Form 20-F
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 20-F
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
OR
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þ |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the fiscal year ended: December 31, 2010
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
OR
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
For the transition period from to
Commission file number: 1- 33208
HANWHA SOLARONE CO., LTD.
(Exact name of Registrant as specified in its charter)
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Not Applicable
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Cayman Islands |
(Translation of Registrants name into English)
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(Jurisdiction of Incorporation or Organization) |
888 Linyang Road, Qidong, Jiangsu Province 226200, Peoples Republic of China
(Address of Principal Executive Offices)
Mr. Gareth Kung
Chief Financial Officer
Telephone: 3852-1666
Fax: 3852-1558
RM 1801, Building No. 1
Zendai Wudaokou Plaza
1199 Minsheng Road
Shanghai 200135
Peoples Republic of China
(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered |
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American Depositary Shares
Ordinary Shares, par value US$0.0001 per share
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Nasdaq Global Market |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of
the close of the period covered by the annual report.
496,416,176 Ordinary Shares, par value US$0.0001 per share, as of December 31, 2010
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes o No þ
If this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. Yes o No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§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 o No o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of accelerated filer and
large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o |
Indicate by check mark which basis of accounting the registrant has used to prepare
the financial statements included in this filing:
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U.S. GAAP þ
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International Financial Reporting
Standards as issued
by the International Accounting
Standards Board o
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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.
o Item 17 o Item 18
If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE
YEARS)
Indicate by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12,13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court. Yes
o No o
INTRODUCTION
Unless otherwise indicated, references in this annual report to:
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ADRs are to the American depositary receipts that evidence our ADSs; |
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ADSs are to our American depositary shares, each of which represents five ordinary shares; |
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China or the PRC are to the Peoples Republic of China, excluding,
for the purpose of this annual report only, Taiwan and the special
administrative regions of Hong Kong and Macau; |
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conversion efficiency are to the ability of photovoltaic, or PV,
products to convert sunlight into electricity, and conversion
efficiency rates are commonly used in the PV industry to measure the
percentage of light energy from the sun that is actually converted
into electricity; |
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cost per watt and price per watt are to the method by which the
cost and price of PV products, respectively, are commonly measured in
the PV industry. A PV product is priced based on the number of watts
of electricity it can generate; |
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GW are to gigawatt, representing 1,000,000,000 watts, a unit of power-generating capacity or consumption; |
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MW are to megawatt, representing 1,000,000 watts, a unit of
power-generating capacity or consumption. In this annual report, it is
assumed that, based on a yield rate of 95%, 420,000 125mm x 125mm or
280,000 156mm x 156mm silicon wafers are required to produce PV
products capable of generating 1 MW, that each 125mm x 125mm and 156mm
x 156mm PV cell generates 2.4 W and 3.7 W of power, respectively, and
that each PV module contains 72 125mm x 125mm PV cells or 54 156mm x
156mm PV cells; |
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PV are to photovoltaic. The photovoltaic effect is a process by which sunlight is converted into electricity; |
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RMB and Renminbi are to the legal currency of China; |
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series A convertible preference shares are to our series A
convertible preference shares, par value US$0.0001 per share; |
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shares or ordinary shares are to our ordinary shares, par value
US$0.0001 per share. For the purpose of computing and reporting our
outstanding ordinary shares and our basic or diluted earnings per
share, the 9,019,611 ADSs we issued to facilitate the convertible bond
offering are not considered outstanding; |
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W are to watt, a unit of power-generating capacity or consumption; and |
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US$ and U.S. dollars are to the legal currency of the United States. |
References in this annual report on Form 20-F to our annual manufacturing capacity
assume 24 hours of operation per day for 350 days per year.
Unless the context indicates otherwise, we, us, our company, Hanwha SolarOne
and our refer to Hanwha SolarOne Co., Ltd., its predecessor entities and its
consolidated subsidiaries.
We completed the initial public offering of 12,000,000 ADSs, each representing five
ordinary shares on December 26, 2006. On December 20, 2006, we listed our ADSs on the
Nasdaq Global Market, which are traded under the symbol HSOL.
On January 29, 2008, we closed an offering of US$172.5 million 3.50% convertible
senior notes due 2018, or 2018 convertible bonds, to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933, as amended, or the Securities
Act, and received net proceeds of US$167.9 million. Concurrently with this convertible
bond offering, we closed an offering of 9,019,611 ADSs, representing 45,098,055 ordinary
shares, to facilitate the convertible bond offering. We did not receive any proceeds,
other than the par value of the ADSs, from such offering of ADSs.
From July 17, 2008 to August 12, 2008, we issued and sold 5,421,093 ADSs with an
aggregate sale price of US$73.9 million.
From September 17, 2009 to November 18, 2009, we issued and sold 3,888,399 ADSs with
an aggregate sale price of US$23.1 million.
i
In September 2010, we issued and sold to Hanwha Solar Holdings Co., Ltd., or Hanwha
Solar, 36,455,089 ordinary shares for an aggregate sale price of US$78.2 million.
Concurrently with the closing of this offering, we issued 30,672,689 ordinary shares to
Hanwha Solar at par value of the ordinary shares and subsequently an additional
14,407,330 ordinary shares at par value, which
shares shall remain outstanding so long as and to the extent that the 9,019,611 ADSs
we issued to facilitate our convertible bond offering in January 2008 remain outstanding.
At the same time, Hanwha Solar completed the acquisitions from Good Energies II LP and
Yonghua Solar Power Investment Holding Ltd., the company owned by Mr. Yonghua Lu, our
former chairman, of a total of 120,407,700 ordinary shares and 1,281,011 ADSs of our
company, representing all of the ordinary shares and ADSs held by them. Hanwha Solar, a
company that engages in solar business, is a wholly-owned subsidiary of Hanwha Chemical
Corporation, a leading chemical producer publicly traded on the Korea Exchange whose
principal activities are the production of chlor-alkali, or CA, polyethylene, or PE, and
polyvinyl-chloride, or PVC, products.
In November 2010, we issued and sold 9,200,000 ADSs with an aggregate sale price of
US$82.8 million. In order for Hanwha Solar to maintain after this offering the same
level of beneficial ownership in our company as before this offering, we also issued and
sold to Hanwha Solar 45,981,604 ordinary shares for an aggregate sale price of US$82.8
million.
After Hanwha Solar became our largest shareholder, we changed our name from
Solarfun Power Holdings Co., Ltd. to Hanwha SolarOne Co., Ltd. on December 20, 2010
and our ticker from SOLF to HSOL on February 15, 2011. We also changed the names of
our subsidiaries. In this annual report, reference is made to the new names of our
subsidiaries. Please see below a list of the new names of our subsidiaries:
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(1) |
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Hanwha SolarOne U.S.A. Inc., formerly known as Solarfun Power U.S.A. Inc.; |
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(2) |
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Hanwha SolarOne Investment Holding Ltd., formerly known as Linyang Solar Power
Investment Holding Ltd.; |
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(3) |
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Hanwha SolarOne Hong Kong Limited, formerly known as Solarfun Power Hong Kong
Limited; |
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(4) |
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Hanwha SolarOne (Qidong) Co., Ltd., formerly known as Jiangsu Linyang Solarfun
Co., Ltd.; |
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(5) |
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Hanwha SolarOne Deutschland GmbH, formerly known as Solarfun Power Deutschland
GmbH; |
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(6) |
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Hanwha Solar Engineering Research and Development Center Co., Ltd.,
formerly known as Jiangsu Linyang Solarfun Engineering Research and Development
Center Co., Ltd.; |
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(7) |
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Hanwha SolarOne Technology Co., Ltd., formerly known as Jiangsu Yangguang Solar
Technology Co., Ltd.; and |
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(8) |
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Hanwha Solar Electric Power Engineering Co., Ltd., formerly known as
Jiangsu Linyang Solar Electric Power Engineering Co., Ltd. |
ii
PART I
ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not applicable.
ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3 KEY INFORMATION
A. Selected Financial Data
The following selected consolidated financial data, except for Other Operating
Data, have been derived from our audited consolidated financial statements, which have
been audited by Ernst & Young Hua Ming, an independent registered public accounting firm.
The report of Ernst & Young Hua Ming on our consolidated financial statements as of
December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 is
included elsewhere in this annual report on Form 20-F. The consolidated statement of
operations data for the years ended December 31, 2006 and 2007 and the consolidated
balance sheet data as of December 31, 2006, 2007 and 2008 have been derived from our
audited consolidated financial statements, which are not included in this annual report
on Form 20-F. The selected consolidated financial information for those periods and as of
those dates are qualified by reference to those financial statements and the related
notes, and should be read in conjunction with them and with Item 5. Operating and
Financial Review and Prospects. Our consolidated financial statements are prepared and
presented in accordance with United States generally accepted accounting principles, or
U.S. GAAP. Our historical results do not necessarily indicate our results expected for
any future periods.
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Year Ended December 31, |
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2006 |
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2007 |
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2008 |
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2009 |
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2010 |
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(RMB) |
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(RMB) |
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(RMB) |
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(RMB) |
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(RMB) |
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(US$) |
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(In thousands, except share and per share data) |
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Consolidated Statement
of Operations Data |
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Net revenues |
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630,907 |
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2,395,135 |
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4,949,068 |
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3,778,316 |
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7,526,993 |
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1,140,453 |
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Cost of revenues |
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(446,530 |
) |
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(1,997,355 |
) |
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(4,905,147 |
) |
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(3,341,936 |
) |
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(5,960,648 |
) |
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(903,128 |
) |
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Gross profit |
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184,377 |
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397,780 |
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43,921 |
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436,380 |
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1,566,345 |
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237,325 |
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Operating expenses |
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Selling expenses |
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(11,883 |
) |
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(62,777 |
) |
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(87,913 |
) |
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(105,454 |
) |
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(178,057 |
) |
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(26,978 |
) |
General and
administrative expenses |
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(52,214 |
) |
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(113,756 |
) |
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(143,340 |
) |
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(180,989 |
) |
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(190,594 |
) |
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(28,878 |
) |
Research and
development expenses |
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(6,523 |
) |
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(27,440 |
) |
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(19,679 |
) |
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(32,025 |
) |
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(53,500 |
) |
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(8,106 |
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Government grants |
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18,755 |
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2,842 |
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Total operating expenses |
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(70,620 |
) |
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(203,973 |
) |
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(250,932 |
) |
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(318,468 |
) |
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(403,396 |
) |
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(61,120 |
) |
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Operating profit (loss) |
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113,757 |
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193,807 |
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(207,011 |
) |
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117,912 |
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1,162,949 |
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176,205 |
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Interest expenses |
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(8,402 |
) |
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(25,978 |
) |
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(103,146 |
) |
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(157,907 |
) |
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(161,677 |
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(24,497 |
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Interest income |
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1,326 |
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16,244 |
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10,004 |
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5,002 |
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6,141 |
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|
930 |
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Exchange losses |
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(4,346 |
) |
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(25,628 |
) |
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(35,230 |
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(23,814 |
) |
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(89,272 |
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(13,526 |
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Changes in fair value
of derivative contracts |
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(163 |
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83,090 |
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9,594 |
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77,531 |
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11,747 |
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Changes in fair value
of conversion feature
of convertible bonds |
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(73,887 |
) |
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31,623 |
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4,791 |
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Other income |
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902 |
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1,507 |
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15,018 |
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6,286 |
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24,353 |
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|
3690 |
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Other expenses |
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(836 |
) |
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(9,670 |
) |
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(25,604 |
) |
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(11,835 |
) |
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(5,903 |
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(894 |
) |
Government grants |
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852 |
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2,089 |
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3,480 |
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7,661 |
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9,595 |
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1,454 |
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Income (loss) before
income taxes |
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103,090 |
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152,371 |
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(259,399 |
) |
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(120,988 |
) |
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1,055,340 |
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159,900 |
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Income tax
benefit/(expenses) |
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3,132 |
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(7,458 |
) |
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(6,519 |
) |
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(23,928 |
) |
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(297,983 |
) |
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(45,149 |
) |
Consolidated net income
(loss) |
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106,222 |
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144,913 |
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(265,918 |
) |
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(144,916 |
) |
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757,357 |
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114,751 |
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Net (income) loss
attributable to
non-controlling
interest |
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(7,527 |
) |
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3,124 |
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(14,573 |
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(311 |
) |
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Net income (loss)
attributable to
shareholders |
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98,695 |
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148,037 |
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(280,491 |
) |
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(145,227 |
) |
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757,357 |
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|
114,751 |
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1
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Year Ended December 31, |
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2006 |
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2007 |
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2008 |
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2009 |
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2010 |
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(RMB) |
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(RMB) |
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(RMB) |
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(RMB) |
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(RMB) |
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(US$) |
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(In thousands, except share and per share data) |
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Net income (loss)
attributable to
shareholders per share
Hanwha SolarOne Co.,
Ltd. |
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Basic |
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0.95 |
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0.62 |
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(1.11 |
) |
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(0.53 |
) |
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2.43 |
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0.37 |
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Diluted |
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0.74 |
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0.62 |
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(1.11 |
) |
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(0.53 |
) |
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2.36 |
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0.36 |
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Number of shares used in
computation of net
income (loss) per share |
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Basic |
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103,631,832 |
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240,054,686 |
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252,659,614 |
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274,067,760 |
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311,263,308 |
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311,263,308 |
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Diluted |
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142,108,460 |
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240,054,686 |
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252,659,614 |
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274,067,760 |
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357,272,605 |
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357,272,605 |
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Net income (loss) per ADS |
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Basic |
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4.76 |
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3.08 |
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(5.55 |
) |
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(2.65 |
) |
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12.17 |
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|
1.84 |
|
Diluted |
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3.72 |
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3.08 |
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(5.55 |
) |
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(2.65 |
) |
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11.82 |
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|
1.79 |
|
Number of ADS used in
computation of net
income (loss) per ADS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
20,726,366 |
|
|
|
48,010,937 |
|
|
|
50,531,923 |
|
|
|
54,813,552 |
|
|
|
62,252,662 |
|
|
|
62,252,662 |
|
Diluted |
|
|
28,421,692 |
|
|
|
48,010,937 |
|
|
|
50,531,923 |
|
|
|
54,813,552 |
|
|
|
71,454,521 |
|
|
|
71,454,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
(RMB) |
|
|
(RMB) |
|
|
(RMB) |
|
|
(RMB) |
|
|
(RMB) |
|
|
(US$) |
|
|
Other Financial Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
29.2 |
% |
|
|
16.6 |
% |
|
|
0.9 |
% |
|
|
11.5 |
% |
|
|
20.8 |
% |
|
|
20.8 |
% |
Operating margin |
|
|
18.0 |
% |
|
|
8.1 |
% |
|
|
(4.2 |
)% |
|
|
3.1 |
% |
|
|
15.5 |
% |
|
|
15.5 |
% |
Net margin |
|
|
16.8 |
% |
|
|
6.2 |
% |
|
|
(5.7 |
)% |
|
|
(3.8 |
)% |
|
|
10.1 |
% |
|
|
10.1 |
% |
Net cash (used in)
provided by
operating
activities (in
thousands) |
|
|
(523,061 |
) |
|
|
(1,020,603 |
) |
|
|
(674,040 |
) |
|
|
689,333 |
|
|
|
268,438 |
|
|
|
40,672 |
|
Other Operating Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
(MW) |
|
|
(MW) |
|
|
(MW) |
|
|
(MW) |
|
|
(MW) |
|
Amount of PV modules shipped (including PV module
processing) |
|
|
19.0 |
|
|
|
78.4 |
|
|
|
172.8 |
|
|
|
313.4 |
|
|
|
797.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
(RMB/W) |
|
|
(RMB/W) |
|
|
(RMB/W) |
|
|
(RMB/W) |
|
|
(RMB/W) |
|
|
(US$/W) |
|
Average selling price of PV modules
(excluding PV module processing) |
|
|
31.75 |
|
|
|
28.20 |
|
|
|
26.77 |
|
|
|
15.27 |
|
|
|
11.58 |
|
|
|
1.75 |
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
(RMB) |
|
|
(RMB) |
|
|
(RMB) |
|
|
(RMB) |
|
|
(RMB) |
|
|
(US$) |
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance
Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
1,137,792 |
|
|
|
272,928 |
|
|
|
410,901 |
|
|
|
645,720 |
|
|
|
1,630,777 |
|
|
|
247,087 |
|
Restricted cash |
|
|
33,822 |
|
|
|
42,253 |
|
|
|
88,137 |
|
|
|
60,539 |
|
|
|
100,490 |
|
|
|
15,226 |
|
Accounts receivable net |
|
|
147,834 |
|
|
|
430,692 |
|
|
|
319,537 |
|
|
|
587,488 |
|
|
|
1,282,807 |
|
|
|
194,365 |
|
Notes receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
1,515 |
|
Inventoriesnet |
|
|
372,504 |
|
|
|
728,480 |
|
|
|
731,708 |
|
|
|
783,973 |
|
|
|
790,773 |
|
|
|
119,814 |
|
Advance to suppliers
net |
|
|
238,178 |
|
|
|
640,118 |
|
|
|
1,145,614 |
|
|
|
540,145 |
|
|
|
764,063 |
|
|
|
115,767 |
|
Other current assets |
|
|
75,525 |
|
|
|
214,478 |
|
|
|
481,749 |
|
|
|
180,315 |
|
|
|
255,432 |
|
|
|
38,702 |
|
Deferred tax assets net |
|
|
3,400 |
|
|
|
7,793 |
|
|
|
62,481 |
|
|
|
76,904 |
|
|
|
108,370 |
|
|
|
16,419 |
|
Derivative contracts |
|
|
|
|
|
|
|
|
|
|
39,665 |
|
|
|
7,360 |
|
|
|
7,489 |
|
|
|
1,135 |
|
Amount due from related
parties |
|
|
153 |
|
|
|
920 |
|
|
|
19 |
|
|
|
12,458 |
|
|
|
42,819 |
|
|
|
6,488 |
|
Long-term prepayments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
439,617 |
|
|
|
394,282 |
|
|
|
59,740 |
|
Fixed assets net |
|
|
207,449 |
|
|
|
702,884 |
|
|
|
1,492,575 |
|
|
|
1,586,283 |
|
|
|
2,084,027 |
|
|
|
315,762 |
|
Intangible assets net |
|
|
12,897 |
|
|
|
94,282 |
|
|
|
212,736 |
|
|
|
208,563 |
|
|
|
205,763 |
|
|
|
31,176 |
|
Long-term deferred
expenses |
|
|
|
|
|
|
214,385 |
|
|
|
37,467 |
|
|
|
33,158 |
|
|
|
27,273 |
|
|
|
4,132 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
134,735 |
|
|
|
134,735 |
|
|
|
134,735 |
|
|
|
20,414 |
|
Total assets |
|
|
2,230,432 |
|
|
|
3,349,513 |
|
|
|
5,157,324 |
|
|
|
5,297,258 |
|
|
|
7,839,100 |
|
|
|
1,187,742 |
|
Short-term bank borrowings |
|
|
379,900 |
|
|
|
965,002 |
|
|
|
1,098,832 |
|
|
|
404,764 |
|
|
|
318,919 |
|
|
|
48,321 |
|
Long-term bank
borrowings, current
portion |
|
|
16,000 |
|
|
|
15,000 |
|
|
|
30,000 |
|
|
|
120,000 |
|
|
|
215,000 |
|
|
|
32,576 |
|
Accounts payable |
|
|
51,452 |
|
|
|
141,709 |
|
|
|
217,026 |
|
|
|
441,768 |
|
|
|
478,129 |
|
|
|
72,444 |
|
Notes payable |
|
|
14,020 |
|
|
|
|
|
|
|
39,341 |
|
|
|
186,921 |
|
|
|
181,265 |
|
|
|
27,464 |
|
Accrued expenses and
other liabilities |
|
|
33,619 |
|
|
|
135,395 |
|
|
|
189,028 |
|
|
|
191,895 |
|
|
|
404,826 |
|
|
|
61,337 |
|
Customer deposits |
|
|
17 |
|
|
|
27,628 |
|
|
|
9,494 |
|
|
|
59,685 |
|
|
|
33,538 |
|
|
|
5,082 |
|
Deferred tax liabilities |
|
|
|
|
|
|
9,038 |
|
|
|
28,571 |
|
|
|
26,566 |
|
|
|
25,977 |
|
|
|
3,936 |
|
Unrecognized tax benefit |
|
|
|
|
|
|
|
|
|
|
27,385 |
|
|
|
27,385 |
|
|
|
143,473 |
|
|
|
21,738 |
|
Derivative contracts |
|
|
|
|
|
|
|
|
|
|
5,792 |
|
|
|
1,148 |
|
|
|
8,047 |
|
|
|
1,219 |
|
Amount due to related
parties |
|
|
24,486 |
|
|
|
92,739 |
|
|
|
39,766 |
|
|
|
16,765 |
|
|
|
13,183 |
|
|
|
1,997 |
|
Long-term bank borrowings |
|
|
15,000 |
|
|
|
|
|
|
|
170,000 |
|
|
|
350,000 |
|
|
|
135,000 |
|
|
|
20,455 |
|
Convertible bonds |
|
|
|
|
|
|
|
|
|
|
1,178,969 |
|
|
|
658,653 |
|
|
|
687,435 |
|
|
|
104,157 |
|
Total liabilities |
|
|
542,066 |
|
|
|
1,386,511 |
|
|
|
3,034,204 |
|
|
|
2,485,550 |
|
|
|
2,644,792 |
|
|
|
400,726 |
|
Redeemable ordinary shares |
|
|
|
|
|
|
|
|
|
|
55 |
|
|
|
55 |
|
|
|
55 |
|
|
|
8 |
|
Total shareholders equity |
|
|
1,678,215 |
|
|
|
1,862,582 |
|
|
|
2,123,065 |
|
|
|
2,811,653 |
|
|
|
5,194,253 |
|
|
|
787,008 |
|
Total liabilities,
redeemable ordinary
shares and shareholders
equity |
|
|
2,230,432 |
|
|
|
3,349,513 |
|
|
|
5,157,324 |
|
|
|
5,297,258 |
|
|
|
7,839,100 |
|
|
|
1,187,742 |
|
3
Exchange Rate Information
This annual report on Form 20-F contains translations of certain RMB amounts into
U.S. dollar amounts at specified rates. Unless otherwise stated, the translations of RMB
into U.S. dollars have been made at the exchange rate as set forth on December 30, 2010
in the H.10 statistical release of the Federal Reserve Board, which was RMB6.6000 to
US$1.00. We make no representation that the RMB or U.S. dollar amounts referred to in
this annual report could have been or could be converted into U.S. dollars or RMB, as the
case may be, at any particular rate or at all. See Item 3.D. Risk Factors Risks
Related to Our Company and Our Industry Fluctuations in exchange rates could adversely
affect our business as well as result in foreign currency exchange losses and Item 3.D.
Risk Factors Risks Related to Doing Business in China Restrictions on currency
exchange may limit our ability to receive and use our revenue effectively for
discussions of the effects of fluctuating exchange rates and currency control on the
value of our ADSs. On May 27, 2011, the exchange rate as set forth in the H.10 statistical
release of the Federal Reserve Board was RMB6.4920 to US$1.00.
The following table sets forth information concerning exchange rates between the RMB
and the U.S. dollar for the periods indicated. These rates are provided solely for your
convenience and are not necessarily the exchange rates that we used in this annual report
or will use in the preparation of our periodic reports or any other information to be
provided to you.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Renminbi per U.S. Dollar Noon Buying Rate(1) |
|
|
|
Period |
|
|
|
|
|
|
|
|
|
|
|
|
End |
|
|
Average(2) |
|
|
Low |
|
|
High |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
7.8041 |
|
|
|
7,9579 |
|
|
|
7.8041 |
|
|
|
8.0702 |
|
2007 |
|
|
7.2946 |
|
|
|
7.5806 |
|
|
|
7.2946 |
|
|
|
7.8127 |
|
2008 |
|
|
6.8225 |
|
|
|
6.9193 |
|
|
|
6.7800 |
|
|
|
7.2946 |
|
2009 |
|
|
6.8259 |
|
|
|
6.8295 |
|
|
|
6.8176 |
|
|
|
6.8470 |
|
2010 |
|
|
6.6000 |
|
|
|
6.7603 |
|
|
|
6.6000 |
|
|
|
6.8330 |
|
November 2010 |
|
|
6.6670 |
|
|
|
6.6538 |
|
|
|
6.6630 |
|
|
|
6.6892 |
|
December 2010 |
|
|
6.6000 |
|
|
|
6.6497 |
|
|
|
6.6000 |
|
|
|
6.6745 |
|
January 2011 |
|
|
6.6017 |
|
|
|
6.5964 |
|
|
|
6.5809 |
|
|
|
6.6364 |
|
February 2011 |
|
|
6.5713 |
|
|
|
6.5761 |
|
|
|
6.5520 |
|
|
|
6.5965 |
|
March 2011 |
|
|
6.5483 |
|
|
|
6.5645 |
|
|
|
6.5483 |
|
|
|
6.5743 |
|
April 2011 |
|
|
6.4900 |
|
|
|
6.5267 |
|
|
|
6.4900 |
|
|
|
6.5477 |
|
May 2011
(through May 27, 2011) |
|
|
6.4920 |
|
|
|
6.4965 |
|
|
|
6.4913 |
|
|
|
6.5073 |
|
|
|
|
Notes: |
|
(1) |
|
For periods prior to January 1, 2009, the exchange rates reflect the noon buying rates as reported by the Federal Reserve
Bank of New York. For periods after January 1, 2009, the exchange rates reflect the exchange rates as set forth in the H.10
statistical release of the Federal Reserve Board. |
|
(2) |
|
Annual averages are calculated from month-end rates. Monthly averages are calculated using the average of the daily rates
during the relevant period. |
B. Capitalization and Indebtedness
Not Applicable.
C. Reasons for the Offer and Use of Proceeds
Not Applicable.
4
D. Risk Factors
Risks Related to Our Company and Our Industry
Demand for our PV products has been, and may continue to be, adversely affected by
volatile market and industry trends.
Demand for our PV products has been affected by global economic conditions, capital
markets fluctuations and credit disruptions. During the second half of 2008 and the first
half of 2009, many of our key markets, including Germany, Spain and the United States,
and other national economies experienced a period of economic contraction or
significantly slower economic growth. The global financial crisis, weak consumer
confidence and diminished consumer and business spending have contributed to a
significant slowdown in the market demand for PV products due to decreased energy
requirements. In addition, many of our customers and many end-users of our PV products
depend on debt financing to fund the initial capital expenditure required to purchase our
PV products. During the global credit crisis, many of our customers and many end-users of
our PV products experienced difficulties in obtaining financing, and even if they were
able to obtain financing, the cost of such financing had increased such that they changed
their decision or changed the timing of their decision to purchase our PV products. There
can be no assurance that our customers or end-users will be able to obtain financing on a
timely basis or on reasonable terms, which could have a negative impact on their demand
for our products. Rising interest rates may make it difficult for end-users to finance
the cost of PV systems and therefore reduce the demand for our PV products and/or lead to
a reduction in the average selling price of our PV products. Since 2010, we have
experienced an increase in demand for our PV products due to the economic recovery and
the shortage of manufacturing capacity in the industry. However, we cannot provide
assurance that such increase in demand will continue in 2011. A protracted disruption in
the ability of our customers to obtain financing, economic downturn or an increase in
manufacturing capacity of the PV industry could lead to a significant reduction in future
orders for our PV products, which in turn could have a material adverse effect on our
business, financial condition and results of operations. In addition, since we have
substantially increased our production capacity in the past few years, the decrease in
demand for our products may lead to idle capacity. If the reduction in demand results in
significant amount of our capacity not utilized, our assets may be impaired.
The average selling price of our PV products may continue to decrease.
Beginning in the fourth quarter of 2008, the supply of PV products has increased
significantly as many manufacturers of PV products worldwide, including our company, have
engaged in significant production capacity expansion in recent years. As a result, this
state of over-supply has resulted in reductions in the prevailing market prices of PV
products as manufacturers have reduced their average selling prices in an attempt to
obtain sales. The average selling price of our PV modules per watt decreased from
RMB26.77 in 2008 to RMB15.27 in 2009, and to RMB11.58 (US$1.75) in 2010. Our net profit
margin increased from a negative margin of 5.7% in 2008 to a negative margin of 3.8% in
2009, and increased to a positive margin of 10.1% in 2010. The average selling prices of
our PV products may decline further, which could cause our sales and/or our profit
margins to decline and have a material adverse effect on our business, financial
condition, results of operations and prospects.
As silicon supply increases, the corresponding increase in the global supply of PV
modules may adversely affect our ability to increase or maintain our market share.
Silicon is an essential raw material used in the production of solar cells and
modules. Prior to mid-2008, there was an industry-wide shortage of silicon. Increases in
the price of silicon have in the past increased our production costs, and any significant
price increase in the future may adversely impact our business and results of operations.
Due to the historical scarcity of silicon, supply chain management and financial strength
were the key barriers to entry. In late 2008 and 2009, however, newly available silicon
capacity has resulted in an increased supply of silicon, which resulted in downward
pressure on the price of silicon. However, we cannot assure you that the price of silicon
will continue to decline or remain at its current levels, especially if the global solar
power market regains its growth momentum. As the shortage of silicon eases, industry
barriers to entry become less significant and the PV market may become more competitive.
If we fail to compete successfully, our business may suffer and we may lose or be unable
to gain market share and our financial condition and results of operations may be
materially and adversely affected. Such price reductions could have a negative impact on
our revenues and net income, and materially and adversely affect our business and results
of operations.
The reduction or elimination of government subsidies and economic incentives for on-grid
solar energy applications could have a material adverse effect on our business and
prospects.
We believe that the near-term growth of the market for on-grid applications, where
solar energy is used to supplement a customers electricity purchased from the electric
utility, depends in large part on the availability and size of government subsidies and
economic incentives. The on-grid market, the reduction or elimination of government
subsidies and economic incentives may hinder the growth of this market, which could
decrease demand for our products and reduce our revenue.
The cost of solar energy currently exceeds the cost of power furnished by the
electric utility grid in many countries. As a result, federal, state and local
governmental bodies in many countries, most notably Germany, Spain, Italy, the United
States, Australia, Korea, France and the Czech Republic, have provided subsidies and
economic incentives in the form of rebates, tax credits and other incentives to end
users, distributors, system integrators and manufacturers of PV products to promote the
use of solar energy in on-grid applications and to reduce dependency on other forms of
energy. Certain of these government economic incentives are set to be reduced and may be
reduced further, or eliminated. For instance, in 2009, the German government reduced
solar feed-in tariffs by 9% and in July 2010, reduced feed-in tariffs for rooftop
installations, ground-mounted installations on commercial land and ground-mounted
installations on converted land by 13%, 12% and 8%, respectively. Beginning in October
2010, each category of feed-in tariff will be reduced by a further 3%. Installations on
agricultural land are ineligible for incentives. In 2008, 2009 and 2010, Germany
accounted for 53.3%, 70.6% and 62.5% of our net revenues, respectively. In May 2011, the
Italian government approved a decree to cut incentives for solar projects. The decree
introduced a subsidy spending cap on large projects from 2011 to 2013 and a gradual
reduction on feed-in tariffs starting June 2011.
5
In addition, political changes in a particular country could result in significant
reductions or eliminations of subsidies or economic incentives. Electric utility
companies that have significant political lobbying powers may also seek changes in the
relevant legislation in their markets that may adversely affect the development and
commercial acceptance of solar energy. The reduction or elimination of government
subsidies and economic incentives for on-grid solar energy applications, especially those
in our target markets, could cause demand for our products and our net revenues to
decline, and have a material adverse effect on our business, financial condition, results
of operations and prospects.
Our ability to adjust our raw material costs may be limited as a result of our entering
into multi-year supply agreements with many of our silicon and silicon wafer suppliers,
and it may be difficult for us to respond in a timely manner to rapidly changing market
conditions, which could materially and adversely affect our cost of revenues and
profitability.
Prior to mid-2008, there was an industry-wide shortage of silicon-related materials
including silicon, silicon wafers and PV cells, which resulted in significant increases
in the prices of these raw materials. To secure an adequate and timely supply of
silicon-related materials during the earlier periods of supply shortage, we entered into
a number of multi-year supply agreements. The prices in the
agreements we entered into prior to mid-2008 were generally
pre-determined, but some of these agreements provided for adjustments in subsequent years
to reflect changes in market conditions or through mutual agreement. Since the fourth
quarter of 2008, the market prices for silicon-related materials have been decreasing
significantly. Spot market prices of silicon-related materials have fallen below the
prices we have contracted for with our long-term suppliers and continued to decline in
2009. Due to the significant decrease in prices of silicon-related materials, we
re-negotiated all of our multi-year supply agreements that were in place as of
December 31, 2009, except the agreement with Jiangxi LDK Solar Hi-Tech Co., Ltd, or LDK.
After re-negotiation, the pricing terms of such multi-year agreements were generally subject to
review either periodically or upon significant changes in prices on the spot market. The
pricing terms of each of these multi-year agreements were adjusted to be more in line
with spot market pricing at the time of the re-negotiation. In addition, the quantity
and/or timing of deliveries were also adjusted in each case to reflect our updated
purchase requirements as a result of the changes in market conditions and our capacity
expansion.
Currently, there is only one multi-year supply agreement we entered into in 2010 where
the price is pre-determined without any future adjustment.
While we have obtained reduced prices and other concessions from our
suppliers, we cannot assure you that we will be able to obtain reduced prices from all of
our suppliers in the future. If the prices of silicon-related materials continue to
decrease in the future and we are unable to re-negotiate the prices of our existing
multi-year supply agreements, we may not be able to adjust our materials costs, and our
cost of revenues could be materially and adversely affected. In addition, the prices of
our non-silicon-related raw materials are also subject to market forces beyond our
control. If the prices of these materials increase in the future, our non-silicon-related
cost of revenues could be materially and adversely affected.
Furthermore, other PV module manufacturers may be able to purchase silicon-related
materials on the spot market at lower prices than those we have contracted for with our
suppliers. We will continue to purchase a significant amount of silicon-related materials
pursuant to our multi-year supply agreements. In the event we are unable to re-negotiate
or fulfill our obligations under our supply agreements, we may be subject to significant
inventory build-up and may be required to make further inventory write-downs and
provision for these commitments, which could have a material adverse effect on our
business, financial condition, results of operations and prospects. If the prices we pay
for silicon-related materials are significantly higher than the prices paid by our
competitors, our competitive cost advantage of producing modules could decrease. Our
inability to reduce a key manufacturing cost to the same degree as our competitors could
adversely affect our ability to price our products competitively and our profit margins.
We may be subject to legal, administrative or other proceedings in connection with the
multi-year supply agreements we entered into previously and such proceedings can be both
costly and time consuming and may significantly divert the efforts and resources of our
management personnel.
During the course of renegotiation of some of the multi-year supply agreements we
entered into previously, we may be subject to legal, administrative or other proceedings
if mutual agreement cannot be reached between us and our suppliers. For example, on June
8, 2009, Jiangxi LDK Solar Hi-Tech Co., Ltd., or LDK, one of our silicon suppliers,
submitted an arbitration request to the Shanghai Arbitration Commission alleging that we
failed to perform under the terms of a multi-year framework supply agreement, seeking to
enforce our performance and claiming monetary relief. Deliveries of silicon under the
agreement halted in early 2009 and have not recommenced. We intend to continue to
vigorously defend ourselves against the claims brought by LDK and, on July 9, 2009, we
submitted an arbitration request to the Shanghai Arbitration Commission requesting that
LDK refund the outstanding prepayments of RMB104 million that we made under the contract,
plus compensation of RMB35 million from LDK for estimated losses incurred by us as a
result of the stoppage of deliveries under the framework supply agreement. There is no
assurance that we will be able to successfully defend or resolve such legal or
administrative proceedings in the near future or at all. Such legal and administrative
proceedings can be both costly and time consuming and may significantly divert the
efforts and resources of our management personnel. If there are any adverse judgments,
our financial condition, results of operations and liquidity could be materially and
adversely affected.
6
Prepayments we have provided to our silicon and silicon wafer suppliers expose us to the credit risks of
such suppliers and may not be recovered, which could in turn have a material adverse effect on our
liquidity.
Most of our multi-year supply agreements that we entered into during the earlier periods of supply
shortage required us to make prepayments of a portion of the total contract price to our suppliers without
receiving collateral for such prepayments. As of December 31, 2008, 2009 and 2010, we had advanced
RMB1,145.6 million, RMB979.8 million and RMB1,158.3 million (US$175.5 million), respectively, to our
suppliers. In 2008, 2009 and 2010, we recorded a provision of RMB42.0 million, RMB234.7 million and
RMB0.1 million (US$18,000), respectively, for doubtful collection of advances to suppliers due to
non-performance by some of our suppliers, which resulted in the prepayments we made to these suppliers
being categorized as unrecoverable. In the event that we have disputes with any of our suppliers and we are
unable to reach an agreement on terms acceptable to us, we may not be able to recover our prepayments
made to such suppliers. Most of our claims for prepayments are unsecured claims, which expose us to the
credit risks of our suppliers in the event of their insolvency or bankruptcy. Our claims against the
defaulting suppliers would rank below those of secured creditors which would undermine our chances of
obtaining the return of our prepayments. If such suppliers fail to fulfill their delivery obligations under the
contracts or if there is any dispute between us and such suppliers that jeopardizes our ongoing relationship,
we may have to record a provision relating to or write down prepayments made to such suppliers, which
could materially and adversely affect our financial condition, results of operations and liquidity.
Evaluating our business and prospects may be difficult because of our limited operating
history, and our past results may not be indicative of our future performance.
There is limited historical information available about our company upon which you
can base your evaluation of our business and prospects. We began operations in August
2004 and shipped our first PV modules and our first PV cells in February 2005 and
November 2005, respectively. With the rapid growth of the PV industry prior to the fourth
quarter of 2008, our business has grown and evolved at a rapid rate. As a result, our
historical operating results may not provide a meaningful basis for evaluating our
business, financial performance and prospects and we may not be able to achieve a similar
growth rate in future periods. Therefore, you should consider our business and prospects
in light of the risks, expenses and challenges that we will face as a company with a
relatively short operating history in a competitive industry seeking to develop and
manufacture new products in a rapidly growing market, and you should not rely on our past
results or our historic rate of growth as an indication of our future performance.
Our future success substantially depends on our ability to manage our production
effectively and to reduce our manufacturing costs. Our ability to achieve such goals is
subject to a number of risks and uncertainties.
Our future success depends on our ability to manage our production and facilities
effectively and to reduce our manufacturing costs. Our efforts to reduce our
manufacturing costs include lowering our silicon and auxiliary material costs, improving
manufacturing productivity and processes, and improving product quality. If we are unable
to achieve these goals, we may be unable to decrease our costs per watt, to maintain our
competitive position or to improve our profitability. Our ability to achieve such goals
is subject to significant risks and uncertainties, including:
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our ability to continue to re-negotiate our existing multi-year supply
agreements; |
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our ability to maintain our quality level and keep pace with changes in
technology; |
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our ability to source various raw materials; |
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our ability to adjust inventory levels to respond to rapidly changing market
demand; |
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delays in obtaining or denial of required approvals by relevant government
authorities; and |
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diversion of significant management attention and other resources to other
matters. |
If we are unable to establish or successfully make improvements to our manufacturing
facilities or to reduce our manufacturing costs, or if we encounter any of the risks
described above, we may be unable to improve our business as planned.
7
We depend on a limited number of customers and countries for a high percentage of our
revenue and the loss of, or a significant reduction in orders from, any of these
customers or countries, if not immediately replaced, would significantly reduce our
revenue and decrease our profitability.
We currently sell a substantial portion of our PV products to a limited number of
customers and countries. Our five largest customers accounted for an aggregate of 53.2%,
65.3% and 51.9% of our net revenues in 2008, 2009 and 2010, respectively. Our largest
customer in 2008, 2009 and 2010 accounted for 22.2%, 40.6% and 33.6% of our net revenues
of the respective period. Most of our large customers are located in Europe, particularly
in Germany, Italy, Portugal and the Czech Republic. In 2008, 2009 and 2010, Germany
accounted for 53.3%, 70.6% and 62.5% of our net revenues, respectively. In 2010, Germany,
China and Italy are the top three countries in terms of percentage contribution to our
net revenues. The loss of sales to any one of these customers or countries would have a
significant negative impact on our business. Sales to our customers are mostly made
through non-exclusive arrangements. Due to our dependence on a limited number of
customers and countries, any one of the following events may cause material fluctuations
or declines in our net revenues and have a material adverse effect on our financial
condition and results of operations:
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reduction, delay or cancellation of orders from one or more of our significant
customers; |
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selection by one or more of our significant distributor customers of our
competitors products; |
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loss of one or more of our significant customers and our failure to identify
additional or replacement customers; |
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any adverse change in local policies toward solar projects in countries where we
receive most orders; |
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any adverse change in the bilateral or multilateral trade relationships between
China and the United States or European countries, particularly Germany; and |
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failure of any of our significant customers to make timely payment for our
products. |
We expect our operating results to continue to depend on sales to a relatively small
number of customers or countries for a high percentage of our revenue for the foreseeable
future, as well as the ability of these customers to sell PV products that incorporate
our PV products.
We enter into framework agreements with many of our customers that set forth our
customers purchase goals and the general conditions under which our sales are to be
made. However, such framework agreements are only binding to the extent a purchase order
for a specific amount of our products is issued. In addition, certain key sales terms of
the framework agreements may be adjusted from time to time. In addition, we have in the
past had to re-negotiate some of our framework agreements due to the disagreements with
our customers relating to the volumes, delivery schedules and pricing terms contained in
such agreements. However, it may not always be in our best interests to re-negotiate our
framework agreements and disagreements on terms may escalate into formal disputes that
could cause us to experience order cancellations or harm our reputation.
Furthermore, our customer relationships have been developed over a short period of
time. We cannot be certain that these customers will generate significant revenue for us
in the future or if these customer relationships will continue to develop. If our
relationships with customers do not continue to develop, we may not be able to expand our
customer base or maintain or increase our customers and revenue.
Our dependence on a limited number of suppliers for a substantial majority of
silicon-related materials may prevent us from delivering our products in a timely manner
to our customers in the required quantities, which could result in order cancellations,
decreased revenue and loss of market share.
In 2008, 2009 and 2010, our five largest suppliers supplied in the aggregate 42.0%,
51.6% and 40.0%, respectively, of our total silicon and silicon wafer purchases. If we
fail to develop or maintain our relationships with these or our other suppliers and we
are unable to obtain these materials from alternative sources in a timely manner or on
commercially reasonable terms, we may be unable to manufacture our products in a timely
manner or at a reasonable cost, or at all, and as a result, we may not be able to deliver
our products to our customers in the required quantities, at competitive prices and on
acceptable terms of delivery. Problems of this kind could cause us to experience order
cancellations, increased manufacturing costs, decreased revenue and loss of market share.
In addition, some of our suppliers have a limited operating history and limited financial
resources, and the contracts we entered into with these suppliers do not clearly provide
for adequate remedies to us in the event any of these suppliers is not able to, or
otherwise does not, deliver, in a timely manner or at all, any materials it is
contractually obligated to deliver. Some of our major silicon wafer suppliers failed to
fully perform on their silicon wafer supply commitments to us due primarily to an
industry-wide shortage of silicon and silicon wafers. As a result, we did not receive all
of the contractually agreed quantities of silicon wafers
from these suppliers. We cannot assure you that we will not experience similar or
additional shortfalls of silicon-related materials from our suppliers in the future or
that, in the event of such shortfalls, we will be able to find other silicon suppliers to
satisfy our production needs. Any disruption in the supply of silicon wafers to us may
adversely affect our business, financial condition and results of operations.
8
Our failure to obtain sufficient quantities of silicon-related materials in a timely
manner could disrupt our operations, prevent us from operating at full capacity or limit
our ability to expand as planned, which would reduce, and limit the growth of, our
manufacturing output and revenue.
We depend on the timely delivery by our suppliers of silicon-related materials in
sufficient volumes. Until mid-2008, there was an industry-wide shortage of
silicon-related materials. While we do not believe a similar industry-wide shortage of
silicon-related materials will re-occur in the short term because of current market
conditions and the expansion of silicon and silicon wafer manufacturing capacity in
recent years, we cannot assure you that market conditions will not again rapidly change
or we will always be able to obtain sufficient quantities of silicon-related materials in
a timely manner. We may experience actual shortages of silicon-related materials or late
or failed delivery for the following reasons:
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the terms of our silicon and silicon wafer contracts with, or purchase orders
to, our suppliers may be altered or cancelled as a result of our ongoing
re-negotiations with them; |
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there are a limited number of silicon and silicon wafer suppliers, and many of
our competitors also purchase silicon-related materials from these suppliers and
may have longer and stronger relationship with these suppliers than we do; |
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some of our silicon and silicon wafer suppliers do not manufacture silicon
themselves, but instead purchase their requirements from other vendors. It is
possible that these suppliers will not be able to obtain sufficient silicon or
silicon wafers to satisfy their contractual obligations to us; and |
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our purchase of silicon-related materials is subject to the business risk of
our suppliers, one or more of which may go out of business for any one of a number
of reasons beyond our control in the current economic environment. |
If we fail to obtain delivery of silicon-related materials in amounts and according
to time schedules that we expect, we may be forced to reduce production, which will
adversely affect our revenues. Our failure to obtain the required amounts of
silicon-related materials on time and at commercially reasonable prices could
substantially limit our ability to meet our contractual obligations to deliver PV
products to our customers. Any failure by us to meet such obligations could have a
material adverse effect on our reputation, retention of customers, market share, business
and results of operations and may subject us to claims from our customers and other
disputes.
We currently have a significant amount of debt outstanding. Our substantial indebtedness
may limit our future financing capabilities and could adversely affect our business,
financial condition and results of operations.
The principal amount of our total bank borrowings outstanding was RMB668.9 million
(US$101.4 million) as of December 31, 2010 of which RMB318.9 million (US48.3 million)
were short-term bank borrowings. In addition, we had US$172.5 million principal amount of
convertible bonds, with fair value of RMB687.4 million (US$104.2 million), outstanding as
of December 31, 2010. Our debt could have a significant impact on our future operations
and cash flow, including:
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making it more difficult for us to fulfill payment and other obligations under
our outstanding debt, including repayment of our long- and short-term credit
facilities should we be unable to obtain extensions for any such facilities before
they mature, as well as our obligations under our convertible bonds; |
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triggering an event of default if we fail to comply with any of our payment or
other obligations contained in our debt agreements, which could result in
cross-defaults causing all or a substantial portion of our debt to become
immediately due and payable; |
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reducing the availability of cash flow to fund working capital, capital
expenditures, acquisitions and other general corporate purposes, and adversely
affecting our ability to obtain additional financing for these purposes; |
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potentially increasing the cost of any additional financing; and |
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putting pressure on our ADS price due to concerns of our inability to repay our
debt and making it more difficult for us to conduct equity financings in the
capital markets. |
Our ability to meet our payment and other obligations under our outstanding debt
depends on our ability to generate cash flow in the future or to refinance such debt. We
may not be able to generate sufficient cash flow from operations to enable us to meet our
obligations under our outstanding debt and to fund other liquidity needs. If we are
not able to generate sufficient cash flow to meet such obligations, we may need to
refinance or restructure our debt, to sell our assets, to reduce or delay our capital
investments, or to seek additional equity or debt financing. We cannot assure you that
future financing will be available in amounts or on terms acceptable to us, if at all. In
addition, the incurrence of additional indebtedness would result in increased interest
rate risk and debt service obligations, and could result in operating and financing
covenants that would further restrict our operations and limit our ability to obtain the
financing required to fund future capital expenditures and working capital. As a result,
our ability to plan for, or react effectively to, changing market conditions may be
adversely and materially affected.
9
We require a significant amount of cash to fund our operations as well as meet future
capital requirements. If we cannot obtain additional capital when we need it, our growth
prospects and future profitability may be materially and adversely affected.
We typically require a significant amount of cash to fund our operations. We also
require cash generally to meet future capital requirements, which are difficult to plan
in the rapidly changing PV industry. The principal amount of our total bank borrowings
outstanding was RMB668.9 million (US$101.4 million) as of December 31, 2010. We cannot
assure you that future financing will be available on satisfactory terms, or at all. Our
ability to obtain external financing in the future is subject to a variety of
uncertainties, including:
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our future financial condition, results of operations and cash flows; |
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general market conditions for financing activities by manufacturers of PV and
related products; and |
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economic, political and other conditions in the PRC and elsewhere in the world. |
If we are unable to obtain necessary financing in a timely manner or on commercially
acceptable terms, or at all, our growth prospects and future profitability may decrease
materially.
We face risks associated with the marketing, distribution and sale of our PV products
internationally, and if we are unable to effectively manage these risks, our expansion
may be materially and adversely affected.
A substantial majority of our revenue has been generated by sales to customers
outside of China. The marketing, distribution and sale of our PV products overseas expose
us to a number of risks, including:
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fluctuations in currency exchange rates of the U.S. dollar, Euro and other
foreign currencies against the Renminbi; |
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difficulty in engaging and retaining distributors and agents who are
knowledgeable about, and can function effectively in, overseas markets; |
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increased costs associated with maintaining marketing and sales activities in
various countries; |
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difficulty and costs relating to compliance with different commercial and legal
requirements in the jurisdictions in which we offer our products; |
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inability to obtain, maintain or enforce intellectual property rights; and |
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trade barriers, such as export requirements, tariffs, taxes and other
restrictions and expenses, which could increase the prices of our products and
make us less competitive in some countries. |
If we are unable to effectively manage these risks, our ability to conduct or expand
our business abroad would be impaired, which may in turn have a material adverse effect
on our business, financial condition, results of operations and prospects.
Changes in international trade policies and international barriers to trade may adversely
affect our ability to export our products worldwide.
As our manufacturing facility and some of our customers are located in China, we and
our customers may be affected by any claims of unfair trade practices that are brought
against the PRC government through the imposition of tariffs, non-tariff barriers to
trade or other trade remedies. On September 9, 2010, the United Steel Workers filed a
petition with the United States Trade Representative, or USTR, alleging the PRC
government has engaged in unfair trade policies and practices with respect to certain
domestic industries, including the solar power industry. Subsequently, USTR initiated an
investigation under Section 301 of the 1974 Trade Act, which is ongoing as of the date of
this annual report. Although we believe we will not be directly affected by the results
of this investigation, there can be no assurance that any government or international
trade body will not institute adverse trade policies or remedies against exports from
China in the future. Any significant changes in international trade policies, practices
or trade remedies, especially those instituted in our target markets or markets where our
major customers are located,
could increase the price of our products compared to our competitors or decrease our
customers demand for our products, which may adversely affect our business prospects and
results of operations.
If we are unable to compete in the highly competitive PV market, our revenue and profits
may decrease and we may lose market share.
The PV market is very competitive. We face competition from a number of PV
manufacturers, including domestic, foreign and multinational corporations. We believe
that the principal competitive factors in the markets for our products are:
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manufacturing capacity; |
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product offerings and quality of products; |
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strength of supply chain and distribution network; |
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after-sales services; and |
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brand name recognition. |
10
Many of our current and potential competitors have longer operating histories,
access to larger customer bases and resources and significantly greater economies of
scale than we do. In particular, many of our competitors are developing and manufacturing
solar energy products based on new technologies that may ultimately have costs similar
to, or lower than, our projected costs. In addition, our competitors may be able to
respond more quickly to changing customer demands or devote more resources to the
development, promotion and sales of their products than we can. Furthermore, competitors
with more diversified product offerings may be better positioned to withstand a decline
in the demand for PV products. Some of our competitors have also become vertically
integrated, with businesses ranging from upstream silicon wafer manufacturing to solar
power system integration. It is possible that new competitors or alliances among existing
competitors could emerge and rapidly acquire significant market share, which would harm
our business. For instance, several semiconductor manufacturers have already announced
their intention to commence production of PV cells and PV modules. If we fail to compete
successfully, our business would suffer and we may lose or be unable to gain market share
and our financial condition and results of operations would be materially and adversely
affected.
In addition, the PV market in general competes with other sources of renewable
energy as well as conventional power generation. If prices for conventional and other
renewable energy resources decline, or if these resources enjoy greater policy support
than solar power, the PV market and our business and prospects could be materially and
adversely affected.
Our profitability depends on our ability to respond to rapid market changes in the PV
industry, including by developing new technologies and offering additional products and
services.
The PV industry is characterized by rapid changes in the diversity and complexity of
technologies, products and services. In particular, the ongoing evolution of
technological standards requires products with improved features, such as more efficient
and higher power output and improved aesthetics. As a result, we expect that we will need
to develop, or obtain access to, advances in technologies on a continuous basis in order
for us to respond to competitive market conditions and customer demands. In addition,
advances in technologies typically lead to declining average selling prices for products
using older technologies or make our current products less competitive or obsolete. As a
result, the profitability of any given product, and our overall profitability, may
decrease over time.
In addition, we will need to invest significant financial resources in research and
development to maintain our competitiveness and keep pace with technological advances in
the PV industry. However, commercial acceptance by customers of new products we offer may
not occur at the rate or level expected, and we may not be able to successfully adapt
existing products to effectively and economically meet customer demands, thus impairing
the return from our investments. We may also be required under the applicable accounting
standards to recognize a charge for the impairment of assets to the extent our existing
products become uncompetitive or obsolete, or if any new products fail to achieve
commercial acceptance. Any such charge may have a material adverse effect on our
financial condition and results of operations.
Moreover, in response to the rapidly evolving conditions in the PV industry, we
started to expand our business downstream to provide system integration products and
services in 2010. This expansion requires significant investment and management attention
from us, and we are likely to face intense competition from companies that have extensive
experience and well-established businesses and customer bases in the system integration
sector. We cannot assure you that we will succeed in expanding our business downstream.
If we are not able to bring quality products and services to market in a timely and
cost-effective manner and successfully market and sell these products and services,
our ability to continue penetrating the PV market, as well as our results of operations
and profitability, will be materially and adversely affected.
Our future success also depends on our ability to make strategic acquisitions and
investments and to establish and maintain strategic alliances, and failure to do so could
have a material adverse effect on our market penetration, revenue growth and
profitability. In addition, such strategic acquisitions, alliances and investments
themselves entail significant risks that could materially and adversely affect our
business.
We are
pursuing expansion into PV system integration services through our
subsidiary, Shanghai Linyang Solar Technology Co., Ltd., or Solar Shanghai, and we may
pursue upstream silicon feedstock sourcing through strategic partnerships and investments
in the future. We may also establish strategic alliances with third parties in the PV
industry to develop new technologies and to expand our marketing channels. These types of
transactions could require that our management develop expertise in new areas, make
significant investments in research and development, manage new business relationships
and attract new types of customers. They may also require significant attention from our
management, which could have a material adverse effect on our ability to manage our
business. We may also experience difficulties integrating acquisitions and investments
into our existing business and operations and retaining key technical and managerial
personnel of acquired companies.
11
Strategic acquisitions, investments and alliances with third parties may be
expensive to implement and could subject us to a number of risks, including risks
associated with sharing proprietary information and loss of control of operations that
are material to our business. We may assume unknown liabilities or other unanticipated
events or circumstances through acquisitions and investments. Moreover, strategic
acquisitions, investments and alliances subject us to the risk of non-performance by a
counterparty, which may in turn lead to monetary losses that materially and adversely
affect our business. As a result, we may not be able to successfully make such strategic
acquisitions and investments or to establish strategic alliances with third parties that
will prove to be effective or beneficial for our business. Any difficulty we face in this
regard could have a material adverse effect on our market penetration, results of
operations and profitability.
Problems with product quality or product performance could result in a decrease in
customers and revenue, unexpected expenses and loss of market share. In addition, product
liability or warranty claims against us could result in adverse publicity and potentially
significant monetary damages.
Our PV products are typically sold with a two to five-year unlimited warranty for
technical defects, a 10-year limited warranty against declines of greater than 10%, and a
20 to 25-year limited warranty against declines of greater than 20%, in their initial
power generation capacity. Since our products have been in use for only a relatively
short period, our assumptions regarding the durability and reliability of our products
may not be accurate. We consider various factors when determining the likelihood of
product defects, including an evaluation of our quality controls, technical analysis,
industry information on comparable companies and our own experience. As of December 31,
2008, 2009 and 2010, our accrued warranty costs for the two to five years warranty
against technical defects totaled RMB48.6 million, RMB73.5 million and RMB131.7 million
(US$20.0 million), respectively. If our PV modules fail to perform to the standards of the performance guarantee, we could incur substantial
expenses and substantial cash outlays to repair, replace or provide refunds for the under-performing products,
which could negatively impact our overall cash position. Any increase in the defect rate of our products would
increase the amount of our warranty costs and we may not have adequate warranty provision
to cover such warranty costs, which would have a negative impact on our results of
operations.
In addition, we purchase silicon-related materials and other components that we use
in our products from third parties. Unlike PV modules, which are subject to certain
uniform international standards, silicon-related materials generally do not have uniform
international standards, and it is often difficult to determine whether product defects
are caused by defects in silicon, silicon wafers or other components of our products or
caused by other reasons. Even assuming that our product defects are caused by defects in
raw materials, we may not be able to recover our warranty costs from our suppliers
because the agreements we entered into with our suppliers typically contain no or only
limited warranties. The possibility of future product failures could cause us to incur
substantial expense to provide refunds or resolve disputes with regard to warranty claims
through litigation, arbitration or other means, or damage our market reputation and cause
our sales to decline.
As with other PV product manufacturers, we are exposed to risks associated with
product liability claims if the use of the PV products we sell results in injury, death
or damage to property. We cannot predict whether product liability claims will be brought
against us in the future or the effect of any resulting negative publicity on our
business. See We have limited insurance coverage and may incur losses resulting from
product liability claims or business interruptions.
If PV technology is not suitable for widespread adoption, or sufficient demand for PV
products does not develop or takes longer to develop than we anticipated, our sales may
not continue to increase or may even decline, and our revenue and profitability would be
reduced.
The PV market is at a relatively early stage of development and the extent to which
PV products will be widely adopted is uncertain. Furthermore, market data in the PV
industry are not as readily available as those in other more established industries,
where trends can be assessed more reliably from data gathered over a longer period of
time. If PV technology, in particular the type of PV technology that we have adopted,
proves unsuitable for widespread adoption or if demand for PV products fails to develop
sufficiently, we may not be able to grow our business or generate sufficient revenue to
sustain our profitability. In addition, demand
for PV products in our targeted markets, including China, may not develop or may
develop to a lesser extent than we anticipated. Many factors may affect the viability of
widespread adoption of PV technology and demand for PV products, including:
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cost-effectiveness of PV products compared to conventional and other non-solar
energy sources and products; |
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performance and reliability of PV products compared to conventional and other
non-solar energy sources and products; |
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availability of government subsidies and incentives to support the development
of the PV industry or other energy resource industries; |
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success of other alternative energy generation technologies, such as fuel
cells, wind power and biomass; |
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fluctuations in economic and market conditions that affect the viability of
conventional and non-solar alternative energy sources, such as increases or
decreases in the prices of oil and other fossil fuels; |
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capital expenditures by end users of PV products, which tend to decrease when
the overall economy slows down; and |
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deregulation of the electric power industry and the broader energy industry. |
12
One of our existing shareholders has substantial influence over our company and its
interests may not be aligned with the interests of our other shareholders.
Hanwha Solar owns approximately 49.8% of our outstanding share capital as of April
22, 2011. Pursuant to a shareholder agreement between Hanwha Solar and our company dated
September 16, 2010, Hanwha Solar has the right to designate three directors to our board
and veto major corporate actions. Hanwha Solar has substantial influence over our
business, including decisions regarding mergers, consolidations and the sale of all or
substantially all of our assets, election of directors and other significant corporate
actions. This concentration of ownership may discourage, delay or prevent a change in
control of our company, which could deprive our shareholders of an opportunity to receive
a premium for its shares as part of a sale of our company and might reduce the price of
our ADSs. In addition, without the consent of Hanwha Solar, we could be prevented from
entering into transactions that could be beneficial to us. Hanwha Solar may cause us to
take actions that are opposed by other shareholders as its interests may differ from
those of other shareholders.
Existing regulations and policies governing the electricity utility industry, as well as
changes to regulations and policies affecting PV products, may adversely affect demand
for our products and materially reduce our revenue and profits.
The electric utility industry is subject to extensive regulation, and the market for
PV products is heavily influenced by these regulations as well as the policies
promulgated by electric utilities. These regulations and policies often affect
electricity pricing and technical interconnection of end-user power generation. As the
market for solar and other alternative energy sources continue to evolve, these
regulations and policies are being modified and may continue to be modified. Customer
purchases of, or further investment in research and development of, solar and other
alternative energy sources may be significantly affected by these regulations and
policies, which could significantly reduce demand for our products and materially reduce
our revenue and profits.
Moreover, we expect that our PV products and their installation will be subject to
oversight and regulation in accordance with national and local ordinances relating to
building codes, safety, environmental protection, utility interconnection and metering
and related matters in various countries. We also have to comply with the requirements of
individual localities and design equipment to comply with varying standards applicable in
the jurisdictions where we conduct business. Any new government regulations or utility
policies pertaining to our PV products may result in significant additional expenses to
us, our distributors and end users and, as a result, could cause a significant reduction
in demand for our PV products, as well as materially and adversely affect our financial
condition and results of operations.
The lack or inaccessibility of subsidies or financing for off-grid solar energy
applications could cause our sales to decline.
Some
of our products are used for off-grid solar energy applications in developed and
developing countries, where solar energy is provided to end users independent of an
electricity transmission grid. In some countries, government agencies and the private
sector have, from time to time, provided subsidies or financing on preferred terms for
rural electrification programs. We believe that the availability of financing could have
a significant effect on the level of sales of off-grid solar energy applications,
particularly in developing countries where users may not have sufficient resources or
credit to otherwise acquire PV systems. If existing subsidies or financing programs for
off-grid solar energy applications are eliminated or if financing becomes inaccessible,
the growth of the market for off-grid solar energy applications may be materially and
adversely affected, which may cause our sales to decline.
Our failure to protect our intellectual property rights may undermine our competitive
position, and litigation to protect our intellectual property rights may be costly.
We rely primarily on patents, trademarks, trade secrets, copyrights and other
contractual restrictions to protect our intellectual property. Nevertheless, these afford
only limited protection and the actions we take to protect our intellectual property
rights may not be adequate. In particular, implementation of PRC intellectual
property-related laws has historically been lacking, primarily because of ambiguities in
the PRC laws and difficulties in enforcement. Accordingly, intellectual property rights
and confidentiality protections in China may not be as effective as in the United States
or other countries. Policing unauthorized use of our proprietary technologies can be
difficult and expensive. In addition, litigation may be necessary to enforce our
intellectual property rights, protect our trade secrets or determine the validity and
scope of the proprietary rights of others. We also cannot assure you that the outcome of
any such litigation would be in our favor. An adverse determination in any such
litigation will impair our intellectual property rights and may harm our business,
prospects and reputation. Furthermore, any such litigation may be costly and may divert
management attention away from our business as well as require us to expend other
resources. We have no insurance coverage against litigation costs and would have to bear
all costs arising from such litigation to the extent we are unable to recover them from
other parties. The occurrence of any of the foregoing could have a material adverse
effect on our business, financial condition and results of operations.
13
We may be exposed to infringement or misappropriation claims by third parties,
particularly in jurisdictions outside China which, if determined adversely against us,
could disrupt our business and subject us to significant liability to third parties, as
well as have a material adverse effect on our financial condition and results of
operations.
Our success depends, in large part, on our ability to use and develop our
technologies and know-how without infringing the intellectual property rights of third
parties. As we continue to market and sell our products internationally, and as
litigation becomes more common in the PRC, we face a higher risk of being the subject of
claims for intellectual property infringement, as well as having indemnification relating
to other parties proprietary rights held to be invalid. Our current or potential
competitors, many of which have substantial resources and have made substantial
investments in competing technologies, may have or may obtain patents that will prevent,
limit or interfere with our ability to make, use or sell our products in the European
Union, the PRC or other countries. The validity and scope of claims relating to PV
technology patents involve complex, scientific, legal and factual questions and analysis
and, therefore, may be highly uncertain. In addition, the defense of intellectual
property claims, including patent infringement suits, and related legal and
administrative proceedings can be both costly and time consuming, and may significantly
divert the efforts and resources of our technical and management personnel. Furthermore,
an adverse determination in any such litigation or proceeding to which we may become a
party could cause us to:
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seek licenses from third parties; |
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redesign our products; or |
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be restricted by injunctions, |
each of which could effectively prevent us from pursuing some or all of our business and
result in our customers or potential customers deferring or limiting their purchase or
use of our products, which could have a material adverse effect on our financial
condition and results of operations.
We may not be able to obtain sufficient patent protection on the technologies embodied in
the PV products we currently manufacture and sell, which could reduce our competitiveness
and increase our expenses.
Although we rely primarily on trade secret laws and contractual restrictions to
protect the technologies in the PV cells and PV modules we currently manufacture and
sell, our success and ability to compete in the future may also depend to a significant
degree on obtaining patent protection for our proprietary technologies. As of April 30,
2011, we had 20 issued patents and 14 pending patent applications in the PRC. We do not
have, and have not applied for, any patents for our proprietary technologies outside the
PRC. As the protections afforded by our patents are effective only in the PRC, our
competitors and other companies may independently develop substantially equivalent
technologies or otherwise gain access to our proprietary technologies, and obtain patents
for such technologies in other jurisdictions, including the countries in which we sell
our products. Moreover, our patent applications in the PRC may not result in issued
patents, and even if they do result in issued patents, the patents may not have claims of
the scope we seek. In addition, any issued patents may be challenged, invalidated or
declared unenforceable. As a result, our present and future patents may provide only
limited protection for our technologies, and may not be sufficient to provide competitive
advantages to us.
We depend on our key personnel, and our business and growth may be severely disrupted if
we lose their services or fail to recruit new qualified personnel.
Our future success depends substantially on the continued services of some of our
directors and key executives. If we lose the services of one or more of our current
directors and executive officers, we may not be able to replace them readily, if at all,
with suitable or qualified candidates, and may incur additional expenses to recruit and
retain new directors and officers, particularly those with a significant mix of both
international and China-based PV industry experience similar to our current directors and
officers, which could severely disrupt our business and growth. In addition, if any of
our directors or executives joins a competitor or forms a competing company, we may lose
some of our customers. Each of these directors and executive officers has entered into an
employment agreement with us, which contains confidentiality and non-competition
provisions. However, if any disputes arise between these directors or executive officers
and us, it is not clear
the extent to which any of these agreements could be enforced outside of the United States,
where most of these directors and executive officers reside
and hold some of their assets, particularly in light of uncertainties associated with
the PRC legal system. See
Risks Related to Doing Business in China Uncertainties with respect to the PRC legal
system could have a material adverse effect on us. Furthermore, as we expect to continue
to expand our operations and develop new products, we will need to continue attracting
and retaining experienced management and key research and development personnel.
Competition for personnel in the PV industry in China is intense, and the
availability of suitable and qualified candidates is limited. In particular, we compete
to attract and retain qualified research and development personnel with other PV
technology companies, universities and research institutions. Competition for these
individuals could cause us to offer higher compensation and other benefits in order to
attract and retain them, which could have a material adverse effect on our financial
condition and results of operations. We may also be unable to attract or retain the
personnel necessary to achieve our business objectives, and any failure in this regard
could severely disrupt our business and growth.
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Any failure to achieve and maintain effective internal control could have a material
adverse effect on our business, results of operations and the market price of our ADSs.
The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, or the
Sarbanes-Oxley Act, adopted rules requiring most public companies to include a management
report on such companys internal control over financial reporting in its annual report,
which contains managements assessment of the effectiveness of the companys internal
control over financial reporting. In addition, when a company meets the SECs criteria,
an independent registered public accounting firm must report on the effectiveness of the
companys internal control over financial reporting.
Our management and independent registered public accounting firm have concluded that
our internal control over financial reporting as of December 31, 2010 was effective.
However, we cannot assure you that in the future our management or our independent
registered public accounting firm will not identify material weaknesses during the
Section 404 of the Sarbanes-Oxley Act audit process or for other reasons. In addition,
because of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of controls,
material misstatements due to error or fraud may not be prevented or detected on a timely
basis. As a result, if we fail to maintain effective internal control over financial
reporting or should we be unable to prevent or detect material misstatements due to error
or fraud on a timely basis, investors could lose confidence in the reliability of our
financial statements, which in turn could harm our business, results of operations and
negatively impact the market price of our ADSs, and harm our reputation. Furthermore, we
have incurred and expected to continue to incur considerable costs and to use significant
management time and other resources in an effort to comply with Section 404 and other
requirements of the Sarbanes-Oxley Act.
We have limited insurance coverage and may incur losses resulting from business
interruptions or product liability claims.
We are subject to risk of explosion and fires, as highly flammable gases, such as
silane and nitrogen gas, are generated in our manufacturing processes. While we have not
experienced to date any major explosion or fire, the risks associated with these gases
cannot be completely eliminated. In addition, a natural disaster such as floods or
earthquakes, or other unanticipated catastrophic events, including power interruption,
telecommunications failures, equipment failures, explosions, fires, break-ins, terrorist
attacks or acts or wars, could significantly disrupt our ability to manufacture our
products and to operate our business. If any of our production facilities or material
equipment were to experience any significant damage or downtime, we might be unable to
meet our production targets and our business could suffer. Although we have obtained
business interruption insurance, it may not be able to fully cover losses caused by the
business interruption because business interruption insurance available in China offers
limited coverage compared to that offered in many other countries.
We are also exposed to risks associated with product liability claims in the event
that the use of the PV products we sell results in injury, death or damage to property.
Due to limited historical experience, we are unable to predict whether product liability
claims will be brought against us in the future or the effect of any resulting adverse
publicity on our business. Moreover, we only have limited product liability insurance and
may not have adequate resources to satisfy a judgment in the event of a successful claim
against us. The successful assertion of product liability claims against us could result
in potentially significant monetary damages and require us to make significant payments,
which could materially and adversely affect our business, financial condition and results
of operations.
Any environmental claims or failure to comply with any present or future environmental
regulations may require us to spend additional funds and may materially and adversely
affect our financial condition and results of operations.
We are subject to a variety of laws and regulations relating to the use, storage,
discharge and disposal of chemical by products of, and water used in, our manufacturing
operations and research and development activities, including toxic, volatile and
otherwise hazardous chemicals and wastes. We are in all material respects in compliance
with current PRC environmental regulations to conduct our business as it is presently
conducted. Although we have not suffered material environmental claims in the past,
failure to comply with any present or future regulations could result in the assessment
of damages or imposition of fines against us, suspension of production or a cessation of
our operations. New regulations could also require us to acquire costly equipment or to
incur other significant expenses. Any failure by us to control the use of, or to
adequately restrict the discharge of, hazardous substances could subject us to
potentially significant monetary damages and fines or suspension of our business, as well
as our financial condition and results of operations.
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The use of certain hazardous substances, such as lead, in various products is also
coming under increasingly stringent governmental regulation. Increased environmental
regulation in this area could adversely impact the manufacture and sale of solar modules
that contain lead and could require us to make unanticipated environmental expenditures.
For example, the European Union Directive 2002/96/EC on Waste Electrical and Electronic
Equipment, or the WEEE Directive, requires manufacturers of certain electrical and
electronic equipment to be financially responsible for the collection, recycling,
treatment and disposal of specified products placed on the market in the European Union.
In addition, European Union Directive 2002/95/EC on the Restriction of the use of
Hazardous Substances in electrical and electronic equipment, or the RoHS Directive,
restricts the use of certain hazardous substances, including lead, in specified products.
Other jurisdictions are considering adopting similar legislation. Currently, we are not
required under the WEEE or RoHS Directives to collect, recycle or dispose any of our
products. However, the Directives allow for future amendments subjecting additional
products to the Directives requirements. If, in the future, our PV products become
subject to such requirements, we may be required to apply for an exemption. If we were
unable to obtain an exemption, we would be required to redesign our PV products in order
to continue to offer them for sale within the European Union, which would be impractical.
Failure to comply with the Directives could result in fines and penalties, inability to
sell our PV products in the European Union, competitive disadvantages and loss of net
sales, all of which could have a material adverse effect on our business, financial
condition and results of operations.
Our business benefits from certain PRC government incentives. Expiration of, or changes
to, these incentives could have a material adverse effect on our results of operations.
On March 16, 2007, the PRC government promulgated the Law of the Peoples Republic
of China on the Enterprise Income Tax, or the EIT, which took effect on January 1, 2008.
Under the EIT, domestically owned enterprises and foreign invested enterprises, or FIEs,
are subject to a uniform tax rate of 25%. While the EIT equalizes the tax rates for FIEs
and domestically owned enterprises, preferential tax treatment continues to be granted to
companies in certain encouraged sectors, and entities classified as high and new
technology enterprises are entitled to a 15% EIT rate, whether domestically owned
enterprises or FIEs. The EIT also provides a five-year transition period starting from
its effective date for those enterprises which were established before the promulgation
date of the EIT and which were entitled to a preferential lower tax rate or tax holiday
under the then effective tax laws or regulations. The tax rate of such enterprises is
transitioning to the uniform tax rate within a five-year transition period and the tax
holiday, which was enjoyed by such enterprises before the effective date of the EIT, may
continue to be enjoyed until the end of the holiday. Hanwha SolarOne (Qidong) Co., Ltd.
or SolarOne Qidong, our wholly owned operating subsidiary in China, was approved to be
qualified as a high and new technology enterprise on October 21, 2008. The high and
new technology enterprise status is valid for a period of three years from the date of
issuance of the certificate and is subject to an annual self-review process whereby a
form is submitted to relevant tax authority for approval to use a beneficial income tax
rate. If there are significant changes in the business operations, manufacturing
technologies or other criteria that cause the enterprise to no longer meet the criteria
as a high and new technology enterprise, such status will be terminated from the year
of such change. If SolarOne Qidong fails to qualify as a high and new technology
enterprise in future periods, our income tax expenses would increase, which could have a
material and adverse effect on our net income and results of operations.
In accordance with the former PRC Income Tax Law for Enterprises with Foreign
Investment and Foreign Enterprises, or the FIE Tax Law, the EIT and the related
implementing rules, SolarOne Qidong was exempted from enterprise income tax in 2005 and
2006, and was taxed at a reduced rate of 12% in 2007, 12.5% in 2008, 12.5% in 2009 and
15% in 2010. The high and new technology enterprise status of SolarOne Qidong will
expire in October 2011. SolarOne Qidong has re-applied for the high and new technology
enterprise qualification and expects to receive a response from the government regarding
the application by August 2011. If SolarOne Qidongs application is approved, SolarOne
Qidong will continue to enjoy a preferential income tax rate of 15% in 2011, 2012 and
2013, and otherwise SolarOne Qidong will be subject to an income tax rate of 25% from
2011. In 2010, we recorded a provision of RMB116.1 million (US$17.6 million) for
unrecognized tax benefits related to SolarOne Qidong due to the uncertainty as to whether
it would meet certain requirements of high and new technology enterprise status during
its annual self-assessment in order to be eligible for the reduced EIT rate of 15%. From
2005 until the end of 2009, SolarOne Qidong was also exempted from the 3% local income
tax.
Any reduction or elimination of the preferential tax treatments currently enjoyed by
us may significantly increase our income tax expenses and materially reduce our net
income, which could have a material adverse effect on our financial condition and results
of operations.
Under the EIT, we may be classified as a Resident Enterprise of the PRC. Such
classification would likely result in negative tax consequences to us and could result in
negative tax consequences to our non-PRC shareholders and ADS holders.
Under the EIT, enterprises established under the laws of non-PRC jurisdictions but
whose de facto management body is located in the PRC are considered resident
enterprises for PRC tax purposes and are subject to the EIT. According to the
Implementation Regulations for the EIT of the PRC issued by the State Council on December
6, 2007, a de facto management body is defined as an establishment that exerts
substantial and comprehensive management and control over the business operations, staff,
accounting, assets and other aspects of the enterprise. Since substantially all of our
management is currently based in the PRC, and may remain in the PRC in the foreseeable
future, it is likely that we will be regarded as a resident enterprise on a strict
application of the EIT and its Implementation Regulations. As of December 31, 2010, we
recorded unrecognized tax benefits of RMB143.5 million (US$21.7 million), RMB27.4 million
(US$4.1 million) of which was recorded because based on our judgment, we may be deemed as
a PRC tax resident pursuant to the EIT. If Hanwha SolarOne Co., Ltd., our holding
company, or any of its non-PRC subsidiaries is treated as a resident enterprise for PRC
tax purposes, Hanwha SolarOne or such subsidiary will be subject to PRC income tax on
worldwide income at a uniform tax rate of 25%, which would have a material adverse effect
on our financial condition and results of operations.
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In addition, although the EIT provides that dividend income payments between
qualified resident enterprises are exempted from the 10% withholding tax, it is still
not free of doubt whether we will be considered to be a qualified resident enterprise
under the EIT. If we are considered a non-resident enterprise, dividends paid to us by
our subsidiaries in the PRC (through our holding company structure), if any, may be
subject to the 10% withholding tax. If we are deemed by the PRC tax authorities to be a
resident enterprise and declare dividends, under the existing Implementation
Regulations of the EIT, dividends paid by us to our shareholders and ADS holders, which
are non-resident enterprises and do not have an establishment or place of business in
the PRC, or which have such an establishment or place of business but the relevant income
is not effectively connected with the establishment or place of business, might be
subject to PRC withholding tax at 10% or a lower treaty rate.
Similarly, any gain realized on the transfer of ADSs or shares by non-PRC investors,
which are non-resident enterprises, is also subject to PRC withholding income tax at
10% or a lower treaty rate if such gain is regarded as income derived from sources within
the PRC.
According to the Law of the Peoples Republic of China on the Individual Income Tax,
or the IIT, as amended, PRC income tax at the rate of 20% is applicable to dividends
payable to individual investors if such dividends are regarded as income derived from
sources within the PRC. Similarly, any gain realized on the transfer of ADSs or ordinary
shares by individual investors is also subject to PRC tax at 20% if such gain is regarded
as income derived from sources within the PRC. If we are deemed by the PRC tax
authorities as a resident enterprise, the dividends we pay to our individual investors
with respect to our ordinary shares or ADSs, or the gain the individual investors may
realize from the transfer of our ordinary shares or ADSs, might be treated as income
derived from sources within the PRC and be subject to PRC tax at 20% or a lower treaty
rate.
Fluctuations in exchange rates could adversely affect our business as well as result in
foreign currency exchange losses.
Our financial statements are expressed in, and our functional currency is Renminbi.
The change in value of the Renminbi against the U.S. dollar, Euro and other currencies is
affected by, among other things, changes in Chinas political and economic conditions. On
July 21, 2005, the PRC government changed its decade-old policy of pegging the value of
the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is permitted to
fluctuate within a narrow and managed band against a basket of certain foreign
currencies. This change in policy has resulted in appreciation of the
Renminbi against the U.S. dollar. The PRC government may decide to adopt an even more
flexible currency policy in the future, which could result in a further and more
significant appreciation of the Renminbi against the U.S. dollar. An appreciation of the
Renminbi relative to other foreign currencies could decrease the per unit revenue
generated from our international sales. If we increased our pricing to compensate for the
reduced purchasing power of foreign currencies, we may decrease the market
competitiveness, on a price basis, of our products. This could result in a decrease in
our international sales and materially and adversely affect our business.
A substantial portion of our sales is denominated in U.S. dollars and Euros, while a
substantial portion of our costs and expenses is denominated in Renminbi. As a result,
the revaluation of the Renminbi starting in July 2005 has increased, and further
revaluations could further increase, our costs. The value of, and any dividends payable
on, our ADSs in foreign currency terms will also be affected. Conversely, if we decide to
convert our Renminbi into U.S. dollars for the purpose of making payments for dividends
on our ordinary shares or ADSs or for other business purposes, an appreciation of the
U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount
available to us.
Fluctuations in exchange rates, particularly among the U.S. dollar, Renminbi and
Euro, also affect our gross and net profit margins and could result in fluctuations in
foreign exchange and operating gains and losses. We incurred net foreign currency losses
of RMB35.2 million, RMB23.8 million and RMB89.3 million (US$13.5 million) in 2008, 2009
and 2010, respectively. In particular, a substantial portion of our net revenues is
currently denominated in Euros. Since December 2009, the Euro has fluctuated
significantly. A depreciation of the Euro may also have a negative impact on the selling
prices of our products in Renminbi terms. We cannot predict the impact of future exchange
rate fluctuations on our financial condition and results of operations, and we may incur
net foreign currency losses in the future.
While we started to enter into economic hedging transactions in 2008 to minimize the
impact of short-term foreign currency fluctuations on our revenues that are denominated
in a currency other than Renminbi, the effectiveness of these transactions may be limited
and we may not be able to successfully hedge all of our exposure.
Our estimates of future revenues that are denominated in foreign currencies may not
be accurate, which could result in foreign exchange losses. Any default by the
counterparties to these transactions could also adversely affect our financial condition
and results of operations. In addition, our foreign currency exchange losses may be
magnified by PRC exchange control regulations that restrict our ability to convert
Renminbi into foreign currencies.
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Risks Related to Doing Business in China
Adverse changes in political and economic policies of the PRC government could have a
material adverse effect on the overall economic growth of China, which could reduce the
demand for our products and materially and adversely affect our competitive position.
Substantially all of our operations are conducted in China and some of our sales are
made in China. Accordingly, our business, financial condition, results of operations and
prospects are affected significantly by economic, political and legal developments in
China. The PRC economy differs from the economies of most developed countries in many
respects, including:
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the allocation of resources. |
While the PRC economy has grown significantly since the late 1970s, the growth has
been uneven, both geographically and among various sectors of the economy. The PRC
government has implemented various measures to encourage economic growth and guide the
allocation of resources. Some of these measures benefit the overall PRC economy, but may
also have a negative effect on us. For example, our financial condition and results of
operations may be adversely affected by government control over capital investments or
changes in tax regulations that are applicable to us.
The PRC economy has been transitioning from a planned economy to a more
market-oriented economy. Although the PRC government has in recent years implemented
measures emphasizing the utilization of market forces for economic reform, the reduction
of state ownership of productive assets and the establishment of sound corporate
governance in business enterprises, a substantial portion of the productive assets in
China is still owned by the PRC government. The continued control of these assets and
other aspects of the national economy by the PRC government could materially and
adversely affect our business. The PRC government also exercises significant control over
economic growth in China through the allocation of resources, controlling payment of
foreign currency-denominated obligations, setting monetary policy and providing
preferential treatment to particular industries or companies. Efforts by the PRC
government to slow the pace of growth of the PRC economy could result in decreased
capital expenditure by solar energy users, which in turn could reduce demand for our
products.
Any adverse change in the economic conditions or government policies in China could
have a material adverse effect on the overall economic growth and the level of renewable
energy investments and expenditures in China, which in turn could lead to a reduction in
demand for our products and consequently have a material adverse effect on our business
and prospects. In particular, the PRC government has, in recent years, promulgated
certain laws and regulations and initiated certain government-sponsored programs to
encourage the utilization of new forms of energy, including solar energy. We cannot
assure you that the implementation of these laws, regulations and government programs
will be beneficial to us. In particular, any adverse change in the PRC governments
policies towards the PV industry may have a material adverse effect on our operations as
well as on our plans to expand our business into downstream system integration services.
Uncertainties with respect to the PRC legal system could have a material adverse effect
on us.
We conduct substantially all of our business through our operating subsidiary in the
PRC, SolarOne Qidong, a Chinese wholly foreign-owned enterprise. SolarOne Qidong is
generally subject to laws and regulations applicable to foreign investment in China and,
in particular, laws applicable to wholly foreign-owned enterprises. The PRC legal system
is based on written statutes, and prior court decisions may be cited for reference but
have limited precedential value. Since 1979, PRC legislation and regulations have
significantly enhanced the protections afforded to various forms of foreign investments
in China. However, since these laws and regulations are relatively new and the PRC legal
system continues to rapidly evolve, the interpretations of many laws, regulations and
rules are not always uniform and enforcement of these laws, regulations and rules involve
uncertainties, which may limit legal protections available to us. In addition, any
litigation in China may be protracted and result in substantial costs and diversion of
resources and management attention.
Limitations on the ability of our operating subsidiary to pay dividends or other
distributions to us could have a material adverse effect on our ability to conduct our
business.
We are a holding company and conduct substantially all of our business through our
operating subsidiary, SolarOne Qidong, which is a limited liability company established
in China. The payment of dividends by entities organized in, if any, China is subject to
limitations. In particular, regulations in the PRC currently permit payment of dividends
only out of accumulated profits as determined in accordance with PRC accounting standards
and regulations. SolarOne Qidong is also required to set aside at least 10% of its annual
after-tax profit based on PRC accounting standards each year to its general reserves
until the accumulative amount of such reserves reaches 50% of its registered capital.
These reserves are not distributable as cash dividends. In addition, SolarOne Qidong is
required to allocate a portion of its after-tax profit to its staff welfare and bonus
fund at the discretion of its board of directors. Moreover, if SolarOne Qidong incurs
debt on its own behalf in the future, the instruments governing the debt may restrict its
ability to pay dividends or make other distributions to us.
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Restrictions on currency exchange may limit our ability to receive and use our revenue
effectively.
A portion of our revenue and a substantial portion of our expenses are denominated
in Renminbi. The Renminbi is currently convertible under the current account, which
includes dividends, trade and service-related foreign exchange transactions, but not
under the capital account, which includes foreign direct investment and loans.
Currently, SolarOne Qidong may purchase foreign currencies for settlement of current
account transactions, including payments of dividends to us, without the approval of the
State Administration of Foreign Exchange, or SAFE. However, the relevant PRC government
authorities may limit or eliminate our ability to purchase foreign currencies in the
future. Since a significant amount of our future revenue will be denominated in Renminbi,
any existing and future restrictions on currency exchange may limit our ability to
utilize revenue generated in Renminbi to fund our business activities outside China that
are denominated in foreign currencies.
Foreign exchange transactions by SolarOne Qidong under the capital account continue
to be subject to significant foreign exchange controls and require the approval of or
need to register with PRC governmental authorities, including SAFE. In particular, if
SolarOne Qidong borrows foreign currency loans from us or other foreign lenders, these
loans must be registered with SAFE, and if we finance SolarOne Qidong by means of
additional capital contributions, these capital contributions must be approved by certain
government authorities, including the National Development and Reform Commission, or the
NDRC, the Ministry of Commerce or their respective local counterparts. These limitations
could affect the ability of SolarOne Qidong to obtain foreign exchange through debt or
equity financing.
PRC regulations relating to the establishment of offshore special purpose companies by
PRC residents may subject our PRC resident shareholders to personal liability and limit
our ability to acquire PRC companies or to inject capital into our PRC subsidiary, limit
our PRC subsidiarys ability to distribute profits to us, or otherwise materially and
adversely affect us.
SAFE issued a public notice in October 2005, or the SAFE notice, requiring PRC
residents, including both legal persons and natural persons, to register with the
competent local SAFE branch before establishing or controlling any company outside of
China, referred to as an offshore special purpose company, for the purpose of acquiring
any assets of or equity interest in PRC companies and raising fund from overseas. In
addition, any PRC resident that is the shareholder of an offshore special purpose company
is required to amend its SAFE registration with the local SAFE branch, with respect to
that offshore special purpose company in connection with any increase or decrease of
capital, transfer of shares, merger, division, equity investment or creation of any
security interest over any assets located in China. If any PRC shareholder of any
offshore special purpose company fails to make the required SAFE registration and
amendment, the PRC subsidiaries of that offshore special purpose company may be
prohibited from distributing their profits and proceeds from any reduction in capital,
share transfer or liquidation to the offshore special purpose company. Moreover, failure
to comply with the SAFE registration and amendment requirements described above could
result in liability under PRC laws for evasion of applicable foreign exchange
restrictions. Our current beneficial owners who are PRC residents have registered with
the local SAFE branch as required under the SAFE notice. The failure of these beneficial
owners to amend their SAFE registrations in a timely manner pursuant to the SAFE notice
or the failure of future beneficial owners of our company who are PRC residents to comply
with the registration procedures set forth in the SAFE notice may subject such beneficial
owners to fines and legal sanctions and may also result in a restriction on our PRC
subsidiarys ability to distribute profits to us or otherwise materially and adversely
affect our business. In addition, the NDRC promulgated a rule in October 2004, or the
NDRC Rule, which requires NDRC approvals for overseas investment projects made by PRC
entities. The NDRC Rule also provides that approval procedures for overseas investment
projects of PRC individuals shall be implemented with reference to this
rule. However, there exist extensive uncertainties in terms of interpretation of the
NDRC Rule with respect to its application to a PRC individuals overseas investment, and
in practice, we are not aware of any precedents that a PRC individuals overseas
investment has been approved by the NDRC or challenged by the NDRC based on the absence
of NDRC approval. Our current beneficial owners who are PRC individuals did not apply for
NDRC approval for investment in us. We cannot predict how and to what extent this will
affect our business operations or future strategy. For example, the failure of our
shareholders who are PRC individuals to comply with the NDRC Rule may subject these
persons or our PRC subsidiary to certain liabilities under PRC laws, which could
adversely affect our business.
We face uncertainties with respect to application of the Circular on Strengthening the
Administration of Enterprise Income Tax for Share Transfer of Non-PRC Resident
Enterprises.
Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for
Share Transfers by Non-PRC Resident Enterprises, or SAT Circular 698, issued by the State
Administration of Taxation on December 10, 2009 with retroactive effect from January 1,
2008, where a non-resident enterprise transfers its equity interests in a PRC resident
enterprise indirectly via disposing of the equity interests of an overseas holding
company, or an Indirect Transfer, and such overseas holding company is located in a tax
jurisdiction that (i) has an effective tax rate less than 12.5% or (ii) does not tax
foreign income of its residents, the foreign investor shall report such Indirect Transfer
to the competent tax authority of the PRC resident enterprise. The PRC tax authority will
examine the true nature of the Indirect Transfer, and if the tax authority considers that
the foreign investor has adopted an abusive arrangement in order to avoid PRC tax, it
will disregard the existence of the overseas holding company and re-characterize the
Indirect Transfer and, as a result, gains derived from such Indirect Transfer may be
subject to PRC withholding tax at the rate of up to 10%. SAT Circular 698 also provides
that, where a non-PRC resident enterprise transfers its equity interests in a PRC
resident enterprise to its related parties at a price lower than the fair market value,
the relevant tax authority has the power to make a reasonable adjustment to the taxable
gain of the transaction.
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There is uncertainty as to the application of SAT Circular 698. The relevant PRC
authority has not yet promulgated any formal provisions or formally declared or stated
how to calculate the effective tax in a foreign jurisdiction and how a foreign investor
shall report to the competent tax authority an Indirect Transfer. SAT Circular 698 states
that it does not apply to purchases or sales of stock on a stock exchange. If we transfer
our equity interest in our PRC subsidiaries or when our non-resident investors transfer
their shares, we or our non-resident investors may be taxed under SAT Circular 698 and
may be required to expend valuable resources to comply with SAT Circular 698 or to
establish that we or our non-resident investors should not be taxed under SAT Circular
698, which may have an adverse effect on our financial condition and results of
operations or such non-resident investors investment in us.
Labor laws in the PRC may adversely affect our results of operations.
On June 29, 2007, the PRC government promulgated the Labor Contract Law of the PRC,
or the Labor Contract Law, which became effective on January 1, 2008. The Labor Contract
Law imposes greater liabilities on employers and significantly impacts the cost of an
employers decision to reduce its workforce. Further, it requires certain terminations to
be based upon seniority and not merit. In the event we decide to significantly change or
decrease our workforce, the Labor Contract Law could adversely affect our ability to
enact such changes in a manner that is most advantageous to our business or in a timely
and cost-effective manner, thus materially and adversely affecting our financial
condition and results of operations.
We face risks related to health epidemics and other outbreaks.
Adverse public health epidemics or pandemics could disrupt business and the
economics of the PRC and other countries where we do business. From December 2002 to June
2003, China and other countries experienced an outbreak of a highly contagious form of
atypical pneumonia now known as severe acute respiratory syndrome, or SARS. Some Asian
countries, including China, encountered incidents of the H5N1 strain of bird flu, or
avian flu in 2007 and early 2008. In 2009, there were outbreaks of swine flu, caused by
H1N1 virus, in certain regions of the world, including China. Any future outbreak of
SARS, avian flu, swine flu or other similar adverse public developments may, among other
things, significantly disrupt our business, including limiting our ability to travel or
ship our products within or outside China and forcing us to temporary close our
manufacturing facilities. Furthermore, an outbreak may severely restrict the level of
economic activity in affected areas, which may in turn materially and adversely affect
our financial condition and results of operations. We have not adopted any written
preventive measures or contingency plans to combat any future outbreak of swine flu,
avian flu, SARS or any other epidemic.
Risks Related to Our Ordinary Shares and ADSs
The market price of our ADSs may be volatile.
The market price of our ADSs experienced, and may continue to experience,
significant volatility. For the period from December 20, 2006 to
June 2, 2011, the trading
price of our ADSs on the Nasdaq Global Market has ranged from a low of US$2.30 per ADS to
a high of US$37.64 per ADS.
Numerous factors, including many over which we have no control, may have a
significant impact on the market price of our ADSs, including, among other things:
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announcements of technological or competitive developments; |
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regulatory developments in our target markets affecting us, our customers or our competitors; |
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announcements regarding patent litigation or the issuance of patents to us or our competitors; |
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announcements of studies and reports relating to the conversion
efficiencies of our products or those of our competitors; |
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actual or anticipated fluctuations in our quarterly operating results; |
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changes in financial estimates or other material comments by
securities analysts relating to us, our competitors or our industry in
general; |
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announcements by other companies in our industry relating to their
operations, strategic initiatives, financial condition or financial
performance or to our industry in general; |
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announcements of acquisitions or consolidations involving industry competitors or industry suppliers; |
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changes in the economic performance or market valuations of other PV technology companies; |
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addition or departure of our executive officers and key research personnel; and |
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sales or perceived sales of additional ordinary shares or ADSs. |
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In addition, the stock market in recent years has experienced extreme price and
trading volume fluctuations that often have been unrelated or disproportionate to the
operating performance of individual companies. These broad market fluctuations may
adversely affect the price of our ADSs, regardless of our operating performance.
Our articles of association contain anti-takeover provisions that could have a material
adverse effect on the rights of holders of our ordinary shares and ADSs.
Our amended and restated articles of association limit the ability of others to
acquire control of our company or cause us to engage in change-of-control transactions.
These provisions could have the effect of depriving our shareholders of an opportunity to
sell their shares at a premium over prevailing market prices by discouraging third
parties from seeking to obtain control of our company in a tender offer or similar
transaction. For example, our board of directors has the authority, without further
action by our shareholders, to issue preferred shares in one or more series and to fix
their designations, powers, preferences, privileges, and relative participating, optional
or special rights and the qualifications, limitations or restrictions, including dividend
rights, conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights associated with our
ordinary shares, in the form of ADS or otherwise. Preferred shares could be issued
quickly with terms calculated to delay or prevent a change in control of our company or
make removal of management more difficult. If our board of directors decides to issue
preferred shares, the price of our ADSs may fall and the voting and other rights of the
holders of our ordinary shares and ADSs may be materially and adversely affected.
Holders of ADSs have fewer rights than shareholders and must act through the depositary
to exercise those rights.
Holders of ADSs do not have the same rights as our shareholders and may only
exercise the voting rights with respect to the underlying ordinary shares in accordance
with the provisions of the deposit agreement. Under our amended and restated articles of
association, the minimum notice period required to convene an annual general meeting or
any extraordinary general meeting calling for the passing of a special resolution is 20
days and the minimum notice period required to convene any other extraordinary general
meeting is 14 days. When a general meeting is convened, you may not receive sufficient
notice of a shareholders meeting to permit you to withdraw your ordinary shares to allow
you to cast your vote with respect to any specific matter. If requested in writing by us,
the depositary will mail a notice of such a meeting to you. In addition, the depositary
and its agents may not be able to send voting instructions to you or carry out your
voting instructions in a timely manner. We will make all reasonable efforts to cause the
depositary to extend voting rights to you in a timely manner, but you may not receive the
voting materials in time to ensure that you can instruct the depositary to vote your
ADSs. Furthermore, the depositary and its agents will not be responsible for any failure
to carry out any instructions to vote, for the manner in which any vote is cast or for
the effect of any such vote. As a result, you may not be able to exercise your right to
vote and you may lack recourse if your ADSs are not voted as you requested. In addition,
in your capacity as an ADS holder, you will not be able to call a shareholders meeting.
You may be subject to limitations on transfers of your ADSs.
Your ADSs are transferable on the books of the depositary. However, the depositary
may close its transfer books at any time or from time to time when it deems expedient in
connection with the performance of its duties. In addition, the depositary may refuse to
deliver, transfer or register transfers of ADSs generally when our books or the books of
the depositary are closed, or at any time if we or the depositary deem it advisable to do
so because of any requirement of law or of any government or governmental body, or under
any provision of the deposit agreement, or for any other reason.
Your right to participate in any future rights offerings may be limited, which may cause
dilution to your holdings, and you may not receive distributions with respect to the
underlying ordinary shares if it is impractical to make them available to you.
We may from time to time distribute rights to our shareholders, including rights to
acquire our securities. However, we cannot make rights available to you in the United
States unless we register the rights and the securities to which the rights relate under
the Securities Act or an exemption from the registration requirements is available. Also,
under the deposit agreement, the depositary will not make rights available to you unless
the distribution to ADS holders of both the rights and any related securities are either
registered under the Securities Act, or exempted from registration under the Securities
Act. We are under no obligation to file a registration statement with respect to any such
rights or securities or to endeavor to cause such a registration statement to be declared
effective. Moreover, we may not be able to establish an exemption from registration under
the Securities Act. Accordingly, in the event we conduct any rights offering in the
future, the depositary may not make such rights available to you or may dispose of such
rights and make the net proceeds available to you. As a result, you may be unable to
participate in our rights offerings and may experience dilution in your holdings.
In addition, the depositary of our ADSs has agreed to pay to you the cash dividends
or other distributions it or the custodian receives on our ordinary shares or other
deposited securities after deducting its fees and expenses. You will receive these
distributions in proportion to the number of ordinary shares your ADSs represent.
However, the depositary may, at its discretion, decide that it is inequitable or
impractical to make a distribution available to any holders of ADSs. As a result, the
depositary may decide not to make the distribution and you will not receive such
distribution.
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We are a Cayman Islands company and, because judicial precedent regarding the rights of
shareholders is more limited under Cayman Islands law than under U.S. law, you may have
less protection for your shareholder rights than you would under U.S. law.
Our corporate affairs are governed by our amended and restated memorandum and
articles of association as may be amended from time to time, the Cayman Islands Companies
Law (as amended) and the common law of the Cayman Islands. The rights of shareholders to
take action against the directors, actions by minority shareholders and the fiduciary
responsibilities of our directors to us under Cayman Islands law are to a large extent
governed by the common law of the Cayman Islands. The common law of the Cayman Islands is
derived in part from comparatively limited judicial precedent in the Cayman Islands as
well as that from English common law, which has persuasive, but not binding, authority on
a court in the Cayman Islands. The rights of our shareholders and the fiduciary
responsibilities of our directors under Cayman Islands law are not as clearly established
as they would be under statutes or judicial precedent in some jurisdictions in the United
States. In particular, the Cayman Islands has a less developed body of securities laws
than the United States. In addition, Cayman Islands companies may not have standing to
initiate a shareholder derivative action in a federal court of the United States.
There is also uncertainty as to whether the courts of the Cayman Islands would:
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recognize or enforce against us or our directors, judgments of courts
of the United States based on certain civil liability provisions of
U.S. securities laws; and |
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entertain original actions brought in the Cayman Islands, based on
certain civil liability provisions of U.S. securities laws that are
penal in nature. |
There is no statutory recognition in the Cayman Islands of judgments obtained in the
United States, although the courts of the Cayman Islands will generally recognize and
enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial
on the merits.
As a result of all of the above, our public shareholders may have more difficulty in
protecting their interests in the face of actions taken against management, members of
the board of directors or controlling shareholders than they would as shareholders of a
U.S. public company.
You may have difficulty enforcing judgments obtained against us.
We are a Cayman Islands company and substantially all of our assets are located
outside of the United States. Substantially all of our current operations are conducted
in the PRC. In addition, most of our directors and officers are nationals and residents
of countries other than the United States. A substantial portion of the assets of these
persons are located outside the United States. As a result, it may be difficult for you
to effect service of process within the United States upon these persons. It may also be
difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on
the civil liability provisions of the U.S. federal
securities laws against us and our officers and directors, most of whom are not
residents in the United States and the substantial majority of whose assets are located
outside of the United States. In addition, there is uncertainty as to whether the courts
of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts
based on certain civil liability provisions of U.S. securities laws.
ITEM 4 INFORMATION ON THE COMPANY
A. History and Development of the Company
We commenced operations through SolarOne Qidong, formerly known as Jiangsu Linyang
Solarfun Co., Ltd., in August 2004. SolarOne Qidong was a 68%-owned subsidiary of Jiangsu
Linyang Electronics Co., Ltd., or Linyang Electronics, at the time of its establishment
on August 27, 2004. Linyang Electronics is one of the leading electricity-measuring
instrument manufacturers in China. In anticipation of our initial public offering, we
incorporated Hanwha SolarOne, formerly known was Solarfun Power Holdings Co., Ltd., in
the Cayman Islands on May 12, 2006 as our listing vehicle. To enable us to raise equity
capital from investors outside of China, we established a holding company structure by
incorporating Hanwha SolarOne Investment Holding Ltd., formerly known as Linyang Solar
Power Investment Holding Ltd., or SolarOne BVI, in the British Virgin Islands on May 17,
2006. SolarOne BVI is wholly owned by Hanwha SolarOne. SolarOne BVI purchased all of the
equity interests in SolarOne Qidong on June 2, 2006. On May 16, 2007, SolarOne BVI
established a wholly owned subsidiary, Hanwha SolarOne Hong Kong Limited, formerly known
as Solarfun Power Hong Kong Limited, or SolarOne Hong Kong. In March 2006, April 2006 and
April 2007, we established three majority-owned or wholly owned subsidiaries in China,
Shanghai Linyang Solar
Technology Co., Ltd., or Solar Shanghai, Sichuan Leshan Jiayang New Energy Co., Ltd., or
Sichuan Jiayang, and Hanwha Solar Engineering Research and Development Center Co., Ltd.,
formerly known as Nantong Linyang Solarfun Engineering Research and Development Center
Co., Ltd., or Solar R&D, respectively, to expand our business into new markets and
sectors. We acquired a 52% interest in Hanwha SolarOne Technology Co., Ltd., formerly
known as Jiangsu Yangguang Solar Technology Co., Ltd., or SolarOne Technology, in July
2007 and acquired the remaining 48% in August 2008. In September 2007, we
22
established a
wholly owned subsidiary, Hanwha SolarOne U.S.A. Inc., formerly known as Solarfun Power
U.S.A. Inc., or SolarOne U.S.A., as part of our plan to enter the United States market.
On November 30, 2007, SolarOne BVI transferred all of the equity interests in SolarOne
Qidong to SolarOne Hong Kong, for a consideration of US$199.0 million. In February 2008,
we established a wholly owned subsidiary, Hanwha SolarOne Deutschland GmbH, formerly
known as Solarfun Power Deutschland GmbH, or SolarOne Deutschland, in Germany to sell
solar products in the European markets. We liquidated Sichuan Jiayang, one of our
subsidiaries which historically has had limited operations, in July 2008. In November
2009, we acquired the remaining 17% equity interest in Solar Shanghai and Solar Shanghai
became our wholly owned subsidiary after the completion of this transaction. We
established Hanwha Solar Electric Power Engineering Co., Ltd., formerly known as Jiangsu
Linyang Solar Electric Power Engineering Co., Ltd., or Solar Engineering, in May 2010
under SolarOne Qidong to engage in the solar power project business.
In September 2010, we issued and sold to Hanwha Solar Holdings Co., Ltd., or Hanwha
Solar, 36,455,089 ordinary shares for an aggregate sale price of US$78.2 million.
Concurrently with the closing of this offering, we issued 30,672,689 ordinary shares to
Hanwha Solar at par value of the ordinary shares and subsequently an additional
14,407,330 ordinary shares at par value, which shares shall remain outstanding so long as
and to the extent that the 9,019,611 ADSs we issued to facilitate our convertible bond
offering in January 2008 remain outstanding. At the same time, Hanwha Solar completed the
acquisitions from Good Energies II LP and Yonghua Solar Power Investment Holding Ltd.,
the company owned by Mr. Yonghua Lu, our former chairman, of a total of 120,407,700
ordinary shares and 1,281,011 ADSs of our company, representing all of the ordinary
shares and ADSs held by them. Hanwha Solar, a company that engages in solar business, is
a wholly-owned subsidiary of Hanwha Chemical Corporation, a leading chemical producer
publicly traded on the Korea Exchange whose principal activities are the production of
CA, PE and PVC, products.
In November 2010, we issued and sold 9,200,000 ADSs with an aggregate sale price of
US$82.8 million. In order for Hanwha Solar to maintain after this offering the same
level of beneficial ownership in our company as before this offering, we also issued and
sold to Hanwha Solar 45,981,604 ordinary shares for an aggregate sale price of US$82.8
million. As a result of these transactions, Hanwha Solar owns an approximately 49.8%
equity interest in our company. We changed our name from Solarfun Power Holdings Co.,
Ltd. to Hanwha SolarOne Co., Ltd. on December 20, 2010 and our ticker from SOLF to
HSOL on February 15, 2011. In April 2011, we established Nantong Hanwha Import & Export
Co., Ltd., or Nantong Hanwha I&E, under SolarOne Qidong to engage in import and export of
PV products and technology and Hanwha SolarOne (Nantong) Co., Ltd., or SolarOne Nantong,
under SolarOne Hong Kong to develop, manufacture and sell PV products.
Our principal executive offices are located at 888 Linyang Road, Qidong, Jiangsu
Province, 226200, Peoples Republic of China. Our telephone number at this address is
(86-513) 8330-7688 and our fax number is (86-513) 8311-0367. Our registered office in the
Cayman Islands is at the offices of Maples Corporate Services Limited, P.O. Box 309,
Ugland House, Grand Cayman, KY1-1104, Cayman Islands.
Investor inquiries should be directed to us at the address and telephone number of
our principal executive offices set forth above. Our website is
http://www.hanwha-solarone.com. The information contained on our website does not
constitute a part of
this annual report. Our agent for service of process in the United States is CT
Corporation System, located at 111 Eighth Avenue, New York, New York 10011.
We made capital expenditures of RMB1,169.0 million, RMB324.7 million and RMB670.8
million (US$101.6 million) in 2008, 2009 and 2010, respectively, all of which related
primarily to the purchases of manufacturing equipment and facility construction costs. Based on
the current market conditions, we expect to incur capital expenditures of US$450.0
million for 2011, which will be used primarily for
purchasing manufacturing equipment and building production facilities in Nantong,
Qidong and Lianyungang, Jiangsu Province.
We plan to fund the balance of our capital
expenditure requirements for 2011 with cash from operations, additional bank borrowings,
and other forms of financing, if necessary.
B. Business Overview
Overview
We are a vertically integrated manufacturer of silicon ingots, silicon wafers, PV
cells and PV modules in China. We manufacture a variety of silicon ingots, silicon
wafers, PV cells and PV modules using advanced manufacturing process technologies that
have helped us to rapidly increase our operational efficiency. We also provide PV module
processing services. We sell PV cells and PV modules both directly to system integrators
and through third party distributors. In 2010, we sold our products to over 50 customers,
mostly in Germany, Italy, Australia, the United States, the Czech Republic, Spain and
China. We conduct our business in China through our operating subsidiary.
As of April 30, 2010, we had 1,000 MW of annual PV module production capacity and
700 MW of annual PV cell production capacity. In addition, we have achieved improvements
in process technology and product quality since we commenced our commercial production in
November 2005. Our monocrystalline and multicrystalline PV cells achieved conversion
efficiency rates in the ranges of 17.3% to 18.3% and 15.5% to 17.0%, respectively, in
2010. In addition, we had 415 MW of annual ingot production capacity and 500 MW of annual
wire sawing capacity as of April 30, 2010. We plan to expand our PV module production
capacity from 1,000 MW to 1,500 MW, PV cell production capacity from 700 MW to 1,300 MW,
ingot production capacity from 415 MW to 1,000 MW and wire sawing capacity from 500 MW to
1,000 MW by the end of 2011.
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Our net revenues decreased from RMB4,949.1 million in 2008 to RMB3,778.3 million in
2009, but increased to RMB7,527.0 million (US$1,140.5 million) in 2010. Our consolidated
net income increased from a net loss of RMB265.9 million in 2008 to a net loss of
RMB144.9 million in 2009, and net income of RMB757.4 million (US$114.8 million) in 2010.
Our Products and Services
Our products primarily include silicon ingots, silicon wafers, PV cells and PV modules.
Since 2009, substantially all of the ingots, wafers and PV cells we produced have been
used for our own PV module production. We also provide PV module processing services.
Our Products
PV Cells
A PV cell is a semiconductor device that converts sunlight into electricity by a
process known as the photovoltaic effect. The following table sets forth the
specifications of two types of PV cells we currently produce:
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Dimensions |
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Conversion |
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Thickness |
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Maximum |
PV Cell Type |
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(mm×mm) |
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Efficiency (%) |
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(EM) |
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Power (W) |
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Monocrystalline silicon cell |
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125 × 125 |
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17.3 18.3% |
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180 200 |
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2.68 2.84 |
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156 × 156 |
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17.3 18.3% |
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180 200 |
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4.13 4.37 |
Multicrystalline silicon cell |
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156 × 156 |
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15.5 17.0% |
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180 200 |
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3.77 4.13 |
The key technical efficiency measurement of PV cells is the conversion efficiency
rate. Assuming other things being the same, the higher the conversion efficiency rate,
the lower the production cost of PV modules per watt because more power can be
incorporated into a given size package. Our monocrystalline and multicrystalline PV cells
achieved conversion efficiency rates in the ranges of 17.3% to 18.3% and 15.5% to 17.0%,
respectively, in 2010.
We are now able to process wafers as thin as 180 microns. In order to further lower
our production costs, we intend to focus on producing PV cells with decreasing thickness
levels.
In 2009, we introduced ECLIPSE, a new line of PV cells and modules with reduced
light induced degradation. This type of products reduces the impurity concentration in
cells, thereby reducing light induced degradation to approximately 1% from 2% to 3%, or
less than 2 W compared to approximately 4 W to 5 W for a 180 W module equipped with
standard cells. This results in an increase in electricity generation of approximately 1%
to 2% over the long term when compared with standard modules.
In an effort to further improve our technological capability, we plan to adopt
selective emitter technology in our existing cell production lines with an annual
production capacity of 160 MW in the second half of 2011.
PV Modules
A PV module is an assembly of PV cells that have been electrically interconnected
and laminated in a durable and weather-proof package. We have been selling a wide range
of PV modules, currently ranging from 5 W to 295 W in power output specification, made
primarily from the PV cells we manufacture. We are developing modules with higher power
to meet the rising demand for on-grid configurations. The majority of the PV modules we
currently offer to our customers range in power between 185 W and 285 W. We sell
approximately 51% of our PV modules under our proprietary Solarfun and SolarOne brand
names, and approximately 49%, respectively, of our PV modules under the brand names of
our customers.
24
The following table sets forth the types of PV modules we manufacture with the
specifications indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dimensions |
|
|
Weight |
|
|
|
PV Module Manufactured with: |
|
(mm) |
|
|
(Kg) |
|
|
Power (W) |
Monocrystalline silicon |
|
|
1580 × 808 × 45 |
|
|
|
14 |
|
|
160195 |
|
|
|
1494 × 1000 × 45 |
|
|
|
17 |
|
|
170225 |
|
|
|
1652 × 1000 × 50 |
|
|
|
21 |
|
|
200255 |
|
|
|
1966 × 1000 × 50 |
|
|
|
26 |
|
|
250300 |
|
Multicrystalline silicon |
|
|
1580 × 808 × 45 |
|
|
|
14 |
|
|
160195 |
|
|
|
1494 × 1000 × 45 |
|
|
|
17 |
|
|
170225 |
|
|
|
1652 × 1000 × 50 |
|
|
|
21 |
|
|
200255 |
|
|
|
1966 × 1000 × 50 |
|
|
|
26 |
|
|
250300 |
We believe our PV cells and modules are competitive with other products in the PV
market in terms of efficiency and quality. We expect to continue improving the conversion
efficiency and power, and reducing the thickness, of our solar products as we continue to
devote significant financial and human resources in our various research and development
programs.
Ingots
and Wafers
We also manufacture ingots through SolarOne Technology, an ingot plant
that commenced operations in October 2007. As of April 30, 2011,
we operated 40 monocrystalline ingot production
furnaces and 52 multicrystalline ingot production furnaces, with up to 415 MW of annual
manufacturing capacity. The ingots manufactured by SolarOne
Technology are generally used for
our manufacture of wafers.
In
order to further integrate our production upstream, SolarOne Qidong
has purchased and
installed 66 units of wire saws equipment, which can be used to slice ingots into wafers,
and achieved annual wire sawing capacity of 500 MW. The wafers
manufactured by SolarOne Qidong are generally used for our manufacture of PV
cells and PV modules.
Our Services
We provide PV module processing services to convert PV cells into PV modules on
behalf of a third party. For these PV module processing services, we purchase PV cells
from a customer and at the same time agree to sell a specified quantity of PV modules
back to the same customer. The quantity of PV modules sold back to the customer under
this processing arrangement is consistent with the amount of PV cells purchased from the
customer after factoring in conversion efficiency. We record the amount of revenue from
these processing transactions based on the amount received for PV modules sold less the
amount paid for the PV cells purchased from the customer. The production costs incurred
related to providing the module processing services are recorded within our cost of
revenues.
In response to the rapidly evolving conditions in the PV industry, we started to
expand our business downstream to provide system integration services in 2010. Our PV
system integration services may include services such as engineering, procurement of
permits and equipment, construction management, monitoring and maintenance. We offer
PV system integration services through our subsidiary, Hanwha Solar Electric Power
Engineering Co., Ltd., or Solar Engineering.
Raw Materials Supply Management
Manufacturing of our solar products requires reliable supplies of various raw
materials, including silicon wafers, ethylene vinyl acetate, triphenyltin, tempered
glass, connecting bands, welding bands, silica gel, aluminum alloy and junction boxes. We
seek to diversify the supply sources of raw materials and have not in the past
experienced any material disruption of our manufacturing process due to insufficient
supply of raw materials. The aggregate costs attributable to our five largest raw
materials suppliers in 2008, 2009 and 2010 were 42.0%, 51.6% and 40.0%, respectively, of
our total raw material purchases.
We maintain different inventory levels of our raw materials, depending on the type
of product and the lead time required to obtain additional supplies. We seek to maintain
reasonable inventory levels that achieve a balance between our efforts to reduce our
storage costs and optimize working capital on one hand, and the need to ensure that we
have access to adequate supplies on the other. As of December 31, 2008, 2009 and 2010, we
had RMB488.6 million, RMB277.6 million and RMB459.5 million (US$69.6 million),
respectively, of raw materials in inventory.
Silicon-based Raw Materials
Among the various raw materials required for our manufacturing process, silicon
wafers are the most important for producing PV cells. A silicon wafer is a flat piece of
crystalline silicon that can be processed into a PV cell. Silicon wafers used for PV cell
production are generally classified into two different types: monocrystalline and
multicrystalline silicon wafers. Compared to monocrystalline silicon wafers,
multicrystalline silicon wafers have a lower conversion rate but are less expensive. We
currently use 6-inch, 6.5-inch, 7-inch and 8-inch wafers in our production. PV cells can
be manufactured on our production lines using both types of silicon wafers with certain
temporary adjustments to the production line. We believe that the ability to manufacture
using both types of silicon wafers provides us with greater flexibility in procuring raw
materials, especially during periods of silicon supply shortages.
25
We purchase all of our silicon and approximately 40% of our ingots and silicon
wafers from third-party suppliers. We purchase silicon, ingots and wafers from both
domestic and overseas suppliers, with the majority of our purchases being made in the
domestic market. We use ingots manufactured by SolarOne Technology, one of our wholly owned
subsidiaries, in our manufacturing process. Currently, our principal silicon suppliers
include Samsung Corporation, Ya An Yongwang Silicon Co., Ltd., or Yongwang, GCL Silicon
Technology Holdings Limited, or GCL, Solar Power Industries, or SPI, and Chongqing Daqo
New Energy Co., Ltd., or Daqo.
We procure a significant portion of our silicon and silicon wafers from suppliers
under multi-year supply agreements. Each of our existing multi-year supply agreements provides for adjustments in subsequent years
to reflect changes in market conditions or through mutual agreement, except one agreement we entered into in 2010 where the price is
pre-determined without any future adjustment. We procure our remaining silicon and silicon wafer supplies from short-term supply agreements and the
spot market.
Prior to mid-2008, there was an industry-wide shortage of silicon and silicon
wafers, which resulted in significant increases in the prices of these raw materials. To
secure an adequate and timely supply of silicon and silicon wafers during the earlier
periods of supply shortage, we have established supply arrangements with a number of
silicon and silicon wafer suppliers, including a 11-year supply contract with Hoku, a
seven-year supply contract with a non-PRC supplier and supply contracts with LDK and
E-mei. Since the fourth quarter of 2008, the market prices for silicon and silicon wafers
have been decreasing significantly. Spot market prices of silicon and silicon wafers have
fallen below the prices we have contracted for with our long-term suppliers and continued
to decline in 2009. Due to the significant decrease in prices of silicon and silicon wafers, we re-negotiated all of our multi-year
supply agreements that were in place as of December 31, 2009, except the agreement with LDK.
After re-negotiation, the terms of price of such multi-year agreements were generally subject to
review either periodically or upon significant changes in prices on the spot market. See
Item 3.D. Risk Factors Risks Related to Our Company and Our Industry Our ability
to adjust our raw material costs may be limited as a result of our entering into
multi-year supply agreements with many of our silicon and silicon wafer suppliers, and it
may be difficult for us to respond in a timely manner to rapidly changing market
condition, which could materially and adversely affect our cost of revenues and
profitability.
We acquired a 52% equity interest in SolarOne Technology in July 2007 and acquired the
remaining 48% equity interest in August 2008. The key raw material for our production of
ingots is polysilicon. We purchase polysilicon primarily from GCL, Yongwang and Daqo.
Other Raw Materials
In addition to silicon and silicon wafers, we use a variety of other raw materials
for our production. As part of our continuing cost control efforts, we source a
significant portion of these raw materials locally. We believe that our policy to use
primarily locally sourced raw materials and our continuing price negotiations with our
local raw material suppliers have made a significant contribution to our profitability
since we commenced operations in 2004. The use of locally sourced raw materials also
shortens our lead order time and provides us with better access to technical and other
support from our suppliers.
Production
We manufacture our wafers, PV cells and PV modules through SolarOne Qidong, our
wholly owned PRC subsidiary, with facilities occupying a gross floor area of 79,138
square meters in Qidong, Jiangsu Province, China. We commenced commercial production on
our first PV cell production line in November 2005 and had 1,000 MW of annual PV module
capacity and 700 MW of annual PV cell production capacity as of April 30, 2010. We had 54
multicrystalline silicon wafer wire saws and 12 monocrystalline silicon wafer wire saws,
with a total annual manufacturing capacity of 500 MW as of April 30, 2010. We produce
multicrystalline and monocrystalline silicon wafers with a dimension of 156 mm x 156 mm
and 125 mm x 125 mm, respectively. The thickness of our silicon wafers is between 180 and
220 microns.
We manufacture our silicon ingots through SolarOne Technology, one of our wholly owned
subsidiaries, with facilities occupying a gross floor area of approximately 33,730 square
meters in Lianyungang, Jiangsu Province, China. SolarOne Technology commenced its operations
in October 2007. As of April 30, 2010, we operated 40 monocrystalline ingot production
furnaces and 52 multicrystalline ingot production furnaces, with up to 415 MW of annual
manufacturing capacity.
We were able to lower our initial investment by purchasing key equipment with more
sophisticated technology from overseas suppliers while procuring other equipment
domestically. We plan our production on an annual, semi-annual and monthly basis in
accordance with anticipated demand and make weekly adjustments to our production schedule
based on actual orders received.
26
Production Process
The following diagram shows the general production stages for our PV cells:
The following diagram shows the production procedures for our PV modules:
27
The following diagram shows the general production stages for our ingots:
Quality Control and Certifications
Our finished PV cells and PV modules are inspected and tested according to
standardized procedures. In addition, we have established multiple inspection points at
key production stages to identify product defects during the production process.
Unfinished products that are found to be below standard are repaired or replaced. Our
quality control procedures also include raw material quality inspection and testing.
Moreover, we provide regular training and specific guidelines to our operators to ensure
that production processes meet our quality inspection and other quality control
procedures.
We maintain several certifications for our quality control procedures, which
demonstrate our compliance with international and domestic operating standards. We
believe that our quality control procedures are enhanced by the use of sophisticated
production system designs and a high degree of automation in our production process. The
certifications we currently maintain include ISO 9001:2000 quality system certification
for the process of design, production and sale of our PV modules, the TÜV certification
for our PV modules and the UL certification. The TÜV certification is issued by an
independent approval agency in Germany to certify our PV modules are qualified for IEC
61215 and IEC 61730 safety test standards and consistent production quality inspections
are performed periodically. Maintaining this certification has greatly enhanced our sales
in European countries. We obtained UL certification issued by Underwriters Laboratories
Inc., an independent product-safety testing and certification organization in the United
States, which will enable us to sell our products to customers in the United States.
Furthermore, in the United States, our modules have been certified by the California
Energy Commission, the states primary energy policy and planning agency, and the Florida
Solar Energy Center, a regional energy research and certification organization of the
United States. We also obtained a certification issued by KEMCO, an independent
product-safety testing and certification organization in Korea, which will enable us to
sell our products to customers in Korea.
Capacity Expansion and Technology Upgrade Plans
As of April 30, 2010, we had 1,000 MW of annual PV module production capacity and
700 MW of annual PV cell production capacity in commercial operation. We plan to expand
our PV module production capacity from 1,000 MW to 1,500 MW by the end of 2011 and our PV
cell production capacity from 700 MW to 1,300 MW by the end of 2011. We also plan to
expand our annual ingot production capacity from 415 MW to 1,000 MW and annual wire
sawing capacity from 500 MW to 1,000 MW by the end of 2011. We are constructing
manufacturing buildings in Qidong and Lianyungang, Jiangsu Province to accommodate our
planned expansion of production capacities. In December 2010, we entered into an
investment letter of intent with Nantong Economic and Technological Development Zone to
build cell and module production facilities with an annual production capacity of 2 GW in
Nantong, Jiangsu Province. We plan to complete the first phase of the cell and
module production facilities with an annual production capacity of 1 GW in three years.
As one of our key strategies, we intend to continuously improve the conversion efficiency
of our solar products. We plan to adopt selective emitter technology in our existing cell
production lines with an annual production capacity of 160 MW in the second half of 2011.
The expansion plans and capacities indicated above are indicative only of our
current plans and are subject to change due to a number of factors, including, among
others, market conditions and demand for our products. Based on the current market
conditions, we expect to incur capital expenditures of US$450.0 million for 2011, which
will be used primarily for purchasing manufacturing equipment and building production
facilities in Nantong, Qidong and Lianyungang, Jiangsu Province. We plan to fund the balance of our capital expenditure
requirements for 2011 with cash from operations, additional bank borrowings, and other
forms of financing, if necessary.
28
Sales and Distribution
We sell our PV modules through distributors and directly to system integrators. Our
customers include international solar power system integrators and distributors. Our
system integrator customers provide value-added services and typically design and sell
complete systems that use our PV modules.
Customers that accounted for a significant portion of our total net revenues in 2010
included Qcells SE, Rusol, Conergy, Isolux Ingenieria SA, Meridian Solarpark XXXIII GMBH,
Schüco, Scatec and Nobility Solar Projects. Our five largest customers accounted for an
aggregate of 53.2%, 65.3% and 51.9% of our net revenues in 2008, 2009 and 2010,
respectively. Our largest customer in 2008, 2009 and 2010 accounted for 22.2%, 41.4% and
33.6% of our net revenues of the respective year.
We have established two wholly owned subsidiaries, namely SolarOne U.S.A. and
SolarOne Deutschland, to market our products and provide customer support and service in
these markets. The following table sets forth our net revenues by geographic region,
based on the location that our invoices are sent to, and the percentage contribution of
each of these regions to our net revenues, for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
Net |
|
|
|
|
|
|
Net |
|
|
|
|
|
|
Net |
|
|
Net |
|
|
|
|
|
|
Revenues |
|
|
% of Net |
|
|
Revenues |
|
|
% of Net |
|
|
Revenues |
|
|
Revenues |
|
|
% of Net |
|
Region |
|
(RMB) |
|
|
Revenues |
|
|
(RMB) |
|
|
Revenues |
|
|
(RMB) |
|
|
(US$) |
|
|
Revenues |
|
|
|
(In thousands, except percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany |
|
|
2,637,434 |
|
|
|
53.3 |
% |
|
|
2,668,477 |
|
|
|
70.6 |
% |
|
|
4,706,767 |
|
|
|
713,146 |
|
|
|
62.5 |
% |
Spain |
|
|
1,246,305 |
|
|
|
25.2 |
% |
|
|
37,326 |
|
|
|
1.0 |
% |
|
|
131,166 |
|
|
|
19,874 |
|
|
|
1.7 |
% |
PRC |
|
|
329,153 |
|
|
|
6.7 |
% |
|
|
177,478 |
|
|
|
4.7 |
% |
|
|
591,143 |
|
|
|
89,567 |
|
|
|
7.9 |
% |
Italy |
|
|
119,272 |
|
|
|
2.4 |
% |
|
|
4,446 |
|
|
|
0.1 |
% |
|
|
572,420 |
|
|
|
86,730 |
|
|
|
7.6 |
% |
Australia |
|
|
32,589 |
|
|
|
0.6 |
% |
|
|
177,637 |
|
|
|
4.7 |
% |
|
|
407,261 |
|
|
|
61,706 |
|
|
|
5.4 |
% |
Czech Republic |
|
|
|
|
|
|
|
|
|
|
245,814 |
|
|
|
6.5 |
% |
|
|
165,906 |
|
|
|
25,137 |
|
|
|
2.2 |
% |
USA |
|
|
5,976 |
|
|
|
0.1 |
% |
|
|
17,306 |
|
|
|
0.5 |
% |
|
|
436,747 |
|
|
|
66,174 |
|
|
|
5.8 |
% |
Others |
|
|
578,339 |
|
|
|
11.7 |
% |
|
|
449,832 |
|
|
|
11.9 |
% |
|
|
515,583 |
|
|
|
78,119 |
|
|
|
6.9 |
% |
|
Total |
|
|
4,949,068 |
|
|
|
100.0 |
% |
|
|
3,778,316 |
|
|
|
100.0 |
% |
|
|
7,526,993 |
|
|
|
1,140,453 |
|
|
|
100.0 |
% |
In 2010, we shipped our products to over 40 customers. In 2008, 2009 and 2010,
customers accounting for 10.0% or more of our net revenues collectively accounted for
22.2%, 41.4% and 33.6% of our net revenues, respectively, and sales to our largest
customer accounted for 22.2%, 41.4% and 33.6% of our net revenues, respectively. We seek
to further diversify our geographic presence and customer base in order to achieve a
balanced and sustainable growth.
Warranty
We provide a two to five-year warranty for technical defects and a 10-year limited
warranty against declines of greater than 10%, and a 20 to 25-year limited warranty
against declines of greater than 20%, in the initial power generation capacity of our PV
modules. After-sales services for our PV modules and solar application systems covered by
warranties are provided by our international customer support team. We provided RMB46.6
million, RMB33.7 million and RMB67.6 million (US$10.2 million) in warranty costs for the
two to five-year warranty against technical defects in 2008, 2009 and 2010, respectively.
Intellectual Property and Proprietary Rights
Our intellectual property is an essential element of our business. We rely on
patent, copyright, trademark, trade secret and other intellectual property law, as well
as non-competition and confidentiality agreements with our employees, suppliers, business
partners and others, to protect our intellectual property rights.
As of April 30, 2011, we had been granted 20 patents by the State Intellectual
Property Office of China and had 14 patent applications pending in China. Our issued
patents and pending patent applications relate primarily to process technologies for
manufacturing PV cells.
We have registered Solarfun, our trademark for our PV cells and modules, with the
China Trademark Office and the International Bureau of the World Intellectual Property
Organization, which allow us to use this trademark in China, Singapore and the United
States.
On January 10, 2011, we filed the application to register our new trademark, Hanwha
SolarOne, with the International Bureau for Intellectual Property. We started to
use the new trademark in May 2011.
29
We rely on trade secret protection and confidentiality agreements to protect our
proprietary information and know-how. Our management and each of our research and
development personnel have entered into a standard annual employment contract, which
includes confidentiality undertakings and an acknowledgement and agreement that all
inventions, designs, trade secrets, works of authorship, developments and other processes
generated by them on our behalf are our property, and assigns to us any ownership rights
that they may claim in those works. Our supply contracts with our customers also
typically include confidentiality undertakings. Despite these precautions, it may be
possible for third parties to obtain and use intellectual property that we own or license
without consent. Unauthorized use of our intellectual property by third parties, and the
expenses incurred in protecting our intellectual property rights, may materially and
adversely affect our business, financial condition, results of operations and prospects.
See Item 3.D. Risk Factors Risks Related to Our Company and Our Industry Our
failure to protect our intellectual property rights may undermine our competitive
position, and litigation to protect our intellectual property rights may be costly.
Competition
Due to various government incentive programs implemented in China, Europe, the
United States, Japan and other countries in recent years, the global PV market has been
rapidly evolving and has become highly competitive. In particular, a large number of
manufacturers have entered the solar market.
Our main overseas competitors are, among others, Mitsubishi Electric Corporation,
Sharp Corporation and Sunpower Corporation. Our primary competitors in China include
Suntech Power Holdings Co., Ltd., Trina Solar Ltd., Yingli Green Energy Holdings Co.,
Ltd. and Canadian Solar Inc. We compete primarily on the basis of the power efficiency,
quality, performance and appearance of our products, price, strength of supply chain and
distribution network, after-sales service and brand image. Many of our competitors have
longer operating histories and significantly greater financial or technological resources
than we do and enjoy greater brand recognition. Some of our competitors are vertically
integrated and produce upstream silicon and silicon wafers, mid-stream PV cells and
modules and downstream solar application systems, which provide them with greater
synergies to achieve lower production costs. During periods when there was a supply
shortage of silicon and silicon wafers, we competed intensely with our competitors in
obtaining adequate supplies of silicon and silicon wafers.
Moreover, many of our competitors are developing next-generation products based on
new PV technologies, including amorphous silicon, transparent conductive oxide thin film,
carbon material and nano-crystalline technologies, which, if successful, will compete
with the crystalline silicon technology we currently use in our manufacturing processes.
Through our research collaborations, we are also seeking to develop new technologies and
products. If we fail to develop new technologies and products in a timely manner, we may
lose our competitive advantage.
We, like other solar energy companies, also face competition from traditional
non-solar energy industries, such as the petroleum and coal industries. The production
cost per watt of solar energy is significantly higher than other types of energy. As a
result, we cannot assure you that solar energy will be able to compete with other energy
industries, especially if there is a reduction or termination of government incentives
and other forms of support.
Environmental Matters
Our manufacturing processes generate noise, waste water, gaseous wastes and other
industrial wastes. Our manufacturing facilities are subject to various pollution control
regulations with respect to noise and air pollution and the disposal of waste and
hazardous materials. We are also subject to periodic inspections by local environmental
protection authorities. We have established a pollution control system and installed
various equipment to process and dispose of our industrial waste and hazardous materials.
We believe that we have obtained all requisite environmental permits and approvals to
conduct our business. We also maintain an ISO 14001 environmental management system
certification, which is issued by International Organization for Standardization to
demonstrate our compliance with international environmental standards. We have not been
subject to any material proceedings or fines for environmental violations.
Insurance
We maintain property insurance for our equipment, automobiles, facilities and
inventory. A significant portion of our fixed assets are covered by these insurance
policies. We also maintain business interruption insurance, product liability insurance,
product quality guarantee insurance and export credit insurance. We believe our insurance
coverage is customary and standard for companies of comparable size in comparable
industries in China. However, our existing insurance policies may not be sufficient to
insulate us from all losses and liabilities that we may incur.
Regulation
This section sets forth a summary of the most significant regulations or
requirements that affect our business activities in China or our shareholders right to
receive dividends and other distributions from us.
Renewable Energy Law and Other Government Directives
In February 2005, Chinas Standing Committee of National Peoples Congress, or
SCNPC, enacted the Renewable Energy Law, which has become effective on January 1, 2006.
On December 26, 2009, the Renewable Energy law was amended by SCNPC. The Renewable Energy
law, as amended, sets forth the national policy to encourage and support the development
and use of solar and other renewable energy and the use of on-grid generation.
30
The law also sets forth the national policy to encourage the installation and use of
solar energy water-heating systems, solar energy heating and cooling systems, solar
photovoltaic systems and other solar energy utilization systems. In addition, the law
provides financial incentives, such as national funding, preferential loans and tax
preferences for the development of renewable energy projects.
Chinas Ministry of Construction also issued a directive in June 2005 that sought to
expand the use of solar energy in residential and commercial buildings and encouraged the
increased application of solar energy in different townships. In addition, Chinas State
Council promulgated a directive in July 2005 that set forth principles with regard to the
conservation of energy resources and the development and use of solar energy in the
western part of China, which has not been covered by electricity transmission grids and
rural areas.
In January 2006, the NDRC issued two implementing rules relating to the Renewable
Energy Law: (1) the Trial Measures on the Administration over the Pricing and Cost
Allocation of Renewable Energy Power Generation and (2) the Administrative Regulations
Relating to the Renewable Energy Power Generation. These implementing rules, among other
things, set forth general policies for the pricing of on-grid power generated by solar
and other renewable energy. In addition, the PRC Ministry of Finance issued the
Provisional Measures for Administration of Specific Funds for Development of Renewable
Energy in June 2006, which provides that the PRC government will establish a fund
specifically for the purpose of supporting the development of the renewable energy
industry, including the PV industry.
On March 3, 2008, the NDRC issued the 11th Five-Year Plan for the Development of
Energy Resources, which announced the PRC governments support for the development of
renewable energy resources in China, including solar power.
On March 23, 2009, Chinas Ministry of Finance promulgated the Interim Measures for
Administration of Government Subsidy Funds for Application of Solar Photovoltaic
Technology in Building Construction, or the Interim Measures, to support the
demonstration and the promotion of solar photovoltaic application in China. Local
governments are encouraged to issue and implement supporting policies for the development
of solar photovoltaic technology. Under these Interim Measures, the Ministry of Finance
provides subsidies for projects with individual solar installations that are greater than
50 kilowatt-peak in size and have more than 16% conversion efficiency for monocrystalline
PV products, more than 14% conversion efficiency for multicrystalline PV products and
more than 6% conversion efficiency for amorphous silicon PV products, and gives priority
support to solar PV technology integrated into building construction, grid-connected PV
building applications and some public PV building applications such as schools, hospitals
and offices. For 2009, the standard subsidy is set at RMB20 per watt in principle and the
detailed standard is to be determined by factors including, but not limited to, the level
of integration of building with PV and the technology of PV products. The Interim
Measures do not apply to projects completed before March 23, 2009, the promulgation date
of the Interim Measures.
On April 16, 2009, the General Offices of the PRC Ministry of Finance and the PRC
Ministry of Housing and Urban-Rural Development jointly issued the Guidelines for
Declaration of Demonstration Project of Solar Photovoltaic Building Applications. These
guidelines set the subsidy given out in 2009 to qualified solar projects at no more than
RMB20 per watt for projects involving the integration of PV components into buildings
structural elements and at no more than RMB15 per watt for projects involving the
installation of PV components onto building rooftops and wall surfaces.
On May 27, 2010, the Ministry of Housing and Urban-Rural Development issued the City
Illumination Administration Provisions, or the Illumination Provisions, effective as of
July 1, 2010. The Illumination Provisions encourage the installation and
use of renewable energy systems such as PV systems in the process of construction
and re-construction of city illumination projects.
On March 8, 2011, the Notice on Further Promotion of Buildings with Renewable
Energy, or the Notice, was jointly released by the PRC Ministry of Finance and the PRC
Ministry of Housing and Urban-Rural Development. The Notice expressly specifies the goal
of promoting the application of renewable energy in buildings under the Twelfth Five-Year
Plan is to substantially improve the proportion of renewable energy used in buildings,
including solar energy, shallow geothermal energy and biomass energy, so that the
consumption of renewable energy in buildings shall account for over 15% of the total
building energy consumption by the end of 2020. The Twelfth Five-Year Plan promotes the
use of renewable energy in buildings. The Twelfth Five-Year Plan mandates that efforts
shall be made to increase the gross floor areas of buildings serviced by renewable energy
to over 2.5 billion square meters and to use renewable energy to substitute 30 million
coal by the end of 2015.
Environmental Regulations
We use, generate and discharge toxic, volatile or otherwise hazardous chemicals and
wastes in our research and development and manufacturing activities. We are subject to a
variety of governmental regulations related to the storage, use and disposal of hazardous
materials. The major environmental regulations applicable to us include the Environmental
Protection Law of the PRC, the Law of PRC on the Prevention and Control of Water
Pollution, Implementation Rules of the Law of PRC on the Prevention and Control of Water
Pollution, the Law of PRC on the Prevention and Control of Air Pollution, the Law of PRC
on the Prevention and Control of Solid Waste Pollution, and the Law of PRC on the
Prevention and Control of Noise Pollution.
31
Restriction on Foreign Businesses
The principal regulation governing foreign ownership of solar photovoltaic
businesses in the PRC is the Foreign Investment Industrial Guidance Catalogue (effective
as of December 1, 2007). Under the regulation, the solar photovoltaic business falls into
the category of encouraged foreign investment industry.
Tax
PRC enterprise income tax is calculated based on taxable income determined under PRC
accounting principles. On March 16, 2007, the National Peoples Congress of the PRC
passed the EIT, which took effect as of January 1, 2008. In accordance with the EIT, a
unified enterprise income tax rate of 25% and unified tax deduction standards are applied
equally to both domestic-invested enterprises and foreign-invested enterprises, such as
SolarOne Qidong. Enterprises established prior to March 16, 2007 eligible for
preferential tax treatment in accordance with the former tax laws and administrative
regulations are, under the regulation of the State Council, gradually becoming subject to
the new tax rate over a five-year transition period that started on the date of
effectiveness of the EIT. In accordance with the Notice of the State Council on the
Implementation of the Transitional Preferential Policies in respect of Enterprise Income
Tax, foreign-invested enterprises established prior to March 16, 2007 and eligible for
preferential tax treatment, such as SolarOne Qidong, will continue to enjoy the
preferential tax treatment in the manner and during the period as former laws and
regulations provided until such period expires. While the EIT equalizes the tax rates for
FIEs and domestically owned enterprises, preferential tax treatment continues to be
granted to companies in certain encouraged sectors and to companies classified as high
and new technology enterprises, which enjoy a tax rate of 15% as compared to the uniform
tax rate of 25%. SolarOne Qidong was approved to be qualified as a high and new
technology enterprise on October 21, 2008. The high and new technology enterprise
status is valid for a period of three years from the date of issuance of a high and new
technology enterprise certificate. If there is any significant change in the companys
business operations, manufacturing technologies or other areas that cause it to no longer
qualify as a high and new technology enterprise, such status will be terminated from
the year of such change.
In accordance with the FIE Tax Law, the EIT and other relevant tax regulations,
SolarOne Qidong was exempted from state and local enterprise income tax in 2005 and 2006
and was taxed at a reduced rate of 12% in 2007, 12.5% in 2008 and 12.5% in 2009 and 15%
in 2010. The high and new technology enterprise status of SolarOne Qidong will expire
in October 2011. SolarOne Qidong has re-applied for the high and new technology
enterprise qualification and expects to receive a response from the government regarding
the application by August 2011. If SolarOne Qidongs application is approved, SolarOne
Qidong will continue to enjoy a preferential income tax rate of 15% in 2011, 2012 and
2013; and otherwise SolarOne Qidong will be subject to an income tax rate of 25% from
2011. From 2005 until the end of 2009, SolarOne Qidong was also exempt from the 3% local
income tax applicable to foreign-invested enterprises in Jiangsu Province. In addition,
under relevant PRC tax rules and regulations, SolarOne Qidong was entitled to a two-year
income tax exemption on income generated from additional investment in the production
capacity of SolarOne Qidong resulting from our contribution to SolarOne Qidong of funds
we received through issuances of series A convertible preference shares in a private
placement in June and August 2006, and was entitled to a reduced tax rate of 12.5% for
the three years thereafter. In 2010, we recorded a provision of RMB116.1 million (US$17.6
million) for unrecognized tax benefits related to SolarOne Qidong due to the uncertainty
as to whether this subsidiary would meet certain requirements of high and new technology
enterprise status during its annual self-assessment in order to be eligible for the
reduced EIT. In addition, our subsidiaries, SolarOne Technology and Solar Shanghai, are
subject to an enterprise income tax rate of 25% from 2008 onwards.
Pursuant to SAT Circular 698, issued by the State Administration of Taxation on
December 10, 2009 with retroactive effect from January 1, 2008, if a non-resident
enterprise transfers its equity interests in a PRC resident indirectly via disposing of
the equity interests of an overseas holding company, or Indirect Transfer, and such
overseas holding company is located in a tax jurisdiction that (i) has an effective tax
rate less than 12.5% or (ii) does not tax foreign income of its residents, the foreign
investor shall report such Indirect Transfer to the competent tax authority of the PRC
resident enterprise. The PRC tax authority will examine the true nature of the Indirect
Transfer, and if the tax authority considers that the foreign investor has adopted an
abusive arrangement in order to avoid PRC tax, it will disregard the existence of the
overseas holding company and re-characterize the Indirect Transfer and, as a result,
gains derived from such Indirect Transfer may be subject to PRC withholding tax at the
rate of up to 10%. SAT Circular 698 also provides that, where a non-PRC resident
enterprise transfers its equity interests in a PRC resident enterprise to its related
parties at a price lower than the fair market value, the relevant tax authority has the
power to make a reasonable adjustment to the taxable gain of the transaction. SAT
Circular 698 states that it does not apply to purchases or sales of stock on a stock
exchange.
Pursuant to the Provisional Regulation of China on Value-Added Tax and their
implementing rules, all entities and individuals that are engaged in the sale of goods,
the provision of repairs and replacement services and the importation of goods in China
are generally required to pay value-added tax at a rate of 17% of the gross sales
proceeds received, less any deductible value-added tax already paid or borne by the
taxpayer. Furthermore, when exporting goods, the exporter is entitled to a portion of or
all the refund of value-added tax that it has already paid or borne. Our imported raw
materials that are used for manufacturing export products and are deposited in bonded
warehouses are exempt from import value-added tax.
32
Foreign Currency Exchange
Foreign currency exchange in China is primarily governed by the following regulations:
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Foreign Exchange Administration Rules (1996), as amended; and |
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Regulations of Settlement, Sale and Payment of Foreign Exchange (1996). |
Under the Foreign Exchange Administration Rules, the Renminbi is convertible for
current account items, including distribution of dividends, payment of interest, trade
and service-related foreign exchange transactions. Conversion of Renminbi for capital
account items, such as direct investment, loan, securities investment and repatriation of
investment, however, is still subject to the approval of SAFE.
Under the Regulations of Settlement, Sale and Payment of Foreign Exchange,
foreign-invested enterprises may only buy, sell and/or remit foreign currencies at those
banks authorized to conduct foreign exchange business after providing valid commercial
documents and, in the case of capital account item transactions, obtaining approval from
the SAFE. Capital investments by foreign-invested enterprises outside of China are also
subject to limitations, which include approvals by the Ministry of Commerce, SAFE and the
NDRC.
Dividend Distribution
The principal regulations governing distribution of dividends paid by wholly
foreign-owned enterprises include:
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Wholly Foreign-Owned Enterprise Law (1986), as amended; and |
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Wholly Foreign-Owned Enterprise Law Implementation Rules (1990), as amended. |
Under these regulations, wholly foreign-owned enterprises in China may pay dividends
only out of their accumulated profits, if any, determined in accordance with PRC
accounting standards and regulations. In addition, wholly foreign-owned enterprises in
China are required to set aside at least 10% of their after-tax profit based on PRC
accounting standards each year to its general reserves until the accumulated amount of
such reserves reaches 50% of its registered capital. These reserves are not distributable
as cash dividends. The board of directors of a foreign-invested enterprise has the
discretion to allocate a portion of its after-tax profits to staff welfare and bonus
funds, which may not be distributed to equity owners except in the event of liquidation.
33
C. Organizational Structure
Hanwha Solar Holdings Co., Ltd., or Hanwha Solar, became our largest shareholder
through a series of transactions in September 2010. Hanwha Solar, a company that engages
in solar business, is a wholly-owned subsidiary of Hanwha Chemical Corporation, a leading
chemical producer publicly traded on the Korea Exchange whose principal activities are
the production of CA, PE, and PVC products. After Hanwha Solar became our largest
shareholder, we changed our name from Solarfun Power Holdings Co., Ltd. to Hanwha
SolarOne Co., Ltd. on December 20, 2010 and our ticker from SOLF to HSOL on February
15, 2011. We also changed the names of our subsidiaries. The diagram below sets forth the
entities directly or indirectly controlled by us as of April 30, 2011.
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Notes: |
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(1) |
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Formerly known as Solarfun Power U.S.A. Inc.; |
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(2) |
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Formerly known as Linyang Solar Power Investment Holding Ltd.; |
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(3) |
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Formerly known as Solarfun Power Hong Kong Limited; |
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(4) |
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Formerly known as Jiangsu Linyang Solarfun Co., Ltd.; |
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Formerly known as Solarfun Power Deutschland GmbH; |
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(6) |
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Formerly known as Jiangsu Linyang Solarfun Engineering Research and Development
Center Co., Ltd.; |
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Formerly known as Jiangsu Yangguang Solar Technology Co., Ltd.; and |
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(8) |
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Formerly known as Jiangsu Linyang Solar Electric Power Engineering Co., Ltd. |
34
D. Property, Plant and Equipment
Our corporate headquarters and manufacturing facilities are located in the Linyang
Industrial Park, Qidong, Jiangsu Province, China, where we hold the land use rights for a total
area of 258,319 square meters, which expire between 2053 and 2060. We own office and
manufacturing facilities for a total gross floor area of 79,138 square meters in Qidong, Jiangsu
Province. We leased an office of 3,600 square meters in Qidong, Jiangsu Province from Linyang
Electronics, which will expire on January 8, 2012. To facilitate our capacity expansion, we
leased manufacturing facilities with a total gross floor area of approximately 45,500 square
meters and dormitories with a total gross floor area of approximately 39,635 square meters in
Qidong, Jiangsu Province. The leases will expire between June 2011 and January 2013, when our
new facilities are expected to be put into use. In addition, SolarOne Technology holds the land use
rights for a total area of approximately 976,905 square meters and owns office and manufacturing
facilities for a total gross floor area of 33,730 square meters in Lianyungang, Jiangsu
Province. We also renewed the lease of a gross floor area of approximately 1,500 square meters
for our Hanwha SolarOne Engineering, Research and Development Center Co., Ltd. in Shanghai in
May 2010, and the renewed lease will expire in May 2014. We entered into a contract with Qidong
Huahong Electronics Co., Ltd., a company controlled by Mr. Yonghua Lu, our former chairman, to
lease an office with a gross floor area of 1,116 square meters from September 1, 2010 to August
31, 2013. In 2008, 2009 and 2010, our rental expenses were RMB6.3 million, RMB9.6 million and
RMB9.4 million (US$1.4 million), respectively.
As of April 30, 2010, we had an annual PV module production capacity of 1,000 MW and
an annual PV cell production capacity of 700 MW. As of April 30, 2010, we also had 415 MW
of annual ingot production capacity and 500 MW of annual wire sawing capacity.
We believe that our existing facilities are adequate and suitable to meet our
present needs. We are now constructing buildings in Qidong and Lianyungang to accommodate
our planned expansion of production capacity. In December 2010, we entered into an
investment letter of intent with Nantong Economic and Technological Development Zone to
build cell and module production facilities with an annual production capacity of 2 GW in
Nantong, Jiangsu Province. We plan to complete the first phase of the cell and module
production facilities with an annual production capacity of 1 GW in three years.
ITEM 4A UNRESOLVED STAFF COMMENTS
None.
ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion should be read in conjunction with the rest of this annual
report, including the consolidated financial statements and notes thereto contained
elsewhere in this annual report. The results discussed below are not necessarily
indicative of the results to be expected in any future periods.
A. Operating Results
Overview
We are a vertically integrated manufacturer of silicon ingots, silicon wafers, PV
cells and PV modules in China. We manufacture a variety of silicon ingots, silicon
wafers, PV cells and PV modules using advanced manufacturing process technologies that
have helped us to rapidly increase our operational efficiency. Since 2009, substantially
all of the ingots, wafers and PV cells we produced have been used for our own PV module
production. We also provide PV module processing services. We sell PV cells and PV
modules both directly to system integrators and through third-party distributors.
We commenced operations on August 27, 2004 through SolarOne Qidong. On August 27,
2004, Linyang Electronics, one of the leading electricity-measuring instrument
manufacturers in China, owned 68% of the equity interests of SolarOne Qidong. In
anticipation of our initial public offering, we incorporated Hanwha SolarOne in the
Cayman Islands on May 12, 2006 as our listing vehicle. To enable us to raise equity
capital from investors outside of China, we established a holding company structure by
incorporating SolarOne BVI in the British Virgin Islands on May 17, 2006. SolarOne BVI is
wholly owned by Hanwha SolarOne. SolarOne BVI purchased all of the equity interests in
SolarOne Qidong on June 2, 2006 from Linyang Electronics and the three other shareholders
of SolarOne Qidong for aggregate consideration of US$7.3 million. This transaction was
accounted for as a recapitalization. On May 16, 2007, SolarOne BVI established a wholly
owned subsidiary, SolarOne Hong Kong. In March 2006, April 2006 and April 2007, we
established three majority-owned or wholly owned subsidiaries in China, Solar Shanghai,
Sichuan Jiayang and Solar R&D, respectively, to expand our business into new markets and
sectors. We acquired a 52% equity interest in Solar Technology in July 2007 and acquired
the remaining 48% in August 2008. In September 2007, we established a wholly owned
subsidiary, SolarOne U.S.A., as part of our plan to enter the United States market. On
November 30, 2007, SolarOne BVI transferred all of the equity interests in SolarOne
Qidong to SolarOne Hong Kong for consideration of US$199.0 million. In February 2008, we
established a wholly owned subsidiary, SolarOne Deutschland in Germany, to sell solar
products in the European markets. We liquidated Sichuan Jiayang, one of our subsidiaries
which historically has had limited operations, in July 2008. In November 2009, we
acquired the remaining 17% interest in Solar Shanghai and Solar Shanghai became our
wholly owned subsidiary after the completion of this transaction. We established Hanwha
Solar Electric Power Engineering Co., Ltd. in May 2010 under SolarOne Qidong to engage
in the solar power project business.
35
We entered into a share purchase agreement on August 3, 2010 with Hanwha Chemical
Corporation, or Hanwha Chemical, a leading chemical producer publicly traded on the Korea
Exchange whose principal activities are the production of CA, PE and PVC products. Under
such share purchase agreement, Hanwha Chemical agreed to purchase 36,455,089 ordinary
shares from us at a price of US$2.144 per ordinary share, which corresponds to a price of
US$10.72 per ADS. Hanwha Chemical subsequently assigned and transferred its rights and
obligations under the share purchase agreement to Hanwha Solar, a wholly owned subsidiary
of Hanwha Chemical and the sale and purchase of these ordinary shares was consummated on
September 16, 2010. In addition, we entered into a share issuance and repurchase
agreement on September 16, 2010 with Hanwha Solar, under which we agreed to issue to
Hanwha Solar a total of 45,080,019 ordinary shares at par value of US$0.0001 per ordinary
share, which shares shall remain outstanding so long as and to the extent that the
9,019,611 ADSs we issued to facilitate our convertible bond offering in January 2008
remain outstanding. Pursuant to the share issuance and repurchase agreement, we issued to
Hanwha Solar 30,672,689 ordinary shares on September 16, 2010 and an additional
14,407,330 ordinary shares on March 10, 2011. The total proceeds to us from these
transactions amounted to US$78.2 million. At the same time, Hanwha Solar completed the
acquisitions from Good Energies II LP and Yonghua Solar Power Investment Holding Ltd. of
a total of 120,407,700 ordinary shares and 1,281,011 ADSs of our company, representing
all of the ordinary shares and ADSs held by them. In connection with our public offering
of 9,200,000 ADSs in November 2010, we issued to Hanwha Solar an additional 45,981,604
ordinary shares at a price of US$1.80 per ordinary share pursuant to a shareholder
agreement we and Hanwha Solar entered into on September 16, 2010. As a result of these
transactions, Hanwha Solar owns an approximately 49.8% equity interest in our company. We
changed our name from Solarfun Power Holdings Co., Ltd. to Hanwha SolarOne Co., Ltd.
on December 20, 2010 and our ticker from SOLF to HSOL on February 15, 2011. In April
2011, we established Nantong Hanwha Import & Export Co., Ltd., or Nantong Hanwha I&E,
under SolarOne Qidong to engage in import and export of PV products and technology and
Hanwha SolarOne (Nantong) Co., Ltd., or SolarOne Nantong, under SolarOne Hong Kong to
develop, manufacture and sell PV products.
We shipped 172.8 MW, 313.4 MW and 797.9 MW of PV modules (including PV module
processing) in 2008, 2009 and 2010, respectively. The average selling price of our PV
modules (excluding PV module processing) was RMB26.77, RMB15.27 and RMB11.58 (US$1.75)
per watt in 2008, 2009 and 2010, respectively. In 2008, 2009 and 2010, 93.3%, 95.3% and
92.1%, respectively, of our net revenues were attributable to sales to customers outside
of the PRC. Moreover, in 2008, 2009 and 2010, customers accounting for more than 10% of
our net revenues accounted in the aggregate for 22.2%, 41.4% and 33.6%, respectively, of
our net revenues.
Our net revenues decreased from RMB4,949.1 million in 2008 to RMB3,778.3 million in
2009, but increased to RMB7,527.0 million (US$1,140.5 million) in 2010. Our consolidated
net income increased from a net loss of RMB265.9 million in 2008 to a net loss of
RMB144.9 million in 2009, and increased to net income of RMB757.4 million (US$114.8
million) in 2010.
Limited Operating History
We have a limited operating history upon which you can evaluate our business. You
should consider the risks and difficulties frequently encountered by companies with a
relatively short operating history, such as us, in new and rapidly evolving markets, such
as the PV market. Our rapid revenue growth since we started operations in August 2004
should not be taken as indicative of the rate of revenue growth, if any, that can be
expected in the future. In addition, our limited operating history provides a limited
historical basis to assess the impact that critical accounting policies may have on our
business and our financial performance.
Key Factors Affecting Our Financial Performance
The most significant factors affecting our financial performance are:
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industry demand; |
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average selling price of our PV products; |
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price and availability of silicon and silicon wafers; |
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manufacturing capacity; and |
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process technologies. |
36
Industry Demand
Our business and revenue growth depends on PV industry demand. There has been
significant growth in the PV market in the past decade. However, beginning in the second
half of 2008, many of our key markets, including Germany, Spain and the United States,
and other national economies have experienced a period of economic contraction or
significantly slower economic growth. In particular, the current credit crisis, weak
consumer confidence and diminished consumer and business spending have contributed to a
significant slowdown in the market demand for PV products due to decreased energy
requirements. Many of our customers
have experienced difficulty in obtaining financing, and even if they have been able
to obtain financing, the cost of such financing has increased and our customers may
change their decision or change the timing of their decision to purchase our products. As
a result, this lack of, and increase in the cost of, financing have lowered and may
continue to lower demand for our products and reduced our net revenues. A protracted
disruption in the ability of our customers to obtain financing could lead to a
significant reduction in their future orders for our products, which in turn could have a
material adverse effect on our business, financial condition and results of operations.
See Item 3.D. Risk FactorsRisks related to Our Company and Our IndustryDemand for
our PV products has been, and may continue to be, adversely affected by volatile market
and industry trend. From the second half of 2008 to the first half of 2009, increased
manufacturing capacity in the industry also contributed to a decline in the selling price
of PV products. As global economic condition began improving in the second half of 2009,
demand for PV products began to increase during 2010, which contributed to an increase in
the selling price of PV products in 2010 along with the decreased manufacturing capacity
in 2010. Such increase was offset by the sale of inventory accumulated during the
economic downturn. A large portion of our sales is denominated in Euros. The depreciation
of Euro in the first half of 2010 and the appreciation of Euro in the second half of 2010
also contributed to the change of our average selling price per watt of our PV modules in
2010.
The average selling price per watt of our PV modules decreased from RMB26.77 in 2008
to RMB15.27 in 2009 and RMB11.58 (US$1.75) in 2010. The average selling price per watt of
our PV modules decreased from RMB13.3 in the last quarter of 2009 to RMB12.01 in the
first quarter of 2010 and RMB11.19 in the second quarter of 2010 and rebounded to
RMB11.72 and RMB11.82, respectively, in the third and fourth quarter of 2010. The change
in the average selling price per watt of our PV modules is consistent with the industry
trend.
Average Selling Price of Our PV Products
PV products are priced based on the number of watts of electricity they can
generate. Pricing of PV products is principally affected by manufacturing costs,
including the costs of silicon and silicon wafers, as well as the overall demand in the
PV industry. Increased economies of scale and advancement of process technologies over
the past decade have also led to a reduction in manufacturing costs and the prices of PV
products.
We generally price our products based on the prevailing market price at the time our
customers issue purchase orders, taking into account the size of the purchase order, the
strength and history of our relationship with each customer and our capacity utilization.
Beginning in the fourth quarter of 2008, demand for PV products decreased as a result of
the global financial crisis, but the supply of PV products increased significantly as
many manufacturers of PV products worldwide, including our company, engaged in
significant production capacity expansion in recent years. This state of over-supply has
resulted in reductions in the prevailing market prices of PV products as manufacturers
have reduced their average selling prices in an attempt to obtain sales. The average
selling prices of our products started to decline in the fourth quarter of 2008. The
average selling price per watt of our PV modules (excluding PV module processing)
decreased from RMB26.77 in 2008 to RMB15.27 in 2009, and to RMB11.58 (US$1.75) in 2010.
The changes in the average selling prices of our PV modules primarily reflected the
prevailing market trend. We expect that the prices of PV products will continue to
decline over time due to increased supply of PV products, reduced manufacturing costs
from improving technology and economies of scale, and continuing decreases in the prices
of silicon and silicon wafers.
Price and Availability of Silicon and Silicon Wafers
Prior to mid-2008, there was an industry-wide shortage of silicon and silicon
wafers, which resulted in significant price increases. To secure an adequate and timely
supply of silicon and silicon wafers during the earlier periods of supply shortage, we
entered into a number of multi-year supply agreements. The prices in the agreements we entered into prior to mid-2008 were generally pre-determined, but some of these agreements provided for
adjustments in subsequent years to reflect changes in market conditions or through mutual
agreement.
Since the fourth quarter of 2008, the market prices for silicon and silicon
wafers have been decreasing significantly. Spot market prices of silicon and silicon
wafer prices have fallen below the price we have contracted for with our long-term
suppliers and continued to decline in 2009. The rapid declines in the prices of silicon
and silicon wafers coupled with decreases in demand for PV products have hampered our
ability to pass on to our customers the cost of our raw materials which were procured at
higher prices during the earlier period of supply shortage. As a result, our write-down
of inventories amounted to RMB413.8 million, RMB282.6 million and RMB134.5 million
(US$20.5 million) in 2008, 2009 and 2010, respectively.
Due to the significant decrease in prices of silicon and silicon wafers, we
re-negotiated all of our multi-year supply agreements that were in place as of December 31, 2009, except the agreement with
LDK. After re-negotiation, the terms of price of such multi-year agreements were generally subject
to review either periodically or upon significant changes in prices on the spot market.
Currently, there is only one multi-year supply agreement we entered into in 2010 where the price is pre-determined without any future
adjustment. In 2010, the amount of our write-down of inventories attributable to the difference
between spot market prices and the prices we have contracted for are not material. Silicon and silicon wafers secured
through such multi-year supply agreements provided a significant portion of our silicon
and silicon wafer needs in 2009 and 2010, and we expect these contracts will provide a significant
portion of our anticipated silicon and silicon wafer needs for 2011. If we
are unable to re-negotiate the prices of our existing multi-year supply agreements and
the prices of silicon and silicon wafers continue to decrease in the future, we may not
be able to adjust our materials costs, and our cost of revenues would be materially and
adversely affected.
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We have historically also acquired a portion of our polysilicon and silicon wafers
through short-term supply arrangements for periods ranging from several months to one
year and spot market purchases. The prices we pay for silicon and silicon wafers pursuant
to short-term supply arrangements and spot market purchases vary according to the
prevailing market price around the time of delivery, which can be subject to significant
fluctuations. All of our short-term supply arrangements have expired pursuant to their
terms, and due to our expectations of market conditions, we anticipate fulfilling any
needs for silicon and silicon wafers in excess of the volumes to be delivered under our
multi-year supply agreements through purchases on the spot market, rather than through
new short-term supply arrangements.
Manufacturing Capacity
Capacity and capacity utilization are key factors in growing our net revenues and
gross profit. In order to accommodate the growing demand for our products, we have
significantly expanded our manufacturing capacity in recent years. An increase in
capacity has a significant effect on our financial results, both by allowing us to
produce and sell more PV products and achieve higher net revenues, and by lowering our
manufacturing costs as a result of increased economies of scale.
We have been seeking to maximize the utilization of our available manufacturing
capacity as it comes on-line, so as to allow us to spread our fixed costs over a higher
production volume, thereby reducing our per unit and per MW fixed costs. As we build
additional production facilities, our fixed costs will increase, and the overall
utilization rate of our production facility could decline, which could negatively impact
our gross profit. However, regardless of the capacity of a particular manufacturing
facility, our capacity utilization may vary greatly depending on the mix of products we
produce at any particular time.
We have expanded rapidly our manufacturing capacity since our establishment in
August 2004. As a result, we produced 177.3 MW, 342.8 MW and 797.9 MW of PV modules in
2008, 2009 and 2010, respectively. The following table sets forth the production volume
of silicon ingots, wafer PV cells and PV modules for the periods indicated:
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Year Ended December 31, |
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Volume of ingots produced |
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|
|
|
|
|
|
|
|
|
48.0 |
|
|
|
154.1 |
|
|
|
360.0 |
|
Volume of wafer produced |
|
|
|
|
|
|
|
|
|
|
23.5 |
|
|
|
164.6 |
|
|
|
387.4 |
|
Volume of PV cells
produced (including PV
cell processing) |
|
|
26.2 |
(1) |
|
|
99.6 |
(2) |
|
|
191.5 |
(3) |
|
|
260.2 |
(4) |
|
|
502.4 |
(5) |
Volume of PV modules
produced (including PV
module processing) |
|
|
19.6 |
|
|
|
87.2 |
|
|
|
177.3 |
|
|
|
342.8 |
|
|
|
758.9 |
|
|
|
|
Notes: |
|
(1) |
|
Of which 19.9 MW was used in our PV module production. |
|
(2) |
|
Of which 86.9 MW was used in our PV module production. |
|
(3) |
|
Of which 190.5 MW was used in our PV module production. |
|
(4) |
|
Of which 240.2 MW was used in our PV module production. |
|
(5) |
|
Of which 490.4 MW was used in our PV module production. |
As of April 30, 2011, we had an annual PV module production capacity of 1,000 MW and
an annual PV cell production capacity of 700 MW. As of April 30, 2011, we also had 415 MW
of annual ingot production capacity and 500 MW of annual wire sawing capacity.
Process Technologies
Advancements of process technologies have enhanced conversion efficiencies of PV
products. Assuming other things being the same, high conversion efficiencies reduce the
manufacturing cost per watt of PV products and could thereby contribute to increasing
gross profit margins. For this reason, solar energy companies, including us, are
continuously developing advanced process technologies for large-scale manufacturing while
reducing costs to maintain and improve profit margins.
We have achieved improvements in process technology and product quality since we
commenced our commercial production in November 2005. Our monocrystalline and
multicrystalline PV cells achieved conversion efficiency rates in the ranges of 17.3%
to 18.3% and 15.5% to 17.0%, respectively, in 2010 and we are now able to process
wafers as thin as 180 microns. Our advanced process technologies have also significantly
improved our productivity and increased the efficiency of our raw material usage, both of
which have led to the lowering of the cost per watt of our products and improved our
gross profit margins.
38
Net Revenues
We currently generate a substantial majority of our net revenues from the production
and sale of PV modules. We also generate a small portion of our net revenues from the
sale of PV cells and raw materials to third parties.
We commenced manufacturing and selling PV modules in February 2005, and had net
revenues of RMB4,626.4 million, RMB3,375.6 million and RMB6,658.6 million (US$1,008.9
million) in 2008, 2009 and 2010, respectively.
We began manufacturing PV cells in November 2005, primarily to supply our PV module
production. As a result, we only sold a small number of the total PV cells we
manufactured to certain customers to maintain business relationships. Since our business
strategy is focused on increasing our own output of PV modules on a cost-efficient basis,
we plan to continue to use the substantial majority of our PV cells in manufacturing our
PV modules and will maintain our sale of PV cells to third parties at a relatively low
level. In 2008, 2009 and 2010, our net revenues from the sale of PV cells were RMB253.1
million, RMB38.4 million and RMB100.6 million (US$15.2million), respectively.
We began to provide PV module processing services to produce PV modules from PV
cells provided by our customers in 2007. We recorded the amount of net revenues on PV
module processing transactions based on the amount received from a customer for PV
modules sold less the amount paid for PV cells purchased from the same customer.
In the event we pay the shipping costs
on behalf of our customers, we include the shipping costs passed on to our customers in
our net revenues.
In 2008, 2009 and 2010, a portion of our net revenues was derived from the sale of
raw materials to our customers.
We record revenue net of all value-added taxes imposed by
governmental authorities and collected by us from customers concurrent with
revenue-producing transactions.
We currently depend on a limited number of customers for a high percentage of our
net revenues. Customers who individually accounted for more than 10% of our net revenues
accounted for an aggregate of 22.2%, 41.4% and 33.6% of our net revenues in 2008, 2009
and 2010, respectively. From a geographic standpoint, Europe, particularly Germany, has
been our largest market. Based on the location that our invoices are sent to, in 2008,
2009 and 2010, our sales to European customers accounted for 92.5%, 85.8% and 79.6%,
respectively, of our net revenues, with German customers accounting for 53.3%, 70.6% and
62.5%, respectively, in such periods. Although we anticipate that our dependence on a
limited number of customers in a few concentrated geographic regions will continue for
the foreseeable future, we are actively expanding our customer base and geographic
coverage through various marketing efforts, especially in other developing PV markets,
such as the United States, Spain, Italy, Australia and China.
Sales to our customers are typically made through non-exclusive, short-term
arrangements. Before the beginning of 2009, we generally required deposits of a certain
percentage of the contract price from our customers which we recorded under customer
deposits in our consolidated balance sheets. Once the revenue recognition criteria are
met, we then recognize these payments as net revenues. In line with market trends, this
practice of requiring our customers to make deposits is on the decline. Deposits we
received increased from 2008 to 2009 despite the current market trends, primarily because
we required deposits from certain of our customers based on their credit quality. As of
December 31, 2008, 2009 and 2010, we had received deposits of RMB9.5 million, RMB59.7
million and RMB33.5 million (US$5.1 million), respectively.
Cost of Revenues and Operating Expenses
Cost of Revenues
The following table sets forth our cost of revenues and operating expenses and these
amounts as percentages of our net revenues for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
Amount |
|
|
% of Net |
|
|
Amount |
|
|
% of Net |
|
|
Amount |
|
|
% of Net |
|
|
|
(RMB) |
|
|
Revenues |
|
|
(RMB) |
|
|
Revenues |
|
|
(RMB) |
|
|
(US$) |
|
|
Revenues |
|
|
|
(In thousands, except percentages) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
(4,905,147 |
) |
|
|
99.1 |
% |
|
|
(3,341,936 |
) |
|
|
88.5 |
% |
|
|
(5,960,648 |
) |
|
|
(903,128 |
) |
|
|
79.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses |
|
|
(87,913 |
) |
|
|
1.8 |
% |
|
|
(105,454 |
) |
|
|
2.8 |
% |
|
|
(178,057 |
) |
|
|
(26,978 |
) |
|
|
2.4 |
% |
General and
administrative
expenses |
|
|
(143,340 |
) |
|
|
2.9 |
% |
|
|
(180,989 |
) |
|
|
4.8 |
% |
|
|
(190,594 |
) |
|
|
(28,878 |
) |
|
|
2.5 |
% |
Research and
development
expenses |
|
|
(19,679 |
) |
|
|
0.4 |
% |
|
|
(32,025 |
) |
|
|
0.8 |
% |
|
|
(53,500 |
) |
|
|
(8,106 |
) |
|
|
0.7 |
% |
Government grants |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
18,755 |
|
|
|
2,842 |
|
|
|
(0.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
expenses |
|
|
(250,932 |
) |
|
|
5.1 |
% |
|
|
(318,468 |
) |
|
|
8.4 |
% |
|
|
(403,396 |
) |
|
|
(61,120 |
) |
|
|
5.4 |
% |
39
Our cost of revenues includes the cost of raw materials used for our PV module and
PV cell production and PV module processing, such as silicon and silicon wafers, and
other direct raw materials and components, including ethylene vinyl acetate,
triphenyltin, tempered glass, connecting bands, welding bands, silica gel, aluminum alloy
and junction boxes. The costs relating to providing the PV module processing services
were recorded within cost of revenues. We expect the cost of silicon and silicon wafers,
our primary raw material for the manufacturing of PV products, will continue to
constitute a substantial portion of our cost of revenues in the near future.
Other items contributing to our cost of revenues are direct labor, which includes
salaries and benefits for personnel directly involved in manufacturing activities,
manufacturing overhead, which consists of utility, maintenance of production equipment,
shipping and handling costs for products sold, and other support expenses associated with
the manufacturing of our PV products, and depreciation and amortization of manufacturing
equipment and facilities.
We expect our cost of revenues to increase as we increase our production volume.
Future increases in our suppliers cost of silicon wafers as well as the potential
increase in shipping costs for our PV products may also contribute to higher cost of
revenues.
Silicon and silicon wafers are the most important raw materials for our products. We
record the purchase price of silicon and silicon wafers and other raw materials initially
as inventory in our consolidated balance sheets, and then transfer this amount to our
cost of revenues after the raw materials are consumed in our manufacturing process and
the finished products are sold and delivered. As of December 31, 2008, 2009 and 2010, our
inventory of raw materials totaled RMB488.6 million, RMB277.6 million and RMB459.5
million (US$69.6 million), respectively, of which RMB353.3 million, RMB146.8 million and
RMB286.3 million (US$43.4 million), respectively, represented silicon and silicon wafers.
Silicon suppliers generally require prepayments from us in advance of delivery. We
classify such prepayments as advances to suppliers and record such prepayments under
either non-current assets or current assets in our consolidated balance sheets. However,
if such suppliers fail to fulfill their delivery obligations under the silicon supply
agreements or if there is any dispute between us and such suppliers
that jeopardizes our ongoing relationship, we may not be able to recover such prepayments and would suffer losses.
Operating Expenses
Our operating expenses consist of selling expenses, general and administrative
expenses and research and development expenses.
Selling Expenses
Our selling expenses primarily consist of warranty costs, advertising and other
promotional expenses, and salaries, commissions, traveling expenses and benefits for our
sales and marketing personnel. In 2008, 2009 and 2010, our selling expenses were RMB87.9
million, RMB105.5 million and RMB178.1 million (US$27.0 million), respectively. As we
intend to pursue an aggressive marketing strategy to promote our products in different
geographic markets, we expect that our selling expenses will increase for the immediate
future.
We provide a two to five-year warranty for technical defects and a 10-year limited
warranty against declines of greater than 10%, and a 20 to 25-year limited warranty
against declines of greater than 20%, in the initial power generation capacity of our PV
modules. We consider various factors when determining the likelihood of product defects,
including an evaluation of our quality controls, technical analysis, industry information
on comparable companies and our own experience. As of December 31, 2008, 2009 and 2010,
our accrued warranty costs for the two to five-year warranty against technical defects
totaled RMB48.6 million, RMB73.5 million and RMB131.7 million (US$20.0 million),
respectively. Since our products have been in use for only a relatively short period, our
assumptions regarding the durability and reliability of our products may not be accurate.
In 2008, 2009 and 2010, we provided RMB46.6 million, RMB33.7 million and RMB67.6 million
(US$10.2 million), respectively, in warranty costs.
General and Administrative Expenses
Our general and administrative expenses primarily consist of salaries and benefits
of our administrative staff, depreciation charges of fixed assets used for administrative
purposes, as well as administrative office expenses including consumables, traveling
expenses, insurance and share compensation expenses. In 2008, 2009 and 2010, our general
and administrative expenses were RMB143.3 million, RMB181.0 million and RMB190.6 million
(US$28.9 million), respectively.
40
Research and Development Expenses
Our research and development expenses primarily consist of salaries and benefits of
our research and development staff, other expenses including depreciation, materials used
for research and development purposes, and the travel expenses incurred by our research
and development staff or otherwise in connection with our research and development
activities. We expense our research and development costs as incurred. In 2008, 2009 and
2010, our research and development expenses were RMB19.7 million, RMB32.0 million and
RMB53.5 million (US$8.1 million), respectively. We believe that research and development
is critical to our strategic objectives of enhancing our technologies, reducing
manufacturing costs and meeting the changing requirements of our customers. As a result,
we expect that our total research and development expenses will be similar or will
increase in the future.
Share-based Compensation Charges
We adopted our 2006 share option plan in November 2006 pursuant to which we may
issue up to 10,799,685 ordinary shares upon exercise of awards granted under the plan. As
of December 31, 2010, options to purchase 4,910,650 ordinary shares have been granted and
were outstanding under this plan.
We adopted our 2007 equity incentive plan in August 2007 which provides for the
grant of options, restricted stock, restricted stock units, stock appreciation rights,
performance units and performance stock to our employees, directors and consultants. The
maximum aggregate number of our ordinary shares that may be issued under the 2007 equity
incentive plan is 10,799,685. In addition, the plan provides for an annual increase in
the number of shares available for issuance on the first day of each fiscal year,
beginning with our 2008 fiscal year, equal to 2% of our then outstanding ordinary shares
or such lesser amount as our board of directors may determine. As of December 31, 2010,
options to purchase 10,724,910 ordinary shares have been granted and were outstanding
under this plan.
In 2008, 2009 and 2010, we recorded RMB34.8 million, RMB42.7 million and RMB32.0
million (US$4.8 million), respectively, as share-based compensation charges.
Taxation
PRC Enterprise Income Tax
PRC enterprise income tax is calculated based on taxable income determined under PRC
accounting principles. On March 16, 2007, the National Peoples Congress of the PRC
passed the EIT, which took effect as of January 1, 2008. On December 6, 2007, the State
Council of the PRC issued Implementation Regulations regarding the EIT which took effect
as of January 1, 2008. In accordance with the EIT and its Implementation Regulations, a
unified enterprise income tax rate of 25% and unified tax deduction standards are applied
equally to both domestic-invested enterprises and foreign-invested enterprises such as
SolarOne Qidong. Enterprises established prior to March 16, 2007 and eligible for
preferential tax treatment in accordance with the former tax laws and administrative
regulations shall, under the regulations of the State Council, gradually are becoming
subject to the new tax rate over a five-year transition period starting from the date of
effectiveness of the EIT. In accordance with the Notice of the State Council on the
Implementation of the Transitional Preferential Policies in respect of Enterprise Income
Tax, foreign-invested enterprises established prior to March 16, 2007 and eligible for
preferential tax treatment, such as SolarOne Qidong, will continue to enjoy the
preferential tax treatment in the manner and during the period as former laws and
administrative regulations provided until such period expires. While the EIT equalizes
the tax rates for FIEs and domestically owned enterprises, preferential tax treatment
continues to be granted to companies in certain encouraged sectors and to companies
classified as high and new technology enterprises, which enjoy a tax rate of 15% as
compared to the uniform tax rate of 25%. SolarOne Qidong was approved to be qualified as
a high and new technology enterprise on October 21, 2008. The high and new technology
enterprise status is valid for a period of three years from the date of issuance of a
high and new technology enterprise certificate. If there is any significant change in
the companys business operations, manufacturing technologies or other areas that cause
it to no longer qualify as a high and new technology enterprise, such status will be
terminated from the year of such change.
In accordance with the FIE Tax Law, the EIT and other relevant tax regulations,
SolarOne Qidong was exempted from state and local enterprise income tax in 2005 and 2006
and was taxed at a reduced rate of 12% in 2007, 12.5% in 2008, 12.5% in 2009, and 15% in
2010. The high and new technology enterprise status of SolarOne Qidong will expire in
October 2011. SolarOne Qidong has re-applied for the high and new technology enterprise
qualification and expects to receive a response from the government regarding the
application by August 2011. If SolarOne Qidongs application is approved, SolarOne Qidong
will continue to enjoy a preferential income tax rate of 15% in 2011, 2012 and 2013;
otherwise SolarOne Qidong will be subject to an income tax rate of 25% from 2011. In
2010, we recorded a provision of RMB116.1 million (US$17.6 million) for unrecognized tax
benefits related to SolarOne Qidong due to the uncertainty as to whether this subsidiary
would meet certain requirements of high and new technology enterprise status during its
annual self-assessment in order to be eligible for the reduced EIT rate of 15%.
From 2005 until the end of 2009, SolarOne Qidong was also exempt from the 3% local
income tax applicable to foreign-invested enterprises in Jiangsu Province. In addition,
under relevant PRC tax rules and regulations, SolarOne Qidong was entitled to a two-year
income tax exemption on income generated from additional investment in the production
capacity of SolarOne Qidong resulting from our contribution to SolarOne Qidong of funds
we received through issuances of series A convertible preference shares in a private
placement in June and August 2006, and is entitled to a reduced tax rate of 12.5% for the
three years thereafter. If SolarOne Qidong no longer qualifies for the preferential
enterprise income tax rate, we will consider available options under applicable law that
would enable us to qualify for alternative preferential tax treatment. To the extent we
are unable to offset the expiration of this preferential tax treatment with other tax
benefits, the expiration of this preferential tax treatment will cause our effective tax
rate to increase. Our subsidiaries, SolarOne Technology and Solar Shanghai, are subject to
an enterprise income tax rate of 25% from 2008 onwards.
41
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in conformity with U.S. GAAP, which
requires us to make estimates and assumptions that affect the reported amounts of, among
other things, assets, liabilities, revenue and expenses. We base our estimates on our own
historical experience and on various other factors that we believe to be relevant under
the circumstances. Actual results may differ from these estimates under different
assumptions or conditions. Some of our accounting policies require higher degrees of
judgment than others in their application. We consider the policies discussed below to be
critical to an understanding of our financial statements as their application places the
most significant demands on our managements judgment.
Revenue Recognition
Our primary business activity is to produce and sell PV modules. We periodically,
upon special request from customers, sell PV cells and silicon ingots. We record revenue
related to the sale of PV modules, PV cells and silicon ingots when the criteria of
Accounting Standards Codification, or ASC, 605-10, Revenue Recognition: Overall are
met. These criteria include all of the following: persuasive evidence of an arrangement
exists; delivery has occurred; the sales price is fixed or determinable; and
collectibility is reasonably assured.
More specifically, our sales arrangements are evidenced by either framework sales
agreements and/or by individual sales agreements for each transaction. The shipping
terms of our sales arrangements are generally Cost, Insurance and Freight, or CIF, and
Free on Board, or FOB, shipping point whereby the customer takes title and assumes the
risks and rewards of ownership of the products upon delivery to the shipper. The customer
bears all costs and risks of loss or damage to the goods from that point. Under some
sales arrangements, we require our customers to prepay prior to shipment. We perform
on-going credit assessment of each customer, including reviewing the customers latest
financial information and historical payment record and performing necessary due
diligence to determine acceptable credit terms. In instances where we granted longer
credit terms to certain customers, the timing of revenue recognition has not been
impacted as we have historically been able to collect under the original payment terms
without making concessions. Other than warranty obligations, we do not have any
commitments or obligations to deliver additional products or services to the customers.
Based on the above, we record revenue related to product sales upon delivery of the
product to the shipper, provided that all other revenue recognition criteria are met at
that time.
We periodically enter into processing service arrangements to process PV cells into
PV modules. For these service arrangements, we purchase PV cells from a customer and
contemporaneously agree to sell a specified quantity of PV modules back to the same
customer. The quantity of PV modules sold back to the customers under these processing
arrangements is consistent with the amount of PV cells purchased from the customer based
on current production conversion rates. In accordance with ASC 845-15, Accounting for
Purchases and Sales of Inventory with the Same Counterparty, we record the amount of
revenue on these processing transactions based on the amount received for PV modules sold
less the amount paid for the PV cells purchased from the customer. These sales are
subject to all of the above-noted criteria relating to revenue recognition.
Revenue is recognized net of all value-added taxes imposed by governmental
authorities and collected from customers concurrent with revenue-producing transactions.
We do not offer implicit or explicit rights of return, regardless of whether goods were
shipped to distributors or shipped directly to the end-users, other than due to product
defects.
We recognize revenue related to solar systems integration services using the
percentage-of-completion method. We estimate our revenues by using the cost-to-cost
method, whereby we derive a ratio by comparing the costs incurred to date to the total
costs expected to be incurred on the project. We apply the ratio computed in the
cost-to-cost analysis to the contract price to determine the estimated revenues earned in
each period. A contract may be regarded as substantially completed if the remaining costs
are not significant in amount. When we determine that total estimated costs will exceed
total revenues under a contract, we record a loss accordingly.
Fixed Assets, Net
Fixed assets are stated at cost net of accumulated depreciation and are depreciated
using the straight-line method over the estimated useful lives of the assets, as follows:
|
|
|
Buildings
|
|
20 years |
Plant and machinery
|
|
10 years |
Furniture, fixtures and office equipment
|
|
5 years |
Computer software
|
|
5 years |
Motor vehicles
|
|
5 years |
Leasehold improvements
|
|
Over the shorter of the lease
term or their estimated useful
lives |
42
Repair and maintenance costs are charged to expenses when incurred, whereas the cost
of renewals and betterment that extend the useful life of fixed assets are capitalized as
additions to the related assets. Retirement, sale and disposals of assets are recorded
by removing the cost and accumulated depreciation with any resulting gain or loss
reflected in the consolidated statements of operations.
Costs incurred in constructing new facilities, including progress payments, interest
and other costs relating to the construction are capitalized and transferred to fixed
assets upon completion and depreciation commences when the asset is available for its
intended use.
Interest costs are capitalized if they are incurred during the acquisition,
construction or production of a qualifying asset and such costs could have been avoided
if expenditures for the assets have not been made. Capitalization of interest costs
commences when the activities to prepare the asset are in progress and expenditures and
borrowing costs are being incurred. Interest costs are capitalized until the assets are
ready for their intended use. Interest capitalized during the years ended December 31,
2008, 2009 and 2010 amounted to RMB22.5 million, RMB4.3 million and RMB5.4 million
(US$0.8 million), respectively.
Warranty Costs
We primarily provide standard warranty coverage on our PV modules sold to customers.
The standard warranty provides for a 2 to 5-year warranty against technical defects, a
10-year warranty against a decline from initial power generation capacity of more than
10% and a 20 to 25-year warranty against a decline from initial power generation capacity
of more than 20%. Our estimate of the amount of warranty obligation is primarily based on
the following considerations: 1) the results of technical analyses, including simulation
tests performed on our products by an industry-recognized external certification body as
well as internally developed damp heat testing procedures conducted by our engineering
team, 2) our historical warranty claims experience, 3) the warranty accrual practices of
other companies in the industry that produce PV products that are comparable in
engineering design, raw material input and functionality to our products, and which sell
products to a similar class of customers, and 4) our expected failure rate and future
costs to service failed products. The results of the technical analyses support the
future operational efficiency of our PV modules at levels significantly above the minimum
guaranteed levels over the respective warranty periods. Our estimate of warranty costs
will be affected by the estimated and actual product failure rates, the costs to repair
or replace failed products and potential service and delivery costs incurred in
correcting a product failure. Based on the above considerations and managements ability
and intention to provide repairs, replacements or refunds for defective products, we
accrue for warranty costs for the 2 to 5-year warranty against technical defects based on
1% of net revenues for PV modules. No warranty cost accrual has been recorded for the
10-year and 20 to 25-year warranties because we determined the likelihood of claims
arising from these warranties to be remote based on internal and external testing of our
PV modules and strong quality control procedures in our production process. If our PV
modules fail to perform to the standards of the performance guarantee, we could incur
substantial expenses and substantial cash outlays to repair, replace or provide refunds
for the under-performing products, which could negatively impact our overall cash
position. The basis for the warranty accrual will be reviewed periodically based on
actual experience. We do not sell extended warranty coverage that is separately priced or
optional.
Impairment of Long-Lived Assets
We evaluate our long-lived assets or asset groups, including intangible assets with
finite lives, for impairment whenever events or changes in circumstances (such as a
significant adverse change to market conditions that will impact the future use of the
assets) indicate that the carrying amount of a group of long-lived assets may not be
recoverable. When these events occur, we evaluate for impairment by comparing the
carrying amount of the assets to the future undiscounted net cash flows expected to
result from the use of the assets and their eventual disposition. If the sum of the
expected undiscounted cash flows is less than the carrying amount of the assets, we would
recognize an impairment loss based on the excess of the carrying amount of the asset
group over its fair value.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the
assets acquired and the liabilities assumed of the acquired business. Goodwill is
reviewed at least annually for impairment, or earlier if there is an indication of
impairment, in accordance with ASC 350, Goodwill and Other Intangible Assets. We assign
and assess goodwill for impairment at the reporting unit level. As of December 31, 2010,
goodwill relates to our acquisition of SolarOne Technology in July 2007 and August 2008.
The performance of the impairment test involves a two-step process. The first step
of the impairment test involves comparing the fair value of the reporting unit with its
carrying amount, including goodwill. Fair value is primarily determined by computing the
future discounted cash flows expected to be generated by the reporting unit. If the
reporting units carrying value exceeds its fair value, goodwill may be impaired. If this
occurs, we perform the second step of the goodwill impairment test to determine the
amount of impairment loss. The fair value of the reporting unit is allocated to its
assets and liabilities in a manner similar to a purchase price allocation in order to
determine the implied fair value of the reporting units goodwill. If the implied
goodwill fair value is less than its carrying value, the difference is recognize an
impairment loss.
43
We performed a goodwill impairment test as of December 31, 2010 and no impairment
loss was recognized.
Financial Instruments Currency Derivative Contracts and Commodity Contracts
Our derivative instruments are principally used to manage currency exchange rate
risk and the stability of the purchase price for silver, one of the raw materials used in
the production of PV products, and are not used for speculative or trading purposes.
Accounting for derivative instruments requires significant estimates and judgments
relating to measuring the fair values of the derivative instruments. As of December 31,
2010, we had outstanding cross-currency exchange rate contracts with notional amounts of
Euro125.0 million and US$190.0 million and commodity contracts for 102,000 ounces of
silver. We record these derivative instruments as current assets or current liabilities,
measured at fair value. We estimate the fair value of these foreign currency derivative
instruments and commodity contracts using a pricing model based on market observable
inputs, which include mark-to-market forward rates at each balance sheet date, spot
foreign exchange rates at each balance sheet date, and strike foreign exchange rates and
maturity terms of our foreign currency derivative instruments.
Share-based Compensation
We account for the share options granted under our 2006 share option plan and our
2007 equity incentive plan in accordance with ASC 718-10, Share-Based Compensation and
ASC 505-50, Accounting for Equity Instruments that Are Entered to Offer the Employees
for Acquiring, or in conjunction with Selling Goods or Services, respectively. In
accordance with ASC 718-10, all grants of share options are recognized in the financial
statements based on their grant-date fair values. We have elected to recognize
compensation expense using the straight-line method for all share options granted with
services conditions that have a graded vesting schedule.
With the assistance of an independent third-party valuer, we have applied the
Black-Scholes option valuation model in determining the fair value of the options granted
before January 1, 2008. We estimate expected volatility at the date of grant based on a
combination of historical and implied volatilities from comparable publicly listed
companies. Forfeiture rate is estimated based on historical forfeiture patterns and
adjusted to reflect future change in facts and circumstances, if any.
For share options and restricted stock units granted after January 1, 2008, the fair
value of each grant is estimated on the date of grant using a binomial-lattice model.
Similar to the Black-Scholes model, the binomial-lattice option model takes into account
variables such as expected volatility, dividend yield, and risk-free interest rates.
Risk-free interest rates are based on zero coupon U.S. risk-free rates for the terms
consistent with the expected life of the award at the time of grant. Expected life is
computed based on our estimation of exercise patterns which we believe are representative
of future behavior. Expected dividend yield is determined based on our historical
dividend payout rate. Expected volatility is estimated based on a combination of our
historical performance and the performance of comparable publicly listed companies.
In addition, the binomial-lattice model considers the contractual term of the
option, the probability that the option will be exercised prior to the end of its
contractual life, and the probability of termination or retirement of the option holder
in computing the value of the option.
Accounting for Income Taxes and Uncertain Income Tax Positions
We account for income taxes in accordance with ASC 740, Accounting for Income
Taxes. Under this method, deferred tax assets and liabilities are determined based on
the difference between the financial reporting and tax bases of assets and liabilities
using enacted tax rates that will be in effect in the period in which the differences are
expected to reverse. We record a valuation allowance to offset deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some portion,
or all, of the deferred tax assets will not be realized. The effect on deferred taxes of
a change in tax rates is recognized in income in the period that includes the enactment
date.
We also apply ASC 740-10, Accounting for Uncertainty in Income Taxes, which
prescribes the recognition threshold a tax position is required to meet before being
recognized in the financial statements. As of December 31, 2009 and 2010, we recorded
unrecognized tax benefits of RMB27.4 million and RMB143.5 million (US$21.7 million),
respectively.
We have elected to classify interest and/or penalties related to an uncertain
position, if and when required, as part of other operating expenses in the consolidated
statements of operations. No such amounts have been incurred or accrued through December
31, 2010.
Based on existing PRC tax regulations, the tax years of SolarOne Qidong, Solar
Shanghai, SolarOne Technology, Solar R&D, and Solar Engineering for the years ended December
31, 2006 through 2010 remain open for examination by the tax authorities.
44
Advance to Suppliers and Long-term Prepayments
Advance to suppliers and long-term prepayments represent interest-free cash deposits
paid to suppliers for future purchases of raw materials. According to the multi-year
framework supply agreements entered into between us with our suppliers, we were required
to provide deposits to our suppliers in order to secure supply of silicon due to limited
availability. The multi-year framework supply agreements entered into between us and our
suppliers indicated minimum quantities with associated pricing set for the annual periods
under the agreements with deliveries to be made over a general timeframe, subject to
change based on our purchasing needs and/or the suppliers product availability.
As a result of a steep decline in the spot price for silicon products, during 2009,
we successfully completed re-negotiating all of our multi-year framework supply
agreements that were in place as of December 31, 2009, except the agreement with LDK, through either supplemental agreements or
amended and restated multi-year framework supply agreements. Each of these subsequent
agreements contains provisions which allow for reassessment of the purchase price for
future deliveries under the agreements; however, the subsequent agreements generally did
not adjust the originally contracted purchase quantities. As such, the multi-year
framework supply agreements, original and as amended, effectively represent commitments
to purchase minimum quantities. Our suppliers have been willing to adjust the pricing
terms of the original framework supply agreement in order to maintain long-term business
relations with us. Such renegotiations have been common practice in the industry given
the volatility in the silicon market beginning in late 2008, which resulted in pricing
that was vastly different from the levels anticipated when the framework agreements were
initially entered into. In addition, as such price adjustments have been reflective of
the then-current market conditions, the suppliers can continue to receive fair
compensation while avoiding the risks associated with seeking new customers and potential
adverse consequences to reputation in the midst of a highly competitive and volatile
market.
The supplemental agreements or amended and restated multi-year framework supply
agreements have also removed a clause which was previously included in the original
multi-year framework supply agreements that provide us with the right to terminate the
multi-year framework supply agreements and to require repayments of our deposits in any
event of defaults by our suppliers. Termination of our rights to recall our advances has
indicated that these advances will only be recovered through delivery from our suppliers
which could range from one to four years. Accordingly, advances that can only be
recovered after one year are similar to long-term assets and should be classified as
non-current. Accordingly, RMB439.6 million of current assets advances to suppliers
as of December 31, 2009 has been reclassified to non-current assets long-term
prepayments in the comparative figures consistent with the presentation as of December
31, 2010.
The risk of loss arising from non-performance by or bankruptcy of the suppliers is
assessed prior to making the deposits and credit quality of the suppliers is continually
assessed. If there is any deterioration in the creditworthiness of the suppliers, we will
seek to recover the advances from the suppliers and provide for losses on advances which
are akin to receivables in cost of revenues because of the suppliers inability to return
the advances. A charge to cost of revenues will be recorded in the period in which a
loss is determined to be probable and the amount can be reasonably estimated. We
recorded a charge to cost of revenues of RMB42.0 million, RMB234.7 million and RMB0.1
million (US$18,000), for the years ended December 31, 2008, 2009 and 2010, respectively,
to reflect the probable loss arising from the suppliers failure to perform under the
contracts. In the event that we have disputes with any of our suppliers and we are unable to reach an agreement on terms
acceptable to us, we may not be able to recover our prepayments made to such suppliers.
Consolidated Results of Operations
Since all of our revenues are derived from the sale of PV products instead of the
delivery of services, we presented our net revenues and cost of revenues for all product
sales on a combined basis in accordance with U.S. GAAP. We believe that this presentation
provides sufficient information in assessing our operating and financial performance. The
following table sets forth our summary consolidated statements of operations for the
periods indicated:
|
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
(In RMB |
|
|
% of Net |
|
|
(In RMB |
|
|
% of Net |
|
|
(In RMB |
|
|
(In US$ |
|
|
% of Net |
|
|
|
Thousands) |
|
|
Revenues |
|
|
Thousands) |
|
|
Revenues |
|
|
Thousands) |
|
|
Thousands) |
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement
of Operations Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
4,949,068 |
|
|
|
100.0 |
% |
|
|
3,778,316 |
|
|
|
100.0 |
% |
|
|
7,526,993 |
|
|
|
1,140,453 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
(4,905,147 |
) |
|
|
(99.1 |
)% |
|
|
(3,341,936 |
) |
|
|
(88.5 |
)% |
|
|
(5,960,648 |
) |
|
|
(903,128 |
) |
|
|
(79.2 |
)% |
Gross profit |
|
|
43,921 |
|
|
|
0.9 |
% |
|
|
436,380 |
|
|
|
11.5 |
% |
|
|
1,566,345 |
|
|
|
237,325 |
|
|
|
20.8 |
% |
Operating expenses
Selling expenses |
|
|
(87,913 |
) |
|
|
(1.8 |
)% |
|
|
(105,454 |
) |
|
|
(2.8 |
)% |
|
|
(178,057 |
) |
|
|
(26,978 |
) |
|
|
(2.4 |
)% |
General and
administrative
expenses |
|
|
(143,340 |
) |
|
|
(2.9 |
)% |
|
|
(180,989 |
) |
|
|
(4.8 |
)% |
|
|
(190,594 |
) |
|
|
(28,878 |
) |
|
|
(2.5 |
)% |
Research and
development expenses |
|
|
(19,679 |
) |
|
|
(0.4 |
)% |
|
|
(32,025 |
) |
|
|
(0.8 |
)% |
|
|
(53,500 |
) |
|
|
(8,106 |
) |
|
|
(0.7 |
)% |
Government grants |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
18,755 |
|
|
|
2,842 |
|
|
|
0.2 |
% |
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
(In RMB |
|
|
% of Net |
|
|
(In RMB |
|
|
% of Net |
|
|
(In RMB |
|
|
(In US$ |
|
|
% of Net |
|
|
|
Thousands) |
|
|
Revenues |
|
|
Thousands) |
|
|
Revenues |
|
|
Thousands) |
|
|
Thousands) |
|
|
Revenues |
|
|
Total operating
expenses |
|
|
(250,932 |
) |
|
|
(5.1 |
)% |
|
|
(318,468 |
) |
|
|
(8.4 |
)% |
|
|
(403,396 |
) |
|
|
(61,120 |
) |
|
|
(5.4 |
)% |
Operating profit (loss) |
|
|
(207,011 |
) |
|
|
(4.2 |
)% |
|
|
117,912 |
|
|
|
3.1 |
% |
|
|
1,162,949 |
|
|
|
176,205 |
|
|
|
15.5 |
% |
Interest expenses |
|
|
(103,146 |
) |
|
|
(2.1 |
)% |
|
|
(157,907 |
) |
|
|
(4.2 |
)% |
|
|
(161,677 |
) |
|
|
(24,497 |
) |
|
|
(2.1 |
)% |
Interest income |
|
|
10,004 |
|
|
|
0.2 |
% |
|
|
5,002 |
|
|
|
0.1 |
% |
|
|
6,141 |
|
|
|
930 |
|
|
|
0.1 |
% |
Exchange losses |
|
|
(35,230 |
) |
|
|
(0.7 |
)% |
|
|
(23,814 |
) |
|
|
(0.6 |
)% |
|
|
(89,272 |
) |
|
|
(13,526 |
) |
|
|
(1.2 |
)% |
Changes in fair value
of derivative
contracts |
|
|
83,090 |
|
|
|
1.7 |
% |
|
|
9,594 |
|
|
|
0.3 |
% |
|
|
77,531 |
|
|
|
11,747 |
|
|
|
1.0 |
% |
Changes in fair value
of conversion feature
of convertible bonds |
|
|
|
|
|
|
|
|
|
|
(73,887 |
) |
|
|
(2.0 |
) |
|
|
31,623 |
|
|
|
4,791 |
|
|
|
0.4 |
% |
Other income |
|
|
15,018 |
|
|
|
0.3 |
% |
|
|
6,286 |
|
|
|
0.2 |
% |
|
|
24,353 |
|
|
|
3,690 |
|
|
|
0.3 |
% |
Other expenses |
|
|
(25,604 |
) |
|
|
(0.5 |
)% |
|
|
(11,835 |
) |
|
|
(0.3 |
)% |
|
|
(5,903 |
) |
|
|
(894 |
) |
|
|
(0.1 |
)% |
Government grants |
|
|
3,480 |
|
|
|
0.1 |
% |
|
|
7,661 |
|
|
|
0.2 |
% |
|
|
9,595 |
|
|
|
1,454 |
|
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before
income taxes |
|
|
(259,399 |
) |
|
|
(5.2 |
)% |
|
|
(120,988 |
) |
|
|
(3.2 |
)% |
|
|
1,055,340 |
|
|
|
159,900 |
|
|
|
14.0 |
% |
Income tax expenses |
|
|
(6,519 |
) |
|
|
(0.1 |
)% |
|
|
(23,928 |
) |
|
|
(0.6 |
)% |
|
|
(297,983 |
) |
|
|
(45,149 |
) |
|
|
(4.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
attributable to
non-controlling
interest |
|
|
(14,573 |
) |
|
|
(0.3 |
)% |
|
|
(311 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
attributable to Hanwha
SolarOne Co., Ltd.
shareholders |
|
|
(280,491 |
) |
|
|
(5.7 |
)% |
|
|
(145,227 |
) |
|
|
(3.8 |
)% |
|
|
757,357 |
|
|
|
114,751 |
|
|
|
10.1 |
% |
2010 Compared to 2009
Net Revenues
Our total net revenues increased by 99.2% to RMB7,527.0 million (US$1,140.5 million)
in 2010 from RMB3,778.3 million in 2009. Our net revenues derived from our PV module
business (excluding PV module processing) increased by 97.3% to RMB6,658.6 million
(US$1,008.9 million) in 2010 from RMB3,375.6 million in 2009, due primarily to an
increase in our manufacturing capacity and the corresponding increase in sales volume of
our PV modules, driven by an increase in market demand for our products. The increase in
sales volume was partially offset by the decrease in the average selling price of our PV
modules of RMB11.58 (US$1.75) per watt in 2010 from RMB15.27 per watt in 2009. In 2010,
we derived 88.5% of our total net revenues from the sale of PV modules, compared to 89.3%
in 2009.
Cost of Revenues and Gross Profit
Our cost of revenues increased by 78.4% to RMB5,960.6 million (US$903.1 million) in
2010 from RMB3,341.9 million in 2009. In particular, the costs associated with PV module
production increased by 75.2% to RMB5,239.6 million (US$793.9 million) in 2010 from
RMB2,990.7 million in 2009, due primarily to an increase in sales volume but partially
offset by the decrease in silicon-based raw materials and non-silicon processing cost.
Cost of revenues as a percentage of our total net revenues decreased to 79.2% in 2010
from 88.5% in 2009.
As a result of the foregoing, our gross profit increased to RMB1,566.3 million
(US$237.1 million) in 2010 from RMB436.4 million in 2009. Our gross profit margin
increased to 20.8% in 2010 from 11.5% in 2009, primarily because we benefited from the
decreases in unit costs of silicon-based and other raw materials, as well as our
improvements in operational efficiency.
Operating Expenses and Operating Profit
Our operating expenses increased by 26.7% to RMB403.4 million (US$61.1 million) in
2010 from RMB318.5 million in 2009. Our operating expenses as a percentage of our total
net revenues decreased to 5.4% in 2010 from 8.4% in 2009.
46
Our selling expenses primarily consist of warranty costs, marketing and promotional
expenses, and salaries, commissions, share-based compensation charges, traveling expenses
and benefits of our sales and marketing personnel. Our selling expenses increased by
68.8% to RMB178.1 million (US$27.0 million) in 2010 from RMB105.5 million in 2009, due
primarily to increases in warranty costs and export credit insurance as a result of
increases in sales volume of our PV products, increases in salaries and benefits as a
result of the expansion of our sales force, and increases in exhibition and advertising
fees. Selling expenses as a percentage of our total net revenues decreased to 2.4% in
2010 from 2.8% in 2009.
Our general and administrative expenses primarily consist of salaries and benefits
of our administrative staff, depreciation charges of fixed assets used for administrative
purposes, as well as administrative office expenses, including consumables, traveling
expenses, insurance and share-based compensation charges for our administrative
personnel. Our general and administrative expenses increased by 5.3% to RMB190.6 million
(US$28.9 million) in 2010 from RMB181.0 million in 2009, due primarily to increases in
cash compensation paid to our administrative staff, employee training costs and
administrative office expenses, partially offset by a decrease in share-based
compensation charges. General and administrative expenses as a percentage of our total
net revenues decreased to 2.5% in 2010 from 4.8% in 2009.
Our research and development expenses primarily consist of materials used for
research and development purposes, salaries and benefits of our research and development
staff, depreciation charges, and travel expenses incurred by our research and development
staff or otherwise in connection with our research and development activities. Our
research and development expenses increased by 67.1% to RMB53.5 million (US$8.1 million)
in 2010 from RMB32.0 million in 2009. The increase was primarily because we expanded our
research and development team and conducted additional research and development
activities in 2010. Research and development expenses as a percentage of our total net
revenues decreased to 0.7% in 2010 from 0.8% in 2009.
Our operating expenses in 2010 were offset by operating-related government grants of
RMB18.8 million (US$2.8 million). We received such government grants because SolarOne
Qidong qualified as a high and new technology enterprise and met certain other criteria
established by the government in 2010. We did not receive any of such government grants
in 2008 or 2009.
As a result of the foregoing, our operating profit was RMB1,162.9 million (US$176.2
million) in 2010, compared to RMB117.9 million in 2009. Our operating profit margin
increased to 15.5% in 2010 from 3.1% in 2009.
Interest Expenses, Exchange Losses, Other Income, Changes in Fair Value of Derivative
Contracts, Changes in Fair Value of Conversion Feature of Convertible Bonds and
Government Grants
We generated interest income of RMB6.1 million (US$0.9 million) and at the same time
incurred interest expenses of RMB161.7 (US$24.5 million) million in 2010, compared to
interest income of RMB5.0 million and interest expenses of RMB157.9 million in 2009. The
increase in interest expenses was due primarily to the combination of an increase in
accretion of interest expenses of our convertible bonds and decreases in both interest
rates and principal amount of our bank borrowings.
We incurred exchange losses of RMB89.3 million in 2010, compared to exchange losses
of RMB23.8 million in 2009, due primarily to the fluctuation of the Euro against the
Renminbi.
Our other income increased to RMB24.4 million (US$3.7 million) in 2010 from RMB6.3
million in 2009, due primarily to an increase in our sale of scrap materials as we
expanded our operations in 2010. Our other expenses decreased to RMB5.9 million (US$0.9
million) in 2010 from RMB11.8 million in 2009, due primarily to a decrease in bank
charges.
We recorded RMB77.5 million (US$11.7 million) in changes in fair value of derivative
contracts to reflect the realized and unrealized net gain arising from the changes of
fair value of our foreign currency derivative instruments in 2010.
We recorded RMB31.6 million (US$4.8 million) in changes in fair value of convertible
feature of convertible bonds in 2010, due primarily to the changes in our ADS price.
Our non-operating-related government grants increased to RMB9.6 million (US$1.5
million) in 2010 from RMB7.7 million in 2009, due primarily to an increase of subsidies
of interest expenses for imported equipment.
Income Tax Expenses
Our income tax expenses increased to RMB298.0 million (US$45.1 million) in 2010 from
RMB23.9 million in 2009, due primarily to the increase in our taxable income and a
provision of RMB116.1 million (US$17.6 million) due to the uncertainty as to whether
SolarOne would meet certain requirements during its annual self-assessment in order to be
eligible for the reduced EIT rate of 15%.
Consolidated Net Income
As a result of the cumulative effect of the above factors, we had consolidated net
income of RMB757.4 million (US$114.8 million) in 2010, compared to a consolidated net
loss of RMB145.0 million in 2009. Our net profit margin increased to 10.1% in 2010 from a
negative margin of 3.8% in 2009.
47
2009 Compared to 2008
Net Revenues
Our total net revenues decreased by 23.7% to RMB3,778.3 million in 2009 from
RMB4,949.1 million in 2008. Our net revenues derived from our PV module business
(excluding PV module processing) decreased by 27.0% to RMB3,375.6 million in 2009 from
RMB4,626.4 million in 2008, due primarily to the decrease in the average selling price of
our PV modules to RMB15.27 per watt in 2009 from RMB26.77 per watt in 2008. The decrease
in the average selling price of our PV modules (excluding PV module processing) was
partially offset by the increase in our PV module sales volume by 28.0% to 221.1 MW in
2009 from 172.8 MW in 2008. In 2009, we derived 89.3% of our total net revenues from the
sale of PV modules, compared to 93.5% in 2008.
Cost of Revenues and Gross Profit
Our cost of revenues decreased by 31.9% to RMB3,341.9 million in 2009 from
RMB4,905.1 million in 2008. In particular, the costs associated with PV module production
decreased by 34.9% to RMB2,990.7 million in 2009 from RMB4,592.9 million in 2008, due
primarily to the decreases in unit costs of silicon, silicon wafers and other raw
materials, and because our write-down of inventories decreased to RMB282.6 million in
2009 from RMB413.8 million in 2008. Cost of revenues as a percentage of our total net
revenues decreased to 88.5% in 2009 from 99.1% in 2008.
As a result of the foregoing, our gross profit increased to RMB436.4 million in 2009
from RMB43.9 million in 2008. Our gross profit margin increased to 11.5% in 2009 from
0.9% in 2008 primarily because we benefited from the decreases in unit costs of silicon,
silicon wafers and other raw materials, as well as our improvements in operational
efficiency.
Operating Expenses and Operating Profit (Loss)
Our operating expenses increased by 26.9% to RMB318.5 million in 2009 from RMB250.9
million in 2008. Our operating expenses as a percentage of our total net revenues
increased to 8.4% in 2009 from 5.1% in 2008.
Our selling expenses primarily consist of warranty costs, marketing and promotional
expenses, and salaries, commissions, share-based compensation charges, traveling expenses
and benefits of our sales and marketing personnel. Our selling expenses increased by
20.0% to RMB105.5 million in 2009 from RMB87.9 million in 2008, due primarily to
increases in commissions as a result of increases in sales volume of our PV products,
insurance premiums covering the collection of our accounts receivable and transportation
costs, as well as rental expenses for a warehouse in Germany, which we started to lease
in 2009 and is used as our distribution center in Europe. Selling expenses as a
percentage of our total net revenues increased to 2.8% in 2009 from 1.8% in 2008.
Our general and administrative expenses primarily consist of salaries and benefits
of our administrative staff, depreciation charges of fixed assets used for administrative
purposes, as well as administrative office expenses, including consumables, traveling
expenses, insurance and share-based compensation charges for our administrative
personnel. Our general and administrative expenses increased by 26.3% to RMB181.0 million
in 2009 from RMB143.3 million in 2008, due primarily to increases in cash and non-cash
compensation paid to our administrative staff, professional fees and depreciation and
amortization charges, attributable to the revaluation of the fixed assets of SolarOne
Techonoloy after the completion of our acquisition of the remaining 48% interest in SolarOne
Technology in August 2008. General and administrative expenses as a percentage of our
total net revenues increased to 4.8% in 2009 from 2.9% in 2008.
Our research and development expenses primarily consist of materials used for
research and development purposes, salaries and benefits of our research and development
staff, depreciation charges, and travel expenses incurred by our research and development
staff or otherwise in connection with our research and development activities. Our
research and development expenses increased by 62.7% to RMB32.0 million in 2009 from
RMB19.7 million in 2008. The increase was primarily because we conducted additional
research and development activities in 2009. Research and development expenses as a
percentage of our total net revenues increased to 0.8% in 2009 from 0.4% in 2008.
As a result of the foregoing, our operating profit was RMB117.9 million in 2009,
compared to an operating loss of RMB207.0 million in 2008. Our operating profit margin
increased to 3.1% in 2009 from a negative margin of 4.2% in 2008.
Interest Expenses, Exchange Losses, Other Income, Changes in Fair Value of Derivative
Contracts, Changes in Fair Value of Conversion Feature of Convertible Bonds and
Government Grants
We generated interest income of RMB5.0 million and at the same time incurred
interest expenses of RMB157.9 million in 2009, compared to interest income of RMB10.0
million and interest expenses of RMB103.1 million in 2008. The increase in interest
expenses was due primarily to our increased bank borrowings.
We incurred exchange losses of RMB23.8 million in 2009, compared to exchange losses
of RMB35.2 million in 2008, primarily due to the fluctuation of the Euro against the
Renminbi.
48
Our other income decreased to RMB6.3 million in 2009 from RMB15.0 million in 2008
due primarily to a decrease in our sale of scrap materials in 2009. Our other expenses
decreased to RMB11.8 million in 2009 from RMB25.6 million in 2008 primarily because we
paid guarantee fees of RMB10.1 million to Linyang Electronics in 2008. We did not incur
any guarantee fees in 2009.
We recorded RMB9.6 million in changes in fair value of derivative contracts to
reflect the realized and unrealized net gain arising from the changes of fair value of
our foreign currency derivative instruments in 2009.
We recorded RMB73.9 million in changes in fair value of convertible feature of our
convertible bonds in 2009 as a result of our adoption of a new accounting standard on
January 1, 2009.
Our government grants increased to RMB7.7 million in 2009 from RMB3.5 million in
2008 primarily because SolarOne Qidong was approved as a high and new technology
enterprise.
Income Tax Expenses
Our income tax expenses increased to RMB23.9 million in 2009 from RMB6.5 million in
2008, due primarily to the increase in our taxable income under the EIT in 2009.
Consolidated Net Loss
As a result of the cumulative effect of the above factors, we had a consolidated net
loss of RMB145.0 million in 2009, compared to RMB265.9 million in 2008. Our net profit
margin increased to a negative margin of 3.8% in 2009 from a negative margin of 5.4% in
2008.
Inflation
Since our inception, inflation in China has not materially affected our results of
operations. According to the National Bureau of Statistics of China, changes in the
consumer price index in China were 5.9%, negative 0.7% and 3.3% in 2008, 2009 and 2010,
respectively.
B. Liquidity and Capital Resources
We are a holding company, and conduct substantially all of our business through
SolarOne Qidong, our wholly owned PRC operating subsidiary. The payment of dividends by
entities organized in China is subject to limitations. Current PRC regulations permit our
subsidiaries to pay dividends to us only out of their accumulated profits, if any,
determined in accordance with PRC accounting standards and regulations. In addition, each
of our subsidiaries in China is required to set aside a certain amount of its after-tax
profits each year, if any, to fund certain statutory reserves. These reserves are not
distributable as cash dividends. As of December 31, 2010, a total of RMB3,012.3 million
(US$456.4 million) was not available for distribution to us in the form of dividends due
to these PRC regulations.
Liquidity
From September 2010 to November 2010, we issued and sold 82,436,693 ordinary shares
and 9,200,000 ADSs with an aggregate sale price of US$243.7 million to finance our
activities in the future.
The following table sets forth a summary of our cash flows for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
(RMB) |
|
|
(RMB) |
|
|
(RMB) |
|
|
(US$) |
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating
activities |
|
|
(674,040 |
) |
|
|
689,333 |
|
|
|
268,438 |
|
|
|
40,672 |
|
Net cash used in investing activities |
|
|
(1,169,045 |
) |
|
|
(324,723 |
) |
|
|
(670,837 |
) |
|
|
(101,642 |
) |
Net cash provided by (used in) financing
activities |
|
|
1,981,058 |
|
|
|
(129,791 |
) |
|
|
1,387,456 |
|
|
|
210,221 |
|
Net increase in cash and cash equivalents |
|
|
137,973 |
|
|
|
234,819 |
|
|
|
985,057 |
|
|
|
149,251 |
|
49
Cash Flows from Operating Activities
Net cash (used in) provided by operating activities primarily consists of
consolidated net income (loss), as adjusted for non-cash items such as change in fair
value of the conversion feature of our convertible bonds, depreciation and amortization,
warranty provision, share compensation expenses and deferred tax benefit, and the effect
of changes in certain operating assets and liabilities line items such as inventories,
other assets (including advance to suppliers, long-term prepayments and accounts
receivable), amounts due to related parties, accounts payable, customer deposits, accrued
expenses and other liabilities.
Our net cash provided by operating activities was RMB268.4 million (US$40.7 million)
in 2010, which was derived from consolidated net income of RMB757.4 million (US$114.8
million), adjusted to reflect a net increase relating to non-cash items and a net
decrease relating to changes in operating assets and liabilities. The adjustments
relating to non-cash items were primarily comprised of an increase in write-down of
inventories of RMB134.5 million (US$20.4 million) and depreciation and amortization of
RMB187.6 million (US$28.4 million). The adjustments relating to changes in operating
assets and liabilities, which resulted in a net decrease of RMB1,028.8 million (US$155.9
million), were primarily comprised of:
|
|
an increase of RMB695.0 million (US$105.3 million) in accounts
receivable, primarily because we granted certain of our customers
longer credit terms to enhance the competitiveness of our PV products; |
|
|
|
an increase of RMB178.7 million (US$27.1 million) in advance to
suppliers and long-term prepayments primarily as a result of increased
prepayments to our suppliers for purchases of both silicon-based and
other materials; and |
|
|
|
an increase of RMB75.1 million (US$11.4 million) in other current
assets, primarily because the increase of tax recoverable in relation
to the export tax rebates. |
Our net cash provided by operating activities was RMB689.3 million in 2009, which
was derived from a consolidated net loss of RMB144.9 million, adjusted to reflect a net
increase relating to non-cash items and a net decrease relating to changes in operating
assets and liabilities. The adjustments relating to non-cash items were primarily
comprised of an increase in write-down of inventories of RMB282.6 million, depreciation
and amortization of RMB153.2 million and provision for doubtful collection of supplier
advances of RMB234.7 million. The adjustments relating to changes in operating assets and
liabilities, which resulted in a net decrease of RMB51.4 million, were primarily
comprised of:
|
|
an increase of RMB271.7 million in accounts receivable, primarily
because we granted our customers longer credit terms to enhance the
competitiveness of our PV products; |
|
|
|
an increase of RMB334.8 million in inventories primarily as a result
of increased purchases of silicon, silicon wafers and other raw
materials in anticipation of increased operational scale as a result
of our capacity expansion in 2009; |
|
|
|
an increase of RMB238.8 million in accounts payable, primarily due to
longer payment terms we obtained from our suppliers; and |
|
|
|
an increase of RMB301.4 million in other current assets, primarily
because we were able to receive additional cash refund of VAT tax for
our export sales by December 31, 2009. |
Our net cash used in operating activities was RMB674.0 million in 2008, which was
derived from a consolidated net loss of RMB265.9 million, adjusted to reflect a net
increase relating to non-cash items and a net decrease relating to changes in operating
assets and liabilities. The adjustments relating to non-cash items were primarily
comprised of an increase in write-down of inventories of RMB413.8 million, depreciation
and amortization of RMB67.2 million, provision for doubtful collection of supplier
advances of RMB42.0 million, share compensation expenses of RMB34.8 million and warranty
provision, settlement and reversal of RMB27.7 million, which was partially offset by
unrealized loss from derivative contracts of RMB33.9 million. The adjustments relating to
changes in operating assets and liabilities, which resulted in a net decrease of RMB939.1
million, were primarily comprised of:
|
|
an increase of RMB547.5 million in advance to suppliers, primarily due
to increased prepayments to our suppliers for purchases of silicon and
silicon wafers; and |
|
|
|
an increase of RMB417.0 million in inventories primarily as a result
of increased purchases of silicon and silicon wafers. |
Cash Flows from Investing Activities
Our net cash used in investing activities primarily consists of cash used for the
acquisition of fixed assets and the acquisition of a subsidiary.
Our net cash used in investing activities was RMB670.8 million (US$101.6 million) in
2010, primarily consisting of RMB634.5 million (US$96.1 million) of cash used for the
acquisition of fixed assets, primarily our manufacturing machinery and equipment.
Our net cash used in investing activities was RMB324.7 million in 2009, primarily
consisting of RMB260.1 million of cash used for the acquisition of fixed assets,
primarily our manufacturing machinery and equipment.
50
Our net cash used in investing activities was RMB1,169.0 million in 2008, consisting
of RMB849.5 million of cash used for the acquisition of fixed assets, primarily our
manufacturing machinery and equipment, and RMB267.6 million of cash used for the
acquisition of SolarOne Technology.
Cash Flows from Financing Activities
Our net cash generated from financing activities primarily consists of capital
contributions by shareholders and proceeds from short-term bank borrowings, as offset by
payments of short-term and long-term bank borrowings.
Our net cash provided by financing activities was RMB1,387.5 million (US$210.2
million) in 2010. This was mainly attributable to our proceeds from short-term bank
borrowings of RMB1,098.9 million (US$166.5 million), net proceeds from issuance of
ordinary shares to Hanwha Solar of RMB1,059.8 million (US$160.6 million) and net proceeds
from our ADS offering in November 2010 of RMB521.3 million (US$79.0 million), partially
offset by payment of short-term bank borrowings of RMB1,184.8 million (US$179.5 million).
Our net cash used in financing activities was RMB129.8 million in 2009. This was
mainly attributable to our payments of short-term bank borrowings of RMB2,594.7 million,
partially offset by proceeds from short-term bank borrowings of RMB1,900.7 million and
proceeds from our continuous ADS offering of RMB149.0 million.
Our net cash provided by financing activities was RMB1,981.1 million in 2008. This
was mainly attributable to proceeds from short-term bank borrowings of RMB3,119.7
million, proceeds from our convertible bond offering of RMB1,179.0 million and proceeds
from our continuous ADS offering of RMB489.9 million, partially offset by our payments of
short-term bank borrowings of RMB2,985.9 million.
Capital Resources and Capital Expenditures
We have financed our operations primarily through cash flows from operations and
also through bank loans and related-party loans and proceeds from our initial public
offering, the convertible bond offering in January 2008, the continuous ADS offerings
from July 2008 to August 2008 and from September 2009 to November 2009 and our ADS
offering in November 2010. We believe our working capital is sufficient for our present
requirements.
As of December 31, 2010, we had short-term bank borrowings from various commercial
banks with an aggregate outstanding balance of RMB318.9 million (US$48.3 million). Our
short-term bank borrowings bore average interest rates of 6.86%, 4.99% and 4.28% per
annum, respectively, in 2008, 2009 and 2010. These short-term bank borrowings have
terms of six months to one year, and expire at various times throughout the year. Some
of our short-term bank borrowings were secured by land use rights and building
ownership. As of December 31, 2010, the aggregate outstanding balance of the current
portion of our long-term bank borrowings was RMB215.0 million (US$32.6 million), which
is due for repayment from March 25, 2011 to December 29, 2011, and the aggregate
outstanding balance of the non-current portion of our long-term bank borrowings was
RMB135.0 million (US$20.5 million), which will be due from March 29, 2012 to September
13, 2012. Our long-term bank borrowings outstanding as of December 31, 2010 bore an
average interest rate of 5.51% per annum. We expect to continue to rollover our bank
borrowings when they become due. To the extent we are unable to rollover our bank
borrowings for whatever reason, we will repay such borrowings with cash generated from
operating activities or alternative funding sources.
As of December 31, 2010, we had US$172.5 million principal amount of 2018
convertible bonds outstanding. The holders of the 2018 convertible bonds have the right
to require us to repurchase all or a portion of the bonds on January 15, 2015 at a
repurchase price equal to 100% of the principal amount of the bonds to be repurchased,
plus accrued and unpaid interest, if any.
As of December 31, 2010, we had cash and cash equivalents in the amount of
RMB1,630.8 million (US$247.1 million). Our cash and cash equivalents primarily consist
of cash on hand and bank deposits, which are unrestricted as to withdrawal and use. Our
advance to suppliers and long-term prepayments in total decreased from RMB1,145.6
million as of December 31, 2008 to RMB979.8 million as of December 31, 2009, but
increased to RMB1,158.3 million (US$175.5 million) as of December 31, 2010. Our fixed
assets increased from RMB1,492.6 million as of December 31, 2008 to RMB1,586.3 million
as of December 31, 2009, and to RMB2.084.0 million (US$315.8 million) as of December
31, 2010. This increase was due primarily to the additional plant and equipment we
purchased in connection with the expansion of our production capacity.
As of December 31, 2010, we had commitments of approximately RMB426.4 million
(US$64.6 million) related to the acquisition of machinery. The commitment for
acquisition of machinery is expected to be settled within 2011.
Our capital expenditures were RMB1,169.0 million, RMB324.7 million and RMB670.8
million (US$101.6 million) in 2008, 2009 and 2010, respectively, all of which related
primarily to the purchases of manufacturing equipment and facility construction costs. Based on the current market conditions, we expect to incur capital
expenditures of US$450.0 million for 2011, which will be used primarily for purchasing
manufacturing equipment and building production facilities in Nantong, Qidong and
Lianyungang, Jiangsu Province. We plan to fund the balance of our capital expenditure
requirements for 2011 with cash from operations, additional bank borrowings, and other
forms of financing, if necessary.
51
Recent Accounting Pronouncements
In March 2010, the Financial Accounting Standards Board, or FASB, issued Accounting
Standards Update, or ASU, 2010-11, Derivative and Hedging (Topic 815). All entities that
enter into contracts containing an embedded credit derivative feature related to the
transfer of credit risk that is not only in the form of subordination of one financial
instrument to another will be affected by the amendments in ASU 2010-11 because the
amendments clarify that the embedded credit derivative scope exception in ASC paragraphs
815-15-15-8 through 15-9 does not apply to such contracts. ASU 2010-11 is effective at the
beginning of the reporting entitys first fiscal quarter beginning after June 15, 2010. The
provisions of ASU 2010-11 did not have a material effect on the financial position, results
of operations or cash flows of our company.
In April 2010, the FASB issued ASU 2010-13, CompensationStock Compensation (Topic
718). ASU 2010-13 provides amendments to ASC 718 to clarify that an employee share-based
payment award with an exercise price denominated in the currency of a market in which a
substantial portion of the entitys equity securities trades should not be considered to
contain a condition that is not a market, performance, or service condition. Therefore, an
entity would not classify such an award as a liability if it otherwise qualifies as equity.
The amendments in ASU 2010-13 are effective for fiscal years, and interim periods within
those fiscal years, beginning on or after December 15, 2010. The provisions of ASU 2010-13
are not expected to have a material effect on the financial position, results of operations
or cash flows of our company.
In December 2010, the FASB issued ASU 2010-28, Intangibles Goodwill and Other (ASC
350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or
Negative Carrying Amounts. The objective of this standard is to address questions about
entities with reporting units with zero or negative carrying amounts because some entities
concluded that Step 1 of the test is passed in those circumstances because the fair value of
their reporting unit will generally be greater than zero. The amendments to this standard modify
Step 1 of the goodwill impairment test for reporting units with zero or negative carrying
amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill
impairment test if it is more likely than not that a goodwill impairment exists. This standard
is effective for fiscal years, and interim periods within those years, beginning after December
15, 2010. Early adoption is not permitted. The provisions of ASU 2010-28 are not expected to
have a material effect on the financial position, results of operations or cash flows of our
company.
C. Research and Development, Patents and Licenses
The PV industry is characterized by rapidly evolving technology advancements.
Achieving fast and continual technology improvements is of critical importance to
maintaining our competitive advantage. Our research and development efforts concentrate
on lowering production costs per watt by increasing the conversion efficiency rate of our
products and reducing silicon usage by reducing the thickness of PV cells.
We have been developing advanced technologies to improve the conversion efficiency
and reduce the thickness of our PV cells. In 2009, we introduced ECLIPSE, a new line of
PV cells and modules with reduced light induced degradation. ECLIPSE reduces the
impurity concentration in cells, thereby reducing the light induced degradation to
approximately 1% from 2% to 3%, or less than 2 W compared to approximately 4 W to 5 W for
a 180 W module equipped with standard cells. This results in an increase in electricity
generation of approximately 1% to 2% over the long term when compared with standard
modules. In an effort to further improve our technological capability, we have successfully tested the
application of selective emitter technology in our lab. We plan to adopt selective emitter
technology in our existing cell production lines with an annual production capacity of 160 MW in
the second half of 2011.
Through our continuous efforts, we have been able to increase the average
conversion efficiency rate of our monocrystalline and multicrystalline PV cells. In 2008, 2009 and 2010, our research and
development expenses were RMB19.7 million, RMB32.0 million and RMB53.5 million (US$8.1
million), respectively.
Our technology department works closely with our manufacturing department to lower
production costs by improving our production efficiency. In July 2007, we established the SolarOne
PV Engineering Center, formerly known
as the Jiangsu Engineering for Solar Cell and PV Application. The SolarOne PV Engineering
Center is located near our manufacturing facilities in Qidong,
Jiangsu Province, and equipped with a pilot production line and various
characterization tools. The center focuses on improving cell conversion efficiency and
expanding the application of solar cells. We are also working together with universities
and research institutes to develop new technology and products. In February 2006, we
established the SolarOne Qidong PV Research and Development Center with Shanghai Jiaotong
University. This center, which is located at Shanghai Jiaotong University, focuses on
improving conversion efficiency rates of PV cells. Under our agreement with Shanghai
Jiaotong University, we are jointly entitled to the intellectual property rights relating
to the research results of this center.
52
D. Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any
trends, uncertainties, demands, commitments or events since January 1, 2010 that are
reasonably likely to have a material adverse effect on our net revenues, income,
profitability, liquidity or capital resources, or that caused the disclosed financial
information to be not necessarily indicative of future operating results or financial
conditions.
E. Off-Balance Sheet Arrangements
We have not entered into any financial guarantees or other commitments to guarantee
the payment obligations of third parties. We have not entered into any derivative
contracts that are indexed to our shares and classified as shareholders equity, or that
are not reflected in our consolidated financial statements. Furthermore, we do not have
any retained or contingent interest in assets transferred to an unconsolidated entity
that serves as credit, liquidity or market risk support to such entity. We do not have
any variable interest in any unconsolidated entity that provides financing, liquidity,
market risk or credit support to us or that engages in leasing, hedging or research and
development services with us.
F. Tabular Disclosure of Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period |
|
|
|
|
|
|
|
Less Than |
|
|
|
|
|
|
|
|
|
|
More Than |
|
|
|
Total |
|
|
1 Year |
|
|
1 to 3 Years |
|
|
3 to 5 Years |
|
|
5 Years |
|
|
|
(In RMB thousands) |
|
|
Purchase obligations
relating to raw materials |
|
|
5,197,679 |
|
|
|
1,848,363 |
|
|
|
1,764,286 |
|
|
|
1,585,030 |
|
|
|
|
|
Operating lease obligations |
|
|
13,754 |
|
|
|
9,141 |
|
|
|
4,613 |
|
|
|
|
|
|
|
|
|
Long-term debt obligations |
|
|
1,672,351 |
|
|
|
269,960 |
|
|
|
218,513 |
|
|
|
41,628 |
|
|
|
1,142,250 |
|
Commitments relating to
the acquisition of
equipment |
|
|
426,394 |
|
|
|
426,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefit |
|
|
143,473 |
|
|
|
143,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
7,453,651 |
|
|
|
2,697,331 |
|
|
|
1,987,412 |
|
|
|
1,626,658 |
|
|
|
1,142,250 |
|
G. Safe Harbor
This annual report on Form 20-F contains forward-looking statements that relate to
future events, including our future operating results and conditions, our prospects and
our future financial performance and condition, all of which are largely based on our
current expectations and projections. The forward-looking statements are contained
principally in the sections entitled Item 3.D. Risk Factors, Item 4. Information on
the Company and Item 5. Operating and Financial Review and Prospects. These statements
are made under the safe harbor provisions of the U.S. Private Securities Litigation
Reform Act of 1995. You can identify these forward-looking statements by terminology such
as may, will, expect, anticipate, future, intend, plan, believe,
estimate, is/are likely to or other and similar expressions. Forward-looking
statements involve inherent risks and uncertainties. A number of factors could cause
actual results to differ materially from those contained in any forward-looking
statement, including but not limited to the following:
|
|
our expectations regarding the worldwide demand for electricity and the market for solar energy; |
|
|
|
our beliefs regarding the effects of environmental regulation, lack of infrastructure
reliability and long-term fossil fuel supply constraints; |
|
|
|
our beliefs regarding the inability of traditional fossil fuel-based generation technologies to meet the demand for
electricity; |
|
|
|
our beliefs regarding the importance of environmentally friendly power generation; |
|
|
|
our expectations regarding governmental support for the deployment of solar energy; |
|
|
|
our beliefs regarding the acceleration of adoption of solar technologies; |
|
|
|
our expectations with respect to advancements in our technologies; |
|
|
|
our beliefs regarding the competitiveness of our solar products; |
53
|
|
our expectations regarding the scaling of our manufacturing capacity; |
|
|
|
our expectations with respect to revenue growth and profitability; |
|
|
|
our expectations with respect to our ability to secure raw materials, especially silicon and silicon wafers, in the future; |
|
|
|
competition from other manufacturers of PV products and conventional energy suppliers; |
|
|
|
our future business development, results of operations and financial condition; and |
|
|
|
future economic or capital market conditions. |
This annual report on Form 20-F also contains data related to the PV market
worldwide and in China taken from third-party reports. The PV market may not grow at the
rates projected by the market data, or at all. The failure of the market to grow at the
projected rates may have a material adverse effect on our business and the market price
of our ADSs. In addition, the rapidly changing nature of the PV market subjects any
projections or estimates relating to the growth prospects or future condition of our
market to significant uncertainties. If any one or more of the assumptions underlying the
market data turns out to be incorrect, actual results may differ from the projections
based on these assumptions. You should not place undue reliance on these forward-looking
statements.
The forward-looking statements made in this annual report on Form 20-F relate only
to events or information as of the date on which the statements are made in this annual
report on Form 20-F. Except as required by law, we undertake no obligation to update or
revise publicly any forward-looking statements, whether as a result of new information,
future events or otherwise, after the date on which the statements are made or to reflect
the occurrence of unanticipated events. You should read this annual report on Form 20-F
completely and with the understanding that our actual future results may be materially
different from what we expect.
ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
Directors and Executive Officers
The following table sets forth information regarding our directors and executive
officers.
|
|
|
|
|
|
|
Name |
|
Age |
|
Position/Title |
Ki-Joon Hong
|
|
|
61 |
|
|
Director |
Dong Kwan Kim
|
|
|
28 |
|
|
Director |
Wook Jin Yoon
|
|
|
53 |
|
|
Director |
Thomas J. Toy
|
|
|
56 |
|
|
Independent Director |
Ernst A. Bütler
|
|
|
67 |
|
|
Independent Director |
Yinzhang Gu
|
|
|
73 |
|
|
Independent Director |
David N. K. Wang
|
|
|
65 |
|
|
Independent Director |
Ping Peter Xie
|
|
|
48 |
|
|
President and Chief Executive Officer |
Gareth Kung
|
|
|
46 |
|
|
Chief Financial Officer |
Sungsoo
Lee
|
|
|
44 |
|
|
Chief Strategy Officer/Board
Secretary |
Directors
Mr. Ki-Joon Hong has served as our director since December 20, 2010. He is the CEO
of Hanwha Chemical Corporation. Prior to his current position, Ki-Joon was the CEO of
Hanwha Chemicals pharmaceutical and refinery businesses. Under his leadership, Hanwha
Chemical entered into solar energy and secondary battery businesses and also actively
expanded its overseas operations, forming a joint venture in Saudi Arabia and building a
PVC factory in Ningbo, Zhejiang. He received a B.S. in Chemical Engineering from Seoul
National University.
Mr. Dong Kwan Kim has served as our director since December 20, 2010. He also
serves as a member of our corporate governance and nominating committee. He is the
Managing Director, Corporate Strategy of Hanwha Corporation. His responsibilities include
formulation and execution of the Hanwha Groups solar strategy across the entire value
chain from polysilicon to downstream operations. Mr. Kim gained extensive leadership and
strategic development experience as an officer in the Republic of Korea Air Force. He
received a B.A. in Government from Harvard University.
Mr. Wook Jin Yoon has served as our director since December 20, 2010. He is the
Director of the investment management team at the Management & Planning headquarters of
Hanwha Group. Before assuming his current position, he was the president of Hanwha
Investment & Trust Company. He graduated from Seoul National University with a B.A. in
Economics.
54
Mr. Thomas J. Toy has served as our independent director since November 2006. He
also serves as the chairman of our audit committee and corporate governance and
nominating committee and as a member of our compensation committee. His other current
positions include director and chairman of the board, compensation committee chairperson,
audit committee chairperson and corporate governance committee member of UTStarcom Inc.
(Nasdaq: UTSI) and director of several privately held companies. Mr. Toy is co-founder
and managing director of PacRim Venture Partners, a venture capital firm based in Menlo
Park, California, since 1999, and is a venture partner/advisor for ICCP Ventures, a
venture capital firm. Formerly, he was a partner with SmartForest Ventures, a venture
capital firm based in Portland, Oregon and a partner and managing director of the
Corporate Finance Division of Technology Funding, a venture capital firm based in San
Mateo, California. From 1979 to 1987, Mr. Toy held several positions at Bank of America
National Trust and Savings Association, including vice president. He received his
bachelors and masters degrees from Northwestern University in the United States.
Mr. Ernst A. Bütler has served as our independent director since November 2006. He
also serves as the chairman of our compensation committee and as a member of our audit
committee. Mr. Bütler has been an independent board member/consultant since 2005. His
other current positions include board member of Bank Frey & Co. AG, Zürich, Frey Group
Holding, Zurich, ImmNeuweg AG, Zurich, chairman of the board of Alegra Capital Ltd.,
Zürich, AA-Partners, Zürich and Swiss Alternative Capital AG, Zurich, member of the board
of XBiotech Switzerland AG, Zug and member of the advisory board of XBiotech Inc.,
Austin, Texas. From 1999 to 2005, he was a partner of Partners Group in Zug, the largest
independent asset manager of alternative investments in Europe. Mr. Bütler spent over 25
years with Credit Suisse and Credit Suisse First Boston, with his last assignments being
managing director and co-head of Corporate and Investment Banking Switzerland. He
received a bachelors degree from the School of Economics and Business Administration in
Zürich and attended post-graduate programs at University of Massachusetts in the United
States, INSEAD European Institute of Business Administration in Paris, and MIT
Massachusetts Institute of Technology, Boston.
Mr. Yinzhang Gu has served as our independent director since June 2007. He also
serves as a member of our compensation committee and corporate governance and nominating
committee. From 1962 to 1998, Mr. Gu worked for Eastern China Electricity Administration,
a government agency overseeing power supply in eastern China, in various roles, including
as deputy director and director. Mr. Gu retired from Shanghai Electricity Administration
in 1998. Mr. Gu graduated from Zhejiang University in 1962.
Dr. David N.K. Wang has served as our independent director since April, 2009. He
also serves as a member of our audit committee and corporate governance and nominating
committee. Dr. Wang is currently the chairman of the board of Ether Optronics Inc.,
president and chief executive officer of Semiconductor Manufacturing International
Corporation (SMIC) and an overseas advisor to the Ministry of Science and Technology of
the Peoples Republic of China. He is also an advisor to the Greater China Innovation and
Entrepreneurship project of Stanford University in the United States. He was a member of
the board of directors of Semiconductor Equipment and Materials International (SEMI) and
chairman of its China Regional Advisory Board. From September 2005 to June 2007, Dr. Wang
served as the chief executive officer of Huahong Group and concurrently chairman of
Huahong NEC, a subsidiary of Huahong Group. Prior to joining Huahong Group, Dr. Wang
served as executive vice president of Applied Materials and president of Applied
Materials Asia. Dr. Wang was responsible for Applied Materials business strategy,
planning and execution throughout Asia. Dr. Wang has also been a member of, chaired and
helped found a variety of councils, committees and associations related to technology and
Asia-Pacific business and economy. He received his Ph.D. degree in Materials Science from
the University of California, Berkeley.
Executive Officers
Dr. Ping Peter Xie is our president and chief executive officer. Dr. Xie served as
our president of China from March 2009 to September 2009. He joined our company in March
2009 from NeoPhotonics Corporation, a Shenzhen, China-based provider of integrated optics
products that use standard semiconductor silicon wafer technology. He most recently
worked as NeoPhotonics
Corporations global chief technology officer and general manager of China, where he
was responsible for the companys overall operations in China and its world-wide product
development programs. During his six years at NeoPhotonics Corporation, he also held
various engineering, product development, sales and business development roles. Earlier
in his career, Dr. Xie acquired a broad range of experience in both management and
research, including working at Bookham Inc., JDS Uniphase and Los Alamos National Lab. He
received a Ph.D. in Applied Physics and an M.S. in Physics from the University of
Michigan, Ann Arbor and a B.S. in Electrical Engineering from Tsinghua University in
Beijing.
Mr. Gareth Kung is our chief financial officer. Mr. Kung joined our company from
Semiconductor Manufacturing International Corporation where he first worked as group
treasurer and subsequently as group controller, primarily in charge of treasury and
financing operations, financial reporting and planning, budget control, Sarbanes-Oxley
compliance and PRC and international tax planning. Prior to that, Mr. Kung served as an
investment manager at AIG Investment Corporation in Hong Kong, where he was responsible
for the origination, structuring and execution of private equity transactions in the Asia
Pacific region. From 1997 to 2000, Mr. Kung worked in the corporate banking and capital
markets division of ABN Amro Bank N.V., where he executed debt financed transactions for
corporations based in Hong Kong and China. Mr. Kung worked at UOB Asia Limited from 1995
to 1997 and executed IPO and M&A transactions for Hong Kong-based corporations. Between
1987 and 1993, Mr. Kung held positions as a senior internal auditor at the Royal Bank of
Canada and senior auditor at Pricewaterhouse. Mr. Kung earned his MBA from The University
of Western Ontario and a bachelors degree in Accountancy from the National University of
Singapore. Mr. Kung is a certified public accountant in Hong Kong, Australia and
Singapore as well as a fellow of the Association of Chartered Certified Accountants and a
chartered financial analyst.
Mr. Sungsoo Lee is our chief strategy officer and board secretary. Prior to joining us, Mr. Lee was
senior vice president of strategic planning and new business development at Hanwha Group, one of
Koreas largest industrial conglomerates. At Hanwha Group, Mr. Lee led the development of new lines
of business in the renewable energy field. Prior to joining Hanwha Group, Mr. Lee was the founder
of Nemo Partners, a Korea-based management consulting firm. Prior to that, he was a consultant at
Bain & Company, where he advised clients on corporate strategy, business portfolio management, M&A
and marketing. Mr. Lee began his career at Samsung Group, where he led various corporate
development activities and Samsungs entry into the incubator and venture capital industry in
Silicon Valley. Mr. Lee earned his bachelors degree in Business Administration from Seoul National
University and his MBA from Harvard Business School.
55
B. Compensation
Compensation
In 2008, 2009 and 2010, we paid aggregate cash compensation of RMB9.2 million,
RMB26.6 million and RMB7.6 million (US$1.2 million), respectively, to our directors and
executive officers. For options granted to officers and directors, see 2006 Share
Option Plan and 2007 Equity Incentive Plan.
The purposes of our 2006 share option plan and 2007 equity incentive plan are to
attract and retain the best available personnel for positions of substantial
responsibility, provide additional incentive to employees, directors and consultants and
promote the success of our business. Our board of directors believes that our companys
long-term success is dependent upon our ability to attract and retain superior
individuals who, by virtue of their ability, experience and qualifications, make
important contributions to our business.
2006 Share Option Plan
We adopted our 2006 share option plan in November 2006. Our 2006 share option plan
provides for the grant of options to purchase our ordinary shares, subject to vesting.
Administration. Our 2006 share option plan is administered by the compensation
committee of our board of directors. The committee will determine the provisions, terms
and conditions of each option grant, including, but not limited to, the exercise price
for the options, vesting schedule, forfeiture provisions, form of payment of exercise
price and other applicable terms. The exercise price may be adjusted in the event of
certain share or rights issuances by our company.
Option Exercise. Our 2006 Share Option Plan requires the options be vested over five
years in equal portions, except that the vesting schedule of options granted to certain
of our professionals, independent directors and advisors may be less than five years if
our compensation committee deems it necessary and appropriate. The options, once vested,
are exercisable at any time before November 30, 2016, at which time the options will
become null and void. The exercise prices of the options are determined by the
compensation committee.
Termination of Awards. Options granted under our 2006 share option plan have
specified terms set forth in a share option agreement. Each employee who has been granted
options shall undertake to work for our company for at least five years starting from the
grant date, or for such term as is otherwise specified in the individuals share option
agreement. In the event that the employees employment with our company terminates
without cause, the employee shall be entitled to exercise his or her vested options
within three months of his or her termination, and any unvested options will be forfeited
to our company. However, if instead the employees employment is terminated by our
company for cause, all of his or her unexercised options, whether vested or unvested,
will be forfeited to our company.
Share Split or Combination. In the event of a share split or combination of our
ordinary shares, the options, whether exercised or not, shall be split or combined at the
same ratio.
Amendment and Termination of Plan. Our compensation committee may at any time amend,
suspend or terminate our 2006 share option plan. Amendments to our 2006 share option plan
are subject to shareholder approval, to the extent required by law, or by stock exchange
rules or regulations. Any amendment, suspension or termination of our 2006 share option
plan may not adversely affect awards already granted without written consent of the
recipient of such awards.
56
Our board of directors authorized the issuance of up to 10,799,685 ordinary shares
upon exercise of awards granted under our 2006 share option plan. The following table
sets forth certain information regarding our outstanding options under our 2006 share
option plan as of April 22, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary |
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
|
|
|
|
Underlying |
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
Exercise |
|
|
|
|
|
Name |
|
Option |
|
|
Price |
|
|
Grant Date |
|
Expiration Date |
|
|
|
|
|
|
(US$/share) |
|
|
|
|
|
|
Ki-Joon Hong |
|
|
|
|
|
|
|
|
|
|
|
|
Dong Kwan Kim |
|
|
|
|
|
|
|
|
|
|
|
|
Wook Jin Yoon |
|
|
|
|
|
|
|
|
|
|
|
|
Thomas J. Toy |
|
|
* |
|
|
|
1.8 |
|
|
November 30, 2006 |
|
November 30, 2016 |
Verena Maria Bütler (wife of
Ernst A. Bütler) |
|
|
* |
|
|
|
1.8 |
|
|
November 30, 2006 |
|
November 30, 2016 |
Yinzhang Gu |
|
|
* |
|
|
|
1.94 |
|
|
August 16, 2007 |
|
August 16, 2017 |
David N.K. Wang |
|
|
|
|
|
|
|
|
|
|
|
|
Ping Peter Xie |
|
|
|
|
|
|
|
|
|
|
|
|
Gareth Kung |
|
|
|
|
|
|
|
|
|
|
|
|
Sungsoo Lee |
|
|
|
|
|
|
|
|
|
|
|
|
Directors and executive officers |
|
|
480,000 |
|
|
|
|
|
|
|
|
|
Other individuals as a group |
|
|
1,767,900 |
|
|
|
1.8 |
|
|
November 30, 2006 |
|
November 30, 2016 |
|
|
|
150,000 |
|
|
|
2.02 |
|
|
August 16, 2007 |
|
August 16, 2017 |
|
|
|
90,000 |
|
|
|
2.06 |
|
|
October 10, 2007 |
|
October 10, 2017 |
|
|
|
180,000 |
|
|
|
2.15 |
|
|
October 10, 2007 |
|
October 10, 2017 |
|
|
|
400,000 |
|
|
|
2.58 |
|
|
October 26, 2007 |
|
October 26, 2017 |
|
|
|
50,000 |
|
|
|
2.73 |
|
|
November 1, 2007 |
|
November 1, 2017 |
|
|
|
245,500 |
|
|
|
2.21 |
|
|
November 27, 2007 |
|
|
|
|
|
261,000 |
|
|
|
5.31 |
|
|
December 13, 2007 |
|
December 13, 2017 |
|
|
|
300,000 |
|
|
|
6.016 |
|
|
January 8, 2008 |
|
January 8, 2018 |
|
|
|
150,000 |
|
|
|
3.55 |
|
|
January 29, 2008 |
|
January 29, 2018 |
|
|
|
216,250 |
|
|
|
2.15 |
|
|
March 6, 2008 |
|
March 6, 2018 |
|
|
|
300,000 |
|
|
|
2.04 |
|
|
March 14, 2008 |
|
March 14, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4,590,650 |
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Upon exercise of all share options, would beneficially own 1% or less
of our ordinary shares. |
|
|
|
No outstanding share option was held by such person. |
2007 Equity Incentive Plan
We adopted our 2007 equity incentive plan in August 2007. It provides for the grant
of options, restricted stock, restricted stock units, stock appreciation rights,
performance units and performance stock to our employees, directors and consultants. The
maximum aggregate number of our ordinary shares that may be issued under the 2007 equity
incentive plan is 10,799,685. In addition, the plan provides for an annual increase in
the number of shares available for issuance on the first day of each fiscal year,
beginning with our 2008 fiscal year, equal to 2% of our then outstanding ordinary shares
or such lesser amount as our board of directors may determine.
Administration. Different committees with respect to different groups of service
providers, comprised of members of our board or other individuals appointed by the board,
may administer our 2007 equity incentive plan. The administrator has the power to
determine which individuals are eligible to receive an award, the terms of the awards,
including the exercise price (if any), the number of shares subject to an award, the
exercisability of the awards and the form of consideration payable upon exercise.
Options. The exercise price of incentive stock options must be at least equal to the
fair market value of our ordinary shares on the date of grant; however, the overseas
price of our non-statutory stock options may be as determined by the administrator. The
term of an incentive stock option may not exceed ten years, except that with respect to
any participant who owns 10% of the voting power of all classes of our outstanding shares
as of the grant date, the term must not exceed five years and the exercise price must
equal at least 110% of the fair market value on the grant date. The administrator
determines the term of all other options. Upon the termination of the service of a
participant, he or she may exercise his or her vested options for the period of time
stated in the option agreement, and any unvested options are forfeited to our company.
Generally, if termination is due to death or disability, the option will remain
exercisable for twelve months. In all other cases, the option will generally remain
exercisable for three months. However, an option generally may not be exercised later
than the expiration of its term.
Restricted Stock. Restricted stock awards are ordinary shares that vest in
accordance with terms and conditions established by the administrator and set forth in an
award agreement. The administrator will determine the number of shares of restricted
stock granted to any employee and may impose whatever conditions to vesting it determines
to be appropriate.
Stock Appreciation Rights. Stock appreciation rights allow the recipient to receive
the appreciation in the fair market value of our ordinary shares between the date of
grant and the exercise date. The exercise price of stock appreciation rights granted
under our plan may be as determined by the administrator. Stock appreciation rights
expire under the same rules that apply to options.
57
Performance Units and Performance Shares. Performance units and performance shares
are awards that will result in a payment to a participant generally only if performance
goals established by the administrator are achieved. The administrator will establish
organizational or individual performance goals in its discretion, which, depending on the
extent to which they are met, will determine the number and the value of performance
units and performance shares to be paid out to participants.
Restricted Stock Units. Restricted stock units are similar to awards of restricted
stock, but are not settled unless the award vests. Restricted stock units may consist of
restricted stock, performance share or performance unit awards, and the administrator may
set forth restrictions based on the achievement of specific performance goals.
Amendment and Termination. Our 2007 equity incentive plan will automatically
terminate in 2017, unless we terminate it sooner. Our board of directors has the
authority to amend, alter, suspend or terminate the plan provided such action does not
impair the rights of any participant with respect to any outstanding awards.
Our board of directors authorized the issuance of up to 10,799,685 ordinary shares
upon exercise of awards granted under our 2007 equity incentive plan. The following table
sets forth certain information regarding our outstanding options under our 2007 equity
incentive plan as of April 22, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary |
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
|
|
|
|
Underlying |
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
Exercise |
|
|
|
|
|
Name |
|
Option |
|
|
Price |
|
|
Grant Date |
|
Expiration Date |
|
|
|
|
|
|
|
|
|
|
(US$/share) |
|
|
|
Ki-Joon Hong |
|
|
|
|
|
|
|
|
|
|
|
|
Dong Kwan Kim |
|
|
|
|
|
|
|
|
|
|
|
|
Wook Jin Yoon |
|
|
|
|
|
|
|
|
|
|
|
|
Thomas J. Toy |
|
|
|
|
|
|
|
|
|
|
|
|
Ernst A. Bütler |
|
|
|
|
|
|
|
|
|
|
|
|
Yinzhang Gu |
|
|
|
|
|
|
|
|
|
|
|
|
David N.K. Wang |
|
|
* |
|
|
|
0.880 |
|
|
April 2, 2009 |
|
April 2, 2019 |
Peter Ping Xie |
|
|
* |
|
|
|
0.610 |
|
|
March 17, 2009 |
|
March 17, 2019 |
|
|
|
* |
|
|
|
1.010 |
|
|
March 17, 2009 |
|
March 17, 2019 |
|
|
|
* |
|
|
|
1.506 |
|
|
March 4, 2010 |
|
March 4, 2020 |
Gareth Kung |
|
|
* |
|
|
|
1.278 |
|
|
November 27, 2009 |
|
November 27, 2019 |
Sungsoo Lee |
|
|
|
|
|
|
|
|
|
|
|
|
Directors and executive officers |
|
|
2,050,000 |
|
|
|
|
|
|
|
|
|
Other individuals as a group |
|
|
533,335 |
|
|
|
2.820 |
|
|
April 15, 2008 |
|
April 15, 2018 |
|
|
|
25,000 |
|
|
|
25,000 |
|
|
May 1, 2008 |
|
May 1, 2018 |
|
|
|
20,000 |
|
|
|
4.376 |
|
|
May 28, 2008 |
|
May 28, 2018 |
|
|
|
270,000 |
|
|
|
2.420 |
|
|
September 26, 2008 |
|
September 26, 2018 |
|
|
|
1,131,000 |
|
|
|
1.344 |
|
|
October 16, 2008 |
|
October 16, 2018 |
|
|
|
180,000 |
|
|
|
0.936 |
|
|
October 28, 2008 |
|
October 28, 2018 |
|
|
|
15,000 |
|
|
|
1.138 |
|
|
November 28, 2008 |
|
November 28, 2018 |
|
|
|
8,000 |
|
|
|
0.960 |
|
|
December 29, 2008 |
|
December 29, 2018 |
|
|
|
149,500 |
|
|
|
0.996 |
|
|
January 28, 2009 |
|
January 28, 2019 |
|
|
|
63,000 |
|
|
|
1.344 |
|
|
March 17, 2009 |
|
March 17, 2019 |
|
|
|
125,000 |
|
|
|
0.900 |
|
|
April 1, 2009 |
|
April 1, 2019 |
|
|
|
20,000 |
|
|
|
0.742 |
|
|
April 28, 2009 |
|
April 28, 2019 |
|
|
|
57,500 |
|
|
|
1.452 |
|
|
May 27, 2009 |
|
May 27, 2019 |
|
|
|
43,750 |
|
|
|
1.440 |
|
|
July 28, 2009 |
|
July 28, 2019 |
|
|
|
770,500 |
|
|
|
1.188 |
|
|
September 11, 2009 |
|
September 11, 2019 |
|
|
|
239,500 |
|
|
|
1.010 |
|
|
October 29, 2009 |
|
October 29, 2019 |
|
|
|
625,000 |
|
|
|
1.278 |
|
|
November 27, 2009 |
|
November 27, 2019 |
|
|
|
1,692,050 |
|
|
|
1.372 |
|
|
December 3, 2009 |
|
December 3, 2019 |
|
|
|
400,000 |
|
|
|
1.588 |
|
|
December 28, 2009 |
|
December 28, 2019 |
|
|
|
500,000 |
|
|
|
1.480 |
|
|
January 27, 2010 |
|
January 27, 2020 |
|
|
|
275,000 |
|
|
|
1.496 |
|
|
June 28, 2010 |
|
June 28, 2020 |
|
|
|
150,000 |
|
|
|
2.488 |
|
|
September 28, 2010 |
|
September 28, 2020 |
|
|
|
300,000 |
|
|
|
2.042 |
|
|
October 29, 2010 |
|
October 29, 2020 |
|
|
|
150,000 |
|
|
|
1.800 |
|
|
November 26, 2010 |
|
November 26, 2020 |
|
|
|
250,000 |
|
|
|
1.708 |
|
|
January 28, 2011 |
|
January 28, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
10,043,135 |
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Upon exercise of all share options, would beneficially own 1% or less
of our ordinary shares. |
|
|
|
No outstanding share option was held by such person. |
58
The following table sets forth certain information regarding our granted restricted
stock units under our 2007 equity incentive plan as of April 22, 2011.
|
|
|
|
|
|
|
|
|
|
|
Ordinary |
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
|
Underlying |
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
Restricted |
|
|
|
|
|
Name |
|
Stock Units |
|
|
Grant Date |
|
Expiration Date |
|
Ki-Joon Hong |
|
|
|
|
|
|
|
|
Dong Kwan Kim |
|
|
|
|
|
|
|
|
Wook Jin Yoon |
|
|
|
|
|
|
|
|
Thomas J. Toy |
|
|
* |
|
|
January 1, 2009 |
|
January 1, 2019 |
|
|
|
* |
|
|
January 1, 2010 |
|
January 1, 2020 |
|
|
|
* |
|
|
January 1, 2011 |
|
January 1, 2021 |
Verena Maria Bütler (wife of Ernst A Bütler) |
|
|
* |
|
|
January 1, 2009 |
|
January 1, 2019 |
|
|
|
* |
|
|
January 1, 2010 |
|
January 1, 2020 |
|
|
|
* |
|
|
January 1, 2011 |
|
January 1, 2021 |
Yinzhang Gu |
|
|
* |
|
|
January 1, 2009 |
|
January 1, 2019 |
|
|
|
* |
|
|
January 1, 2010 |
|
January 1, 2020 |
|
|
|
* |
|
|
January 1, 2011 |
|
January 1, 2021 |
David N.K. Wang |
|
|
* |
|
|
January 1, 2010 |
|
January 1, 2020 |
|
|
|
* |
|
|
January 1, 2011 |
|
January 1, 2021 |
Peter Ping Xie |
|
|
* |
|
|
February 28, 2011 |
|
February 28, 2021 |
|
|
|
* |
|
|
February 29, 2011 |
|
February 29, 2021 |
Gareth Kung |
|
|
* |
|
|
February 28, 2011 |
|
February 28, 2021 |
|
|
|
* |
|
|
February 29, 2011 |
|
February 29, 2021 |
Sungsoo Lee |
|
|
|
|
|
|
|
|
Directors and executive officers |
|
|
11,890,620 |
|
|
|
|
|
Other individuals as a group |
|
|
7,050,000 |
|
|
February 28, 2011 |
|
February 28, 2021 |
|
|
|
1,125,000 |
|
|
February 29, 2011 |
|
February 29, 2021 |
|
|
|
|
|
|
|
|
|
Total |
|
|
20,065,620 |
|
|
|
|
|
|
|
|
* |
|
Upon vesting of all restricted stock units, would beneficially own 1%
or less of our ordinary shares. |
|
|
|
No restricted stock units have been granted to such person. |
59
C. Board Practices
Committees of the Board of Directors
Audit Committee
Our audit committee consists of Mr. Thomas J. Toy, Mr. Ernst A. Bütler and Mr. David
N.K. Wang, and is chaired by Mr. Thomas J. Toy, a director with accounting and financial
management expertise as required by the Nasdaq corporate governance rules, or the Nasdaq
Rules. All of the members of our audit committee all satisfy the independence
requirements of the Nasdaq Rules. The audit committee will oversee 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 independent auditors; |
|
|
|
reviewing with our independent auditors any audit problems or difficulties and managements response; |
|
|
|
reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the
Securities Act; |
|
|
|
discussing the annual audited financial statements with management and our independent auditors; |
|
|
|
reviewing major issues as to the adequacy of our internal control 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 our board of directors. |
Our audit committee has established a whistleblower reporting system to allow
individuals to make anonymous communications to the audit committee regarding financial
and accounting matters relating to our company.
Compensation Committee
Our compensation committee consists of Mr. Ernst A. Bütler, Mr. Thomas J. Toy and
Mr. Yinzhang Gu, and is chaired by Mr. Ernst A. Bütler. All of the members of our
compensation committee satisfy the independence requirements of the Nasdaq Rules. Our
compensation committee assists our board of directors in reviewing and approving the
compensation structure of our directors and executive officers, including all forms of
compensation to be provided to our directors and executive officers. Members of the
compensation committee are not prohibited from direct involvement in determining their
own compensation. Our chief executive officer may not be present at any committee meeting
during which his compensation is deliberated. The compensation committee is responsible
for, among other things:
|
|
approving and overseeing the compensation package for our executive officers; |
|
|
|
reviewing and making recommendations to our board of directors with respect to the compensation of our directors; |
|
|
|
reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive
officer, evaluating the performance of our chief executive officer in light of those goals and objectives, and
setting the compensation level of our chief executive officer based on this evaluation; and |
|
|
|
reviewing periodically and making recommendations to our board of directors regarding any long-term incentive
compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare
benefit plans. |
Corporate Governance and Nominating Committee
Our corporate governance and nominating committee consists of Mr. Thomas J. Toy, Mr.
Dong Kwan Kim, Mr. Yinzhang Gu and Mr. David N.K. Wang, and is chaired by Mr. Thomas J.
Toy. All of the members of our corporate governance and nominating committee, except Mr.
Dong Kwan Kim, satisfy the independence requirements of the Nasdaq Rules. The corporate
governance and nominating committee assists our board of directors in identifying
individuals qualified to become our directors and in determining the composition of our
board of directors and its committees. The corporate governance and nominating committee
is responsible for, among other things:
|
|
identifying and recommending nominees for election or re-election to our board of
directors, or for appointment to fill any vacancy; |
|
|
|
reviewing annually with our board of directors its current composition in light of the
characteristics of independence, age, skills, experience and availability of service to
us; |
60
|
|
identifying and recommending to our board the directors to serve as members of committees; |
|
|
|
advising the board periodically with respect to significant developments in the law and
practice of corporate governance as well as our compliance with applicable laws and
regulations, and making recommendations to our board of directors on all matters of
corporate governance and on any 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 to ensure proper compliance. |
Duties of Directors
Under Cayman Islands law, our directors have a fiduciary duty to act honestly, in
good faith and with a view to our best interests. Our directors also have a duty to
exercise the skill they actually possess and such care and diligence that a reasonably
prudent person would exercise in comparable circumstances. In fulfilling their duty of
care to us, our directors must ensure compliance with our memorandum and articles of
association, as amended and restated from time to time.
Terms of Directors and Executive Officers
Our directors are not subject to a term of office and hold office until such time as
they resign or are removed from office by ordinary resolution or the unanimous written
resolution of all shareholders. A director will be removed from office automatically if,
among other things, the director becomes bankrupt or makes any arrangement or composition
with his creditors, or dies or is found by our company to be or to have become of unsound
mind. Our officers are appointed by and serve at the discretion of our board of
directors.
The service contracts of our directors do not provide for benefits upon termination
of their directorship.
Employment Agreements
We have entered into employment agreements with all of our executive officers. Under
these agreements, each of our executive officers is employed for a specified time period.
We may terminate his or her employment for cause at any time for certain acts of the
employee.
Each executive officer has agreed to hold, both during and subsequent to the terms
of his or her agreement, in confidence and not to use, except in pursuance of his or her
duties in connection with the employment, any of our confidential information,
technological secrets, commercial secrets and know-how. Our executive officers have also
agreed to disclose to us all inventions, designs and techniques which resulted from work
performed by them, and to assign us all right, title and interest of such inventions,
designs and techniques.
Additionally, our executive officers are typically bound by non-competition
provisions contained in their employment agreements that prohibit them from engaging in
activities that compete with our business during and for a certain period after their
employment with our company.
On June 29, 2007, China has adopted the New Employment Contract Law, or the New
Employment Law, which came into effect on January 1, 2008. The New Employment Law sets
forth certain key requirements, such as the requirement for a written employment
contract, limitations on probation period, and clauses on severance pay that might
marginally affect the cost of employment in China. However, we do not expect the New
Employment Law will substantially impact our business.
D. Employees
As of December 31, 2010, we had 10,241 full-time employees. The following table sets
forth the number of our full-time employees by function as of December 31, 2008, 2009 and
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
Manufacturing and engineering |
|
|
3,254 |
|
|
|
4,465 |
|
|
|
8,706 |
|
General and administration |
|
|
183 |
|
|
|
163 |
|
|
|
240 |
|
Quality control |
|
|
225 |
|
|
|
339 |
|
|
|
794 |
|
Research and development |
|
|
126 |
|
|
|
125 |
|
|
|
150 |
|
Purchasing and logistics |
|
|
178 |
|
|
|
192 |
|
|
|
295 |
|
Marketing and sales |
|
|
23 |
|
|
|
26 |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,989 |
|
|
|
5,310 |
|
|
|
10,241 |
|
61
We offer our employees competitive compensation packages and various training
programs, and as a result we have generally been able to attract and retain qualified
personnel.
As required by PRC regulations, we participate in various employee benefit plans
that are organized by municipal and provincial governments, including housing, pension,
medical and unemployment benefit plans. We are required under PRC law to make
contributions to the employee benefit plans at specified percentages of the salaries,
bonuses and certain allowances of our employees, up to a maximum amount specified by the
local government from time to time. Members of the retirement plan are entitled to a
pension equal to a fixed proportion of their salaries. The total amount of contributions
we made to employee benefit plans in 2008, 2009 and 2010 was RMB18.7 million, RMB29.4
million and RMB52.4 million (US$7.9 million), respectively.
We adopted our 2006 share option plan in November 2006, which provides an additional
means to attract, motivate, retain and reward selected directors, officers, managers,
employees and other eligible persons. An aggregate of 10,799,685 ordinary shares has been
reserved for issuance under this plan. As of December 31, 2010, there were outstanding
options to purchase 4,910,650 ordinary shares under our 2006 share option plan.
We adopted our 2007 equity incentive plan in August 2007. It provides for the grant
of options, restricted stock, restricted stock units, stock appreciation rights,
performance units and performance stock to our employees, directors and consultants. The
maximum aggregate number of our ordinary shares that may be issued under the 2007 equity
incentive plan is 10,799,685. In addition, the plan provides for an annual increase in
the number of shares available for issuance on the first day of each fiscal year,
beginning with our 2008 fiscal year, equal to 2% of our then outstanding ordinary shares
or such lesser amount as our board of directors may determine. As of December 31, 2010,
there were outstanding options to purchase 10,724,910 ordinary shares under our 2007
share option plan.
We typically enter into a standard confidentiality and non-competition agreement
with our management and research and development personnel. These contracts include a
covenant that prohibits these individuals from engaging in any activities that compete
with our business during, and for three years after, the period of their employment with
our company.
We believe we maintain a good working relationship with our employees, and we have
not experienced any significant labor disputes or any difficulty in recruiting staff for
our operations. On March 9, 2010, SolarOne Qidong signed a collective bargaining
agreement in accordance with the guidelines of the PRC labor law. The collective
bargaining agreement covers all of the employees of SolarOne Qidong who are PRC citizens
and is effective from February 1, 2010 to January 31, 2011. On March 22, 2011, the
collective bargaining agreement was renewed with an effective period from March 16, 2011
to March 15, 2012.
E. Share Ownership
The following table sets forth information with respect to the beneficial ownership
of our ordinary shares as of April 22, 2010, the latest practicable date, by:
|
|
each of our directors and executive officers; and |
|
|
|
each person known to us to own beneficially more than 5.0% of our ordinary shares. |
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially |
|
|
|
Owned(1)(2) |
|
|
|
Number |
|
|
% |
|
|
Directors and Executive Officers: |
|
|
|
|
|
|
|
|
Ki-Joon Hong |
|
|
|
|
|
|
|
|
Dong Kwan Kim |
|
|
|
|
|
|
|
|
Wook Jin Yoon |
|
|
|
|
|
|
|
|
Thomas J. Toy |
|
|
138,750 |
|
|
|
0.03 |
% |
Verena Maria Bütler (wife of Ernst A. Bütler) |
|
|
367,490 |
|
|
|
0.09 |
% |
Yinzhang Gu |
|
|
255,000 |
|
|
|
0.06 |
% |
David N.K. Wang |
|
|
* |
|
|
|
* |
% |
Ping Peter Xie |
|
|
* |
|
|
|
* |
% |
Gareth Kung |
|
|
* |
|
|
|
* |
% |
Sungsoo Lee |
|
|
|
|
|
|
|
|
All Directors and Executive Officers as a Group(3) |
|
|
1,494,890 |
|
|
|
0.36 |
% |
Major Shareholders: |
|
|
|
|
|
|
|
|
Hanwha Solar Holdings Co., Ltd.(4) |
|
|
209,249,448 |
|
|
|
49.8 |
% |
WHF Investment Co., Ltd(5) |
|
|
6,271,875 |
|
|
|
1.49 |
% |
|
|
|
Notes: |
|
|
|
* |
|
The person beneficially owns less than 1% of our outstanding shares. |
|
|
|
The person does not beneficially own any ordinary share or options exercisable
within 60 days of the date of this annual report. |
62
|
|
|
(1) |
|
Beneficial ownership is determined in accordance with Rule 13d-3 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended, and
includes voting or investment power with respect to the securities. |
|
(2) |
|
The number of ordinary shares outstanding in calculating the percentages for
each listed person includes the ordinary shares underlying options exercisable
by such person within 60 days of the date of this annual report on Form 20-F.
Percentage of beneficial ownership of each listed person is based on 419,771,847
ordinary shares outstanding as of April 22, 2011, as well as the ordinary shares
underlying share options exercisable by such person within 60 days of the date
of this annual report on Form 20-F. This number excludes: (i) the 9,019,611 ADSs
which were issued to facilitate our convertible bond offering in January 2008;
(ii) the 45,080,019 ordinary shares issued to Hanwha Solar at par value of
US$0.0001 per ordinary share, in connection with Hanwha Solars purchase of
36,455,089 ordinary shares of our company in September 2010; and (iii) the
174,717 ADSs which have been reserved by our company as of April 22, 2011 to
allow for the participation in the ADS program by our employees pursuant to our
equity incentive plans from time to time. We excluded those shares as we do not
believe that they will increase the number of ordinary shares considered
outstanding for the purpose of calculating beneficial ownership. Our total
outstanding ordinary shares will be 510,823,506 if those numbers mentioned
above are to be included. |
|
(3) |
|
Includes ordinary shares held by all of our
directors and senior executive officers as a group,
as well as the ordinary shares underlying share
options held by such directors and senior executive
officers exercisable within 60 days of the date of
this annual report on Form 20-F. |
|
(4) |
|
Held 202,844,393
ordinary shares
(excluding 45,080,019
ordinary shares issued
to Hanwha Solar at par
value of US$0.0001 per
ordinary share, in
connection with Hanwha
Solars purchase of
36,455,089 ordinary
shares of our company
in September 2010) and
1,281,011 ADSs as of
April 22, 2011. The
address of Hanwha
Solar Holdings Co.,
Ltd. is c/o Hanwha
Chemical Corporation,
Hanwha Building, 1,
Janggyo-dong, Jung-gu,
Seoul 100-797, Korea.
Hanwha Solar is a
wholly owned
subsidiary of Hanwha
Chemical. |
|
(5) |
|
WHF Investment Co.,
Ltd., a British Virgin
Islands company, is
owned by the estate of
Mr. Hanfei Wang. Mr.
Hanfei Wang, our
former director and
chief operating
officer, was the sole
director of WHF
Investment Co., Ltd.
The address of WHF
Investment Co., Ltd.
is P.O. Box 173,
Kingston Chambers,
Road Town, Tortola,
British Virgin
Islands. |
We entered into a share purchase agreement on August 3, 2010 with Hanwha Chemical,
under which Hanwha Chemical agreed to purchase 36,455,089 ordinary shares from us at a
price of US$2.144 per ordinary share, which corresponds to a price of US$10.72 per ADS.
Hanwha Chemical subsequently assigned and transferred its rights and obligations under
the share purchase agreement to Hanwha Solar, a wholly owned subsidiary of Hanwha
Chemical and the sale and purchase of these ordinary shares was consummated on September
16, 2010. In addition, we entered into a share issuance and repurchase agreement on
September 16, 2010 with Hanwha Solar, under which we agreed to issue to Hanwha Solar a
total of 45,080,019 ordinary shares at par value of US$0.0001 per ordinary share, which
shares shall remain outstanding so long as and to the extent that the 9,019,611 ADSs we
issued to facilitate our convertible bond offering in January 2008 remain outstanding.
Pursuant to the share issuance and repurchase agreement, we issued to Hanwha Solar
30,672,689 ordinary shares on September 16, 2010 and an additional 14,407,330 ordinary
shares on March 10, 2011. The total proceeds to us from these transactions amounted to
approximately US$78.2 million. At the same time, Hanwha Solar completed the acquisition
from Good Energies II LP and Yonghua Solar Power Investment Holding Ltd. of a total of
120,407,700 ordinary shares and 1,281,011 ADSs of our company, representing all of the
ordinary shares and ADSs held by them. In connection with our public offering of
9,200,000 ADSs in November 2010, we issued to Hanwha Solar an additional 45,981,604
ordinary shares at a price of US$1.80 per ordinary share pursuant to a shareholder
agreement we and Hanwha Solar entered into on September 16, 2010. As a result of these
transactions, Hanwha Solar owns an approximately 49.8% equity interest in our company.
As of April 22, 2011, approximately 61.0% of our outstanding ordinary shares,
represented by 51,229,445 ADSs, were held by 50 record holders in the United States.
63
ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
Please refer to Item 6.E. Share Ownership.
B. Related Party Transactions
After the completion of our initial public offering on December 26, 2006, we adopted
an audit committee charter, which requires that the audit committee review all related
party transactions on an ongoing basis and all such transactions be approved by the
committee.
Private Placement
In September 2010, we issued in a private placement an aggregate of 36,455,089
ordinary shares to Hanwha Solar at a purchase price of US$2.144 per share for an
aggregate sale price of US$78.2 million. Concurrently with the closing of this offering,
we issued 30,672,689 ordinary shares to Hanwha Solar at par value of the ordinary shares
and subsequently an additional 14,407,330 ordinary shares at par value, which shares
shall remain outstanding so long as and to the extent that the 9,019,611 ADSs we issued
to facilitate our convertible bond offering in January 2008 remain outstanding.
In connection with our public offering of 9,200,000 ADSs in November 2010, we issued
in a private placement to Hanwha Solar an additional 45,981,604 ordinary shares at a
price of US$1.8 per ordinary share for an aggregate sale price of US$82.8 million
pursuant to a shareholder agreement we and Hanwha Solar entered into on September 16,
2010.
Registration Rights
Pursuant to the registration rights agreement entered into in connection with the
private placement transaction with Hanwha Solar in September 2010, we granted to Hanwha
Solar certain registration rights, which primarily include: Pursuant to the registration
rights agreement entered into in connection with this private placement, dated June 27,
2006, we granted to the holders of series A convertible preference shares certain
registration rights, which primarily include:
|
|
Demand Registrations. Upon request of Hanwha Solar to effect any
registration with respect to the registrable securities it held then
outstanding having an anticipated aggregate offering price of at least
US$15 million, we shall effect registration with respect to such
registrable securities on a form other than Form F-3 (or any
comparable form for a registration for an offering in a jurisdiction
other than the United States), provided that we shall only be
obligated to effect three such registrations. |
|
|
|
Piggyback Registrations. Hanwha Solar and its permitted transferees
are entitled to piggyback registration rights, whereby they may
require us to register all or any part of the registrable securities
that they hold at the time when we register any of our ordinary
shares. |
|
|
|
Registrations on Form F-3. We have granted Hanwha Solar and its
permitted transferees the right to an unlimited number of
registrations under Form F-3 (or any comparable form for a
registration in a jurisdiction other than the United States), for a
public offering of registrable securities with a reasonably
anticipated aggregate price to the public not less than US$10 million,
to the extent we are eligible to use such form to offer securities. |
Equity Incentive Plan
See Item 6.B. Compensation 2006 Share Option Plan and Item 6.B. Compensation
2007 Equity Incentive Plan.
Transactions with Certain Shareholders and Affiliated Companies
|
|
On January 11, 2008, SolarOne Hong Kong, our 100% indirect subsidiary,
entered into a short-term loan agreement with Hong Kong Huaerli
Trading Company Limited, or Hong Kong Huaerli, a company controlled by
Mr. Yonghua Lu, our former chairman, under which Hong Kong Huaerli
agreed to loan US$9 million to SolarOne Hong Kong at an annual
interest rate of 8%. The loan was fully repaid in February 2008. |
|
|
On May 7, 2008, SolarOne Qidong entered into an equipment purchase
agreement with Linyang Electronics whereby SolarOne Qidong purchased
certain equipment from Linyang Electronics for RMB0.5 million. |
|
|
On April 12, 2008, July 8, 2008 and October 13, 2008, SolarOne Qidong
entered into four service agreements with Nantong Linyang Labor
Service Company, a company controlled by Mr. Yonghua Lu, our former
chairman, under which SolarOne Qidong agreed to pay an aggregate
amount of RMB1.8 million to Nantong Linyang Labor Service Company for
its provision of construction services. |
|
|
On September 1, 2008 and October 20, 2008, SolarOne Qidong entered
into two service agreements with Nantong Linyang Ecological Cultural
Co., Ltd., a company controlled by Mr. Yonghua Lu, our former
chairman, under which SolarOne Qidong agreed to pay an aggregate
amount of RMB0.6 million to Nantong Linyang Ecological Cultural Co.,
Ltd. for its provision of construction and labor services. |
64
|
|
On October 30, 2008, SolarOne Qidong entered into a polysilicon
purchase agreement with Ya An Yongwang Silicon Co., Ltd., or Yongwang,
a company controlled by Hanwha Chemical, the holding company of Hanwha
Solar, under which SolarOne Qidong purchased certain polysilicon from
Yongwang for RMB8.7 million. |
|
|
|
On December 18, 2008, SolarOne Qidong entered into two service
agreements with Qidong Jiaotong Engineering Co., Ltd., under which
SolarOne Qidong agreed to pay an aggregate amount of RMB0.6 million to
Qidong Jiaotong Engineering Co., Ltd. for its provision of
construction services. |
|
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On December 25, 2008, SolarOne Qidong entered into a framework supply
agreement with Linyang Electronics, under which SolarOne Qidong agreed
to purchase raw materials from Linyang Electronics in the year 2009. |
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On February 26, 2009, SolarOne Hong Kong, our 100% indirect
subsidiary, amended a manufacturing service agreement entered into on
December 30, 2008 with Q-Cells International GmbH, or Q-cells, a
company controlled by Good Energies II LP, under which SolarOne Hong
Kong agreed to supply, using PV cells supplied by Q-Cells, on a
fixed-price basis no less than 100 MW of PV modules to Q-Cells in each
of 2009 and 2010 and granted Q-Cells International GmbH an option to
extend the agreement for one additional year. As a result, as of
December 31, 2009, the amount of manufacturing service fee due from
Q-cells under this agreement was RMB12.0 million. On December 29,
2009, all of the rights and obligations of Q-Cells under this
agreement were assigned to Q-Cells SE. |
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On January 1 and April 3, 2009, SolarOne Qidong entered into two
facility lease agreements with Linyang Electronics. Under these
agreements, SolarOne Qidong incurred rental expenses of RMB2.3 million
in 2009. |
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On November 16, 2009, SolarOne Qidong entered into equity transfer
agreements with Mr. Rongqiang Cui, our former independent director,
Ms. Guoyu Wang, Mr. Cuis spouse and Mr. Yongliang Gu, our
shareholder, to purchase from them a 17% equity interest in Solar
Shanghai for consideration of RMB0.85 million. Solar Shanghai became
our wholly owned subsidiary after the completion of this transaction. |
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On December 4 and 28, 2009, SolarOne Qidong entered into two equipment
purchase agreements with Linyang Electronics whereby SolarOne Qidong
purchased certain equipment from Linyang Electronics for an aggregate
amount of RMB1.2 million. |
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On June 30, July 2, 9 and 31, August 10 and October 22, 2009, Solar
Shanghai entered into six purchase agreements with Linyang
Electronics, under which Solar Shanghai purchased certain raw
materials from Linyang Electronics for an aggregate amount of RMB0.3
million. |
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On February 5, 20 and 23, and April 27 and 30, 2010, SolarOne Qidong
entered into five polysilicon purchase agreement with Yongwang, under
which SolarOne Qidong purchased certain polysilicon from Yongwang for
RMB88.7 million. |
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On January 1, 2010, SolarOne Qidong entered into a framework purchase
agreement with Linyang Electronics, under which SolarOne Qidong agreed
to purchase raw materials from Linyang Electronics in the year 2010. |
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On January 3, 18 and 28, February 9 and March 17, 2010, SolarOne
Qidong entered into five equipment purchase agreements with Linyang
Electronics whereby SolarOne Qidong purchased certain equipment from
Linyang Electronics for an aggregate amount of RMB4.0 million. |
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On March 25, 2010, SolarOne Qidong entered into a service agreement
with Nantong Huahong Ecological Gardening Co., Ltd., a company
controlled by Mr. Yonghua Lu, our former chairman, under which
SolarOne Qidong agreed to pay an aggregate amount of RMB0.1 million to
Nantong Linyang Ecological Gardening Co., Ltd. for its provision of
construction and labor services. |
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In April 2010, SolarOne Qidong entered into a lease agreement with
Qidong Huahong Electronics Co., Ltd., a company controlled by Mr.
Yonghua Lu, our former chairman, for a three-year term under which the
annual rental payment is RMB1.5 million. |
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On April 30, 2010, SolarOne Qidong entered into an equipment purchase
agreement with SMIC Energy Technology (Shanghai), or SMIC ET, a wholly
owned subsidiary of SMIC, a company where David N.K. Wang, our
independent director, serves as president and chief executive officer.
Under this agreement, SolarOne Qidong agreed to purchase a 25 MW cell
line from SMIC ET for an amount of US$4.25 million. SolarOne Qidong
also signed a human resource service agreement with a one-month term
with SMIC ET in connection with the equipment purchase agreement,
under which SMIC ET agreed to second employees to SolarOne Qidong to
manage and operate the equipment sold by SMIC ET and SolarOne Qidong
agreed to pay for those employees compensation. Pursuant to the
equipment purchase agreement, SolarOne Qidong also entered into a
lease agreement with SMIC (Shanghai) Corporation, or SMIC Shanghai, to
lease the premises and facilities where the equipment is located for a
12-month term from May 1, 2010 to April 30, 2011. Such lease agreement
was amended on April 21, 2011 to extend the term of the lease to May
21, 2011. In addition, SolarOne Qidong assumed three PV cell supply
contracts originally entered into between SMIC ET Shanghai and its
customers. |
65
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On September 13, 2010, SolarOne Qidong entered into a purchase
agreement with Hanwha Chemical, the holding company of Hanwha Solar,
under which SolarOne Qidong purchased certain raw materials from
Hanwha Chemical for an amount of RMB1.9 million (US$0.3 million). |
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On September 15, 2010, SolarOne Qidong entered into a purchase
agreement with Yongwang under which SolarOne Qidong agreed to purchase
certain amounts of raw materials from Yongwang at a price adjusted
monthly based on the market price from October 2010 to October 2012. |
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On October 26, 2010, SolarOne Qidong entered into a purchase agreement
with Hanwha L&C Trading (Shanghai) Co., Ltd., or Hanwha L&C, a company
affiliated with Hanwha Solar, under which SolarOne Qidong purchased
certain raw materials from Hanwha L&C for an amount of RMB1.1 million
(US$0.2 million). |
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On January 3, 2011, we entered into a consulting service agreement
with Hanwha S&C Co., Ltd., a company affiliated with Hanwha Solar,
under which Hanwha S&C Co., Ltd. provided various consulting services
related to information strategic planning from January 3, 2011 to
March 31, 2011 for an amount of RMB1.5 million (US$0.2 million). |
C. Interests of Experts and Counsel
Not applicable.
ITEM 8 FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
We have appended consolidated financial statements filed as part of this annual
report.
Export Sales
Our export sales in 2008, 2009 and 2010 were RMB4,619.9 million, RMB3,600.8 million and
RMB6,935.9 million (US$1,050.9 million), respectively, and accounted for 93.3%, 95.3% and 92.1%
of our total revenue, respectively.
Legal and Administrative Proceedings
Most of our multi-year supply agreements that we entered into during the earlier
periods of supply shortage required us to make prepayments of a portion of the total
contract price to our suppliers without receiving collateral for such prepayments. Due to
non-performance by some of such suppliers, we recorded a provision of RMB0.1 million
(US$18,000) for doubtful collection of supplier advances in 2010. While we are filing
claims against such suppliers to resolve these disputes, the outcome of such potential
litigation may not be in our favor.
On June 8, 2009, LDK, one of our suppliers of silicon, submitted an arbitration
request to the Shanghai Arbitration Commission, alleging that we had failed to perform
under the terms of a long-term supply agreement, seeking to enforce our performance and
claiming for monetary relief. Deliveries of silicon under the agreement halted in early
2009 and have not recommenced. We intend to continue to vigorously defend ourselves
against the claims brought by LDK and, on July 9, 2009, we submitted an arbitration
request to the Shanghai Arbitration Commission requesting that LDK refund the outstanding
prepayments of RMB104 million that we made under the contract, plus compensation of RMB35
million from LDK for estimated losses incurred by us as a result of the stoppage of
deliveries under the framework supply agreement. There is no assurance that we will be
able to successfully defend or resolve such legal or administrative proceedings in the
near future or at all. See Item 3.D. Risk Factors Risks Related to Our Company and
Our Industry Our ability to adjust our raw material costs may be limited as a result
of our entering into multi-year supply agreements with many of our silicon and silicon
wafer suppliers, and it may be difficult for us to respond in a timely manner to rapidly
changing market condition, which could materially and adversely affect our cost of
revenues and profitability.
Other than as described above, there are no material legal proceedings, regulatory
inquiries or investigations pending or threatened against us. We may from time to time be
subject to various legal or administrative proceedings arising in the ordinary course of
our business.
66
Dividend Policy
We made a one-time cash dividend payment in the aggregate amount of RMB7.2 million
to the holders of the series A convertible preference shares on December 31, 2006. Except
for the forgoing, we have never declared or paid any cash dividends, nor do we have any
present plan to pay any cash dividends on our capital stock in the foreseeable future. We
currently intend to retain all of our available funds and any future earnings to operate
and expand our business.
The holders of our ordinary shares are entitled to such dividends as may be declared
by our board of directors subject to the Cayman Islands Companies Law. Even if our board
of directors decides to pay dividends, the form, frequency and amount will depend upon
our future operations and earnings, capital requirements and surplus, general financial
condition, contractual restrictions and other factors that the board of directors may
deem relevant. If we pay any dividends, we will pay our ADS holders to the same extent as
holders of our ordinary shares, subject to the terms of the deposit agreement, including
the fees and expenses payable thereunder.
B. Significant Changes
There have been no significant changes since December 31, 2010, the date of the
annual consolidated financial statements in this annual report.
ITEM 9 THE OFFER AND LISTING
A. Offering and Listing Details
Our ADSs, each representing five of our ordinary shares, have been listed on the
Nasdaq Global Market since December 20, 2006. Our ticker symbol is HSOL.
In 2010, the trading price of our ADSs on the Nasdaq Global Market ranged from
US$5.61 to US$13.48 per ADS.
The following table provides the high and low trading prices for our ADSs on the
Nasdaq Global Market for (1) each year of 2007, 2008, 2009 and 2010, (2) each quarter in
2009 and 2010 and the first quarter in 2011, and (3) each of the past six months.
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Share Price |
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High |
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Low |
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Annually High and Low |
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2007 |
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37.85 |
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8.22 |
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2008 |
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40.19 |
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2.67 |
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2009 |
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8.95 |
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2.27 |
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2010 |
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13.48 |
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5.61 |
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Quarterly High and Low |
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First Quarter 2009 |
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6.37 |
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2.27 |
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Second Quarter 2009 |
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8.95 |
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3.65 |
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Third Quarter 2009 |
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8.30 |
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4.70 |
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Fourth Quarter 2009 |
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8.00 |
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4.48 |
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First Quarter 2010 |
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10.78 |
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6.08 |
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Second Quarter 2010 |
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9.39 |
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5.61 |
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Third Quarter 2010 |
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13.48 |
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6.57 |
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Fourth Quarter 2010 |
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13.42 |
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8.08 |
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First Quarter 2011 |
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9.78 |
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6.90 |
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Monthly Highs and Lows |
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December 2010 |
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9.09 |
|
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8.17 |
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January 2011 |
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9.78 |
|
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8.25 |
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February 2011 |
|
|
9.65 |
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|
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8.33 |
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March 2011 |
|
|
8.75 |
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|
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6.90 |
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April 2011 |
|
|
7.69 |
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6.12 |
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May 2011 |
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6.73 |
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4.95 |
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June 2011 (through June 2, 2011) |
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6.25 |
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6.15 |
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67
B. Plan of Distribution
Not applicable.
C. Markets
Our ADSs, each representing five of our ordinary shares, have been listed on the
Nasdaq Global Market since December 20, 2006 and are under the symbol HSOL.
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
and restated memorandum of association contained in our F-1 registration statement (File
No. 333-139258), as amended, initially filed with the Commission on December 11, 2006.
Our shareholders adopted our amended and restated memorandum and articles of association
by special resolutions passed on December 18, 2006. The amended and restated memorandum
and articles of association became effective on December 26, 2006. Our shareholders
adopted some further amendments to our amended and restated memorandum and articles of
association by special resolutions passed at an extraordinary general meeting on February
21, 2011. Such amendments include our name change, the increase of our authorised share
capital from US$50,000 to US$100,000 and the deletion of the requirement of prior
majority shareholder approval for issuance of shares in an amount equal to or more than
20% of all the shares issued and outstanding.
C. Material Contracts
We have not entered into any material contracts other than in the ordinary course of
business and other than those described in Item 4. Information on the Company or
elsewhere in this annual report on Form 20-F.
D. Exchange Controls
Foreign Currency Exchange
Foreign currency exchange in China is primarily governed by the following regulations:
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Foreign Exchange Administration Rules (1996), as amended; and |
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Regulations of Settlement, Sale and Payment of Foreign Exchange (1996) |
Under the Foreign Exchange Administration Rules, the Renminbi is convertible for
current account items, including distribution of dividends, payment of interest, trade
and service-related foreign exchange transactions. Conversion of Renminbi for capital
account items, such as direct investment, loan, securities investment and repatriation of
investment, however, is still subject to the approval of SAFE.
Under the Regulations of Settlement, Sale and Payment of Foreign Exchange,
foreign-invested enterprises may only buy, sell and/or remit foreign currencies at those
banks authorized to conduct foreign exchange business after providing valid commercial
documents and, in the case of capital account item transactions, obtaining approval from
the SAFE. Capital investments by foreign-invested enterprises outside of China are also
subject to limitations, which include approvals by the Ministry of Commerce, SAFE and the
NDRC.
E. Taxation
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based
upon profits, income, gains or appreciation and there is no taxation in the nature of
inheritance tax or estate duty. No Cayman Islands stamp duty will be payable unless an
instrument is executed in, brought to, or produced before a court of the Cayman Islands.
The Cayman Islands is not party to any double tax treaties that are applicable to any
payments made by or to our company. There are no exchange control regulations or currency
restrictions in the Cayman Islands.
68
PRC Taxation
Under the EIT, which took effect as of January 1, 2008, enterprises established
under the laws of non-PRC jurisdictions but whose de facto management body is located
in the PRC are considered resident enterprises for PRC tax purposes. The EIT does not
define the term de facto management. However, the Implementation Regulations for the
Enterprise Income Tax Law of the PRC issued by the State Council on December 6, 2007
defined de facto management body as an establishment that exerts substantial and
comprehensive management and control over the business operations, staff, accounting,
assets and other aspects of the enterprise. Since substantially all of our management is
currently based in the PRC, and may remain in the PRC in the foreseeable future, it is
likely that we will be regarded as a resident enterprise on a strict application of the
EIT and its Implementation Regulations. If Hanwha SolarOne or any of its non-PRC
subsidiaries is treated as a resident enterprise for PRC tax purposes, Hanwha SolarOne
or such subsidiary will be subject to PRC income tax on worldwide income at a uniform tax
rate of 25%, excluding the dividend income received from our PRC subsidiaries which
should have been subject to PRC income tax already.
Moreover, the EIT provides that an income tax rate of 10% is normally applicable to
dividends payable to non-PRC investors who are non-resident enterprises, to the extent
such dividends are derived from sources within the PRC. We are a Cayman Islands holding
company and substantially all of our income may be derived from dividends we receive from
our operating subsidiaries located in the PRC (through our holding company structure).
Thus, dividends paid to us by our subsidiaries in China may be subject to the 10% income
tax if we are considered a non-resident enterprise under the EIT.
Similarly, any gain realized on the transfer of ADSs or shares by such investors is
also subject to 10% PRC withholding income tax if such gain is regarded as income derived
from sources within the PRC. If we are considered a resident enterprise, it is unclear
whether the interest or dividends we pay with respect to our convertible bonds
outstanding, ordinary shares or ADSs, or the gain you may realize from the transfer of
our ordinary shares or ADSs, would be treated as income derived from sources within the
PRC and subject to PRC tax.
If we are deemed by the PRC tax authorities as a resident enterprise and declare
dividends, under the existing implementation rules of the EIT, dividends paid by us to
our ultimate shareholders, which are non- resident enterprises and do not have an
establishment or place in the PRC, or which have such an establishment or place but the
relevant income is not effectively connected with the establishment or place, might be
subject to PRC withholding tax at 10% or a lower treaty rate.
According to the Law of the Peoples Republic of China on the Individual Income Tax,
or the IIT, as amended, PRC income tax at the rate of 20% is applicable to dividends
payable to individual investors if such dividends are regarded as income derived from
sources within the PRC. Similarly, any gain realized on the transfer of ADSs or ordinary
shares by individual investors is also subject to PRC tax at 20% if such gain is regarded
as income derived from sources within the PRC. If we are deemed by the PRC tax
authorities as a resident enterprise, the dividends we pay to our individual investors
with respect to our ordinary shares or ADSs, or the gain the individual investors may
realize from the transfer of our ordinary shares or ADSs, might be treated as income
derived from sources within the PRC and be subject to PRC tax at 20% or a lower treaty
rate.
U.S. Federal Income Taxation
The following discussion describes the material U.S. federal income tax consequences
to U.S. Holders (defined below) under present law of an investment in the ADSs or
ordinary shares. This summary applies only to investors that hold the ADSs or ordinary
shares as capital assets. This discussion is based on the tax laws of the United States
as in effect on the date of this annual report and on U.S. Treasury regulations in effect
as of the date of this annual report, as well as judicial and administrative
interpretations thereof available on or before such date. All of the foregoing
authorities are subject to change, which change could apply retroactively and could
affect the tax consequences described below.
The following discussion does not deal with the tax consequences to any particular
investor or to persons in special tax situations such as:
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certain financial institutions; |
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insurance companies; |
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broker dealers; |
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U.S. expatriates; |
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traders that elect to mark-to-market; |
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tax-exempt entities; |
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persons liable for alternative minimum tax; |
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persons whose functional currency is not the U.S. dollar; |
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persons holding an ADS or ordinary share as part of a straddle, hedging, conversion or integrated transaction; or |
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persons that actually or constructively own 10% or more of our voting stock. |
69
The discussion below of the U.S. federal income tax consequences to U.S. Holders
will apply if you are a beneficial owner of ADSs or ordinary shares and you are, for U.S.
federal income tax purposes:
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a citizen or resident of the United States; |
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a corporation (or other entity taxable as a corporation for U.S.
federal income tax purposes) organized under the laws of the United
States, any state in the United States or the District of Columbia; |
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an estate whose income is subject to U.S. federal income taxation regardless of its source; or |
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a trust that (1) is subject to the primary supervision of a court
within the United States and one or more U.S. persons have the
authority to control all substantial decisions of the trust or (2) was
in existence on August 20, 1996, was treated as a U.S. person under
the U.S. Internal Revenue Code of 1986, as amended, on the previous
day and has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person. |
If you are a partner in a partnership or other entity taxable as a partnership for
U.S. federal income tax purposes that holds ADSs or ordinary shares, your tax treatment
generally will depend on your status and the activities of the partnership. If you are a
partner or partnership holding ADSs or ordinary shares, you should consult your own tax
advisors.
The discussion below assumes that the representations contained in the deposit
agreement are true and that the obligations in the deposit agreement and any related
agreement will be complied with in accordance with their terms. If you hold ADSs, you
should be treated as the holder of the underlying ordinary shares represented by those
ADSs for U.S. federal income tax purposes. Exchanges of ordinary shares for ADSs and ADSs
for ordinary shares generally will not be subject to U.S. federal income tax.
Taxation of Dividends and Other Distributions on the ADSs or Ordinary Shares
Subject to the passive foreign investment company rules discussed below, the gross
amount of any distribution (including constructive dividends) to you with respect to the
ADSs or ordinary shares generally will be included in your gross income as dividend
income on the date of actual or constructive receipt by the depositary, in the case of
ADSs, or by you, in the case of ordinary shares, but only to the extent that the
distribution is paid out of our current or accumulated earnings and profits (as
determined under U.S. federal income tax principles). The dividends will not be eligible
for the dividends-received deduction allowed to corporations in respect of dividends
received from other U.S. corporations.
With respect to certain non-corporate U.S. Holders, including individual U.S.
Holders, for taxable years beginning before January 1, 2013, dividends may constitute
qualified dividend income and be taxed at the lower applicable capital gains rate,
provided that (1) the ADSs or ordinary shares are readily tradable on an established
securities market in the United States, (2) we are not a passive foreign investment
company (as discussed below) for either our taxable year in which the dividend was paid
or the preceding taxable year, and (3) certain holding period requirements are met. Under
U.S. Internal Revenue Service authority, ordinary shares, or ADSs representing such
shares, are considered for the purpose of clause (1) above to be readily tradable on an
established securities market in the United States if they are listed on the Nasdaq, as
our ADSs are. You should consult your tax advisors regarding the availability of the
lower rate for dividends paid with respect to our ADSs or ordinary shares.
Dividends that you receive that do not constitute qualified dividend income are not
eligible for taxation at the 15% maximum rate applicable to qualified dividend income.
Instead, you must include the gross amount of any such dividend paid by us out of our
accumulated earnings and profits (as determined for U.S. federal income tax purposes) in
your gross income, and it will be subject to tax at rates applicable to ordinary income.
Dividends will constitute foreign source income for U.S. foreign tax credit
limitation purposes and will generally constitute passive category income but could, in
the case of certain U.S. Holders, constitute general category income.
Subject to certain conditions and limitations, PRC withholding taxes on dividends
may be treated as foreign taxes eligible for credit against your U.S. federal income tax.
Holders should consult their own tax advisors regarding the creditability of any PRC tax.
To the extent that the amount of the distribution exceeds our current and
accumulated earnings and profits, it will be treated first as a tax-free return of your
tax basis in your ADSs or ordinary shares, and to the extent the amount of the
distribution exceeds your tax basis, the excess will be taxed as capital gain. We do not
intend to calculate our earnings and profits under U.S. federal income tax principles.
Therefore, you should expect that any distribution we make will generally be treated as a
dividend.
70
Taxation of Disposition of ADSs or Ordinary Shares
Subject to the passive foreign investment company rules discussed below, you will
recognize taxable gain or loss on any sale, exchange or other taxable disposition of an
ADS or ordinary share equal to the difference between the amount realized for the ADS or
ordinary share and your tax basis in the ADS or ordinary share. The gain or loss
generally will be capital gain or loss. If you are a non-corporate U.S. Holder, including
an individual U.S. Holder, who has held the ADS or ordinary share for more than one year,
you will be eligible for reduced tax rates. The deductibility of capital losses is
subject to limitations. Any such gain or loss that you recognize will generally be
treated as U.S. source income or loss for foreign tax credit limitation purposes.
If PRC withholding tax were to apply to a sale, exchange or other taxable
disposition of an ADS or ordinary share, as described above under PRC Taxation, you
generally would only be able to claim a foreign tax credit for the amount withheld to the
extent that you have foreign source income. However, in the event that PRC tax is
withheld from a sale, exchange or other taxable disposition of an ADS or ordinary share,
a U.S. Holder that is eligible for the benefits of the income tax treaty between the
United States and the PRC may be able to treat the gain from such a disposition as
foreign source for foreign tax credit limitation purposes. If PRC tax is withheld, you
should consult your own tax advisor regarding your eligibility for the benefits of the
income tax treaty between the United States and the PRC and the creditability of any PRC
tax.
Passive Foreign Investment Company
We do not believe that we were a passive foreign investment company, or PFIC, for
U.S. federal income tax purposes for the taxable year that ended December 31, 2010, and
we do not expect to be a PFIC for U.S. federal income tax purposes for our current
taxable year or the foreseeable future. Our actual PFIC status for the current taxable
year ending December 31, 2011 will not be determinable until the close of the current
taxable year ending December 31, 2011, and accordingly, there is no guarantee that we
will not be a PFIC for the current taxable year or any future taxable year. A non-U.S.
corporation is considered to be a PFIC for any taxable year if either:
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at least 75% of its gross income is passive income; or |
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at least 50% of the value of its assets (based on an average of the
quarterly values of the assets during a taxable year) is attributable
to assets that produce or are held for the production of passive
income. |
We will be treated as owning our proportionate share of the assets and our
proportionate share of the income of any other corporation in which we own, directly or
indirectly, more than 25% (by value) of the stock.
We must make a separate determination each year as to whether we are a PFIC. As a
result, our PFIC status may change. If we are a PFIC for any year during which you hold
ADSs or ordinary shares, unless you make a mark-to-market election as discussed below,
we generally will continue to be treated as a PFIC for all succeeding years during which
you hold ADSs or ordinary shares.
If we are a PFIC for any taxable year during which you hold ADSs or ordinary shares,
you will be subject to special tax rules with respect to any excess distribution that
you receive and any gain you realize from a sale or other disposition (including a
pledge) of the ADSs or ordinary shares, unless you make a mark-to-market election as
discussed below. Distributions you receive in a taxable year that are greater than 125%
of the average annual distributions you received during the shorter of the three
preceding taxable years or your holding period for the ADSs or ordinary shares will be
treated as an excess distribution. Under these special tax rules:
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the excess distribution or gain will be allocated ratably over your holding period for the ADSs or ordinary shares; |
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the amount allocated to the current taxable year, and any taxable year
prior to the first taxable year in which we became a PFIC, will be
treated as ordinary income; and |
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the amount allocated to each other year will be subject to the highest
tax rate in effect for that year and the interest charge generally
applicable to underpayments of tax will be imposed on the resulting
tax attributable to each such year. |
The tax liability for amounts allocated to years prior to the year of disposition or
excess distribution cannot be offset by any net operating losses for such years, and
gains (but not losses) realized on the sale of the ADSs or ordinary shares cannot be
treated as capital, even if you hold the ADSs or ordinary shares as capital assets.
Alternatively, a U.S. Holder of marketable stock (as defined below) in a PFIC may
make a mark-to-market election for such stock of a PFIC to elect out of the tax treatment
under the excess distribution regime. If you make a mark-to-market election for the ADSs
or ordinary shares, you will include in income each year an amount equal to the excess,
if any, of the fair market value of the ADSs or ordinary shares as of the close of your
taxable year over your adjusted basis in such ADSs or ordinary shares. You are allowed a
deduction for the excess, if any, of the adjusted basis of the ADSs or ordinary shares
over their fair market value as of the close of the taxable year. However, deductions are
allowable only to the extent of any net mark-to-market gains on the ADSs or ordinary
shares included in your income for prior taxable years. Amounts included in your income
under a mark-to-market election, as well as gain on the actual sale or other disposition
of the ADSs or ordinary shares, are treated as ordinary income. Ordinary loss treatment
also applies to the deductible portion of any mark-to-market loss on the ADSs or ordinary
shares, as well as to any loss realized on the actual sale or disposition of the ADSs or
ordinary shares, to the extent that the amount of such loss does not exceed the net
mark-to-market gains previously included for such ADSs or ordinary shares. Your basis in
the ADSs or ordinary shares will be adjusted to reflect any such income or loss amounts.
The U.S. federal income tax rules that apply to distributions by corporations that are
not PFICs would apply to distributions by us.
71
The mark-to-market election is available only for marketable stock, which is stock
that is regularly traded in other than de minimis quantities on at least 15 days during
each calendar quarter on a qualified exchange, including the Nasdaq, or other market, as
defined in applicable U.S. Treasury regulations. The ADSs are listed on the Nasdaq, and
we expect that they will continue to be regularly traded on the Nasdaq. Consequently, if
you are a holder of ADSs, the mark-to-market election should be available to you were we
to be or become a PFIC.
If you hold ADSs or ordinary shares in any year in which we are a PFIC, you will be
required to file U.S. Internal Revenue Service Form 8621 (or any other form to be
specified by the U.S. Department of the Treasury) regarding distributions received on the
ADSs or ordinary shares, any gain realized on the disposition of the ADSs or ordinary
shares and any reportable election with respect to the ADSs or ordinary shares in
accordance with the instructions to such form. In addition, each U.S. shareholder of a
PFIC is required to file such annual information as is specified by the U.S. Treasury
Department. You should consult your own tax advisor concerning the reporting requirements
that would apply if we were to be considered a PFIC for any taxable year.
In addition, if we are a PFIC, we do not intend to prepare or provide you with the
information necessary to make a qualified electing fund election.
Information Reporting and Backup Withholding and Other Reporting Requirements
Dividend payments with respect to ADSs or ordinary shares and proceeds from the
sale, exchange or redemption of ADSs or ordinary shares may be subject to information
reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding.
Backup withholding will not apply, however, if you are a corporation or a U.S. Holder who
furnishes a correct taxpayer identification number and makes any other required
certification or if you are otherwise exempt from backup withholding. If you are a U.S.
Holder who is required to establish exempt status, you generally must provide such
certification on U.S. Internal Revenue Service Form W-9. U.S. Holders should consult
their tax advisors regarding the application of the U.S. information reporting and backup
withholding rules.
Backup withholding is not an additional tax. Amounts withheld as backup withholding
may be credited against your U.S. federal income tax liability, and you may obtain a
refund of any excess amounts withheld under the backup withholding rules by filing the
appropriate claim for refund with the U.S. Internal Revenue Service and furnishing any
required information in a timely manner.
Certain U.S. Holders who are individuals that hold certain foreign financial assets
(which may include the ADSs or ordinary shares) are required to report information
relating to such assets, subject to certain exceptions. You should consult your own tax
advisor regarding the effect, if any, of these rules on your ownership and disposition of
the ADSs or ordinary shares.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
You may read and copy documents referred to in this annual report on Form 20-F that
have been filed with the U.S. Securities and Exchange Commission at the Commissions
public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C.
20549. Please call the Commission at 1-800-SEC-0330 for further information on the
public reference rooms and their copy charges.
The Commission allows us to incorporate by reference the information we file with
the Commission. This means that we can disclose important information to you by referring
you to another document filed separately with the Commission. The information
incorporated by reference is considered to be part of this annual report on Form 20-F.
I. Subsidiary Information
For a listing of our significant subsidiaries, see Item 4.C. Organizational
Structure.
72
ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Exchange Risk
A portion of our revenue and a significant portion of expenses are denominated in
Renminbi. The Renminbi is currently convertible under the current account, which
includes dividends, trade and service-related foreign exchange transactions, but not
under the capital account, which includes foreign direct investment and loans.
Currently, SolarOne Qidong may purchase foreign currencies for settlement of current
account transactions, including payments of dividends to us, without the approval of
SAFE. However, the relevant PRC government authorities may limit or eliminate our ability
to purchase foreign currencies in the future. Since a significant amount of our future
revenue will be denominated in Renminbi, any existing and future restrictions on currency
exchange may limit our ability to utilize revenue generated in Renminbi to fund our
business activities outside China that are denominated in foreign currencies.
In 2010, we entered into foreign currency derivative contracts to manage risks
associated with foreign currency fluctuations for our sales contracts denominated in a
currency other than Renminbi. As of December 31, 2010, a notional amount of Euro125
million was outstanding under these foreign currency derivative contracts. We may enter
into additional forward contracts or enter into economic hedges in the future.
Foreign exchange transactions by SolarOne Qidong under the capital account continue
to be subject to significant foreign exchange controls and require the approval of or
need to register with PRC governmental authorities, including SAFE. In particular, if
SolarOne Qidong borrows foreign currency loans from us or other foreign lenders, these
loans must be registered with SAFE, and if we finance SolarOne Qidong by means of
additional capital contributions, these capital contributions must be approved by certain
government authorities, including the NDRC, the Ministry of Commerce or their respective
local counterparts. These limitations could affect the ability of SolarOne Qidong to
obtain foreign exchange through debt or equity financing.
As of December 31, 2008, 2009 and 2010, we held equivalents of RMB319.5 million, RMB587.5
million and RMB1,282.8 million (US$194.4 million) in accounts receivable, respectively, of which
RMB2.3 million, RMB99.4 million and RMB606.6 million (US$91.9 million) were denominated in U.S.
dollars and RMB315.1 million, RMB370.7 million and RMB599.4 million (US$90.8 million) were
denominated in Euro in 2008, 2009 and 2010, respectively.
Without taking into account of the effect
of the use of hedging or other
derivative financial instruments, if there were a 10% appreciation of Renminbi based on the
foreign exchange rate on December 31, 2008, 2009 and 2010, our accounts receivable denominated
in U.S. dollars as of December 31, 2008, 2009 and 2010 would have been Renminbi equivalents of
RMB2.1 million, RMB89.5 million and RMB545.9 million, respectively.
These amounts represent net losses of
RMB0.2 million, RMB9.9 million and RMB60.7 million,
respectively, to our accounts receivables
denominated in U.S. dollars as of December 31, 2008, 2009 and 2010.
Without taking into account of the effect of the use of hedging or other
derivative financial instruments, if there were a 10% appreciation of Renminbi based on the
foreign exchange rate on December 31, 2008, 2009 and 2010, our accounts receivable denominated
in Euro would have been Renminbi equivalents of RMB283.6 million, RMB333.6 million and RMB539.5
million, respectively.
These amounts represent net losses of RMB31.5
million, RMB37.1 million and RMB59.9 million, respectively,
to our accounts receivable
denominated in Euro as of December 31, 2008, 2009 and 2010.
Interest Rate Risk
Our exposure to interest rate risks relates to interest expenses incurred in connection
with our short-term and long-term borrowings, as well as interest income generated by excess
cash invested in demand deposits and liquid investments with original maturities of three months
or less. As of December 31 2010, our total interest-bearing borrowings were RMB668.9 million
(US$101.4 million), of which RMB263.9 million (US$40.0 million) and RMB45.0 million (US$6.8
million) were denominated in U.S. dollars and Euro, respectively. We have not been exposed to,
nor do we anticipate being exposed to, material risks due to changes in interest rates. However,
our future interest expenses may increase due to changes in market interest rates.
ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
73
D. American Depositary Shares
The Bank of New York Mellon, the depositary of our ADS program, collects its fees
for depositing shares or surrendering ADSs for the purpose of withdrawal or from
intermediaries acting for them. The depositary collects fees for making distributions to
investors by deducting those fees from the amounts distributed or by selling a portion of
distributable property to pay the fees. The depositary may collect its annual fee for
depositary services by deducting from cash distributions or by directly billing investors
or by charging the book-entry system accounts of participants acting for them. The
depositary may generally refuse to provide fee-attracting services until its fees for
those services are paid.
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Persons depositing or withdrawing shares must pay: |
|
For: |
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|
|
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)
|
|
Issuance of ADSs, including issuances
resulting from a distribution of shares or
rights or other property |
|
|
|
|
|
Cancellation of ADSs for the purpose of
withdrawal, including if the deposit
agreement terminates |
|
|
|
$0.02 (or less) per ADS
|
|
Any cash distribution to ADS holders |
|
|
|
A fee equivalent to the fee that would be payable if
securities distributed to you had been shares and
the shares had been deposited for issuance of ADSs
|
|
Distribution of securities distributed to
holders of deposited securities which are
distributed by the depositary to ADS
holders |
|
|
|
$0.02 (or less) per ADSs per calendar year
|
|
Depositary services |
|
|
|
Registration or transfer fees
|
|
Transfer and registration of shares on our
share register to or from the name of the
depositary or its agent when you deposit
or withdraw shares |
|
|
|
Expenses of the depositary
|
|
Cable, telex and facsimile transmissions
(when expressly provided in the deposit
agreement) |
|
|
|
|
|
Converting foreign currency to U.S. dollars |
|
|
|
Taxes and other governmental charges the depositary
or the custodian have to pay on any ADS or share
underlying an ADS, for example, stock transfer
taxes, stamp duty or withholding taxes
|
|
As necessary |
|
|
|
Any charges incurred by the depositary or its agents
for servicing the deposited securities
|
|
As necessary |
The fees described above may be amended from time to time.
The depositary has agreed to reimburse us annually for our expenses incurred in
connection with ADR program. The amount of such reimbursements is subject to certain
limits, but the amount of reimbursement available to us is not related to the amounts of
fees the depositary collects from investors. In 2010, we received US$0.4 million of
reimbursement from the depositary.
74
PART II
ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
See Item 10. Additional Information for a description of the rights of securities
holders, which remain unchanged.
We completed our initial public offering of 60,000,000 ordinary shares, in the form
of ADSs, at US$12.50 per ADS on December 26, 2006, after our ordinary shares and American
Depositary Receipts were registered under the Securities Act. The aggregate price of the
offering amount registered and sold was US$150 million, of which we received net proceeds
of US$135.9 million. The effective date of our registration statement on Form F-1 (File
number: 333-139258) was December 19, 2006. Goldman Sachs (Asia) L.L.C. was the sole
global coordinator and bookrunner for the global offering of our ADSs.
The net proceeds from our initial public offering have been used as follows:
|
|
approximately US$68.0 million to purchase or prepay for raw materials; |
|
|
|
approximately US$40.0 million to expand our manufacturing capacity; |
|
|
|
approximately US$17.9 million to acquire SolarOne Technology; and |
|
|
|
approximately US$10.0 million to invest in our research and development activities. |
On January 29, 2008, we closed an offering of US$172.5 million 3.50% convertible
senior notes due 2018, or 2018 convertible bonds, to qualified institutional buyers
pursuant to Rule 144A under the Securities Act and received net proceeds of US$167.9
million. Holders may convert the bonds into our ADSs. Concurrently with this convertible
bond offering, we closed an offering of 9,019,611 ADSs, representing 45,098,055 ordinary
shares, to facilitate the convertible bond offering. We did not receive any proceeds,
other than the par value of the ADSs, from such offering of ADSs. The effective date of
our registration statement on Form F-1 (File number: 333-147627) was January 23, 2008.
Morgan Stanley & Co. Incorporated was the sole bookrunning manager of this offering.
The net proceeds from the January 2008 convertible bond offering have been used as
follows:
|
|
approximately US95.6 million for wafer and polysilicon pre-payments; |
|
|
|
approximately US37.4 million for capital expenditure; |
|
|
|
US$19.2 million to repay loans from Hong Kong Huaerli, a company
controlled by Mr. Yonghua Lu, our former chairman, to SolarOne Hong
Kong, our 100% indirect subsidiary; and |
|
|
|
the remainder for working capital and repayment of our existing bank borrowings. |
From July 17, 2008 to August 12, 2008, we issued and sold 5,421,093 ADSs with an
aggregate sale price of US$73.9 million, of which we received net proceeds of US$71.8
million. The effective date of our registration statement on Form F-3 (File number:
333-152005) was July 16, 2008. Morgan Stanley & Co. Incorporated acted as our sales
agent. The net proceeds from this offering have been used for silicon and silicon wafer
pre-payments and working capital.
From September 17, 2009 to November 18, 2009, we issued and sold 3,888,399 ADSs with
an aggregate sale price of US$23.1 million, of which we received net proceeds of US$21.8
million. The effective date of our registration statement on Form F-3 (File number:
333-152005) was July 16, 2008. Morgan Stanley & Co. Incorporated acted as manager for the
sale. The net proceeds from this offering have been used for capital expenditures,
working capital and partial repayment of our existing bank loans.
In September 2010, we issued and sold to Hanwha Solar in a private placement
36,455,089 ordinary shares with an aggregate sale price of US$78.2 million, of which we
received net proceeds of US$76.0 million. The net proceeds from this private placement
have been used for capital expenditures and working capital.
75
In November 2010, we issued and sold 9,200,000 ADSs with an aggregate sale price of
US$82.8 million, of which we received net proceeds of US$78.5 million. The effective
date of our registration statement on Form F-3 (File number: 333-152005) was July 16,
2008. Morgan Stanley & Co. International plc and UBS Securities LLC acted as managers of
the underwriters for the
sale. The net proceeds from this offering have been used for capital expenditures
and working capital. In order for Hanwha Solar to maintain after this public offering the
same level of beneficial ownership in our company as before the offering, we issued and
sold to Hanwha Solar 45,981,604 ordinary shares with an aggregate sale price of US$82.8
million. The net proceeds from this private placement have been used for capital
expenditures and general working capital purposes.
As of December 31, 2010, our cash resources amounted to RMB1,630.8 million (US$247.1
million), comprising cash on hand and demand deposits.
ITEM 15 CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our
chief executive officer and our chief financial officer, we conducted an evaluation of
our disclosure controls and procedures, as such term is defined under Rule 13a-15(e)
under the Securities Exchange Act of 1934, as amended. Based on that evaluation, our
chief executive officer and chief financial officer have concluded that our disclosure
controls and procedures were effective as of the end of the period covered by this annual
report.
Managements Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined under Rule 13a-15(f) under the
Securities Exchange Act of 1934, as amended, for our company. Internal control over
financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of consolidated financial
statements in accordance with generally accepted accounting principles and includes those
policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of a
companys assets, (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of consolidated financial statements in accordance with
generally accepted accounting principles, and that a companys receipts and expenditures
are being made only in accordance with authorizations of a companys management and
directors, and (3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of a companys assets that could have a
material effect on the consolidated financial statements.
Because of its inherent limitations, a system of internal control over financial
reporting can provide only reasonable assurance with respect to the preparation and
presentation of consolidated financial statement and may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
As required by Section 404 of the Sarbanes-Oxley Act and related rules as
promulgated by the SEC, our companys management assessed the effectiveness of our
internal control over financial reporting as of December 31, 2010 using criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this assessment, our
companys management concluded that our internal control over financial reporting was
effective as of December 31, 2010.
Our independent registered public accounting firm, Ernst & Young Hua Ming, has
audited the effectiveness of internal control over financial reporting as of December 31,
2010, as stated in its report, which is included immediately below. Ernst & Young Hua
Ming has also audited our consolidated financial statements for the year ended December
31, 2010, as stated in its report which is included on page F-2 in this annual report.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Hanwha SolarOne Co., Ltd.
We have audited Hanwha SolarOne Co., Ltd.s (formerly known as Solarfun Power Holdings Co., Ltd.)
(the Company) internal control over financial reporting as of December 31, 2010, based on
criteria established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Companys management
is responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the
accompanying Managements Annual Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
76
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Hanwha SolarOne Co., Ltd. maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Hanwha SolarOne Co., Ltd. as of December
31, 2010 and 2009, and the related consolidated statements of operations, changes in shareholders
equity, and cash flows for each of the three years in the period ended December 31, 2010, and our
report dated June 3, 2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young Hua Ming
Shanghai, The Peoples Republic of China
June 3, 2011
Changes in Internal Controls
There were no changes in our internal control over financial reporting that occurred
during the year ended December 31, 2010 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined that Mr. Thomas J. Toy 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. We have previously filed our code of business conduct and
ethics, and posted the code on our website http://www.hanwha-solarone.com. We hereby
undertake to provide to any person without charge, a copy of our code of business conduct
and ethics within ten working days after we receive such persons written request.
ITEM 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in
connection with certain professional services rendered by Ernst & Young Hua Ming, our
principal external auditors, for the periods indicated.
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2009 |
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2010 |
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2010 |
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(RMB) |
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(RMB) |
|
|
(US$) |
|
|
Audit fees(1) |
|
|
7,790,000 |
|
|
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6,750,000 |
|
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|
1,022,727 |
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|
Audit-related fees |
|
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|
|
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Tax fees(2) |
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688,000 |
|
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260,000 |
|
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39,394 |
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All other fees |
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Notes: |
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(1) |
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Audit fees means the aggregate fees billed in each of the fiscal
years listed for professional services rendered by our principal
auditors. In 2009 and 2010, RMB5,500,000 and RMB5,250,000
(US$795,454), respectively, are for the audits of our annual
consolidated financial statements and our internal control over
financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley
Act of 2002. The audit fees also included RMB2,290,000 and
RMB1,500,000 (US$227,273) in 2009 and 2010, respectively, for the
services rendered in connection with our equity offerings. |
|
(2) |
|
Tax fees means the aggregated fees for services rendered in
connection with technical tax advice in 2009 and 2010. |
77
The policy of our audit committee is to pre-approve all audit and non-audit services
provided by Ernst & Young Hua Ming, including audit services and other services as
described above, other than those for de minimus services which are approved by the Audit
Committee prior to the completion of the audit.
ITEM 16D EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
None.
ITEM 16E PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
ITEM 16F CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G CORPORATE GOVERNANCE
Nasdaq Marketplace Rule 5605(e)(1)(B) requires that the Director nominees must
either be selected, or recommended for the Boards selection, either by: (A) independent
directors constituting a majority of the Boards independent directors in a vote in which
only independent directors participate, or (B) a nominations committee comprised solely
of independent directors. Nasdaq Marketplace Rule 5635(a) requires shareholder approval
prior to the issuance of securities in connection with the acquisition of another company
if: (A) the common stock issued or to be issued has voting power equal to or in excess of
20% of the voting power outstanding before such issuance; (B) the number of shares of
common stock to be issued is or will be equal to or in excess of 20% of the number of
shares of common stock outstanding before such issuance. Nasdaq Marketplace Rule 5635(b)
requires shareholder approval prior to the issuance of securities when the issuance or
potential issuance will result in a change of control of the company. Marketplace Rule
5635(d) requires shareholder approval prior to the issuance of securities in connection
with a transaction other than a public offering involving the sale, issuance or potential
issuance by the company of common stock (or securities convertible into or exercisable
common stock) equal to 20% or more of the common stock or 20% or more of the voting power
outstanding before the issuance for less than the greater of book or market value of the
stock. However, Nasdaq Marketplace Rule 5615(a)(3) allows a foreign private issuer to
follow its home country practice in lieu of the requirement under Nasdaq Marketplace Rule
5605(e)(1)(B), 5635(a)(1), 5635(b) and 5635(d).
Except as stated above, we have followed and intend to continue to follow the
applicable corporate governance standards under Nasdaq Marketplace Rules.
78
PART III
ITEM 17 FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
ITEM 18 FINANCIAL STATEMENTS
The following financial statements are filed as part of this Annual Report on Form
20-F, together with the report of the independent auditors:
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Report of Independent Registered Public Accounting Firm |
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Consolidated Balance Sheets as of December 31, 2009 and 2010 |
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Consolidated Statements of Operations for the Years Ended December 31, 2008, 2009 and 2010 |
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Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2009 and 2010 |
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Consolidated Statements of Changes in Shareholders Equity for the Years Ended December 31, 2008, 2009 and 2010 |
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Notes to the Consolidated Financial Statements |
ITEM 19 EXHIBITS
The following exhibits are furnished along with annual report or are incorporated by
reference as indicated.
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Exhibit |
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Number |
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Description of Document |
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1.1 |
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Memorandum and Articles of Association of Solarfun Power Holdings Co., Ltd. (incorporated by reference
to Exhibit 3.1 from our F-1 registration statement (File No. 333-139258), as amended, initially filed with
the Commission on December 11, 2006) |
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1.2 |
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Form of Amended and Restated Memorandum and Articles of Association of Solarfun Power Holdings Co., Ltd.
(incorporated by reference to Exhibit 3.2 from our F-1 registration statement (File No. 333-139258), as
amended, initially filed with the Commission on December 11, 2006) |
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|
|
1.3 |
* |
|
Amended and Restated Memorandum and Articles of Association of Hanwha SolarOne Co., Ltd., as adopted by
Special Resolution passed on December 18, 2006 and effective on December 26, 2006, as amended by Special
Resolution passed on February 21, 2011 |
|
|
|
|
|
|
2.1 |
|
|
Specimen Certificate for Ordinary Shares of Solarfun Power Holdings Co., Ltd. (incorporated by reference
to Exhibit 4.2 from our F-1 registration statement (File No. 333-139258), as amended, initially filed with
the Commission on December 11, 2006) |
|
|
|
|
|
|
2.2 |
|
|
Form of American Depositary Receipt of Solarfun Power Holdings Co., Ltd. (incorporated by reference to
Exhibit 4.1 from our F-1 registration statement (File No. 333-139258), as amended, initially filed with the
Commission on December 11, 2006) |
|
|
|
|
|
|
2.3 |
|
|
Form of Deposit Agreement Form of Deposit Agreement, among Solarfun Power Holdings Co., Ltd., the
depositary and owners and holders of the American Depositary Shares (incorporated by reference to
Exhibit 4.3 from our F-1 registration statement (File No. 333-139258), as amended, initially filed with the
Commission on December 11, 2006) |
79
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Document |
|
|
|
|
|
|
4.1 |
|
|
2006 Share Incentive Plan (incorporated by reference to Exhibit 10.1 from our F-1 registration statement
(File No. 333-139258), as amended, initially filed with the Commission on December 11, 2006) |
|
|
|
|
|
|
4.2 |
|
|
2007 Equity Incentive Plan (incorporated by reference to Exhibit 99.2 from our Form S-8 registration
statement (File No. 333-147644), as amended, initially filed with the Commission on November 27, 2007) |
|
|
|
|
|
|
4.3 |
|
|
Form of Employment Agreement between Solarfun Power Holdings Co., Ltd. and a Senior Executive
Officer of the Registrant (incorporated by reference to Exhibit 10.2 from our F-1 registration statement
(File No. 333-139258), as amended, initially filed with the Commission on December 11, 2006) |
|
|
|
|
|
|
4.4 |
|
|
Second and Restated Supply Agreement, dated May 13, 2008, between SolarOne Hong Kong Power Ltd.
and Hoku (incorporated by reference to Exhibit 4.39 from our 20-F annual report filed with the Commission
on June 27, 2008) |
|
|
|
|
|
|
4.5 |
|
|
Investment Agreement, dated November 14, 2007, between Jiangsu Linyang Solarfun Co., Ltd. and
Management Committee of Qidong Economic Development Zone, Jiangsu Province (incorporated by
reference to Exhibit 10.35 from our F-1 registration statement (File No. 333-147627), as amended,
initially filed with the Commission on November 27, 2007) |
|
|
|
|
|
|
4.6 |
|
|
Contract, dated October 30, 2007, between Yangguang Solar and Ald Vacuum Technologies GmbH (incorporated by
reference to Exhibit 4.41 from our 20-F annual report filed with the Commission on June 27, 2008) |
|
|
|
|
|
|
4.7 |
|
|
State-owned Land Use Right Grant Contract, dated January 28, 2005, between Lianyungang Municipal
Administration of Land and Resources and Yangguang Solar Technology Co., Ltd. (incorporated by reference to
Exhibit 4.42 from our 20-F annual report filed with the Commission on June 27, 2008) |
|
|
|
|
|
|
4.8 |
|
|
Equity Transfer Agreement, dated June 23, 2008, among Nantong Linyang Electric Power Investment Co.,
Ltd., Jiangsu Qitian Group Co., Ltd., Jiangsu Guangyi Technology Co., Ltd. and Jiangsu Linyang Solarfun
Co., Ltd. (incorporated by reference to Exhibit 4.43 from our 20-F/A amendment to annual report filed with
the Commission on June 30, 2008) |
|
|
|
|
|
|
4.9 |
|
|
Equity Transfer Agreement, dated November 16, 2009, between Rongqiang Cui and Jiangsu Linyang
Solarfun Co., Ltd. (incorporated by reference to Exhibit 4.31 from our 20-F annual report, as amended,
initially filed with the Commission on May 25, 2010) |
|
|
|
|
|
|
4.10 |
|
|
Equity Transfer Agreement, dated November 16, 2009, between Guoyu Wang and Jiangsu Linyang Solarfun
Co., Ltd. (incorporated by reference to Exhibit 4.32 from our 20-F annual report, as amended, initially
filed with the Commission on May 25, 2010) |
|
|
|
|
|
|
4.11 |
|
|
Equipment Sales Agreement, dated April 30, 2010, between SMIC Energy Technology (Shanghai) and
Jiangsu Linyang Solarfun Co., Ltd. (incorporated by reference to Exhibit 4.33 from our 20-F annual report,
as amended, initially filed with the Commission on May 25, 2010) |
|
|
|
|
|
|
4.12 |
|
|
Lease Agreement, dated April 3, 2009, between Jiangsu Linyang Electronics Co., Ltd. and Jiangsu Linyang
Solarfun Co., Ltd. (incorporated by reference to Exhibit 4.34 from our 20-F annual report, as amended,
initially filed with the Commission on May 25, 2010) |
80
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description of Document |
|
|
|
|
|
|
4.13 |
|
|
Lease Agreement, dated April 2010, between Qidong Huahong Electronics Co., Ltd. and Jiangsu Linyang
Solarfun Co., Ltd. (incorporated by reference to Exhibit 4.35 from our 20-F annual report, as amended,
initially filed with the Commission on May 25, 2010) |
|
|
|
|
|
|
4.14 |
# |
|
Toll Manufacturing Agreement for the Production of Solar Modules between Solarfun Power Hong Kong
Limited and Q-cells International GmbH dated December 30, 2008 (incorporated by reference to Exhibit 4.36
from our 20-F annual report, as amended, initially filed with the Commission on May 25, 2010) |
|
|
|
|
|
|
4.15 |
|
|
Shareholders Agreement between Solarfun Power Holdings Co., Ltd. and Hanwha Solar Holdings Co., Ltd. dated
September 16, 2010 (incorporated by reference to Exhibit 99.2 from Form 6-K submitted with the Commission
on November 9, 2010) |
|
|
|
|
|
|
4.16 |
|
|
Share Purchase Agreement between Solarfun Power Holdings Co., Ltd. and Hanwha Chemical Corporation, dated
August 3, 2010 (incorporated by reference to Exhibit 99.1 from Form 6-K submitted with the Commission on
November 9, 2010) |
|
|
|
|
|
|
4.17 |
|
|
Share Issuance and Repurchase Agreement between Solarfun Power Holdings Co., Ltd. and Hanwha Solar Holdings
Co., Ltd. dated September 16, 2010 (incorporated by reference to Exhibit 99.3 from Form 6-K submitted with
the Commission on November 9, 2010) |
|
|
|
|
|
|
4.18 |
* |
|
Purchase Agreement between Ya An Yongwang Silicon Co., Ltd. and Jiangsu Linyang Solarfun Co., Ltd. dated
September 15, 2010 |
|
|
|
|
|
|
8.1 |
* |
|
Subsidiaries of Solarfun Power Holdings Co., Ltd. |
|
|
|
|
|
|
11.1 |
|
|
Code of Business Conduct and Ethics of Solarfun Power Holdings Co., Ltd.(incorporated by reference to
Exhibit 99.1 from our F-1 registration statement (File No. 333-139258), as amended, initially filed with the
Commission on December 11, 2006) |
|
|
|
|
|
|
12.1 |
* |
|
CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
12.2 |
* |
|
CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
13.1 |
* |
|
CEO and CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
23.1 |
* |
|
Consent of Independent Registered Public Accounting Firm |
|
|
|
Notes: |
|
|
|
* |
|
Filed with this Annual Report on Form 20-F. |
|
# |
|
Confidential treatment has been requested. Confidential information has been redacted and separately filed with the SEC. |
81
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and
that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
|
|
|
|
|
|
HANWHA SOLARONE CO., LTD.
|
|
|
/s/
Ping Peter Xie
|
|
|
Name: |
Ping Peter Xie |
|
|
Title: |
President and Chief Executive Officer |
|
Date:
June 3, 2011
82
HANWHA SOLARONE CO., LTD.
CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2009 and 2010
and for the years ended December 31, 2008, 2009 and 2010
HANWHA SOLARONE CO., LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page |
|
|
|
|
|
|
Consolidated Financial Statements |
|
|
|
|
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
|
|
|
|
|
F-3 |
|
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-5 F-6 |
|
|
|
|
|
|
|
|
|
F-7 |
|
|
|
|
|
|
|
|
|
F-8 F-54 |
|
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Hanwha SolarOne Co., Ltd.
We have audited the accompanying consolidated balance sheets of Hanwha SolarOne Co., Ltd. (formerly
known as Solarfun Power Holdings Co., Ltd.) (the Company) as of December 31, 2010 and 2009, and
the related consolidated statements of operations, changes in shareholders equity, and cash flows
for each of the three years in the period ended December 31, 2010. These financial statements are
the responsibility of the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Hanwha SolarOne Co., Ltd. at December 31, 2010 and
2009, and the consolidated results of its operations and its cash flows for each of the three years
in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the Companys internal control over financial reporting as of December 31,
2010, based on the criteria established in Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 3, 2011
expressed an unqualified opinion thereon.
/s/ Ernst & Young Hua Ming
Shanghai, The Peoples Republic of China
June 3, 2011
F-2
HANWHA SOLARONE CO., LTD.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
Note |
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
645,720 |
|
|
|
1,630,777 |
|
|
|
247,087 |
|
Restricted cash |
|
|
|
|
60,539 |
|
|
|
100,490 |
|
|
|
15,226 |
|
Accounts receivable net |
|
4 |
|
|
587,488 |
|
|
|
1,282,807 |
|
|
|
194,365 |
|
Notes receivable |
|
4 |
|
|
|
|
|
|
10,000 |
|
|
|
1,515 |
|
Inventories net |
|
5 |
|
|
783,973 |
|
|
|
790,773 |
|
|
|
119,814 |
|
Advance to suppliers net |
|
6 |
|
|
540,145 |
|
|
|
764,063 |
|
|
|
115,767 |
|
Other current assets |
|
7 |
|
|
180,315 |
|
|
|
255,432 |
|
|
|
38,702 |
|
Deferred tax assets net |
|
24 |
|
|
63,115 |
|
|
|
91,611 |
|
|
|
13,880 |
|
Derivative contracts |
|
17 |
|
|
7,360 |
|
|
|
7,489 |
|
|
|
1,135 |
|
Amount due from related parties |
|
25 |
|
|
12,458 |
|
|
|
27,819 |
|
|
|
4,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
2,881,113 |
|
|
|
4,961,261 |
|
|
|
751,706 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term prepayments |
|
6 |
|
|
439,617 |
|
|
|
394,282 |
|
|
|
59,740 |
|
Amount due from related parties, non-current portion |
|
25 |
|
|
|
|
|
|
15,000 |
|
|
|
2,273 |
|
Fixed assets net |
|
8 |
|
|
1,586,283 |
|
|
|
2,084,027 |
|
|
|
315,762 |
|
Intangible assets net |
|
9 |
|
|
208,563 |
|
|
|
205,763 |
|
|
|
31,176 |
|
Deferred tax assets net |
|
24 |
|
|
13,789 |
|
|
|
16,759 |
|
|
|
2,539 |
|
Long-term deferred expenses |
|
11 |
|
|
33,158 |
|
|
|
27,273 |
|
|
|
4,132 |
|
Goodwill |
|
10 |
|
|
134,735 |
|
|
|
134,735 |
|
|
|
20,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets |
|
|
|
|
2,416,145 |
|
|
|
2,877,839 |
|
|
|
436,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
5,297,258 |
|
|
|
7,839,100 |
|
|
|
1,187,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term bank borrowings |
|
12 |
|
|
404,764 |
|
|
|
318,919 |
|
|
|
48,321 |
|
Long-term bank borrowings, current portion |
|
12 |
|
|
120,000 |
|
|
|
215,000 |
|
|
|
32,576 |
|
Accounts payable |
|
|
|
|
441,768 |
|
|
|
478,129 |
|
|
|
72,444 |
|
Notes payable |
|
16 |
|
|
186,921 |
|
|
|
181,265 |
|
|
|
27,464 |
|
Accrued expenses and other liabilities |
|
13 |
|
|
191,895 |
|
|
|
404,826 |
|
|
|
61,337 |
|
Customer deposits |
|
15 |
|
|
59,685 |
|
|
|
33,538 |
|
|
|
5,082 |
|
Unrecognized tax benefit |
|
24 |
|
|
27,385 |
|
|
|
143,473 |
|
|
|
21,738 |
|
Derivative contracts |
|
17 |
|
|
1,148 |
|
|
|
8,047 |
|
|
|
1,219 |
|
Amount due to related parties |
|
25 |
|
|
16,765 |
|
|
|
13,183 |
|
|
|
1,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
1,450,331 |
|
|
|
1,796,380 |
|
|
|
272,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term bank borrowings |
|
12 |
|
|
350,000 |
|
|
|
135,000 |
|
|
|
20,455 |
|
Deferred tax liabilities |
|
24 |
|
|
26,566 |
|
|
|
25,977 |
|
|
|
3,936 |
|
Convertible bonds |
|
22 |
|
|
658,653 |
|
|
|
687,435 |
|
|
|
104,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities |
|
|
|
|
1,035,219 |
|
|
|
848,412 |
|
|
|
128,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
2,485,550 |
|
|
|
2,644,792 |
|
|
|
400,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable ordinary shares (par value US$0.0001 per
share; 45,098,055 shares issued and outstanding at
December 31, 2009 and 2010) |
|
21 |
|
|
55 |
|
|
|
55 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares (par value US$0.0001 per share;
500,000,000 shares authorized; 290,708,739 shares
and 420,645,432 shares issued and outstanding at
December 31, 2009 and 2010, respectively) |
|
|
|
|
227 |
|
|
|
314 |
|
|
|
48 |
|
Additional paid-in capital |
|
|
|
|
2,331,797 |
|
|
|
3,956,953 |
|
|
|
599,538 |
|
Statutory reserves |
|
19 |
|
|
69,564 |
|
|
|
170,000 |
|
|
|
25,757 |
|
Retained earnings |
|
|
|
|
410,065 |
|
|
|
1,066,986 |
|
|
|
161,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
|
|
2,811,653 |
|
|
|
5,194,253 |
|
|
|
787,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable ordinary
shares and shareholders equity |
|
|
|
|
5,297,258 |
|
|
|
7,839,100 |
|
|
|
1,187,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-3
HANWHA SOLARONE CO., LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
Note |
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
|
|
4,949,068 |
|
|
|
3,778,316 |
|
|
|
7,526,993 |
|
|
|
1,140,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
|
|
(4,905,147 |
) |
|
|
(3,341,936 |
) |
|
|
(5,960,648 |
) |
|
|
(903,128 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
43,921 |
|
|
|
436,380 |
|
|
|
1,566,345 |
|
|
|
237,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses |
|
|
|
|
(87,913 |
) |
|
|
(105,454 |
) |
|
|
(178,057 |
) |
|
|
(26,978 |
) |
General and administrative expenses |
|
|
|
|
(143,340 |
) |
|
|
(180,989 |
) |
|
|
(190,594 |
) |
|
|
(28,878 |
) |
Research and development expenses |
|
|
|
|
(19,679 |
) |
|
|
(32,025 |
) |
|
|
(53,500 |
) |
|
|
(8,106 |
) |
Government grants |
|
23 |
|
|
|
|
|
|
|
|
|
|
18,755 |
|
|
|
2,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
(250,932 |
) |
|
|
(318,468 |
) |
|
|
(403,396 |
) |
|
|
(61,120 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) profit |
|
|
|
|
(207,011 |
) |
|
|
117,912 |
|
|
|
1,162,949 |
|
|
|
176,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
(103,146 |
) |
|
|
(157,907 |
) |
|
|
(161,677 |
) |
|
|
(24,497 |
) |
Interest income |
|
|
|
|
10,004 |
|
|
|
5,002 |
|
|
|
6,141 |
|
|
|
930 |
|
Exchange losses |
|
|
|
|
(35,230 |
) |
|
|
(23,814 |
) |
|
|
(89,272 |
) |
|
|
(13,526 |
) |
Changes in fair value of derivative contracts |
|
17 |
|
|
83,090 |
|
|
|
9,594 |
|
|
|
77,531 |
|
|
|
11,747 |
|
Changes in fair value of conversion feature of
convertible bonds |
|
22 |
|
|
|
|
|
|
(73,887 |
) |
|
|
31,623 |
|
|
|
4,791 |
|
Other income |
|
|
|
|
15,018 |
|
|
|
6,286 |
|
|
|
24,353 |
|
|
|
3,690 |
|
Other expenses |
|
|
|
|
(25,604 |
) |
|
|
(11,835 |
) |
|
|
(5,903 |
) |
|
|
(894 |
) |
Government grants |
|
23 |
|
|
3,480 |
|
|
|
7,661 |
|
|
|
9,595 |
|
|
|
1,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
|
|
(259,399 |
) |
|
|
(120,988 |
) |
|
|
1,055,340 |
|
|
|
159,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses |
|
24 |
|
|
(6,519 |
) |
|
|
(23,928 |
) |
|
|
(297,983 |
) |
|
|
(45,149 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net (loss) income |
|
|
|
|
(265,918 |
) |
|
|
(144,916 |
) |
|
|
757,357 |
|
|
|
114,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to non-controlling interest |
|
|
|
|
(14,573 |
) |
|
|
(311 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Hanwha SolarOne
Co., Ltd. shareholders |
|
|
|
|
(280,491 |
) |
|
|
(145,227 |
) |
|
|
757,357 |
|
|
|
114,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Hanwha SolarOne
Co., Ltd. shareholders
per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
30 |
|
RMB |
(1.11 |
) |
|
RMB |
(0.53 |
) |
|
RMB |
2.43 |
|
|
US$ |
0.37 |
|
Diluted |
|
30 |
|
RMB |
(1.11 |
) |
|
RMB |
(0.53 |
) |
|
RMB |
2.36 |
|
|
US$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in computation of net (loss)
income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
30 |
|
|
252,659,614 |
|
|
|
274,067,760 |
|
|
|
311,263,308 |
|
|
|
311,263,308 |
|
Diluted |
|
30 |
|
|
252,659,614 |
|
|
|
274,067,760 |
|
|
|
357,272,605 |
|
|
|
357,272,605 |
|
The accompanying notes are an integral part of the consolidated financial statements.
F-4
HANWHA SOLARONE CO., LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
Note |
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net (loss) income |
|
|
|
|
(265,918 |
) |
|
|
(144,916 |
) |
|
|
757,357 |
|
|
|
114,751 |
|
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (gain) loss from derivative contracts |
|
17 |
|
|
(33,873 |
) |
|
|
27,661 |
|
|
|
6,770 |
|
|
|
1,026 |
|
Changes in fair value of conversion feature of convertible bonds |
|
|
|
|
|
|
|
|
73,887 |
|
|
|
(31,623 |
) |
|
|
(4,791 |
) |
Loss from disposal of a subsidiary |
|
|
|
|
384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from disposal of fixed assets |
|
|
|
|
|
|
|
|
719 |
|
|
|
957 |
|
|
|
145 |
|
Gain from disposal of intangible asset |
|
9 |
|
|
(3,403 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of convertible bonds discount |
|
|
|
|
|
|
|
|
50,788 |
|
|
|
60,405 |
|
|
|
9,153 |
|
Depreciation and amortization |
|
|
|
|
67,170 |
|
|
|
153,174 |
|
|
|
187,587 |
|
|
|
28,422 |
|
Amortization of long-term deferred expense |
|
|
|
|
5,145 |
|
|
|
6,670 |
|
|
|
7,194 |
|
|
|
1,090 |
|
Stock compensation expenses |
|
20 |
|
|
34,826 |
|
|
|
42,671 |
|
|
|
31,963 |
|
|
|
4,843 |
|
Write-down of inventories |
|
5 |
|
|
413,789 |
|
|
|
282,574 |
|
|
|
134,489 |
|
|
|
20,377 |
|
Provision for doubtful collection of accounts receivable |
|
4 |
|
|
|
|
|
|
3,723 |
|
|
|
|
|
|
|
|
|
Reversal of doubtful debt for accounts receivable |
|
|
|
|
|
|
|
|
|
|
|
|
(278 |
) |
|
|
(42 |
) |
Provision for doubtful collection of advances to supplier |
|
6 |
|
|
41,962 |
|
|
|
234,724 |
|
|
|
117 |
|
|
|
18 |
|
Deferred tax benefit |
|
24 |
|
|
(50,068 |
) |
|
|
(15,792 |
) |
|
|
(32,055 |
) |
|
|
(4,857 |
) |
Warranty provision |
|
14 |
|
|
46,565 |
|
|
|
33,728 |
|
|
|
67,616 |
|
|
|
10,245 |
|
Warranty settlements and reversals |
|
14 |
|
|
(18,887 |
) |
|
|
(8,904 |
) |
|
|
(9,386 |
) |
|
|
(1,422 |
) |
Unrecognized tax benefit |
|
24 |
|
|
27,385 |
|
|
|
|
|
|
|
116,088 |
|
|
|
17,589 |
|
Others |
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
|
|
|
(44,602 |
) |
|
|
2,011 |
|
|
|
(5,298 |
) |
|
|
(803 |
) |
Accounts receivable |
|
|
|
|
111,157 |
|
|
|
(271,674 |
) |
|
|
(695,041 |
) |
|
|
(105,309 |
) |
Notes receivable |
|
|
|
|
|
|
|
|
|
|
|
|
(10,000 |
) |
|
|
(1,515 |
) |
Inventories |
|
|
|
|
(417,016 |
) |
|
|
(334,839 |
) |
|
|
(141,289 |
) |
|
|
(21,407 |
) |
Advance to suppliers and long-term prepayments |
|
|
|
|
(547,458 |
) |
|
|
(68,872 |
) |
|
|
(178,700 |
) |
|
|
(27,076 |
) |
Other current assets |
|
|
|
|
(97,271 |
) |
|
|
301,434 |
|
|
|
(75,117 |
) |
|
|
(11,382 |
) |
Amount due from related parties |
|
|
|
|
901 |
|
|
|
(12,439 |
) |
|
|
(30,361 |
) |
|
|
(4,600 |
) |
Accounts payable |
|
|
|
|
103,199 |
|
|
|
238,804 |
|
|
|
(12,252 |
) |
|
|
(1,856 |
) |
Notes payable |
|
|
|
|
|
|
|
|
|
|
|
|
(5,656 |
) |
|
|
(857 |
) |
Accrued expenses and other liabilities |
|
|
|
|
(27,857 |
) |
|
|
33,648 |
|
|
|
154,680 |
|
|
|
23,435 |
|
Amount due to related parties |
|
|
|
|
(2,038 |
) |
|
|
10,362 |
|
|
|
(3,582 |
) |
|
|
(543 |
) |
Customer deposits |
|
|
|
|
(18,134 |
) |
|
|
50,191 |
|
|
|
(26,147 |
) |
|
|
(3,962 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
|
|
|
(674,040 |
) |
|
|
689,333 |
|
|
|
268,438 |
|
|
|
40,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of fixed assets |
|
|
|
|
(849,544 |
) |
|
|
(260,054 |
) |
|
|
(634,506 |
) |
|
|
(96,138 |
) |
Acquisition of intangible assets |
|
|
|
|
(48,517 |
) |
|
|
(438 |
) |
|
|
(1,678 |
) |
|
|
(254 |
) |
Acquisition of a subsidiary |
|
|
|
|
(267,566 |
) |
|
|
(89,818 |
) |
|
|
|
|
|
|
|
|
Increase in restricted cash |
|
|
|
|
(1,282 |
) |
|
|
25,587 |
|
|
|
(34,653 |
) |
|
|
(5,250 |
) |
Disposal of affiliate |
|
|
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposal of a subsidiary |
|
|
|
|
(9,394 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from disposal of intangible assets |
|
|
|
|
6,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
|
|
(1,169,045 |
) |
|
|
(324,723 |
) |
|
|
(670,837 |
) |
|
|
(101,642 |
) |
The accompanying notes are an integral part of the consolidated financial statements.
F-5
HANWHA SOLARONE CO., LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS CONTD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
Note |
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Share Issuance and Repurchase Agreement
with Hanwha Solar Holdings Co., Ltd. |
|
27 |
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
3 |
|
Capital contributed by minority interest shareholder |
|
|
|
|
65,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of redeemable ordinary shares |
|
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of convertible bonds |
|
|
|
|
1,178,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of ordinary shares to Hanwha
Solar Holdings Co., Ltd. |
|
18 |
|
|
|
|
|
|
|
|
|
|
1,059,812 |
|
|
|
160,578 |
|
Net proceeds from issuance of ordinary shares to public |
|
18 |
|
|
489,875 |
|
|
|
148,994 |
|
|
|
521,302 |
|
|
|
78,985 |
|
Dividends paid to minority shareholders |
|
|
|
|
|
|
|
|
(3,400 |
) |
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options |
|
|
|
|
12,091 |
|
|
|
1,103 |
|
|
|
12,166 |
|
|
|
1,843 |
|
Proceeds from short-term borrowings |
|
|
|
|
3,119,682 |
|
|
|
1,900,675 |
|
|
|
1,098,911 |
|
|
|
166,502 |
|
Payment of short-term borrowings |
|
|
|
|
(2,985,852 |
) |
|
|
(2,594,743 |
) |
|
|
(1,184,756 |
) |
|
|
(179,508 |
) |
Proceeds from long-term borrowings |
|
|
|
|
200,000 |
|
|
|
300,000 |
|
|
|
|
|
|
|
|
|
Payment of long-term borrowings |
|
|
|
|
(15,000 |
) |
|
|
(30,000 |
) |
|
|
(120,000 |
) |
|
|
(18,182 |
) |
Utilization of notes payable |
|
|
|
|
|
|
|
|
147,580 |
|
|
|
|
|
|
|
|
|
Repayment of advances from related parties |
|
|
|
|
(84,299 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
|
|
1,981,058 |
|
|
|
(129,791 |
) |
|
|
1,387,456 |
|
|
|
210,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
|
|
137,973 |
|
|
|
234,819 |
|
|
|
985,057 |
|
|
|
149,251 |
|
Cash and cash equivalents at the beginning of year |
|
|
|
|
272,928 |
|
|
|
410,901 |
|
|
|
645,720 |
|
|
|
97,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of year |
|
|
|
|
410,901 |
|
|
|
645,720 |
|
|
|
1,630,777 |
|
|
|
247,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
|
|
|
102,440 |
|
|
|
104,817 |
|
|
|
89,855 |
|
|
|
13,614 |
|
Income tax paid |
|
|
|
|
51,273 |
|
|
|
39,159 |
|
|
|
160,615 |
|
|
|
24,336 |
|
Realized gain from derivative contracts |
|
|
|
|
49,216 |
|
|
|
37,255 |
|
|
|
84,301 |
|
|
|
12,773 |
|
Supplemental schedule of non-cash activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of fixed assets included in accounts payable,
accrued expenses and other liabilities |
|
|
|
|
35,904 |
|
|
|
21,842 |
|
|
|
48,613 |
|
|
|
7,366 |
|
Conversion of convertible bonds into ordinary shares |
|
|
|
|
|
|
|
|
179 |
|
|
|
|
|
|
|
|
|
Transfer of unamortized debt issuance costs to equity
upon conversion of convertible bonds into ordinary shares |
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-6
HANWHA SOLARONE CO., LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hanwha SolarOne Co., Ltd. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earnings |
|
|
|
|
|
|
Total |
|
|
|
|
|
Number of |
|
|
|
|
|
|
Additional paid- |
|
|
Statutory |
|
|
(accumulated |
|
|
Non-controlling |
|
|
shareholders |
|
|
|
Note |
|
ordinary shares |
|
|
Ordinary shares |
|
|
in capital |
|
|
reserves |
|
|
losses) |
|
|
Interest |
|
|
equity |
|
|
|
|
|
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(RMB000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2008 |
|
|
|
|
241,954,744 |
|
|
|
195 |
|
|
|
1,601,852 |
|
|
|
37,548 |
|
|
|
222,987 |
|
|
|
100,420 |
|
|
|
1,963,002 |
|
Exercise of stock options and vesting of
restricted stock units |
|
20 |
|
|
1,040,590 |
|
|
|
1 |
|
|
|
12,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,091 |
|
Capital contributed by non-controlling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,560 |
|
|
|
65,560 |
|
Disposal of subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,750 |
) |
|
|
(8,750 |
) |
Purchase of subsidiary shares from
non-controlling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(167,620 |
) |
|
|
(167,620 |
) |
Settlement of stock options exercised with
shares held by depository bank |
|
|
|
|
(1,040,590 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of ordinary shares |
|
|
|
|
27,105,465 |
|
|
|
18 |
|
|
|
489,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
489,875 |
|
Share-based compensation |
|
20 |
|
|
|
|
|
|
|
|
|
|
34,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,825 |
|
Net loss for the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(280,491 |
) |
|
|
14,573 |
|
|
|
(265,918 |
) |
Appropriation of statutory reserves |
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,090 |
|
|
|
(10,090 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008 |
|
|
|
|
269,060,209 |
|
|
|
214 |
|
|
|
2,138,624 |
|
|
|
47,638 |
|
|
|
(67,594 |
) |
|
|
4,183 |
|
|
|
2,123,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to retained earnings upon adoption
of ASC 815-40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
644,812 |
|
|
|
|
|
|
|
644,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2009 |
|
|
|
|
269,060,209 |
|
|
|
214 |
|
|
|
2,138,624 |
|
|
|
47,638 |
|
|
|
577,218 |
|
|
|
4,183 |
|
|
|
2,767,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options and vesting of
restricted stock units |
|
20 |
|
|
893,760 |
|
|
|
|
|
|
|
1,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,101 |
|
Settlement of stock options exercised with
shares held by depository bank |
|
|
|
|
(893,760 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of convertible bonds into ordinary
shares |
|
|
|
|
6,535 |
|
|
|
|
|
|
|
175 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175 |
|
Share-based compensation |
|
20 |
|
|
|
|
|
|
|
|
|
|
42,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,671 |
|
Shares issued to depository bank |
|
|
|
|
2,200,000 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of ordinary shares |
|
18 |
|
|
19,441,995 |
|
|
|
12 |
|
|
|
148,982 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148,994 |
|
Purchase of subsidiary shares from
non-controlling interest |
|
|
|
|
|
|
|
|
|
|
|
|
245 |
|
|
|
|
|
|
|
|
|
|
|
(1,094 |
) |
|
|
(849 |
) |
Net loss for the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(145,227 |
) |
|
|
311 |
|
|
|
(144,916 |
) |
Appropriation of statutory reserves |
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,926 |
|
|
|
(21,926 |
) |
|
|
|
|
|
|
|
|
Appropriation of retained earnings to
non-controlling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,400 |
) |
|
|
(3,400 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009 |
|
|
|
|
290,708,739 |
|
|
|
227 |
|
|
|
2,331,797 |
|
|
|
69,564 |
|
|
|
410,065 |
|
|
|
|
|
|
|
2,811,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options and vesting of
restricted stock units |
|
20 |
|
|
1,762,500 |
|
|
|
|
|
|
|
12,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,166 |
|
Settlement of stock options exercised with
shares held by depository bank |
|
|
|
|
(1,762,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
20 |
|
|
|
|
|
|
|
|
|
|
31,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,963 |
|
Shares issued to depository bank |
|
|
|
|
1,500,000 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of ordinary shares
to Hanwha Solar Holdings Co., Ltd. |
|
18 |
|
|
82,436,693 |
|
|
|
55 |
|
|
|
1,059,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,059,812 |
|
Net proceeds from issuance of ordinary shares
to public |
|
18 |
|
|
46,000,000 |
|
|
|
31 |
|
|
|
521,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
521,302 |
|
Net income for the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
757,357 |
|
|
|
|
|
|
|
757,357 |
|
Appropriation of statutory reserves |
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,436 |
|
|
|
(100,436 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010 |
|
|
|
|
420,645,432 |
|
|
|
314 |
|
|
|
3,956,953 |
|
|
|
170,000 |
|
|
|
1,066,986 |
|
|
|
|
|
|
|
5,194,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010, in US$000 |
|
|
|
|
|
|
|
|
48 |
|
|
|
599,538 |
|
|
|
25,757 |
|
|
|
161,665 |
|
|
|
|
|
|
|
787,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-7
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
1. ORGANIZATION AND BASIS OF PRESENTATION
Hanwha SolarOne Co., Ltd. (formerly known as Solarfun Power Holdings Co., Ltd.) (the Company) was
incorporated under the laws of the Cayman Islands on June 12, 2006 and its principal activity is
investment holding. The principal activities of its subsidiaries are described in the table below.
The Company together with its subsidiaries listed below are referred to as the Group
hereinafter.
Pursuant to a written resolution of Leshan Jiayangs board of directors dated January 1, 2008, the
Group established a working group for the purpose to liquidate the Companys subsidiary, Leshan
Jiayang, which was dormant with insignificant operations and net assets. The liquidation process
was completed during the year ended December 31, 2008.
In February 2008, the Group established Hanwha SolarOne GmbH (SolarOne GmbH) (previously known as
Solarfun Power Deutschland GmbH). The registered capital of SolarOne GmbH is Euro100,000 of which
all had been contributed by the Group on February 14, 2008. The principal activity of SolarOne
GmbH is to sell PV products in the European markets. SolarOne Gmbh has not yet commenced
operations as of December 31, 2010.
On August 1, 2008, the Group acquired the remaining 48% equity interest in Hanwha SolarOne Technology
Co., Ltd. (SolarOne Technology) (previously known as Yangguang Solar Technology Co., Ltd.) for total
cash consideration of approximately RMB355,872,000 from Nantong Linyang Electric Power Investment
Co., Ltd. (Nantong Linyang), Jiangsu Qitian Group Co., Ltd. (Qitian Group) and Jiangsu Guangyi
Technology Co., Ltd. (Jiangsu Guangyi). Subsequent to this acquisition, SolarOne Technology became a
wholly owned subsidiary of the Company. The Group accounted for this transaction as a business
combination.
Pursuant to a share transfer agreement signed
between a subsidiary of the Group, Shanghai Linyang Solar
Technology Co., Ltd. (Solar Shanghai), with three individual non-controlling shareholders of Solar Shanghai (i.e.,
Cui Rongqiang, Gu Yongliang, Wang Guoyu) on November 16, 2009, the three individual shareholders
agreed to transfer their interests of 10%, 5% and 2%, respectively, to Hanwha SolarOne (Qidong)
Co., Ltd. (SolarOne Qidong) (previously known as Jiangsu Linyang Solarfun Co., Ltd.). The cash
consideration for the share transfer was RMB500,000, RMB250,000 and RMB100,000, respectively, which
was the original paid-in capital of the three individual shareholders when Solar Shanghai was set
up in 2006. Before the share transfer, Solar Shanghai distributed a dividend to each of the three
individual shareholders of RMB3,400,000 in cash, representing the proportionate profit attributed
to the non-controlling shareholders from the date of inception to the date of the share transfer.
After the share transfer, Solar Shanghai became a wholly owned subsidiary of the Group.
In May 2010, the Group established Hanwha Solar Electric Power Engineering Co., Ltd. (Solar
Engineering) (previously known as Jiangsu Linyang Solar Electric Power Engineering Co., Ltd.). The
registered capital of Solar Engineering is RMB50,000,000, which had been contributed by the Group
on May 25, 2010. The principal activity of Solar Engineering is to provide construction services to
build solar power systems in the Peoples Republic of China (PRC or China).
F-8
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
1. |
|
ORGANIZATION AND BASIS OF PRESENTATION (CONTD) |
As of December 31, 2010, the Companys subsidiaries included the following entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Date of incorporation/ |
|
Place of |
|
Percentage of |
|
|
|
|
|
establishment/ |
|
incorporation/ |
|
shareholding/ |
|
|
|
Name of subsidiary |
|
acquisition |
|
establishment |
|
ownership |
|
|
Principal activities |
|
|
|
|
|
|
|
|
|
|
|
Hanwha SolarOne Investment Holding Ltd. (SolarOne Investment) (previously known as Linyang Solar Power Investment Holding Ltd.) |
|
May 17, 2006 |
|
British Virgin Islands |
|
|
100 |
% |
|
Investment holding |
|
|
|
|
|
|
|
|
|
|
|
Hanwha SolarOne Hong Kong Limited (SolarOne HK) (previously known as Solarfun Power Hong Kong Limited) |
|
May 16, 2007 |
|
Hong Kong |
|
|
100 |
% |
|
Investment holding and international procurement |
|
|
|
|
|
|
|
|
|
|
|
Hanwha SolarOne U.S.A. Inc. (SolarOne USA) (previously known as Solarfun USA, Inc.) |
|
September 18, 2007 |
|
United States of America |
|
|
100 |
% |
|
International sales |
|
|
|
|
|
|
|
|
|
|
|
SolarOne GmbH |
|
February 14, 2008 |
|
Deutschland |
|
|
100 |
% |
|
International sales |
|
|
|
|
|
|
|
|
|
|
|
SolarOne Qidong |
|
August 27, 2004 |
|
PRC |
|
|
100 |
% |
|
Development, manufacturing and sales of photovoltaic (PV) products to overseas customers |
|
|
|
|
|
|
|
|
|
|
|
Solar Shanghai |
|
March 29, 2006 |
|
PRC |
|
|
100 |
% |
|
Sales of PV products to PRC customers |
|
|
|
|
|
|
|
|
|
|
|
Hanwha Solar Engineering Research and Development Center Co., Ltd. (Solar R&D) (previously known as Jiangsu Linyang Solarfun
Engineering Research and Development Center Co., Ltd.) |
|
April 9, 2007 |
|
PRC |
|
|
100 |
% |
|
Research and development |
|
|
|
|
|
|
|
|
|
|
|
SolarOne Technology |
|
July 31, 2007 |
|
PRC |
|
|
100 |
% |
|
Manufacturing of silicon ingots |
|
|
|
|
|
|
|
|
|
|
|
Solar Engineering |
|
May 25, 2010 |
|
PRC |
|
|
100 |
% |
|
Provide construction services to build solar power systems in the PRC |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements are prepared in accordance with U.S. generally accepted
accounting principles (US GAAP).
Principles of Consolidation
The consolidated financial statements include the financial statements of the Company and its
subsidiaries. All significant inter-company transactions and balances between the Company and its
subsidiaries are eliminated upon consolidation.
F-9
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
Foreign Currency
The functional currency of the Company and each of its subsidiaries is Renminbi as determined based
on the criteria of ASC 830, Foreign Currency Translation. The reporting currency of the Company
is also Renminbi. Transactions denominated in foreign currencies are remeasured into the
functional currency at the exchange rates prevailing on the transaction dates. Foreign currency
denominated financial assets and liabilities are remeasured at the balance sheet date exchange
rate. Exchange gains and losses are separately reported in the consolidated statements of
operations.
Convenience Translation
Amounts in United States dollars are presented for the convenience of the reader and are translated
at the noon buying rate of US$1.00 to RMB6.6000 on December 31, 2010 in the City of New York for
cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New
York. No representation is made that the Renminbi amounts could have been, or could be, converted
into United States dollars at such rate.
Use of Estimates
The preparation of the consolidated financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amount of assets and
liabilities and disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the periods. Actual results
could differ from these estimates. Significant estimates and assumptions reflected in the Groups
financial statements include, but are not limited to, provision for doubtful debts, provision for
advance to suppliers, provision for warranty, inventory write-down, useful lives of fixed assets
and intangible assets, impairment of fixed assets, intangible assets and goodwill, valuation
allowances on deferred tax assets, stock-based compensation expenses and fair values of derivative
contracts.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and bank deposits, which are unrestricted as to
withdrawal and use.
Restricted Cash
Restricted cash represents amounts held by a bank as security for letters of credit facilities,
notes payable and PRC Custom deposits and therefore are not available for the Groups use. The
restriction on cash is expected to be released within the next twelve months.
Accounts and Notes Receivable
Accounts and notes receivable are carried at net realizable value. An allowance for doubtful
accounts is recorded in the period in which collection is determined to be not probable based on
historical experience, account balance aging, prevailing economic conditions and an assessment of
specific evidence indicating troubled collection. A receivable is written off after all collection
efforts have ceased.
F-10
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
Debt Issuance Costs
Debt issuance costs represent the incurred costs directly attributable to the issuance of the
convertible bonds. These costs, presented as non-current assets, are deferred and amortized
ratably using the effective interest method from the debt issuance date over the life of the
convertible bonds. Upon the conversion of the bonds, the related debt issuance costs will be
debited to shareholders equity.
Inventories
Inventories are stated at the lower of cost or market value. Cost is determined by the
weighted-average method. Raw material cost is based on purchase costs while work-in-progress and
finished goods comprise direct materials, direct labor and an allocation of manufacturing overhead
costs.
Fixed Assets
Fixed assets are stated at cost and are depreciated using the straight-line method over the
estimated useful lives of the assets as follows:
|
|
|
Buildings |
|
20 years |
Plant and machinery |
|
10 years |
Furniture, fixtures and office equipment |
|
5 years |
Computer software |
|
5 years |
Motor vehicles |
|
5 years |
Leasehold improvements |
|
Over the shorter of the lease term or their estimated useful lives |
Repair and maintenance costs are charged to expense when incurred, whereas the cost of renewals and
betterment that extend the useful life of fixed assets are capitalized as additions to the related
assets. Retirement, sale and disposal of assets are recorded by removing the cost and accumulated
depreciation with any resulting gain or loss reflected in the consolidated statements of
operations.
Cost incurred in constructing new facilities, including progress payments, interest and other costs
relating to the construction are capitalized and transferred to fixed assets upon completion and
depreciation commences when the asset is available for its intended use.
Interest costs are capitalized if they are incurred during the acquisition, construction or
production of a qualifying asset and such costs could have been avoided if expenditures for the
assets have not been made. Capitalization of interest costs commences when the activities to
prepare the asset are in progress and expenditures and borrowing costs are being incurred. Interest
costs are capitalized until the assets are ready for their intended use. Total interest cost
incurred during 2009 and 2010 was approximately RMB71,067,000 and RMB88,929,000 (US$13,474,091)
and Interest capitalized during 2009 and 2010 amounted to approximately RMB4,290,000 and
RMB5,377,000 (US$814,697), respectively.
Intangible Assets
Land use rights
Land use rights represent amounts paid for the right to use land in the PRC and are recorded at
purchase cost less accumulated amortization. Amortization is provided on a straight-line basis
over the lives of the land use rights agreements, which have terms of tenure ranging from 45 to 50
years.
F-11
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
Goodwill
Goodwill represents the excess of the purchase price over the amounts assigned to the fair value of
the assets acquired and the liabilities assumed of the acquired business.
Goodwill is reviewed at least annually for impairment, or earlier if there is an indication of
impairment, in accordance with ASC 350, Goodwill and Other Intangible Assets. The Group assigns
and assesses goodwill for impairment at the reporting unit level. As of December 31, 2010, goodwill
relates to the acquisition of SolarOne Technology.
The performance of the impairment test involves a two-step process. The first step of the
impairment test involves comparing the fair value of the reporting unit with its carrying amount,
including goodwill. Fair value is primarily determined by computing the future discounted cash
flows expected to be generated by the reporting unit. If the reporting units carrying value
exceeds its fair value, goodwill may be impaired. If this occurs, the Group performs the second
step of the goodwill impairment test to determine the amount of impairment loss.
The fair value of the reporting unit is allocated to its assets and liabilities in a manner similar
to a purchase price allocation in order to determine the implied fair value of the reporting units
goodwill. If the implied goodwill fair value is less than its carrying value, the difference is
recognized an impairment loss.
The Group performed a goodwill impairment test as of December 31, 2010 and no impairment loss was
recognized.
Impairment of Long-Lived Assets
The Group evaluates its long-lived assets or asset groups, including intangible assets with finite
lives, for impairment whenever events or changes in circumstances (such as a significant adverse
change to market conditions that will impact the future use of the assets) indicate that the
carrying amount of a group of long-lived assets may not be recoverable. When these events occur,
the Group evaluates for impairment by comparing the carrying amount of the assets to the future
undiscounted net cash flows expected to result from the use of the assets and their eventual
disposition. If the sum of the expected undiscounted cash flows is less than the carrying amount
of the assets, the Group would recognize an impairment loss based on the excess of the carrying
amount of the asset group over its fair value.
F-12
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
Fair Value of Financial Instruments
Financial instruments include cash and cash equivalents, restricted cash, accounts and notes
receivable, accounts and notes payable, short-term bank borrowings, amounts due to/from related
parties and convertible bonds. The carry amounts of these financial instruments other than
convertible bonds approximate their fair values due to the short-term maturity of these
instruments. Upon the adoption of ASC 815-40, Derivatives and Hedging: Contracts in Entitys Own
Equity, on January 1, 2009, the conversion option was bifurcated from the convertible bonds at its
fair value and the residual value allocated to the convertible bonds was accreted to the redemption
amount using the effective interest method. The Group determined the fair value of the conversion
option with the assistance of an independent third-party valuation firm.
The factors considered in the valuation model are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Underlying share price |
|
US$ |
7.63 |
|
|
US$ |
8.17 |
|
Conversion price |
|
US$ |
19.125 |
|
|
US$ |
19.125 |
|
Time to maturity |
|
8.04 years |
|
|
7.04 years |
|
Risk free rate |
|
|
3.55 |
% |
|
|
2.72 |
% |
Expected volatility |
|
|
76.83 |
% |
|
|
71.72 |
% |
Comparable yield to maturity |
|
|
5.98 |
% |
|
|
5.32 |
% |
Underlying share price is the Companys closing price as listed on NASDAQ as of December 31 2009
and 2010. The Conversion price is the initial conversion price of the convertible bonds. Time to
maturity is the remaining years from balance sheet date to January 15, 2018, the maturity date of
the convertible bonds. The risk free rate is derived from the United States Treasury zero coupon
risk free rates with the remaining terms equal to the time to maturity as of December 31, 2009 and
2010. The Company estimates the expected volatility and comparable yield to maturity based on a
combination of the Companys historical performance and the performance of comparable publicly
listed companies.
The long-term bank borrowings approximate their fair value since they bear interest rates which
approximate market interest rates.
Financial Instruments Embedded Foreign Currency Derivatives
Certain of the Groups sales contracts are denominated in a currency which is not the functional
currency of either of the parties to the contract nor the currency in which the products being sold
are routinely denominated in international commerce. Accordingly, the contracts contain embedded
foreign currency forward contracts which are required to be separately accounted for in accordance
with ASC 815-10 Derivatives and Hedging: Overall. The embedded foreign currency derivatives are
separately accounted for and measured at fair value with changes in fair value reported as Changes
in fair value of derivative contracts in the consolidated statements of operations. Embedded
foreign currency derivatives are presented as current assets or liabilities. The Group does not
enter into derivative contracts for speculative purposes and hedge accounting has not been applied.
F-13
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
Financial Instruments Foreign Currency Derivative Contracts and Commodity Contracts
The Groups primary objective for holding foreign currency derivative contracts and commodity
derivative contracts is to manage its foreign currency risk principally arising from sales
contracts denominated in Euros and the stability of the purchase price for silver, which is one of
the raw materials required in the production of PV products. The Group records these derivative
instruments as current assets or current liabilities, measured at fair value.
During the years ended December 31, 2008, 2009 and 2010, the Group entered into cross-currency
exchange rate agreements to receive RMB and sell other currencies as well as commodity agreements
to purchase silver. Changes in the fair value of these derivative instruments are recognized in the
consolidated statements of operations. The Group has elected not to apply hedge accounting to
these derivative instruments. As of December 31, 2010, the Group had outstanding cross-currency
exchange rate contracts with notional amounts of Euro125 million (2009: Euro105 million) and US$190
million (2009: Nil), and commodity contracts with a quantity of 102,000 ounces of silver (2009:
Nil). The Group estimates the fair value of its foreign currency and commodity derivatives using a
pricing model based on market observable inputs.
Revenue Recognition
The Groups primary business activity is to produce and sell PV modules. The Group periodically,
upon special request from customers, sells PV cells and silicon ingots. The Group records revenue
related to the sale of PV modules, PV cells and silicon ingots when the criteria of ASC 605-10,
Revenue Recognition: Overall, are met. These criteria include all of the following: persuasive
evidence of an arrangement exists; delivery has occurred; the sales price is fixed or determinable;
and collectability is reasonably assured.
More specifically, the Groups sales arrangements are evidenced by framework sales agreements
and/or by individual sales agreements for each transaction. The shipping terms of the Groups
sales arrangements are generally Cost, Insurance and Freight (CIF) and Free on Board (FOB)
shipping point whereby the customer takes title and assumes the risks and rewards of ownership of
the products upon delivery to the shipper. The customer bears all costs and risks of loss or damage
to the goods from that point. Under some sales arrangements, the Group requires its customers to
prepay prior to shipment. The Company performs ongoing credit assessment of each customer,
including reviewing the customers latest financial information and historical payment record and
performing necessary due diligence to determine acceptable credit terms. In instances where longer
credit terms are granted to certain customers, the timing of revenue recognition was not impacted
as the Company has historically been able to collect under the original payment terms without
making concessions. Other than warranty obligations, the Group does not have any commitments or
obligations to deliver additional products or services to the customers. Based on the above, the
Group records revenue related to product sales upon delivery of the product to the shipper,
assuming all other revenue recognition criteria are met.
In the event the Group pays the shipping costs for the convenience of the customer, the shipping
costs are included in the amount billed to the customer. In these cases, sales revenue includes
the amount of shipping costs passed on to the customer. The Group records the shipping costs
incurred as cost of revenue.
F-14
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
Revenue Recognition (contd)
The Group entered into a processing service arrangement to process PV cells into PV modules. For
this service arrangement, the Group purchases PV cells from the customer and contemporaneously
agrees to sell a specified quantity of PV modules back to the same customer. The quantity of PV
modules sold back to the customers under these processing arrangements is consistent with the
amount of PV cells purchased from the customer based on current production conversion rates. In
accordance with ASC 845-15, Accounting for Purchases and Sales of Inventory with the Same
Counterparty, the Group records the amount of revenue on these processing transactions based on
the amount received for PV modules sold less the amount paid for the PV cells purchased from the
customer. These sales are subject to all of the above-noted criteria relating to revenue
recognition.
The Company recognizes revenue related to long-term solar systems integration services on the
percentage-of-completion method. The Company estimates its revenues by using the cost-to-cost
method, whereby it derives a ratio by comparing the costs incurred to date to the total costs
expected to be incurred on the project. The Company applies the ratio computed in the cost-to-cost
analysis to the contract price to determine the estimated revenues earned in each period. A
contract may be regarded as substantially completed if remaining costs are not significant in
amount. When the Company determines that total estimated costs will exceed total revenues under a
contract, it records a loss accordingly.
Revenue is recognized net of all value-added taxes imposed by governmental authorities and
collected from customers concurrent with revenue-producing transactions. The Group does not offer
implicit or explicit rights of return, regardless of whether goods were shipped to the distributors
or shipped directly to the end user, other than due to product defect.
Cost of Revenue
Cost of revenue includes direct and indirect production costs, as well as shipping and handling
costs for products sold.
Research and Development Costs
Research and development costs are expensed as incurred.
Advertising Expenditures
Advertising costs are expensed when incurred and are included in selling expenses. Advertising
expenses were approximately RMB1,383,500, RMB1,962,000 and RMB742,000 (US$112,424) for the years
ended December 31, 2008, 2009 and 2010, respectively.
F-15
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
Warranty Cost
The Group primarily provides standard warranty coverage on PV modules sold to customers. The
standard warranty provides for a 2 to 5-year warranty against technical defects, a 10-year warranty
against a decline from initial power generation capacity of more than 10% and a 20 to 25-year
warranty against a decline from initial power generation capacity of more than 20%. The estimate of
the amount of warranty obligation is primarily based on the following considerations: 1) the
results of technical analyses, including simulation tests performed on the products by an
industry-recognized external certification body as well as internally developed damp heat testing
procedures conducted by the Companys engineering team, 2) the Companys historical warranty claims
experience, 3) the warranty accrual practices of other companies in the industry that produce PV
products that are comparable in engineering design, raw material input and functionality to the
products, and which sell products to a similar class of customers, and 4) the expected failure rate
and future costs to service failed products. The results of the technical analyses support the
future operational efficiency of the PV modules at levels significantly above the minimum
guaranteed levels over the respective warranty periods. The estimate of warranty costs are affected
by the estimated and actual product failure rates, the costs to repair or replace failed products
and potential service and delivery costs incurred in correcting a product failure. Based on the
above considerations and managements ability and intention to provide repairs, replacements or
refunds for defective products, the Group accrues for warranty costs for the 2 to 5-year warranty
against technical defects based on 1% of revenue for PV modules. No warranty cost accrual has been
recorded for the 10-year and 20 to 25-year warranties because the Group determined the likelihood
of claims arising from these warranties to be remote based on internal and external testing of the
PV modules and strong quality control procedures in the production process. The basis for
the warranty accrual will be reviewed periodically based on actual experience. The Group does not
sell extended warranty coverage that is separately priced or optional.
Government Grants
Government grants received by the Company consist of unrestricted grants and subsidies. The amount
of such government grants are determined solely at the discretion of the relevant government
authorities and there is no assurance that the Group will continue to receive these government
grants in the future. Government grants are recognized when all the conditions attached to the
grants have been met, and the grants are received. Government grants that are received
on an unsolicited and unconditional basis to support the growth of the Group and do not relate to
the Groups operating activities are classified as non-operating income upon receipt.
Accounting for Income Taxes and Uncertain Tax Positions
The Group accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes.
Under this method, deferred tax assets and liabilities are determined based on the difference
between the financial reporting and tax bases of assets and liabilities using enacted tax rates
that will be in effect in the period in which the differences are expected to reverse. The Group
records a valuation allowance to offset deferred tax assets if, based on the weight of available
evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not
be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.
F-16
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
Accounting for Income Taxes and Uncertain Tax Positions (contd)
The Group applies ASC 740-10, Accounting for Uncertainty in Income Taxes, which clarifies the
accounting for uncertainty in income taxes by prescribing the recognition threshold a tax position
is required to meet before being recognized in the financial statements. As of December 31, 2009
and 2010, the Group recorded unrecognized tax benefits of approximately RMB27,385,000 and
RMB143,473,000 (US$21,738,333), respectively. The Group has elected to classify interest and/or
penalties related to an uncertain position, if and when required, as part of other operating
expenses in the consolidated statements of operations. No such amounts have been incurred or
accrued through December 31, 2010 by the Group.
Based on existing PRC tax regulations, the tax years of SolarOne Qidong, Solar Shanghai, SolarOne
Technology, Solar R&D, and Solar Engineering for the years ended December 31, 2006 through 2010
remain open for examination by the tax authorities.
Value-Added Tax (VAT)
In accordance with the relevant tax laws in the PRC, VAT is levied on the invoiced value of sales
and is payable by the purchaser. The Group is required to remit the VAT it collects to the tax
authority, but may deduct the VAT it has paid on eligible purchases. To the extent the Group paid
more than collected, the difference represents a net VAT recoverable balance at the balance sheet
date.
Leases
Leases are classified at the inception date as either a capital lease or an operating lease. For
the lessee, a lease is a capital lease if any of the following conditions exist: a) ownership is
transferred to the lessee by the end of the lease term; b) there is a bargain purchase option; c)
the lease term is at least 75% of the propertys estimated remaining economic life; or d) the
present value of the minimum lease payments at the beginning of the lease term is 90% or more of
the fair value of the leased property to the lessor at the inception date. A capital lease is
accounted for as if there was an acquisition of an asset and an incurrence of an obligation at the
inception of the lease. All other leases are accounted for as operating leases wherein rental
payments are expensed on a straight-line basis over the periods of their respective leases. Rental
expenses were approximately RMB6,307,000, RMB9,644,000 and RMB9,400,000 (US$1,424,242) for the
years ended December 31, 2008, 2009 and 2010, respectively. The Group had no capital leases during
any of the periods stated herein.
Net Income (Loss) Per Share
Net income (loss) per share is calculated in accordance with ASC 260-10, Earnings Per Share.
Basic income (loss) per ordinary share is computed by dividing income attributable to holders of
ordinary shares by the weighted-average number of ordinary shares outstanding during the period.
Diluted income (loss) per ordinary share reflects the potential dilution that could occur if
securities or other contracts to issue ordinary shares were exercised or converted into ordinary
shares. Ordinary shares issuable upon the conversion of convertible bonds are included in the
computation of diluted income (loss) per ordinary share on an if-converted basis, when the impact
is dilutive. Dilutive ordinary equivalent shares consist of ordinary shares issuable upon the
exercise of outstanding share options and restricted stock units. Ordinary share equivalents are
excluded from the computation of diluted income (loss) per share if their effects would be
anti-dilutive.
F-17
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
Stock Compensation
Stock awards granted to employees and non-employees are accounted for under ASC 718-10,
Share-Based Payment, and ASC 505-50, Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, respectively.
In accordance with ASC 718-10, all grants of share options to employees are recognized in the
financial statements based on their grant-date fair values. The Group has elected to recognize
compensation expense using the straight-line method for all share options granted with service
conditions that have a graded vesting schedule.
ASC 718-10 requires forfeitures to be estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from initial estimates. Share-based compensation
expense was recorded net of estimated forfeitures such that expense was recorded only for those
share-based awards that are expected to vest.
Comparative Financial Statements
The following 2009 comparative amounts in the consolidated financial statements have been
reclassified to conform to the current years presentation:
1) |
|
An amount of RMB438,617,000 in advances to suppliers, net has been reclassified from current
assets to long-term prepayments in non-current assets (Note 6). |
2) |
|
An amount of RMB30,000,000 in long-term bank borrowings has been reclassified from
non-current liabilities to long-term bank borrowings, current portion in current liabilities
(Note 12). |
Recent Accounting Pronouncements
In March 2010, the FASB issued Accounting Standards Update (ASU) 2010-11, Derivative and Hedging
(Topic 815). All entities that enter into contracts containing an embedded credit derivative
feature related to the transfer of credit risk that is not only in the form of subordination of one
financial instrument to another will be affected by the amendments in ASU 2010-11 because the
amendments clarify that the embedded credit derivative scope exception in paragraph 815-15-15-8
through 15-9 does not apply to such contracts. ASU 2010-11 is effective at the beginning of the
reporting entitys first fiscal quarter beginning after June 15, 2010. The provisions of ASU
2010-11 are not expected to have a material effect on the financial position, results of operations
or cash flows of the Company.
In April 2010, the FASB issued ASU 2010-13, CompensationStock Compensation (Topic 718). ASU
2010-13 provides amendments to ASC 718 to clarify that an employee share-based payment award with
an exercise price denominated in the currency of a market in which a substantial portion of the
entitys equity securities trades should not be considered to contain a condition that is not a
market, performance, or service condition. Therefore, an entity would not classify such an award as
a liability if it otherwise qualifies as equity. The amendments in ASU 2010-13 are effective for
fiscal years, and interim periods within those fiscal years, beginning on or after December 15,
2010. The provision of ASU 2010-13 are not expected to have a material effect on the financial
position, results of operations or cash flows of the Company.
F-18
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
Recent Accounting Pronouncements (contd)
In December 2010, the FASB issued ASU No. 2010-28 (ASU 2010-28), Intangibles Goodwill and
Other (ASC 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with
Zero or Negative Carrying Amounts. The objective of this standard is to address questions about
entities with reporting units with zero or negative carrying amounts because some entities
concluded that Step 1 of the test is passed in those circumstances because the fair value of their
reporting unit will generally be greater than zero. The amendments in this standard modify Step 1
of the goodwill impairment test for reporting units with zero or negative carrying amounts. For
those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if
it is more likely than not that a goodwill impairment exists. This standard is effective for fiscal
years, and interim periods within those years, beginning after December 15, 2010. Early adoption is
not permitted. The provisions of ASU 2010-28 are not expected to have a material effect on the
financial position, results of operations or cash flows of the Company.
Concentration of Risks
Concentration of credit risk
Assets that potentially subject the Group to significant concentration of credit risk are primarily
cash and cash equivalents, accounts receivable, advances made to suppliers and long-term
prepayments.
The Group has approximately RMB477,875,000 (US$72,405,303) of cash and bank deposits in the PRC,
which constitute about 29% of total cash and cash equivalents. Historically, deposits in Chinese
banks are secured due to the state policy on protecting depositors interests. However, China
promulgated a new Bankruptcy Law in August 2006 that came into effect on June 1, 2007, which
contains a separate article expressly stating that the State Council promulgates implementation
measures for the bankruptcy of Chinese banks based on the Bankruptcy Law when necessary. Under the
new Bankruptcy Law, a Chinese bank can go into bankruptcy. In addition, since Chinas concession to
the World Trade Organization (WTO), foreign banks have been gradually permitted to operate in
China which has led to increased competition for Chinese banks. Further, the global financial
crisis arising in the third quarter of 2008 has increase the risk of bank bankruptcy in the PRC.
In the event of bankruptcy, it is uncertain whether the Group will be able to receive its deposits
back in full since it is unlikely to be classified as a secured creditor based on PRC laws. The
Group mitigates its risk of loss by continuing to monitor the financial strength of the financial
institutions in which it makes deposits.
Advances made to suppliers are typically unsecured and arise from deposits paid in advance for
future purchases of raw materials. As a percentage of total advances to suppliers, including
long-term prepayments, the top five suppliers accounted for an aggregate of 41.9% and 46.1% as of
December 31, 2009 and 2010, respectively. Due to the Groups concentration of advances made to a
limited number of suppliers and the significant prepayments that are made to them, any negative
events or deterioration in financial strength with respect to the Groups suppliers may cause a
material loss to the Group and have a material adverse effect on the Groups financial condition
and results of operations. The risk with respect to advances made to suppliers is mitigated by
credit evaluations that the Group performs on its suppliers prior to making any advances and the
ongoing monitoring of its suppliers performance.
With respect to accounts receivable, the Group conducts periodic credit evaluation of its customers
but does not require collateral or other security from its customers.
F-19
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD)
Concentration of Risks (contd)
Concentration of customers
The Group currently sells a substantial portion of its PV products to a limited number of
customers. As a percentage of revenues, the top five customers accounted for an aggregate of
53.2%, 65.3% and 51.9% for the years ended December 31, 2008, 2009 and 2010, respectively. The loss
of sales from any of these customers would have a significant negative impact on the Groups
business. Sales to customers are mostly made through non-exclusive, short-term arrangements. Due
to the Groups dependence on a limited number of customers, any negative events with respect to the
Groups customers may cause material fluctuations or declines in the Groups revenue and have a
material adverse effect on the Groups financial condition and results of operations.
Concentration of suppliers
A significant portion of the Groups raw materials are sourced from its five largest suppliers who
collectively accounted for an aggregate of 42.0%, 51.6% and 40.0% of the Groups total silicon and
silicon wafer purchases for the years ended December 31, 2008, 2009 and 2010, respectively.
Failure to develop or maintain relationships with these suppliers may cause the Group to be unable
to source adequate raw materials needed to manufacture its PV products. Any disruption in the
supply of raw materials to the Group may adversely affect the Groups business, financial condition
and results of operations.
3. ACQUISITIONS
On July 31, 2007, the Group acquired a 52% equity interest in SolarOne Technology from Nantong Linyang
Electric Power Investment Co., Ltd. (Nantong Linyang) and Lianyungang Suyuan Group Co., Ltd.
(Qitian Group) for cash consideration of RMB51,251,200. Subsequently, on August 1, 2008, the
Group acquired the remaining 48% equity interest in SolarOne Technology for total cash consideration
of approximately RMB355,872,000 from Nantong Linyang, Qitian Group and Jiangsu Guangyi Technology
Co., Ltd. (Jiangsu Guangyi). The transaction has been accounted for as a business combination as
the acquiree meets the definition of a business. The excess purchase price over the fair value was
recorded as goodwill. The acquired assets and liabilities were recorded at their fair value at the
date of acquisition. SolarOne Technology is mainly engaged in the manufacturing of PV cells and other
electronic components.
4. ACCOUNTS AND NOTES RECEIVABLE
The Groups accounts receivable is net of the allowance for doubtful accounts. The allowance for
doubtful accounts activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
|
2,267 |
|
|
|
4,183 |
|
|
|
633 |
|
Provision (reversal) for doubtful debt |
|
|
3,723 |
|
|
|
(278 |
) |
|
|
(42 |
) |
Written-off |
|
|
(1,807 |
) |
|
|
(160 |
) |
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
4,183 |
|
|
|
3,745 |
|
|
|
567 |
|
|
|
|
|
|
|
|
|
|
|
F-20
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
4. ACCOUNTS AND NOTES RECEIVABLE (CONTD)
Notes receivable represent bank drafts that are non-interest bearing and due within six months.
Such bank drafts have been arranged with third-party financial institutions by certain customers to
settle their purchases from the Company. The carrying amount of notes receivable approximates fair
value.
5. INVENTORIES NET
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials |
|
|
277,553 |
|
|
|
459,480 |
|
|
|
69,618 |
|
Work-in-progress |
|
|
129,500 |
|
|
|
25,119 |
|
|
|
3,806 |
|
Finished goods |
|
|
376,920 |
|
|
|
306,174 |
|
|
|
46,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
783,973 |
|
|
|
790,773 |
|
|
|
119,814 |
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2010, raw materials of approximately RMB15,131,000 and RMB45,696,000
(US$6,923,636), respectively, of the Group were held in custody by other parties for processing.
The write-down of inventories amounted to RMB413,789,000, RMB282,574,000 and RMB134,489,000
(US$20,377,121) for the years ended December 31, 2008, 2009 and 2010, respectively.
6. ADVANCE TO SUPPLIERS AND LONG-TERM PREPAYMENTS
Advance to suppliers and long-term prepayments represent interest-free cash deposits paid to
suppliers for future purchases of raw materials. These deposits are required in order to secure
supply of silicon due to limited availability.
The multi-year supply agreements entered into between the Group and its suppliers typically state
minimum quantities with associated pricing set for the annual periods under the agreements with
deliveries to be made over a general timeframe, subject to change based on the Groups purchasing
needs and/or the suppliers product availability. As a result of a steep decline in the spot price
for silicon products, during 2009, the Group successfully completed re-negotiating all of its
multi-year framework supply agreements through either supplemental agreements or amended and
restated multi-year framework supply agreements with the exception of Jiangxi LDK Solar Hi-Tech
Co., Ltd. (LDK) (Note 28). Each of these subsequent agreements contains provisions which allow
for reassessment of the purchase price for future deliveries under the agreements; however, the
subsequent agreements generally did not adjust the originally contracted purchase quantities.
F-21
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
6. ADVANCE TO SUPPLIERS AND LONG-TERM PREPAYMENTS (CONTD)
The supplemental agreements or amended and restated multi-year framework supply agreements also
removed a clause in the original multi-year framework supply agreements that provided the Group
with the right to terminate the multi-year framework supply agreements and to require repayment for
the deposit in any event of default by the suppliers. Instead, the supplemental agreements or
amended and restated multi-year framework supply agreements allow the suppliers a grace period to
cure certain events of default that may occur before the Company can enforce its own remedies under
the agreements. The removal of such rights will result in the recovery of such advances only
through the delivery of product from its suppliers which could range from one to four years.
Accordingly, approximately RMB438,617,000 of current assets Advance to suppliers as of
December 31, 2009 has been reclassified to non-current assets Long-term prepayments consistent
with the current years presentation.
The risk of loss arising from non-performance by or bankruptcy of the suppliers is assessed prior
to making the deposits and credit quality of the suppliers is continually assessed. If there is
deterioration in the creditworthiness of the suppliers, the Group will seek to recover the advances
from the suppliers and provide for losses on advances which are akin to receivables in cost of
revenue because of the suppliers inability to return the advances. A charge to cost of revenue
will be recorded in the period in which a loss is determined to be probable and the amount can be
reasonably estimated. The Group has recorded a charge to cost of revenue amounting to
approximately RMB41,962,000, RMB234,724,000 and RMB117,000 (US$17,727), for the years ended
December 31, 2008, 2009 and 2010, respectively, to reflect the probable loss arising from the
suppliers failure to perform under the contracts.
7. OTHER CURRENT ASSETS
Other current assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VAT recoverable |
|
|
37,686 |
|
|
|
143,044 |
|
|
|
21,673 |
|
Other receivables |
|
|
13,115 |
|
|
|
66,807 |
|
|
|
10,123 |
|
Prepaid expenses |
|
|
129,514 |
|
|
|
45,581 |
|
|
|
6,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180,315 |
|
|
|
255,432 |
|
|
|
38,702 |
|
|
|
|
|
|
|
|
|
|
|
VAT recoverable represents the excess of VAT expended on purchases over the VAT collected from
sales. This amount can be applied against future VAT collected from customers or may be reimbursed
by the tax authorities under certain circumstances.
The balance of other receivables as of December 31, 2009 and 2010 included amounts of approximately
nil and RMB51,391,000 (US$7,786,515), respectively, for export VAT refund receivable. The remaining
balances of other receivables as of December 31, 2009 and 2010 primarily consist of deposits
provided to consumables suppliers of approximately RMB6,000,000 and RMB6,000,000 (US$909,091),
respectively, and deposits provided to the Bank of New York for provision of trust services to ADS
holders of approximately RMB3,083,000 and RMB3,362,000 (US$509,394), respectively.
F-22
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
7. OTHER CURRENT ASSETS (CONTD)
Prepaid expenses mainly represent advances made to E-mei Semiconductors Material Factory (E-mei), a third-party supplier, for silicon wafers purchases. In October and November of 2006, the Group
entered into raw materials purchase contracts for silicon wafers with E-mei, under which the Group
committed to pay advances totaling RMB220 million to E-mei in return for a five-year exclusive
procurement right to silicon wafers produced at E-meis new production facilities. The procurement
right entitles the Group to purchase the silicon wafers at 8% below the market price at the time of
purchase. The Group will have a first right of refusal to purchase silicon wafers at market price
after the five-year period.
The RMB220 million committed advances was paid to E-mei according to progress of construction of
the new production facilities, which were completed in October 2008. Amounts payable for future raw
material purchases from E-mei will be offset against the advances. However, for each purchase, the
Group can only offset 30% of the amount against the purchase advances. After the Group has fully
utilized all of the advances, the discount on purchase will be adjusted downward to 3% to 5% of the
market price at the time of purchase.
In December 2008, the Group commenced renegotiating the arrangement with E-mei and a renegotiated
contract was subsequently signed in March 2009. The Group is entitled to purchase the silicon
wafers at a discount of 5% below market price at the time of purchase and can offset 55% of the
amount against the advances. The remaining balance of 45% of the cost of raw materials would be
settled in cash by the Group. After the Group has fully utilized the advances, the Group is no
longer entitled to purchase silicon wafers at the above discount.
The above arrangement, comprising of a lease component and a raw material supply component, is
accounted for in accordance to ASC 840-10, Determining Whether an Arrangement Contains a Lease,
which requires the advanced payments to be allocated to the lease and non-lease components on a
relative fair value basis. The lease component is accounted for as an operating lease in
accordance with ASC 840-10 Accounting for Leases. As of December 31, 2010, the Group expects the
full amount of its advanced payments to be utilized in the next 12 months based on an assessment of
its raw material needs and the expected available output to be received from E-mei. Accordingly,
the full amount of advanced payments is presented as a current asset as at December 31, 2010.
8. FIXED ASSETS NET
Fixed assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings |
|
|
232,344 |
|
|
|
323,228 |
|
|
|
48,974 |
|
Plant and machinery |
|
|
1,489,108 |
|
|
|
1,725,787 |
|
|
|
261,483 |
|
Furniture, fixtures and office equipment |
|
|
35,059 |
|
|
|
44,455 |
|
|
|
6,736 |
|
Computer software |
|
|
2,202 |
|
|
|
4,369 |
|
|
|
662 |
|
Motor vehicles |
|
|
8,203 |
|
|
|
10,060 |
|
|
|
1,524 |
|
Leasehold improvement |
|
|
|
|
|
|
4,801 |
|
|
|
727 |
|
Construction-in-progress |
|
|
67,086 |
|
|
|
402,155 |
|
|
|
60,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,834,002 |
|
|
|
2,514,855 |
|
|
|
381,039 |
|
Less: Accumulated depreciation |
|
|
(247,719 |
) |
|
|
(430,828 |
) |
|
|
(65,277 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,586,283 |
|
|
|
2,084,027 |
|
|
|
315,762 |
|
|
|
|
|
|
|
|
|
|
|
F-23
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
8. FIXED ASSETS NET (CONTD)
Depreciation expense amounted to approximately RMB64,929,000, RMB 149,854,000 and RMB182,490,000
(US$27,650,000) for the years ended December 31, 2008, 2009 and 2010, respectively. As of December
31, 2009 and 2010, buildings with a net book value of RMB28,138,995 and RMB26,632,267
(US$4,035,192), respectively, were pledged for short-term bank borrowings of RMB200,000,000 and
RMB92,718,000 (US$14,048,182), respectively (Note 12).
9. INTANGIBLE ASSETS NET
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land use rights |
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
|
215,062 |
|
|
|
216,762 |
|
|
|
32,843 |
|
Less: Accumulated amortization |
|
|
(6,499 |
) |
|
|
(10,999 |
) |
|
|
(1,667 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
208,563 |
|
|
|
205,763 |
|
|
|
31,176 |
|
|
|
|
|
|
|
|
|
|
|
Land use rights represent amounts paid for the rights to use eleven parcels of land in the PRC
where the Groups premises are located. Three land use rights were acquired from Huaerli (Nantong)
Electronics Co., Ltd., a company whose controlling owner was also a significant shareholder of the
Company prior to September 16, 2010 (Note 25).
As of December 31, 2009 and 2010, land use rights with a net book value of RMB6,699,211 and
RMB6,518,897 (US$987,712) was pledged for short-term bank borrowings of RMB200,000,000 and
RMB92,718,000 (US$14,048,182), respectively (Note 12).
For each of the next five years, the estimated annual amortization expense of intangible assets is
approximately RMB4,508,000 (US$683,030).
10. GOODWILL
On August 1, 2008, the Group acquired the remaining 48% equity interest in SolarOne Technology for
total cash consideration of approximately RMB355,872,000 from Nantong Linyang, Qitian Group and
Jiangsu Guangyi. The transaction has been accounted for as a business combination. The fair value
attributed to the 48% of SolarOne Technologys equity interest amounted to approximately
RMB221,137,000 and the excess purchase price over the fair value of RMB134,735,000 (US$20,414,394)
was recorded as goodwill. No impairment loss was recognized in any of the periods presented.
F-24
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
11. LONG-TERM DEFERRED EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible bond issuance costs (Note 22) |
|
|
31,375 |
|
|
|
25,664 |
|
|
|
3,888 |
|
Others |
|
|
1,783 |
|
|
|
1,609 |
|
|
|
244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,158 |
|
|
|
27,273 |
|
|
|
4,132 |
|
|
|
|
|
|
|
|
|
|
|
12. BANK BORROWINGS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bank borrowings |
|
|
874,764 |
|
|
|
668,919 |
|
|
|
101,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprised of: |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term |
|
|
404,764 |
|
|
|
318,919 |
|
|
|
48,321 |
|
Long-term, current portion |
|
|
120,000 |
|
|
|
215,000 |
|
|
|
32,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
524,764 |
|
|
|
533,919 |
|
|
|
80,897 |
|
Long-term, non-current portion |
|
|
350,000 |
|
|
|
135,000 |
|
|
|
20,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
874,764 |
|
|
|
668,919 |
|
|
|
101,352 |
|
|
|
|
|
|
|
|
|
|
|
The short-term bank borrowings outstanding as of December 31, 2009 and 2010 bore an average
interest rate of 4.992% and 4.276% per annum, respectively, and were denominated in Renminbi, U.S.
Dollar and Euro. These borrowings were obtained from financial institutions and have terms of two
months to one year. As of December 31, 2009 and 2010, short-term bank borrowings of approximately
nil and RMB45,005,000 (US$6,818,939) were obtained through the factoring of accounts receivable
with a term of two months and interest rates ranging from 3.524% to 3.633%. As of December 31, 2009
and 2010, unused short-term bank loan facilities amounted to approximately RMB853,000,000 and
RMB636,085,000 (US$96,376,515), respectively.
The long-term bank borrowings outstanding as of December 31, 2009 and 2010 bore average interest
rates of 5.597% and 5.510% per annum, respectively, and were denominated in Renminbi. These
borrowings were obtained from financial institutions and represented the maximum amount of the
facility. The current portion and non-current portion of the long-term bank borrowings as of
December 31, 2010 will be due in installments from March 25, 2011 to December 29, 2011 and March
29, 2012 to September 13, 2012, respectively.
An amount of RMB30,000,000 has been reclassified from long-term bank borrowings, non-current to
long-term bank borrowings, current as of December 31, 2009 to reflect amounts due and paid during
2010.
F-25
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
12. BANK BORROWINGS (CONTD)
Bank borrowings as of December 31, 2009 and 2010 were secured/guaranteed by the following:
December 31, 2009
|
|
|
|
|
Amount |
|
|
Secured/guaranteed by |
(RMB000) |
|
|
|
|
|
|
|
|
|
200,000 |
|
|
Jointly guaranteed by (i) Hanwha SolarOne Co., Ltd. and (ii) the Groups factory premises and land-use rights with net book value of RMB28,138,995 and RMB6,699,211, respectively (Notes 8 and 9) |
|
|
|
|
|
|
87,000 |
|
|
Guaranteed by SolarOne Technology |
|
|
|
|
|
|
280,000 |
|
|
Guaranteed by SolarOne Qidong |
|
|
|
|
|
|
300,000 |
|
|
Guaranteed by Hanwha SolarOne Co., Ltd. |
|
|
|
|
|
7,764 |
|
|
Guaranteed by restricted cash of RMB7,478,800 |
|
|
|
|
|
874,764 |
|
|
|
December 31, 2010
|
|
|
|
|
Amount |
|
|
Secured/guaranteed by |
(RMB000) |
|
|
|
|
|
|
|
|
|
92,718 |
|
|
Jointly guaranteed by (i) Hanwha SolarOne Co., Ltd. and (ii) the Groups factory premises and land-use rights with net book value of RMB26,632,267 (US$4,035,192) and RMB6,518,897 (US$987,712), respectively (Notes 8 and 9) |
|
|
|
|
|
|
171,197 |
|
|
Jointly guaranteed by Hanwha SolarOne Co., Ltd. and SolarOne Technology |
|
|
|
|
|
|
135,004 |
|
|
Guaranteed by SolarOne Qidong |
|
|
|
|
|
270,000 |
|
|
Guaranteed by Hanwha SolarOne Co., Ltd. |
|
|
|
|
|
668,919 |
|
|
|
As of December 31, 2010, the maturities of these long-term bank borrowings were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
Within 1 year |
|
|
215,000 |
|
|
|
32,576 |
|
Between 1 and 2 years |
|
|
135,000 |
|
|
|
20,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350,000 |
|
|
|
53,031 |
|
|
|
|
|
|
|
|
F-26
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
13. ACCRUED EXPENSES AND OTHER LIABILITIES
The components of accrued expenses and other liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued warranty costs (Note 14) |
|
|
73,459 |
|
|
|
131,689 |
|
|
|
19,953 |
|
Accrued wages and other employee welfare |
|
|
35,800 |
|
|
|
93,124 |
|
|
|
14,110 |
|
Taxes payable |
|
|
9,075 |
|
|
|
78,190 |
|
|
|
11,847 |
|
Accrued professional service fees |
|
|
6,928 |
|
|
|
27,102 |
|
|
|
4,106 |
|
Accrued compensation expense |
|
|
4,801 |
|
|
|
22,238 |
|
|
|
3,369 |
|
Interest payable for convertible bonds |
|
|
19,000 |
|
|
|
18,434 |
|
|
|
2,793 |
|
Accrued insurance expense |
|
|
6,201 |
|
|
|
5,569 |
|
|
|
844 |
|
Accrued utilities expenses |
|
|
5,864 |
|
|
|
5,473 |
|
|
|
829 |
|
Accrued freight, import and export related expense |
|
|
6,829 |
|
|
|
4,462 |
|
|
|
676 |
|
Accrued sales commission |
|
|
7,644 |
|
|
|
2,872 |
|
|
|
435 |
|
Share Issuance and Repurchase Agreement with
Hanwha Chemical (Note 27) |
|
|
|
|
|
|
21 |
|
|
|
3 |
|
Other accrued expenses and liabilities |
|
|
16,294 |
|
|
|
15,652 |
|
|
|
2,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191,895 |
|
|
|
404,826 |
|
|
|
61,337 |
|
|
|
|
|
|
|
|
|
|
|
14. ACCRUED WARRANTY COSTS
The Groups warranty activity is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
|
48,635 |
|
|
|
73,459 |
|
|
|
11,130 |
|
Warranty provision |
|
|
33,728 |
|
|
|
67,616 |
|
|
|
10,245 |
|
Warranty reversal |
|
|
|
|
|
|
(1,843 |
) |
|
|
(279 |
) |
Warranty claims |
|
|
(8,904 |
) |
|
|
(7,543 |
) |
|
|
(1,143 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
73,459 |
|
|
|
131,689 |
|
|
|
19,953 |
|
|
|
|
|
|
|
|
|
|
|
15. CUSTOMER DEPOSITS
Customer deposits represent cash payments received from customers in advance of the delivery of PV
modules. These deposits are recognized as revenue when the conditions for revenue recognition have
been met. The customer deposits are non-refundable unless the Group fails to fulfill the terms of
the sales contract.
F-27
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
16. NOTES PAYABLE
As of December 31, 2010, notes payable were non-interest bearing and were secured by RMB40,603,811
(US$6,152,093) of the Groups restricted cash. The Group did not pay any commission to the banks to
obtain the notes payable facilities. As of December 31, 2010, these notes are due for payment over
the next 12 months.
17. DERIVATIVE CONTRACTS
The Group is exposed to certain risks related to its business operations. The primary risks that
the Group seeks to manage by using derivative instruments are fluctuations in foreign exchange
rates and the purchase price for silver. The Group recognizes all derivative instruments as either
assets or liabilities at fair value in the consolidated balance sheets (see Note 31). The Groups
derivatives are not designated and do not qualify as hedges and are adjusted to fair value through
current earnings.
The following table reflects the location in the consolidated statements of operations and the
amount of realized and unrealized gains/(losses) recognized in income for the derivative contracts
not designated as hedging instruments for the years ended December 31, 2008, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of operations |
|
|
|
|
|
location |
|
Year ended December 31, |
|
|
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
Foreign exchange derivative contracts (not designated as hedging instruments) realized |
|
Changes in fair value of derivative contracts |
|
|
49,217 |
|
|
|
37,255 |
|
|
|
78,966 |
|
|
|
11,965 |
|
Foreign exchange derivative contracts (not designated as hedging instruments) unrealized |
|
Changes in fair value of derivative contracts |
|
|
33,873 |
|
|
|
(27,661 |
) |
|
|
(9,437 |
) |
|
|
(1,430 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative contracts
(not designated as hedging instruments) realized |
|
Changes in fair value of derivative contracts |
|
|
|
|
|
|
|
|
|
|
5,335 |
|
|
|
808 |
|
Commodity derivative contracts
(not designated as hedging instruments) unrealized |
|
Changes in fair value of derivative contracts |
|
|
|
|
|
|
|
|
|
|
2,667 |
|
|
|
404 |
|
F-28
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
17. DERIVATIVE CONTRACTS (CONTD)
The following table reflects the fair values of derivatives included in the consolidated balance
sheets as of December 31, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet location |
|
Fair value as of |
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
|
|
2009 |
|
|
2010 |
|
|
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
Derivative assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange derivative contracts (not designated as hedging instruments) |
|
Current assets: Derivative contracts |
|
|
7,360 |
|
|
|
4,822 |
|
|
|
731 |
|
Commodity derivative contracts (not designated as hedging instruments) |
|
Current assets: Derivative contracts |
|
|
|
|
|
|
2,667 |
|
|
|
404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange derivative contracts (not designated as hedging instruments) |
|
Current liabilities: Derivative contracts |
|
|
1,148 |
|
|
|
8,047 |
|
|
|
1,219 |
|
18. ISSUANCE OF ORDINARY SHARES FROM EQUITY OFFERING
In 2009, the Company issued 3,888,399 ADSs, representing 19,441,995 of the Companys ordinary
shares. Total proceeds from this equity offering was US$23,101,918 (approximately RMB158 million).
Net proceeds was approximately US$21,820,704 (approximately RMB149 million) after deduction of
related issuance costs.
In September 2010, in connection with the Share Issuance and Repurchase Agreement with Hanwha Solar
Holdings Co., Ltd. (Hanwha Solar) (Note 27), the Company issued 36,455,089 of the Companys
ordinary shares.
In November 2010, the Company issued in a public offering 9,200,000 ADSs, representing 46,000,000
of the Companys ordinary shares. In order for Hanwha Solar to maintain the same beneficial
ownership percentage in the Company after this public offering, the Company issued 45,981,604 of
the Companys ordinary shares at the par value per share of US$0.0001 to Hanwha Solar.
F-29
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
18. ISSUANCE OF ORDINARY SHARES FROM EQUITY OFFERING (CONTD)
The Companys share issuance activities in 2010 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Number of |
|
|
|
|
|
|
|
Date |
|
Issuance to |
|
ADSs |
|
|
ordinary shares |
|
|
Total proceeds |
|
|
Net proceeds |
|
|
|
|
|
|
|
|
|
|
|
(US$000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
(RMB000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2010 |
|
Hanwha Solar |
|
|
* |
|
|
|
36,455,089 |
|
|
|
78,171 |
|
|
|
524,606 |
|
|
|
76,044 |
|
|
|
510,331 |
|
November 2010 |
|
Hanwha Solar |
|
|
* |
|
|
|
45,981,604 |
|
|
|
82,767 |
|
|
|
549,481 |
|
|
|
82,767 |
|
|
|
549,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,436,693 |
|
|
|
160,938 |
|
|
|
1,074,087 |
|
|
|
158,811 |
|
|
|
1,059,812 |
|
November 2010 |
|
Public |
|
|
9,200,000 |
|
|
|
46,000,000 |
|
|
|
82,800 |
|
|
|
549,858 |
|
|
|
78,505 |
|
|
|
521,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,200,000 |
|
|
|
128,436,693 |
|
|
|
243,738 |
|
|
|
1,623,945 |
|
|
|
237,316 |
|
|
|
1,581,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Not applicable since the Company directly issued ordinary shares to Hanwha Solar. |
19. STATUTORY RESERVES
In accordance with the PRC Regulations on Enterprises with Foreign Investment, an enterprise
established in the PRC with foreign investment is required to provide for certain statutory
reserves, namely (i) General Reserve Fund, (ii) Enterprise Expansion Fund and (iii) Staff Welfare
and Bonus Fund, which are appropriated from net profit as reported in the enterprises PRC
statutory accounts. A wholly owned foreign enterprise (WOFE) is required to allocate at least
10% of its annual after-tax profit to the General Reserve Fund until the balance of such fund has
reached 50% of its respective registered capital. A non-wholly owned foreign invested enterprise
is permitted to provide for the above allocation at the discretion of its board of directors.
Appropriations to the Enterprise Expansion Fund and Staff Welfare and Bonus Fund are at the
discretion of the board of directors for all foreign invested enterprises. The aforementioned
reserves can only be used for specific purposes and are not distributable as cash dividends.
SolarOne Qidong became a WOFE in May 2006 and, therefore, is subject to the above mandated
restrictions on distributable profits. Prior to May 2006, although SolarOne Qidong was a
Sino-foreign joint venture enterprise, it was required to allocate at least 10% of its after-tax
profit to the General Reserve Fund in accordance with the joint venture agreements entered into
among the then joint venture partners and the appropriations to the Enterprise Expansion Fund and
Staff Welfare and Bonus Fund were at the discretion of the board of directors.
F-30
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
19. STATUTORY RESERVES (CONTD)
For other subsidiaries incorporated in PRC, including SolarOne Technology, Solar Shanghai, Solar R&D
and Solar Engineering, the General Reserve Fund was appropriated based on 10% of net profits as
reported in each subsidiarys PRC statutory accounts.
Details of appropriation are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Reserve Fund |
|
|
10,090 |
|
|
|
21,926 |
|
|
|
100,436 |
|
|
|
15,218 |
|
Enterprise Expansion Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Staff Welfare and Bonus Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,090 |
|
|
|
21,926 |
|
|
|
100,436 |
|
|
|
15,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20. SHARE OPTION PLANS
In November 2006, the Company adopted a stock option scheme (the 2006 Option Plan) which allows
the Company to offer a variety of incentive awards to employees, directors and consultants of the
Company (the 2006 Option Plan Participants). Under the 2006 Option Plan, the Company may issue
options to the 2006 Option Plan Participants to purchase not more than 10,799,685 ordinary shares.
All options granted under the 2006 Option Plan would expire on November 30, 2016 and generally vest
over 3 to 5 years.
On August 22, 2007, the Companys Board of Directors approved the 2007 Equity Incentive Plan (the
2007 Incentive Plan). The 2007 Incentive Plan permits the grant of Incentive Stock Options,
Non-statutory Stock Options, Restricted Stock, Stock Appreciation Rights, Restricted Stock Units,
Performance Units, Performance Shares, and other stock-based awards to employees, directors and
consultants of the Group (the Participants). Under the 2007 Incentive Plan, the Company may issue
up to 10,799,685 ordinary shares plus an annual increase of 2% of the outstanding ordinary shares
on the first day of the fiscal year, or such lesser amount of shares as determined by the Board of
Directors. The 2007 Incentive Plan will expire on August 21, 2017.
By a resolution of the Board of Directors on November 30, 2007, 59,994 Restricted Stock Units (the
RSUs) were granted to the Companys existing three independent directors and 7,500 RSUs were
authorized to be granted to each of the independent directors annually from January 1, 2008. Each
RSU represents one ADS of the Company, which is equal to five ordinary shares. As of December 31,
2009, the 59,994 RSUs have vested. The 7,500 RSUs granted on January 1, 2008 to each of the
independent directors vest in batches of 2,500 RSUs each year beginning on January 1, 2009. The
7,500 RSUs granted respectively on January 1, 2009 and 2010 to each of the independent director
vest in batches of 1,250 RSUs each half year beginning on July 1, 2009 and 2010, respectively.
F-31
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
20. SHARE OPTION PLANS (CONTD)
The following table summarized the Companys share option activity under 2006 Option Plan and 2007
Incentive Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
average |
|
|
|
|
|
|
|
|
|
|
average |
|
|
remaining |
|
|
|
|
|
|
Number of |
|
|
exercise |
|
|
contractual |
|
|
Aggregate |
|
|
|
options |
|
|
price |
|
|
life |
|
|
intrinsic value |
|
|
|
|
|
|
(US$) |
|
|
(Years) |
|
|
(US$) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, January 1, 2009 |
|
|
11,384,800 |
|
|
|
2.35 |
|
|
|
8.22 |
|
|
|
12,000 |
|
Granted |
|
|
7,682,300 |
|
|
|
1.17 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(175,020 |
) |
|
|
0.95 |
|
|
|
|
|
|
|
122,487 |
|
Forfeited |
|
|
(2,907,165 |
) |
|
|
2.55 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2009 |
|
|
15,984,915 |
|
|
|
1.76 |
|
|
|
7.41 |
|
|
|
3,147,919 |
|
Granted |
|
|
1,837,500 |
|
|
|
1.68 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(1,537,500 |
) |
|
|
1.17 |
|
|
|
|
|
|
|
1,324,179 |
|
Forfeited |
|
|
(849,355 |
) |
|
|
1.74 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2010 |
|
|
15,435,560 |
|
|
|
1.81 |
|
|
|
6.43 |
|
|
|
3,500,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to be
vested at December 31, 2010 |
|
|
15,435,560 |
|
|
|
1.81 |
|
|
|
6.43 |
|
|
|
3,500,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2010 |
|
|
7,296,552 |
|
|
|
2.10 |
|
|
|
6.26 |
|
|
|
1,088,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
Number of |
|
|
average grant |
|
|
|
options |
|
|
date fair value |
|
|
|
|
|
|
(US$) |
|
Unvested, January 1, 2010 |
|
|
10,499,799 |
|
|
|
1.04 |
|
Granted |
|
|
1,837,500 |
|
|
|
1.13 |
|
Vested |
|
|
(3,598,607 |
) |
|
|
1.12 |
|
Forfeited |
|
|
(599,684 |
) |
|
|
0.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested, December 31, 2010 |
|
|
8,139,008 |
|
|
|
1.04 |
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the table above represents the total intrinsic value (the
aggregate difference between the Companys closing stock price of US$1.634 per ordinary share as of
December 31, 2010 and the exercise price for in-the-money options) that would have been received by
the option holders if all in-the-money options had been exercised on December 31, 2010.
The aggregate fair values of share options that vested during 2008, 2009 and 2010, were
US$3,673,830, US$5,597,989 and US$4,043,806, respectively. The weighted-average grant-date fair
values of options granted during 2009 and 2010 were US$0.79 and US$1.13, respectively.
F-32
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
20. SHARE OPTION PLANS (CONTD)
During the year ended December 31, 2010, the Company accelerated the vesting of 425,000 stock
options of certain terminated employees. As a result of that modification, the Company recognized
additional compensation expense of RMB3,144,365 (US$476,419) for the year ended December 31, 2010.
The aggregate fair value of the share options outstanding as of December 31, 2010 measured based on
respective grant-date fair values was US$20,300,287 and such amount shall be recognized as
compensation expense using the straight-line method with graded vesting based on service
conditions. Accordingly, RMB23,775,999 and RMB13,775,555 (US$2,087,205) were recorded as
compensation expense in general and administrative expenses with a corresponding credit to
additional paid-in capital in the years ended December 31, 2009 and 2010, respectively.
As of December 31, 2010, there was US$7,509,804 of unrecognized share-based compensation cost
related to share options which is expected to be recognized over a weighted-average vesting period
of 3.99 years. To the extent the actual forfeiture rate is different from the current estimate,
actual share-based compensation related to these awards may be different from the expectation.
The following table summarized the Companys RSU activity under 2007 Incentive Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
Number of |
|
|
average grant |
|
|
|
RSUs |
|
|
date fair value |
|
|
|
|
|
|
(US$) |
|
Unvested, January 1, 2009 |
|
|
137,498 |
|
|
|
19.78 |
|
Granted |
|
|
52,500 |
|
|
|
5.08 |
|
Vested |
|
|
(143,748 |
) |
|
|
16.28 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested, December 31, 2009 |
|
|
46,250 |
|
|
|
13.97 |
|
Granted |
|
|
45,000 |
|
|
|
8.00 |
|
Vested |
|
|
(51,250 |
) |
|
|
13.25 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested, December 31, 2010 |
|
|
40,000 |
|
|
|
9.47 |
|
|
|
|
|
|
|
|
The aggregate fair value of vested RSUs for 2008, 2009 and 2010 measured based on respective grant-
date fair values was US$800,442, US$1,637,492 and US$627,513, respectively. The aggregate fair
value of the unvested RSUs as of December 31, 2010 was US$378,800 based on the quoted market price
of the Companys ordinary shares at the respective grant dates, and such amount shall be recognized
as compensation expenses using the straight-line method with graded vesting based on service
conditions. For the years ended December 31, 2009 and 2010, RMB9,476,050 and RMB4,589,926
(US$695,443) was recorded as compensation expenses in general and administrative expenses with a
corresponding credit to additional paid-in capital.
As of December 31, 2010, there was US$197,575 of unrecognized share-based compensation cost related
to RSUs which is expected to be recognized over a weighted-average vesting period of 3.00 years. To
the extent the actual forfeiture rate is different from current estimate, actual share-based
compensation related to these awards may be different from the expectation.
F-33
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
20. SHARE OPTION PLANS (CONTD)
For stock options granted before January 1, 2008, the fair value of each share option grant was
estimated on the date of grant using the Black-Scholes option pricing model. For share options
granted after January 1, 2008, the fair value of each award is estimated on the date of grant using
a binomial-lattice option valuation model. The binomial-lattice model considers characteristics of
fair value option pricing that are not available under the Black-Scholes model. Similar to the
Black-Scholes model, the binomial-lattice model takes into account variables such as volatility,
dividend yield, and risk-free interest rate. However, in addition, the binomial-lattice model
considers the contractual term of the option, the probability that the option will be exercised
prior to the end of its contractual life, and the probability of termination or retirement of the
option holder in computing the value of the option. For these reasons, the Company believes that
the binomial-lattice model provides a fair value for its share-based compensation plans that is
more representative of actual experience and future expected experience than the value calculated
using the Black-Scholes model.
The Company calculated the estimated fair value of share options on the grant date using the
binomial-lattice model for 2009 and 2010, respectively, with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
Granted in 2009 |
|
|
Granted in 2010 |
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
|
1.14% 3.81 |
% |
|
|
0.25% 3.31 |
% |
Expected dividend yield |
|
|
0 |
% |
|
|
0 |
% |
Expected volatility |
|
|
80 |
% |
|
|
80 |
% |
Sub-optimal early exercise factor |
|
4 times |
|
|
3-4 times |
|
Fair value of ordinary shares |
|
From US$0.74 to US$1.53 |
|
|
From US$1.39 to $2.49 |
|
Risk-free interest rate is based on a zero coupon U.S. bond rate for the terms consistent with the
expected life of the award at the time of grant. Expected dividend yield is determined in view of
the Companys historical dividend payout rate. The Company estimates expected volatility at the
date of grant based on a combination of historical and implied volatilities from comparable
publicly listed companies. Forfeiture rate of 0% is estimated based on historical forfeiture
patterns and adjusted to reflect future change in facts and circumstances, if any. The sub-optimal
early exercise factor is determined based on the expected price multiple at which employees are
likely to exercise stock options.
Total compensation expense relating to share options and RSUs recognized for the years ended
December 31, 2008, 2009 and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
3,825 |
|
|
|
5,808 |
|
|
|
7,898 |
|
|
|
1,197 |
|
Selling expenses |
|
|
3,617 |
|
|
|
2,252 |
|
|
|
4,184 |
|
|
|
634 |
|
General and administrative expenses |
|
|
26,414 |
|
|
|
33,252 |
|
|
|
18,365 |
|
|
|
2,782 |
|
Research and development expenses |
|
|
970 |
|
|
|
1,359 |
|
|
|
1,516 |
|
|
|
230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,826 |
|
|
|
42,671 |
|
|
|
31,963 |
|
|
|
4,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
21. REDEEMABLE ORDINARY SHARES
On January 29, 2008 and concurrently with the convertible bond issuance (see Note 22), the Company
issued and sold 9,019,611 ADSs, representing 45,098,055 of the Companys ordinary shares at the par
value per share of US$0.0001.
The Company is entitled to repurchase any or all of the ADSs at par value on any business day after
the entire principal amount of the convertible bonds ceases to be outstanding. Such rights will
expire one month after the maturity of the convertible bonds. In addition, the holders of the ADSs
have the right to request the Company to repurchase the ADSs at par value at any time by giving
prior notice. Since the holders have the ability to require the repurchase of the ADSs, which is
outside the control of the Company, the ordinary shares underlying the ADSs have been classified as
mezzanine equity. The holders are entitled to receive all cash and non-cash distribution that an
ordinary shareholder would receive but such distributions are required to be paid back to the
Company upon repurchase of the ADSs.
The adoption of ASU 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of
Convertible Debt Issuance or Other Financing, on January 1, 2010 revised the Companys accounting
for the redeemable ordinary shares. The Company evaluated the redeemable ordinary shares
concurrently with the bonds upon adoption of ASU 2009-15 and determined that the redeemable
ordinary shares issued qualified as an own-share lending arrangement because the purpose of
issuance of the shares was to increase the availability of the Companys shares and facilitate the
ability of the holders to hedge the conversion option in the Companys convertible debt and the
Company is entitled to repurchase any or all of the ADSs at par value on any business day after the
entire principal amount of the convertible bonds ceases to be outstanding.
Accordingly, the share-lending arrangement upon adoption of ASU 2009-15 is measured at fair value,
and recognized as an issuance cost with an offset to redeemable ordinary shares. ASU 2009-15
requires the Company to recognize the cumulative effect of the change in accounting principle as an
adjustment to the opening balance of retained earnings. An adjustment of US$3,076 (approximately
RMB22,000), which represents the fair value that would have been recognized if the guidance in ASU
2009-15 had been applied from the issuance date on January 29, 2008, was recorded on January 1,
2010 to issuance cost with an offset to redeemable ordinary shares. The redeemable ordinary shares
were recorded at a fair value of RMB55,000 (US$8,333) as of December 31, 2010.
22. CONVERTIBLE BONDS
On January 29, 2008, the Company issued in aggregate principal amount of US$172,500,000 Convertible
Senior Notes (the Notes) due January 15, 2018 to third-party investors (the Holders). The Notes
bear interest at a rate of 3.5% per annum, payable on January 15 and July 15 of each year,
commencing on July 15, 2008.
The Holder may require the Company to redeem all or a portion of the Notes on January 15, 2015, at
a price equal to 100% of the principal amount of the Notes to be repurchased plus accrued and
unpaid interest. The Holder may also require the Company to redeem all or a portion of the Notes at
a price equal to 100% of principal amount of the Notes to be repurchased plus accrued and unpaid
interest upon the occurrence of a fundamental change, which is defined as a change in control or a
termination of trading.
In addition, the Company may redeem part or all of the Notes on and after January 20, 2015, at a
price equal to 100% of the principal amount of the Notes to be repurchased plus accrued and unpaid
interest, provided the Companys ADSs trading price meets certain conditions.
F-35
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
22. CONVERTIBLE BONDS (CONTD)
At the Holders option, the principal amount of the Notes may be converted into the Companys ADSs
initially at a conversion rate of 52.2876 ADSs (equivalent to an initial conversion price of
approximately $19.125 per ADS) per US$1,000 principal amount of the Notes, at any time prior to
maturity. The applicable conversion rate will be subject to adjustment in certain circumstances.
The Notes were initially recorded at the principal amount of US$172,500,000. Direct debt issuance
costs of RMB40,459,198 are deferred and amortized over the life of the Notes using the effective
interest method. For the year ended December 31, 2010, the interest expense for the Notes was
approximately RMB118,980,000 (US$18,027,273).
At the commitment date on January 29, 2008, the Company evaluated and determined that the
redemption and put options do not require bifurcation from the Notes under the requirements of ASC
815-10 because they are clearly and closely related to the debt host instrument.
No beneficial conversion feature was recognized as the effective conversion price of US$19.125 was
higher than the fair value per ADS of the Company at the commitment date (January 29, 2008) of
US$17.73.
The adoption of ASC 815-40, Derivatives and Hedging: Contracts in Entitys Own Equity, on January
1, 2009 revised the Companys accounting for the conversion option of the Notes. The Company
evaluated the conversion option of the Notes upon adoption of ASC 815-40 and determined that the
conversion option qualified for derivative accounting because the conversion option, if
freestanding, is not considered to be indexed to the Companys own stock.
Accordingly, the conversion option was bifurcated from the Notes upon adoption of ASC 815-40 as a
derivative liability at an initial fair value of RMB962,993,000. Changes in fair value of the
conversion options are recognized through the statements of operations. For the year ended December
31, 2010, the Company recorded a gain of RMB31,623,000 (US$4,791,364) (2009: a loss of
RMB73,887,000) resulting from the change in fair value of the conversion option. ASC 815-40
requires the Company to recognize the cumulative effect of the change in accounting principle as an
adjustment to the opening balance of retained earnings. An adjustment of RMB644,812,000, which
represents the cumulative gains on re-measurement that would have been recognized if the guidance
in ASC 815-40 had been applied from the Notes issuance date on January 29, 2008, was recorded on
January 1, 2009 to accumulated deficit. As of December 31, 2010, the conversion option, which has
been combined with the Notes on the balance sheet, was recorded at a fair value of RMB277,566,000
(US$42,055,455) (2009: RMB309,189,000).
23. GOVERNMENT GRANTS
During the years ended December 31, 2008, 2009 and 2010, the Group received approximately
RMB3,479,000, RMB7,661,000 and RMB28,350,000 (US$4,295,455), respectively, in government subsidies
which were approved by the relevant PRC government authorities. Government grants included in
operating income were received because the Group qualifies as a high technology enterprise in
Jiangsu Province in the PRC and it met certain criteria such as increases in the amount of capital
investment, net assets, number of employees, sales and tax payments. Government grants included in
non-operating income mainly represented subsidies received as reimbursement for interest expense
incurred for imported equipment. The government subsidies are not subject to adjustment and do not
have any restrictions as to the use of funds. Accordingly, the full amount of the subsidies was
recorded as government grants in 2008, 2009 and 2010, upon receipt.
F-36
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
24. INCOME TAXES
Current taxation
The Company is a tax-exempt company incorporated in the Cayman Islands and conducts substantially
all of its business through its subsidiaries located in the PRC.
The Companys subsidiaries registered in the PRC are subject to PRC enterprise income tax (EIT)
on the taxable income as reported in their PRC statutory accounts adjusted in accordance with
relevant PRC Income Tax Laws. Pursuant to the PRC Income Tax Laws, the Groups PRC subsidiaries are
subject to EIT at a statutory rate of 25%.
In March 2005, SolarOne Qidong was granted a 5-year tax holiday commencing in 2005 which entitles
it to a two-year EIT exemption followed by a three-year 50% reduced EIT rate (tax holiday).
During 2008, SolarOne Qidong received approval from the PRC taxation authorities as a High and New
Technology Enterprise (HNTE) and obtained an HNTE certificate. In accordance with the PRC Income
Tax Laws, an enterprise awarded with the HNTE status may enjoy a reduced EIT rate of 15%. However,
in the event that any of the various provisions of the transitional preferential enterprise income
tax policies, the new tax law and the implementing regulations overlap, an enterprise may choose
the most advantageous policy to apply at its sole and absolute discretion. SolarOne Qidong has
chosen to apply the tax holiday for year 2008 and 2009.
Solar Shanghai, SolarOne Technology, Solar Engineering, and Solar R&D, domestic companies in the PRC,
are subject to EIT at a rate of 25% for the years ended December 31, 2008 to 2010.
In accordance with the new PRC Enterprise Income Tax Laws (the PRC Income Tax Laws) effective
from January 1, 2008, enterprises established under the laws of foreign countries or regions and
whose place of effective management is located within the PRC territory are considered PRC
resident enterprises and subject to the PRC income tax at the rate of 25% on worldwide income. The
definition of place of effective management shall refer to an establishment that exercises, in
substance, overall management and control over the production and business, personnel, accounting,
properties, etc. of an enterprise. As of December 31, 2010, no detailed interpretation or guidance
has been issued to define place of effective management. Furthermore, as of December 31, 2010,
the administrative practice associated with interpreting and applying the concept of place of
effective management is unclear. The Group has analyzed the applicability of this law and will
continue to monitor the related development and application.
The PRC Income Tax Laws also impose a 10% withholding income tax for dividends distributed by a
foreign-invested enterprise to its immediate holding company outside China, which were exempted
under the previous income tax law and regulations. A lower withholding tax rate will be applied if
there is a tax treaty arrangement between mainland China and the jurisdiction of the foreign
holding company.
(Loss)/ income before income taxes and non-controlling interest consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-PRC |
|
|
5,562 |
|
|
|
(468,907 |
) |
|
|
(94,101 |
) |
|
|
(14,258 |
) |
PRC |
|
|
(264,961 |
) |
|
|
347,919 |
|
|
|
1,149,441 |
|
|
|
174,158 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(259,399 |
) |
|
|
(120,988 |
) |
|
|
1,055,340 |
|
|
|
159,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
24. INCOME TAXES (CONTD)
Current taxation (contd)
The income tax expense is comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
(65,940 |
) |
|
|
(40,375 |
) |
|
|
(330,038 |
) |
|
|
(50,006 |
) |
Deferred |
|
|
59,421 |
|
|
|
16,447 |
|
|
|
32,055 |
|
|
|
4,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,519 |
) |
|
|
(23,928 |
) |
|
|
(297,983 |
) |
|
|
(45,149 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation of tax computed by applying the statutory income tax rate of 25% applicable to
PRC operations to income tax expenses is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax computed at the statutory
tax rate at 25% |
|
|
64,850 |
|
|
|
30,247 |
|
|
|
(263,835 |
) |
|
|
(39,975 |
) |
Non-deductible expenses |
|
|
(2,804 |
) |
|
|
(3,348 |
) |
|
|
(13,561 |
) |
|
|
(2,055 |
) |
Tax holidays |
|
|
(32,533 |
) |
|
|
28,123 |
|
|
|
|
|
|
|
|
|
Preferential tax treatment |
|
|
|
|
|
|
|
|
|
|
111,247 |
|
|
|
16,856 |
|
Research and development expense |
|
|
1,104 |
|
|
|
1,923 |
|
|
|
6,165 |
|
|
|
934 |
|
Tax rate differences |
|
|
(24,870 |
) |
|
|
(53,941 |
) |
|
|
(42,864 |
) |
|
|
(6,495 |
) |
Deferred tax benefit including change in
tax rate |
|
|
2,130 |
|
|
|
10,111 |
|
|
|
37,390 |
|
|
|
5,665 |
|
Tax credit |
|
|
16,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefit |
|
|
|
|
|
|
|
|
|
|
(116,088 |
) |
|
|
(17,589 |
) |
Changes in the valuation allowance |
|
|
(31,319 |
) |
|
|
(37,043 |
) |
|
|
(16,437 |
) |
|
|
(2,490 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,519 |
) |
|
|
(23,928 |
) |
|
|
(297,983 |
) |
|
|
(45,149 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
The benefit of the tax holiday per basic and diluted earnings per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB) |
|
|
(RMB) |
|
|
(RMB) |
|
|
(US$) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-38
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
24. INCOME TAXES (CONTD)
Deferred taxation
Deferred tax assets (liabilities) reflect the tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. The components of deferred tax assets (liabilities) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
- Tax credit |
|
|
7,569 |
|
|
|
7,569 |
|
|
|
1,147 |
|
- Warranty provision |
|
|
11,019 |
|
|
|
32,922 |
|
|
|
4,988 |
|
- Inventory write-off |
|
|
35,086 |
|
|
|
25,617 |
|
|
|
3,881 |
|
- Allowance for advance to suppliers |
|
|
63,170 |
|
|
|
44,991 |
|
|
|
6,817 |
|
- Allowance for doubtful accounts |
|
|
627 |
|
|
|
936 |
|
|
|
142 |
|
- Idle capacity cost |
|
|
3,277 |
|
|
|
|
|
|
|
|
|
- Sales cut-off |
|
|
4,354 |
|
|
|
12,031 |
|
|
|
1,823 |
|
- Other |
|
|
2,443 |
|
|
|
9,640 |
|
|
|
1,460 |
|
Valuation allowance |
|
|
(64,430 |
) |
|
|
(42,095 |
) |
|
|
(6,378 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current deferred tax assets |
|
|
63,115 |
|
|
|
91,611 |
|
|
|
13,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current: |
|
|
|
|
|
|
|
|
|
|
|
|
- Pre-operating expenses |
|
|
755 |
|
|
|
|
|
|
|
|
|
- Tax losses |
|
|
3,592 |
|
|
|
42,380 |
|
|
|
6,421 |
|
- Fixed assets |
|
|
13,533 |
|
|
|
17,258 |
|
|
|
2,615 |
|
- Long-term deferred expenses |
|
|
194 |
|
|
|
180 |
|
|
|
27 |
|
- Other |
|
|
16 |
|
|
|
14 |
|
|
|
2 |
|
Valuation allowance |
|
|
(4,301 |
) |
|
|
(43,073 |
) |
|
|
(6,526 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net non-current deferred tax assets |
|
|
13,789 |
|
|
|
16,759 |
|
|
|
2,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-current: |
|
|
|
|
|
|
|
|
|
|
|
|
- Land use rights |
|
|
26,566 |
|
|
|
25,977 |
|
|
|
3,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax liabilities |
|
|
26,566 |
|
|
|
25,977 |
|
|
|
3,936 |
|
|
|
|
|
|
|
|
|
|
|
In assessing the realizability of deferred tax assets, the Group has considered whether it is
more-likely-than-not that some portion 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 taxable
income during the periods in which those temporary differences become deductible. The Group records
a valuation allowance to reduce deferred tax assets to a net amount that management believes is
more-likely-than-not of being realizable based on the weight of all available evidence.
F-39
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
24. INCOME TAXES (CONTD)
As of December 31, 2009 and 2010, the Group has a net tax operating loss from its non-PRC
subsidiaries of RMB14,206,000 and RMB167,355,000, respectively which starts to expire in 2029.
As of December 31, 2010, the Group intends to permanently reinvest the undistributed earnings from
its foreign subsidiaries to fund future operations. The amount of unrecognized deferred tax
liabilities for temporary differences related to investments in foreign subsidiaries is not
determined because such a determination is not practicable.
Uncertain Tax Positions
As of December 31, 2010, the Groups unrecognized tax benefit is RMB143,473,000 (US$21,738,333).
During 2010, the Group recorded a provision of RMB116,088,000 (US$17,589,091) for an unrecognized
tax benefit related to SolarOne Qidong due to the uncertainty as to whether this subsidiary would
meet certain requirements during its annual self-assessment in order to be eligible for the reduced
EIT rate of 15%. The remaining RMB27,385,000 (US$4,149,242) of the unrecognized tax benefit was
related to its Hong Kong subsidiary, which based on the facts and circumstances, including,
notably, the uncertainty of the interpretation of and administrative practices associated with the
applicable PRC Income Tax Law as of December 31, 2010, may be considered a PRC tax resident.
It is possible that the amount accrued will change in the next 12 months as a result of new
interpretive guidance released by the PRC tax authorities; however, an estimate of the range of the
possible change cannot be made at this time. The unrecognized tax benefits, if ultimately
recognized, will impact the effective tax rate. Reconciliation of accrued unrecognized tax benefits
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
|
27,385 |
|
|
|
27,385 |
|
|
|
4,149 |
|
Incurred during the year |
|
|
|
|
|
|
116,088 |
|
|
|
17,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
27,385 |
|
|
|
143,473 |
|
|
|
21,738 |
|
|
|
|
|
|
|
|
|
|
|
Based on existing PRC tax regulations, the tax periods of SolarOne Qidong, Solar Shanghai, SolarOne
Technology, Solar R&D, and Solar Engineering for the years ended December 31, 2006 to December 31,
2010 remain open to potential examination by the tax authorities. The tax periods for the
Companys non-PRC subsidiaries for the years ended December 31, 2006 to December 31, 2010 also
remain open to potential examination by the respective tax authorities.
F-40
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
25. RELATED PARTY TRANSACTIONS
Name and Relationship with Related Parties
|
|
|
Name of related party |
|
Relationship with the Group |
|
|
|
Linyang Electronics Co., Ltd. (Linyang Electronics)**
|
|
Controlling owner is also a significant shareholder of the Company |
Huaerli (Nantong) Electronics Co., Ltd. (Huaerli Nantong)**
|
|
Controlling owner is also a significant shareholder of the Company |
Qidong Huahong Electronics Co., Ltd. (Qidong Huahong)**
|
|
Controlling owner is also a significant shareholder of the Company |
Nantong Huahong Ecological Gardening Co., Ltd. (Nantong Huahong)*/**
|
|
Controlling owner is also a significant shareholder of the Company |
Nantong Linyang Electric Power Investment Co., Ltd. (Nantong Linyang)**
|
|
Controlling owner is also a significant shareholder of the Company |
Hong Kong Huaerli Trading Co., Ltd. (Hong Kong Huaerli)**
|
|
Controlling owner is also a significant shareholder of the Company |
Shanghai Linyang Electronics Technology Co., Ltd. (Linyang Technology)**
|
|
Controlling owner is also a significant shareholder of the Company |
Qidong Jiaotong Engineering Co., Ltd. (Jiaotong Engineering)**
|
|
Controlling owner is also a significant shareholder of the Company |
Nantong Linyang Labor Service Company (Linyang Labor Service)**
|
|
Controlling owner is also a significant shareholder of the Company |
Q-Cells International GmbH (QCI)**
|
|
Controlling owner is also a significant shareholder of the Company |
Q-Cells SE (Q-Cells)**
|
|
Controlling owner is also a significant shareholder of the Company |
Ya An Yongwang Silicon Co., Ltd. (Ya An)
|
|
A wholly owned subsidiary of HongKong YongWang Silicon Investment Co., Ltd., whose controlling owner is Hanwha Chemical |
SMIC Energy Technology (Shanghai) Corporation (SMIC ET)
|
|
A wholly owned subsidiary of Semiconductor Manufacturing International Corporation (SMIC) where David N.K. Wang, one of the Companys independent directors, serves as president and chief executive officer |
Semiconductor Manufacturing International (Shanghai) Corporation (SMIC Shanghai)
|
|
A wholly owned subsidiary of SMIC where David N.K. Wang, one of the Companys independent directors, serves as president and chief executive officer |
Hanwha Chemical Corporation (Hanwha Chemical)
|
|
Holding company of Hanwha Solar, a significant shareholder of the Company |
Hanwha L&C Trading (Shanghai) Co., Ltd. (Hanwha L&C)
|
|
A wholly owned subsidiary of Hanwha Chemical, the holding company of Hanwha Solar, a significant shareholder of the Company |
|
|
|
* |
|
Previously known as Nantong Linyang Ecological Cultural Co., Ltd. |
|
** |
|
Subsequent to the completion of share transfer on September 16, 2010 (Note 27), these
companies ceased to be related parties to the Group. |
F-41
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
25. RELATED PARTY TRANSACTIONS (CONTD)
Significant Related Party Transactions
The Group had the following significant related party transactions and balances during the periods
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advance paid to the related party: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Ya An |
|
|
|
|
|
|
|
|
|
|
367,619 |
|
|
|
55,700 |
|
- Hanwha Chemical |
|
|
|
|
|
|
|
|
|
|
7,679 |
|
|
|
1,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of raw materials from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Ya An |
|
|
7,436 |
|
|
|
9,600 |
|
|
|
339,122 |
|
|
|
51,382 |
|
- Linyang Electronics * |
|
|
39,156 |
|
|
|
33,124 |
|
|
|
79,187 |
|
|
|
11,998 |
|
- SMIC ET |
|
|
|
|
|
|
|
|
|
|
4,602 |
|
|
|
697 |
|
- Hanwha Chemical |
|
|
|
|
|
|
|
|
|
|
1,883 |
|
|
|
285 |
|
- Hanwha L&C |
|
|
|
|
|
|
|
|
|
|
1,142 |
|
|
|
173 |
|
- Nantong Huahong * |
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of services from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- SMIC Shanghai |
|
|
|
|
|
|
|
|
|
|
1,801 |
|
|
|
273 |
|
- Linyang Electronics * |
|
|
|
|
|
|
2,335 |
|
|
|
680 |
|
|
|
103 |
|
- Qidong Huahong * |
|
|
|
|
|
|
2,800 |
|
|
|
|
|
|
|
|
|
- Nantong Huahong * |
|
|
444 |
|
|
|
642 |
|
|
|
|
|
|
|
|
|
- Linyang Labor Service * |
|
|
1,803 |
|
|
|
2,205 |
|
|
|
889 |
|
|
|
135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of fixed assets from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- SMIC ET |
|
|
|
|
|
|
|
|
|
|
33,662 |
|
|
|
5,100 |
|
- Linyang Electronics * |
|
|
2,374 |
|
|
|
567 |
|
|
|
1,510 |
|
|
|
229 |
|
- Nantong Huahong * |
|
|
314 |
|
|
|
|
|
|
|
990 |
|
|
|
150 |
|
- Jiaotong Engineering * |
|
|
615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Q-Cells * |
|
|
|
|
|
|
|
|
|
|
442,832 |
|
|
|
67,096 |
|
- QCI * |
|
|
|
|
|
|
336,485 |
|
|
|
32,924 |
|
|
|
4,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Hong Kong Huaerli * |
|
|
64,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Hong Kong Huaerli * |
|
|
1,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
- Nantong Linyang * |
|
|
137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses incurred in relation to guarantee provided by: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Linyang Electronics * |
|
|
10,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings leased from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Linyang Electronics * |
|
|
6,084 |
|
|
|
3,932 |
|
|
|
2,856 |
|
|
|
433 |
|
- Qidong Huahong * |
|
|
|
|
|
|
|
|
|
|
1,368 |
|
|
|
207 |
|
- SMIC Shanghai |
|
|
|
|
|
|
|
|
|
|
1,229 |
|
|
|
186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of SolarOne Technology from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Nantong Linyang * |
|
|
133,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposal of an associate to the related party: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Linyang Technology * |
|
|
200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Subsequent to the completion of share transfer on September 16, 2010 (Note 27), these
companies ceased to be related parties to the Group. Therefore, the above transaction for 2010 only
included transactions from January 1, 2010 to September 16, 2010. |
F-42
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
25. RELATED PARTY TRANSACTIONS (CONTD)
Balances with Related Parties
As of December 31, 2009 and 2010, balances with related parties are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
Amount due from related parties: |
|
|
|
|
|
|
|
|
|
|
|
|
- Ya An |
|
|
|
|
|
|
22,023 |
|
|
|
3,337 |
|
- Hanwha Chemical |
|
|
|
|
|
|
5,796 |
|
|
|
878 |
|
- Linyang Electronics * |
|
|
369 |
|
|
|
|
|
|
|
|
|
- QCI * |
|
|
12,022 |
|
|
|
|
|
|
|
|
|
- Linyang Labor Service * |
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,458 |
|
|
|
27,819 |
|
|
|
4,215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount due from related parties, non-current portion: |
|
|
|
|
|
|
|
|
|
|
|
|
- Ya An |
|
|
|
|
|
|
15,000 |
|
|
|
2,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount due to related parties: |
|
|
|
|
|
|
|
|
|
|
|
|
- Ya An |
|
|
|
|
|
|
8,526 |
|
|
|
1,292 |
|
- SMIC Shanghai |
|
|
|
|
|
|
3,515 |
|
|
|
532 |
|
- Hanwha L&C |
|
|
|
|
|
|
1,142 |
|
|
|
173 |
|
- Linyang Electronics * |
|
|
15,879 |
|
|
|
|
|
|
|
|
|
- Nantong Huahong * |
|
|
421 |
|
|
|
|
|
|
|
|
|
- Linyang Labor Service * |
|
|
465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,765 |
|
|
|
13,183 |
|
|
|
1,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Subsequent to the completion of share transfer on September 16, 2010 (Note 27), these companies
are ceased to be related parties to the Group. Therefore, the above balances with related parties
as of December 31, 2010 did not include the amount due from/to them. |
The weighted-average balances due from related parties and due to related parties are analyzed as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
Weighted-average balance due from related parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Q-Cells |
|
|
|
|
|
|
|
|
|
|
58,941 |
|
|
|
8,930 |
|
- Ya An |
|
|
|
|
|
|
|
|
|
|
14,303 |
|
|
|
2,167 |
|
- QCI |
|
|
|
|
|
|
14,927 |
|
|
|
4,628 |
|
|
|
701 |
|
- Hanwha Chemical |
|
|
|
|
|
|
|
|
|
|
1,159 |
|
|
|
176 |
|
- Linyang Labor Service |
|
|
|
|
|
|
13 |
|
|
|
810 |
|
|
|
123 |
|
- Linyang Electronics |
|
|
5 |
|
|
|
964 |
|
|
|
92 |
|
|
|
14 |
|
- Qidong Huahong |
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
4 |
|
- Nantong Huahong |
|
|
|
|
|
|
|
|
|
|
21 |
|
|
|
3 |
|
- SMIC Shanghai |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
F-43
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
25. RELATED PARTY TRANSACTIONS (CONTD)
Balances with Related Parties (contd)
The weighted-average balances due from related parties and due to related parties are analyzed as
follows (contd):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
Weighted-average balance due to related parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Linyang Electronics |
|
|
6,107 |
|
|
|
10,079 |
|
|
|
19,828 |
|
|
|
3,004 |
|
- Ya An |
|
|
|
|
|
|
|
|
|
|
11,480 |
|
|
|
1,739 |
|
- QCI |
|
|
|
|
|
|
|
|
|
|
5,222 |
|
|
|
791 |
|
- SMIC Shanghai |
|
|
|
|
|
|
|
|
|
|
2,259 |
|
|
|
342 |
|
- SMIC ET |
|
|
|
|
|
|
|
|
|
|
1,616 |
|
|
|
245 |
|
- Linyang Labor Service |
|
|
192 |
|
|
|
432 |
|
|
|
1,199 |
|
|
|
182 |
|
- Nantong Huahong |
|
|
305 |
|
|
|
318 |
|
|
|
701 |
|
|
|
106 |
|
- Hanwha L&C |
|
|
|
|
|
|
|
|
|
|
228 |
|
|
|
35 |
|
- Qidong Huahong |
|
|
|
|
|
|
|
|
|
|
158 |
|
|
|
24 |
|
- Nantong Linyang |
|
|
15,407 |
|
|
|
6,673 |
|
|
|
|
|
|
|
|
|
- Hong Kong Huaerli |
|
|
14,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
- Jiaotong Engineering |
|
|
244 |
|
|
|
160 |
|
|
|
|
|
|
|
|
|
- Others |
|
|
130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2010, all balances with related parties were unsecured,
non-interesting bearing and repayable on demand.
26. EMPLOYEE DEFINED CONTRIBUTION PLAN
Full-time employees of the Companys subsidiaries in the PRC participate in a government mandated
defined contribution plan pursuant to which certain pension benefits, medical care, unemployment
insurance, employee housing fund and other welfare benefits are provided to employees. Chinese
labor regulations require that the PRC subsidiaries of the Company make contributions to the
government for these benefits based on 41% of the employees salaries on a monthly basis. The
Groups PRC subsidiaries have no legal obligation for the benefits beyond the contributions made.
The total amounts for such employee benefits, which were expensed as incurred, were approximately
RMB18,686,000, RMB29,402,000 and RMB52,369,000 (US$7,934,697) for the years ended December 31,
2008, 2009 and 2010, respectively.
F-44
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
27. SHARE ISSUANCE AND REPURCHASE AGREEMENT
On August 3, 2010, a major shareholder of the Company, Good Energies Investments (Jersey) Limited
(Good Energies) entered into a Share Purchase Agreement (the GE Sales Agreement) with Hanwha
Chemical, a Korean Company, pursuant to which Good Energies agreed to sell its 81,772,950 ordinary
shares and 1,281,011 ADSs to Hanwha Chemical. Concurrently with the execution of the GE Sales
Agreement, Hanwha Chemical entered into (i) a Share Purchase Agreement with the Company (the
Issuer Sales Agreement), pursuant to which the Company agreed to sell to Hanwha Chemical
36,455,089 ordinary shares and (ii) a Share Purchase Agreement with Yonghua Solar Power Investment
Holding Ltd. (Yonghua), pursuant to which Yonghua agreed to sell to Hanwha Chemical 38,634,750
ordinary shares (the Yonghua Sales Agreement). Hanwha Chemical subsequently assigned and
transferred to Hanwha Solar, a wholly owned subsidiary of Hanwha Chemical, its rights and
obligations under the Issuer Sales Agreement, the GE Sales Agreement and the Yonghua Sales
Agreement. In connection with the transaction, Hanwha Solar requested the Company to issue
45,080,019 new ordinary shares at par value of US$0.0001 per share in a Share Issuance and
Repurchase Agreement (Share Issuance and Repurchase Agreement).
Pursuant to the GE Sales Agreement and the Yonghua Sales Agreement, Hanwha Solar paid cash
consideration of approximately US$202 million and US$90 million to Good Energies and Yonghua,
respectively. Concurrently, pursuant to the Issuer Sales Agreement, the Company received net
proceeds of approximately US$76 million for the issuance of 36,455,089 ordinary shares. On
September 16, 2010, the respective parties to the GE Sales Agreement, the Issuer Sales Agreement
and the Yonghua Sales Agreement consummated the purchase and sale of the ordinary shares and ADSs
contemplated thereby. As a result, Good Energies and Yonghua ceased to own any ordinary shares or
ADSs of the Company as of September 16, 2010.
The Company recorded the shares issued in the Share Issuance and Repurchase Agreement with Hanwha
Solar as a liability in accordance ASC 480-10, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity, as there is an unconditional obligation that
requires the Company to redeem the shares by transferring assets at a determinable date at the par
value per share of US$0.0001. As of December 31, 2010, the Company has issued 30,672,689 ordinary
shares to Hanwha Solar and recorded a liability of RMB20,554 (US$3,114) in other current
liabilities in connection with the Share Issuance and Repurchase Agreement.
28. COMMITMENTS AND CONTINGENCIES
Acquisition of machineries
As of December 31, 2010, the Group had commitments of approximately RMB426,394,000 (US$64,605,152)
related to the acquisition of machineries. The commitment for acquisition of machineries is
expected to be settled within the next twelve months.
F-45
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
28. COMMITMENTS AND CONTINGENCIES (CONTD)
Operating lease commitments
The Group has entered into leasing arrangements relating to office premises and other facilities
that are classified as operating leases. Future minimum lease payments for non-cancelable
operating leases as of December 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010 |
|
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
Year 2011 |
|
|
9,141 |
|
|
|
1,385 |
|
Year 2012 |
|
|
3,613 |
|
|
|
547 |
|
Year 2013 |
|
|
1,000 |
|
|
|
152 |
|
Year 2014 and thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
13,754 |
|
|
|
2,084 |
|
|
|
|
|
|
|
|
The terms of the leases do not contain rent escalation or contingent rent.
Purchase of raw materials
The commitments related to framework contracts to purchase raw materials as of December 31, 2010
are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010 |
|
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
Year 2011 |
|
|
1,848,363 |
|
|
|
280,055 |
|
Year 2012 |
|
|
945,395 |
|
|
|
143,242 |
|
Year 2013 |
|
|
818,891 |
|
|
|
124,074 |
|
Year 2014 |
|
|
874,082 |
|
|
|
132,437 |
|
Year 2015 |
|
|
710,948 |
|
|
|
107,719 |
|
Year 2016 and thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,197,679 |
|
|
|
787,527 |
|
|
|
|
|
|
|
|
The above listing of amounts and timing of purchases are based on managements best estimate using
existing terms in the framework contracts, as amended or supplemented. To the extent the terms of
the contracts are revised through negotiation or agreement between the Group and its suppliers, the
amount or timing of purchases could change.
F-46
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
28. COMMITMENTS AND CONTINGENCIES (CONTD)
Arbitration with LDK
On June 8, 2009, LDK, one of the Companys major silicon suppliers, submitted an arbitration
request to the Shanghai Arbitration Commission alleging that the Company failed and continues to
fail to perform under the terms of a multi-year framework supply agreement, seeking to enforce the
Companys performance and claiming monetary relief. Deliveries of silicon under the agreement
halted in early 2009 and have not recommenced. The Company intended to continue to vigorously
defend itself against the claims brought by LDK and, on July 9, 2009, the Company submitted an
arbitration request to the Shanghai Arbitration Commission requesting that LDK refund the
outstanding prepayments of RMB104 million that the Company made under the contract, plus
compensation of RMB35 million from LDK for estimated losses incurred as a result of the stoppage of
deliveries under the framework supply agreement.
The LDK arbitration process is ongoing and it is currently not possible to determine with
reasonable certainty if an unfavorable outcome will result. Additionally, the magnitude of any
potential loss cannot be reasonably estimated.
Arbitration with Sonnenzins
During 2010, one of the subsidiaries of the Group, SolarOne Qidong, received an arbitration
complaint in which one of its customers, German Sonnenzins Solar GmbH (Sonnenzins), alleged that
SolarOne Qidong defaulted on delivery obligations and, thus, claimed for compensation of
approximately Euro2,262,000 for compensatory damages resulting from late delivery. Sonnenzins had,
previous to the claim, delayed payments to SolarOne Qidong for two shipments that it had received
under a contract between the parties. As a result of the delayed payments, on May 3, 2010, SolarOne
Qidong issued a correspondence letter to Sonnenzins to terminate the contract, which Sonnenzins
acknowledged. As such, the Company believes that an unfavorable outcome is remote.
29. SEGMENT REPORTING
The Group operates in a single business segment, which is the development, manufacturing, and sale
of PV-related products. The following table summarizes the Groups net revenues by geographic
region based on the location of the customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany |
|
|
2,637,434 |
|
|
|
2,668,477 |
|
|
|
4,706,767 |
|
|
|
713,146 |
|
The PRC |
|
|
329,153 |
|
|
|
177,478 |
|
|
|
591,143 |
|
|
|
89,567 |
|
Italy |
|
|
119,272 |
|
|
|
4,446 |
|
|
|
572,420 |
|
|
|
86,730 |
|
Australia |
|
|
32,589 |
|
|
|
177,637 |
|
|
|
407,261 |
|
|
|
61,706 |
|
USA |
|
|
5,976 |
|
|
|
17,306 |
|
|
|
436,747 |
|
|
|
66,174 |
|
The Czech Republic |
|
|
|
|
|
|
245,814 |
|
|
|
165,906 |
|
|
|
25,137 |
|
Spain |
|
|
1,246,305 |
|
|
|
37,326 |
|
|
|
131,166 |
|
|
|
19,874 |
|
Others |
|
|
578,339 |
|
|
|
449,832 |
|
|
|
515,583 |
|
|
|
78,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
4,949,068 |
|
|
|
3,778,316 |
|
|
|
7,526,993 |
|
|
|
1,140,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All the long-lived assets of the Group are located in the PRC.
F-47
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
29. SEGMENT REPORTING (CONTD)
The Group has one customer that accounted for 10% or more of total net revenue as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer A |
|
|
1,099,736 |
|
|
|
1,562,883 |
|
|
|
2,526,512 |
|
|
|
382,805 |
|
30. INCOME (LOSS) PER SHARE
Basic and diluted net income (loss) per share for each period presented are calculated as follows
(in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
US$ |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) attributable to ordinary shareholders basic |
|
|
(280,491 |
) |
|
|
(145,227 |
) |
|
|
757,357 |
|
|
|
114,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense of convertible bonds and change in fair
value of conversion feature of convertible bonds |
|
|
|
|
|
|
|
|
|
|
87,357 |
|
|
|
13,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) attributable to ordinary shareholders diluted |
|
|
(280,491 |
) |
|
|
(145,227 |
) |
|
|
844,714 |
|
|
|
127,987 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares outstanding, opening |
|
|
240,599,244 |
|
|
|
268,745,299 |
|
|
|
289,087,589 |
|
|
|
289,087,589 |
|
Weighted-average number of shares issued during the year |
|
|
11,293,944 |
|
|
|
4,826,493 |
|
|
|
21,236,348 |
|
|
|
21,236,348 |
|
Conversion of convertible bonds |
|
|
|
|
|
|
4,630 |
|
|
|
|
|
|
|
|
|
New ordinary shares issued in connection with exercise of
options and vesting of RSUs |
|
|
766,426 |
|
|
|
491,338 |
|
|
|
939,371 |
|
|
|
939,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding basic |
|
|
252,659,614 |
|
|
|
274,067,760 |
|
|
|
311,263,308 |
|
|
|
311,263,308 |
|
Stock options and RSUs granted in connection with the stock
option plan |
|
|
|
|
|
|
|
|
|
|
917,778 |
|
|
|
917,778 |
|
Shares to be issued upon the conversion of convertible bonds |
|
|
|
|
|
|
|
|
|
|
45,091,519 |
|
|
|
45,091,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding diluted |
|
|
252,659,614 |
|
|
|
274,067,760 |
|
|
|
357,272,605 |
|
|
|
357,272,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share |
|
RMB |
(1.11 |
) |
|
RMB |
(0.53 |
) |
|
RMB |
2.43 |
|
|
US$ |
0.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share |
|
RMB |
(1.11 |
) |
|
RMB |
(0.53 |
) |
|
RMB |
2.36 |
|
|
US$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2009 and 2010, the Company issued 2,200,000 and 1,500,000
ordinary shares, respectively, to its share depository bank which have been and will continue to be
used to settle stock option awards upon their exercise. No consideration was received by the
Company for this issuance of ordinary shares. These ordinary shares are legally issued and
outstanding but are treated as escrowed shares for accounting purposes and, therefore, have been
excluded from the computation of earnings per share. Any ordinary shares not used in the
settlement of stock option awards will be returned to the Company.
For the years ended December 31, 2008 and 2009, the potential dilutive effect in relation to the
stock options, unvested RSUs and convertible bonds were excluded as they have an anti-dilutive
effect. The redeemable shares have been excluded in both basic and diluted net income (loss) per
share as they are not entitled to the earnings of the Company.
F-48
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
31. FAIR VALUE MEASUREMENTS
Effective January 1, 2008, the Group adopted ASC 820-10, Fair Value Measurements, which defines
fair value, establishes a framework for measuring fair value and expands disclosures about fair
value measurements. Although the adoption of ASC 820-10 did not impact the Groups financial
condition, results of operations, or cash flows, ASC 820-10 requires additional disclosures to be
provided on fair value measurements.
ASC 820-10 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in
measuring fair value as follows:
Level 1 Observable inputs that reflect quoted prices (unadjusted) for identical assets or
liabilities in active markets
Level 2 Include other inputs that are directly or indirectly observable in the marketplace
Level 3 Unobservable inputs which are supported by little or no market activity
ASC 820-10 describes three main approaches to measuring the fair value of assets and
liabilities: (1) market approach; (2) income approach; and (3) cost approach. The market approach
uses prices and other relevant information generated from market transactions involving identical
or comparable assets or liabilities. The income approach uses valuation techniques to convert
future amounts to a single present value amount. The measurement is based on the value indicated by
current market expectations about those future amounts. The cost approach is based on the amount
that would currently be required to replace an asset.
Foreign currency and commodity derivatives are classified within Level 2 because they are
valued using models utilizing market observable and other inputs.
The fair value of the conversion option of convertible bonds as of December 31, 2010 was estimated
based on the following assumptions:
|
|
|
|
|
Risk-free interest rate |
|
|
2.72 |
% |
Time to maturity |
|
7.04 years |
|
Expected volatility |
|
|
80 |
% |
Comparable yield to maturity |
|
|
5.32 |
% |
Fair value of ordinary shares |
|
US$ |
1.634 |
|
F-49
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
31. FAIR VALUE MEASUREMENTS (CONTD)
Assets and liabilities measured at fair value on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at December 31, 2010 using: |
|
|
|
|
|
|
Quoted prices in |
|
|
Significant |
|
|
|
|
|
|
|
|
|
active markets |
|
|
other |
|
|
Significant |
|
|
|
|
|
|
for identical |
|
|
observable |
|
|
unobservable |
|
|
|
|
|
|
assets |
|
|
inputs |
|
|
inputs |
|
|
Total fair value at |
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
December 31, 2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Time deposit |
|
|
1,630,777 |
|
|
|
|
|
|
|
|
|
|
|
1,630,777 |
|
|
|
247,087 |
|
- Restricted cash |
|
|
100,490 |
|
|
|
|
|
|
|
|
|
|
|
100,490 |
|
|
|
15,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency/commodity
derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Financial assets |
|
|
|
|
|
|
7,489 |
|
|
|
|
|
|
|
7,489 |
|
|
|
1,135 |
|
- Financial liabilities |
|
|
|
|
|
|
8,047 |
|
|
|
|
|
|
|
8,047 |
|
|
|
1,219 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion option of
convertible bonds |
|
|
|
|
|
|
|
|
|
|
277,566 |
|
|
|
277,566 |
|
|
|
42,055 |
|
The following is a reconciliation of the liabilities measured at fair value on a recurring
basis using significant unobservable inputs (Level 3) for the years ended December 31, 2009 and
2010.
|
|
|
|
|
|
|
Conversion option of |
|
|
|
convertible bonds |
|
|
|
(RMB000) |
|
|
|
|
|
|
Balance as of January 1, 2009 |
|
|
235,311 |
|
Conversion of convertible bonds |
|
|
(9 |
) |
Realized or unrealized loss |
|
|
73,887 |
|
Net purchases, issuances and settlements |
|
|
|
|
Transfers in and/or out of Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009 |
|
|
309,189 |
|
Realized or unrealized gain |
|
|
(31,623 |
) |
Net purchases, issuances and settlements |
|
|
|
|
Transfers in and/or out of Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010 |
|
|
277,566 |
|
|
|
|
|
The amount of realized or unrealized gain/loss is included in the consolidated statements of
operations in Changes in fair value of conversion feature of convertible bonds.
32. SUBSEQUENT EVENTS
Pursuant to the Share Issuance and Repurchase Agreement (Note 27), on March 10, 2011, the Company
has issued the remaining 14,407,330 ordinary shares to Hanwha Solar. Accordingly, an amount of
RMB9,446 was recorded in other current liabilities.
F-50
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
32. SUBSEQUENT EVENTS (CONTD)
On April 15, 2011, the Group established two subsidiaries, Hanwha SolarOne (Nantong) Co., Ltd.
(SolarOne Nantong) and Nantong Hanwha Import & Export Co., Ltd. (Nantong Hanwha
I&E).The registered capital of SolarOne Nantong and Nantong Hanwha I&E is US$40,000,000 and
RMB5,000,000, respectively. As of April 14, 2011, Nantong Hanwha I&E received paid-in capital of
RMB5,000,000 in cash. As of May 4, 2011, SolarOne Nantong received paid-in capital of US$8,000,000
in cash and the rest will be paid within two years from the date of business license. The principal
activity of SolarOne Nantong is to develop, manufacture and sell PV products to both domestic and
overseas customers. Nantong Hanwha I&E is mainly engaged in import and export business.
Both subsidiaries are 100% owned by the Group and are dormant as of June 3, 2011.
33. ADDITIONAL FINANCIAL INFORMATION OF THE COMPANY
Under PRC laws and regulations, the Companys PRC subsidiaries are restricted in their ability to
transfer their net assets to the Company in the form of dividend payments, loans, or advances. As
determined pursuant to PRC generally accepted accounting principles, net assets of the Companys
PRC subsidiaries (excluding subsidiaries with net accumulated losses) which are restricted from
transfer amounted to RMB3,012,268,000 (US$456,404,242) as of December 31, 2010.
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
Note |
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
5,593 |
|
|
|
27,809 |
|
|
|
4,213 |
|
Other receivables |
|
|
|
|
3,187 |
|
|
|
3,465 |
|
|
|
525 |
|
Deferred expenses |
|
|
|
|
106 |
|
|
|
294 |
|
|
|
45 |
|
Amount due from subsidiaries |
|
b |
|
|
2,728,948 |
|
|
|
4,196,861 |
|
|
|
635,888 |
|
Derivative contracts |
|
|
|
|
5,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
2,743,712 |
|
|
|
4,228,429 |
|
|
|
640,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term deferred expenses |
|
c |
|
|
31,397 |
|
|
|
25,687 |
|
|
|
3,892 |
|
Investment in subsidiaries |
|
a |
|
|
723,257 |
|
|
|
1,679,959 |
|
|
|
254,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets |
|
|
|
|
754,654 |
|
|
|
1,705,646 |
|
|
|
258,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
3,498,366 |
|
|
|
5,934,075 |
|
|
|
899,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other payables |
|
d |
|
|
21,467 |
|
|
|
20,828 |
|
|
|
3,156 |
|
Derivative contracts |
|
|
|
|
|
|
|
|
8,047 |
|
|
|
1,219 |
|
Amount due to subsidiaries |
|
b |
|
|
6,538 |
|
|
|
23,457 |
|
|
|
3,554 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
28,005 |
|
|
|
52,332 |
|
|
|
7,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible bonds |
|
|
|
|
658,653 |
|
|
|
687,435 |
|
|
|
104,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities |
|
|
|
|
658,653 |
|
|
|
687,435 |
|
|
|
104,157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
686,658 |
|
|
|
739,767 |
|
|
|
112,086 |
|
F-51
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
33. ADDITIONAL FINANCIAL INFORMATION OF THE COMPANY (CONTD)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
Note |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable ordinary shares (par value
US$0.0001 per share; 45,098,055
shares issued and outstanding at
December 31, 2009 and 2010) |
|
|
|
|
|
|
55 |
|
|
|
55 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares (par value
US$0.0001 per share; 500,000,000
shares authorized; 290,708,739 shares
and 420,645,432 shares issued and
outstanding at December 31, 2009 and
2010, respectively) |
|
|
|
|
|
|
227 |
|
|
|
314 |
|
|
|
48 |
|
Additional paid-in capital |
|
|
|
|
|
|
2,331,797 |
|
|
|
3,956,953 |
|
|
|
599,538 |
|
Retained earnings |
|
|
|
|
|
|
479,629 |
|
|
|
1,236,986 |
|
|
|
187,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
|
|
|
|
2,811,653 |
|
|
|
5,194,253 |
|
|
|
787,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities,
redeemable ordinary
shares and shareholders
equity |
|
|
|
|
|
|
3,498,366 |
|
|
|
5,934,075 |
|
|
|
899,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
Note |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
(11,548 |
) |
|
|
(22,969 |
) |
|
|
(7,822 |
) |
|
|
(1,185 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
|
|
|
|
(11,548 |
) |
|
|
(22,969 |
) |
|
|
(7,822 |
) |
|
|
(1,185 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of (loss) profit from subsidiaries |
|
|
|
|
|
|
(232,412 |
) |
|
|
21,254 |
|
|
|
924,740 |
|
|
|
140,112 |
|
Interest income |
|
|
|
|
|
|
23 |
|
|
|
4 |
|
|
|
5 |
|
|
|
1 |
|
Interest expense |
|
|
|
|
|
|
(43,397 |
) |
|
|
(98,066 |
) |
|
|
(118,980 |
) |
|
|
(18,027 |
) |
Changes in fair value of derivative contracts |
|
|
|
|
|
|
71,673 |
|
|
|
30,506 |
|
|
|
7,082 |
|
|
|
1,073 |
|
Changes in fair value of conversion feature
of convertible bonds |
|
|
|
|
|
|
|
|
|
|
(73,887 |
) |
|
|
31,623 |
|
|
|
4,791 |
|
Exchange losses |
|
|
|
|
|
|
(64,830 |
) |
|
|
(2,069 |
) |
|
|
(79,291 |
) |
|
|
(12,014 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before tax |
|
|
|
|
|
|
(280,491 |
) |
|
|
(145,227 |
) |
|
|
757,357 |
|
|
|
114,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
(280,491 |
) |
|
|
(145,227 |
) |
|
|
757,357 |
|
|
|
114,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Hanwha
SolarOne Co., Ltd. shareholders |
|
|
|
|
|
|
(280,491 |
) |
|
|
(145,227 |
) |
|
|
757,357 |
|
|
|
114,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-52
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
33. ADDITIONAL FINANCIAL INFORMATION OF THE COMPANY (CONTD)
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
2010 |
|
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(RMB000) |
|
|
(US$000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(19,326 |
) |
|
|
(6,401 |
) |
|
|
(9,913 |
) |
|
|
(1,502 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(1,642,640 |
) |
|
|
(134,059 |
) |
|
|
(1,602,242 |
) |
|
|
(242,764 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
1,665,486 |
|
|
|
135,920 |
|
|
|
1,634,371 |
|
|
|
247,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
3,520 |
|
|
|
(4,540 |
) |
|
|
22,216 |
|
|
|
3,366 |
|
Cash and cash equivalents at the beginning of year |
|
|
6,613 |
|
|
|
10,133 |
|
|
|
5,593 |
|
|
|
847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of year |
|
|
10,133 |
|
|
|
5,593 |
|
|
|
27,809 |
|
|
|
4,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to the Financial Statements of the Company
(a) Basis of presentation
In the Company-only financial statements, the Companys investment in subsidiaries is stated at
cost plus equity in undistributed earnings of subsidiaries since inception or acquisition. The
Company-only financial statements should be read in conjunction with the Companys consolidated
financial statements.
The Company records its investment in its subsidiaries under the equity method of accounting as
prescribed in ASC 323-10, Investments-Equity Method and Joint Ventures. Such investment is
presented on the balance sheets as Investment in subsidiaries and share of the subsidiaries
profit or loss as Share of (loss) profit from subsidiaries on the statements of operations.
The subsidiaries did not pay any dividends to the Company for the periods presented.
Certain information and footnote disclosures normally included in financial statements prepared in
accordance with US GAAP have been condensed or omitted.
(b) Related party transactions and balances
For the years ended December 31, 2009 and 2010, the Company made advances to its subsidiaries
amounting to approximately RMB2,728,948,000 and RMB4,196,861,000 (US$635,888,030), respectively.
During the same period, a subsidiary of the Company paid operating expenses amounting to
approximately RMB6,538,000 and RMB23,457,000 (US$3,554,091), respectively, on behalf of the
Company.
As of December 31, 2009 and 2010, all balances with related parties were unsecured, non-interesting
bearing and repayable on demand.
F-53
HANWHA SOLARONE CO., LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009 AND 2010 AND
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2010
33. ADDITIONAL FINANCIAL INFORMATION OF THE COMPANY (CONTD) |
Notes to the Financial Statements of the Company (contd)
(c) Long-term deferred expenses
The long-term deferred expenses as of December 31, 2010 mainly included the cost related to
issuance of convertible bonds (Note 22) to be amortized over 10 years using the effective interest
method. These issuance costs have been recorded as Long-term deferred expenses. As of December
31, 2010, the unamortized costs related to the issuance of convertible bonds amounted to
approximately RMB25,664,000 (US$3,888,485).
(d) Other payables
As of December 31, 2010, other payables mainly included interest payable to holders of the
convertible bonds of approximately RMB18,434,000 (US$2,793,030).
(e) Commitments
The Company did not have any significant commitments or long-term obligations, other than the
convertible bonds, as of any of the periods presented.
(f) Convenience translation
Amounts in United States dollars are presented for the convenience of the reader and are translated
at the noon buying rate of US$1.00 to RMB6.6000 on December 31, 2010 in the City of New York for
cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New
York. No representation is made that the Renminbi amounts could have been, or could be, converted
into United States dollars at such rate.
F-54