workmanship or balance of system warranty, we have the option of remedying through repair, refurbishment or replacement ofequipment. We have also entered into similar workmanship warranties with our suppliers to back up our warranties. As part of our energy business, before commissioning solar power projects, we conduct performance testing to confirm that the projects meet theoperational and capacity expectations set forth in the agreements. In limited cases, we also provide for an energy generation performance test designed todemonstrate that the actual energy generation for up to the first three years meets or exceeds the modeled energy expectation. In the event that the energygeneration performance test performs below expectations, the appropriate party (EPC contractor or equipment provider) may incur liquidated damagescapped at a percentage of the contract price. In certain instances, a bonus payment may be received if the energy generation performance test performs aboveexpectations. Our customer support and service handles technical inquiries and warranty-related issues. In 2016, 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 2016, 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;51Table of Contents•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 such consolidation willbenefit our company in the long-term. We believe that the key to competing successfully in the long-term is to produce innovative, high quality products atcompetitive prices and develop an integrated sales approach that includes services, ancillary products, such as mounting systems and inverters, and value-added product features. We believe that a good marketing program and the strong relationships that we are building with customers and suppliers willsupport us in this competitive environment.Energy Segment Our energy segment is a capital intensive business with numerous industry participants. We face competition from a large and diverse group of local andinternational project developers, financial investors and certain utility companies. These competitors range in terms of size, geographic focus, financialresources and operating capabilities and are active in Canada, Japan, the U.S., China, Brazil, India, Mexico, the United Kingdom, Australia and other marketswhere we operate or intend to enter. We compete in a diversified and complicated landscape since the commercial and regulatory environments for solarpower project development, sale 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. We believe the key competitive factors in the global solar power project development industryinclude:•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.52 Table of Contents Currently, we operate and maintain solar power projects in the United Kingdom, the U.S., China, Japan and Spain. We compete to supply energy to ourpotential customers with a limited number of utilities and providers of distributed generation in these markets. If we wish to enter into new PPAs for our solarpower projects upon termination of previous PPAs, we compete with conventional utilities primarily based on cost of capital, generation located at customersites, operations and management expertise, price (including predictability of price), green attributes of power, the ease by which customers can switch toelectricity generated by our energy systems and our open architecture approach to working within the industry, which facilitates collaboration and projectacquisitions. 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 segment, we may not be able to compete successfully and we maynot 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 obtained credit insurance from 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.53Table of Contents 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.Renewable Energy Law and Other Government Directives In February 2005, China enacted its Renewable Energy Law, which became effective on January 1, 2006 and was 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 NDRC promulgated the Renewable Energy Industry Development Guidance Catalogue, in which solar power figuredprominently. In January 2006, the NDRC promulgated two implementation directives with respect to the Renewable Energy Law. In January 2007, the NDRCpromulgated another related implementation directive. These directives set forth specific measures for setting the price of electricity generated by solar andother renewable power generation systems, for sharing additional expenses, and for allocating administrative and supervisory authority among differentgovernment agencies at the national and provincial levels. They also stipulate the responsibilities of electricity grid companies and power generationcompanies 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. The Outline of the Thirteenth Five-Year Plan forNational Economic and Social Development of the PRC, which was approved by the National People's Congress in March 2016, the Thirteenth Five-YearPlan for Renewable Energy Development, which was promulgated by the NDRC in December 2016, and the Thirteenth Five-Year Plan for Solar PowerGeneration, which was promulgated by the National Energy Administration in December 2016 also demonstrates a commitment to promote the developmentof renewable energy to enhance the competitiveness of the renewable energy industry, including the 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, the54Table of ContentsPRC Energy Conservation Law came into effect. Among other objectives, this law encourages the installation of solar power facilities in buildings toimprove energy efficiency. In July 2009, China's Ministry of Finance and Ministry of Housing and Urban-Rural Development jointly promulgated "the UrbanDemonstration Implementation Program of the Renewable Energy Building Construction" and "the Implementation Program of Acceleration in RuralApplication of the Renewable Energy Building Construction" to support the development of the new energy industry and the new energy-saving industry. 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 energyin buildings. 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 tobe supported. 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 andPV power. In April 2016, the NDRC and National Energy Administration issued the Notice on Printing and Distributing the Action Plan for Energy TechnologyRevolution and Innovation (2016-2030), which sets forth the focus, the main direction, the timetable and the route of energy technology innovation.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 facility55Table of Contentsincidents that would negatively affect the environment also increases. We are subject to a variety of governmental regulations related to the storage, use anddisposal of hazardous materials. The major environmental laws and regulations applicable to us include the PRC Environmental Protection Law, whichbecame effective in 1989, as amended and promulgated in 2014, the PRC Law on the Prevention and Control of Noise Pollution, which became effective in1997, the PRC Law 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 on the Prevention and Control of Water Pollution, which became effective in 1984, as amended and promulgated in 1996 and 2008, the PRCLaw on the Prevention and Control of Solid Waste Pollution, which became effective in 1996, as amended and promulgated in 2004, 2013, 2015 and 2016,the PRC Law on Evaluation of Environmental Affects, which became effective in 2003, as amended and promulgated in 2016, the PRC Law on Promotion ofClean Production, which became effective in 2003, as amended and promulgated in 2012, and the Regulations on the Administration of Construction ProjectEnvironmental 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 2016, and the Implementation Rules of the Wholly Foreign-owned Enterprise Law of the PRC, effective in 1990 and amended in 2001 and 2014. The establishment, operation and management of corporate entities inChina are governed by the Company Law of the PRC, or the Company Law, effective in 1994 and amended in 1999, 2004, 2005 and 2013. The CompanyLaw is applicable to our PRC subsidiaries unless PRC laws on foreign investment stipulate otherwise.56Table of ContentsIncome 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 and amended onFebruary 24, 2017. 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. 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 2016, 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%. In 2017, Suzhou Sanysolar, CSI Cells and CSI Changshu Manufacturing are qualified as HNTE and are expected to enjoy a reduced enterpriseincome tax rate of 15%, subject to applicable statutory requirements. In addition, our wholly-owned subsidiary, Canadian Solar Sunenergy (Baotou) Co., Ltd.is now applying for preferential tax benefits. As most of the preferential tax benefits enjoyed by our PRC subsidiaries expired, their effective tax ratesincreased 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. 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 management body" as applicable to our offshore entities. As a substantial number of the members of ourmanagement 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% enterpriseincome 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 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 the57Table of ContentsEIT Law based on the location of our "de facto management body," dividends distributed from our PRC subsidiaries to our Canadian parent entity could beexempt from Chinese dividend withholding tax. However, in that case, dividends from us to our shareholders may be regarded as China-sourced income and,consequently, be subject to Chinese withholding tax at the rate of 10%, or at a lower treaty rate if applicable. Similarly, if we are considered a PRC taxresident, any gain realized by our shareholders from the transfer of our common shares is also subject to Chinese withholding tax at the rate of 10% if suchgain is regarded as income derived from sources within the PRC. It is unclear whether any dividends that we pay on our common shares or any gains that ourshareholders may realize from the transfer of our common shares would be treated as income derived from sources within the PRC and subject to PRC tax. 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, which are directly held by non-resident enterprises and subject the transfer income to enterprise income tax inChina according to the provisions of Chinese tax law. Indirect transfers of Chinese taxable properties are transactions which transfer the equity of enterprisesabroad that directly or indirectly hold Chinese taxable properties (not including Chinese resident enterprises registered abroad). To estimate reasonablecommercial purposes, all arrangements related to the indirect transfer of Chinese taxable properties must be considered comprehensively and certain factors,such as whether the main value of the equity of enterprises abroad is directly or indirectly from the Chinese taxable properties, must be comprehensivelyanalyzed. Except for the circumstances stipulated therein, the overall arrangements related to the indirect transfer of Chinese taxable properties that fall inany of the following circumstances simultaneously are deemed as having no reasonable commercial purposes: (a) more than 75% of the equity of enterprisesabroad is directly or indirectly from Chinese taxable properties; (b) more than 90% of the total assets (not including cash) of enterprises abroad is directly orindirectly composed of investment in the territory of China 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 or indirectly from the territory of China in the year before the indirect transfer of Chinese taxable properties;(c) although the enterprises abroad and their subordinate enterprises directly or indirectly hold Chinese taxable properties have registered in the host country(region) in order to satisfy the organization form required by law, the functions actually performed and the risks undertaken are limited and are not sufficientto prove the economic essence; or (d) the burden of income tax of indirect transfer of Chinese taxable properties payable abroad is lower than the possibleburden of taxation in China as for the direct transfer of Chinese taxable properties. However, a non-resident enterprise's income obtained from indirect transferof Chinese taxable properties by purchasing and selling equity of the same listed enterprise abroad in the open market will not be taxed underAnnouncement 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 are58Table of Contentsgenerally subject to VAT at a rate of 17%, with exceptions for certain categories of goods that are taxed at a rate of 13%. When exporting certain goods, theexporter is entitled to a refund of a portion or all of the VAT that it has already paid or borne. Under the Provisional Regulation of the PRC on Value Added Tax amended in 2008 and 2016 and its implementation rules, which became effective in2009 and were amended in 2011, and relevant regulations, fixed assets (mainly including equipment and manufacturing facilities) are now eligible for creditfor 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, buthad to be included in the cost of the assets. The new rule permits this deduction except in the case of equipment purchased for non-taxable projects or tax-exempted projects where the deduction of input VAT is not allowed. However, the qualified fixed assets could also be eligible for input VAT if the fixedassets are used for both taxable projects and non-taxable projects or tax-exempted projects. Presently, no further detailed rules clarify under whatcircumstance the fixed assets are considered as being used for both taxable and non-taxable or tax exempt projects. Because of the new VAT rules, our PRCsubsidiaries may benefit from future input VAT credit on our capital expenditures. Under the former rules, equipment imported for qualified projects was entitled to an import VAT exemption and domestic equipment purchased 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 withinthe PRC. 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 and 2016, the Implementation Rules of the Wholly Foreign-Owned Enterprise Law of the PRC,effective in 1990 and amended in 2001 and 2014, the Company Law effective in 1994 and59Table of Contentsamended in 1999, 2004, 2005 and 2013 and the EIT Law and its implementation rules, both effective in 2008. Under these laws, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance 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, which became effective on September 18, 2008 and July 1, 2013, respectively, permit workers in both state-owned and private enterprises in the PRC to bargain collectively. The PRC Labor Law and the PRC Labor Contract Law provide for collective contracts to bedeveloped through collaboration between the labor unions (or worker representatives in the absence of a union) and management that specify such matters asworking conditions, wage scales, and hours of work. The PRC Labor Contract Law and its Implementing Regulation impose certain requirements with respectto human resources management, including, among other things, signing labor contracts with employees, terminating labor contracts, paying remunerationand compensation and making social insurance contributions. In addition, the PRC Labor Contract Law requires employers to provide remunerationpackages that meet the relevant local minimum standards. The PRC Labor Contract Law has enhanced rights for the nation's workers, including permittingopen-ended labor contracts and severance payments. It requires employers to provide written contracts to their workers, restricts the use of temporary laborand makes it harder for employers to lay off employees. It also requires that employees with fixed-term contracts be entitled to an indefinite-term contractafter a fixed-term contract is renewed twice or the employee has worked for the employer for a consecutive ten-year period. According to the InterimProvisions on Labor Dispatching, which came into effect on January 3, 2014, the number of dispatched workers used by an employer shall not exceed 10% ofits 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.60Table 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, 2017.61Name 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%Canadian Solar Japan K.K. Japan 100%Canadian Solar Solutions Inc. Canada 100%CSI Solar Power Group Co., Ltd. (formerly, 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 75.324%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 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%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 Manufacturing (Thailand) Co., Ltd. Thailand 99.99992%Canadian Solar Sunenergy (Suzhou) Co., Ltd. PRC 100%Canadian Solar Energy Holding Singapore 1 Pte. Ltd. Singapore 100%Canadian Solar Sunenergy (Baotou) Co., Ltd. PRC 100%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 real property rights certificate (a new certificate that covers both the land use rights and theproperty ownership) for approximately 180,000 square meters of land in Changshu, on which we have built two module manufacturingfacilities, two warehouses and other buildings with a total floor area of approximately 60,576 square meters. Construction of the centralwarehouses was completed in April 2010. We completed the construction of a module manufacturing facility with an additional warehouseand three other buildings, which have approximately 46,539 square meters of floor area, in the first half of 2011. In November 2015, wecompleted the construction of another warehouse with total floor area of approximately 22,826 square meters. We have obtained propertyownership certificates for all of CSI Changshu Manufacturing's facilities. •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 approximately29,811 square meters. The property ownership certificates were granted in September 2013. In 2016, CSI Luoyang Manufacturing obtained theland use rights for 159,961 square meters of land (Phase III), on which we have constructed manufacturing facilities with the floor area ofapproximately 39,150 square meters. We are in the process of obtaining the property ownership certificates for Phase III. •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 26,921 square meters. CSI-GCL SolarManufacturing currently leases the manufacturing facilities for Phase I but has the right and expects to purchase those facilities and obtain theland use rights between 2018 and 2020. CSI-GCL Solar62Table of ContentsManufacturing commenced commercial production in the first quarter of 2016. In 2016, CSI-GCL Solar Manufacturing obtained the land userights for approximately 133,333 square meters of land (Phase II). The construction of Phase II cell manufacturing facilities with floor area ofapproximately 23,020 square meters was completed in 2016 and we are in the process of obtaining the property ownership certificates forPhase II. 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 Baotou of Inner Mongolia, we lease module manufacturing facilities with a floor space area of 10,190 square meters for a term of two yearscommencing in November 2016. This module manufacturing facility commenced operation in the first quarter of 2017. •In Suzhou, Canadian Solar Sunenergy (Suzhou) Co., Ltd. acquired a module manufacturing facility with a floor area of 28,355 square meterson a land area of approximately 60,000 square meters, which commenced production in the first quarter of 2017. •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 years commencing October 1, 2013. We also lease a warehouse of 7,912 square meters and an office building of 1,146 square meters onthe same premises 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. The renovation of the facility was completed and production began in the first quarter of 2016. •In Thailand, Canadian Solar Manufacturing (Thailand) Co., Ltd. purchased 287,788 square meters of land. We have obtained an ownershipcertificate for 223,552 square meters of the land and are in the process of obtaining ownership certificate for the remaining area. Theconstruction of a cell manufacturing facility with a floor area of 19,139 square meters and a module manufacturing facility with a floor area of29,723 square meters has been completed. Production of modules began in the third quarter of 2016 and production of cells is expected tobegin in the second quarter of 2017. •In Indonesia, we lease a total floor area of approximately 8,000 square meters for our module production facilities, through our 67% ownedsubsidiary, PT. Canadian Solar Indonesia, which was established under a strategic partnership agreement with PT Comtel Energi. Productioncommenced in the first quarter of 2016. 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. For more details, see "B. BusinessOverview—Environmental Matters." ITEM 4A. UNRESOLVED STAFF COMMENTS None. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financialstatements and the related notes thereto included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking statementsbased upon current expectations that involve risks and uncertainties. Our actual results may differ63Table of Contentsmaterially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Item 3. Key Information—D. Risk Factors" or in other parts of this annual report on Form 20-F.A. Operating ResultsFactors Affecting Our Results of Operations The most significant factors that affect our financial performance and results of operations are:•solar power products pricing; •costs of silicon raw material and solar ingot, wafer and cell 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 sale and EPC and development services; •anti-dumping and countervailing duty costs and true-up charges; and •foreign exchange.Solar Power Products Pricing Before 2004, all of our net revenues were generated from sales of specialty solar modules and products. In 2004, we began selling standard solar modules.In 2014, we generated 59.0% of our net revenues from our module segment, which primarily comprises the design, development, manufacture and sale ofsolar power products and solar system kits, and 41.0% from our energy segment, which primarily comprises solar power project development and sale, EPCand development services, O&M services and operating solar power projects and sales of electricity. In 2015, we generated 71.8% of our net revenues fromour module segment and 28.2% from our energy segment. In 2016, we generated 96.1% of our net revenues from our module segment and 3.9% from ourenergy segment. Our standard solar modules are priced based on either the actual flash test result or the nameplate capacity of our modules, expressed in watts-peak. Theactual price per watt is affected by overall demand in the solar power industry and increasingly by the total power of the module. Higher-powered modulesusually command slightly higher prices per watt. We price our standard solar modules based on the prevailing market price at the time we enter into sales contracts with our customers, taking intoaccount the size of the contract, the strength and history of our relationship with the customer and the costs of silicon raw material and solar ingot, wafer andcell. During the first few years of our operations, the average selling prices for standard solar modules rose year-over-year across the industry, primarilybecause of high demand. During the period from 2004 to 2008, the average selling price of our standard solar modules ranged from $3.62 to $4.23. Followinga price peak in the third quarter of 2008, the industry-wide average selling price of standard solar modules declined sharply, as market demand declined andcompetition increased due to the worldwide credit crisis, reduction in government subsidies in certain solar markets and increased manufacturing output. In2009, the average selling price of our standard solar modules continued to fall, with an average selling price of $1.93 per watt in the fourth quarter of 2009.Since 2009, the average selling price of our standard solar modules has generally continued to fall largely due to an oversupply of solar modules. In 2014 and2015, the average selling price of our standard solar modules was approximately $0.67 per watt and $0.58 per watt, respectively, and, in 2016, it wasapproximately64Table of Contents$0.51 per watt. We expect the averaging selling price of standard solar modules to continue to drop, albeit at a moderate rate.Costs of Silicon Raw Material and Solar Ingot, Wafer and Cell Relative to the Selling Prices 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 solar wafers throughmultiple manufacturing steps. Solar wafers are the most important material for making solar cells. Solar ingots are the most important material for makingsolar wafers. If we are unable to procure silicon raw material and solar ingots, wafers and cells at reduced prices in line with the decreasing selling prices ofour solar module, our revenues and margins could be adversely impacted, either due to higher manufacturing costs than our competitors or write-downs ofinventory, or both. Our market share could decline if our competitors are able to offer better pricing than we 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 and associated risks to theavailability and cost of debt or equity for solar power projects and our customers' ability to finance the purchase of our products or to construct solar powerprojects, see "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Industry—The execution of our growth strategy dependsupon the continued availability of third-party financing arrangements for our customers, which is affected by general economic conditions. Tight creditmarkets could depress demand or prices for solar power products and services, hamper our expansion and materially affect our results of operations."Industry and Seasonal Demand Our business and revenues depend on the demand for solar power. Although solar power technology has been used for several decades, the solar powermarket has only started to grow significantly in the past few years. See "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and OurIndustry—We may be adversely affected by volatile solar power market and industry conditions; in particular, the demand for our solar power products andservices 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."65Table of ContentsImpact of Certain of Our Long-term Purchase Commitments Currently, we acquire a large portion of our requirements of solar wafers and cells through purchasing 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 costsshould prices decrease. Also, if we terminate any of these agreements, we may not be able to recover all or any part of the advance payments we have made tothese suppliers and we may be subject to litigation."Solar Power Project Development and Sale and EPC and Development Services Revenues generated from our energy segment accounted for 41.0%, 28.2% and 3.9% of our net revenues in 2014, 2015 and 2016, respectively. Themajority of these revenues came from the sale of solar power projects and the provision of EPC and development services. We intend to monetize the majorityof our current portfolio of solar power projects in operation that have an estimated resale value of approximately $1.6 billion as of February 28, 2017. Ourrevenues from the energy segment are affected by the timing of the completion and sale of solar power projects. See "Item 4. Information on the Company—B. Business Overview—Sales, Marketing and Customers—Energy Segment—Solar Project Development and Sale" for a description of the status of our solarpower projects. Solar power project development and sale and EPC and development services involve numerous risks and uncertainties. For a detailed discussion ofthese risks and uncertainties, see "Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Industry—Our future success dependspartly on our ability to expand the pipeline of our energy segment in several key markets, which exposes us to a number of risks and uncertainties" and"Item 3. Key Information—D. Risk Factors—Risks Related to Our Company and Our Industry—Our project development and construction activities may notbe successful, projects under development may not receive required permits, property rights, PPAs, interconnection and transmission arrangements, andfinancing or construction of projects may not commence or continue as scheduled, all of which could increase our costs, delay or cancel a project, and have amaterial adverse effect on our revenue and profitability."Anti-dumping and Countervailing Duty Costs and True-up Charges In 2016, we made approximately $144.3 million of cash deposits pursuant to anti-dumping and countervailing duty rulings in the U.S., of which$132.2 million were charged to our cost of revenues. In addition, we booked a true-up provision of $44.1 million primarily associated with prior years'module sales from China to the U.S. following the announcement of the preliminary results of the third administrative review carried out by theU.S. Department of Commerce of the import into the U.S. of Chinese origin solar products using Chinese origin solar cells. We have been in the past, and may be in the future, subject to anti-dumping and countervailing duty rulings and orders. In particular, we have beensubject to anti-dumping and countervailing duty rulings in the U.S., the EU and Canada and have, as a result, been party to lengthy proceedings relatedthereto. See "Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal and Administrative Proceedings." The U.S.,EU and Canada are important markets for us. Ongoing proceedings relating to, and the imposition of any new, anti-dumping and countervailing duty rulingsand orders or safeguard measures in these markets may result in additional costs to us and/or our customers.Foreign Exchange The majority of our sales in 2016 were denominated in U.S. dollars, Renminbi and Japanese yen, with the remainder in other currencies such as Euros,Canadian dollars, British pounds and Australian dollars. The majority of our costs and expenses in 2016 were denominated in Renminbi and primarily66Table of Contentsrelated to purchases of solar cells and wafers and silicon and other raw materials, toll manufacturing fees, labor costs and local overhead expenses within thePRC. From time to time, we enter into loan arrangements with Chinese commercial banks that are denominated primarily in Renminbi or U.S. dollars. Themajority of our cash and cash equivalents and restricted cash is denominated in Renminbi. See "Item 3. Key Information— D. Risk Factors—Risks Related toOur Company and Our Industry—Fluctuations in exchange rates could adversely affect our business, including our financial condition and resultsof operations."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. Following our decision to expand our business in both building and selling or building and operating solar power projects, we operated our business inthree principal reportable business segments in 2015: module segment, energy development segment and electricity generation segment. Following ourdecision to terminate the Yieldco launch and monetize the majority of our solar power projects in operation, we operated our business in two principalreportable business segments in 2016:•Module Segment, which primarily comprises the design, development, manufacture and sale of solar power products and solar system kits; •Energy Segment, which primarily comprises solar power project development and sale, EPC and development services, O&M services andoperating solar power projects and sales 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 59.0%, 71.8% and 96.1% of our net revenues in 2014, 2015 and 2016, respectively. Ourrevenues from our module segment are affected primarily by average selling prices per watt and unit volumes shipped, both of which depend on productsupply and demand.Energy Segment Revenues generated from our energy segment accounted for 41.0%, 28.2% and 3.9% of our net revenues in 2014, 2015 and 2016, respectively. Ourrevenues from our energy segment are affected primarily by the timing of the completion and sale of solar power projects. See "Item 4. Information on theCompany—B. Business Overview—Sales, Marketing and Customers—Energy Segment—Solar Project Development and Sale" for a description of the statusof our solar power projects. Revenue recognition for our energy segment, especially our solar power projects, are, in many cases, not linear in nature due to the timing of when allrelevant revenue recognition criteria have been met. During 2016, we recognized $22.2 million of revenue from the sale of solar power projects using the fullaccrual method and $0.4 million of revenue from the percentage-of-completion method. Our revenue recognition policies for the solar power projectdevelopment are described in "—Critical Accounting Policies—Revenue Recognition."67Table of Contents Our revenues from sales to customers are recorded net of estimated returns.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; •depreciation charges relating to under-utilized assets; and •anti-dumping and countervailing duty costs and true-up charges. Our cost of revenues increased in 2014 and 2015 and decreased in 2016, 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 guarantee for defects in materials and workmanship to six years. In August 2011, we increased our guarantee for defects inmaterials and workmanship to ten years and we warrant that, for a period of 25 years, our standard solar modules will maintain the following performancelevels:•during the first year, the actual power output of the module will be no less than 97% of the labeled power output; •from the second year to the 24th year, the actual annual power output decline of the module will be no more than 0.7%; and •by the end of the 25th year, the actual power output of the module will be no less than 80% of the labeled power output.68Table of Contents Effective June 2015, we warrant 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 the second year to the 24th year, the actual annual power output decline will be no more than 0.7%; and •by the end of the 25th year, the actual power output of the module will be no less than 80.7% of the labeled power output. Effective June 2015, we warrant 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 the second year to the 24th year, the actual annual power output decline will be no more than 0.7%; and •by the end of the 25th year, the actual power output of the module will be no less than 80.2% of the labeled power output. Effective August 2016, we lengthened the warranty against decline in our Dymond modules to 30 years. We warrant that, for a period of 30 years, ourDymond 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 the second year to the 29th year, the actual annual power output decline will be no more than 0.5%; and •by the end of the 30th year, the actual power output of the module will be no less than 83% of the labeled power output. Effective August 2016, we warrant that, for a period of 30 years, our Dymond 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 the second year to the sixth year, the actual annual power output decline will be no more than 0.7%; •from the seventh year to the 29th year, the actual annual power output decline will be no more than 0.5%; and •by the end of the 30th year, the actual power output of the module will be no less than 81.5% of the labeled power output. In resolving claims under the workmanship guarantee, we have the option of remedying the defect through repair, refurbishment or replacement ofequipment. In resolving 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.69Table of Contents 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 modules sold within that policy year. The warranty insurance is renewable annually.See "—Critical Accounting Policies—Warranty Costs." Total write-downs of inventory included in our cost of revenue were $17.0 million, $23.0 million and $19.5 million in 2014, 2015 and 2016,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 way asthat used to value inventory losses. We did not record a loss on firm purchase commitments for the years ended December 31, 2014, 2015 and 2016. 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 toadjust 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." In 2016, we made approximately $144.3 million of cash deposits pursuant to anti-dumping and countervailing duty rulings in the U.S., of which$132.2 million were charged to our cost of revenues. In addition, we booked a true-up provision of $44.1 million primarily associated with prior years'module sales from China to the U.S. following the announcement of the preliminary results of the third administrative review carried out by theU.S. Department of Commerce of the import into the U.S. of Chinese origin solar products using Chinese origin solar cells from China.Energy Segment The cost of revenues of our energy segment consists primarily of the costs of:•acquiring solar power projects; •acquiring and developing solar project sites, including interconnection fees and permitting costs; •solar project EPC and development services •interest capitalized for solar power projects during construction period; •operating and maintaining solar project assets, including depreciation and amortization of solar project assets; and •labor, including salaries and benefits for operating and maintenance personnel. For solar power projects built by us, we provide a limited workmanship or balance of system warranty against defects in engineering design, installationand construction under normal use, operation and service conditions for a period of up to five years following the energizing of the solar power project. Inresolving claims under the workmanship or balance of system warranty, we have the option of remedying through repair, refurbishment or replacement ofequipment. We have entered into70Table of Contentssimilar workmanship warranties with our suppliers to back up our warranties. We maintain warranty reserves to cover potential liabilities that could ariseunder these guarantees and warranties.Gross Profit/Gross Margin Our gross profit is affected by a number of factors, including the success of and contribution from both 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, our ability to cost-effectivelymanage our supply chain, the timing of completion of construction of our solar power projects, the timing and pricing of project sales and project financing.Operating Expenses Our operating expenses include selling expenses, general and administrative expenses, research development expenses and other operating income, net.Our operating expenses increased in 2014, 2015 and decreased in 2016. We expect our operating expenses to increase as our net revenues grow in the future.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 increasedin 2014, 2015 and decreased in 2016. We expect as we increase our sales volumes in the future, our selling expenses will increase as we hire additional salespersonnel, 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 increased in 2014, 2015 and 2016.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 2014, 2015 and 2016, our research and development expenses accounted for 0.4%, 0.5% and 0.6% 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.Other Operating Income, Net Other operating income, net, primarily consists of gains or losses on disposal of solar power systems and property, plant and equipment, and governmentgrants received. In prior years, the net gain or loss on disposal of property, plant and equipment and government grants were immaterial and included ingeneral and administrative expenses. In 2016, given that we have begun to separately present the results of monetization of our solar power systems, wereclassified the prior year immaterial amounts to conform to the current year's presentation.71Table of ContentsShare-based Compensation Expenses Under our share incentive plan, as of December 31, 2016, we had outstanding:•466,286 stock options; •349,500 restricted shares; and •1,402,859 restricted share units. 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 recognize compensation costs only for those equity awards that we expect to vest. We estimate ourforfeitures based on past employee retention rates and our expectations of future retention rates. We prospectively revise our forfeiture rates based on actualhistory. Our share-based compensation expenses may change based on changes in actual forfeitures. For the year ended December 31, 2016, we recorded share-based compensation expenses of approximately $7.8 million, compared to approximately$6.0 million for the year ended December 31, 2015. 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 theoptions, restricted shares and restricted share units. The following table sets forth, for the periods indicated, the allocation of our share-based compensation expenses both in absolute amounts and as apercentage of total share-based compensation expenses. We expect to incur additional share-based compensation expenses as we expand our operations.72 Years Ended December 31, 2014 2015 2016 (In thousands of $, except for percentages) Share-based compensation expenses included in: Cost of revenues 807 15.9% 697 11.7% 815 10.5%Selling expenses 975 19.1 1,088 18.2 1,216 15.7 General and administrative expenses 3,008 59.1 3,889 65.2 5,254 67.7 Research and development expenses 298 5.9 292 4.9 472 6.1 Total share-based compensation expenses 5,088 100.0% 5,966 100.0% 7,757 100.0% Table of ContentsInterest Expense Interest expense consists primarily of interest incurred with respect to our short and long-term borrowings from Chinese commercial banks andinternational banks, short-term commercial papers, and the convertible senior notes issued by us in February 2014.Gain (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. In 2014, we had a gain on the change in fair value of derivatives of $19.7 million, which was related to change in fair value of foreigncurrency derivatives. In 2015, we had a loss on the change in fair value of derivatives of $12.2 million, which included a $3.7 million loss on change in fairvalue of foreign currency derivatives, a $8.9 million loss on change in fair value of warrants and a $0.4 million gain on change in fair value of interest rateswap/swaption contracts. The warrants were issued in conjunction with the $180 million in financing arranged by Credit Suisse AG, Singapore Branch, orCredit Suisse, in the fourth quarter of 2015. These warrants can be settled in cash at the discretion of the holder and as a result they are derivative liabilitiesthat were recorded at fair value at issuance and are subsequently marked to market at the end of each reporting period. In 2016, we had a gain on the changein fair value of derivatives of $27.3 million, which included a $4.8 million gain on change in fair value of foreign currency derivatives, a $24.5 million gainon change in fair value of warrants and a $2.0 million loss in change in fair value of interest rate swap/swaption contracts.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 2014, 2015 and 2016. 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 2016, 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%. In 2017, Suzhou Sanysolar, CSI Cells andCSI Changshu Manufacturing are qualified as HNTE and are expected to enjoy a reduced enterprise income tax rate of 15% subject to applicable statutoryrequirements. In addition, our wholly-owned subsidiary, Canadian Solar Sunenergy (Baotou) Co., Ltd. is now applying for preferential tax benefits. As mostof the preferential tax benefits enjoyed by our PRC subsidiaries expired, their effective tax rates increased significantly. The EIT Law provides that enterprises established outside China whose "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 management73Table of Contentsbody" of a PRC-controlled offshore incorporated enterprise is located in the PRC. The criteria include whether (a) the premises where the senior managementand the senior management bodies responsible for the routine production and business management of the enterprise perform their functions are mainlylocated within the PRC, (b) decisions relating to the enterprise's financial and human resource matters are made or subject to approval by organizations orpersonnel in the PRC, (c) the enterprise's primary assets, accounting books and records, company seals, and board and shareholders' meeting minutes arelocated or maintained 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 management body" as applicable to our offshore entities. As a substantial number of the members of ourmanagement 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% enterpriseincome 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 $284.3 million as of December 31, 2016) 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:•the reported amounts of our assets and liabilities, •the disclosure of our contingent assets and liabilities at the end of each fiscal period, and •the reported amounts of revenues and expenses during each fiscal period. We regularly evaluate these judgments, estimates and assumptions based on our own historical experience, knowledge and assessment of currentbusiness and other conditions, our expectations regarding the future based on available information and reasonable assumptions, which together form ourbasis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financialreporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others intheir application. When reviewing our financial statements, the following should be considered:•our selection of critical accounting policies, •the judgment and other uncertainties affecting the application of such policies, and •the sensitivity of reported results to changes in conditions and assumptions. We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements.74Table of ContentsRevenue 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 customary product warranties but do not contain any post-shipment obligations nor anyreturn 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 named destination, paying all transportation expenses and the duty. We bear the risks and costs associated with supplying the goods tothe delivery location. As of December 31, 2014, 2015 and 2016, we had inventories of $7.5 million, $7.3 million and $5.9 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, 2014, 2015 and 2016, we had a salesreturn reserve of $0.1 million, nil 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 return finished modules. In such cases, the title of the cells received and riskof 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 when theprocessed modules are delivered. During the years ended December 31, 2014, 2015 and 2016, we recognized revenue of $16.6 million, $6.8 million and nil,respectively, under the toll manufacturing arrangements.Energy Segment We use the percentage-of-completion method to recognize revenues for projects for which we provide EPC 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. The75Table of Contentspercentage-of-completion method is considered appropriate in circumstances in which reasonably dependable estimates can be made and in which all thefollowing conditions exist:•contracts executed by the parties normally include provisions that clearly specify the enforceable rights regarding goods or services to beprovided and received by the parties, the consideration to be exchanged, and the manner and terms of settlement; •the buyer can be expected to satisfy all obligations under the contract; and •the contractor can be expected to perform all contractual obligations. We use the cost-to-cost method to measure the percentage of completion and recognize revenue based on the estimated progress to completion. Weperiodically revise our profit estimates based on changes in facts, and immediately recognize any losses that are identified on contracts. Incurred costsinclude all direct material, labor, subcontractor cost, and other associated costs. We recognize job material costs as incurred costs when the job materials havebeen permanently attached or fitted to the solar power projects as required by the engineering design. The construction periods normally extend beyond sixmonths 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 since revenue wasinitially 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. We recognize revenue from the sale of project assets owned by us in accordance with Accounting Standards Codification, or ASC, 360-20, Real EstateSales. For these transactions, we have determined that the project assets, which represent the costs of constructing solar power projects, represent "integral"equipment and as such, the entire transaction is in substance the sale of real estate and subject to the revenue recognition guidance under ASC 360-20 RealEstate Sales. We record the sale as revenue using one of the following revenue recognition methods, based upon evaluation of the substance and form of theterms and conditions of such real estate sales arrangements:•Full accrual method. We record revenue for certain sales arrangements after construction of discrete portions of the project or after the entireproject is substantially complete. We recognize revenue and profit using the full accrual method when all of the following requirements aremet: (a) the sales are consummated; (b) the buyer's initial and continuing investments are adequate to demonstrate its commitment to 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 termsof 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 to closing have been performed, and we do not have any substantial continuing involvement with the project.76Table of Contents•Percentage-of-completion method. We apply the percentage-of-completion method, as further described below, to certain real estate salesarrangements where we convey control of land or land rights, (a) when a sale has been consummated; (b) we have transferred the usual risksand rewards of ownership to the buyer; (c) the initial and continuing investment criteria have been met; (d) we have the ability to estimate itscosts and progress toward completion, and (e) all other revenue recognition criteria have been met. The initial and continuing investmentrequirements, which demonstrate a buyer's commitment to honor their obligations for the sales arrangement, can typically be met through thereceipt of cash or an irrevocable letter of credit from a highly creditworthy lending institution. When evaluating whether the usual risks andrewards of ownership have transferred to the buyer, we consider whether we have or may be contingently required to have any prohibited formsof continuing involvement with the project. Prohibited forms of continuing involvement in a real estate sales arrangement may include usretaining risks or rewards associated with the project that are not customary with the range of risks or rewards that an EPC contractormay assume. •Installment method. Depending on whether the initial and continuing investment requirements have been met, and whether collectability fromthe buyer is reasonably assured, we may align our revenue recognition and release of project assets or deferred project costs to cost of saleswith the receipt of payment from the buyer if the sale has been consummated and we have transferred the usual risks and rewards of ownershipto the buyer. On occasion, we sell an interest in the project assets to a third party with an option to repurchase those assets in the future. We consider that there arecontinuing involvements in the projects and thus no profit or revenue is recognized. The transactions are accounted for as financing arrangement or profit-sharing arrangement.•Financing method. If we determine that it is likely the repurchase option will be exercised, the transactions are accounted for as financingarrangement. All the project assets remain on our consolidated balance sheets. The buyer's shares of earnings in the projects, during eachperiod are reflected as interest expenses with a corresponding increase to the respective financing liabilities. Further distributions from theprojects are reflected as a decrease to the financing liabilities. As of December 31, 2015 and 2016, we recorded financing liabilities of$3.2 million and $459.3 million, in other non-current liabilities and financing liabilities on the consolidated balance sheet, respectively. Thebalances had been net of distributions of nil and $1.4 million as of December 31, 2015 and 2016, respectively. •Profit-sharing arrangement. If we determine that it is unlikely the repurchase option will be exercised, the transactions are accounted for asprofit-sharing arrangement. We reclassify the property and any related existing debt assumed by the buyer to an investment account on itsbalance sheet and any cash received from the buyer is credited to the investment account. The amount will be recorded in investments inaffiliates or other liabilities on the balance sheet depending on whether the amount is a debit or credit. As of December 31, 2015 and 2016, werecorded nil and $4.8 million, respectively, in other liabilities on the consolidated balance sheet. During 2016, we recognized $22.2 million and $0.4 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 the following basis (a) vendor-specific objective evidence of selling price, if it exists, otherwise, (b) third-party evidenceof 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 eachunit of accounting when the revenue recognition criteria have been met.77Table of Contents 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, 2016, we recognized government subsidy of $22.8 million related to electricitygenerated from solar power systems and assets held-for-sale 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, 2016, the total lease income recognized was $6.2 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 increased our guarantee for defects in materials and workmanship to six years. In August 2011, we increased our guarantee for defects inmaterials and workmanship to ten years and we warrant that, for a period of 25 years, our standard solar modules will maintain the following performancelevels:•during the first year, the actual power output of the module will be no less than 97% of the labeled power output; •from the second year to the 24th year, the actual annual power output decline of the module will be no more than 0.7%; and •by the end of the 25th year, the actual power output of the module will be no less than 80% of the labeled power output. Effective June 2015, we warrant 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 the second year to the 24th year, the actual annual power output decline will be no more than 0.7%; and •by the end of the 25th year, the actual power output of the module will be no less than 80.7% of the labeled power output. Effective June 2015, we warrant 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;78Table of Contents•from the second year to the 24th year, the actual annual power output decline will be no more than 0.7%; and •by the end of the 25th year, the actual power output of the module will be no less than 80.2% of the labeled power output. Effective August 2016, we lengthened the warranty against decline in our Dymond modules to 30 years. We warrant that, for a period of 30 years, ourDymond 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 the second year to the 29th year, the actual annual power output decline will be no more than 0.5%; and •by the end of the 30th year, the actual power output of the module will be no less than 83% of the labeled power output. Effective August 2016, we warrant that, for a period of 30 years, our Dymond 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 the second year to the sixth year, the actual annual power output decline will be no more than 0.7%; •from the seventh year to the 29th year, the actual annual power output decline will be no more than 0.5%; and •by the end of the 30th year, the actual power output of the module will be no less than 81.5% of the labeled power output. In resolving claims under the workmanship guarantee, we have the option of remedying the defect through repair, refurbishment or replacement ofequipment. In resolving claims under the performance warranty, we have the right to repair or replace solar modules, at our option. For solar power projects built by us, we provide a limited workmanship or balance of system warranty against defects in engineering design, installationand construction under normal use, operation and service conditions for a period of up to five years following the energizing of the solar power project. Inresolving claims under the workmanship or balance of system warranty, we have the option of remedying through repair, refurbishment or replacement ofequipment. 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 product79Table of Contentswarranty costs that we incur under the terms of our solar module product warranty policy. We record the insurance premiums initially as prepaid expenses andamortize them over the respective policy period of one year. Each prepaid policy provides insurance against warranty costs for modules sold within thatpolicy year. The warranty obligations that we record relate to defects that existed when a product was sold to the customer. The event that we are insured againstunder our insurance policies is the sale of a defective product. Accordingly, we view the insured loss attributable to the shipment of defective productscovered under our warranty as analogous to potential claims, or claims that have been incurred as of the product shipment date, but not yet reported. Weexpect to recover all or part of the cost of our obligations with respect to the defective products through insurance claims. Therefore, our 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. 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; and •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). With respect to specific claims submitted, written communications with the insurance company are monitored to ensure the claim has been promptlysubmitted to and accepted by the insurance company, and reimbursements have been subsequently collected. The successfully processed claims providefurther 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 would establish a provision for uncollectible amounts based on the specific facts and circumstances. To date, no provision hasbeen determined to be necessary. If an accrual for warranty costs differs from the estimates and we prospectively change our accrual rate, this may result in achange 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, $56.6 million and$61.9 million at the end of 2014, 2015 and 2016, respectively, and were included as a component of other non-current assets. We made downward adjustments to our accrued warranty costs of $16.9 million and other non-current assets of $15.2 million, for the year endedDecember 31, 2016, 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 $18.6 million, $15.9 million and $9.8 million are included in cost of revenues for the years endedDecember 31, 2014, 2015 and 2016, respectively.80Table of ContentsImpairment 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 $1.6 million, $7.0 million and $22.8 million related to the write-down of wafer sortingmachine and other fixed assets in China in 2014, certain idle assets in China and Canada in 2015. and welding machine and three module production lines inChina and Canada in 2016, 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 our receivables and factors surrounding the credit risk of specific customers. As of December 31, 2014, 2015 and2016, an allowance for doubtful accounts receivable of $31.8 million, $28.2 million and $26.1 million, respectively, was established for certain customers forwhom management sees a credit risk on the collection of accounts receivable balances. The allowance for doubtful accounts receivable as of December 31,2014, 2015 and 2016 included $14.8 million, $14.0 million and $13.0 million, respectively, relating to one customer in China with severe liquidity issues.We have been purchasing insurance from Sinosure since 2009 for certain of its accounts receivable trade in order to reduce its exposure to bad debt loss. Weestablish allowances for all doubtful accounts according to our allowance policy regardless of whether such accounts are covered by Sinosure insurance. Forthe amounts recoverable from Sinosure, we recorded $0.6 million, $0.4 million and $0.4 million in prepaid expenses and other current assets as ofDecember 31, 2014, 2015 and 2016, respectively. With respect to advances to suppliers, primarily suppliers of machinery, silicon raw materials, solar ingots, wafers and cells, we perform ongoing creditevaluations of their financial condition. We generally do not require collateral or security against advances to suppliers, as they tend to be recurring supplypartners. However, we maintained a reserve for potential credit losses for advances to suppliers as of December 31, 2014, 2015 and 2016 of $37.7 million,$28.6 million and $19.5 million, respectively. The reserves as of December 31, 2016 include allowances on advances to Deutsche Solar of $14.2 million.Inventories Before 2016, inventories were stated at the lower of cost or market. In 2016, we adopted Accounting Standards Update, or ASU, 2015-11 prospectively,and inventories are stated at the lower of cost or net realizable value as of December 31, 2016. Cost is determined by the weighted-average method. Cost ofinventories consists of direct materials and, where applicable, direct labor costs, tolling costs and those overhead costs that have been incurred in bringingthe inventories to their present location and condition. Adjustments are recorded to write down the cost of obsolete and excess inventories to the estimated net realizable value based on historical and forecastdemand. The write-down of inventories81Table of Contentsfor the years ended December 31, 2014, 2015 and 2016 were $17.0 million, $23.0 million and $19.5 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 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 way asthat used to value inventory losses.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 are preliminarily classified as project assets unless we have intention not to sell them to third parties. In that case, they will beclassified as solar power systems on the balance sheet. During the development phase, 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 projects are presented as operating activities or investing activities in the consolidated statement of cash flows, if they are related toproject assets or solar power systems, respectively. While the solar power projects are in the development phase, they are generally classified as non-currentassets, unless it is anticipated that construction will be completed and the sale will occur within one year. Once the development of the solar power projects is substantially complete and the projects reach COD, appropriateness of the classification of the solarpower projects is re-assessed based on the82Table of Contentscircumstances at that time. Solar power projects that we intend to sell, which meet the criteria of ASC 360-10-45-9 on COD, are classified as project assets—current. Solar power projects that we intend to hold and operate to generate electricity are still classified as solar power systems. 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 $2.3 million, nil and $3.0 million for the years ended December 31, 2014, 2015 and 2016, respectively. Project assets are often held in separate legal entities which are formed for the special purpose of constructing the project assets. We refer to these entitiesas "project companies". We consolidated project companies as described in Note 2 "Summary of Principal Accounting Policies—(b) Basis of consolidation"to our consolidated financial statements for the year ended December 31, 2016 included in this annual report on Form 20-F. The cash paid to the non-controlling interest in connection with disposal of the consolidated project companies was recorded as a financing activity in the consolidated statement ofcash flows. We do not depreciate the project assets. Any revenue generated from a solar power system connected to the grid will be considered incidental revenueand accounted for as a reduction of the capitalized project costs for development. If circumstances change, and we begin to operate the project assets for thepurpose of generating income from the sale of electricity, the project assets will be 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, $56.0 million and $71.5 million as of December 31, 2014, 2015 and 2016, respectively. Current income taxes are provided for in accordance with the laws of the relevant taxing authority. Before 2016, the components of the deferred taxassets and liabilities were individually classified as current and non-current based on the characteristics of the underlying assets and liabilities, or theexpected timing of their use when they do not relate to a specific asset or liability. In 2016, we adopted ASU2015-17 prospectively and did not revise priorperiods, and as of December 31, 2016, the components of the deferred tax assets and liabilities are all classified as non-current on the consolidatedbalance sheet. 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 a83Table of Contentstaxing authority; and (c) non-current tax expense, which represents the increases and decreases in amounts related to uncertain tax positions from priorperiods and not settled with cash or other tax attributes. We only recognize 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 we recognize is the largest amount of tax benefit that is morethan fifty percent likely of being sustained upon the ultimate settlement of such uncertain tax position. We record penalties and interests associated with theuncertain tax positions as a component of income tax expense. We use the flow-through method to account for investment tax credits earned on qualifying projects placed into service. Under this method theinvestment tax credits are recognized as a reduction to income tax expense in the year the credit arises. The use of the flow-through method also results in abasis difference from the recognition of a deferred tax liability and an immediate income tax expense for reduced future tax depreciation of the related assets.Such basis differences are accounted for pursuant to the income statement method.Recently Issued Accounting Pronouncements In May 2014, the Financial Accounting Standards Board, or FASB, issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), to clarifythe principles of recognizing revenue and create common revenue recognition guidance between U.S. GAAP and International Financial ReportingStandards. An entity has the option to apply the provisions of ASU 2014-09 either retrospectively to each prior reporting period presented or retrospectivelywith the cumulative effect of initially applying this standard recognized at the date of initial application. ASU 2014-09 is effective for fiscal years andinterim periods within those years beginning after December 15, 2016, and early adoption is not permitted. In August 2015, the FASB updated this standardto ASU 2015-14. The amendments in this Update defer the effective date of ASU 2014 -09 and provide that ASU 2014-09 should be applied to annualreporting periods beginning after December 15, 2017 and earlier application is permitted only as of annual reporting periods beginning after December 15,2016, including interim reporting periods within that reporting period. We currently plan to adopt ASU 2014-09 in the period beginning from January 1, 2018 using the full retrospective approach, however, a final decisionregarding the adoption method has not been made at this time. Our final determination will depend on a number of factors including the process of finalizingthe impact to our financial results and in particular on the timing and extent of revenue recognition for the sales of project assets. 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. The adoption of ASU 2015-02 effective January 1, 2016 did not have a significant impact on the consolidated financial statements and associated disclosures.84 Table of Contents In January 2016, the FASB issued ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10)—Recognition and Measurement of FinancialAssets and Financial Liabilities. ASU 2016-01 changes how entities measure certain equity investments and present changes in the fair value of financialliabilities measured under the fair value option that are attributable to their own credit. The guidance also changes certain disclosure requirements and otheraspects of current 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 financial statements and associateddisclosures. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This update requires an entity to recognize lease assets and lease liabilities on thebalance 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. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230)—Classification of Certain Cash Receipts and Cash Payments. TheASU reduces the existing diversity in practice on how certain cash flows should be presented and classified in the statement of cash flows and is effective nolater than the first quarter of fiscal 2018. Early adoption is permitted. The ASU should be applied using a retrospective transition method to each periodpresented. We are currently evaluating the impact of the adoption of this AUS on its consolidated financial statements. In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 230)—Intra-Entity Transfers of Assets Other Than Inventory, which removes theprohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other thaninventory. The ASU, which is part of the Board's simplification initiative, is intended to reduce the complexity of U.S. GAAP and diversity in practice relatedto the tax consequences of certain types of intra-entity asset transfers, particularly those involving intellectual property. For public business entities, the ASUis effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted for all entitiesas of the beginning of a fiscal year for which neither the annual or interim (if applicable) financial statements have been issued or made available for issuance.We are currently evaluating the impact of the adopting this standard on the financial statements. In November 2016, the FASB issued ASU 2016-18, which amends ASC 230 to add or clarify guidance on the classification and presentation of restrictedcash in the statement of cash flows. An entity should include in its cash and cash-equivalent balances in the statement of cash flows those amounts that aredeemed to be restricted cash and restricted cash equivalents. The ASU does not define the terms "restricted cash" and "restricted cash equivalents" but statesthat an entity should continue to provide appropriate disclosures about its accounting policies pertaining to restricted cash in85Table of Contentsaccordance with other GAAP. The ASU also states that any change in accounting policy will need to be assessed under ASC 250. For public business entities,the guidance is effective for fiscal years beginning after December 15, 2017, including interim periods therein. Early adoption is permitted for all entities. Weare in the process of evaluating the impact of adopting this standard on the financial statements. In January 2017, the FASB issued ASU 2017-04, which removes the requirement to compare the implied fair value of goodwill with its carrying amountas part of step 2 of the goodwill impairment test. As a result, under the ASU, an entity should perform its annual, or interim, goodwill impairment test bycomparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carryingamount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.An entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwillimpairment loss, if applicable. For public business entities that are SEC filers, the guidance is effective for fiscal years beginning after December 15, 2019.Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect the adoptionof this standard to have a significant impact to the financial statements.86Table 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, 2014 2015 2016 (in thousands of $, except percentages) Net revenues $2,960,627 100.0%$3,467,626 100.0%$2,853,078 100.0%Module segment 2,034,626 68.7% 2,672,689 77.1% 2,821,142 98.9%Energy segment 1,212,899 41.0% 979,247 28.2% 110,560 3.9%Elimination (286,898) (9.7)% (184,310) (5.3)% (78,624) (2.8)%Cost of revenues 2,379,633 80.4% 2,890,856 83.4% 2,435,890 85.4%Module segment 1,721,474 58.1% 2,277,904 65.7% 2,426,618 85.1%Energy segment 931,761 31.5% 778,951 22.5% 69,544 2.4%Elimination (273,602) (9.2)% (165,999) (4.8)% (60,272) (2.1)%Gross profit 580,994 19.6% 576,770 16.6% 417,188 14.6%Module segment 313,152 10.6% 394,785 11.4% 394,524 13.8%Energy segment 281,138 9.5% 200,296 5.8% 41,016 1.4%Elimination (13,296) (0.4)% (18,311) (0.5)% (18,352) (0.6)%Operating expenses: Selling expenses 125,797 4.2% 149,710 4.3% 145,367 5.1%General and administrative expenses 81,149 2.7% 168,025 4.8% 203,789 7.1%Research and development expenses 12,057 0.4% 17,056 0.5% 17,407 0.6%Other operating income, net (4,323) (0.1)% (5,392) (0.1)% (42,539) (1.5)%Total operating expenses 214,680 7.3% 329,399 9.5% 324,024 11.4%Income from operations 366,314 12.4% 247,371 7.1% 93,164 3.3%Other income (expenses) Interest expense (48,906) (1.7)% (54,148) (1.6)% (69,723) (2.4)%Interest income 14,363 0.5% 16,831 0.5% 10,236 0.4%Gain (loss) on change in fair value ofderivatives 19,656 0.7% (12,196) (0.4)% 27,322 1.0%Investment income — — 2,342 0.1% (1,532) (0.1)%Foreign exchange gain (loss) (32,219) (1.1)% 22,882 0.7% 25,406 0.9%Gain on repurchase of convertible notes — — — — 2,782 0.1%Others 1,623 0.1% 389 0.0% — — Income before income taxes and equity inearnings (loss) of unconsolidated investees 320,831 10.9% 223,471 6.4% 87,655 3.1%Income tax expense (77,431) (2.6)% (49,512) (1.4)% (17,976) (0.6)%Equity in earnings (loss) of unconsolidatedinvestees 487 0.0% (643) 0.0% (4,404) (0.2)%Net income 243,887 8.2% 173,316 5.0% 65,275 2.3%Less: Net income attributable to non-controllinginterests 4,385 0.1% 1,455 0.0% 26 0.0%Net income attributable to Canadian Solar Inc. 239,502 8.1% 171,861 5.0% 65,249 2.3%Table of ContentsYear Ended December 31, 2016 Compared to Year Ended December 31, 2015 Net Revenues. Our total net revenues decreased by $614.5 million, or 17.7%, from $3,467.6 million for the year ended December 31, 2015 to$2,853.1 million for the year ended December 31, 2016. The decrease was primarily due to a decrease in the average selling price of our solar modules and adecrease in revenue contribution from the sale of solar power projects, partially offset by an increase in shipments from our module segment from 4,085 MWfor the year ended December 31, 2015 to 5,138 MW for the year ended December 31, 2016. For the year ended December 31, 2016, Europe and othersaccounted for 14.4% of our net revenues, while the Americas contributed 38.7% and Asia contributed 46.9%. Our top five customers by revenues collectivelyaccounted for 16.9% of our net revenues for the year ended December 31, 2016.•Module Segment. Revenues generated by our module segment increased by $148.5 million, or 5.6%, from $2,672.7 million for the year endedDecember 31, 2015 to $2,821.1 million for the year ended December 31, 2016. The increase was primarily due to an increase of $632.6 millionattributable to a 27.5% increase in shipments of our solar modules, partially offset by a decrease of $362.2 million attributable to a 12.3%decline in the average selling price of our solar modules.Our total solar module shipments recognized in revenue for the year ended December 31, 2016 were 5,204 MW, an increase of 18.7% from4,384 MW for the year ended December 31, 2015. Shipments to non-European markets increased by 653.1 MW from 3,844.9 MW for the yearended December 31, 2015 to 4,498.0 MW for the year ended December 31, 2016, primarily to customers in the U.S., India and China.Shipments to European markets increased by 166.8 MW from 538.9 MW for the year ended December 31, 2015 to 705.7 MW for the yearended December 31, 2016.The average selling price of our solar modules declined from $0.58 for the year ended December 31, 2015 to $0.51 for the year endedDecember 31, 2016. The decline was primarily due to the supply of solar products exceeding demand and change in the geographic mixof revenues.•Energy Segment. Revenues generated from our energy segment decreased by $868.7 million, or 88.7%, from $979.2 million for the year endedDecember 31, 2015 to $110.6 million for the year ended December 31, 2016. This decrease was primarily due to a decrease of $535.3 millionin sales of solar power projects and a decrease of $373.9 million in EPC and development service fees. The decrease was partially offset by anincrease in electricity revenue of $36.7 million generated from solar power plants in operation. Cost of Revenues. Our total cost of revenues decreased by $455.0 million, or 15.7%, from $2,890.9 million for the year ended December 31, 2015 to$2,435.9 million for the year ended December 31, 2016. The decrease was primarily due to a decrease in sales of solar power projects and lower solar modulemanufacturing costs, partially offset by an increase in shipments of our solar modules. Total cost of revenues as a percentage of total net revenues increasedslightly from 83.4% for the year ended December 31, 2015 to 85.4% for the year ended December 31, 2016.•Module Segment. Cost of revenues incurred by our module segment increased by $148.7 million, or 6.5%, from $2,277.9 million for the yearended December 31, 2015 to $2,426.6 million for the year ended December 31, 2016. The increase was primarily due to an increase in solarmodule shipments, partially offset by lower solar module manufacturing costs. Our total manufacturing costs in China, including purchasedpolysilicon, wafers and cells was $0.33 per watt in December 2016.For the year ended December 31, 2016, we made approximately $144.3 million of cash deposits relating to anti-dumping and countervailingduty rulings in the U.S., of which $132.2 million88Table of Contentswere charged to our cost of revenues. In addition, we booked a true-up provision of $44.1 million primarily associated with prior years' modulesales from China to the U.S following the announcement of the preliminary results of the third administrative review carried out by theU.S. Department of Commerce of the import into the U.S. of Chinese origin solar products using Chinese origin solar cells.•Energy Segment. Cost of revenues incurred by our energy segment decreased by $709.4 million, or 91.1%, from $779.0 million for the yearended December 31, 2015 to $69.5 million for the year ended December 31, 2016. The decrease was primarily due to a decrease in sales ofsolar power projects and a decrease in costs of EPC and development services. Gross Profit. As a result of the foregoing, our total gross profit decreased by $159.6 million, or 27.7%, from $576.8 million for the year endedDecember 31, 2015 to $417.2 million for the year ended December 31, 2016. Our total gross margin decreased from 16.6% for the year ended December 31,2015 to 14.6% for the year ended December 31, 2016.•Module Segment. Gross profit for our module segment decreased by $0.3 million, or 0.1%, from $394.8 million for the year endedDecember 31, 2015 to $394.5 million for the year ended December 31, 2016, primarily due to a decrease in the average selling price of oursolar modules as well as higher charges relating to U.S. anti-dumping and countervailing duty rulings, partially offset by an increase inshipments of our solar modules and a decrease in our solar module manufacturing costs. Gross margin decreased from 14.8% for the year endedDecember 31, 2015 to 14.0% for the year ended December 31, 2016, primarily due to a decrease in the average selling price of our solarmodules and higher charges relating to U.S. anti-dumping and countervailing duty rulings, partially offset by a decrease in our solar modulemanufacturing costs. •Energy Segment. Gross profit for our energy segment decreased by $159.3 million, or 97.5%, from $200.3 million for the year endedDecember 31, 2015 to $41.0 million for the year ended December 31, 2016, primarily due to a decrease in sales of solar power projects,partially offset by an increase in electricity sale revenue. Gross margin increased from 20.5% for the year ended December 31, 2015 to 37.1%for the year ended December 31, 2016, primarily due to higher margin from the sale of solar power projects in 2016 and from electricity sale bysolar power plants in operation. Operating Expenses. Our operating expenses decreased by $5.4 million, or 1.6%, from $329.4 million for the year ended December 31, 2015 to$324.0 million for the year ended December 31, 2016. Operating expenses as a percentage of our total net revenues increased from 9.5% for the year endedDecember 31, 2015 to 11.4% for the year ended December 31, 2016. Selling Expenses. Our selling expenses decreased by $4.3 million, or 2.9%, from $149.7 million for the year ended December 31, 2015 to$145.4 million for the year ended December 31, 2016. The decrease was primarily due to decreases of $4.6 million in shipping, handling and storage chargesand $5.9 million in external sales commissions, partially offset by an increase of $5.0 million in labor cost of sales and marketing staff. Selling expenses as apercentage of our net total revenues increased from 4.3% for the year ended December 31, 2015 to 5.1% for the year ended December 31, 2016. General and Administrative Expenses. Our general and administrative expenses increased by $35.8 million, or 21.3%, from $168.0 million for the yearended December 31, 2015 to $203.8 million for the year ended December 31, 2016. The increase was primarily due to an increase of $20.6 million inprofessional service fees, and an increase of $18.3 million in fixed assets impairment. General and administrative expenses as a percentage of our total netrevenues increased from 4.8% for the year ended December 31, 2015 to 7.1% for the year ended December 31, 2016.89Table of Contents Research and Development Expenses. Our research and development expenses increased by $0.4 million, or 2.1%, from $17.1 million for the yearended December 31, 2015 to $17.4 million for the year ended December 31, 2016. Research and development expenses as a percentage of our total netrevenues were 0.5% for the year ended December 31, 2015 and 0.6% for the year ended December 31, 2016. Income from operations. As a result of the foregoing, income from operations decreased by $154.2 million, or 62.3%, from $247.4 million for the yearended December 31, 2015 to $93.2 million for the year ended December 31, 2016. Other Operating Income, Net. Our other operating income, net, increased by $37.1 million, or 6.9 times, from $5.4 million for the year endedDecember 31, 2015 to $42.5 million for the year ended December 31, 2016. The increase was primarily due to gains from the sales of our solar power projectsin operation in Canada and China during 2016. Interest Expense, Net. Our interest expense, net, increased by $22.2 million, or 59.4%, from $37.3 million for the year ended December 31, 2015 to$59.5 million for the year ended December 31, 2016. Interest expense increased by $15.6 million, or 28.8%, from $54.1 million for the year endedDecember 31, 2015 to $69.7 million for the year ended December 31, 2016. Interest income decreased by $6.6 million, or 39.2%, from $16.8 million for theyear ended December 31, 2015 to $10.2 million for the year ended December 31, 2016. Gain/(Loss) on Change in Fair value of Derivatives. We recorded a gain of $27.3 million on change in fair value of derivatives for the year endedDecember 31, 2016, compared to a loss of $12.2 million for the year ended December 31, 2015. The gain on change in fair value of derivatives for the yearended December 31, 2016 was primarily due to a gain of $24.5 million on change in fair value of warrants and a gain of $4.8 million on change in fair valueof foreign currency derivatives. The gain on change in fair value of foreign currency derivatives for the year ended December 31, 2016 was attributable to again on foreign currency forward contracts that we purchased to hedge the fluctuation of exchange rates of foreign currencies, such as Japanese Yen, BritainPounds, Renminbi and Euros. Foreign Exchange Gain/(Loss). We recorded a foreign exchange gain of $25.4 million for the year ended December 31, 2016, compared to a gain of$22.9 million for the year ended December 31, 2015. The gain for the year ended December 31, 2016 was primarily due to the depreciation of Japanese Yen,British Pounds and Renminbi against the U.S. dollar. Income Tax Expense. We recorded an income tax expense of $18.0 million for the year ended December 31, 2016, compared to $49.5 million for theyear ended December 31, 2015. The decrease in income tax provision in 2016 was primarily due to our lower profit before income tax. Equity in Earnings/(Loss) of Unconsolidated Investees. Our share of the earnings (loss) of unconsolidated investees was net loss of $4.4 million for theyear ended December 31, 2016, compared to net loss of $0.6 million for the year ended December 31, 2015. 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 China, Indonesia, Japan and Australia. No net income was generated inconnection with the sale of project assets which was attributable to non-controlling interests for the year ended December 31, 2016. Net Income Attributable to Canadian Solar Inc. As a result of the foregoing, we recorded net income of $65.2 million for the year ended December 31,2016, which was a decrease of $106.6 million, or 62.0%, compared to our net income of $171.9 million for the year ended December 31, 2015.90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.•Module Segment. Revenues generated by 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 Segment. Revenues generated by our energy segment decreased by $233.7 million, or 19.3%, from $1,212.9 million for the year endedDecember 31, 2014 to $979.2 million for the year ended December 31, 2015. The decrease was primarily due to a decrease in sales of solarpower projects of $333.9 million, partially offset by an increase in revenue from project development services of $69.7 million, and anincrease of $29.2 million in electricity revenue generated from solar power plants in operation. 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 endedDecember 31, 2015.•Module Segment. 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 our module segment, partially offset by lower solar module manufacturing costs.For the year ended December 31, 2015, we made approximately $128.9 million of cash deposits relating to countervailing and anti-dumpingrulings in the U.S., of which $111.9 million were91Table of Contentscharged to our cost of revenues. Our total manufacturing costs in China, including purchased polysilicon, wafers and cells was $0.40 per wattin December 2015.•Energy Segment. Cost of revenues incurred by our energy segment decreased by $152.8 million, or 16.4%, from $931.8 million for the yearended December 31, 2014 to $779.0 million for the year ended December 31, 2015. This decrease was primarily due to fewer projects sold,partially offset by an increase in revenue from EPC and development services and from the sale of electricity generated by solar power plantsin operation. 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.•Module Segment. 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 a decrease in the average selling price of our solar modules as well ascharges relating to U.S. 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, partially offset by adecrease in our solar module manufacturing costs. •Energy Segment. Gross profit for our energy segment decreased by $80.8 million, or 28.8%, from $281.1 million for the year endedDecember 31, 2014 to $200.3 million for the year ended December 31, 2015, primarily due to a decrease in sales of solar power projects,partially offset by an increase in the sale of electricity generated by our solar power plants in operation. Gross margin decreased from 23.2% forthe year ended December 31, 2014 to 20.5% for the year ended December 31, 2015, primarily attributable to lower margins from the sales ofsolar power projects, partially offset by higher margins from the sale of electricity generated by our solar power plants in operation. 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 a$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 $86.9 million, or 107.1%, from $81.1 million for the yearended December 31, 2014 to $168.0 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) $20.8 million charge related to the LDK arbitration case, (c) $5.4 million increase in impairment forproperty, plant and equipment and (d) $12.2 million increase in bad debt expenses. General and administrative expenses as a percentage of our total netrevenues increased from 2.7% for the year ended December 31, 2014 to 4.8% 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 for92Table of Contentsthe year ended December 31, 2015. Research and development expenses as a percentage of our total net revenues were 0.4% for the year ended December 31,2014 and 0.5% for the year ended December 31, 2015. Income from operations. As a result of the foregoing, income from operations decreased by $118.9 million, or 32.5%, from $366.3 million for the yearended December 31, 2014 to $247.4 million for the year ended December 31, 2015. Other Operating Income, Net. Our other operating income, net, increased by $1.1 million, or 24.7%, from $4.3 million for the year ended December 31,2014 to $5.4 million for the year ended December 31, 2015. The increase was primarily due to $1.4 million increase in government grants recognized for theyear 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 was 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 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. No net income wasgenerated in connection with the sale of project assets which was attributable to non-controlling interests for the year ended December 31, 2015.93Table of Contents 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.B. Liquidity and Capital ResourcesCash Flows and Working Capital We are required to make prepayments to some suppliers, primarily suppliers of machinery, silicon raw materials, solar ingots, wafers and cells. Eventhough we require some customers to make partial prepayments, there is typically a lag between the time we make our prepayments for silicon raw materialsand the time our customers make their prepayments. Our energy segment required increased funding and use of working capital in 2016 and is expected to continue to require significant funding and use ofworking capital in the future. The time cycles of our solar power project development and operation can vary substantially and take many years. As a result,we may need to make significant up-front investments of resources before the collection of any cash from the sale or operation of these projects. Theseinvestments include payment of interconnection and other deposits, posting of letters of credit, and incurring engineering, permitting, legal and otherexpenses. In addition, we may have to use our existing bank facilities to finance the construction of these solar power projects. Depending on the size andnumber of solar power projects that we are developing and self-financing, our liquidity requirements could be significant. Delays in constructing orcompleting the sale of any of our solar power projects which we are self-financing could also impact our liquidity. In 2016, we financed our operations primarily through short-term and long-term borrowings and proceeds from offerings of common shares and short-term commercial papers. As of December 31, 2016, we had $511.0 million in cash and cash equivalents and $496.7 million in restricted cash. Our cash andcash equivalents consist primarily of cash on hand, bank balances and demand deposits, which are unrestricted as to withdrawal and use, and have originalmaturities of three months or less. Our restricted cash was mainly used as collateral to secure bank acceptances and borrowings. As of March 31, 2017, we had contractual credit lines with an aggregate limit of approximately $3,434.2 million, of which $1,715.3 million had beendrawn down with due dates beyond December 31, 2017 and $730.0 million had been drawn down with due dates before December 31, 2017. In addition, wehad non-binding credit lines of approximately $466.5 million, of which $278.8 million had been drawn down with due dates before December 31, 2017,$69.8 million had been drawn down with due dates beyond December 31, 2017 and $8.2 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 bythe lenders. As of March 31, 2017, we had approximately (i) $462.1 million of long-term borrowings (non-current portion), of which $382.3 million was secured byequity, current assets, project assets and property, plant and equipment, and (ii) $968.4 million of long-term borrowings (current portion), of which$932.3 million was secured by equity, property, plant and equipment and project assets. As of March 31, 2017, we had approximately $850.6 million ofshort-term borrowings, of which $349.4 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 2018 to the first quarter of 2032 andbear interests ranging from nil to 6.00% per annum. The long-term borrowings (current portion) include (i) $77.9 million with maturity dates in 2017 and(ii) $890.5 million with maturity dates ranging from 2018 to the first quarter of 2036, which are reclassified as current liabilities because these borrowings areassociated with certain solar power projects that are expected to be sold in 2017. These long-term borrowings (current portion) bear interests ranging from nilto 6.15% per annum. The short-term borrowings will mature during 201794Table of Contentsthrough the first quarter of 2018 and bear interests ranging from 0.7% to 6.31% 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. In February 2014, we completed an offering of 3,194,700 common shares and $150 million of 4.25% convertible senior notes. In 2016, we repurchased$22.5 million of the convertible senior notes at weighted average price of $85.43 per $100 par value. 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 May 2016, we refinanced a portfolio with BayernLB for a non-recourse facilityof £36.4 million ($44.9 million) with a term of 17 years. 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 48 MWp Kumamoto Mashiki solar power plant in Japan. InDecember 2016, the facility agreement was amended and restated with a term of three years. The project is expected to commence commercial operation inthe second quarter of 2017. 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, U.S. Santander Bank was the coordinating lead arranger of a five-member bank club, including NORD/LB, Rabobank, Key Bank and CIT Bank,which provided project-level construction debt, a letter of credit facility and a back-leveraged term loan facility, totaling approximately $180.0 million. TheAstoria 2 project has commenced commercial operation. The project-level construction debt was fully repaid and the back-leveraged loan of $64.8 millionhas an eight-year term. 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 inJune 2020. 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$18.88 per share. The subscription was completed in February 2016 and the proceeds of approximately $10.0 million has been used for the construction,operation and general 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($25.7 million) nonrecourse project finance bond with a maturity of 20 years and a fixed coupon rate of 1.4% per annum for the construction of the10.2 MWp Aomori-Misawa solar power project in Japan. In December 2016, the project reached its COD. In July 2016, we entered into a private placement agreement with Prudential Capital Group, pursuant to which, Prudential Capital Group agreed topurchase non-recourse notes with an aggregate principal amount of approximately JPY6.2 billion ($53.1 million). The proceeds from the private placementwill be used to finance a portfolio of solar power plants with a total design capacity of 21.2 MWp in Japan. In September 2016, we completed two issues of commercial paper with total principal amount of RMB900 million ($129.6 million). The commercialpaper bears a fixed interest rate ranging from 5.3% to 5.5% per annum, with a tenor of nine months and one year, respectively. We have used the proceeds torepay debt and increase our working capital.95Table of Contents In September 2016, we signed a financing agreement with the Export Development Canada, pursuant to which Export Development Canada agreed toprovide guarantees or letters of credit of up to $100 million to us to support our global project development. Royal Bank of Canada and Toronto Branch ofChina Construction Bank Corporation served as fronting banks on the facility. In October 2016, we obtained a syndicated three-year loan facility for JPY9.6 billion ($82.2 million). Sumitomo Mitsui Banking Corporation acted asthe lead arranger and 13 other financial institutions participated. The loan proceeds have been used to finance solar project development in Japan and forgeneral corporate working capital requirements. In December 2016, we secured senior and subordinate non-recourse term loan facilities of JPY14.9 billion ($127.6 million) to finance the constructionand operation of a 55 MWp solar power plant in the Yamaguchi prefecture, Japan. The facilities were arranged by Hanwha Asset Management and have amaturity of 17 years. In December 2016, we secured non-recourse term loan facilities of £49.3 million ($60.8 million) to refinance a portfolio of ten solar power plants, withtotal designed capacity of 50 MW in the United Kingdom. National Westminster Bank, a subsidiary of RBS Group, is providing the 18.7-year term facility.Part of the proceeds will be used to repay a construction loan of £28.1 million ($34.7 million) for those solar power plants. In January 2017, we obtained a five-year syndicated credit facility of $210 million. The Siam Commercial Bank Public Company Limited, or SCB, actedas the lead arranger and China Minsheng Banking Corporation Ltd. is one of the lenders. The proceeds will be used to finance the construction of our solarcell and module manufacturing facilities in Thailand. Under the same facility agreement, we obtained a total of uncommitted facility of THB4.04 billion($112.8 million) from SCB to support the operations of our manufacturing company in Thailand. In March 2017, we entered into a three-year credit agreement of JPY4.0 billion ($34.3 million) with Sumitomo Mitsui Finance and Leasing Company,Limited, a member of Sumitomo Mitsui Financial Group. The facility received commitments from five finance leasing institutions. We intend to use proceedsfrom the facility to expand the development of solar power projects in Japan. In April 2017, we completed our second nonrecourse project bond placement of JPY5.4 billion ($46.2 million) with Goldman Sachs Japan Co., Ltd. tofinance the construction of the 19.05 MWp Gunma Aramaki solar power project in Japan. The project bond has a dual-tenor maturity of 1.5 years and20.3 years, representing the initial and extended tenor respectively, within a single-tranche of bond. The bond pays a fixed coupon of 1.2875% per annumduring the initial tenor and, if extended at our option, 1.3588% per annum thereafter. In April 2017, we secured a debt facility of $97 million with Prudential Capital Group and a tax equity investment commitment with U.S. BancorpCommunity Development Corporation, to finance our 92 MWp IS 42 solar power project near Fayetteville, North Carolina. This solar power project isexpected to be completed by the end of 2017. 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. Due to market competition, in many cases, we offer credit terms to our customers ranging from 30 days up to 90 days with small advance paymentsranging from 5% to 20% of the sale prices. The prepayments are recorded as current liabilities under advances from customers, and amounted to96Table of Contents$112.0 million, $76.2 million and $90.1 million as of December 31, 2014, 2015 and 2016, respectively. As the market demand for our products has changedand as we have diversified our geographical markets, we have increased and may continue to increase our credit term sales to certain creditworthy customersafter careful review of their credit standings and acceptance of export credit insurance by Sinosure, or other risk mitigation channels such as local creditinsurance or factoring. The following table sets forth a summary of our cash flows for the periods indicated:Operating Activities Net cash used in operating activities was $278.1 million in 2016, compared to net cash provided by operating activities of $413.7 million in 2015. Thechange was primarily due to $511.1 million increase in working capital investment and $108.0 million decrease of net income in 2016. 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.Investing Activities Net cash used in investing activities was $1,042.6 million in 2016, compared to $999.1 million in 2015. The change was primarily due to $468.7 millionincrease in payments for construction of our solar power systems and manufacturing plants, partially offset by a reduced payment of $196.8 million for theacquisition of subsidiaries, $151.5 million decrease in restricted cash and $90.1 million net proceeds from the disposal of solar power systems. 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, 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.Financing Activities Net cash provided by financing activities was $1,299.8 million in 2016, compared to $619.5 million in 2015. The change was primarily due to$415.5 million additional contribution payments from tax equity partners of our U.S. projects and net proceeds of $134.3 million from the issuance of short-term commercial paper in China during 2016. 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. As of December 31, 2016, we had total outstanding credit facilities of $3,381.9 million, of which $760.2 million was undrawn and available. We believethat our current cash and cash equivalents,97 As of December 31, 2014 2015 2016 (in thousands of $) Net cash provided by (used in) operating activities 265,106 413,658 (278,073)Net cash used in investing activities (116,049) (999,104) (1,042,557)Net cash provided by financing activities 191,947 619,483 1,299,823 Net increase (decrease) in cash and cash equivalents 321,293 3,536 (33,119)Less: Cash and cash equivalents of assets classified as held for sale at end of period — — 8,921 Cash and cash equivalents at the beginning of the year 228,250 549,543 553,079 Cash and cash equivalents at the end of the year 549,543 553,079 511,039 Table of Contentsanticipated cash flow from operations and existing banking facilities will be sufficient to meet our anticipated cash needs, including our cash needs forworking capital and capital expenditures, for the 12 months ending December 31, 2017. We may, however, require additional cash due to changing businessconditions or other future developments, including any investments or acquisitions we may decide to pursue. As of December 31, 2016, we had outstanding short-term borrowings of $611.7 million with Chinese banks. Between January 1, 2017 and March 31,2017, we obtained new borrowings of $364.9 million from Chinese banks, including $48.1 million with due dates beyond December 31, 2017. Also, betweenJanuary 1, 2017 and March 31, 2017, we renewed existing bank facilities of $325.3 million from Chinese banks with due dates beyond December 31, 2017.The availability of commercial loans from Chinese commercial banks may be affected by administrative policies of the PRC government, which in turn mayaffect our plans for business expansion. If our existing cash or the availability of commercial bank borrowings is insufficient to meet our requirements, wemay seek to sell additional equity securities or debt securities or borrow from other sources. We cannot assure that financing will be available in the amountswe need or on terms acceptable to us, if at all. The issuance of additional equity securities, including convertible debt securities, would dilute the holdings ofour shareholders. The incurrence of debt would divert cash for working capital and capital expenditures to service debt obligations and could result inoperating and financial covenants that restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additionalequity or debt financing as required, our business operations and prospects may suffer.Capital Expenditures We made capital expenditures of $65.1 million, $642.8 million and $1,111.5 million in 2014, 2015 and 2016, respectively. Our capital expenditureswere primarily to maintain and increase our ingot, wafer, cell and module manufacturing capacity and to develop solar power systems. As of December 31,2016, our commitments for the purchase of property, plant and equipment were $203.2 million.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 $393.5 million, $396.3 million and $411.9 million as of December 31, 2014, 2015 and 2016, 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 PRC98Table of Contentsgovernmental authorities. In particular, if we finance our PRC subsidiaries by means of additional capital contributions, certain government authorities,including the Ministry of Commerce or its local counterparts, must approve these capital contributions. These limitations could affect the ability of ourChinese subsidiaries to obtain foreign exchange through equity financing. As of December 31, 2016, $284.3 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 PRC GAAP, to a non-distributable general reserve. After making this appropriation, the balance of theundistributed earnings is distributable. Should our PRC subsidiaries subsequently distribute their distributable earnings, they are subject to applicablewithholding 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 IEC62804 test method on PID and has been qualified by VDE, CSA, Intertek and TUV Rheinland in their Test Data Acceptance Programs. As of December 31, 2016, we had approximately 234 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,99Table of ContentsIBC cell and other high efficiency cell designs. With these advanced technologies, we can significantly lower the LCOE (levelized cost ofenergy) on the system level and improve our products' market competitiveness.•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 segment, we have strengthened the capabilities of our engineering staff and increased investment inthese areas.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.100Table 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, 2016: The above table excludes accrued warranty costs of $61.1 million, liability for uncertain tax positions of $8.4 million, deferred tax liabilities—non-current of $23.3 million and loss contingency accruals of $22.7 million as we are unable to reasonably estimate the timing of future payments of theseliabilities. Other long-term liabilities of $26.8 million was also excluded in the above table. For additional information, see the notes to our consolidatedfinancial statements, included herein.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-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) 1,836,799 1,836,799 — — — Interest related to short-term debt obligations(2) 30,482 30,482 — — — Short-term commercial paper 129,739 129,739 — — — Interest related to short-term commercial paper 4,346 4,346 — — — Operating lease obligations 105,719 10,502 16,078 13,264 65,875 Capital lease obligations 43,759 15,497 25,878 2,384 — Purchase obligations(3) 1,212,453 722,583 489,870 — — Long-term debt obligations 493,455 — 458,550 22,940 11,965 Interest related to long-term debt obligations(4) 42,559 19,827 18,320 2,658 1,754 Convertible notes(5) 127,500 — 127,500 — — Interest related to convertible notes(6) 11,711 5,494 6,217 — — Total 4,038,522 2,775,269 1,142,413 41,246 79,594 (1)Includes $236.8 million of short-term and long-term borrowings that have been reclassified to liabilities held-for-sale as a result of thereclassification of solar power systems to assets held-for-sale during the current year. (2)Interest rates range from 0% to 6.31% per annum for short-term debt obligations. For the interest related to the short-term and long-term borrowings that have been reclassified to liabilities held-for-sale, the maturity dates of these borrowings are based on currentestimates. (3)Includes commitments to purchase property, plant and equipment of $203.2 million and raw materials of $1,009.2 million. (4)Interest rates range from 0% to 5.65% per annum for long-term debt obligations. (5)Assumes no redemption of convertible notes and none of the convertible notes will be converted into ordinary shares. (6)Interest rate is 4.25% per annum on the principal outstanding.Table of Contentslooking statements by terminology such as "may," "will," "expect," "anticipate," "future," "intend," "plan," "believe," "estimate," "is/are likely to" or similarexpressions. Forward-looking statements involve inherent risks and uncertainties. These forward-looking statements include, among other things, statementsrelating 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 beliefs regarding the value of and ability to monetize our portfolio of solar power projects; •our expectations regarding governmental support for solar power; •our beliefs regarding the fluctuation in availability of silicon, solar wafers and solar cells; •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 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 execute plans for our energy segment; •our ability to develop, build and sell solar power projects in Canada, the U.S., Japan, China, Brazil, Mexico, the United Kingdom, Australiaand 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 from102Table of Contentsthose expressed or implied in any forward-looking statement. We do not undertake any obligation to update or revise the forward-looking statements exceptas required under applicable law. 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 1963.103Name Age Position/TitleShawn (Xiaohua) Qu 53 Chairman of the Board, President and Chief Executive OfficerRobert McDermott 75 Lead Independent DirectorLars-Eric Johansson 70 Independent DirectorHarry E. Ruda 58 Independent DirectorAndrew (Luen Cheung)Wong 59 Independent DirectorHuifeng Chang 51 Senior Vice President and Chief Financial OfficerGuangchun Zhang 59 Senior Vice President and Chief Operations OfficerYan Zhuang 53 Senior Vice President, Chief Commercial Officer and President of Modules and SystemsSolutions BusinessArthur (Jian) Chien 56 Senior Vice President, Chief Strategy Officer and President of Energy BusinessJianyi Zhang 59 Senior Vice President, General Counsel and Chief Compliance OfficerGuoqiang Xing 53 Senior Vice President and Chief Technology OfficerTable of Contents 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 2003 to 2008, Mr. Johansson was a directorand chairperson of the audit committee of Harry Winston Diamond Corporation, a specialist diamond company with assets in the mining and retail segmentsof the diamond industry. From May 2004 to April 2006, he was an executive vice president and the chief financial officer of Kinross Gold Corporation, agold mining company dually listed on the Toronto Stock Exchange and the New York Stock Exchange. Between June 2002 and November 2003,Mr. Johansson was an executive vice president and chief financial officer of Noranda Inc., a Canadian mining company dually listed on the Toronto StockExchange and the New York Stock Exchange. Until May 2004, Mr. Johansson served as a special advisor at Noranda Inc. From 1989 to May 2002, he was thechief financial officer and senior vice president of Falconbridge Limited, a mining and metals company in Canada listed on the Toronto Stock Exchange. Hehas chaired the audit committee of Golden Star Resources Ltd., a gold mining company dually listed on the Toronto Stock Exchange and American StockExchange, 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 and accounting, 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 a director anda member of the audit committee, nomination and remuneration committee of China CITIC Bank Corporation Limited, a company listed on The StockExchange of Hong Kong, since 2013. He has also served as a director of Chubb Life Insurance Company Ltd. since 2008, and is an independent director andthe vice-chairman of Huazhong In-vehicle Holdings Company Limited, which is listed in Hong Kong Stock Exchange. Previously, Mr. Wong was thedirector of Intime Retail (Group) Co. Ltd., a company listed on The Stock Exchange of Hong Kong, between 2013 and 2014, and was the director and amember of audit committee, risk management committee, nomination and remuneration committee of China Minseng Bank, a company listed on The StockExchange of Hong Kong, from 2006 to 2012. From 1982 to 2006, Mr. Wong held senior positions at the Royal Bank of Canada, the Union Bank ofSwitzerland, Citicorp International Limited, a merchant banking arm of Citibank, Hang Seng Bank Limited and DBS Bank Limited, Hong Kong. Mr. Wongwas awarded the National Excellent Independent Director by the Shanghai Stock Exchange in 2010 and received the Medal of Honour (Hong Kong SAR)from the104Table of ContentsHong Kong SAR Government in 2011. Mr. Wong obtained his Bachelor of Social Sciences (Honours) degree from the University of Hong Kong in 1980 anda Master of Philosophy degree from Hong Kong Buddhist College in 1982.Executive Officers Dr. Huifeng Chang has served as our senior vice president and chief financial officer in May 2016. He has 17 years of experience in capital markets,financial investment and risk management. Before joining us, Dr. Chang was the co-head of Sales & Trading at the U.S. subsidiary of China InternationalCapital Corp (CICC) from 2010 to 2015. Prior to that, he was the CEO of CSOP Asset Management based in Hong Kong from early 2008 to 2010, investingfunds from China in the international markets. From 2000 to 2008, Dr. Chang was vice president and an equity proprietary trader at Citigroup EquityProprietary Investments in New York. Before going to New York, Dr. Chang worked at Kamakura Corp in Hawaii as a risk consultant to banks in Asia. Hereceived a Ph.D. in soil physics and MBA from University of Hawaii in the early 1990s, M.S. degree from Academia Sinica in 1987 and B.S. degree fromNanjing Agricultural University in 1984. 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 joined us as senior vice president and chief strategy officer, and president of our energy business in the summer of 2015. He hasmore than two decades of experience in investment management, capital markets, large scale manufacturing management, and renewable energy projectdevelopment. From 2007 to 2010, he served as our chief financial officer and held other positions throughout the Company. Between these two periods ofservice with Canadian Solar, Mr. Chien was the chief executive officer and managing director of Talesun Solar, a Chinese based solar project developer andEPC contractor. Earlier in his career, he held various management positions with companies in Canada, Europe and China, including chief financial officer ofthe Greater China regional office of the Bekeart Group of Belgium, chief financial officer of China Grand Enterprise Ltd., and managing director of BeijingEncon Investment. He has also served as a board director with two Chinese listed companies. Mr. Chien graduated with a Science degree from the105Table of ContentsUniversity of Science and Technology of China in 1982. He received a Master's degree in Economics and was a Ph.D. candidate from the University ofWestern Ontario, Canada. Mr. Jianyi Zhang joined us at the end of February 2016 as senior vice president and chief legal officer, and was appointed as chief compliance officer inApril 2016. After graduation from Washington University School of Law, Mr. Zhang worked at Troutman Sanders LLP as an associate from June 1993 toSeptember 1994. Thereafter, he formed a law firm Su & Zhang in Los Angeles, California. He rejoined Troutman Sanders LLP as an associate in April 1995,became a partner in September of 1999 and worked in that position until December 2001. From January 2002 to June 2005, Mr. Zhang worked at WalmartStores, Inc. first as a senior corporate counsel II and then as senior assistant general counsel. From July 2005 to February 2016, he served, consecutively, assenior 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 and M.A. degree from the University of Helsinki, Finland in 1982 and 1983, respectively. After graduation fromthe University of Helsinki in 1983, Mr. Zhang worked at the Chinese Foreign Ministry until September 1989. Thereafter, he went to study at WashingtonUniversity School of Law in St. Louis, Missouri and received his J.D. degree in 1992. Dr. Guoqiang Xing serves as senior vice president and chief technology officer. He joined us in November 2014 as corporate vice president oftechnology. He has over 22 years of research and development experience in photovoltaic and semiconductor industries. From September 2009 toOctober 2014, he was the chief technology officer of Hareon Solar, a company listed on the Shanghai Stock Exchange. He was also employed by JA Solar, acompany listed on the NASDAQ Stock Market, as the R&D director from January 2008 to August 2009. His experience in the semiconductor industryincludes serving as (a) a R&D advanced process director at HHNEC, a company based in Shanghai, from 2005 to 2008, (b) a R&D advanced process directorat Semiconductor Manufacturing International, a company listed on the Hong Kong Stock Exchange, from 2002 to 2005, and (c) a member of technical staffat Kilby Center, Texas Instruments, a company listed on the New York Stock Exchange, in Dallas, Texas from 1995 to 2002. He received his Bachelor ofScience degree in Physics from Peking University in 1984 and his Ph.D. in Physical Chemistry from Rice University, Houston, Texas in 1993. He was apostdoctoral research scientist in the Chemistry Department at Columbia University from 1993 to 1995.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.106Table of ContentsB. 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$3.5 million for 2016. Of this amount, we paid approximately $0.3 million to our four independent directors and approximately $3.2 million to our executiveofficers. The total amount set aside or accrued by us and our subsidiaries to provide pension, retirement or similar benefits for our directors and executiveofficers was approximately $0.01 million in 2016.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 of March 31, 2017, 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 13,028,000 common shares, of which 566,190 restricted shares, 3,354,543 options, and4,016,605 restricted share units (in each case net of forfeitures) have been awarded, leaving 5,090,662 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 substantial107Table of Contentsownership interest. We may, however, grant options that are intended to qualify as incentive share options only to our employees. Acceleration of Awards upon Corporate Transactions. Outstanding awards will accelerate upon a change-of-control where the successor entity doesnot assume our outstanding awards. In such event, each outstanding award will become fully vested and immediately exercisable, the transfer restrictions onthe 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, 2017, 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 330,860 233,000 — May 30, 2006 May 29, 2016 Hanbing Zhang(3) 116,500(4) 116,500 — July 28, 2006 July 27, 2016 Employees as a group 447,360 349,500 — Other Individuals One individual 2,330(1) — — May 30, 2006 May 29, 2016 One individual 116,500(2) — — June 30, 2006 June 29, 2016 Other Individuals as a group 118,830 — — Total Restricted Shares 566,190 349,500 — (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, 2017, 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 dateof grant.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: 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 304,368 239,418 41,650 23,300 Table of Contents110Name CommonSharesUnderlyingOptionsGranted CommonSharesUnderlyingOptionsExercised CommonSharesUnderlyingOptionsForfeited CommonSharesUnderlyingOptionsOutstanding ExercisePrice($ perShare) Date of Grant Date ofExpiration Employees: Ten employees as a group 791,035 669,875 121,160 — 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(5) 34,376 4,832 — 7.36 September 24, 2007 September 23, 2017 Thirteen employees as agroup 193,445 140,113 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 Two employees as a group 53,300 — 53,300 — 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 40,600 18,800 — 9.37 May 23, 2009 May 22, 2019 One employee 10,000 — 10,000 — 11.58 May 31, 2009 May 30, 2019 One employee 23,300 23,300 — — 13.75 June 29, 2009 June 28, 2029 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 483,600 226,050 239,675 17,875 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 23,300 — — 23,300 12.09 September 20, 2010 September 19, 2020 One employee 100,000 — 100,000 — 15.19 October 8, 2010 October 7, 2020 One hundred and fifty-threeemployees as a group 236,000 119,650 95,750 20,600 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 353,064 169,959 137,094 46,011 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 40,000 105,000 5,000 8.94 June 1, 2011 May 31, 2021 One employee 23,300 23,300 — — 9.81 June 27, 2011 June 26, 2021 One employee 60,688 45,516 — 15,172 9.52 October 8, 2010 October 7, 2020 Twenty employees as agroup 74,000 26,500 44,500 3,000 3.03 November 14, 2011 November 13, 2021 Employees as a group 3,859,293 2,287,689 1,332,197 239,407 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 2,888,257 1,373,847 466,286 (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, 2017, 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) 5,991 — May 4, 2014 May 3, 2024 8,274(2) 2,068 — May 3, 2015 May 2, 2025 20,216(2) — — July 8, 2016 July 7, 2026 121,951(6) — — November 6, 2016 November 5, 2026 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 1,572(5) — — April 1, 2016 March 31, 2026 2,051(5) — — July 1, 2016 June 30, 2026 2,228(5) — — October 1, 2016 September 30, 2026 2,411(5) — — January 1, 2017 December 31, 2026 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 1,572(5) — — April 1, 2016 March 31, 2026 2,051(5) — — July 1, 2016 June 30, 2026 2,228(5) — — October 1, 2016 September 30, 2026 2,411(5) — — January 1, 2017 December 31, 2026 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 1,572(5) — — April 1, 2016 March 31, 2026 2,051(5) — — July 1, 2016 June 30, 2026 2,228(5) — — October 1, 2016 September 30, 2026 2,411(5) — — January 1, 2017 December 31, 2026 Table of Contents112Name RestrictedShare UnitsGranted RestrictedShare UnitsVested RestrictedShare UnitsForfeited Date of Grant Expiration 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) 880 — April 1, 2015 March 31, 2025 993(1) 993 — July 1, 2015 June 30, 2025 1,820(1) 1,820 — October 1, 2015 September 30, 2025 1,033(5) — — January 1, 2016 December 31, 2025 1,572(5) — — April 1, 2016 March 31, 2026 2,051(5) — — July 1, 2016 June 30, 2026 2,228(5) — — October 1, 2016 September 30, 2026 2,411(5) — — January 1, 2017 December 31, 2026 Directors as a group 388,301 159,639 — Executive Officers Huifeng Chang 23,340(2) — — May 8, 2016 May 7, 2026 13,477(2) — — July 8, 2016 July 7, 2026 Guangchun Zhang 80,000(2) 60,000 — March 9, 2013 March 8, 2023 7,262(2) 3,631 — May 4, 2014 May 3, 2024 5,516(2) 1,379 — May 3, 2015 May 2, 2025 13,477(2) — — July 8, 2016 July 7, 2026 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) 3,994 — May 4, 2014 May 3, 2024 5,516(2) 1,379 — May 3, 2015 May 2, 2025 13,477(2) — July 8, 2016 July 7, 2026 Arthur (Jian) Chien 13,445(2) 3,361 — June 26, 2015 June 25, 2025 13,477(2) — — July 8, 2016 July 7, 2026 Jianyi Zhang 25,934(2) — — May 8, 2016 May 7, 2026 13,477(2) — — July 8, 2016 July 7, 2026 Guoqiang Xing 5,717(2) 2,858 — December 26, 2014 December 25, 2024 2,758(2) 689 — May 3, 2015 May 2, 2025 6,739(2) — — July 8, 2016 July 7, 2026 Executive Officers as a group 347,647 163,284 — 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 employee 42,868(2) 42,868 — July 20, 2011 July 19, 2021 One hundred and forty-eight employees as a group 1,170,089(2) 814,764 355,325 March 16, 2012 March 15, 2022 Four employees as a group 43,000(2) 10,500 32,500 May 6, 2012 May 5, 2022 Three employees as a group 30,000(2) 30,000 — August 16, 2012 August 15, 2022 Two employees as a group 16,006(2) 16,006 — August 17, 2012 August 16, 2022 One hundred and thirty-nine employees as a group 956,437(2) 575,216 254,726 March 9, 2013 March 8, 2023 One employee 20,000(2) 15,000 — June 16, 2013 June 15, 2023 One employee 2,861(2) 2,146 — 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) 15,308 2,268 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) 1,304 — October 31, 2013 October 30, 2023 Four employees as a group 5,933(2) 3,489 1,571 November 8, 2013 November 7, 2023 One employee 1,040(2) 780 — November 25, 2013 November 24, 2023 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 2016, our board of directors held seven meetings and passed 43 resolutions by unanimous written consent.113Name RestrictedShare UnitsGranted RestrictedShare UnitsVested RestrictedShare UnitsForfeited Date of Grant Expiration 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) 1,398 — May 4, 2014 May 3, 2024 2,344(2) 586 — May 3, 2015 May 2, 2025 4,717(2) — — July 8, 2016 July 7, 2026 One hundred and eighty-six employees as a group 207,923(2) 95,173 49,494 May 4, 2014 May 3, 2024 Three employees as a group 8,574(2) 1,656 5,554 August 7, 2014 August 6, 2024 Four employees as a group 17,472(2) 8,744 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) 1,518 594 September 26, 2014 September 25, 2024 Six employees as a group 33,956(2) 16,870 320 December 26, 2014 December 25, 2024 Ten employees as a group 109,036(2) 38,669 34,021 January 29, 2015 January 28, 2025 Six employees as a group 68,660(2) 9,809 51,005 January 30, 2015 January 29, 2025 Two hundred and seven employees as a group 145,901(2) 37,266 27,816 May 3, 2015 May 2, 2025 Eighty-four employees as a group 81,838(2) 17,894 22,242 June 15, 2015 June 14, 2025 Three employees as a group 15,535(2) 3,884 — June 26, 2015 June 25, 2025 Thirteen employees as a group 56,124(2) 14,227 9,615 September 25, 2015 September 24, 2025 Nine employees as a group 26,169(2) 6,476 3,250 December 24, 2015 December 23, 2025 One employee 10,549(2) 2,637 2,637 April 21, 2016 April 20, 2026 Five employees as a group 16,149(2) — — July 1, 2016 June 30, 2026 Two hundred and thirty-eight employees as a group 443,454(2) — 23,589 July 8, 2016 July 7, 2026 Twenty-three employees as a group 50,243(2) 2,315 6,944 August 8, 2016 August 7, 2026 Five employees as a group 23,654(2) — — November 6, 2016 November 5, 2026 Twelve employees as a group 44,903(2) — — March 6, 2017 March 5, 2027 Employees as a group 4,325,025 2,267,430 1,044,368 Total Restricted Share Units 5,060,973 2,590,353 1,044,368 (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 grant (6)Vest over an eight-quarter period from date of grantTable of ContentsTerms 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. 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 2016, our audit committee held 13 meetings, and passed one resolution 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 of114Table of Contentscompensation to be provided to our directors and executive officers. Members of the compensation committee are not prohibited from direct involvement indetermining their own compensation. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated.The compensation committee is responsible for, among other things:•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 2016, our compensation committee held six meetings and passed one resolution by unanimous written consent.Nominating 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 2016, our nominating and corporate governance committee held four meetings and did not pass any resolution 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 matters115Table of Contentsrelating to 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 2016, it held three meetings and did not pass any resolution by unanimouswritten consent.Interested 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 2016, 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.116Table of ContentsEmployment 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 interest in them to us.Finally, each executive officer has agreed that he will not, directly or indirectly, during and within one year after the termination of his employment:•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 similar117Table of Contentscapacity at our request, and, in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, had reasonable groundsfor believing that his or her conduct was lawful. Such indemnification may be made in connection with a derivative action only with court approval. Adirector or officer is entitled to indemnification from us as a matter of right if the court or other competent authority has judged that he or she has notcommitted 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.D. Employees As of December 31, 2014, 2015 and 2016, we had 8,673, 8,969 and 9,724 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, 2016. As of December 31, 2016, we had 2,453 employees at our facilities in Suzhou, 2,443 employees at our facilities in Changshu, 1,748 employees at ourfacilities in Luoyang, 729 employees at our facilities in Yancheng, and 2,351 employees based in our facilities and offices in Canada, Japan, Australia,Singapore, South Korea, Hong Kong, India, Indonesia, Vietnam, Brazil, United Arab Emirates, South Africa, the Americas and the EU (which includesGermany, Italy and Spain). Our employees are not covered by any collective bargaining agreement. We consider our relations with our employees to be good.From time to time, we also employ or engage part-time employees or independent contractors to support our manufacturing, research and development andsales 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, 2017, 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 57,832,673 common shares outstanding, as of March 31, 2017.118 As of December 31, 2016 Number of Employees Percentage of Total Manufacturing 7,583 78.0%General and administrative 1,081 11.1%Research and development 234 2.4%Sales and marketing 826 8.5%Total 9,724 100%Table of Contents 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, 2017,including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in thecomputation of the percentage ownership of any other person.119 Shares BeneficiallyOwned(1) Number % Directors and Executive Officers:(2) Shawn (Xiaohua) Qu(3) 13,649,339 23.5%Robert McDermott(4) 74,900 * Lars-Eric Johansson(5) 51,600 * Harry E. Ruda(6) 23,300 * Guangchun Zhang(7) 15,814 * Yan Zhuang(8) 51,354 * Arthur (Jian) Chien(9) 6,727 * Huifeng Chang(10) 9,204 * Jianyi Zhang(11) 9,852 * Guoqiang Xing(12) 5,345 * All Directors and Executive Officers as a Group 13,897,435 23.9%Principal Shareholders DNB Asset Management AS(13) 4,837,742 8.4%*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 13,522,032 common shares directly held by Dr. Shawn Qu and Hanbing Zhang, the wife of Dr. Shawn Qu, 89,291 commonshares issuable upon the exercise of options held by Dr. Shawn Qu and Ms. Zhang within 60 days from March 31, 2017, 38,016 sharesissuable upon vesting of restricted share units held by Dr. Shawn Qu and Ms. Zhang within 60 days from March 31, 2017. (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, 2017. (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, 2017. (6)Includes 23,300 common shares issuable upon exercise of options held by Mr. Ruda within 60 days from March 31, 2017. (7)Includes 9,250 common shares directly held by Mr. Zhang and 6,564 common shares issuable upon vesting of restricted shares unitsheld by Mr. Zhang within 60 days from March 31, 2017. (8)Includes 24,678 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, 2017, and 3,376 common shares issuable upon vesting of restricted share units held byMr. Zhuang within 60 days from March 31, 2017.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 In each of the three years ended December 31, 2016, Dr. Shawn Qu, our Chairman, President and Chief Executive Officer, fully guaranteed one-year loanfacilities of RMB896 million ($129.1 million) from Chinese commercial banks. Amounts drawn down from the facilities as of December 31, 2014, 2015 and2016 were $145.1 million, $78.2 million and $79.6 million, respectively. Dr. Shawn Qu fully guaranteed a two-year RMB450 million ($64.8 million) loan facility from Chinese commercial banks in 2015. Amounts drawn downfrom the facilities were $63.1 million and $55.5 million as of December 31, 2015 and 2016, respectively. Dr. Shawn Qu fully guaranteed a three-year $150 million loan facility from Chinese commercial banks in 2015. Amounts drawn down as of December 31,2015 were nil. The facility was fully drawn down as of December 31, 2016. 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 module supply agreements. As of December 31, 2016, the payablebalances due by Tranquillity and Garland was nil and $11.1 million, respectively.Sales and purchase contracts with affiliates In 2016, we sold solar power products to Roserock and Garland in the amount of $247.7 million, provided development services to Tranquillity,Garland, and Roserock in the amount of $48.7 million.120(9)Includes 3,358 common shares directly held by Mr. Chien and 3,369 common shares issuable upon vesting of restricted shares unitsheld by Mr. Chien within 60 days from March 31, 2017. (10)Includes 9,204 shares issuable upon vesting of restricted share units held by Mr. Chang within 60 days from March 31, 2017. (11)Includes 9,852 shares issuable upon vesting of restricted share units held by Mr. Zhang within 60 days from March 31, 2017. (12)Includes 4,656 shares directly held by Mr. Xing and 689 shares issuable upon vesting of restricted share units held by Mr. Xing within60 days from March 31, 2017. (13)Represents 4,837,742 common shares of our Company held by DNB Asset Management AS, as reported on Schedule 13G filed byDNB Asset Management AS on February 10, 2017. The percentage of beneficial ownership was calculated based on the total numberof our common shares as of March 31, 2017. The principal business address of DNB Asset Management AS is Dronning Aufemias Gate30, Bygg M-12N 0191 Oslo, Norway.Table of Contents In 2016, we incurred costs of RMB54.9 million ($7.9 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 inOctober 2007, or the 2007 Supply Contract, and in June 2008, or the 2008 Supply Contracts. In December 2012, CIETAC Shanghai Branch awardedRMB248.9 million in compensation plus RMB2.32 million in arbitration expenses to LDK for the damages LDK claimed to have suffered from the allegedbreaches by us of the 2007 Supply Contract and 2008 Supply Contracts between July 2009 and September 2010, or the 2012 Arbitral Award. 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 to121Table of ContentsLDK and to purchase 64.3 million pieces of silicon wafers from LDK at market price over a three year period starting in or around December 2015, inexchange for which LDK (a) would release us from the 2012 Arbitration Award and waive its rights and claims thereunder and (b) would withdraw itscomplaints from the Xinyu Intermediate Court and terminate such proceedings. The Suzhou Intermediate Court reviewed the 2015 Settlement Agreement andterminated the enforcement proceeding relating to the 2012 Arbitral Award. We have already paid the required amounts and fulfilled our obligations underthe 2015 Settlement Agreement. On May 19, 2016, we received a copy of a bill of complaint from Xinyu Intermediate Court, in which LDK's receiver applied to the court for an order torevoke the 2015 Settlement Agreement pursuant to PRC bankruptcy law, and requested us to pay an amount that LDK's receiver alleged to have been waivedby LDK under the 2015 Settlement Agreement. On December 1, 2016, Xinyu Intermediate Court heard this case, and now it is pending for the court'sfurther notice. 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 ProceedingsSolar 1 On October 9, 2012, the USDOC issued final affirmative determinations with respect to its anti-dumping and countervailing duty investigations oncrystalline silicon photovoltaic, or CSPV, cells, whether or not incorporated into modules, from China. On November 7, 2012, the U.S. International TradeCommission, or USITC, ruled that imports of CSPV cells had caused material injury to the U.S. CSPV industry. As a result of these rulings, we were requiredto pay cash deposits on Chinese-origin CSPV cells imported into the U.S., whether alone or incorporated into modules. The announced cash deposit ratesapplicable to us were 13.94% (anti-dumping duty) and 15.24% (countervailing duty). We paid all the cash deposits due under these determinations. Anumber of parties challenged the determinations of the USDOC and the USITC in appeals to the U.S. Court of International Trade. On August 7, 2015, theU.S. Court of International Trade sustained the USITC's final determination and on December 11, 2015, the U.S. Court of International Trade sustained theUSDOC's final determination. Certain of these decisions have also been appealed to the U.S. Court of Appeals for the Federal Circuit. Decisions on thoseappeals are expected in 2017 or 2018. The rates at which duties will be assessed and payable are subject to ongoing administrative reviews. The first of these reviews was concluded 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 decisions, the duty 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 the U.S. Court of International Trade. Decisions on these appeals are not expected until mid to late 2017. The second of these reviews was concluded in June 2016 (anti-dumping duty order) and July 2016 (countervailing duty order) when the USDOCpublished the final results of the 2013-2014 administrative reviews of the anti-dumping and countervailing duty orders on CSPV cells. As result of thesedecisions, the anti-dumping duty rate applicable to us was changed to 8.52% (from 9.67%). Because we were not subject to the second administrative reviewof the countervailing duty order, our countervailing duty rate remained at 20.94%. The rates at which duties will be assessed and payable for122Table of Contentsthe 2013-2014 period are subject to ongoing litigation at the U.S. Court of International Trade. Decisions on these appeals are not expected until late 2017or 2018. The third and fourth of these reviews for the 2014-2015 period and 2015-2016 period, respectively, are ongoing and are expected to conclude in mid-2017 and mid-2018, respectively. These reviews may result in duty rates that differ from the previous duty rates and cash deposit rates applicable to us. Theseduty rates could materially and adversely affect our U.S. import operations and increase our cost of selling into the U.S. The preliminary results of the third administrative review changed the antidumping duty rate applicable to us to 30.42% (from 8.52%) and thecountervailing duty rate applicable to us to 20.98% (from 20.94%). We are vigorously contesting the preliminary results in the final phase of thisadministrative review.Solar 2 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 Solar 1 rulings described above. We were identified as one of a number of Chinese producers exporting thesubject goods to the U.S. market. On December 15, 2014, the USDOC issued final affirmative determinations with respect to its anti-dumping and countervailing duty investigation onthese CSPV products. On January 21, 2015, the USITC ruled that imports of these CSPV products had caused material injury to the U.S. CSPV industry. As aresult of these rulings, we are required to pay cash deposits on these CSPV products. The announced cash deposit rates applicable to our Chinese CSPVproducts subject to Solar 2 orders were 30.06% (anti-dumping duty) and 38.43% (countervailing duty). The cash deposit rate applicable to our TaiwaneseCSPV products subject to Solar 2 orders varied by solar cell producer. We paid all the cash deposits due under these determinations. "Chinese CSPV products subject to Solar 2 orders" refer to CSPV products manufactured in mainland China using non-Chinese (e.g., Taiwanese) CSPVcells and imported into the USA during the investigation or review periods of Solar 2. "Taiwanese CSPV products subject to Solar 2 orders" refer to CSPVproducts manufactured outside of mainland China using Taiwanese CSPV cells and imported into the USA during the investigation or review periods ofSolar 2. The rates at which duties will be assessed and payable are subject to two ongoing administrative reviews that began in 2016: the first for the 2014-2015period and the second for the 2015-2016 period. Because we are not subject to the first administrative reviews of the Chinese orders of Solar 2, our duty rates will remain at 30.06% (anti-dumping duty)and 38.43% (countervailing duty) for our Chinese CSPV products subject to Solar 2 orders during the period of the first administrative review. For ourTaiwanese CSPV products subject to the Solar 2 orders, DOC calculated preliminary antidumping margins ranging from 3.50% to 4.20%. Final margins areyet to be determined in the first administrative review, for which the final results are currently scheduled to be issued on July 5, 2017. The final results will setthe new cash deposit rate. The second administrative reviews for both the Chinese and Taiwanese orders of Solar 2 are expected to conclude in mid-2018.These reviews may result in duty rates that differ from the cash deposit rates applicable to us. These duties could materially and adversely affect ourU.S. import operations and increase our cost of selling into the U.S.123Table of ContentsEuropean 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. On December 6, 2013, the EU imposed definitive anti-dumping and countervailing measures on imports of CSPVmodules and key components (i.e., cells) originating in or consigned from China. 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). TheGeneral Court rejected these actions for annulment. We are assessing whether to appeal the judgment before the Court of Justice of the EU. 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). On November 23, 2015, we submitted to the General Court of the European Union requests for the withdrawal of our intervention in cases T-141/14 andT-142/14. On February 1, 2016, the General Court of the EU declared both actions brought by SolarWorld AG and others to be inadmissible and accepted ourrequest for the withdrawal of our intervention. SolarWorld AG and others have appealed before the Court of Justice of the EU (cases C-204/16 P and C-205/16 P). We have not intervened in the appeal proceedings. 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. On March 3, 2017, the European Commission extended the anti-dumpingand countervailing measures for 18 months on imports of CSPV modules and key components (i.e., cells) originating in or consigned from China. On thesame day, the European Commission initiated a partial interim review limited to the form of the extended measures.Canadian Anti-dumping and Countervailing Duties Investigation On June 3, 2015, the Canada Border Services Agency released final determinations of dumping and subsidization which found dumping calculated byway of a Ministerial Specification based on a Non Market Economy finding applicable to all cooperative exporters and ascertained a Canadian Solar-specificsubsidies rate of RMB0.014 per Watt. On July 3, 2015 the Canadian International Trade Tribunal determined that a Canadian industry was not negativelyaffected as a result of imported modules but was threatened with negative impact. As a result of these findings, definitive duties have been imposed onimports of Chinese solar modules into Canada starting on July 3, 2015. We do not believe the imposition of these duties will have a material negative effectupon our results of operations because we have significant module manufacturing capacity in Ontario and do not rely on Chinese solar modules to serve ourCanadian business.124Table of ContentsDividend 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, 2017 and March 31, 2017, an additional 54,547 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. 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.125 Trading Price High Low $ $ Annual Highs and Lows 2012 4.74 1.95 2013 33.25 3.12 2014 44.50 20.64 2015 40.08 14.16 2016 28.80 10.25 Quarterly Highs and Lows 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 Second Quarter 2016 19.65 13.56 Third Quarter 2016 16.16 11.72 Fourth Quarter 2016 15.95 10.25 First Quarter 2017 15.85 10.86 Monthly Highs and Lows 2016 October 15.95 13.66 November 14.84 10.25 December 13.37 11.02 2017 January 13.17 11.21 February 15.85 11.65 March 14.98 10.86 April (through April 24) 13.92 12.11 Table of ContentsB. 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.F. 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-1 registration 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's126Table of Contentslength with and is not affiliated with 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 businessin Canada, (vi) is not part of a transaction or event or series of transactions or events that includes the acquisition or holding of Common Shares so as to causethe foreign affiliate dumping rules 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 aresident of the United States for purposes of the Canada—United States Income Tax Convention (1980), or the Convention, and is fully entitled to thebenefits of the Convention; and (x) has not, does not and will not have a fixed base or permanent establishment in Canada within the meaning of theConvention at any time when such U.S. Holder has held or holds the Common Shares, or a U.S. Holder. Special rules that are not addressed in this summarymay apply to a U.S. Holder that is an insurer that carries on, or is deemed to carry on, an insurance business in Canada and elsewhere or that is an authorizedforeign bank as defined in the Canadian 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 an incometax convention between Canada and that other country, the Canadian income tax consequences to a U.S. Holder will differ from those described herein andU.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 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.127Table of ContentsDisposition 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; or •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 Convention includes a complex limitation on benefits provision. U.S. Holders are urged to consult their own tax advisors to determine theirentitlement 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;128Table of Contents•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; •persons who acquired common shares pursuant to the exercise of an employee stock option or otherwise as compensation; or •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 Tax Compliance Act," orFATCA, 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 incometax purposes:•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 its129Table of Contentssubstantial decisions or (ii) in the case of a trust that was treated as a domestic trust under the law in effect before 1997, a valid election is inplace 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 States corporation is eligible for the benefits of a qualifying income tax treaty with the United States that includesan exchange of information program. Under a published IRS Notice, common shares are considered to be readily tradable on an established securities marketin the United States if they are listed on the Nasdaq, as our common shares are. In addition, we may be eligible for the benefits of the income tax treatybetween the United States and Canada, 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 the benefits of the income tax treaty between the United States and the PRC, and if we are eligible for the benefits of such taxtreaty, then dividends that we pay on our common shares would, subject to applicable limitations, be eligible for the reduced rates of taxation. However, wewill not be treated as a qualified foreign corporation if we are a passive foreign investment company in the taxable year in which the dividend is paid or thepreceding 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 the130Table of Contentsforeign tax credit are complex, 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 the 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. If such an election is made, the gainso treated will be treated as a separate class or "basket" of income for foreign tax credit purposes. You should consult your tax advisors regarding the propertreatment 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 theUnited States dollar amount at the spot rate on the settlement date. Generally, any gain or loss realized by a United States Holder on a subsequent conversionor disposition 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, 2016. However, because our PFIC status for 2017 or any futuretaxable year may depend, in part, on the manner in which we operate our renewable energy generation assets, we cannot assure you that we will not be a PFICfor our current taxable year ending December 31, 2017 or any future taxable year. The determination of PFIC status is based on an annual determination thatcannot be 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 any131Table of Contentspositions 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 will not take acontrary 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. For this purpose, passive income generally includes dividends, interest, royalties, rents (other than certain royalties and rents derived in the activeconduct of a trade or business and not derived from a related person) and net gains from transactions involving commodities (other than certain hedgingtransactions and certain active business gains). We will be treated as owning a proportionate share of the assets and earning a proportionate share of theincome of any other corporation in which we own, directly or indirectly, more than 25% by value of the stock. If the percentage of our assets treated asproducing passive income increases, we may become a PFIC for the current or one or more future taxable years. 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 our market capitalization) is reasonable, it is possible that the IRS may challenge our classification or valuation of our goodwill and other unbookedintangibles. 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;132Table of Contents•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-United States 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, which is a qualified exchange or other market forthese purposes. Consequently, as long as the common shares are regularly traded, and you are a holder of common shares, we expect that the mark-to-marketelection would be available to you, but no assurances are given in this regard. 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 incometax purposes. 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 withholding133Table of Contentsgenerally are allowed as a credit against your United States federal income tax liability, and you may be entitled to obtain a refund of any excess amountswithheld under the 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.People's Republic of China Taxation Under the EIT Law, which took effect as of January 1, 2008 and amended on February 24, 2017, enterprises established under the laws of non-PRCjurisdictions but whose "de facto management body" is located in China are considered "resident enterprises" for PRC tax purposes. Under theimplementation regulations issued by the State Council relating to the EIT Law, "de facto management bodies" are defined as the bodies that have materialand overall management and control over the business, personnel, accounts and properties of an enterprise. The Circular on Identification of China-controlled Overseas-registered Enterprises as Resident Enterprises on the Basis of Actual Management Organization, or Circular 82, further provides certainspecific criteria for determining whether the "de facto management body" of a PRC-controlled offshore incorporated enterprise is located in the PRC. Thecriteria include whether (a) the premises where the senior management and the senior management bodies responsible for the routine production and businessmanagement of the enterprise perform their functions are mainly located within the PRC, (b) decisions relating to the enterprise's financial and humanresource matters are made or subject to approval by organizations or personnel in the PRC, (c) the enterprise's primary assets, accounting books and records,company seals, and board and shareholders' meeting minutes are located or maintained in the PRC and (d) 50% or more of voting board members or seniorexecutives of the enterprise habitually reside in the PRC. Although the Circular 82 only applies to offshore enterprises controlled by enterprises or enterprisegroup located within the PRC, the determining criteria set forth in the Circular 82 may reflect the tax authorities' general position on how the "de factomanagement body" test may be applied in determining the tax resident status of offshore enterprises. As the tax resident status of an enterprise is subject tothe determination by the PRC tax authorities, uncertainties remain with respect to the interpretation of the term "de facto management body" as applicable tous. Most of our management are currently based in China, and may remain in China in the future. If we are treated as a "resident enterprise" for PRC tax134Table of Contentspurposes, we will be subject to PRC income tax on our worldwide income at a uniform tax rate of 25%, but dividends received by us from our PRCsubsidiaries 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 from transfer of propertiesin China is considered derived from sources inside China, regardless of whether the place of payment was inside China. Therefore, if we are treated as acompany 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 individualshareholders or our non-PRC individual note holders from the transfer of our common shares or our convertible notes may be regarded as China-sourcedincome 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, andregistration 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 other135Table of Contentsinformation, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by theSecurities and Exchange Commission at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information regarding theWashington, 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 containsreports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. Asa foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxystatements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained inSection 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 major 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 2016 are denominated in U.S. dollars, Renminbi and Japanese yen, with the remainder in other currencies such as Euros,Canadian dollars 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 are denominated in Renminbi. Therefore, fluctuations in currency exchange rates could have a significant impact on ourfinancial stability. Fluctuations in exchange rates, particularly between the U.S. dollar, Euro, Renminbi, Canadian dollar, British pounds and Japanese yen,may result in fluctuations in foreign exchange gains or losses. As of December 31, 2016, we held $400.3 million in accounts receivable, of which$49.7 million were denominated in Japanese yen. Had we converted all Japanese yen denominated accounts receivable into Japanese yen at ¥116.78 for$1.00, the noon buying rate as of December 30, 2016, our Japanese yen denominated accounts receivable would have been Japanese yen 5,804.0 million asof December 31, 2016. Assuming the Japanese yen depreciates by a rate of 10.0% to an exchange rate of Japanese yen 128.458 for $1.00, we would record aloss in fair value of accounts receivable of $4.5 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 $19.7 million in 2014, a loss onchange in foreign currency derivatives of $3.7 million in 2015 and a gain on change in foreign currency derivatives of $4.8 million in 2016. The gains orlosses on change in foreign currency derivatives are related to our hedging program. We incurred a foreign exchange loss of $32.2 million in 2014, and werecorded a foreign exchange gain of $22.9 million and $25.4 million in 2015 and 2016, respectively. 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, 2016, we had forward contracts of the U.S. dollar against the Renminbi with notional amount of $61.0 million outstanding.Assuming a 10.0% appreciation of the U.S. dollar against136Table of Contentsthe Renminbi, the mark-to-market gain of our outstanding forward contracts of the U.S. dollar against the Renminbi would have decreased by approximately$6.1 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, British pounds and Japanese yen. The value of your investment in our common shares will be affected by the foreign exchange rate betweenthe U.S. dollar and other currencies used by our subsidiaries. To the extent we hold assets denominated in currencies other than U.S. dollars, any appreciationof such currencies against the U.S. dollars will likely result in an exchange gain while any depreciation will likely result in an exchange loss when we convertthe value of these assets into U.S. dollar equivalent amounts. On the other hand, to the extent we have liabilities denominated in currencies other thanU.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.137Table of Contents PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES None of these events occurred in any of the years ended December 31, 2014, 2015 and 2016. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS A.-D. Material Modifications to the Rights of Security Holders See "Item 10. Additional Information—B. Memorandum and Articles of Association" for a description of the rights of shareholders, which remainunchanged.E. 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, 2017, 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 statements138Table of Contentsin accordance with generally accepted accounting principles, and that a company's receipts and expenditures are being made only in accordance withauthorizations of a company's management and directors; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of a company's assets that could have a material effect on the consolidated financial statements. 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, 2016 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, 2016. Deloitte Touche Tohmatsu Certified Public Accountants LLP, an independent registered public accounting firm, who audited our consolidated financialstatements for the year ended December 31, 2016, has also audited the effectiveness of internal control over financial reporting as of December 31, 2016.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, 2016, 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. We conducted our auditin accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our auditincluded obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating thedesign and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in thecircumstances. 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. A company's internal control over financial reporting includes those policies and procedures that (1) pertainto the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of managementand directors of the company; and139Table of Contents(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that couldhave a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management 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, 2016, 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, 2016 of the Company and our report dated April 27, 2017 expressedan unqualified opinion on those financial statements and financial statement schedule./s/ Deloitte Touche Tohmatsu Certified Public Accountants LLPShanghai, ChinaApril 27, 2017Changes 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. 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,140Table of Contentsour principal external auditors, for the periods indicated. We did not pay any other fees to our auditors during 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.141 For the Years EndedDecember 31, 2015 2016 Audit fees(1) $2,173,180 $1,934,196 Audit related fees(2) $4,759,497 $1,070,261 Tax fees(3) $132,556 $183,939 (1)"Audit fees" means the aggregate fees billed for professional services rendered by our principal auditors for the annual 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. Theseinclude professional services rendered in connection with bond and equity offerings, statutory audits of our subsidiary companies,quarterly reviews and other related services. In 2015, "Audit related fees" included the audit fee for the Yieldco IPO in the U.S. with anamount of approximately $4.1 million and $0.5 million for audit related services provided for our equity and bond offerings. In 2016,"Audit related fees" included approximately $0.7 million for the statutory audits of our subsidiary companies. (3)"Tax fees" of 2015 and 2016 were for services rendered by our principal accountants for tax compliance, tax advice, and tax planning.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 142ExhibitNumber 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-1 registration 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, effective on May 8, 20114.2 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 29,2016 (incorporated by reference to Exhibit 4.7 of our annual report on Form 20-F for the year ended December 31,2015 (File No. 001-33107), as amended, initially filed with the SEC on April 20, 2016)8.1* List of Major Subsidiaries12.1* CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Table of Contents143ExhibitNumber Description of Document12.2* 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, 2016 formatted in eXtensible BusinessReporting Language (XBRL):(i) Consolidated Balance Sheets as of December 31, 2015 and 2016; (ii) Consolidated Statements of Operations forthe Years Ended December 31, 2014,2015 and 2016; (iii) Consolidated Statements of Comprehensive Income forthe Years Ended December 31, 2014, 2015 and 2016; (iv) Consolidated Statements of Changes in Equity for theYears Ended December 31, 2014, 2015 and 2016; (v) Consolidated Statements of Cash Flows for the Years EndedDecember 31, 2014, 2015 and 2016; (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 27, 2017144 CANADIAN SOLAR INC. By: /s/ Shawn (Xiaohua) Qu Name: Shawn (Xiaohua) QuTitle: Chairman, President and Chief Executive Officer By: /s/ Huifeng Chang Name: Huifeng ChangTitle: Senior Vice President and Chief Financial OfficerTable of Contents CANADIAN SOLAR INC.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2015 and 2016 F-3 Consolidated Statements of Operations for the Years Ended December 31, 2014, 2015 and 2016 F-4 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2014, 2015 and 2016 F-5 Consolidated Statements of Changes in Equity for the Years Ended December 31, 2014, 2015 and 2016 F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2015 and 2016 F-7 Notes to Consolidated Financial Statements F-9 Additional Information—Financial Statement Schedule I F-80 Table 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, 2015 and2016, 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, 2016. 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, 2015 and 2016 and the results of their operations and their cash flows for each of the three years in the period endedDecember 31, 2016, 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, 2016, 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 27, 2017 expressed an unqualified opinion on theCompany's internal control over financial reporting./s/ Deloitte Touche Tohmatsu Certified Public Accountants LLPShanghai ChinaApril 27, 2017F-2 Table of ContentsCANADIAN SOLAR INC.CONSOLIDATED BALANCE SHEETSSee notes to consolidated financial statements.F-3 December 31,2015 December 31,2016 (In Thousands of U.S.Dollars,except share data) ASSETS Current assets: Cash and cash equivalents, including consolidated variable interest entities of $4,066 as of December 31, 2016 553,079 511,039 Restricted cash—current, including consolidated variable interest entities of $25,958 as of December 31, 2016 534,707 487,516 Accounts receivable trade, net of allowance of $28,156 and $26,119 as of December 31, 2015 and 2016, respectively 426,803 400,251 Accounts receivable, unbilled 8,206 3,425 Amounts due from related parties 104,579 19,082 Inventories 334,489 295,371 Value added tax recoverable 44,615 55,680 Advances to suppliers—current, net of allowance of $6,498 and $6,482 as of December 31, 2015 and 2016, respectively 31,886 29,312 Derivative assets—current 6,259 12,270 Project assets—current, including consolidated variable interest entities of $114,440 as of December 31, 2016 111,317 1,317,902 Assets held-for-sale — 392,089 Deferred tax assets—current 30,013 — Prepaid expenses and other current assets, including consolidated variable interest entities of $2,249 as of December 31, 2016 78,140 266,826 Total current assets 2,264,093 3,790,763 Restricted cash—non-current 46,897 9,145 Property, plant and equipment, net 331,052 462,345 Solar power systems, net 1,200,441 112,062 Deferred tax assets—non-current 97,134 229,980 Advances to suppliers—non-current, net of allowance of $22,131 and $13,045 as of December 31, 2015 and 2016, respectively 27,745 54,080 Prepaid land use rights, including consolidated variable interest entities of $689 as of December 31, 2016 29,092 48,651 Investments in affiliates 187,131 368,459 Intangible assets, net 78,938 8,422 Goodwill 7,609 7,617 Derivative assets—non-current 2,072 15,446 Project assets—non-current 2,814 182,391 Other non-current assets, including consolidated variable interest entities of $5,834 as of December 31, 2016 138,910 117,245 TOTAL ASSETS 4,413,928 5,406,606 LIABILITIES, REDEEMABLE NON-CONTROLLING INTERESTS AND EQUITY Current liabilities: Short-term borrowings, including consolidated variable interest entities of $69,811 as of December 31, 2016 1,156,576 1,600,033 Accounts payable, including consolidated variable interest entities of $29,813 as of December 31, 2016 512,510 440,116 Short-term notes payable 473,247 296,663 Amounts due to related parties 90,002 19,912 Other payables, including consolidated variable interest entities of $22 as of December 31, 2016 159,886 223,584 Short-term commercial paper — 131,432 Advances from customers 76,207 90,101 Derivative liabilities—current 35,228 9,625 Deferred tax liabilities—current 1,426 — Liabilities held-for-sale — 279,272 Financing liabilities — 459,258 Other current liabilities 151,242 171,070 Total current liabilities 2,656,324 3,721,066 Accrued warranty costs 65,193 61,139 Convertible notes 146,674 125,569 Long-term borrowings 606,577 493,455 Derivative liabilities—non-current 17,358 — Liability for uncertain tax positions 14,468 8,431 Deferred tax liabilities—non-current 19,030 23,348 Loss contingency accruals 23,500 22,654 Other non-current liabilities 32,294 51,554 TOTAL LIABILITIES 3,581,418 4,507,216 Commitments and contingencies (Note 23) Equity: Common shares—no par value: unlimited authorized shares, 55,965,443 and 57,830,149 shares issued and outstanding atDecember 31, 2015 and 2016, respectively 677,103 701,283 Additional paid-in capital (17,139) (8,897)Retained earnings 218,860 284,109 Accumulated other comprehensive loss (59,856) (91,814)Total Canadian Solar Inc. shareholders' equity 818,968 884,681 Non-controlling interests in subsidiaries 13,542 14,709 TOTAL EQUITY 832,510 899,390 TOTAL LIABILITIES AND EQUITY 4,413,928 5,406,606  Table of ContentsCANADIAN SOLAR INC.CONSOLIDATED STATEMENTS OF OPERATIONS See notes to consolidated financial statements.F-4 Years Ended December 31, 2014 2015 2016 (In Thousands of U.S. Dollars, except shareand per share data) Net revenues: —Non-related parties 2,958,058 3,363,274 2,605,335 —Related parties 2,569 104,352 247,743 Total net revenues 2,960,627 3,467,626 2,853,078 Cost of revenues: —Non-related parties 2,375,025 2,821,972 2,216,146 —Related parties 4,608 68,884 219,744 Total cost of revenues 2,379,633 2,890,856 2,435,890 Gross profit 580,994 576,770 417,188 Operating expenses: Selling expenses 125,797 149,710 145,367 General and administrative expenses 81,149 168,025 203,789 Research and development expenses 12,057 17,056 17,407 Other operating income, net (4,323) (5,392) (42,539)Total operating expenses, net 214,680 329,399 324,024 Income from operations 366,314 247,371 93,164 Other income (expenses): Interest expense (48,906) (54,148) (69,723)Interest income 14,363 16,831 10,236 Gain (loss) on change in fair value of derivatives 19,656 (12,196) 27,322 Foreign exchange gain (loss) (32,219) 22,882 25,406 Investment income (loss) — 2,342 (1,532)Gain on repurchase of convertible notes — — 2,782 Others 1,623 389 — Other expenses, net (45,483) (23,900) (5,509)Income before income taxes and equity in earnings (loss) ofunconsolidated investees 320,831 223,471 87,655 Income tax expense (77,431) (49,512) (17,976)Equity in earnings (loss) of unconsolidated investees 487 (643) (4,404)Net income 243,887 173,316 65,275 Less: net income attributable to non-controlling interests 4,385 1,455 26 Net income attributable to Canadian Solar Inc. 239,502 171,861 65,249 Earnings per share—basic $4.40 $3.08 $1.13 Shares used in computation—basic 54,408,037 55,728,903 57,524,349 Earnings per share—diluted $4.11 $2.93 $1.12 Shares used in computation—diluted 59,354,615 60,426,056 58,059,063  Table of ContentsCANADIAN SOLAR INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME See notes to consolidated financial statements.F-5 Years Ended December 31, 2014 2015 2016 (In Thousands of U.S. Dollars) Net income 243,887 173,316 65,275 Other comprehensive income (net of tax of nil): Foreign currency translation adjustment (32,440) (75,687) (41,786)Gain on commodity hedge — 2,078 2,083 Gain on interest rate swap — — 10,375 Comprehensive income 211,447 99,707 35,947 Less: comprehensive income attributable to non-controlling interests 5,798 7,759 2,656 Comprehensive income attributable to Canadian Solar Inc. 205,649 91,948 33,291  Table of ContentsCANADIAN 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 data) Balance at January 1, 2014 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-controllinginterests — — 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 Net income — — — 65,249 — 65,249 26 65,275 Foreign currency translationadjustment — — — — (44,416) (44,416) 2,630 (41,786)Capital injection from non-controlling interests — — — — — — 1,648 1,648 Issuance of ordinary shares, net ofissuance costs 1,029,661 23,408 — — — 23,408 — 23,408 Deferred tax on issuance costs ofordinary shares — 65 — — — 65 — 65 Share-based compensation — — 7,757 — — 7,757 — 7,757 Tax benefit of share-basedcompensation — — 485 — — 485 — 485 Exercise of share options 835,045 707 — — — 707 — 707 Fair value change on derivatives — — — — 12,458 12,458 — 12,458 Disposal of a subsidiary — — — — — — (3,137) (3,137)Balance at December 31, 2016 57,830,149 701,283 (8,897) 284,109 (91,814) 884,681 14,709 899,390  Table of ContentsCANADIAN SOLAR INC.CONSOLIDATED STATEMENTS OF CASH FLOWS See notes to consolidated financial statements.F-7 Years Ended December 31, 2014 2015 2016 (In Thousands of U.S. Dollars) Operating activities: Net income 243,887 173,316 65,275 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 82,627 94,217 95,849 Loss on disposal of property, plant and equipment 1,478 1,801 8,094 Gain on disposal of solar power systems and other investments — — (46,367)Impairment loss of property, plant and equipment 1,573 6,992 22,757 Impairment loss of project assets 2,311 — 2,952 (Gain) loss on change in fair value of derivatives (19,656) 12,196 (27,322)Equity in loss (earnings) of unconsolidated investees (487) 643 4,404 Allowance for doubtful accounts (8,528) 3,673 (280)Write-down of inventories 16,951 23,013 19,467 Gain on repurchase of convertible notes — — (2,782)Share-based compensation 5,088 5,966 7,757 Unrealized gain from sales to unconsolidated investees — 15,637 9,469 Changes in operating assets and liabilities: Accounts receivable trade (73,777) (63,352) (33,060)Accounts receivable, unbilled (17,308) 15,642 4,688 Amounts due from related parties 480 (99,893) (4,230)Inventories (252,716) 50,821 (50,557)Value added tax recoverable (4,150) (22,725) (11,466)Advances to suppliers (3,622) 7,967 (30,609)Project assets 89,536 70,943 (6,792)Prepaid expenses and other current assets (38,523) 36,745 (135,426)Other non-current assets (8,446) (6,093) (1,308)Accounts payable 135,812 (23,975) 61,157 Short-term notes payable 30,593 116,453 (141,363)Amounts due to related parties (2,166) 47,522 (43,774)Other payables 14,498 12,484 63,828 Advances from customers 40,311 (30,123) 19,710 Other liabilities (16,282) 56,542 (995)Accrued warranty costs 15,516 12,004 (3,847)Prepaid land use rights 5,319 (16,262) (19,714)Liability for uncertain tax positions (1,613) (1,111) (6,037)Deferred taxes 9,208 (112,263) (95,629)Net settlement of derivatives 17,192 24,878 (1,922)Net cash provided by (used in) operating activities 265,106 413,658 (278,073)Table of ContentsCANADIAN SOLAR INC.CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) See notes to consolidated financial statements.F-8 Years Ended December 31, 2014 2015 2016 (In Thousands of U.S. Dollars) Investing activities: (Increase) decrease in restricted cash (27,585) (100,935) 50,585 Investments in affiliates (72) (84,389) (124,737)Return of investment from unconsolidated investees 337 1,698 7,442 Purchase of property, plant and equipment (49,660) (90,905) (286,722)Purchase of solar power systems (15,480) (551,863) (824,766)Loan to a third party (24,382) — — Repayment of loan received from a third party — 24,467 — Proceeds from disposal of solar power systems — — 90,078 Proceeds from insurance claim — — 46,801 Proceeds from disposal of investment on subsidiaries — 3,615 1,899 Distribution to non-controlling shareholders upon disposal of a subsidiary — (4,225) (3,137)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 (116,049) (999,104) (1,042,557)Financing activities: Proceeds from short-term borrowings 928,879 1,436,950 1,841,808 Repayment of short-term borrowings (1,045,596) (1,308,235) (2,243,003)Proceeds from long-term borrowings 56,989 487,228 1,076,332 Profit distribution to a non-controlling interest — (305) — Payment to non-controlling interests for sales of project companies (5,483) — — Gross proceeds from issuance of common shares 115,009 — 23,864 Issuance costs paid for common shares offering (6,091) — (456)Payment of financing costs — (39,297) (3,750)Purchase of shares from non-controlling shareholders — (927) — Proceeds from non-controlling interest — — 1,648 Proceeds from issuance of warrant — 16,378 — Proceeds from third party financing liabilities — 1,685 415,523 Proceeds from capital lease — 25,246 96,697 Repayment of capital lease obligation — (1,107) (24,191)Proceeds from short-term commercial paper — — 134,311 Proceeds from issuance of convertible notes 150,000 — — Issuance cost paid on convertible notes (5,103) — — Payments for repurchase of convertible notes — — (19,667)Proceeds from exercise of stock options 3,343 1,867 707 Net cash provided by financing activities 191,947 619,483 1,299,823 Effect of exchange rate changes (19,711) (30,501) (12,312)Net increase (decrease) in cash and cash equivalents 321,293 3,536 (33,119)Cash and cash equivalents at the beginning of the year 228,250 549,543 553,079 Less: Cash and cash equivalents included in assets held-for-sale at the end of the year — — 8,921 Cash and cash equivalents at the end of the year 549,543 553,079 511,039 Supplemental disclosure of cash flow information: Interest paid (net of amounts capitalized) 47,227 49,619 70,827 Income taxes paid 14,016 87,348 187,876 Supplemental schedule of non-cash activities: Reclassification of solar power systems to project assets — 114,131 1,362,037 Unpaid proceeds from disposal of subsidiaries included in prepaid expenses and other current assets — — 14,604 Amounts due to non-controlling interests for sales of project companies included in payables 1,765 — — Property, plant and equipment costs included in other payables 23,541 34,161 120,881 Solar power systems costs included in accounts payables 339 115,887 72,885 Reclassification of partial interests in project assets to investment in connection with a sale of 51% equity in theproject — 84,200 — Decrease in amounts due from related parties, net of investments in affiliates — — 65,090 Table of Contents CANADIAN SOLAR INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016 (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 primarily consists of solar power project developmentand sale, EPC and development services, O&M services, operating solar power projects and sales of electricity, and sales of solar system kits. As of December31, 2016, 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 financial interestor variable interest entities ("VIEs") for which the Company is a primary beneficiary. A controlling financial interest is typically determined when a company holds a majority of the voting equity interest in an entity. All intercompanybalances and transactions between the Company and its subsidiaries have been eliminated in consolidation. The Company consolidates VIEs when the Company is the primary beneficiary. The primary beneficiary of a VIE is the party that has the power to directthe activities that most significantly impact the performance of the entity and the obligation to absorb losses or the right to receive benefits that couldpotentially be significant to the entity. VIEs are entities that lack sufficient equity to finance their activities without additional financial support from otherparties or whose equity holders, as a group, lack one or more of the following characteristics: (a) direct or indirect ability to make decisions; (b) obligation toabsorb expected losses; or (c) right to receive expected residual returns. VIEs must be evaluated quantitatively and qualitatively to determine the primarybeneficiary, which is the reporting entity that has (a) the power to direct activities of a VIE that most significantly impact the VIEs economic performance and(b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that couldpotentially be significant to the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes. A VIE can have only oneprimary beneficiary, but may not have a primary beneficiary if no party meets the criteria described above. When evaluating whether the Company is the primary beneficiary of a VIE, and must therefore consolidate the entity, we perform a qualitative analysisthat considers the design of the VIE, the nature of its involvement and the variable interests held by other parties. If that evaluation isF-9Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)inconclusive as to which party absorbs a majority of the entity's expected losses or residual returns, a quantitative analysis is performed to determine theprimary beneficiary. For the Company's consolidated VIEs, the Company has presented on the consolidated balance sheets, to the extent material, the assets of itsconsolidated VIEs that can only be used to settle specific obligations of the consolidated VIE, and the liabilities of its consolidated VIEs for which creditorsdo not have recourse to its general assets outside of the consolidated VIE. All significant intercompany accounts and transactions between the Company andits consolidated VIEs 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 and development services accounted forunder the percentage-of-completion method, allowance for doubtful accounts receivable and advances to suppliers, valuation of inventories and provisionfor firm purchase commitments, provision for contingent liability, impairment of long-lived assets and project assets, the estimated useful lives of long-livedassets, determination of assets retirement obligation ("ARO"), accrual for warranty and the recognition of the benefit from the purchased warranty insurance,fair value estimate of financial instruments including warrants and other types of derivative, accrual for uncertain tax positions, tax valuation allowances,applying acquisition method of accounting to business acquisitions and the grant-date fair value of share-based compensation awards and related forfeiturerates.(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,short-term notes payable and bank borrowings. Upon maturity of the letters of credit, repayment of short-term notes payable or bank borrowings whichgenerally occur 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 and development services and sales of solar power projects when all relevant revenue recognition criteriahave been met. Under this accounting method, revenue may be recognized in advance of billingF-10Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)the customer, which results in the recording of accounts receivable, unbilled. Once the Company meets the billing criteria under such contract, it bills thecustomer and reclassifies the unbilled balance to accounts receivable trade. Billing requirements vary by contract, but are generally structured aroundcompletion 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 $442 and $409 as ofDecember 31, 2015 and 2016, 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.(h) Inventories Before 2016, inventories were stated at the lower of cost or market. In 2016, the Company adopted ASU 2015-11 prospectively, and inventories arestated at the lower of cost or net realizable value as of December 31, 2016. Cost is determined by the weighted-average method. Cost of inventories consistsof direct materials and, where applicable, direct labor costs, tolling costs and those overhead costs that have been incurred in bringing the inventories to theirpresent location and condition. Adjustments are recorded to write down the cost of obsolete and excess inventories to the estimated net realizable 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.F-11Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued) 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 way as that used to value inventory losses.(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 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 are preliminarily classified as project assets unless the Company has intention not to sell them to third parties. In that case, they willbe classified as solar power systems on the balance sheet. During the development phase, 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 projects are presented as operating activities or investing activities in the consolidated statement of cash flows, if they are related toproject assets or solar power systems, respectively. While the solar power projects are in the development phase, they are generally classified as non-currentassets, unless it is anticipated that construction will be completed and 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 ("COD"), appropriatenessof the classification of the solar power projects is re-assessed based on the circumstances at that time. Solar power projects that the Company intendsF-12Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)to sell, which meet the criteria of ASC 360-10-45-9 on COD, are classified as project assets-current. Solar power projects that the Company intends to holdand operate to generate electricity are still classified as solar power systems. The Company reclassified solar power systems of $111.3 million and $1,202.1million to project assets-current, and $2.8 million and $160.0 million to project assets-non-current on the consolidated balance sheet in 2015 and 2016,respectively. 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. Project assets are often held in separate legal entities which are formed for the special purpose of constructing the project assets, which the Companyrefers to as "project companies". The Company consolidates project companies as described in note (b) above. The cash paid to the non-controlling interest inconnection 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. Any revenue generated from a solar power system connected to the grid would be consideredincidental revenue and accounted for as a reduction of the capitalized project costs for development. If circumstances change, and the Company will begin tooperate the project assets for the purpose of generating income from the sale of electricity, the project assets will be reclassified to solar power systems.(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 recognizedF-13Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)based on the cost, which generally includes the transaction costs of the asset acquisition, and no gain or loss is recognized unless the fair value of noncashassets given as consideration differs from the assets' carrying amounts on the Company's books. The costs of asset acquisitions generally include the directtransaction costs of the asset acquisition. If the consideration given is not in the form of cash (that is, in the form of noncash assets, liabilities incurred, orequity interests issued), measurement is based on either the cost to the acquiring entity or the fair value of the assets (or net assets) acquired, whichever ismore clearly evident and, thus, more reliably measurable. The cost of a group of assets acquired in an asset acquisition is allocated to the individual assetsacquired 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. 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 ofF-14Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)the reporting unit, as if a market participant just acquired the reporting unit in a business combination. The excess of the fair value of the reporting unitdetermined in the first step of the impairment test over the total amount assigned to the assets and liabilities in the second step of the impairment testrepresents the implied fair value of goodwill. If the carrying value of a reporting unit's goodwill exceeds the implied fair value of goodwill, the Companywould record an impairment loss 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 2016 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. 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) Assets held-for-sale Long-lived assets (disposal group) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction ratherthan through continuing use. This condition is regarded as met only when management commits to a plan to sell the asset; the asset is available forimmediate sale in its present condition; an active program to locate a buyer and other actions required to complete the plan have been initiated; the sale ofthe asset is probable within one year; the asset is being actively marketed for sale at a reasonable price in relation to its current fair value; and it is unlikelythat significant changes to the plan will be made or that the plan will be withdrawn. Long-livedF-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 yearsTable of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)assets classified as held for sale are measured at lower of their carrying amount and fair value less costs to sell and depreciation (amortization) ceases once theasset is classified as held for sale.(o) 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.(p) 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:(q) 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.(r) 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 ofF-16Power purchase agreement ("PPA") Over the estimated useful livesTechnical know-how 10 yearsComputer software 1-10 yearsTable of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)the investee as income. Dividends received in excess of earnings are considered a return of investment and are recorded as reductions in the cost of theinvestment. The Company uses the equity method of accounting for the investments when the Company has the ability to significantly influence theoperations or financial activities of the investee. The Company records the equity method investments at historical cost and subsequently adjusts thecarrying amount each period for share of the earnings or losses of the investee and other adjustments required by the equity method of accounting. Dividendsreceived 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 a period oftime sufficient to allow for any anticipated recovery in fair value. During the years ended December 31, 2014, 2015 and 2016, the Company recorded noimpairment charges on its investments.(s) 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 of the expected undiscounted cash flows is less than the carrying amount of the assets, the Companywill recognize an impairment loss based on the fair value of the assets. The Company recorded impairment charges for long-lived assets of $1,573, $6,992and $22,757 for the years ended December 31, 2014, 2015 and 2016, respectively.(t) 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 forF-17Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)project assets forms part of the cost of revenues when such project assets are sold and all revenue recognition criteria are met. Interest capitalization ceasesonce a project is substantially complete or no longer undergoing construction activities to prepare it for its intended use.(u) 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 $7,574 and $1,503 as of December 31, 2015 and 2016, respectively.(v) 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.(w) 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. Current income taxes are provided for in accordance with the laws of the relevant taxingauthorities. Before 2016, the components of the deferred tax assets and liabilities were individually classified as current and non-current based on thecharacteristics of the underlying assets and liabilities, or the expected timing of their use when they did not relate to a specific asset or liability. In 2016, theCompany adopted ASU2015-17 prospectively and did not revise prior periods, and as of December 31, 2016, the components of the deferred tax assets andliabilities are all classified as non-current on the consolidated balance sheet. 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;F-18Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)(ii) current tax expense, which represents the amount of tax currently payable to or receivable from a taxing authority; and (iii) non-current tax expense,which represents the increases and decreases in amounts related to uncertain tax positions from prior periods and not settled with cash or other tax attributes.The Company only recognizes tax benefits related to uncertain tax positions when such positions are more likely than not of being sustained uponexamination. For such positions, the amount of tax benefit that the Company recognizes is the largest amount of tax benefit that is more than fifty percentlikely of being sustained upon the ultimate settlement of such uncertain tax position. The Company records penalties and interests associated with theuncertain tax positions as a component of income tax expense. The Company uses the flow-through method to account for investment tax credits earned on qualifying projects placed into service. Under this methodthe investment tax credits are recognized as a reduction to income tax expense in the year the credit arises. The use of the flow-through method also results ina basis difference from the recognition of a deferred tax liability and an immediate income tax expense for reduced future tax depreciation of the relatedassets. Such basis differences are accounted for pursuant to the income statement method.(x) 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 transportation expenses and the duty. The Company bears therisks and costs associated with supplying the goods to the delivery location.F-19Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued) As of December 31, 2014, 2015 and 2016, the Company had inventories of $7.5 million, $7.3 million and $5.9 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, 2014, 2015 and 2016, theCompany recognized revenue of $16,578, $6,764 and nil, respectively, under toll manufacturing arrangements.EPC and development services The Company uses the percentage-of-completion method to recognize revenues for which the Company provides EPC and development services, unlessthe Company cannot make reasonably dependable estimates of the costs to complete the contract, in which case the Company would use the completedcontract method. The percentage-of-completion method is considered appropriate in circumstances in which reasonably dependable estimates can be madeand in which all the following conditions exist: (i) contracts executed by the parties normally include provisions that clearly specify the enforceable rightsregarding goods or services to be provided and received by the parties, the consideration to be exchanged, and the manner and terms of settlement; (ii) thebuyer 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. 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 theF-20Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)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 the amounts can be reasonably estimated. Theeffect of the changes on future periods are recognized as if the revised estimates had been used since revenue was initially recognized under the contract.Such revisions could occur in any reporting period, and the effects may be material depending on the size of the contracts 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 becontingently 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 CompanyF-21Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)retaining risks or rewards associated with the project that are not customary with the range of risks or rewards that an EPC contractor mayassume.(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. On occasion, the Company sells an interest in the project assets to a third party with an option to repurchase those assets in the future. The Companyconsiders that there are continuing involvements in the projects and thus no profit or revenue is recognized. The transactions are accounted for as financingarrangement or profit-sharing arrangement.(iv)Financing method. If the Company determines that it is likely the repurchase option will be exercised, the transactions are accounted for asfinancing arrangement. All the project assets remain on the Company's consolidated balance sheets. The buyer's shares of earnings in theprojects, during each period are reflected as interest expenses with a corresponding increase to the respective financing liabilities. Furtherdistributions from the projects are reflected as a decrease to the financing liabilities. As of December 31, 2015 and 2016, the Companyrecorded financing liabilities of $3.2 million and $459.3 million in other non-curent liabilities and financing liabilities on the consolidatedbalance sheet, respectively. The balances had been net of distributions of nil and $1.4 million as of December 31, 2015 and 2016, respectively.(v)Profit-sharing arrangement. If the Company determines that it is unlikely the repurchase option will be exercised, the transactions areaccounted for as profit-sharing arrangement. The Company reclassifies the property and any related existing debt assumed by the buyer to aninvestment account on its balance sheet and any cash received from the buyer is credited to the investment account. The amount will berecorded in investments in affiliates or other liabilities on the balance sheet depending on whether the amount is a debit or credit. As ofDecember 31, 2015 and 2016, the Company recorded nil and $4.8 million, respectively, in other liabilities on the consolidated balance sheet. During 2014, 2015 and 2016, the Company recognized $754,210, $557,132 and $22,237 of revenue from the sale of solar power projects using the fullaccrual method and recognized $137,726, $863 and $428 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.F-22Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)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 there isreasonable assurance that the grant will be received. During the years ended December 31, 2014, 2015 and 2016, the Company recognized performance-based energy incentives of $2.0 million, $16.1 million, and $22.8 million related to electricity generated from solar power systems and assets held-for-sale inrevenue. 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, 2014, 2015 and 2016, the total lease income recognized was nil, $6.1 million, and $6.2 millionrelated to PPAs, respectively.(y) 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$55,671, $73,008 and $68,451, are included in selling expenses for the years ended December 31, 2014, 2015 and 2016, respectively.(z) Research and development Costs related to the design, development, testing and enhancement of products and silicon reclamation program are included in research anddevelopment expenses. Research and development costs are expensed when incurred and amounted to $12,057, $17,056 and $17,407 for the years endedDecember 31, 2014, 2015 and 2016, respectively.(aa) Other operating income, net Other operating income, net primarily consists of gains or losses on disposal of solar power systems and property, plant and equipment, and governmentgrants received. Government grants received by the Company consist of unrestricted and restricted grants and subsidies. Unrestricted grants that allowed the Company'sfull discretion in utilizing the funds were recognized as other operating income upon receipt of cash and when all the conditions for their receipt have beensatisfied. Restricted grants related to prepaid land use rights are recorded as deferredF-23Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)subsidies in other non-current liabilities and are amortized on a straight-line basis over the term of the land use right. In 2016, the Company receivedgovernment grants related to land use rights of $3,416 and amortized the deferred subsidies of $17 into other operating income. Before 2016, the net loss on disposal of property, plant and equipment and government grants were included in general and administrative expenses. In2016, the Company reclassified the prior years' numbers, which are immaterial to the financial statements, to be consistent with current year's presentation. The following table summarizes the Company's other operating income, net:(ab) 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. In August 2011, the Company increased its guarantee for defects in materials and workmanship to ten years and the Company warrants that, for a periodof 25 years, its standard solar modules will maintain the following performance levels: (i) during the first year, the actual power output of the module will beno less than 97% of the labeled power output; (ii) from the second year to the 24th year, the actual annual power output decline of the module will be nomore than 0.7%; and (iii) by the end of the 25th year, the actual power output of the module will be no less than 80% of the labeled power output. Effective June 2015, the Company warrants 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 the second year to the 24th year,the actual annual power output decline will be no more than 0.7%; and (iii) by the end of the 25th year, the actual power output of the module will be no lessthan 80.7% of the labeled power output.F-24 Years Ended December 31, 2014 2015 2016 $ $ $ Net gain on disposal of solar power systems — — (47,899)Net loss on disposal of property, plant and equipment 1,478 1,801 8,094 Government grants (5,801) (7,193) (2,734) (4,323) (5,392) (42,539) Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued) Effective June 2015, the Company warrants that, for a period of 25 years, its monocrystalline 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% of the labeled power output; (ii) from the second year to the 24th year,the actual annual power output decline will be no more than 0.7%; and (iii) by the end of the 25th year, the actual power output of the module will be no lessthan 80.2% of the labeled power output. In addition, effective January 1, 2015, the Company lengthened the warranty against decline in its Dymond modulesto 30 years and the Company guarantees that, for a period of 30 years, the Dymond modules will maintain the following performance levels: (i) during thefirst year, the actual power output of the module will be no less than 97.5% of the labeled power output; (ii) from the second year to the 29th year, the actualannual power output decline will be no more than 0.5%; and (iii) by the end of the 30th year, the actual power output of the module will be no less than 83%of the labeled power output. Effective August 2016, the Company lengthened the warranty against decline in its Dymond polycrystalline modules to 30 years and the Companywarrants that, for a period of 30 years, the Dymond modules will maintain the following performance levels: (i) during the first year, the actual power outputof the module will be no less than 97.5% of the labeled power output; (ii) from the second year to the 29th year, the actual annual power output decline willbe no more than 0.5%; and (iii) by the end of the 30th year, the actual power output of the module will be no less than 83% of the labeled power output. Effective August 2016, the Company warrants that, for a period of 30 years, its Dymond monocrystalline modules will maintain the followingperformance levels: (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 the secondyear to the sixth year, the actual annual power output decline will be no more than 0.7%; (iii) from the seventh year to the 29th year, the actual annual poweroutput decline will be no more than 0.5%and (iiii) by the end of the 30th year, the actual power output of the module will be no less than 81.5% of thelabeled power output. 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 solar power projects built by the Company, the Company provides a limited workmanship or balance of system warranty against defects inengineering design, installation and construction under normal use, operation and service conditions for a period of up to five years following the energizingof the solar power project. In resolving claims under the workmanship or balance of system warranty, the Company has the option of remedying throughrepair, refurbishment or replacement of equipment. The Company has entered into similar workmanship warranties with its suppliers to back up its warranties. 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. ActualF-25Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)warranty costs are accumulated and charged against the accrued warranty liability. To the extent that accrual for warranty costs differs from the estimates, theCompany will prospectively revise its accrual rate. The Company currently records a 1% warranty provision against the revenue for sales of solar powerproducts. 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 product warranty policy. The Company records the insurance premiums initially as prepaid expenses and amortizesthem over the respective policy period of one year. Each prepaid policy provides insurance against warranty costs for panels sold within that policy year. Theunamortized carrying amount is $1,921 and $2,531 as of December 31, 2015 and 2016, respectively and was included as a component of prepaid expensesand 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 beF-26Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)realized over the life of the warranty obligation, which is 25 years and is treated as a non-current asset consistent with the underlying warranty obligation.When a specific claim is submitted, and the corresponding insurance proceeds will be collected within twelve months of the balance sheet date, the Companywill reclassify that portion of the receivable as being current. The insurance receivable amounts were $56,605 and $61,879 as of December 31, 2015 and2016, respectively, and were included as a component of other non-current assets. The Company made downward adjustments to its accrued warranty costs of $16,869 and other non-current assets of $15,189, for the year endedDecember 31, 2016, 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 $18,570, $15,876 and $9,817 are included in cost of revenues for the years ended December 31,2014, 2015 and 2016, respectively.(ac) Foreign currency translation The United States dollar ("U.S. dollar" or "$"), 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"), Japanese yen and British pound ("GBP"), which are their functional currencies. Assets and liabilities are translated at theexchange rates at the balance sheet date, equity accounts are translated at historical exchange rates and revenues, expenses, gains and losses are translatedusing the average rate for the year. Translation adjustments are reported as foreign currency translation adjustment and are shown as a separate component ofother comprehensive income 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-27Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(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 $722,734 and $538,788 as of December 31, 2015 and 2016, 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, 2015 and 2016, 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-28 At December 31,2015 At December 31,2016 $ $ Supplier A 18,260 18,260 Supplier B 9,086 — Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(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-29Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)(ai) Earnings (loss) per share Basic earnings (loss) is computed by dividing income (loss) attributable to holders of common shares by the weighted average number of common sharesoutstanding during the year. Diluted earnings (loss) per common share reflects the potential dilution that could occur if securities or other contracts to issuecommon shares were exercised or converted into common shares. Common share equivalents are not included in the calculation of dilutive earnings per shareif 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. 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 years beginning after December 15, 2016, and early adoption is not permitted. In August 2015, theFASB updated this standard to ASU 2015-14, the amendments in this ASU defer the effective date of ASU 2014-09, that the ASU should be applied to annualreporting periods beginning after December 15, 2017 and earlier application is permitted only as of annual reporting periods beginning after December 15,2016, including interim reporting periods within that reporting period. The Company currently plans to adopt this ASU in the period beginning from January 1, 2018 using the full retrospective approach, however, a finaldecision regarding the adoption method has not been made at this time. The Company's final determination will depend on a number of factors such as theprocess of finalizing the impact to the Company's financial results and in particular on the timing and extent of revenue recognition for the sales of projectassets. The Company expects this adoption to primarily affect certain energy business sales arrangements currently accounted for under ASC 360-20, whichrequires the Company to evaluate whether such arrangements have any forms of continuing involvement that may affect the revenue or profit recognition ofthe transactions, including arrangements with prohibited forms of continuing involvement requiring the Company to reduce the potential profit on a projectsale by the maximum exposure to loss. The Company anticipates that ASU 2014-09, which supersedes the real estate sales guidance under ASC 360-20, willresult in the earlier recognition of revenue and profit. The Company expects revenueF-30Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)recognition for other sales arrangements, including sales of solar power products, EPC and development services, O&M services and electricity income, toremain materially consistent with the current practice. The Company will continue to assess the potential impacts of the new standard, including the areas described above, and anticipates that this standardwill have a material impact on its consolidated financial statements. However, the Company does not know or cannot reasonably estimate quantitativeinformation, beyond that discussed above, related to the impact of the new standard on the consolidated financial statements at this time. 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. The adoption of ASU 2015-02 inthe first quarter of 2016 did not have a significant impact on the consolidated financial statements and associated disclosures. 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 ASU requires an entity to recognize lease assets and lease liabilities on thebalance 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. The Company iscurrently evaluating the impact of the adoption this standard on its consolidated 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 thatF-31Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is in the process ofevaluating the impact of the standard on its consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230)—Classification of Certain Cash Receipts and Cash Payments".The ASU reduces the existing diversity in practice on how certain cash flows should be presented and classified in the statement of cash flows and is effectiveno later than the first quarter of fiscal 2018. Early adoption is permitted. The ASU should be applied using a retrospective transition method to each periodpresented. The Company is currently evaluating the impact of the adoption of this AUS on its consolidated financial statements. In October, 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 230)—Intra-Entity Transfers of Assets Other Than Inventory", which removesthe prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other thaninventory. The ASU, which is part of the Board's simplification initiative, is intended to reduce the complexity of U.S. GAAP and diversity in practice relatedto the tax consequences of certain types of intra-entity asset transfers, particularly those involving intellectual property (IP). For public business entities, theASU is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted for allentities as of the beginning of a fiscal year for which neither the annual or interim (if applicable) financial statements have been issued or made available forissuance. The Company is currently evaluating the impact of the adoption this standard on its consolidated financial statements. In November, 2016, the FASB issued ASU 2016-18, which amends ASC 230 to add or clarify guidance on the classification and presentation of restrictedcash in the statement of cash flows. An entity should include in its cash and cash-equivalent balances in the statement of cash flows those amounts that aredeemed to be restricted cash and restricted cash equivalents. The ASU does not define the terms "restricted cash" and "restricted cash equivalents" but statesthat an entity should continue to provide appropriate disclosures about its accounting policies pertaining to restricted cash in accordance with other GAAP.The ASU also states that any change in accounting policy will need to be assessed under ASC 250. For public business entities, the guidance is effective forfiscal years beginning after December 15, 2017, including interim periods therein. Early adoption is permitted for all entities. The Company is in the processof evaluating the impact of the standard on its consolidated financial statements. In January, 2017, the FASB issued ASU 2017-04, which removes the requirement to compare the implied fair value of goodwill with its carrying amountas part of step 2 of the goodwill impairment test. As a result, under the ASU, an entity should perform its annual, or interim, goodwill impairment test bycomparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carryingamount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.An entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwillimpairment loss, if applicable. For public business entities that are SEC filers, the guidance is effective for fiscal years beginning afterF-32Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (Continued)December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. TheCompany does not expect the adoption to have a significant impact to the 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 assets acquired and liabilities assumed. The following table summarized the estimated fair values of assets acquiredand liabilities assumed at the date of acquisition. 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 Company's combined operations. For the year ended December 31, 2015 and 2016, $3.3 million and nil goodwill havebeen included in the cost of revenues with the sales of the related project assets, respectively.F-33 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, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)3. BUSINESS COMBINATION (Continued) 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 and nil have been expensed and recorded within general andadministrative expense in the consolidated statement of operations for the year ended December 31, 2015 and 2016, respectively.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 following table summarized the fair value of assetsacquired and liabilities assumed at the acquisition date: Bank fees, legal costs and accounting costs associated with the acquisition of $2.4 million and nil have been expensed and recorded within general andadministrative expense in the consolidated statement of operations for the year ended December 31, 2015 and 2016, respectively.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.F-34 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 For the year endDecember 31 2014 2015 (In thousands of U.S. Dollars, expect per share data) Pro forma revenues 4,174,232 3,505,324 Pro forma net income attributable to CSI 431,539 159,231 Diluted earnings per share attributable to CSI 7.35 2.72  Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated) 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.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, 2014, 2015 and 2016 is as follows: An analysis of allowances for advances to suppliers for the years ended December 31, 2014, 2015 and 2016 is as follows:F-35 Years Ended December 31, 2014 2015 2016 $ $ $ Beginning of the year 38,483 31,817 28,156 Allowances reversed during the year, net (5,843) (1,084) (854)Accounts written-off against allowances (9) (858) (47)Foreign exchange effect (814) (1,719) (1,136)Closing balance 31,817 28,156 26,119 Years Ended December 31, 2014 2015 2016 $ $ $ Beginning of the year 40,047 37,735 28,629 Allowances made (reversed) during the year, net 4 1,291 (5,427)Accounts written-off against allowances — (9,465) (3,644)Foreign exchange effect (2,316) (932) (31)Closing balance 37,735 28,629 19,527 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)4. ALLOWANCE FOR DOUBTFUL ACCOUNTS (Continued) An analysis of allowances for other receivables for the years ended December 31, 2014, 2015 and 2016 is as follows:5. INVENTORIES Inventories consist of the following: In 2014 and 2015, inventory was written down by $16,951 and $23,013, respectively, to reflect the lower of cost or market measurement. In 2016,inventory was written down by $19,467 to reflect the lower of cost and net realizable value since the Company adopted ASU 2015-11 prospectively.6. PROJECT ASSETS Project assets consist of the following: The Company recorded impairment charges and write-off for project assets of $2,311, nil and $2,952 for the years ended December 31, 2014, 2015 and2016, respectively.F-36 Years EndedDecember 31, 2014 2015 2016 $ $ $ Beginning of the year 887 830 3,885 Allowances made (reversed) during the year, net (53) 3,257 5,954 Foreign exchange effect (4) (202) (588)Closing balance 830 3,885 9,251 At December 31,2015 At December 31,2016 $ $ Raw materials 97,331 71,655 Work-in-process 18,904 22,776 Finished goods 218,254 200,940 334,489 295,371 At December 31,2015 At December 31,2016 $ $ Project assets—Acquisition cost 2,220 38,298 Project assets—EPC and other cost 111,911 1,461,995 114,131 1,500,293 Current portion 111,317 1,317,902 Non-current portion 2,814 182,391 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)7. ASSETS HELD-FOR-SALE In 2016, the Company was in negotiation with a number of potential buyers to sell certain solar power projects in operation in Spain, Canada and theUnited Kingdom. Solar power projects meeting the conditions of being classified as held for sale were presented as assets held-for-sale and associatedliabilities were presented as liabilities held-for-sale on the consolidated balance sheet. The Company's assets of solar power projects held for sale as of December 31, 2016 were as follows: The Company's liabilities of solar power projects held for sale as of December 31, 2016 were as follows:F-37 At December 31,2016 $ Cash and cash equivalents 8,921 Restricted cash—current 41 Accounts receivable trade, net 6,555 Prepaid expenses and other current assets 7,427 Solar power systems, net 290,613 Intangible assets, net 68,438 Other non-current assets 10,094 Total assets held-for-sale 392,089 At December 31,2016 $ Short-term borrowings 12,221 Accounts payable 880 Other payables 13,240 Derivative liabilities—current 3,863 Other current liabilities 1,537 Long-term borrowings 224,545 Derivative liabilities—non-current 16,672 Other non-current liabilities 6,314 Total liabilities held-for-sale 279,272 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)8. PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, net consist of the following: Depreciation expense of property, plant and equipment was $79,895, $80,642 and $72,813 for the years ended December 31, 2014, 2015 and 2016,respectively. Construction in process primarily represents production facilities under construction and the machinery under installation.9. SOLAR POWER SYSTEMS , NET Solar power systems, net consist of the following: For the years ended December 31, 2016, the Company completed construction of certain solar power projects and transferred from solar power systems toproject assets totaling $1,362.1 million. In connection with decisions to sell certain operating solar power projects, the Company reclassified solar powersystems of $405.9 million to assets held-for-sale, of which $115.3 million was sold, during the year ended December 31, 2016. Depreciation expense of solarpower systems was $1,173, $11,340 and $16,492 for the years ended December 31, 2014, 2015 and 2016, respectively.F-38 At December 31,2015 At December 31,2016 $ $ Buildings 166,030 187,179 Leasehold improvements 7,755 9,023 Machinery 459,471 458,624 Furniture, fixtures and equipment 39,413 44,443 Motor vehicles 3,907 4,653 Land — 13,451 676,576 717,373 Accumulated depreciation (391,635) (402,792)Impairment (8,470) (17,601) 276,471 296,980 Construction in process 54,581 165,365 Property, plant and equipment, net 331,052 462,345 At December 31,2015 At December 31,2016 $ $ Solar power systems in operation 508,584 120,935 Solar power systems under construction 706,118 4,782 Accumulated depreciation (14,261) (13,655)Solar power systems, net 1,200,441 112,062 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)10. INTANGIBLE ASSETS, NET The following table summarizes the Company's intangible assets: Amortization expense for the years ended December 31, 2014, 2015 and 2016 were $1,559, $2,235 and $6,544, respectively. Amortization expenses of the above intangible assets are expected to be approximately $2.5 million, $2.2 million, $1.4 million, $1.0 million and $1.3million for the years ended December 31, 2017, 2018, 2019, 2020, 2021 and thereafter, respectively.11. 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-39At December 31, 2016 GrossCarryingAmount AccumulatedAmortization Net $ $ $ Technical know-how 1,431 (1,183) 248 Computer software 15,884 (7,710) 8,174 Total intangible assets, net 17,315 (8,893) 8,422 At December 31, 2015 GrossCarryingAmount 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  Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)11. FAIR VALUE MEASUREMENT (Continued) As of December 31, 2015 and 2016, 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: F-40 Fair Value Measurements Using At December 31, 2016 Total FairValue andCarryingValue on theBalance Sheets Quoted Pricesin ActiveMarkets forIdentical Assets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) $ $ $ $ Assets: Foreign exchange forward contracts 10,632 — 10,632 — Commodity hedge 4,230 — 4,230 — Interest rate swap 12,854 — 12,854 — Total assets 27,716 — 27,716 — Liabilities: — — Interest rate swap 5,418 — 5,418 — Warrants 711 — 711 — Foreign exchange forward contracts 3,496 — 3,496 — Total liabilities 9,625 — 9,625 — Fair Value Measurements Using At 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 — Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)11. FAIR VALUE MEASUREMENT (Continued)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 options 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 them usingvaluation models. Interest rate yield curves and foreign exchange rates are the significant inputs into these valuation models. These inputs are observable inactive markets over the terms of the instruments the Company holds, and accordingly, the fair value measurements are classified as Level 2 in the 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 entered into a fixed for floating energy commodity swap with a financial institution to hedgecash flows associated with electricity sales of the Astoria project in the U.S. for the period between expected COD and commencement of the long term PPAwith the off taker in January 2019. The swap contract was designated as a cash flow hedge at inception and is anticipated to be effective through its two-yearterm that ends on December 31, 2018. The fair value of the swap contract was $2,072 and $4,230, an asset position, recorded in derivative assets on thebalance sheet at December 31, 2015 and 2016, respectively. The effective portion of gains and losses on derivatives designated as cash flow hedges areinitially deferred in other comprehensive income before being recognized in the statements of operations in the same period as the hedged transactions arereflected in earnings. Gains and losses on derivatives that are not designated or fail to qualify as effective hedges are recognized in the statements ofoperations 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 entered into an option to purchase fixed for floating interest rate swaps, also known as aswaption, with a financial institution to hedge cash flows associated with interest payments of certain projects of Recurrent. The swaptions had not beendesignated as a hedge for accounting purposes. During the year ended December 31, 2016, the Company exercised swaptions with total notional amounts ofapproximately $399.0 million. The fair value of the swaption contract was $4,335 and nil as of December 31, 2015 and 2016, respectively, and the change inits fair value was recorded in gain (loss) on change in fair value of derivatives during the year ended December 31, 2016.F-41Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)11. FAIR VALUE MEASUREMENT (Continued) 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 and $3,863, a liability position, as of December 31, 2015 and recorded in liabilities held-for-sale on the balancesheet as of December 31, 2016, respectively, and the change in its fair value was recorded in gain (loss) on change in fair value of derivatives during the yearended December 31, 2015 and 2016. During the year ended December 31, 2016, the Company entered into fixed for floating interest rate swaps with two financial institutions to hedge theinterest rate risk on its project debts obtained in the United Kingdom with notional amount totaling GBP78.4 million ($96.8 million), which will expirebetween 2033 and 2034. The interest rate swaps had been designated as cash flow hedges for accounting purposes. Together with interest rate swap contracts of total notional amounts of approximately $399.0 million entered into for Recurrent projects upon theexercise of the swaption and designated as cash flow hedges, the total estimated fair value of the swap contracts was recorded as derivative assets of $12,854and derivative liabilities of $5,418 on the balance sheet as of December 31, 2016. The effective portion of gains and losses on derivatives designated as cashflow hedges are initially deferred in other comprehensive income before being recognized in the statements of operations in the same period as the hedgedtransactions are reflected in earnings. Gains and losses on derivatives that are not designated or fail to qualify as effective hedges are recognized in thestatements of operations as incurred. 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 28) was determined using the Binomial model, with certain inputs significant to the valuation methodologyclassified as Level 2 inputs.F-42Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)11. FAIR VALUE MEASUREMENT (Continued) The fair value of derivative instruments on the consolidated balance sheets as of December 31, 2015 and 2016 and the effect of derivative instruments onthe consolidated statements of operations for the years ended December 31, 2014, 2015 and 2016 are as follows: 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. The Company recorded impairment charges for certain idle assets of $1,573, $6,992 and $22,757 for the years ended December 31, 2014, 2015 and 2016,respectively. The fair value of these assets wasF-43 Fair Value of Derivative Assets At December 31, 2015 At December 31, 2016 Balance Sheet Location Fair Value Balance Sheet Location Fair Value $ $ Foreign exchange forward contracts Derivative assets—current 1,924 Derivative assets—current 10,632 Commodity hedge Derivative assets—current — Derivative assets—current 1,638 Interest rate swaption Derivative assets—current 4,335 Derivative assets—current — Commodity hedge Derivative assets—non-current 2,072 Derivative assets—non-current 2,592 Interest rate swap Derivative assets—non-current — Derivative assets—non-current 12,854 Total 8,331 Total 27,716 Fair Value of Derivative Liabilities At December 31, 2015 At December 31, 2016 Balance Sheet Location Fair Value Balance Sheet Location Fair Value $ $ Foreign exchange forward contracts Derivative liabilities—current 5,775 Derivative liabilities—current 3,496 Warrants Derivative liabilities—current 25,265 Derivative liabilities—current 711 Interest rate swap Derivative liabilities—current 4,188 Derivative liabilities—current 5,418 Interest rate swap Derivative liabilities—non-current 17,358 Derivative liabilities—non-current — Total 52,586 Total 9,625 Amount of Gain (Loss)Recognized in Statementsof Operations Years Ended December 31 Location ofGain (Loss) Recognizedin Statements of Operations 2014 2015 2016 $ $ $ Foreign exchange forward contracts Gain (loss) on change in fair value of derivatives 19,656 (3,738) 4,798 Warrants Gain (loss) on change in fair value of derivatives — (8,887) 24,554 Commodity hedge Gain (loss) on change in fair value of derivatives — (7) 75 Interest rate swaption Gain (loss) on change in fair value of derivatives — (107) (4,335)Interest rate swap Gain (loss) on change in fair value of derivatives — 543 2,230 Total 19,656 (12,196) 27,322 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)11. FAIR VALUE MEASUREMENT (Continued)measured based on prices offered by unrelated third-party willing buyers and classified as level 3 fair value measurements as the offering prices are notobservable. 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 the U.S. GAAP. The carrying values of cash and cash equivalents, restricted cash, trade receivables, billed and unbilled, amounts due from related parties, accountspayables, short-term notes payable, amounts due to related parties and short-term borrowings approximate their fair values due to the short-term maturity ofthese instruments. Long-term borrowings were $606,577 and $493,455 as of December 31, 2015 and 2016, respectively, which approximate their fair valuessince most of the borrowings contain variable interest rates. The fair value of long-term borrowings was measured based on discounted cash flow approach,which is classified as level 2 as the key inputs can be corroborated with market data. The carrying value of the Company's outstanding convertible notes was $146.7 million and $125.6 million as of December 31, 2015 and 2016,respectively.12. VARIABLE INTEREST ENTITIES In February 2016, the Company, through its wholly owned subsidiary, CSE Japan Investment Company Limited, entered into a silent partnershipagreement with Tida Power 24 G.K. ("TP24"), the project company of Aomori-Misawa project in Japan previously owned by the Company, for the purpose ofraising a project finance bond arranged by Goldman Sachs Japan Co., Ltd. Under the silent partnership agreement, TP24 is considered a VIE in which theCompany has no equity interests in TP24 but is entitled to substantially all of the economic interests of Aomori-Misawa project. In addition, the Companyhas the power to make decisions over the activities that most significantly impact the economic performance of Aomori-Misawa project under the assetmanagement agreement signed simultaneously between TP24 and Canadian Solar Project K.K. As such, the Company concluded it was the primarybeneficiary of TP24 and thus TP24 was accounted for as a consolidated VIE for the year ended December 31, 2016. In October 2016, the Company, through its wholly owned subsidiary, Canadian Solar Energy Holding Company Limited, entered into an equitysubscription agreement with Tida Power 22 G.K. ("TP22"), the project company of Kumamoto Mashiki project in Japan previously owned by the Company,for the purpose of refinancing project facility agreement with Deutsche Bank AG, Tokyo Branch. Under the equity subscription agreement, TP22 isconsidered a VIE in which the Company has no common equity interests in TP22 but entitles all economic interests of Kumamoto Mashiki project throughits preferred equity interests in TP22. Together with the power to make decisions over the activities that most significantly impact the economic performanceof Kumamoto Mashiki project under the asset management agreement signed simultaneously between TP22 and Canadian Solar Project K.K., As such, theCompany concluded it was the primary beneficiary of TP22 and thus TP22 was accounted for as a consolidated VIE for the year ended December 31, 2016.F-44Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)12. VARIABLE INTEREST ENTITIES (Continued) As of December 31, 2016, the carrying amounts and classifications of the consolidated VIEs' assets and liabilities, excluding intercompany balanceswhich are eliminated upon consolidation, included in the Company's consolidated balance sheet are as follows: All of the assets are restricted for settlement of the VIEs' obligations, and all of the liabilities can only be settled using VIE resources. Net income andoverall cash flow activities during the year are immaterial to the consolidated financial statements.13. INVESTMENTS IN AFFILIATES Investments in affiliates consist of the following:F-45 At December 31,2016 $ Current assets 146,713 Non-current assets 6,523 Total assets 153,236 Current liabilities 99,646 Total liabilities 99,646 At December 31, 2015 2016 CarryingValue OwnershipPercentage CarryingValue OwnershipPercentage $ (%) $ (%) Suzhou Gaochuangte New Energy Co., Ltd. 6,837 40 7,049 40 CSI SkyPower 3,332 50 3,749 50 GCL-CSI (Suzhou) Photovoltaic Technology Co., Ltd. 4,526 10 — — Foto Light LP ("Foto Light") 1,735 5 — — Discovery Light LP ("Discovery Light") 1,951 5 — — City Light LP ("City Light") 1,943 5 — — RE Tranquillity Holdings LLC ("Tranquillity") 90,325 49 143,951 49 RE Silverlake Holdings LLC ("Garland") 8,599 49 118,641 49 RE Roserock Holdings LLC ("Roserock") 34,898 49 30,870 49 Suzhou Financial Leasing Co., Ltd. 13,860 6 12,974 6 Pirapora Solar Holding S.A. — — 13,775 20 Others 19,125 21-49 37,450 21-49 Total 187,131 368,459  Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)13. INVESTMENTS IN AFFILIATES (Continued)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 companies, to Southern Power ("Southern"), a subsidiary of Southern Company. The Company maintains 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 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 companies, to Southern. The Company maintains 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 December 2015, the Company completed the sale of 100% of the class A membership interests of RE Roserock Holdings LLC, the holding companyof the Roserock project companies, to Southern. The Company maintains 100% ownership in the class B membership interests of RE Roserock HoldingsLLC. Southern paid the Company an initial contribution of $45 million in cash for the class A membership interests in RE Roserock Holdings LLC. Under the LLC agreements, the class A membership interests and class B membership interests will receive 51% and 49%, respectively, of future cashflow distributions, 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 influences over its retained interests in and has accounted for these interests pursuant to the equity method of accounting. Under this method, the Company recognizes its equity in earnings attributable to class B membership interests according to its proportionate share ofinvestees' operating cash flows. Additionally, the Company amortizes the basis difference between the cost of investment and its proportionate share of theinvestees' net assets over the estimated lives of the related assets. In connection with these sales to Southern in 2015, $190.4 million was recognized as revenue, and with the loss of controlling financial interests inTranquillity, Garland and Roserock, the Company derecognized net assets of $93.9 million, $56.4 million and $23.5 million, respectively, and recognized itsclass B membership interests in investments in affiliates. Subsequent to sales of the class A membership interests, the Company further contributed $69.5 million and $123.2 million to the projects in 2015 and2016, respectively.F-46Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)13. INVESTMENTS IN AFFILIATES (Continued)Other investments On December 17, 2009, CSI Cells Co., Ltd. ("SZCC") established a joint venture, Suzhou Gaochuangte New Energy Co., Ltd. ("Gaochuangte"), for totalcash consideration of $2,929. SZCC holds 40% voting interests and one of the three board members is designated by SZCC and, as such, SZCC is consideredto have significant influence over the investee. On July 4, 2011, Gaochuangte increased its share capital and SZCC paid $3,119 in proportion to itsownership percentage. On July 4, 2011, CSI Solar Power Group Co., Ltd. (formerly "CSI Solar Power (China) Inc.") ("SZSP") acquired 10% interests in a joint venture, GCL-CSI(Suzhou) Photovoltaic Technology Co., Ltd., for cash consideration of $2,549. SZSP is able to exercise significant influence over the investee through itsrepresentative in the board. In September 2016, the Company sold its entire interests in the investee. 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 the four board members are designatedby CSI and, as such, CSI is considered to have significant influence over the investee. In December 2014, CSI sold its 95% equity interests in two solar power project companies, Discovery Light and Foto Light, to a third party buyer. InJune 2016, the Company sold the remaining 5% equity interests of the two project companies. In March 2015, CSI sold its 95% equity interests in a project company, City Light, to a third party buyer. In June 2016, the Company sold the remaining5% equity interests of this project company. On September 8, 2015, SZSP established an entity, Suzhou Financial Leasing Co., Ltd., for cash consideration of $13,860, in which the Company holds6% voting interests. One board member is designated by SZSP and, as such SZSP is considered having significant influence over the investee and the equitymethod is used in this investment. On October 7, 2016, CSI entered into a shareholders' agreement with EDF EN do Brasil ("EDF"), a subsidiary of EDF Energies Nouvelles, pursuant towhich EDF owned 80% equity interests in Pirapora I project companies previously transferred from CSI and the Company retained the remaining 20% equityinterests. Equity in earnings (loss) of unconsolidated investees was $487, $(643) and $(4,404) for the years ended December 31, 2014, 2015 and 2016,respectively.F-47Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)14. BORROWINGS As of December 31, 2016, the Company had contractual bank credit facilities of $2,889,031, of which $1,555,384 has been drawn down with the duedates beyond December 31, 2017, $712,726 has been drawn down with the due dates before December 31, 2017 and $620,921 was available for draw downupon demand. In addition, as of December 31, 2016, the Company also had non-binding bank credit facilities of $449,641, of which $2,870 has been drawndown with the due dates beyond December 31, 2017, $336,861 has been drawn down with the due dates before December 31, 2017 and $109,910 was subjectto banks' discretion upon request for additional drawn down. As of December 31, 2016, short-term borrowings of $1,275,455 and long-term borrowings of $432,455 were secured by property, plant and equipmentwith carrying amounts of $89,901, inventories of $50,145, prepaid land use rights of $10,315, equity of $626,809, restricted cash of $102,298, accountsreceivable of $321,892 and project assets and solar power systems of $1,177,569.F-48 At December 31,2015 At December 31,2016 $ $ Bank borrowings 1,631,858 1,960,893 Analysis as: Short-term 961,639 902,348 Long-term, current portion 107,392 675,857 Subtotal for short-term 1,069,031 1,578,205 Long-term, non-current portion 562,827 382,688 Borrowings from non-banking institutions 131,295 132,595 Analysis as: Short-term 53,899 — Long-term, current portion 33,646 21,828 Subtotal for short-term 87,545 21,828 Long-term, non-current portion 43,750 110,767 Total 1,763,153 2,093,488 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)14. BORROWINGS (Continued)a)Short-term The Company's short-term borrowings consist of the following: The average interest rate on short-term borrowings was 4.32% and 3.45% per annum for the years ended December 31, 2015 and 2016, respectively. Theshort-term borrowings are repayable within one year.F-49 At December 31,2015 At December 31,2016 $ $ Bank borrowings Short-term bank borrowings secured by restricted cash 139,412 266,685 Short-term bank borrowings secured by inventories 12,926 46,408 Short-term bank borrowings secured by prepaid land use rights and property, plantand equipment 302,379 211,263 Short-term bank borrowings secured by project assets and solar power systems 189,222 82,079 Short-term borrowings secured by equity 76,837 — Unsecured short-term borrowings 240,863 295,913 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 13,327 16,919 Long-term borrowings due within one year secured by project assets and solar powersystems 83,264 630,696 Long-term bank borrowings due within one year secured by equity 308 18,765 Unsecured long-term borrowings due within one year 10,447 9,477 1,069,031 1,578,205 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 32,568 2,640 Unsecured long-term borrowings due within one year 1,078 19,188 87,545 21,828 Total 1,156,576 1,600,033 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)14. BORROWINGS (Continued)b)Long-term The Company's long-term borrowings consist of the following: The average interest rate on long-term borrowings was 4.75% and 3.75% per annum for the years ended December 31, 2015 and 2016, respectively. Future principal repayments on the long-term borrowings are as follows: On June 20, 2013, Canadian Solar New Energy (Tumushuke) Co. Ltd., the Company's 100% owned subsidiary, entered into a loan agreement,denominated in RMB, with China Development Bank, Suzhou Branch ("CDB"). The total credit facility under this agreement is $26,236 and used to financethe project costs. The outstanding borrowing under this agreement equaled $26,236 at December 31, 2016, which requires repayment semi-annually andmatures in 2026. The loan is secured by solar power systems. The agreement does not contain any financial covenants or restrictions.F-50 At December 31,2015 At December 31,2016 $ $ Bank borrowings Unsecured long-term bank borrowings 10,124 — Long-term bank borrowings secured by project assets and solar powersystems 162,993 27,100 Long-term bank borrowings secured by property, plant andequipment 13,327 15,588 Long-term bank borrowings secured by equity 376,383 340,000 562,827 382,688 Borrowings from non-banking institutions Long-term borrowings secured by project assets and solar powersystems 13,745 49,767 Unsecured long-term borrowings 30,005 61,000 43,750 110,767 Total 606,577 493,455 2017 697,685 2018 260,379 2019 198,171 2020 19,480 2021 3,460 Thereafter 11,965 Total 1,191,140 Less: future principal repayment related to long-term borrowings, current portion (697,685)Total long-term portion $493,455 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)14. BORROWINGS (Continued) On August 28, 2013, CSI Solar Power Group Co., Ltd. (formerly "CSI Solar Power (China) Inc.") entered into a financing agreement, denominated inRMB, with CDB, pursuant to which CDB agreed to provide long-term financing of $4,613 for the construction of solar power projects in Suzhou NationalNew and High-tech Industrial Development Zone. The outstanding borrowing under this agreement equaled $4,613 at December 31, 2016, which requiresrepayment semi-annually and matures in 2021. The loan is secured by project assets and guaranteed by Canadian Solar Manufacturing (Changshu) Inc. As atDecember 31, 2016, the Company met all the requirements of the financial covenants. 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 long-term construction financing of $56,989 for the construction of solar power projects andproduction line construction in Yancheng, Jiangsu. The facility is free of securities, financial covenants or restrictions. The total outstanding borrowingsunder this agreement equaled $48,340 at December 31, 2016, which requires repayment of $11,367, $16,720 and $20,253 in 2017, 2018 and 2019,respectively. On April 30, 2015, CSI entered into a loan agreement with total credit facility of $210,000 with China Minsheng Bank for acquisition purposes. Theoutstanding borrowing under this agreement was $200,000 as of December 31, 2016, which requires repayment of $10,000 and $190,000 in 2017 and 2018,respectively. The loan is secured by equity interests of CSI Solar Power Group Co., Ltd. and guaranteed by Canadian Solar Manufacturing (Changshu) Inc.,CSI Cells Co., Ltd. and Canadian Solar Manufacturing (Luoyang) Inc. The agreement does not contain any financial covenants or restrictions. On November 25, 2015, Recurrent entered into a facility agreement for $150,000 with Ping An Bank, China (Shanghai) Pilot Free Trade Zone Branch, tofinance its project development and operation. The outstanding borrowing under this agreement was $150,000 at December 31, 2016, which requires fullrepayment in 2019. The loan is secured by 100% LLC interests of Recurrent and guaranteed by CSI and CSI Solar Power Group Co., Ltd. As at December 31,2016, the Company was in compliance with all requirements of the financial covenants. On January 28, 2016, Canadian Solar Solutions Inc. and Canadian Solar Manufacturing Vietnam Co., Ltd. entered into a loan agreement of $60,000 withInternational Finance Corporation ("IFC"), a member of World Bank Group, to fund the construction of solar cell and module production facilities in Vietnamand other countries approved by IFC. The outstanding borrowing under this agreement was $20,032 at December 31, 2016, which requires repayment of$4,444 and $15,588 in 2017 and 2020, respectively. The loan is secured by accounts receivable, inventory and property, plant and equipment. As atDecember 31, 2016, the Company was in compliance with all requirements of the financial covenants. On July 8, 2016, Tida Holdings 3 G.K. entered into a private placement agreement with Prudential Capital Group, pursuant to which the globalinvestment management company of Prudential Financial, Inc. agreed to purchase nonrecourse senior notes, denominated in Japanese yen, with an aggregateprincipal amount of approximately $53,261. The outstanding notes under this agreement were $52,407 at December 31, 2016, which require repayment of$2,640 and $49,767 in 2017 and 2018, respectively.F-51Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)14. BORROWINGS (Continued)The senior notes are secured by project assets. The agreement does not contain any financial covenants or restrictions. On March 23, 2016, CSI Cells Co., Ltd. entered into a financing agreement, denominated in RMB, with a local Chinese state-owned company, whichagreed to provide long-term working capital financing of approximately $28,831. The total outstanding borrowings under this agreement were $23,892 atDecember 31, 2016, which require repayment of $7,821 and $16,071 in 2017 and 2019, respectively. The agreement does not contain any financialcovenants or restrictions. On January 6, 2016, Canadian Solar Manufacturing (Luoyang) Inc. entered into a loan agreement, denominated in RMB, with a local Chinese state-owned company, which agreed to provide long-term working capital financing of approximately $7,955. The total outstanding borrowings under thisagreement equaled $7,955 at December 31, 2016, which require full repayment in 2019. The agreement does not contain any financial covenants orrestrictions. The long-term borrowings disclosed above bear floating interest rates from nil to 5.65% per annum.c)Interest expense The Company capitalized interest costs incurred on borrowings obtained to finance construction of solar power projects or property, plant andequipment until the asset is ready for its intended use. The interests incurred during the years ended December 31, 2014, 2015 and 2016 are as follows:15. 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 accounts payable. Vendors may present the notes for payment to a bank, including the bank issuing the note, prior to thestated maturity date, but generally at a discount from the face amount of the note. The Company is generally required to deposit restricted cash balances withthe issuing bank, which are utilized to immediately repay the bank upon the banks' settlement of the notes. Given the purpose of these arrangements is toextend the payment dates of accounts payable, the Company has recorded such amounts as short-term notes payable. As payments by the bank areimmediately repaid by the Company's restricted cash balances and other deposits with the same bank, the notes payable do notF-52 Years Ended December 31 2014 2015 2016 $ $ $ Interest capitalized—project assets 10,304 102 47,881 Interest capitalized—solar power systems — 23,328 3,113 Interest capitalized—property, plant and equipment 203 912 819 Interest expense 48,906 54,148 69,723 Total interest incurred 59,413 78,490 121,536 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)15. SHORT-TERM NOTES PAYABLE (Continued)represent cash borrowings from the bank and, as such, the associated cash payments have been recorded by the Company as an operating activity in theconsolidated statements of cash flows. As of December 31, 2015 and 2016, short-term notes payable was $473,247 and $296,663, respectively.16. SHORT-TERM COMMERCIAL PAPER On September 5, 2016, the Company issued a RMB400 million ($60 million) commercial paper at par value with a fixed interest rate of 5.5% per annumfor a tenor of one year, the net proceeds from the issuance after deducting issuance expenses, were approximately RMB398.4 million ($59.9 million), interestis payable from September 7, 2016, the paper will mature on September 7, 2017 and repayable at its principal amount plus accrued interest. The amortizationexpense was RMB508 ($73) for the year ended December 31, 2016. Coupon interest of RMB6,992 ($1,008) was recorded for the year ended December 31,2016, which was not paid and recorded in other payables. On September 23, 2016, the Company issued a RMB500 million ($74.8 million) commercial paper for a term of nine months with a fixed interest rate of5.3% per annum, the net proceeds from the issuance after deducting issuance expenses, were approximately RMB498.5 million ($74.7 million), interest ispayable from September 26, 2016, the paper will mature on June 23, 2017 and repayable at its principal amount plus accrued interest. The amortizationexpense was RMB539 ($78) for the year ended December 31, 2016. Coupon interest of RMB7,042 ($1,015) was recorded for the year ended December 31,2016, which was not paid and recorded in other payables.17. ACCRUED WARRANTY COSTS The Company's warranty activity is summarized below:18. 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 general reserve, enterprise expansion reserve and staff welfare and bonus reserve. The wholly-owned PRC subsidiaries are not required to makeappropriations to the enterprise expansion reserve but appropriations to the general reserve are required to be made at not less than 10% of the profit after taxas determined under PRC GAAP. The board of directors determines the staff welfare and bonus reserve.F-53 Years Ended December 31, 2014 2015 2016 $ $ $ Beginning balance 40,605 54,644 65,193 Warranty provision 18,570 15,876 9,817 Warranty costs incurred (2,996) (3,872) (13,663)Foreign exchange effect (1,535) (1,455) (208)Ending balance 54,644 65,193 61,139  Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)18. RESTRICTED NET ASSETS (Continued) The general reserve is used to offset future losses. The PRC subsidiaries may, upon a resolution passed by the stockholder, convert the general reserveinto capital. The staff welfare and bonus reserve is used for the collective welfare of the employee of the subsidiaries. The enterprise expansion reserve is forthe expansion of the PRC 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 the appropriations to general reserve and the registered share capital of the Company's PRC subsidiaries areconsidered as restricted net assets amounting to $411,882 as of December 31, 2016.19. 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. The option was fully exercised by initial purchasers on thesame day. The key terms of the 2014 Notes are described as follows: Maturity date. The 2014 Notes mature on February 15, 2019. Interest. The 2014 Notes holders are entitled to receive interest at 4.25% per annum on the principal outstanding, in semi-annually installments,payable in 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 equals to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, theredemption date. During the year ended December 31, 2016, the Company repurchased convertible notes of $22.5 million at weighted average price of$85.43 per $100 par value. A gain of $2,782 on repurchase of convertible notes was recorded in the statements of operations.F-54Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)19. CONVERTIBLE NOTES (Continued) As of December 31, 2015 and 2016, the carrying value of the convertible notes was $146,674 and $125,569, respectively. The balance at December 31,2015 and 2016 was net of unamortized issuance costs of $3,326 and $1,931, respectively. The debt issuance costs are being amortized through interestexpense over the period from February 18, 2014, the date of issuance, to February 15, 2019, the date of expiration, using the effective interest rate methodwhich was 4.98% for the year ended December 31, 2016. The amortization expense was $794, $810 and $898 for the years ended December 31, 2014, 2015and 2016, respectively. Coupon interest of $6,375 and $5,642 was recorded for the years ended December 31, 2015 and 2016, of which, $2,387 and $2,008was not paid and recorded in other payables on the consolidated balance sheets, respectively.20. INCOME TAXES The provision for income taxes is comprised of the following:F-55 Years Ended December 31, 2014 2015 2016 $ $ $ Income before income taxes Canada 248,666 79,631 57,922 United States 12,009 (14,183) (74,002)PRC 50,746 134,330 133,847 Others 9,897 23,050 (34,516) 321,318 222,828 83,251 Current tax Canada 17,721 71,002 610 United States 18,702 40,567 96,172 PRC 7,559 20,145 29,339 Others 2,757 6,639 (6,246) 46,739 138,353 119,875 Deferred tax Canada 40,895 (44,548) 6,366 United States (14,928) (45,024) (74,562)PRC 10,827 7,506 (10,880)Others (6,102) (6,775) (22,823) 30,692 (88,841) (101,899)Total income tax expense Canada 58,616 26,454 6,976 United States 3,774 (4,457) 21,610 PRC 18,386 27,651 18,459 Others (3,345) (136) (29,069) 77,431 49,512 17,976 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)20. INCOME TAXES (Continued) The Company mainly operates in Canada, PRC, Japan, Germany, the United States, Hong Kong and Vietnam.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, 2014, 2015 and 2016. Canadian Solar Solutions Inc. was incorporated in Ontario, Canada and is subject to both federal and Ontario provincial corporate income taxes at a rateof 25% for all years ended December 31, 2014, 2015 and 2016.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 of37.95%, 38.56% and 37.69% for the years ended December 31, 2014, 2015 and 2016, respectively. Canadian Solar Energy Acquisition Co. was incorporated in Delaware, USA on January 22, 2015 and is subject to federal, California, and other states'corporate income taxes at a rate of 44.84% and 43.63% for the years ended December 31, 2015 and 2016, respectively.Japan Canadian Solar Japan K.K. was incorporated in Japan and is subject to Japanese corporate income taxes at a normal statutory rate of approximately35.64%, 35.64% and 35.15% for the years ended December 31, 2014, 2015 and 2016, 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, 2014, 2015 and 2016, respectively.Vietnam Canadian Solar Manufacturing Vietnam Co., Ltd was incorporated in Vietnam in June 25, 2015 and is subject to Vietnamese corporate income taxes at anormal statutory rate of 10% for the years ended December 31, 2015 and 2016, respectively. 2016 is the first profitable year, hence it enjoys tax exemptionfrom 2016 to 2019 and reduced statutory rate of 5% from 2020 to 2028.Hong Kong Canadian Solar International Ltd. was incorporated in Hong Kong, China, and is subject to Hong Kong profits tax at a rate of 16.5% for the years endedDecember 31, 2014, 2015 and 2016, respectively.F-56Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)20. INCOME TAXES (Continued)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 Group Co., Ltd. (formerly "CSI Solar Power (China) Inc.") and Canadian Solar Manufacturing(Changshu) Inc., and Suzhou Sanysolar Materials Technology Co., Ltd. were governed by the PRC Enterprise Income Tax Law ("EIT Law"). CSI Solartronics (Changshu) Co., Ltd., CSI Solar Technologies Inc., CSI Cells Co., Ltd., Canadian Solar Manufacturing (Luoyang) Inc., Canadian SolarManufacturing (Changshu) Inc., CSI Solar Power Group Co., Ltd. (formerly "CSI Solar Power (China) Inc.") are all subject to the enterprise income tax rate of25% for the years ended December 31, 2014, 2015 and 2016. Suzhou Sanysolar Materials Technology Co., Ltd. is subject to the enterprise income tax rate of 15% resulting from its High and New TechnologyEnterprise status for the years ended December 31, 2014, 2015 and 2016. 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, 2015 and 2016 was $4,978 and $2,747, respectively. The Company does not anticipate any significant changes to its liability forunrecognized tax positions within the next 12 months. 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, 2014, 2015 and 2016, respectively. The Company is subject to taxation in various jurisdictions where it operates, mainly including Canada, China and the United States. Generally, theCompany's taxation years from 2009 to 2016 are open for reassessment to the Canadian tax authorities. The Company's taxation years from 2006 through2016 are subject to examination by the Chinese tax authorities due to its permanent establishment in China. The Company is subject to taxation in theUnited States and various state jurisdictions. We are not currently under examination by the federal or state tax authorities. TheF-57 Years Ended December 31, 2014 2015 2016 $ $ $ Beginning balance 13,001 10,844 9,490 Addition for tax positions related to the current year — 196 1,376 Reductions for tax positions from prior years/Statute of limitationsexpirations (1,368) — (5,436)Foreign exchange effect (789) (1550) 254 Ending balance 10,844 9,490 5,684 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)20. INCOME TAXES (Continued)Company's income tax returns for 2012 through 2016 remain open to examination by the US tax authorities. 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 2011 retrospectively, and on transfer pricing matters for taxation years up to2006 retrospectively. There is no statute of limitations in case of tax evasion in China.F-58Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)20. INCOME TAXES (Continued) The components of the deferred tax assets and liabilities are presented as follows:F-59 At December 31,2015 At December 31,2016 $ $ Deferred tax assets: Accrued warranty costs 25,548 23,228 Bad debt allowance 8,358 8,058 Investment in affiliates under tax equity transactions — 54,187 Inventory write-down 4,239 4,564 Future deductible expenses 13,878 13,321 Depreciation and impairment difference of property, plant and equipment and solarpower systems 34,248 29,668 Accrued liabilities related to countervailing and anti-dumping duty deposits 55,115 111,021 Deferred tax assets relating to sales of solar power systems 32,159 996 Net operating losses carry-forward 70,637 48,678 Others 8,532 7,728 Total deferred tax assets, gross 252,714 301,449 Valuation allowance (55,959) (71,469)Total deferred tax assets, net of valuation allowance 196,755 229,980 Deferred tax liabilities: Derivative assets 4,558 3,315 Depreciation difference of property, plant and equipment 8,327 468 Deferred profit of projects 40,793 — Insurance recoverable 15,000 16,727 Basis difference related to acquisitions 18,339 — Others 3,047 2,838 Total deferred tax liabilities 90,064 23,348 Net deferred tax assets 106,691 206,632 Analysis as: Current deferred tax assets 30,013 — Non-current deferred tax assets 97,134 229,980 Current deferred tax liabilities (1,426) — Non-current deferred tax liabilities (19,030) (23,348)Net deferred tax assets 106,691 206,632 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)20. INCOME TAXES (Continued) Movement of the valuation allowance is as follows: As of December 31, 2016, the Company has accumulated net operating losses of $273,840, of which $137,065 will expire between 2017 and 2036, andthe remaining can be carried forward indefinitely. The Company considers positive and negative evidences 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 $55,959 and $71,469 as at December 31,2015 and 2016, respectively.F-60 Years Ended December 31, 2014 2015 2016 $ $ $ Beginning balance 57,190 52,985 55,959 Additions (Reversals) (4,411) (944) 14,486 Addition from acquisition of Recurrent — 4,949 — Foreign exchange effect 206 (1,031) 1,024 Ending balance 52,985 55,959 71,469 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)20. 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 in PRC earned after January 1, 2008, are subject to a10% withholding income tax. Under applicable accounting principles, a deferred tax liability should be recorded for taxable temporary differenceattributable to excess of financial reporting basis over tax basis in the investment in a foreign subsidiary. However, a deferred tax liability is not recognized ifthe basis difference is not expected to reverse in the foreseeable future and is expected to be permanent in duration. As of December 31, 2016, all of theundistributed earnings of approximately $284.3 million attributable to the Company's PRC subsidiaries and affiliates are considered to be permanentlyreinvested, and no provision for PRC withholding income tax on dividend has been made thereon accordingly. Upon distribution of those earnings generatedafter 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 earnings generated before January 1, 2008 are exempt from PRC dividend withholding tax. The amounts of unrecognized deferred taxliabilities for these earnings are in the range of $14.2 million to $28.4 million, as the withholding tax rate of the profit distribution will be 5% or 10%depends on whether the immediate offshore companies can enjoy the preferential withholding tax rate of 5%. The aggregate amount and per share effect of tax holiday are as follows:F-61 Years Ended December 31, 2014 2015 2016 Combined federal and provincial income tax rate 27% 27% 27%Effect of permanent difference — 1% (16)%Effect of different tax rate on earnings in other jurisdictions (2)% (3)% (18)%Effect of tax holiday — — (4)%Unrecognized tax provision — — 4%Change in valuation allowance (1)% — 32%Effect of tax credit — — (7)%Effect of true-up — (1)% 4%Foreign exchange effect — (2)% — 24% 22% 22% Years Ended December 31, 2014 2015 2016 (In Thousands ofUS Dollars, exceptper share data) The aggregate amount — — 3,343 Per share—basic — — 0.06 Per share—diluted — — 0.06  Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)21. 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-62 Years Ended December 31, 2014 2015 2016 (In Thousands of US Dollars, except share and per sharedata) Numerator: Net income attributable to Canadian Solar Inc.—basic $239,502 $171,861 $65,249 Dilutive effect of interest expense of convertible notes 4,641 5,275 — Net income attributable to Canadian Solar Inc.—diluted $244,143 $177,136 $65,249 Denominator: Denominator for basic calculation—weighted averagenumber of common shares—basic 54,408,037 55,728,903 57,524,349 Diluted effects of share number from share options andRSUs 2,051,601 1,343,162 534,714 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 59,354,615 60,426,056 58,059,063 Basic earnings per share $4.40 $3.08 $1.13 Diluted earnings per share $4.11 $2.93 $1.12 Years Ended December 31, 2014 2015 2016 Share options and RSUs 95,422 115,017 476,043 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)22. RELATED PARTY BALANCES AND TRANSACTIONSRelated party balances: The amount due from related parties of $19,082 as of December 31, 2016 consists of (i) trade receivable of $1,446 for solar power products sold toGaochuangte, the Company's 40% owned affiliate, (ii) prepayments for bid deposits of $1,897 to CSI Skypower, the Company's 50% owned affiliate, and (iii)trade receivable of $15,739 for solar power products sold and development services provided to Tranquillity, Garland and Roserock, the Company's 49%owned affiliates. No amount was due as of December 31, 2016. 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, (ii) prepayments for bid deposits of $1,836 to CSI Skypower, and (iii) trade receivable of $101,124 for solar power products sold anddevelopment services provided to Tranquillity, Garland and Roserock. No amount was due as of December 31, 2015. The amount due to related parties of $19,912 as of December 31, 2016 consists of (i) a trade payable of $19,912 due to Gaochuangte for the EPC servicefees. 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.Related party transactions:Guarantees and loans In each of the three years ended December 31, 2016, Dr. Shawn Qu fully guaranteed one-year loan facilities of RMB896 million ($129.2 million) fromChinese commercial banks. Amounts drawn down from the facilities as at December 31, 2015 and 2016 were $78,225 and $79,558, respectively. Dr. Shawn Qu fully guaranteed a two-year loan facility of RMB450 million ($69.3 million) from Chinese commercial banks in 2015. Amounts drawndown from the facilities were $63,113 and $55,466 as at December 31, 2015 and 2016, respectively. Dr. Shawn Qu fully guaranteed three-year loan facilities of $150 million from Chinese commercial banks in 2015. Amounts drawn down as atDecember 31, 2015 were nil. The facility was fully drawn down as at December 31, 2016. In the first quarter of 2015, Dr. Shawn Qu loaned the Company $35.0 million at an interest rate of 4.25% per annum. The Company fully repaid the loan,including interest of $21, in March 2015. In January 2014, Dr. Shawn Qu loaned the Company an aggregate of $25.0 million at an interest rate of 4.27% per annum. The Company fully repaid theloan, including interest of $112, in February 2014.F-63Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)22. RELATED PARTY BALANCES AND TRANSACTIONS (Continued) In 2015, Recurrent entered into buyer payment guaranties with a third party supplier in connection with certain solar module supply agreements ofTranquillity and Garland, pursuant to which Recurrent unconditionally guarantees to the third party supplier the timely payment in full when due and otherpayment obligations of Tranquillity and Garland required under the solar module supply agreements. The payable balance due by Tranquillity and Garlandwas $98.2 million and nil, respectively, as of December 31, 2015 and was nil and $11.1 million, respectively, as of December 31, 2016.Sales and purchase contracts with affiliates In 2016, the Company sold solar power products to Roserock and Garland in the amount of $247,743, provided development services to Tranquillity,Garland and Roserock in the amount of $48,711. In 2015, the Company sold solar power products to Gaochuangte in the amount of RMB39,922 ($6,508), 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 RMB15,740 ($2,569). In 2016, 2015 and 2014, the Company incurred costs of RMB54,891 ($8,274), RMB175,272 ($28,159) and RMB33,884 ($5,515) to Gaochuangte forEPC services related to the Company's solar power projects, respectively. These amounts were recorded in project assets.23. COMMITMENTS AND CONTINGENCIESa)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 one to 356 months and are renewable upon negotiation. Rental expenses were $12,187, $15,451 and $17,116 for the yearsended December 31, 2014, 2015 and 2016, respectively. Future minimum lease payments under non-cancelable operating lease agreements at December 31, 2016 were as follows:F-64Year Ending December 31: $ 2017 10,502 2018 8,591 2019 7,487 2020 7,112 2021 6,152 Thereafter 65,875 Total 105,719 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)23. COMMITMENTS AND CONTINGENCIES (Continued) The Company also leases machinery and equipment from unaffiliated third parties in the PRC under non-cancellable capital leases. As of December 31,2016, future minimum lease payments for assets under capital leases to be paid over the remaining terms of up to four years were as follows:b)Property, plant and equipment purchase commitments As of December 31, 2016, the commitments for the purchase of property, plant and equipment were $203,217.c)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. The following is a schedule, by year, of future minimum obligation, using market prices, under all supply agreements as of December 31, 2016: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,F-65Year Ending December 31: $ 2017 15,497 2018 16,130 2019 9,748 2020 2,384 Total minimum lease payments 43,759 Less: Amount representing interest 3,542 Present value of net minimum lease payments 40,217 Current portion 15,497 Non-current portion 24,720 Year Ending December 31: $ 2017 562,357 2018 446,879 Total 1,009,236 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)23. COMMITMENTS AND CONTINGENCIES (Continued)2009. The fixed prices may be adjusted annually at the beginning of each calendar year by Deutsche Solar AG to reflect certain changes in their materialcosts. The agreement also contains a take-or-pay provision, which requires the Company to pay the contracted amount regardless of whether the Companyacquires the contracted annual minimum volumes. In 2009, the Company did not meet the minimum volume requirements under the agreement. DeutscheSolar AG agreed that the Company could fulfill its fiscal 2009 purchase obligation in fiscal 2010. In 2010, the Company fulfilled its 2009 purchasecommitment under the agreement but did not meet the minimum purchase obligation for 2010. In 2011, the Company did not meet its purchase commitmentfor the respective years. The Company believes that the take-or-pay provisions of the agreement are void under German law and, accordingly, as ofDecember 31, 2010 had not accrued for the full $21,144 that would otherwise be due under the take-or-pay provision of the agreement. Rather, the Companyassumed that it would be permitted to purchase its 2010 contracted quantity, in addition to its 2011 contracted quantity, in fiscal 2011 and had included thepurchase obligation for both years in its evaluation of the loss on the long-term purchase commitments. The Company did not record a loss on firm purchasecommitments in any of the three years ended December 31, 2016. 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, 2016, theaccrued amount of $22,654 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. 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, or the 2007 Supply Contract, and in June 2008, or the 2008 Supply Contracts. In December 2012, CIETAC ShanghaiBranch awarded RMB248.9 million in compensation plus RMB2.32 million in arbitration expenses to LDK for the damages LDK claimed toF-66Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)23. COMMITMENTS AND CONTINGENCIES (Continued)have suffered from the alleged breaches by the Company of the 2007 Supply Contract and 2008 Supply Contracts between July 2009 and September 2010, orthe 2012 Arbitral Award. 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 the Company in Jiangxi Xinyu Intermediate People's Court, or the Xinyu Intermediate Court,claiming that the Company had forfeited its rights to the initial deposits under the 2007 Supply Contract and 2008 Supply Contracts because of the allegedbreaches under these contracts. On October 18, 2013, the Xinyu Intermediate Court stayed these proceedings pending the decision by the SuzhouIntermediate 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, or the 2015 Settlement Agreement. Under the 2015 Settlement Agreement, the Company agreed to pay RMB132.7 million ($20.8 million—translatedby using the rate in 2015) to LDK and to purchase 64.3 million pieces of silicon wafers from LDK at market price over a three year period starting in oraround December 2015, in exchange for which LDK (i) would release the Company from the 2012 Arbitration Award and waive its rights and claimsthereunder and (ii) would withdraw its complaints from the Xinyu Intermediate Court and terminate such proceedings. The Suzhou Intermediate Courtreviewed the 2015 Settlement Agreement and terminated the enforcement proceeding relating to the 2012 Arbitral Award. The Company has already paid therequired amounts and fulfilled its obligations under the 2015 Settlement Agreement. The $20.8 million paid to LDK was recognized as general andadministrative expenses in 2015. As of December 31, 2014, the Company had provided a full allowance against the advance to LDK of $9,798, due to theuncertainty of recovery. As of December 31, 2015, the allowance was written-off. On May 19, 2016, the Company received a copy of a bill of complaint from Xinyu Intermediate Court, in which LDK's receiver applied to the court foran order to revoke the 2015 Settlement Agreement pursuant to PRC bankruptcy law, and requested us to pay an amount that LDK's receiver alleged to havebeen waived by LDK under the 2015 Settlement Agreement. On December 1, 2016, Xinyu Intermediate Court heard this case, and now it is pending for thecourt's further notice. 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 action lawsuit was filed in the U.S. District Court for the Northern District of California, or the California case. TheNew York cases were consolidated into a single action in December 2010. On January 5, 2011, the California case was dismissed by the plaintiff, who becamea member of the lead plaintiff group in the New York action. On March 11, 2011, a Consolidated Complaint was filed with respect toF-67Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)23. COMMITMENTS AND CONTINGENCIES (Continued)the New York action. The Consolidated Complaint alleges generally that the Company's financial disclosures during 2009 and early 2010 were false ormisleading; asserts claims under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder; and names the Company, its chief executiveofficer and its former chief financial officer as defendants. The Company filed its motion to dismiss in May 2011, which was taken under submission by theCourt in July 2011. On March 30, 2012, the Court dismissed the Consolidated Complaint with leave to amend, and the plaintiffs filed an AmendedConsolidated Complaint against the same defendants on April 19, 2012. On March 29, 2013, the Court dismissed with prejudice a class action lawsuit filedagainst us and certain named defendants alleging that the Company's financial disclosures during 2009 and early 2010 were false or misleading and inviolation of federal securities law. The court found that the plaintiffs failed to adequately allege a securities law violation and granted the Company's motionto dismiss all claims against all defendants with prejudice. On December 20, 2013, the United States Court of Appeals for the Second Circuit affirmed thedistrict 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 XX III.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 the 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 had obtained leave in September 2014 to assert the statutory cause ofaction for misrepresentation under the Ontario Securities Act, for certain negligent misrepresentation claims and for oppression remedy claims advancedunder the CBCA. The Court dismissed the Company's application for leave to appeal and the class action has moved to the merits stage. The Companybelieves the Ontario action is without merit and the Company is defending it vigorously.F-68Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)23. COMMITMENTS AND CONTINGENCIES (Continued)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 with respect to its anti-dumping and countervailing duty investigations onCSPV, cells, whether or not incorporated into modules, from China. On November 7, 2012, the USITC ruled that imports of CSPV cells had caused materialinjury to the U.S. CSPV industry. As a result of these rulings, the Company is required to pay cash deposits on Chinese-origin CSPV cells imported into theU.S., whether alone or incorporated into modules. The announced cash deposit rates applicable to the Company were 13.94% (anti-dumping duty) and15.24% (countervailing duty). The Company paid all the cash deposits due under these determinations. A number of parties challenged the determinations ofthe USDOC 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 December 11, 2015, the U.S. Court of International Trade sustained the USDOC's final determination. Certain of these decisionshave also been appealed to the U.S. Court of Appeals for the Federal Circuit. Decisions on those appeals are expected in 2017 or 2018. The rates at which duties will be assessed and payable are subject to ongoing administrative reviews. The first of these reviews was concluded 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 decisions, the duty rates applicable to the Company 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 toongoing litigation at the U.S. Court of International Trade. Decisions on these appeals are not expected until mid to late 2017. The second of these reviews was concluded in June 2016 (anti-dumping duty order) and July 2016 (countervailing duty order) when the USDOCpublished the final results of the 2013-2014 administrative reviews of the anti-dumping and countervailing duty orders on CSPV cells. As result of thesedecisions, the anti-dumping duty rate applicable to the Company was changed to 8.52% (from 9.67%). Because the Company was not subject to the secondadministrative review of the countervailing duty order, its countervailing duty rate remained at 20.94%. The rates at which duties will be assessed andpayable for the 2013-2014 period are subject to ongoing litigation at the U.S. Court of International Trade. Decisions on these appeals are not expected untillate 2017 or 2018.F-69Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)23. COMMITMENTS AND CONTINGENCIES (Continued) The third and fourth of these reviews for the 2014-2015 period and 2015-2016 period , respectively, are ongoing and are expected to conclude in mid-2017 and mid-2018, respectively. These reviews may result in duty rates that differ from the previous duty rates and cash deposit rates applicable to theCompany. These duty rates could materially and adversely affect our U.S. import operations and increase the Company's cost of selling into the U.S. In 2016,a total of $144.3 million cash deposits were paid relating to countervailing and anti-dumping rulings in the U.S., of which $132.2 million were charged intocost of sales. As of December 31, 2016, $3.8 million countervailing and anti-dumping rulings remained in inventories. In addition, the Company booked atrue-up provision of $44.1 million primarily associated with prior years' module sales from China to the United States pursuant to the preliminary results ofthe third administrative review by the U.S. Department of Commerce of anti-dumping and countervailing duty for solar products incorporating solar cellsfrom China ("Solar 1"). Given the significant uncertainty surrounding the investigations and their ultimate resolution, the Company is unable to estimate anyadditional possible loss or range of loss that may arise from this action. The preliminary results of the third administrative review changed the antidumping duty rate applicable to the Company to 30.42% (from 8.52%) andthe countervailing duty rate applicable to the Company to 20.98% (from 20.94%). The Company is vigorously contesting the preliminary results in the finalphase of this administrative review. 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 Solar 1 rulings described above. The Company was identified as one of a number of Chinese producersexporting the subject goods to the U.S. market. On December 15, 2014, the USDOC issued final affirmative determinations with respect to its anti-dumping and countervailing duty investigation onthese CSPV products. On January 21, 2015, the USITC ruled that imports of these CSPV products had caused material injury to the U.S. CSPV industry. As aresult of these rulings, the Company is required to pay cash deposits on these CSPV products. The announced cash deposit rates applicable to its ChineseCSPV products subject to Solar 2 orders were 30.06% (anti-dumping duty) and 38.43% (countervailing duty). The cash deposit rate applicable to itsTaiwanese CSPV products subject to Solar 2 orders varied by solar cell producer. The Company paid all the cash deposits due under these determinations. "Chinese CSPV products subject to Solar 2 orders" refer to CSPV products manufactured in mainland China using non-Chinese (e.g., Taiwanese) CSPVcells and imported into the USA during the investigation or review periods of Solar 2. "Taiwanese CSPV products subject to Solar 2 orders" refer to CSPVproducts manufactured outside of mainland China using Taiwanese CSPV cells and imported into the USA during the investigation or review periods of Solar2. The rates at which duties will be assessed and payable are subject to two ongoing administrative reviews that began in 2016: the first for the 2014-2015period and the second for the 2015-2016 period.F-70Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)23. COMMITMENTS AND CONTINGENCIES (Continued) Because the Company is not subject to the first administrative reviews of the Chinese orders of Solar 2, its duty rates will remain at 30.06% (anti-dumping duty) and 38.43% (countervailing duty) for its Chinese CSPV products subject to Solar 2 orders during the period of the first administrative review.For its Taiwanese CSPV products subject to the Solar 2 orders, DOC calculated preliminary antidumping margins ranging from 3.50% to 4.20%. Finalmargins are yet to be determined in the first administrative review, for which the final results are currently scheduled to be issued on July 5, 2017. The finalresults will set the new cash deposit rate. The second administrative reviews for both the Chinese and Taiwanese orders of Solar 2 are expected to conclude inmid-2018. These reviews may result in duty rates that differ from the cash deposit rates applicable to us. These duties could materially and adversely affectthe Company's U.S. import operations and increase its cost of selling into the U.S. 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. 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. 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). The General Court rejected these actions for annulment. The Company is assessing whether to appeal the judgment before the Court of Justice of theEU. 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 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 its intervention. SolarWorld AG and others have appealed before the Court of Justiceof the EU (cases C-204/16 P and C-205/16 P). The Company has not intervened in the appeal proceedings. 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. On March 3, 2017, the European Commission extended the anti-dumpingand countervailing measures for 18 months on imports of CSPV modules and key components (i.e., cells) originating in or consigned from China. On thesame day, the European Commission initiated a partial interim review limited to the form of the extended measures.F-71Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)23. COMMITMENTS AND CONTINGENCIES (Continued) On June 3, 2015, the Canada Border Services Agency released final determinations of dumping and subsidization which found dumping calculated byway of a Ministerial Specification based on a Non Market Economy finding applicable to all cooperative exporters and ascertained a Canadian Solar-specificsubsidies rate of RMB0.014 per Watt. On July 3, 2015 the Canadian International Trade Tribunal determined that a Canadian industry was not negativelyaffected as a result of imported modules but was threatened with negative impact. As a result of these findings, definitive duties have been imposed onimports of Chinese solar modules into Canada starting on July 3, 2015. The Company does not believe the imposition of these duties will have a materialnegative effect upon its results of operations because it has significant module manufacturing capacity in Ontario and do not rely on Chinese solar modulesto serve its Canadian business.24. 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 ("CODM") for making decisions, allocating resources and assessing performance. TheCompany's CODM has been identified as the Chief Executive Officer of the Company, who reviews consolidated and segment results when making decisionsabout allocating resources and assessing performance of the Company. Following the Company's decision to terminate the Yieldco launch and monetize the majority of its solar power projects in operation in 2016, theCompany operates its business in two principal reportable business segments, i.e., module segment and energy segment. The prior year segment informationhas been restated to conform to the current year's presentation. The module segment primarily comprises design, development, manufacture and sales of solarpower products and solar system kits. The energy segment primarily comprises solar project development and sale, EPC and development services, O&Mservices, operating solar power projects and sales of electricity. The sales from module segment to energy segment have terms and conditions similar to salesto third parties. The Company's CODM reviews net revenue and gross profit and does not review balance sheet information by segment.F-72 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)24. SEGMENT INFORMATION (Continued) The following table summarizes the Company's revenues and gross profit generated from each segment: F-73 Years Ended December 31, 2016 Module Energy Elimination Total $ $ $ $ Net revenues 2,821,142 110,560 (78,624) 2,853,078 Cost of revenues 2,426,618 69,544 (60,272) 2,435,890 Gross profit 394,524 41,016 (18,352) 417,188 Years Ended December 31, 2015 Module Energy Elimination Total $ $ $ $ Net revenues 2,672,689 979,247 (184,310) 3,467,626 Cost of revenues 2,277,904 778,951 (165,999) 2,890,856 Gross profit 394,785 200,296 (18,311) 576,770 Years Ended December 31, 2014 Module Energy Elimination Total $ $ $ $ Net revenues 2,034,626 1,212,899 (286,898) 2,960,627 Cost of revenues 1,721,474 931,761 (273,602) 2,379,633 Gross profit 313,152 281,138 (13,296) 580,994 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)24. 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: The following table summarizes the Company's long-lived assets, including property, plant and equipment, non-current project assets, solar powersystems, prepaid land use rights and intangibleF-74 Years Ended December 31, 2014 2015 2016 $ $ $ Europe and other regions: —Germany 137,012 75,912 132,185 —United Kingdom 59,878 98,800 73,274 —Netherlands 9,166 12,859 36,732 —Australia 18,100 18,150 33,634 —France 9,990 97,398 23,552 —Spain 1,125 8,246 22,516 —Others 24,774 22,018 89,272 260,045 333,383 411,165 The Americas: —United States 604,537 903,748 863,500 —Canada 1,182,091 747,100 193,790 —Others 8,862 99,152 46,219 1,795,490 1,750,000 1,103,509 Asia: —PRC 163,658 402,180 585,296 —Japan 623,692 578,173 373,396 —India 63,817 262,536 292,234 —Singapore 18,021 24,131 7,615 —Others 35,904 117,223 79,863 905,092 1,384,243 1,338,404 Total net revenues 2,960,627 3,467,626 2,853,078 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)24. SEGMENT INFORMATION (Continued)assets at December 31, 2015 and 2016 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:25. MAJOR CUSTOMERS Details of customers accounting for 10% or more of total net revenues are as follows: The accounts receivable from three customers with the largest receivable balances represents 9%, 6% and 4% of the balance of the account at December31, 2016, and 18%, 5% and 4% of the balance of the account at December 31, 2015, respectively. The balance from the customer with the largest receivablebalance is $78,630 and $34,468 as of December 31, 2015 and 2016, respectively.F-75 At December 31,2015 At December 31,2016 $ $ PRC 412,583 434,989 Japan 172,318 167,465 United States 627,724 67,652 Canada 300,482 7,308 United Kingdom 115,797 — Others 13,433 136,457 Total long-lived assets 1,642,337 813,871 Years Ended December 31, 2014 2015 2016 $ $ $ Solar power products 1,550,386 2,303,287 2,573,685 Solar system kits 104,215 93,406 86,794 Solar power projects 891,920 557,995 22,665 EPC and development services 316,572 385,882 11,990 Electricity 2,863 32,059 68,789 O&M services 1,544 3,310 4,128 Others 93,127 91,687 85,027 Total net revenues 2,960,627 3,467,626 2,853,078 Years Ended December 31, 2014 2015 2016 $ $ $ Company A 214,347 160,183 — Company B 218,631 7,544 — Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)26. 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 eligible employees is based on 20% of the applicable payroll cost in 2016. The expenseincurred by the Company to these defined contributions schemes was $5,806, $6,189 and $7,186 for the years ended December 31, 2014, 2015 and 2016,respectively. In addition, in 2016, 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 benefit schemes were $5,980, $8,193 and $9,128 for the years ended December 31, 2014, 2015 and2016, respectively.27. 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, 2016, there was nil unrecognized compensation expense related to share-based compensation awards. During the years endedDecember 31, 2014, 2015 and 2016, $1,321, $355 and $44 was recognized as compensation expense, respectively. The Company utilizes the Binomial option-pricing model to estimate the fair value of stock options. No stock options were granted in 2014, 2015 and2016. The Company used the market yield of Chinese International Government Bonds, denominated in U.S. dollar, with maturities 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, thus theF-76Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)27. SHARE-BASED COMPENSATION (Continued)dividend yield is assumed to be zero. The Company estimated the annual exit rates based on the historical general exit rate of employees at different levels.The Company estimated the exercise multiple based on the historical exercise pattern of prior employee stock options granted by the Company. A summary of the option activity is as follows: The weighted average grant-date fair values of options granted in 2014, 2015 and 2016 was nil. The total intrinsic value of options exercised during theyears ended December 31, 2014, 2015 and 2016 was $7,493, $3,422 and $2,643, respectively.RSUs to Employees The Company granted 283,862, 574,488 and 868,036 RSUs to employees in 2014, 2015 and 2016, respectively. The RSUs entitle the holders to receivethe Company's common shares upon vesting. The RSUs were granted for free and generally vest over periods from one to four years based on the specificterms 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 $7.3million, $13.2 million and $12.1 million that will be recognized ratably over the vesting period for the RSUs granted in 2014, 2015 and 2016, respectively.In the years ended December 31, 2014, 2015 and 2016, the Company recognized $3,767, $5,611 and $7,713 in compensation expense associated with theseawards, respectively. As of December 31, 2016, there was $20,383 of total unrecognized share-based compensation related to unvested RSUs, which is expected to berecognized over a weighted-average period of 2.44 years.F-77 Numberof Options WeightedAverageExercisePrice WeightedAverageRemainingContractTerms AggregateIntrinsic Value $ In Thousands ofU.S. Dollars Options outstanding at January 1, 2016 675,709 12.44 3 years 12,354 Granted — Exercised (184,873) 3.47 Forfeited (24,550) 40.40 Options outstanding at December 31, 2016 466,286 14.52 3 years 1,081 Options vested or expected to be vested at December 31, 2016 466,286 14.52 3 years 1,081 Options exercisable at December 31, 2016 466,286 14.52 3 years 1,081 Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)27. SHARE-BASED COMPENSATION (Continued) A summary of the RSU activity is as follows: The total fair value of RSUs vested during the years ended December 31, 2014, 2015 and 2016 was $2,965, $4,641 and $7,271, respectively.28 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 CSI's 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 and $24,554 from change in fair value of the Warrants in the consolidated statements of operations for the year ended December31, 2015 and 2016, respectively. 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 date that the Warrants were originally issued and as of December 31, 2015 and 2016:F-78 Number ofShares Weighted AverageGrant-DateFair Value $ Unvested at January 1, 2016 1,311,410 15.75 Granted 868,036 15.26 Vested (650,172) 11.16 Forfeited (126,415) 19.34 Unvested at December 31, 2016 1,402,859 17.27 At October 26,2015 At December 11,2015 At December 31,2016Exercise price $24.48 $28.08 $24.48 ~ $28.08Risk-free interest rate 0.672% 0.935%0.850% ~ 0.875%Dividend yield — — —Time to maturity 2 2 0.82 ~ 0.94Expected volatility 67.24% 65.13%53.99% ~ 59.21%Table of ContentsCANADIAN SOLAR INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 and 2016(In Thousands of U.S. Dollars, unless otherwise indicated)28 WARRANTS (Continued) The Company used the market yield of U.S. Government Bonds with maturity on October 31, 2017 as of the valuation date for the risk-free interest rate.The Company's dividend policy is to retain earnings for reinvestment purpose and the Company does not intend to distribute dividends, thus the dividendyield is 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 expectedtime to exercise. 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:29 SUBSEQUENT EVENTS In February 2017, the Company completed the sale of three solar farms, SSM 1, SSM 2 and SSM 3, totaling 59.8 MWac to Fengate SSM Holdco LP, anaffiliate of Fengate Real Asset Investments, for over $195 million. In March 2017, the Company completed the sale of two solar power plants in China, totaling approximately 69.5 MWp to Shenzhen Energy NanjingHolding Co., Ltd., a subsidiary of Shenzhen Energy Group Co., Ltd., for approximately RMB687.1 million ($99.8 million).F-79Derivative Liabilities At December 31,2016 $ Beginning balance 25,265 Warrants issued — Fair value change of the Warrants included in earnings (24,554)Ending balance 711 Table 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, 2016 of $411,882, 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-80Table of Contents FINANCIAL INFORMATION OF PARENT COMPANY BALANCE SHEETS F-81 December 31,2015 December 31,2016 (In Thousands of U.S.Dollars, except share data) ASSETS Current assets: Cash and cash equivalents 34,206 21,348 Restricted cash 6,512 — Accounts receivable trade, net of allowance for doubtful accounts of $3,852 and $3,007 asof December 31, 2015 and 2016, respectively 2,268 103 Inventories 146 — Amounts due from related parties 725,063 419,075 Derivative assets—current 1,030 2,425 Advances to suppliers, net of allowance for doubtful accounts of $5,225 and $5,225 as ofDecember 31, 2015 and 2016, respectively 226 — Prepaid expenses and other current assets 13,809 4,871 Total current assets 783,260 447,822 Investment in subsidiaries 765,880 789,633 Deferred tax assets—non-current 2,204 22,609 Other non-current assets 59,571 64,903 TOTAL ASSETS 1,610,915 1,324,967 LIABILITIES AND EQUITY Current liabilities: Short-term borrowings 10,000 10,000 Accounts payable 8 3 Amounts due to related parties 202,359 73,053 Derivative liabilities—current 27,029 1,914 Other current liabilities 12,661 10,952 Total current liabilities 252,057 95,922 Accrued warranty costs 15,331 2,950 Convertible notes 146,674 125,569 Long-term borrowings 364,680 190,000 Deferred tax liabilities—non-current — 20,054 Liability for uncertain tax positions 13,205 5,791 TOTAL LIABILITIES 791,947 440,286 Equity: Common shares—no par value: unlimited authorized shares, 55,965,443 and 57,830,149shares issued and outstanding at December 31, 2015 and 2016, respectively 677,103 701,283 Additional paid-in capital (17,139) (8,897)Retained earnings 218,860 284,109 Accumulated other comprehensive loss (59,856) (91,814)TOTAL EQUITY 818,968 884,681 TOTAL LIABILITIES AND EQUITY 1,610,915 1,324,967 Table of Contents FINANCIAL INFORMATION OF PARENT COMPANY STATEMENTS OF OPERATIONS F-82 Years Ended December 31 2014 2015 2016 (In Thousands of U.S. Dollars) Net revenues 15,900 23,302 13,748 Cost of revenues 4,401 15,850 9,657 Gross profit 11,499 7,452 4,091 Operating expenses: Selling expenses 4,000 3,309 3,727 General and administrative expenses 8,331 29,124 17,167 Research and development expenses 416 450 589 Total operating expenses 12,747 32,883 21,483 Loss from operations (1,248) (25,431) (17,392)Other income (expenses): Interest expense (6,329) (17,241) (29,032)Interest income 10,369 34,471 44,666 Gain (loss) on change in fair value of derivatives — (13,571) 30,988 Foreign exchange gain (loss) (5,335) 1,324 (3,810)Gain on repurchase of convertible notes — — 2,782 Others 47 — — Other income (expenses), net: (1,248) 4,983 45,594 Income (loss) before income taxes and equity in earnings (loss) of subsidiaries andunconsolidated investees (2,496) (20,448) 28,202 Income tax expense (1,005) (1,231) (6,599)Equity in earnings of subsidiaries 243,283 193,813 43,596 Equity in earnings (loss) of unconsolidated investees (280) (273) 50 Net income 239,502 171,861 65,249 Table of Contents FINANCIAL INFORMATION OF PARENT COMPANY STATEMENTS OF COMPREHENSIVE INCOME (LOSS) F-83 Years Ended December 31, 2014 2015 2016 (In Thousands of U.S. Dollars) Net income 239,502 171,861 65,249 Other comprehensive loss (net of tax of nil): Foreign currency translation adjustment (33,853) (79,913) (31,958)Comprehensive income 205,649 91,948 33,291 Table of Contents FINANCIAL INFORMATION OF PARENT COMPANY STATEMENTS OF CASH FLOWS F-84 Years Ended December 31, 2014 2015 2016 (In Thousands of U.S. Dollars) Operating activities: Net income 239,502 171,861 65,249 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 1 32 32 Loss on disposal of property, plant and equipment 4 — — (Gain) loss on change in fair value of derivatives — 13,571 (30,988)Gain on repurchase of convertible notes — — (2,782)Allowance for doubtful accounts 11,434 1,535 (844)Equity in earnings of subsidiaries (243,283) (193,813) (43,596)Equity in loss (earnings) of unconsolidated investees 280 273 (50)Share-based compensation 5,088 5,966 7,757 Changes in operating assets and liabilities: Inventories (286) 296 146 Accounts receivable trade (5,244) 2,189 3,010 Amounts due from related parties 3,905 228,284 21,731 Advances to suppliers (11,836) (226) 226 Prepaid expenses and other current assets (2,260) (7,106) 6,955 Other non-current assets (19,727) (14,710) (2,039)Accounts payable (9) 3 (4)Advances from customers (657) 1,352 (1,413)Amounts due to related parties (42,128) 103,348 (129,307)Accrued warranty costs 84 (2,941) (12,381)Other liabilities 3,544 4,484 (297)Liability for uncertain tax positions 633 (1,111) (7,413)Deferred taxes 1,208 1,451 199 Net settlement of derivatives — (3,950) 17,043 Net cash provided by (used in) operating activities (59,747) 310,788 (108,766)Investing activities: (Increase) decrease in restricted cash — (6,513) 6,512 Investment in subsidiaries (39,668) (116,840) — Purchase of property, plant and equipment (5) — — (Funding) repayment of loans to subsidiaries (128,213) (550,776) 299,578 Net cash provided by (used in) investing activities (167,886) (674,129) 306,090 Financing activities: Proceeds from short-term borrowings — 10,000 — Repayment of short-term borrowings (12,246) — (190,000)Proceeds from long-term borrowings — 364,680 — Repayment of long-term borrowings (16,393) — — Proceeds from issuance of warrant — 16,378 — Investment on non-controlling interest — (918) — Proceeds from issuance of common shares 115,009 — 23,864 Issuance costs paid for common shares offering (6,090) — (456)Proceeds from issuance of convertible notes 150,000 — — Payment for repurchase of convertible notes — — (19,667)Issuance cost paid on convertible notes (5,103) — — Proceeds from exercise of stock options 3,342 1,867 707 Net cash provided by (used in) financing activities 228,519 392,007 (185,552)Effect of exchange rate changes (27,016) 2,085 (24,630)Net increase (decrease) in cash and cash equivalents (26,130) 30,751 (12,858)Cash and cash equivalents at the beginning of the year 29,585 3,455 34,206 Cash and cash equivalents at the end of the year 3,455 34,206 21,348 Supplemental disclosure of cash flow information: Interest paid (net of amounts capitalized) 3,942 15,299 29,288 Income taxes paid 736 — — Table of Contents Appendix 1 Major Subsidiaries of CSI The following table sets forth information concerning CSI's major subsidiaries:F-85Subsidiary 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% Sales and marketing of solar productsCSI 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 modulesCanadian 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 solarmodulesCSI Solar Power Group Co., Ltd. (formerlynamed/known as "CSI 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 ofmodulesCanadian 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 Materials Technology Co., Ltd. PRCAugust 17, 2011 75.324% 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 and Export ofSolar Panels Ltd. BrazilNovember 14, 2012 100% Sales and marketing of solar modules, and provide solarenergy solution to customerCanadian Solar Middle East Limited United Arab EmiratesDecember 10, 2012 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 solarcells, and solar 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 projectChangshu Tegu New Material Technology Co., Ltd. PRCSeptember 2, 2014 75% EVA solar packaging film research and development,production, and salesTable of ContentsF-86Subsidiary Place andDateof Incorporation AttributableEquityInterest Held Principal ActivityChangshu 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 productsRecurrent 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 Manufacturing (Thailand) Co.,Ltd. ThailandNovember 20, 2015 99.99992% Cells and module productionCanadian Solar Sunenergy (Suzhou) Co., Ltd. PRCMay 12, 2016 100% Production of solar modulesCanadian Solar Energy Holding Singapore 1 Pte.Ltd. SingaporeJune 7, 2016 100% Development & Ownership of Solar PV ProjectsCanadian Solar Sunenergy (Baotou) Co., Ltd. PRCAugust 18, 2016 100% Production of solar modules, ingots and wafersExhibit 4.1 CANADIAN SOLAR INC. AMENDED AND RESTATED SHARE INCENTIVE PLAN ARTICLE 1. PURPOSE The purpose of the Plan is to permit the Company to attract, motivate and retain the services of Directors, Employees and Consultants upon whosejudgment, interest and special effort the successful conduct of the Company’s operations is largely dependent and to promote the success and enhance thevalue of the Company by linking the personal interests of Holders with those of Shareholders by providing Holders with an incentive for outstandingperformance to generate superior returns to Shareholders. This amendment and restatement of the Plan is effective on May 8, 2011. See also Section 9.1. ARTICLE 2. DEFINITIONS AND CONSTRUCTION The following terms used in the Plan shall have the meanings specified below, unless the context clearly indicates otherwise. The singular pronounincludes the plural and vice versa. 2.1 “Applicable Accounting Standards” means the generally accepted accounting principles or reporting standards applicable to theCompany’s consolidated financial statements. 2.2 “Applicable Laws” means the laws of any jurisdiction as they relate to the Plan and Awards and the rules of any securities exchange,national market system or automated quotation system on which the Shares are listed, quoted or traded. 2.3 “Award” means an Option, a Restricted Share or a Restricted Share Unit awarded or granted to a Participant under the Plan. 2.4 “Award Agreement” means any written instrument or document evidencing and setting out the terms and conditions of an Award,including through electronic medium. 2.5 “Board” means the board of directors of the Company. 2.6 “Code” means the United States Internal Revenue Code of 1986, as amended from time to time. 2.7 “Committee” has the meaning set forth in Section 8.1.  2.8 “Company” means Canadian Solar Inc. 2.9 “Consultant” means any consultant or adviser: (a) who is a natural person and renders bona fide services to a Service Recipient; (b) who has contracted directly with the Service Recipient to render such services; and (c) whose services are not in connection with the offer or sale of securities of the Company in a capital-raising transaction and do notdirectly or indirectly promote or maintain a market for the Company’s securities. 2.10 “Corporate Transaction” means any of the following transactions; provided that the Committee shall determine under (f) and (g) whethermultiple transactions are related, and its determination shall be final, binding and conclusive: (a) an amalgamation, arrangement, consolidation or scheme of arrangement in which the Company is not the surviving entity, exceptfor a transaction the principal purpose of which is to change the jurisdiction in which the Company is incorporated or a transaction where, following thetransaction, the holders of the Company’s voting securities immediately prior to the transaction own fifty percent (50%) or more of the surviving entity; (b) the direct or indirect acquisition by any person or related group of persons (other than an acquisition from or by the Company orby a Company-sponsored employee benefit plan or by a person that directly or indirectly controls, is controlled by, or is under common control with, theCompany) of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities possessing more than fifty percent (50%) of thetotal combined voting power of the Company’s outstanding securities pursuant to a tender or exchange offer made directly to Shareholders which a majorityof the Incumbent Board (as defined in (c) below) who are not affiliates or associates of the offeror (within the meaning of Rule 12b-2 under the Exchange Act)do not recommend that Shareholders accept; (c) the individuals who, as of the Effective Date, are members of the Board (the “Incumbent Board”) cease for any reason to constituteat least fifty percent (50%) of the Board; provided that, if the election or nomination for election by Shareholders of any new member of the Board isapproved by a vote of at least fifty percent (50%) of the Incumbent Board, such new member of the Board shall be considered as a member of the IncumbentBoard; (d) the sale, transfer or other disposition of all or substantially all of the assets of the Company (other than to a Parent, Subsidiary orRelated Entity); (e) the completion of a voluntary or insolvent liquidation or dissolution of the Company; 2 (f) any reverse takeover, scheme of arrangement, or series of related transactions culminating in a reverse takeover or scheme ofarrangement (including, but not limited to, a tender offer followed by a reverse takeover) in which the Company survives but: (i) the Shares of the Company outstanding immediately prior to such transaction are converted or exchanged by virtue of thetransaction into other property, whether in the form of securities, cash or otherwise, or (ii) securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstandingsecurities are transferred to a person or related group of persons different from those who held such securities immediately prior to such transactionculminating in such takeover or scheme of arrangement, but excluding any such transaction or series of related transactions that the Committee determines shall not be a Corporate Transaction; or (g) the acquisition in a single or series of related transactions by any person or related group of persons (other than the Company or bya Company-sponsored employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities possessingmore than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities but excluding any such transaction or series ofrelated transactions that the Committee determines shall not be a Corporate Transaction. 2.11 “Director” means a member of the Board, as constituted from time to time. 2.12 “Disability” of a Holder means: (a) in the case where the Service Recipient to which the Holder provides services has a long-term disability plan in place and theHolder is a member of that plan, that the Holder qualifies to receive long-term disability payments under the plan; and (b) in the case where the Service Recipient to which the Holder provides services does not have a long-term disability plan in place or,if it does, the Holder is not a member of that plan, that the Holder is unable to carry out the responsibilities and functions of the position held by the Holderby reason of any medically determinable physical or mental impairment for a period of not less than ninety (90) consecutive days. A Holder will not be considered to have a Disability unless he or she furnishes proof of such impairment sufficient to satisfy the Committee in itsdiscretion. 2.13 “Effective Date” has the meaning set forth in Section 9.1. 2.14 “Eligible Individual” means any person who is a Director, an Employee or a Consultant, in each case as determined by the Committee;provided that Awards shall not be granted to Directors or Consultants who are resident of any country the Applicable Laws of which do not permit grants tonon-employees. 3 2.15 “Employee” means any person who is employed by a Service Recipient. The payment of a director’s fee by a Service Recipient shall notconstitute the recipient an employee of the Service Recipient. 2.16 “Exchange Act” means the United States Securities Exchange Act of 1934, as amended from time to time. 2.17 “Fair Market Value” of a Share means, as of any date: (a) if the Shares are listed on an established and regulated securities exchange, national market system or automated quotation system,the closing sales price for Shares (or the closing bid price, if no sales were reported) as quoted on the principal exchange or system on which the Shares arelisted (as determined by the Committee) on the date of determination (or, if no closing sales price or closing bid price was reported on that date, on the lasttrading date such closing sales price or closing bid was reported), as reported in The Wall Street Journal or such other source as the Committee deemsreliable; (b) if the Shares are not listed on an established and regulated securities exchange, national market system or automated quotationsystem, but are regularly quoted by a recognized securities dealer, the closing sales price for Shares as quoted by such securities dealer on the date ofdetermination; provided that, if the closing sales price is not reported, the Fair Market Value shall be the mean between the high bid and low asked prices forShares on the date of determination (or, if no such prices were reported on that date, on the last date such prices were reported), as reported in The Wall StreetJournal or such other source as the Committee deems reliable; or (c) in the absence of (a) and (b), the Fair Market Value shall be determined by the Committee in good faith and in its sole and absolutediscretion by reference to: (i) the placing price of the latest private placement of Shares and the development of the Company’s business operations andthe general economic and market conditions since such latest private placement, (ii) other third party transactions involving the Shares and the development of the Company’s business operations and thegeneral economic and market conditions since such sale, (iii) an independent valuation of the Shares, or (iv) such other methodologies or information as the Committee determines to be indicative of Fair Market Value. 2.18 “Holder” means an Eligible Individual who has been granted an Award. 2.19 “Incentive Option” means an Option that is intended to meet the applicable provisions of Section 422 of the Code. Incentive Optionsmay only be granted to Employees. 2.20 “Non-Employee Director” means a Director who is not an Employee. 4 2.21 “Non-Qualified Option” means an Option that is not an Incentive Option. 2.22 “Option” means the right to purchase a Share at the exercise price, at the time and on the terms and conditions specified by theCommittee. 2.23 “Plan” means this Canadian Solar Inc. Share Incentive Plan, as amended and restated from time to time. 2.24 “Related Entity” means any entity in which the Company or a Subsidiary holds, directly or indirectly, a substantial economic interest,whether through ownership or contractual arrangements, but which is not a Subsidiary and which the Board designates as a Related Entity for purposes of thePlan. 2.25 “Restatement Effective Date” has the meaning set forth in Section 9.1. 2.26 “Restricted Share” means a Share awarded under Article 6 that is subject to certain restrictions and may be subject to risk of forfeiture orrepurchase. 2.27 “Restricted Share Unit” or “RSU” means the right to receive a Share at the time and on the terms and conditions specified by theCommittee. 2.28 “Securities Act” means the United States Securities Act of 1933, as amended from time to time. 2.29 “Service Recipient” means the Company, a Subsidiary or a Related Entity. 2.30 “Share” means a common share in the capital of the Company. 2.31 “Shareholder” means a holder of Shares. 2.32 “Subsidiary” means any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities beginning withthe Company if each of the entities, other than the last entity in the unbroken chain, beneficially owns, at the time of the determination, securities or otherinterests representing more than fifty percent (50%) of the total combined voting power of all classes of securities or interests in one of the other entities insuch chain. 2.33 “Termination of Service” of a Holder means” (a) in the case of a Holder who is a Consultant, the time when the engagement of the Holder as a Consultant to a Service Recipientterminates for any reason; but excluding a case where the Holder simultaneously commences employment with, enters into another engagement as aConsultant to, or becomes a Director of, the same or another Service Recipient; (b) in the case of a Holder who is Non-Employee Director, the time when the Holder ceases to be a Director of a Service Recipient forany reason, but excluding a case where the Holder simultaneously commences employment with, or enters into an engagement as a Consultant to, or becomesa Director of, the same or another Service Recipient; and 5 (c) in the case of a holder who is an Employee, the time when the Holder ceases to be in the employ of a Service Recipient for anyreason, but excluding a case where the Holder simultaneously commences employment with, enters into an engagement as a Consultant to, or becomes aDirector of, the same or another Service Recipient. The Committee may, in its sole discretion, determine the effect of all matters and questions relating to a Termination of Service, including, withoutlimitation, whether a particular leave of absence constitutes a Termination of Service; provided that, with respect to Incentive Options, unless the Committeeprovides to the contrary in the Award Agreement or otherwise, a leave of absence, change in status from an employee to an independent contractor or otherchange in the employee-employer relationship shall constitute a Termination of Service only if, and to the extent that, such leave of absence, change in statusor other change interrupts employment for the purposes of Section 422(a)(2) of the Code and the regulations and revenue rulings thereunder. For purposes ofthe Plan, a Holder’s employee-employer or consultancy relationship shall be deemed to have been terminated if the Service Recipient employing orcontracting with the Holder ceases to be a Subsidiary or Related Entity. 2.34 “Trading Date” means the closing of the first sale of Shares to the general public, pursuant to an effective registration statement underApplicable Laws, which results in the Shares being publicly traded on an established securities exchange or national market system. ARTICLE 3. SHARES SUBJECT TO THE PLAN 3.1 Number of Shares. (a) Subject to Article 8 and Section 3.1(b), the maximum number of Shares that may be issued pursuant to all Awards (includingIncentive Share Options) is 2,330,000 plus, for Awards other than Incentive Option Shares, the sum of: (i) one percent (1%) of the number of Shares outstanding on the first day of each of 2007, 2008 and 2009, and (ii) two and one-half percent (2.5%) of the number of Shares outstanding on the first day of each year after 2009. (b) If an Award terminates, expires or lapses for any reason, or is settled in cash and not Shares, the Shares subject to the Award shallagain be available for the grant of an Award pursuant to the Plan. 3.2 Shares Distributed. Any Shares distributed pursuant to an Award may consist, in whole or in part, of treasury Shares or Shares purchasedon the open market or, in the discretion of the Committee, American Depository Shares in an amount equal to the number of Shares which otherwise would bedistributed. If the number of Shares represented by an American Depository Share is other than on a one-to-one basis, the limitations of Section 3.1 shall beadjusted to reflect the distribution of American Depository Shares in lieu of Shares. 6 ARTICLE 4. GRANTING OF AWARDS 4.1 Participation. The Committee shall determine those Eligible Individuals to whom Awards shall be granted and shall determine the natureand amount of each Award, which shall not be inconsistent with the requirements of the Plan. No Eligible Individual shall have any right to be granted anAward pursuant to the Plan. 4.2 Award Agreement. Each Award shall be evidenced by an Award Agreement. Award Agreements evidencing Incentive Options shallcontain such terms and conditions as are necessary to satisfy the applicable provisions of Section 422 of the Code. 4.3 Jurisdictions. Notwithstanding any provision of the Plan to the contrary, in order to comply with Applicable Laws, the Committee may: (a) determine which Subsidiaries and Related Entities shall be covered by the Plan; (b) determine which Eligible Individuals are eligible to participate in the Plan; (c) modify the terms and conditions of any Award granted to Eligible Individuals; (d) establish sub plans and modify exercise and other terms and procedures to the extent that such actions may be necessary oradvisable (any such sub plans and/or modifications shall be attached to the Plan as appendices); provided that no such sub plans and/or modifications shallincrease the share limitations contained in Section 3.1; and (e) take any action, before or after an Award is made, that it deems necessary or advisable to obtain any required approvals under or tocomply with any Applicable Laws, including, without limitation, necessary governmental regulatory exemptions or approvals or listing requirements of anysecurities exchange. ARTICLE 5. OPTIONS 5.1 General. The Committee may grant Options to Eligible Individuals on the following terms and conditions: (a) Exercise Price. The exercise price per Share subject to an Option shall be a fixed or variable price related to the Fair Market Valueof the Shares; provided that no Option may be granted to an individual subject to taxation in the United States at less than the Fair Market Value on the dateof grant without compliance with Section 409A of the Code, or the Holder’s consent. The exercise price per Share subject to an Option may be amended bythe Committee at any time and from time to time without the consent of the Shareholders. 7 (b) Vesting. The Committee shall specify the period before and during which an Option vests in the Holder and may, at any time afterthe grant of an Option, accelerate the vesting period on such terms and conditions as may determine. No portion of an Option which is unexercisable on theTermination of Service of the Holder shall thereafter become exercisable, except as may be otherwise provided by the Committee, either in the AwardAgreement or otherwise. (c) Time and Conditions of Exercise. The Committee shall specify the time or times at which an Option may be exercised in whole orin part. The Committee shall also specify any conditions that must be satisfied before all or part of an Option may be exercised. (d) Partial Exercise. An exercisable Option may be exercised in whole or in part; provided that an Option shall not be exercisable withrespect to fractional shares and the Committee may require that a partial exercise must be with respect to a minimum number of Shares. (e) Manner of Exercise. All or a portion of an exercisable Option shall be deemed exercised upon delivery of all of the following tothe Secretary of the Company, or such other person or entity designated by the Committee, or his, her or its office, as applicable: (i) a written or electronic notice complying with the applicable rules established by the Committee stating that the Option,or such portion thereof, is exercised. The notice shall be signed by the Holder or other person then entitled to exercise the Option or such portion thereof; (ii) such representations and documents as the Committee deems necessary or advisable to effect compliance with allApplicable Laws. The Committee may also take whatever additional action it deems necessary or advisable to effect such compliance including, withoutlimitation, placing legends on Share certificates and issuing stop-transfer notices to agents and registrars; (iii) if the Option is exercised pursuant to Section 9.3 by any person or persons other than the Holder, such proof of the rightof such person or persons to exercise the Option as the Committee may require; and (iv) full payment of the exercise price and any withholding taxes applicable to the exercise of the Option, or such portionthereof, in a manner permitted by Section 7.1 and 7.2. (f) Term. The term of any Option granted under the Plan shall not exceed ten (10) years. Except as limited by the requirements ofSection 409A or Section 422 of the Code and the regulations and rulings thereunder, the Committee may extend the term of outstanding Options and, inconnection with a Termination of Service of the Holder, may extend the time period during which vested Options may be exercised and may amend any otherterm or condition of such Options. 8 (g) Evidence of Grant. All Options shall be evidenced by an Award Agreement between the Company and the Holder. The AwardAgreement shall include such additional provisions as may be specified by the Committee. 5.2 Incentive Options. Incentive Options may be granted to Employees of the Company or any Subsidiary which qualifies as a subsidiarycorporation under Section 424(e) and (f) of the Code respectively. Incentive Options may not be granted to Employees of a Related Entity or to Directors orConsultants. In addition to the requirements of Section 5.1, the terms of any Incentive Options must comply with the following additional provisions of thisSection 5.2: (a) Expiration of Option. An Incentive Option may not be exercised to any extent by anyone after the first to occur of the followingevents: (i) ten (10) years from the date it is granted, unless an earlier time is set in the Award Agreement; (ii) three (3) months after the Termination of Service of the Holder as an Employee (save in the case of Disability or death);and (iii) one (1) year after the date of the Termination of Service of the Holder on account of Disability or death. Upon theHolder’s Disability or death, any Incentive Options exercisable at the Holder’s Disability or death may be exercised by the Holder’s legal representative orrepresentatives, by the person or persons entitled to do so pursuant to the Holder’s last will and testament or, if the Holder fails to make testamentarydisposition of such Incentive Option or dies intestate, by the person or persons entitled to receive the Incentive Option pursuant to the applicable laws ofdescent and distribution as determined under Applicable Law. (b) Individual Dollar Limitation. The aggregate Fair Market Value (determined as of the time the Option is granted) of all Shares withrespect to which Incentive Options are first exercisable by a Holder in any calendar year may not exceed U.S.$100,000 or such other limitation as may beimposed under Section 422(d) of the Code, or any successor provision. To the extent that Incentive Options are first exercisable by a Holder in excess of suchlimitation, the excess shall be considered Non-Qualified Options. (c) Ten Percent Owners. An Incentive Option may not be granted to any individual who, at the date of grant, owns Shares possessingmore than ten percent (10%) of the total combined voting power of all classes of shares of the Company unless such Incentive Option is granted at a price thatis not less than one hundred and ten percent (110%) of Fair Market Value on the date of grant and the Incentive Option is exercisable for no more than fiveyears from the date of grant. (d) Transfer Restriction. The Holder shall give the Company prompt notice of any disposition of Shares acquired by exercise of anIncentive Option within: (i) two (2) years from the date of grant of such Incentive Option, or (ii) one (1) year after the transfer of such Shares to the Holder. 9 (e) Expiration of Incentive Options. No Award of an Incentive Option may be made after the tenth (10) anniversary of the EffectiveDate. (f) Right to Exercise. During a Holder’s lifetime, an Incentive Option may be exercised only by the Holder. ARTICLE 6. AWARD OF RESTRICTED SHARES 6.1 Award of Restricted Share. (a) The Committee may grant Restricted Share to Eligible Individuals, and shall determine the amount and the terms and conditionsof, including without limitation the restrictions applicable to, each award of Restricted Shares, which terms and conditions shall not be inconsistent with thePlan, and may impose such conditions on the issuance of such Restricted Share as it deems appropriate. (b) The Committee shall specify the purchase price, if any, and form of payment for Restricted Shares; provided that such purchaseprice shall be no less than the par value, if any, of the Shares to be purchased, unless otherwise permitted by Applicable Laws. In all cases, legalconsideration shall be required for each issuance of Restricted Shares. 6.2 Rights as Shareholders. Subject to Section 6.4, upon issuance of Restricted Shares, the Holder shall have, unless otherwise provided bythe Committee, all the rights of a Shareholder with respect to such Restricted Shares, subject to the restrictions in his or her Award Agreement, including theright to receive all dividends and other distributions paid or made with respect to Shares; provided that any extraordinary distributions with respect to suchRestricted Shares shall be subject to the restrictions set forth in Section 6.3. 6.3 Restrictions. All Restricted Shares (including any shares received by Holders thereof with respect to Restricted Shares as a result of sharedividends, share splits or any other form of recapitalization) shall, in the terms of each individual Award Agreement, be subject to such restrictions andvesting requirements as the Committee shall provide. Such restrictions may include, without limitation, restrictions concerning voting rights andtransferability and such restrictions may lapse separately or in combination at such times and pursuant to such circumstances or based on such criteria asselected by the Committee, including, without limitation, criteria based on the Holder’s duration of employment, directorship or consultancy with the ServiceRecipient, or other criteria selected by the Committee. By action taken after the Restricted Shares are issued, the Committee may, on such terms andconditions as it may determine to be appropriate, accelerate the vesting of such Restricted Shares by removing any or all of the restrictions imposed by theterms of the Award Agreement. Restricted Shares may not be sold or encumbered until all restrictions are terminated or expire. 6.4 Repurchase or Forfeiture of Restricted Shares. If no price was paid by the Holder for the Restricted Shares, upon the Termination ofService of the Holder, the Holder’s rights in unvested Restricted Shares then subject to restrictions shall lapse and such Restricted Shares shall be surrenderedto the Company and cancelled without consideration. If a purchase price was paid by the Holder for the Restricted Shares, upon the Termination of Service ofthe Holder, the Company shall have the right to repurchase from the Holder the unvested Restricted Shares then subject to restrictions at a cash price per shareequal to the price paid by the Holder for such Restricted Shares or such other amount as may be specified in the Award Agreement The Committee in its solediscretion may provide that, in the event of certain events, the Holder’s rights in unvested Restricted Shares shall not lapse, such Restricted Shares shall vestand shall be non-forfeitable and, if applicable, the Company shall not have a right of repurchase. 10 6.5 Certificates for Restricted Share. Restricted Shares granted pursuant to the Plan may be evidenced in such manner as the Committee maydetermine. Certificates or book entries evidencing Restricted Shares must include an appropriate legend referring to the terms, conditions and restrictionsapplicable to the Restricted Shares and the Company may, in its sole discretion, retain physical possession of any share certificate evidencing RestrictedShares until such time as all applicable restrictions lapse. ARTICLE 7. ADDITIONAL TERMS OF AWARDS 7.1 Payment. The Committee shall determine the methods by which payments by any Holder with respect to any Awards granted under thePlan shall be made, including, without limitation: (a) cash or check; (b) Shares (including, in the case of payment of the exercise price of an Award, Shares issuable pursuant to the exercise of the Award)or Shares held for such period of time as may be required by the Committee in order to avoid adverse accounting consequences under Applicable AccountingStandards, in each case, having a Fair Market Value on the date of delivery equal to the aggregate payments required; (c) delivery of a notice that the Holder has placed a market sell order with a broker with respect to Shares then issuable upon exerciseor vesting of an Award, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of theaggregate payments required; provided that payment of such proceeds is then made to the Company upon settlement of such sale; or (d) other form of legal consideration acceptable to the Committee. The Committee shall also determine the methods by which Shares shall be delivered or deemed to be delivered to Holders. Notwithstanding any otherprovision of the Plan to the contrary, no Holder shall be permitted to make payment with respect to any Awards granted under the Plan to the extentprohibited by Applicable Law. 7.2 Withholding Tax. No Shares shall be delivered under the Plan to any Holder until such Holder has made arrangements acceptable to thethCommittee for the satisfaction of any income, employment, social welfare or other tax withholding obligations under Applicable Laws. Each ServiceRecipient shall have the authority and the right to deduct or withhold, or require a Holder to remit to the applicable Service Recipient, an amount sufficientto satisfy federal, state, local and foreign taxes (including the Holder’s employment, social welfare or other tax obligations) required by Applicable Laws tobe withheld with respect to any taxable event concerning a Holder arising as a result of the Plan. The Committee may, in its sole discretion and insatisfaction of the foregoing requirement, allow a Holder to elect to have the Company withhold Shares otherwise issuable under an Award (or allow thesurrender of Shares). The number of Shares which may be so withheld or surrendered shall be limited to the number of Shares which have a Fair Market Valueon the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for tax purposesthat are applicable to such taxable income. The Committee shall determine the Fair Market Value of the Shares, consistent with Applicable Laws, for taxwithholding obligations due in connection with a broker-assisted cashless Option exercise involving the sale of shares to pay the Option exercise price orany tax withholding obligation. 11 7.3 Transferability of Awards. (a) Except as otherwise provided in Section 7.3(b): (i) no Award under the Plan may be sold, pledged, assigned or transferred in any manner other than by will or the laws ofdescent and distribution or, subject to the consent of the Committee, as required under applicable domestic relations laws, unless and until such Award hasbeen exercised, or the Shares underlying such Award have been issued, and all restrictions applicable to such shares have lapsed; (ii) no Award or interest or right therein shall be liable for the debts, contracts or engagements of the Holder or his successorsin interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, hypothecation, encumbrance, assignment or any other means whethersuch disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings(including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permittedby the preceding sentence; and (iii) during the lifetime of the Holder, only the Holder may exercise an Award (or any portion thereof) granted to him underthe Plan, unless it has been disposed of pursuant to applicable domestic relations law; after the death of the Holder, any exercisable portion of an Award may,prior to the time when such portion becomes unexercisable under the Plan or the applicable Award Agreement, be exercised by his personal representative orby any person or persons empowered to do so under the deceased Holder’s will or under the then Applicable Laws of descent and distribution. (b) Notwithstanding Section 7.3(a), the Committee, in its sole discretion, may determine to permit a Holder to transfer an Award otherthan an Incentive Option to certain persons or entities related to the Holder, including but not limited to members of the Holder’s family, charitableinstitutions, or trusts or other entities whose beneficiaries or beneficial owners are members of the Holder’s family and/or charitable institutions, or to suchother persons or entities as may be expressly approved by the Committee, pursuant to such conditions and procedures as the Committee may establish,including the following: 12 (i) an Award transferred shall not be assignable or transferable other than by will or the laws of descent and distribution; (ii) an Award transferred shall continue to be subject to all the terms and conditions of the Award as applicable to the originalHolder (other than the ability to further transfer the Award); and (iii) the Holder and the permitted transferee shall execute any and all documents requested by the Committee, includingwithout limitation documents to confirm the status of the transferee as a permitted transferee, satisfy any requirements for an exemption for the transfer underApplicable Laws and evidence the transfer. (c) Notwithstanding Section 7.3(a), a Holder may, in the manner determined by the Committee, designate a beneficiary to exercise therights of the Holder and to receive any distribution with respect to any Award upon the Holder’s death. A beneficiary, legal guardian, legal representative, orother person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Award Agreement applicable to the Holder,except to the extent the Plan and Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If the Holder is married and resides in a community property jurisdiction, a designation of a person other than the Holder’s spouse as his or her beneficiarywith respect to more than 50% of the Holder’s interest in the Award shall not be effective without the prior written or electronic consent of the Holder’sspouse. If no beneficiary has been designated or survives the Holder, payment shall be made to the person entitled thereto pursuant to the Holder’s will or thelaws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Holder at any time provided the changeor revocation is filed with the Committee prior to the Holder’s death. 7.4 Conditions to Issuance of Shares. (a) Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates or makeany book entries evidencing Shares pursuant to the exercise of any Award unless and until the Committee has determined, with advice of counsel, that theissuance of such Shares is in compliance with all Applicable Laws, and the Shares are covered by an effective registration statement or applicable exemptionfrom registration. In addition to the terms and conditions provided herein, the Committee may require that a Holder make such reasonable covenants,agreements, and representations as the Committee, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements. (b) All Share certificates delivered pursuant to the Plan and all Shares issued pursuant to book entry procedures are subject to anystop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with all Applicable Laws, rules and regulations. TheCommittee may place legends on any Shares certificate or book entry to reference restrictions applicable to the Shares. 13 (c) The Committee shall have the right to require any Holder to comply with any timing or other restrictions with respect to thesettlement, distribution or exercise of any Award, including a window-period limitation. (d) No fractional Shares shall be issued and the Committee shall determine, in its sole discretion, whether cash shall be given in lieu offractional shares or whether such fractional shares shall be eliminated by rounding down. (e) Notwithstanding any other provision of the Plan, unless otherwise determined by the Committee or required by any ApplicableLaw, rule or regulation, the Company shall not deliver to any Holder certificates evidencing Shares issued in connection with any Award and instead suchShares shall be recorded in the books of the Company (or, as applicable, its transfer agent or share plan administrator). 7.5 Applicable Currency. The Committee shall designate in the Award Agreement the currency applicable to an Award, which may be in U.S.dollars, Canadian dollars, Chinese Renminbi or such other currency as the Committee shall determine required under Applicable Law. A Holder may berequired to provide evidence that any currency used to pay the exercise price of any Award was acquired and taken out of the jurisdiction in which the Holderresides in accordance with Applicable Laws, including foreign exchange control laws and regulations. If the exercise price for an Award is paid in a foreigncurrency, other than that designated in the Award Agreement, as permitted by the Committee, the amount payable will be determined by conversion at theexchange rate as selected by the Committee on the date of exercise. ARTICLE 8. ADMINISTRATION 8.1 Committee. A committee of the Board (the “Committee”) shall administer the Plan (except as otherwise permitted herein). TheCommittee shall comprise two or more Non-Employee Directors appointed by and holding office at the pleasure of the Board, each of whom shall complywith Applicable Laws. Notwithstanding the foregoing: (a) the full Board, acting by a majority of its members in office, shall conduct the general administration of the Plan with respect toAwards granted to Non-Employee Directors; and (b) the Board or the Committee may delegate its authority hereunder to the extent permitted by Section 8.6. 8.2 Duties and Powers of Committee. The Committee shall be responsible for the general administration of the Plan in accordance with itsprovisions. The Committee shall have the power to interpret the Plan and the Award Agreements and to adopt such rules for the administration, interpretationand application of the Plan as are not inconsistent therewith, to interpret, amend or revoke any such rules and to amend any Award Agreement provided thatthe rights or obligations of the Holder of the Award that is the subject of any such Award Agreement are not affected adversely by such amendment, unlessthe consent of the Holder is obtained or such amendment is otherwise permitted under Section 9.10. Any such grant or award under the Plan need not be thesame with respect to each Holder. Any such interpretations and rules with respect to Incentive Options shall be consistent with the provisions of Section 422of the Code. In its sole discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Planexcept with respect to matters which under Applicable Law are required to be determined in the sole discretion of the Committee. 14 8.3 Action by the Committee. Each member of the Committee is entitled to, in good faith, rely or act upon any report or other informationfurnished to that member by any officer or other employee of a Service Recipient, the Company’s independent certified public accountants or any executivecompensation consultant or other professional retained by the Company to assist in the administration of the Plan. 8.4 Authority of Committee. Subject to any specific designation in the Plan, the Committee has the exclusive power, authority and solediscretion to: (a) designate Eligible Individuals to receive Awards; (b) determine the type or types of Awards to be granted to each Eligible Individual; (c) determine the number of Awards to be granted and the number of Shares to which an Award will relate; (d) determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the exercise price,grant price, or purchase price, any reload provision, any restrictions or limitations on the Award, any schedule for vesting, lapse of forfeiture restrictions orrestrictions on the exercisability of an Award, and accelerations or waivers thereof, and any provisions related to non-competition and recapture of gain on anAward, based in each case on such considerations as the Committee in its sole discretion determines; (e) determine whether, to what extent, and pursuant to what circumstances an Award may be settled in, or the exercise price of anAward may be paid in cash, Shares, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered; (f) prescribe the form of each Award Agreement, which need not be identical for each Holder; (g) decide all other matters that must be determined in connection with an Award; (h) establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan; (i) interpret the terms of, and any matter arising pursuant to, the Plan or any Award Agreement; and 15 (j) make all other decisions and determinations that may be required pursuant to the Plan or as the Committee deems necessary oradvisable to administer the Plan. 8.5 Decisions Binding. The Committee’s interpretation of the Plan, any Award granted pursuant to the Plan and any Award Agreement andall decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties. 8.6 Delegation of Authority. To the extent permitted by Applicable Laws, the Board or the Committee may from time to time delegate to acommittee of one or more members of the Board or one or more officers of the Company the authority to carry out the day-to-day administration of the Plansubject at all times to the control and direction of the Board or the Committee; provided that, in no event, shall any delegatee be delegated the authority togrant or amend Awards. Any delegation hereunder shall be subject to such restrictions and limits as the Board or the Committee specifies at the time of suchdelegation, and the Board or the Committee may at any time rescind the authority so delegated or appoint a new delegatee. At all times, the delegatee shallserve at the pleasure of the Board or the Committee. ARTICLE 9. MISCELLANEOUS PROVISIONS 9.1 Effective Date. The Plan was originally effective on March 15, 2006 (the “Effective Date”). The Plan was subsequently amended andrestated by approval of the Shareholders on September 20, 2010 (the “Restatement Effective Date”). 9.2 Expiration Date. The Plan will expire on, and no Award may be granted pursuant to the Plan after, the tenth (10) anniversary of theRestatement Effective Date. Any Awards that are outstanding on the tenth (10) anniversary of the Restatement Effective Date shall remain in forceaccording to the terms of the Plan and the applicable Award Agreement. 9.3 Amendment or Termination of the Plan. Except as otherwise provided in this Section 9.3, at any time and from time to time, theCommittee may terminate, amend or modify the Plan; provided that: (a) to the extent necessary and desirable to comply with Applicable Laws, the Company shall obtain Shareholder approval of any Planamendment in such a manner and to such a degree as required, and (b) Shareholder approval is required for any amendment to the Plan that: (i) increases the number of Shares available under the Plan (other than any adjustment as provided by Article 10), (ii) permits the Committee to extend the exercise period for an Option beyond ten (10) years from the date of grant, or (iii) results in a material increase in benefits or a change in eligibility requirements. Except as provided in the Plan or anyAward Agreement, no amendment, suspension or termination of the Plan shall, without the consent of the Holder, impair any rights or obligations under anyAward theretofore granted or awarded. 16thth 9.4 No Shareholders Rights. Except as otherwise provided herein, a Holder shall have none of the rights of a Shareholder with respect toShares covered by any Award until the Holder becomes the record owner of such Shares. 9.5 Paperless Administration. In the event that the Company establishes, for itself or using the services of a third party, an automated systemfor the documentation, granting or exercise of Awards, such as a system using an internet website or interactive voice response, then the paperlessdocumentation, granting or exercise of Awards by a Holder may be permitted through the use of such an automated system. 9.6 Effect of Plan upon Other Compensation Plans. The adoption of the Plan shall not affect any other compensation or incentive plans ineffect for a Service Recipient. Nothing in the Plan shall be construed to limit the right of a Service Recipient: (a) to establish any other forms of incentives or compensation for Eligible Individuals, or (b) to grant or assume options or other rights or awards otherwise than under the Plan in connection with any proper corporatepurpose, including without limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation orotherwise, of the business, securities or assets of any corporation, partnership, limited liability company, firm or association. 9.7 Compliance with Laws. The Plan, the granting and vesting of Awards under the Plan and the issuance and delivery of Shares and thepayment of money under the Plan or under Awards granted or awarded under the Plan are subject to compliance with all Applicable Laws and to suchapprovals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connectiontherewith. Any securities delivered under the Plan shall be subject to such restrictions, and the person acquiring such securities shall, if requested by theCompany, provide such assurances and representations to the Company as the Company may deem necessary or desirable to assure compliance with allapplicable legal requirements. To the extent permitted by Applicable Law, the Plan and Awards granted or awarded hereunder shall be deemed amended tothe extent necessary to conform to such laws, rules and regulations. 9.8 Titles and Headings, References to Sections of the Code or Exchange Act. The titles and headings of the Sections in the Plan are forconvenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. References to sections ofthe Code or the Exchange Act shall include any amendment or successor thereto. 9.9 Governing Law. The Plan and any agreements hereunder shall be administered, interpreted and enforced under the internal laws ofCanada, without regard to conflicts of laws thereof. 17 9.10 Section 409A. To the extent that the Committee determines that any Award granted under the Plan is subject to Section 409A of theCode, the Award Agreement evidencing such Award shall incorporate the terms and conditions required by Section 409A of the Code. To the extentapplicable, the Plan and Award Agreements shall be interpreted in accordance with Section 409A of the Code and Department of Treasury regulations andother interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the EffectiveDate. Notwithstanding any provision of the Plan to the contrary, in the event that following the Effective Date the Committee determines that any Awardmay be subject to Section 409A of the Code and related Department of Treasury guidance (including such Department of Treasury guidance as may be issuedafter the Effective Date), the Committee may adopt such amendments to the Plan and the applicable Award Agreement or adopt other policies and procedures(including amendments, policies and procedures with retroactive effect), or take any other actions, that the Committee determines are necessary orappropriate to: (a) exempt the Award from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respectto the Award, or (b) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance and thereby avoid theapplication of any penalty taxes under such Section. 9.11 No Rights to Awards. No Eligible Individual or other person shall have any claim to be granted any Award pursuant to the Plan, andneither the Company nor the Committee is obligated to treat Eligible Individuals, Holders or any other persons uniformly. 9.12 No Right to Employment or Services. Nothing in the Plan or any Award Agreement shall interfere with or limit in any way the right ofthe Service Recipient to terminate any Holder’s employment or services at any time, nor confer upon any Holder any right to continue in the employ orservice of any Service Recipient. 9.13 Unfunded Status of Awards. The Plan is intended to be an “unfunded” plan for incentive compensation. With respect to any paymentsnot yet made to a Holder pursuant to an Award, nothing contained in the Plan or any Award Agreement shall give the Holder any rights that are greater thanthose of a general creditor of the Company, any Subsidiary or any Related Entity. 9.14 Indemnification. To the extent allowable pursuant to Applicable Laws, each member of the Committee or of the Board shall beindemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such memberin connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reasonof any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action,suit, or proceeding against him or her; provided that he or she gives the Company an opportunity, at its own expense, to handle and defend the same beforehe or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights ofindemnification to which such persons may be entitled pursuant to the Company’s Articles, as a matter of law, or otherwise, or any power that the Companymay have to indemnify them or hold them harmless. 18 9.15 Relationship to other Benefits. No payment pursuant to the Plan shall be taken into account in determining any benefits under anypension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of any Service Recipient except to the extent otherwise expresslyprovided in writing in such other plan or an agreement thereunder. 9.16 Expenses. The expenses of administering the Plan shall be borne by the Service Recipients. ARTICLE 10. CHANGES IN CAPITAL STRUCTURE 10.1 Adjustments. In the event of any distribution, share split, combination or exchange of Shares, amalgamation, arrangement orconsolidation, reorganization of the Company, including the Company becoming a subsidiary in a transaction not involving a Corporate Transaction, spin-off, recapitalization or other distribution (other than normal cash dividends) of Company assets to Shareholders, or any other change affecting the Shares orthe share price of a Share, the Committee shall make such proportionate and equitable adjustments, if any, to reflect such change with respect to: (a) the aggregate number and type of shares that may be issued under the Plan (including, but not limited to, adjustments of thelimitations in Section 3.1 and substitutions of shares in a parent or surviving company); (b) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteriawith respect thereto); and (c) the grant or exercise price per share for any outstanding Awards under the Plan. The form and manner of any such adjustmentsshall be determined by the Committee in its sole discretion. 10.2 Corporate Transactions. Except as may otherwise be provided in any Award Agreement or any other written agreement entered into byand between the Company and a Holder, if a Corporate Transaction occurs and a Holder’s Awards are not converted, assumed, or replaced by a successor asprovided in Section 10.3, such Awards shall become fully exercisable and all forfeiture restrictions on such Awards shall lapse. Upon, or in anticipation of, aCorporate Transaction, the Committee may in its sole discretion provide for: (a) any and all Awards outstanding hereunder to terminate at a specific time in the future and shall give each Holder the right toexercise such Awards during a period of time as the Committee shall determine, (b) either the purchase of any Award for an amount of cash equal to the amount that could have been attained upon the exercise ofsuch Award or realization of the Holder’s rights had such Award been currently exercisable or payable or fully vested (and, for the avoidance of doubt, if as ofsuch date the Committee determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Holder’srights, then such Award may be terminated by the Company without payment), or 19 (c) the replacement of such Award with other rights or property selected by the Committee in its sole discretion or the assumption ofor substitution of such Award by the successor or surviving corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number andkind of Shares and prices. 10.3 Assumption of Awards — Corporate Transactions. In the event of a Corporate Transaction, each Award may be assumed by the successorentity in connection with the Corporate Transaction. Except as provided otherwise in an Award Agreement, an Award will be considered assumed if theAward either is: (a) assumed by the successor entity or replaced with a comparable Award (as determined by the Committee) with respect to capitalshares (or equivalent) of the successor entity or Parent thereof; or (b) replaced with a cash incentive program of the successor entity which preserves the compensation element of such Award existingat the time of the Corporate Transaction and provides for subsequent payout in accordance with the same vesting schedule applicable to such Award. If an Award is assumed in a Corporate Transaction, then such Award, the replacement Award or the cash incentive program automatically shall become fullyvested, exercisable and payable and be released from any restrictions on transfer (other than transfer restrictions applicable to Options) and repurchase orforfeiture rights, immediately upon termination of the Holder’s employment or service with all Service Recipients within twelve (12) months of the CorporateTransaction without cause. 10.4 Outstanding Awards — Other Changes. In the event of any other change in the capitalization of the Company or corporate change otherthan those specifically referred to in this Article 12, the Committee may, in its absolute discretion, make such adjustments in the number and class of sharessubject to Awards outstanding on the date on which such change occurs and in the per share grant or exercise price of each Award as the Committee mayconsider appropriate to prevent dilution or enlargement of rights. 10.5 No Other Rights. Except as expressly provided in the Plan, no Holder shall have any rights by reason of any subdivision or consolidationof shares of any class, the payment of any dividend, any increase or decrease in the number of shares of any class or any dissolution, liquidation, merger, orconsolidation of the Company or any other corporation. Except as expressly provided in the Plan or pursuant to action of the Committee under the Plan, noissuance by the Company of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason thereof shall bemade with respect to, the number of shares subject to an Award or the grant or exercise price of any Award. 20 ARTICLE 11. AWARD OF RESTRICTED SHARE UNITS 11.1 Award of Restricted Share. The Committee may grant Restricted Share Units to Eligible Individuals in such amounts and subject to suchterms and conditions as it deems appropriate. 11.2 Term. Except as otherwise provided herein, the term of a Restricted Share Unit award shall be set by the Committee in its sole discretion. 11.3 Purchase Price. The Committee shall specify the consideration, if any, to be paid by the Holder to the Company with respect to anyRestricted Share Unit award; provided that the value of the consideration shall not be less than the par value of a Share, unless otherwise permitted byApplicable Law. 11.4 Vesting of Restricted Share Units. At the time of grant, the Committee shall specify the date or dates on which the Restricted Share Unitsshall become fully vested and nonforfeitable, and may specify such conditions to vesting as it deems appropriate, including, without limitation, vestingbased upon the Holder’s duration of service with the Company or any Affiliate, Company performance, individual performance or other criteria, in each caseon a specified date or dates or over any period or periods, as determined by the Committee. 11.5 Maturity and Payment. At the time of grant, the Committee shall specify the maturity date applicable to the Restricted Share Units,which date shall be no earlier than the vesting date or dates of the Award and may be determined at the election of the Holder (if permitted by the applicableAward Agreement); provided that, except as otherwise determined by the Committee or set forth in any applicable Award Agreement, and subject tocompliance with Section 409A of the Code, in no event shall the maturity date relating to each Restricted Share Unit occur following the later of: (a) the 15th day of the third month following the end of calendar year in which the Restricted Share Unit vests; and (b) the 15th day of the third month following the end of the Company’s fiscal year in which the Restricted Share Unit vests. On the maturity date, the Company shall, subject to Section 10.1, transfer to the Holder one unrestricted, fully transferable Share for each Restricted ShareUnit scheduled to be paid out on such date and not previously forfeited, or in the sole discretion of the Committee, an amount in cash equal to the FairMarket Value of such Shares on the maturity date or a combination of cash and Shares as determined by the Committee. 11.6 Payment upon Termination of Service. An Award of Restricted Share Units shall only be payable while the Holder is an Employee, aConsultant or a member of the Board, as applicable; provided that the Committee, in its sole and absolute discretion, may provide (in an Award Agreement orotherwise) that a Restricted Share Unit award may be paid subsequent to a Termination of Service in certain events, including a Change in Control, theHolder’s death, retirement or disability or any other specified Termination of Service. 21 11.7 No Rights as a Shareholder. Unless otherwise determined by the Committee, a Holder who is awarded Restricted Share Units shallpossess no incidents of ownership with respect to the Shares represented by such Restricted Share Units unless and until the same are transferred to the Holderpursuant to the terms of this Plan and the Award Agreement. 11.8 Dividend Equivalents. The Committee may, in its sole discretion, provide that the Holder of Restricted Share Units shall be entitled toreceive the equivalent of any dividends declared on the Shares represented by the Restricted Share Units, to be credited as of dividend payment dates duringthe period between the date an Award of Restricted Share Units is granted to a Holder and the maturity date of such Award. 11.9 Canadian Employment and Employees. Notwithstanding anything in this Article 11 to the contrary, no amount may be paid in respect of aRestricted Share Unit in the form of cash to an Eligible Individual who was granted such Restricted Share Unit while a resident of Canada or in respect ofemployment exercised in Canada unless the cash payment is received by that individual within three years from the end of the year in which the grant of therelevant Restricted Share Unit was made. * * * * * 22EXHIBIT 8.1 LIST OF MAJOR SUBSIDIARIES (As of March 31, 2017) Name of entity Place of incorporationOwnership interest CSI Solartronics (Changshu) Co., Ltd.PRC100%CSI Solar Technologies Inc.PRC100%CSI New Energy Holding Co., Ltd.PRC100%Canadian Solar Manufacturing (Luoyang) Inc.PRC100%Canadian Solar Manufacturing (Changshu) Inc.PRC100%CSI Cells Co., Ltd.PRC100%Canadian Solar (USA) Inc.USA100%Canadian Solar Japan K.K.Japan100%Canadian Solar Solutions Inc.Canada100%CSI Solar Power Group Co., Ltd. (formerly, CSI Solar Power (China) Inc.)PRC100%Canadian Solar EMEA GmbHGermany100%Canadian Solar (Australia) Pty LimitedAustralia100%Canadian Solar International LimitedHong Kong100%Canadian Solar O and M (Ontario) Inc.Canada100%Suzhou Sanysolar Materials Technology Co., Ltd.PRC75.324%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 Construction (USA), LLCUSA100%Canadian Solar Project K.K.Japan100%CSI-GCL Solar Manufacturing (Yancheng) Co., Ltd.PRC80%Canadian Solar UK Ltd.United Kingdom100%Canadian Solar UK Projects Ltd.United Kingdom100%Changshu Tegu New Material Technology Co., Ltd.PRC75%Changshu Tlian Co., Ltd.PRC100%Canadian Solar Trading (Changshu) Inc.PRC100%Recurrent Energy, LLCUSA100%PT. Canadian Solar IndonesiaIndonesia67%Canadian Solar Manufacturing Vietnam Co., Ltd.Vietnam100%Canadian Solar Energy Private LimitedIndia100%Canadian Solar Australia 1 Pty Ltd.Australia100%Canadian Solar Manufacturing (Thailand) Co., Ltd.Thailand99.99992%Canadian Solar Sunenergy (Suzhou) Co., Ltd.PRC100%Canadian Solar Energy Holding Singapore 1 Pte. Ltd.Singapore100%Canadian Solar Sunenergy (Baotou) Co., Ltd.PRC100% 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 27, 2017 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, Huifeng Chang, 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 27, 2017 By:/s/ Huifeng ChangName: Huifeng ChangTitle: 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, 2016 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 27, 2017 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, 2016 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), I, Huifeng Chang, 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 27, 2017 By:/s/ Huifeng ChangName: Huifeng ChangTitle: 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 No. 333-208828 on Form F-3 of our reports dated April 27, 2017, relating to the financial statements and financial statement scheduleof Canadian Solar Inc. and subsidiaries (the “Company”), and the effectiveness of the Company’s internal control over financial reporting, appearing in thisAnnual Report on Form 20-F of the Company for the year ended December 31, 2016. /s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP Shanghai, ChinaApril 27, 2017 

Continue reading text version or see original annual report in PDF format above