Edgar Filing: Hanwha Q CELLS Co., Ltd.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 20-F

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2017

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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 Q CELLS CO., LTD.

(Exact name of Registrant as specified in its charter)

Not Applicable		Cayman Islands
(Translation of Registrant’s name into English)		(Jurisdiction of Incorporation or Organization)

Hanwha Building, 86 Cheonggyecheon-ro, Jung-gu, Seoul, Korea

(Address of Principal Executive Offices)

Mr. Jung Pyo Seo

Chief Financial Officer

Telephone: +82-2-729-4431

Fax: +82-2-729-3003

Hanwha Building,

86 Cheonggyecheon-ro,

Jung-gu, Seoul, Korea

(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:

Title of Each Class

Name of Each Exchange on Which Registered

American Depositary Shares

Ordinary Shares, par value $0.0001 per share

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 issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

4,162,556,067 Ordinary Shares, par value $0.0001 per share, as of December 31, 2017

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨Yes x No

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 x No

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. x Yes ¨ No

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). x Yes ¨ No

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):

Large accelerated filer ¨	Accelerated filer x	Non-accelerated filer ¨
		Emerging growth company ¨

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP x

International Financial Reporting Standards as issued

by the International Accounting Standards Board ¨

Other ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 ¨ 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 x No

(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 ¨ No

Table of Contents

ITEM 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS	6
ITEM 2 OFFER STATISTICS AND EXPECTED TIMETABLE	6
ITEM 3 KEY INFORMATION	6
ITEM 4 INFORMATION ON THE COMPANY	26
ITEM 4A UNRESOLVED STAFF COMMENTS	41
ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS	41
ITEM 6 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	61
ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	69
ITEM 8 FINANCIAL INFORMATION	73
ITEM 9 THE OFFER AND LISTING	77
ITEM 10 ADDITIONAL INFORMATION	78
ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	83
ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	84
ITEM 13 DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	86
ITEM 14 MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	86
ITEM 15 CONTROLS AND PROCEDURES	86
ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERT	90
ITEM 16B CODE OF ETHICS	90
ITEM 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES	90
ITEM 16D EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	90
ITEM 16E PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	90
ITEM 16F CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	90
ITEM 16G CORPORATE GOVERNANCE	91
ITEM 16H MINE SAFETY DISCLOSURE	92
ITEM 17 FINANCIAL STATEMENTS	93
ITEM 18 FINANCIAL STATEMENTS	93
ITEM 19 EXHIBITS	93

INTRODUCTION

Unless otherwise indicated, references in this annual report to:

“ADSs” are to American depositary shares, each of which represents fifty ordinary shares. Effective as of June 15, 2015, we changed the ratio of the ADSs to ordinary shares from one ADS representing five ordinary shares to one ADS representing fifty ordinary shares. The number and ratio of the ADSs to ordinary shares has been adjusted retrospectively for all periods presented in this annual report to reflect the current ratio of the ADSs to ordinary shares of one ADS representing fifty ordinary shares;

“ASPs” are to average selling price, expressed as a dollar value per unit of output(watt-peak).

“AUD” are to Australian Dollar, the official currency of Australia;

“BSF” are to the back surface field;

“China” or the “PRC” are to the People’s Republic of China, excluding, for the purpose of this annual report only, Taiwan and the special administrative regions of Hong Kong and Macau;

“conversion efficiency” are to the ability of photovoltaic (“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;

“CSPV” are to crystalline silicon photovoltaic;

“cost per watt” are to the method by which the cost of PV products are commonly measured in the PV industry. A PV product is priced based on the number of watts of electricity it can generate;

“EUR” are to Euros, the official currency of the European Union;

“GW” are to gigawatt, representing 1,000,000,000 watts, a unit of power-generating capacity or consumption;

“Hanwha Chemical” are to Hanwha Chemical Corporation, a corporation with limited liability incorporated under the laws of Korea, which owns 100% of Hanwha Solar;

“Hanwha Q CELLS Hong Kong” are to Hanwha Q CELLS Hong Kong Limited;

“Hanwha Q CELLS Qidong” are to Hanwha Q CELLS (Qidong) Co., Ltd., our wholly-owned operating subsidiary in China;

“Hanwha Solar” are to Hanwha Solar Holdings Co., Ltd., a holding company incorporated in the Cayman Islands that currently owns approximately 94.0% of our outstanding ordinary shares;

“Hanwha SolarOne” are to Hanwha SolarOne Co., Ltd., our previous name prior to our name change in February 2015 to Hanwha Q CELLS Co., Ltd., and its consolidated subsidiaries, without including Q CELLS, which will be used to describe historical results of operations and financial condition of Hanwha SolarOne Co., Ltd and its consolidated subsidiaries prior to the acquisition of Q CELLS;

“JPY” are to the official currency of Japan;

“Korea” are to the Republic of Korea;

“KRW” are to the official currency of the Republic of Korea;

	·	“LCOE” or “Levelized Cost of Energy,” which is derived by dividing the total cost to build and operate a power generating asset over its lifetime by the total energy output of the said asset. It is a measure which attempts to compare different methods of electricity generation on a consistent basis.

	·	“MW” refers to megawatt, representing 1,000,000 watts, a unit of power-generating capacity or consumption;

“MYR” are to the official currency of Malaysia;

“PERC” are to the passivated emitter rear contact;

“PID” are to potential induced degradation, which is a phenomenon that occurs when ions are driven between the semiconductor material and other elements of the module (e.g., glass, mount and frame), causing the module’s power output capacity to degrade faster than the standard impairment rate;

“PV” are to photovoltaic. The photovoltaic effect is a process by which sunlight is converted into electricity;

“RMB” and “Renminbi” are to the legal currency of China;

“series A convertible preference shares” are to our series A convertible preference shares, par value $0.0001 per share;

“shares” or “ordinary shares” are to our ordinary shares, par value $0.0001 per share. For the purpose of computing and reporting our outstanding ordinary shares and our basic or diluted earnings per share we do not consider outstanding: (i) the remaining 20,062,348 ordinary shares we issued to Hanwha Solar in connection with Hanwha Solar’s purchase of 36,455,089 ordinary shares of our company in September 2010, which were cancelled in January 2018, and (ii) the ADSs which have been reserved by our company to allow for the participation in the ADS program by our employees pursuant to our equity incentive plans from time to time;

“Q CELLS” are to Hanwha Q CELLS Investment Co., Ltd., a holding company incorporated in the Cayman Islands, and its consolidated subsidiaries, including Hanwha Q CELLS GmbH, Hanwha Q CELLS Malaysia Sdn. Bhd. and Hanwha Q CELLS Australia Pty Ltd., collectively; it does not include certain affiliates that have “Q CELLS” in their names, including Hanwha Q CELLS Japan Co., Ltd., Hanwha Q CELLS USA Corp. and Hanwha Q CELLS Korea Corp., which are not consolidated subsidiaries of Hanwha Q CELLS Investment Co., Ltd. and have not been acquired by us;

“W” are to watt, a unit of power-generating capacity or consumption;

“we,” “us,” “our,” “our company,” the “company,” the “Group” and “Hanwha Q CELLS” refer to Hanwha Q CELLS Co., Ltd., formerly known as Hanwha SolarOne, and its consolidated subsidiaries; and

“$” and “U.S. dollars” are to the official currency of the United States.

On December 26, 2006, we completed our initial public offering and listed the ADSs on the Nasdaq Global Market, which are traded under the symbol “HQCL.”

On January 29, 2008, we offered $172.5 million aggregate principal amount of 3.50% convertible senior notes due 2018 (“2018 convertible notes”), to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (“Securities Act”), and received net proceeds of $167.9 million. Concurrently with the offering of these convertible notes, we offered 901,961 ADSs, representing 45,098,055 ordinary shares, to facilitate the convertible notes offering. We did not receive any proceeds, other than the par value of the ADSs, from such offering of ADSs. A portion of these ADSs were subsequently repurchased as described below.

From July 17, 2008 to August 12, 2008, we issued and sold 542,109 ADSs with an aggregate sale price of $73.9 million.

From September 17, 2009 to November 18, 2009, we issued and sold 388,839 ADSs with an aggregate sale price of $23.1 million.

In September 2010, we issued and sold to Hanwha Solar 36,455,089 ordinary shares for an aggregate sale price of $78.2 million. Concurrently with this offering, we issued 30,672,689 ordinary shares to Hanwha Solar at par value of the ordinary shares and subsequently issued an additional 14,407,330 ordinary shares at par value, which shares were to remain outstanding so long as and to the extent that the 901,961 ADSs we issued to facilitate our convertible notes offering in January 2008 remained outstanding. A portion of these ordinary shares were subsequently repurchased as described below. Concurrently, Hanwha Solar acquired 120,407,770 ordinary shares and 128,101 ADSs of the company, from Good Energies II LP and Yonghua Solar Power Investment Holding. Good Energies II LP and Yonghua Solar Power Investment Holding were companies owned by Mr. Yonghua Lu, the former chairman of the Company. Following this transaction, Mr. Lu did not hold any shares in the Company. Hanwha Solar, a holding company incorporated in the Cayman Islands, is a wholly-owned subsidiary of Hanwha Chemical, a leading chemical producer publicly traded on the Korea Exchange whose principal activities are the production of chemical, solar energy, construction, automotive and electronic materials and products.

In November 2010, we issued and sold 920,000 ADSs with an aggregate sale price of $82.8 million. In order for Hanwha Solar to maintain after this offering the same level of beneficial ownership in our company before this offering, we also issued and sold to Hanwha Solar 45,981,604 ordinary shares for an aggregate sale price of $82.8 million.

In October 2011, we repurchased and cancelled 500,554 ADSs and the ordinary shares represented by such ADSs, which were issued pursuant to a share issuance and repurchase agreement, dated January 23, 2008, to facilitate our convertible notes offering in January 2008, from Morgan Stanley & Co. International PLC. We also repurchased and cancelled 25,017,671 ordinary shares, which were issued pursuant to a share issuance and repurchase agreement dated September 16, 2010, from Hanwha Solar. These ADSs and ordinary shares were repurchased at par value of $0.005 per ADS and $0.0001 per ordinary share.

In 2012, we repurchased our 2018 convertible notes in a total principal amount of $71.9 million.

From November 15, 2013 to January 29, 2014, we issued and sold 671,696 ADSs with an aggregate sale price of $21.5 million.

In January and April 2015, we repurchased our 2018 convertible notes in a total principal amount of $86,075,000 pursuant to the holders’ exercise of the put right under the terms of the 2018 convertible notes. After these repurchases pursuant to the exercise of the put right, none of the 2018 convertible notes remained outstanding.

In February 2015, we issued 3,701,145,330 ordinary shares to Hanwha Solar in exchange for the transfer of 100% of the outstanding share capital of Q CELLS by Hanwha Solar to us and Q CELLS became a wholly-owned subsidiary of us. As a result of the transaction, Hanwha Solar’s ownership of our ordinary shares increased from approximately 45.7% to approximately 94.0%. In connection with the transaction, we changed our name from “Hanwha SolarOne Co., Ltd.” to “Hanwha Q CELLS Co., Ltd.” and our ticker from “HSOL” to “HQCL” on February 9, 2015.

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

Following the consummation of the combination of Hanwha SolarOne and Q CELLS on February 6, 2015, Q CELLS was determined to be the accounting acquirer in accordance with Accounting Standards Codification (“ASC”) 805, “Business Combinations.” Consequently, the financial statements of Q CELLS are treated as our historical financial statements for all periods prior to the consummation of the combination of Hanwha SolarOne and Q CELLS on February 6, 2015.

The following selected consolidated financial data have been derived from Q CELLS’ and our audited consolidated financial statements. Our selected data from the consolidated statement of operations for the years ended December 31, 2017, 2016 and 2015 and data from the consolidated balance sheets of December 31, 2017, 2016 and 2015 have been derived from our audited consolidated financial statements for the years ended December 31, 2017, 2016 and 2015 included elsewhere in this annual report. Q CELLS’ selected data from the consolidated statement of operations data for the year ended December 31, 2014 and 2013 and Q CELLS’ data from the consolidated balance sheets as of December 31, 2014 and 2013 have been derived from its audited consolidated financial statements, which are not included or incorporated by reference in this annual report.

The following selected consolidated financial information are qualified by reference to our and Q CELLS’ financial statements referred to above and the related notes. Our and Q CELLS’ consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results do not necessarily indicate our results expected for any future periods.

	Year Ended December 31,
	2013			2014		2015		2016			2017
	Q CELLS			Q CELLS		Hanwha Q CELLS⁽¹⁾		Hanwha Q CELLS			Hanwha Q CELLS
	($)			($)		($)		($)			($)
	(In millions, except number of shares and per share data)
Consolidated Statements of Operations Data
Net revenues	$	530.1		$	773.1	$	1,800.8	$	2,425.9		$	2,188.9
Cost of revenues		451.7			653.2		1,466.8		1,985.6			1,944.1
Gross profit		78.4			119.9		334.0		440.3			244.8
Operating expenses		111.9			107.0		256.1		248.2			219.2
Operating income (loss)		(33.5	)		12.9		77.9		192.1			25.6
Income (loss) before income taxes		(47.6	)		4.4		53.9		123.2			(0.4	)
Income tax expense (benefit)		0.4			1.4		10.1		(4.3	)		12.0
Net income (loss)		(48.0	)		3.0		43.8		127.5			(12.4	)
Net income (loss) per share (diluted)		(0.03	)		0.00		0.01		0.03			(0.00	)
Basic number of shares		1,693,522,340			3,701,145,330		4,120,689,668		4,159,297,541			4,162,018,711

(1)

Our results of operations for 2015 represent Q CELLS’ (but not Hanwha SolarOne’s) results of operations for the period from January 1, 2015 to February 5, 2015 and our consolidated results of operations for the period from February 6, 2015 to December 31, 2015 following the consummation of the combination of Hanwha SolarOne and Q CELLS on February 6, 2015.

	As of December 31,
	2013		2014		2015		2016		2017
	Q CELLS		Q CELLS		Hanwha Q CELLS		Hanwha Q CELLS		Hanwha Q CELLS
	($)		($)		($)		($)		($)
	(In millions)
Consolidated Balance Sheet Data
Cash and cash equivalents	$	257.7	$	156.7	$	200.0	$	390.0	$	183.4
Other current assets		340.4		427.8		1,370.7		961.5		1,068.7
Total current assets		598.1		584.7		1,570.7		1,351.5		1,252.1
Property, plant, and equipment		144.9		147.8		877.3		755.5		837.6
Other non-current assets		28.4		33.7		99.5		102.1		172.9
Total non-current assets		173.3		181.5		976.8		857.6		1,010.5
Total assets		771.4		766.2		2,547.5		2,209.1		2,262.6

Short-term borrowings, current portion of long-term borrowings and current portion of obligations under capital leases		10.7		8.0		416.7		527.9		679.5
Other current liabilities		262.9		226.6		1,113.8		602.4		564.7
Total current liabilities		273.6		234.8		1,530.5		1,130.3		1,244.2
Long-term borrowings and long-term notes, net of current portion		210.6		283.5		653.5		643.7		536.2
Other long-term liabilities		19.8		18.2		23.3		26.9		26.2
Total long-term liabilities		230.5		301.7		676.8		670.6		562.4
Total liabilities		504.1		536.5		2,207.3		1,800.9		1,806.6
Total stockholders’ equity		267.4		229.7		340.2		408.2		456.0
Total liabilities and stockholders’ equity	$	771.4	$	766.2	$	2,547.5	$	2,209.1		2,262.6

Other Financial Data

	Year Ended December 31,
	2014			2015			2016			2017
	Q CELLS			Hanwha Q CELLS			Hanwha Q CELLS			Hanwha Q CELLS
Gross margin		15.5	%		18.5	%		18.1	%		11.2	%
Operating margin		1.7	%		4.3	%		7.9	%		1.2	%
Net margin		0.4	%		2.4	%		5.3	%		-0.6	%

	Year Ended December 31,
	2014		2015		2016		2017
	Q CELLS		Hanwha Q CELLS		Hanwha Q CELLS		Hanwha Q CELLS
	($)		($)		($)		($)
	(In millions)
Depreciation, amortization and impairment	$	37.4	$	83.3	$	94.1	$	111.2
Acquisition of fixed assets and intangible assets	$	45.6	$	200.0	$	174.9	$	110.2

Other Operating Data

	Year Ended December 31,
	2014		2015		2016		2017
	Q CELLS		Hanwha Q CELLS		Hanwha Q CELLS		Hanwha Q CELLS
	(MW)		(MW)		(MW)		(MW)
Amount of PV modules shipped		967.1		2,956.1		4,583.0		5,438.3

	Year Ended December 31,
	2014		2015		2016		2017
	Q CELLS		Hanwha Q CELLS		Hanwha Q CELLS		Hanwha Q CELLS
	($/W)		($/W)		($/W)		($/W)
Average selling price of PV modules	$	0.72	$	0.58	$	0.53	$	0.38

B. Capitalization and Indebtedness

Not Applicable.

C. Reasons for the Offer and Use of Proceeds

Not Applicable.

D. Risk Factors

Strategic risks

Our earnings may be adversely affected by unfavorable movements in average selling prices of PV products and key raw materials due to supply and demand imbalances across the PV value chain.

Average selling price of PV modules declined rapidly in the second half of 2016, triggered by a collapse in demand in the China market. In 2017, module ASPs continued to decline at a more moderate pace. Prices of key raw materials such as solar-grade polysilicon, however, increased due to supply shortage caused by shut-down of the polysilicon production facility in China due to stricter environmental regulations. Higher polysilicon prices led to higher wafer prices. Increases in input prices and a continued decline in module ASPs negatively impacted our profit margins. Our earnings may continue to be adversely affected if supply and demand imbalances continue to result in unfavorable movements in ASPs across the PV value chain.

Implementation on global safeguard measures applies to solar cells and modules manufacturing in Malaysia and South Korea that we import into the United States, impairing our ability to sell those products inside the United States and thereby materially and adversely affecting our business prospects, results of operations, and financial condition.

Upon a petition for import relief, as amended and properly filed under Section 201 of the U.S. Trade Act of 1974 (19 U.S.C. § 2251) on May 17, 2017, by Suniva, Inc., the U.S. International Trade Commission (“ITC”) instituted an investigation to determine “whether CSPV cells (whether or not partially or fully assembled into other products) are being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry producing an article like or directly competitive with the imported articles. On May 25, 2017, SolarWorld Americas publicly stated its support for the petition as a co-petitioner.

Determining that the investigation is “extraordinarily complicated” within the meaning of Section 202(b)(2)(B) of the U.S. Trade Act of 1974, ITC had additional days to make its injury determination on September 22, 2017. Having made an affirmative injury determination that the CSPV products are being imported into the U.S. in such increased quantities as to be a substantial cause of serious injury to the domestic industry producing an article like or directly competitive with the imported article, ITC transmitted its report, including ITC’s injury determination, remedy recommendations, basis for such determination and recommendations, and a summary of the information obtained in the investigation, to the President on November 13, 2017. Furthermore, ITC recommended remedy measures on October 31, 2017.

President Trump then proclaimed a “safeguard measure” with regard to the CSPV products in the form of: (a) a tariff-rate quota on imports of solar cells for four years, with annual reductions, with the exception of first annual aggregate quantity not exceeding 2.5GW of imported cells; and (b) an increase in duties on imports of modules for four years, with annual reductions. The measure shall apply to imports from all countries (“global safeguard”) with the exclusion of Generalized System of Preferences beneficiary developing countries. This safeguard measure became effective as of 12:01 a.m. Eastern Standard Time (“EST”) on February 7, 2018.

Pursuant to Article 12.3 of the WTO Agreement, the U.S. has an obligation to consult with the WTO Members, including us. Based on the consultation, President Trump may proclaim the responding reduction, modification, or termination of the safeguard measure within 40 days.

Change in government policies such as subsidies and/or regulations, may have a material adverse effect on our business and prospects

Demand for our PV products has been affected by global economic conditions, capital markets fluctuations and availability of government subsidies. Although solar power generation has reached grid parity in certain markets, the economic feasibility of solar power still depends substantially on government policies toward the renewable energy industry. As a result, federal, state and local governmental bodies in many countries, most notably Japan, the United States, China, Germany, the United Kingdom and France, 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 and to reduce dependency on conventional sources of energy generation. The reduction or elimination of government subsidies and economic incentives in a particular country may adversely impact the growth of the solar energy and PV products markets, which could decrease demand for our products and reduce our revenue.

For example, the results of the 2016 United States presidential election created regulatory uncertainty in the renewable energy industry, potentially affecting the solar industry, our business, financial condition, and results of operations. Members of the United States administration, including representatives of the U.S. Department of Energy, have made public statements that indicate that the administration may not be supportive of various clean energy programs and initiatives designed to curtail climate change. For example, in June 2017, the U.S. President announced that the U.S. would withdraw from participation in the 2015 Paris Agreement on climate change mitigation. In addition, the administration has indicated that it may be supportive of overturning or modifying policies and regulations enacted by the prior administration that placed limitations on coal and gas electricity generation, mining, and/or exploration.

Germany and Japan continuously reduced feed-in tariffs. With residential LCOE of approximately 0.10 €/kWh PV electricity in Germany is now considerably cheaper than consuming electricity from the grid (0.29 €/kWh-0.31 €/kWh). Only excess electricity is supplied to the grid at a feed-in tariff of approximately 0.12 €/kWh. The Japanese government reduced feed-in tariffs applicable to systems of 10 kW or more from JPY32 per kWh for the fiscal year of 2014 to JPY21 per kWh for the fiscal year of 2017. For systems of 10 kW or less, the feed-in tariff rate per kWh was reduced from JPY37 for the fiscal year of 2014 to JPY28 per kWh, or JPY30, if obligated to use an output control system, for the fiscal year of 2017. See “Item 4. Information on the Company—B. Business Overview—Regulation”.

In addition, 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 continues to evolve, these regulations and policies are being modified and may continue to be modified. Customer purchases 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 profit.

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.

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 highly competitive and we face competition from a number of global PV companies, such as JinkoSolar Holding Co., Ltd., Canadian Solar Inc., Trina Solar Limited, JA Solar Holdings Co., Ltd., First Solar, Inc. and SunPower Corporation. We believe that the principal competitive factors in the markets for our PV cells and modules are:

	·	price;
	·	product offerings and quality of products including conversion efficiency;
	·	strength of supply chain and distribution network;
	·	manufacturing capacity and capacity utilization;
	·	manufacturing cost;
	·	corporate financial stability;
	·	after-sales services; and
	·	brand name recognition.

Some of our current and potential competitors may have longer operating histories, access to larger customer bases and resources and 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 fluctuation in the demand for PV products.

In addition, our competitors owned or controlled by local persons or entities may be more competitive when obtaining government support, local financing or otherwise expanding in the respective local markets. It is possible that new competitors or alliances among existing competitors could emerge and rapidly acquire significant market share, which would adversely affect our business. 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.

Declines in the prices of other energy sources, including natural gas, could have a material adverse effect on the demand for PV products and our business and prospects.

The PV market in general competes with conventional power generation as well as other sources of renewable energy. Electricity is generated from a variety of sources, primarily including coal, natural gas, hydro power, nuclear power, and wind. The demand for PV products is affected by the prices of these fossil fuels and other renewable energy resources. Prices of some of these energy resources, in particular oil and natural gas, have historically shown significant volatility due to various factors, including global economic conditions and demand for energy resources, the level of investment by government and private enterprises in exploration and production activities and the degree of success of such activities in increasing the global supply, government regulations and policies concerning the energy sector and political developments in resource-producing countries or regions.

For example, the market prices of natural gas significantly declined in 2014 and 2015 due to, among other factors, an increase in supply from shale explorations in the United States, as well as continued high level of production in the Middle East and Russia, and weak global economic conditions for growth. While market prices of natural gas noticeably rebounded in 2016, they are still below pre-2014 prices. Any further decline in the prices of natural gas could negatively affect the demand for PV products by reducing the cost of generating electricity from these sources and by undermining government and public support for the use of renewable energy sources.

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 success depends on our ability to respond to rapid market changes in the PV industry by developing new technologies and offering additional products and services, which could expose us to a number of risks and uncertainties.

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 higher cell efficiency, higher module power output and improved aesthetics. As a result, we expect that we will need to continuously develop or obtain access to more advanced technologies in order for us to respond to competitive market conditions and customer demands. In addition, such advanced 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 that we anticipate, and we may not be able to successfully enhance 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.

If we are not able to bring quality products and services to the market in a timely and cost-effective manner and successfully market and sell these products and services, our ability to continue increasing market share, 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.

Strategic acquisitions, investments and alliances with third parties may be expensive to implement and could also 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 counterparties to such arrangements, 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 be effective or beneficial for our business. Any difficulty or failure we face in this regard could have a material adverse effect on our market penetration, results of operations and profitability.

Legal and compliance risks

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 byproducts of, and water used in, our manufacturing operations and research and development activities, including toxic, volatile and otherwise hazardous chemicals and wastes. 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, clean up costs and fines or suspension of our business, as well as adversely affect our financial condition and results of operations.

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 (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 (the “RoHS Directive”) restricts the use of certain hazardous substances, including lead, in specified products. Other jurisdictions are considering adopting similar legislation. Failure to comply with the WEEE and RoHS 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.

Restrictions on currency exchange may limit our ability to receive and use our revenue effectively.

A portion of our revenue and 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, Hanwha Q CELLS 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 (“SAFE”). However, the relevant PRC government authorities may limit or eliminate our ability to purchase foreign currencies in the future. Since some 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 Hanwha Q CELLS 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 Hanwha Q CELLS Qidong borrows foreign currency loans from us or other foreign lenders, these loans must be registered with SAFE, and if we finance Hanwha Q CELLS Qidong by means of additional capital contributions, these capital contributions must be approved by certain government authorities, including the National Development and Reform Commission (“NDRC”), the Ministry of Commerce or their respective local counterparts. These limitations could affect the ability of Hanwha Q CELLS Qidong to obtain foreign exchange through debt or equity financing.

In addition, our operations in Malaysia are affected by foreign exchange policies of Malaysia which support the monitoring of capital flows into and out of the country in order to preserve its financial and economic stability. The foreign exchange policies are administered by the Foreign Exchange Administration, an arm of Bank Negara Malaysia which is the central bank of Malaysia. Under the current regulations issued by Bank Negara Malaysia, non-residents are free to repatriate any amount of funds in Malaysia at any time, including capital, divestment proceeds, profits, dividends, rental, fees and interest arising from investment in Malaysia, subject to the applicable reporting requirements, and any withholding tax. However, in the event Bank Negara Malaysia introduces any restrictions in the future, we may be affected in our ability to repatriate dividends or distributions from our Malaysian subsidiaries.

Adverse changes in political, economic and regulatory policies in countries where we have significant operations could have a material adverse effect on our business.

A substantial portion of our manufacturing and design operations are conducted in China, Malaysia, Germany and Korea and some of our sales are made in these countries. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by political, economic and regulatory developments in these countries. Such developments include the introduction of new or more stringent labor and environmental regulations, increase in tax, increase in restrictions on the conduct of business and changes in interest rates, among others. Other political uncertainties include the risks of war, terrorism, nationalization and expropriation.

Labor laws in the jurisdictions where we operate may adversely affect our results of operations.

We are subject to the local labor and employment laws of various jurisdictions in which we operate. For example, in Germany, our employees are covered by various labor laws that provide employees, through works councils, with rights of information and consultation with respect to specific matters involving their employer’s business and operations, including downsizing or closure of facilities and employment terminations. The German worker protection laws could impair our flexibility in streamlining or restructuring our business operations in Germany. In China, 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. In Malaysia, we employ a substantial number of foreign nationals as temporary workers and the employment of such foreign nationals requires approval by the Ministry of Home Affairs of Malaysia, which may impose conditions on the number, positions, duration of employment and the country of origin of the foreign workers.

Limitations on the ability of our Chinese 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 in China through our Chinese operating subsidiary, Hanwha Q CELLS Qidong, which is a limited liability company established in China. The payment of dividends, if any, by entities organized in 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. Hanwha Q CELLS 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 cumulative amount of such reserves reaches 50% of its registered capital. These reserves are not distributable as cash dividends. In addition, Hanwha Q CELLS 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 Hanwha Q CELLS 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.

Operational risks

Our future success substantially depends on our ability to manage our production effectively, improve our product quality and reduce our manufacturing costs. Our ability to achieve such goals is subject to a number of risks and uncertainties.

Our future success substantially depends on our ability to manage our production effectively, improve our product quality and reduce our manufacturing costs. Our efforts to reduce our manufacturing costs include lowering our silicon and auxiliary material costs and improving manufacturing productivity and processes, which may require us to achieve economies of scale by expanding our manufacturing capacity. However, we may not be able to expand our manufacturing capacity as planned, if we encounter unanticipated difficulties such as any failure to obtain the necessary financing or government approval. Even if we do expand our manufacturing capacity, there may not be sufficient customer demand for our solar power products to support our increased production levels. In that case, the overall utilization rate of our production facility will decline, which would negatively impact our profit.

We have, in the past, halted expansion in response to reduced demand. For example, one of our subsidiaries, Hanwha Q CELLS Technology Co., Ltd. (“Hanwha Q CELLS Technology”), owns approximately 639,785 square meters of land which is currently undeveloped. If such land is identified by competent government agencies as idle land under the applicable PRC laws, Hanwha Q CELLS Technology may be subject to a fine of up to 20% of the land premium of such land or, if the land is determined to be idle for over two years, the relevant government agencies may reclaim the land. As of the date of this annual report, we have not received any official complaint or notice regarding this land from relevant government agencies. In addition, since we have halted expansion, our construction plans have been adversely affected and we may need to negotiate with the construction company to develop a new construction plan. If we are unable to reach a resolution, we may be engaged in legal proceedings to resolve the dispute.

We also continue to explore ways to improve the quality of our PV products including the improvement of conversion efficiency rates of our PV products. Additional research and development efforts will be required before our products in development may be manufactured and sold at a commercially viable level. We cannot guarantee that such efforts will improve the efficiency of manufacturing processes or yield improved products that are commercially viable.

If we are unable to achieve these goals, we may be unable to decrease our costs per watt, maintain our competitive position or improve our operating margins. Our ability to achieve such goals is subject to significant risks and uncertainties, including:

	·	our ability to maintain our quality level and keep pace with changes in technology;
	·	our ability to source various raw materials on reasonable terms and timely basis;
	·	our ability to adjust inventory levels to respond to rapidly changing market demand;
	·	our ability to successfully utilize our assets to meet opportunities without incurring excessive costs;
	·	delays in obtaining or denial of required approvals by relevant government authorities; and
	·	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, improve our product quality or reduce our manufacturing costs, or if we encounter any of the risks described above, we may be unable to improve our business as planned.

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.

We provide long-term warranties for our PV products that are standard in the solar industry. Prior to 2012, Hanwha SolarOne’s PV products were typically sold with a two to five year warranty for technical defects, a 10-year limited performance warranty against declines of greater than 10%, and a 25-year limited warranty against declines of greater than 20%, in their initial power generation capacity. From January 1, 2012, the standard warranty of Hanwha SolarOne provided a 12-year warranty against technical defects, and a 25-year linear warranty, which guaranteed: (i) no less than 97% of the nominal power generation capacity for multicrystalline PV modules and 96% of the nominal power generation capacity for monocrystalline PV modules in the first year, (ii) an annual output degradation of no more than 0.7% thereafter, and (iii) by the end of the 25th year, the actual power output shall be no less than 82% of initial power generation capacity.

Since February 2015, we have offered our products with two sub-brands, which were consolidated in March 2017. For our products with the Hanwha SolarOne brand, we provide a material and workmanship warranty for PV modules for a period of 12 years. Under the 25-year linear warranty, we guarantee no less than 97.5% of the nominal power generation capacity for its typical multicrystalline PV modules in the first year, and an annual output degradation of no more than 0.7% thereafter. By the end of the 25th year, the actual power output shall be no less than 82% of the nominal power generation capacity. For our products with the Q CELLS brand, we provide material and workmanship warranty for its PV products for a period of 12 years and provide performance warranty for its PV modules for a period of 25 years. Under the 25-year performance warranty, in the first year, we guarantee no less than 97% of the nominal power generation capacity for its PV modules and an annual output degradation of no more than 0.6% thereafter. By the end of the 25th year, the actual power output shall be no less than 83% of the nominal power generation capacity. Our warranties may be transferred to third parties who purchase our PV modules.

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 particular, the performance of newly developed products may be especially difficult to predict. 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. We estimate the amount of our warranty obligation primarily based on the results of technical analyses, our historical warranty claims experience, the warranty accrual practices of comparable companies, and the expected failure rate and future costs to service failed products. The estimate of warranty costs is 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 considerations above and management’s ability and intention to provide repairs, replacements or refunds for defective products, we have accrued warranty costs for identified specific issues, primarily an issue in 2013 with the connectivity of a junction box that transfers electricity generated by our PV modules to the grid, based on the estimated cost of the expected remediation efforts to a specific issue. For the remaining population, we accrue warranty costs for Q CELLS brand based on 0.5% of the production costs of PV modules produced in 2013 or later (or 2.5% for production prior to 2013; production in 2013 and later are expected to involve a lower occurrence rate due to (i) improved testing methods to reduce the occurrence of PID, (ii) enhanced certified testing with extended test procedures and (iii) a permanent quality monitoring of production) and warranty costs for Hanwha SolarOne brand against technical defects based on 1% of revenue for PV modules. No warranty cost accrual has been recorded for Hanwha SolarOne brand’s 10-year or 20 to 25-year warranties for decline from initial power generation capacity. Starting from April 1, 2016, the Group has unified the estimate of accrual for the 12-year warranty against technical defects based on 0.5% of revenue for PV modules and no warranty cost accrual has been recorded for the 25-year warranties for decline from initial power generation capacity.

We incurred $8.2 million in warranty costs in 2017, compared to $11.0 million in 2016, and derecognized $7.6 million of previously accrued warranty expenses due to the settlement of our litigation with a certain customer. As of December 31, 2017, our accrued warranty costs totaled $48.5 million, compared to $61.2 million as of December 31, 2016.

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. In addition, we may also suffer increased accounts receivables, as customers in certain circumstances may refuse to accept and pay for defective products. 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. We may also incur significant expenses to defend any claims based on the warranty against defects.

For example, on September 30, 2014, a European customer initiated arbitration proceedings against Hanwha Q CELLS Qidong, one of our subsidiaries, under the rules of the London Court of International Arbitration. In its initial pleading, the European customer alleged that certain solar modules it purchased from Hanwha Q CELLS Qidong between 2009 and 2011 were defective, claiming total damages of approximately $240 million, comprised of purchase price adjustments and damages, as well as indemnification against any liability arising from the European customer’s sale of such modules to end customers. On November 7, 2014, Hanwha Q CELLS Qidong filed its response to the European customer’s request for arbitration. On December 10, 2014, the European customer filed its statement of case. On January 23, 2015, Hanwha Q CELLS Qidong filed its statement of defense, and through much of the first half of 2015 the European customer and Hanwha Q CELLS Qidong exchanged and responded to document requests. As November 8, 2017 the LCIA Court dismissed the above-reference arbitration upon its receipt and review of the letter informing that the Parties have reached a settlement. In accordance with Article 26.8 of the LCIA Arbitration Rules (1998), the LCIA Court informed Hanwha Q CELLS Qidong that the Arbitration has been discharged and that the arbitration proceedings have been concluded and dismissed with prejudice.

In addition, we purchase silicon-related materials and other components that we use in our products from third parties. It is often difficult to determine whether product defects are caused by defects in silicon, silicon wafers or other components of our products or 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 enter into with our suppliers typically contain 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. We have limited insurance coverage and may incur losses resulting from business interruptions or product liability claims.

Our failure to obtain sufficient quantities of wafers and other raw 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 sourcing of wafers and other raw materials from our suppliers in sufficient volumes. In 2017, the market experienced a moderate shortage of solar grade polysilicon, resulting from stricter environmental regulations in PRC as well as continuing anti-dumping and countervailing duties placed on polysilicon manufactured in Korea. Since we cannot guarantee the shortage of solar grade polysilicon will be resolved in the foreseeable future, we cannot guarantee that we will always be able to obtain sufficient quantities of wafers and other raw materials in a timely manner and at commercially reasonable prices. We may experience actual shortages of wafers and other raw materials or late or failed delivery for the following reasons:

	·	the terms of our wafer and other raw materials contracts with, or purchase orders to, our suppliers may be altered or cancelled as a result of our ongoing re-negotiations with them;
	·	there are a limited number of wafer and other raw material suppliers, and many of our competitors also purchase wafers and other raw materials from these suppliers and may have longer and stronger relationship with these suppliers than we do;
	·	some of our wafer and other raw materials suppliers do not manufacture such raw materials themselves, but instead purchase their requirements from other vendors. It is possible that these suppliers will not be able to obtain sufficient quantities of wafers and other raw materials to satisfy their contractual obligations to us; and
	·	our purchase of wafers and other raw 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 wafers and other raw 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 wafers and other raw 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 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 time and expenses to recruit, retain and integrate new directors and executive officers, particularly those with significant PV industry experience similar to our current directors and executive officers, which could severely disrupt our business and growth. In particular, our executive officers have been crucial to the development of our strategic direction. 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 our executive officers has entered into an employment agreement with us, which contains confidentiality and non-competition provisions. However, if any disputes arise between these 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 executive officers reside and hold some of their assets. 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 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.

Financial Risks

We currently have a significant amount of debt outstanding and may incur additional indebtedness. 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 $978.4 million as of December 31, 2017 of which $385.2 million were short-term bank borrowings and $293.6 million were the current portion of long-term bank borrowings. In addition, we had $99.5 million in long-term notes and MYR 835 million ($205.3 million, translated at the foreign exchange rate of $0.2459 per one MYR) in principal amount of long-term loan from the Malaysian government with a book value of $137.8 million as of December 31, 2017. We may also incur additional indebtedness.

Our debt could have a significant impact on our future operations and cash flow, including:

	·	making it more difficult for us to fulfill payment and other obligations under our outstanding debt;
	·	triggering an event of default, if we fail to comply with any of our payment or other obligations contained in our debt agreements and fail to obtain waivers, which could result in a cross-default causing all or a substantial portion of our debt to become immediately due and payable and other penalties;
	·	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; and
	·	potentially increasing the cost of any additional financing.

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, sell our assets, reduce or delay our capital investments, or seek additional equity or debt financing. We cannot guarantee 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.

In addition, a significant portion of our outstanding debt has been guaranteed by Hanwha Chemical in the past. However, the ability of Hanwha Chemical to guarantee our future financings is subject to various uncertainties, including its own financial condition and potential regulatory restrictions. If Hanwha Chemical cannot guarantee our future financings, our ability to obtain external financing could be adversely affected.

We depend on a limited number of customers and countries for a high percentage of our revenues 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 operating margins.

We currently sell a substantial portion of our PV products and services to a limited number of customers and countries. Customers that accounted for a significant portion of our total net revenues in 2017 included NextEra Energy Resources, LLC(Florida Power and Light), Hanwha Q CELLS Korea, Hanwha Q CELLS Japan, Hanwha Q CELLS USA, and Jinko Solar. Our five largest customers accounted for an aggregate of 39.2% of our net revenues in 2017, compared to 55.8% in 2016. In 2016, NextEra Energy Resources, LLC and Hanwha Q CELLS Japan individually accounted for more than 10% of our revenues.

In 2017, the United States, China, Europe, Korea, India, and Japan accounted for 40.5%, 16.6%, 10.4%, 8.7%, 8.0%, and 6.6% our net revenues, respectively, and were the top six countries or region in terms of percentage contribution to our net revenues, compared to 51.6%, 5.1%, 3.3%, 6.4%, 9.6% and 11.7%, respectively, 2016. 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. 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:

	·	reduction, delay or cancellation of orders from one or more of our significant customers;
	·	selection by one or more of our significant customers of our competitors’ products;
	·	loss of one or more of our significant customers and our failure to identify additional or replacement customers, including as a result of the insolvency or bankruptcy of our customers;
	·	any adverse change in local policies toward solar projects in countries where we receive most orders;
	·	any adverse change in the bilateral or multilateral trade relationships among China, Malaysia, Korea, Japan, the United States and European countries, particularly Germany;
	·	any duty imposed on import of PV products as a result of anti-dumping measures or other measures against unfair trade practices; and
	·	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 significant portion of our revenue for the foreseeable future, as well as the ability of these customers to sell PV products and services that incorporate our PV products.

Furthermore, our customer relationships have been developed over a relatively short period of time. We cannot be certain that these customers will continue to 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 2017, we purchased approximately 68.6% of our silicon wafers from external suppliers, with the three largest external silicon wafer suppliers accounting for 87.4% of our external purchases, compared to 77.4% in 2016. Currently, our principal silicon wafer suppliers include GCL Silicon Technology Holdings Limited, HuanTai Silicon Science & Technology Co. Ltd. and Zhenjiang Rietech New Energy Science Technology Co., Ltd. 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. Suppliers typically require a significant amount of capital to fund their operating activities, expand their manufacturing facilities, and conduct research and development activities. The inability of our suppliers to access capital or the insolvency of our suppliers could lead to their failure to deliver silicon materials to us. Any disruption in the supply of silicon materials to us may adversely affect our business, financial condition and results of operations.

We may be unable to collect payments from our customers on a timely basis or at all. If such collection problems occur, our business may suffer and our results of operations may be materially and adversely affected.

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, and we have in the past re-negotiated some of our framework agreements which enabled us to address, without resorting to formal disputes, disagreements with our customers relating to the volume, 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.

We require a significant amount of capital to fund our operations as well as meet future capital and investment requirements. If we cannot obtain additional capital when we need it, our operations, growth prospects and future profitability may be materially and adversely affected.

We typically require a significant amount of capital to fund our operations. We expect that our capital expenditures in 2018 would amount to approximately $138.3 million, which will be primarily used to fund manufacturing technology upgrades and research and development. We also require cash generally to meet future capital requirements, which are difficult to plan in the rapidly changing PV industry. While we plan to fund our future capital and investment requirements with cash from operations, bank borrowings and other forms of financing, if necessary, we cannot guarantee 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:

	·	our future financial condition, results of operations and cash flows;
	·	general market conditions for financing activities by manufacturers of PV and related products; and
	·	economic, political and other conditions in the PRC, Korea, the United States, Germany, Malaysia 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.

Fluctuations in exchange rates could adversely affect our business as well as result in foreign currency exchange losses.

Our consolidated financial statements are presented in U.S. dollars and have been prepared from the local currency-denominated financial results, assets and liabilities of us and our subsidiaries globally, which were translated as necessary into U.S. dollars. Accordingly, our consolidated financial results and assets and liabilities may be materially affected by fluctuations in exchange rates, particularly among the U.S. dollar, Renminbi, Euro, Japanese Yen, Korean Won and Malaysian Ringgit. A substantial portion of our sales is denominated in U.S. dollars, Euros and Japanese Yen, while a substantial portion of our costs and expenses is denominated in Renminbi. To the extent that we incur costs in one currency and make revenue in another, our profit margins may be affected by changes in the exchange rates between the two currencies. Exchange rate fluctuations can also affect the value of our assets and liabilities denominated in other currencies, which include our long-term loan from the Malaysian government denominated in Malaysian Ringgit. In recent years, the exchange rates among Renminbi, the U.S. dollar, the Japanese Yen, the Korean Won and the Euro have fluctuated significantly. Since we cannot predict which currencies with appreciate or depreciate in the future, we are unable to predict the impact of future exchange rate fluctuations on our financial condition and results of operations. As a result, we may incur net foreign currency losses in the future.

To the extent our foreign currency receivables are not matched with our foreign currency payables, we have entered into economic hedging transactions to mitigate the impact of short-term foreign currency fluctuations on our results of operations. Although the impact of exchange rate fluctuations has in the past been partially mitigated by such transactions, our results of operations have historically been affected by exchange rate fluctuations and may continue to be affected. The effectiveness of our hedging transactions may be limited and we may not be able to successfully hedge all of our exposure. Consequently, we may incur foreign exchange gains or losses upon collection and payment to settle our sales and purchasing transactions. Furthermore, any default by the counterparties to these hedging transactions could also adversely affect our financial condition and results of operations.

Our significant international operations expose us to a number of risks, and if we are unable to effectively manage these risks, our business may be materially and adversely affected.

We operate our primary manufacturing facilities in China and Malaysia, our executive headquarters relocated to Korea from China and we have significant research and development operations in Germany. We sell our PV products and engage in PV downstream business internationally in all major markets, including the United States, Japan, the European Union, China and India. Our significant international operations, including the production, marketing, distribution and sale of our PV products and services in many different countries expose us to a number of risks, including:

	·	fluctuations in currency exchange rates among various currencies, including the U.S. dollar, Renminbi, Euro, Japanese Yen, Malaysian Ringgit and Korean Won;
	·	difficulty and costs relating to compliance with different commercial, legal, regulatory and tax requirements in various countries in which we operate;
	·	difficulty in engaging and retaining distributors and agents who are knowledgeable about, and can function effectively in, various countries and markets;
	·	increased costs associated with maintaining marketing, sales and customer service activities in various countries;
	·	difficulty in, and increased cost of, managing supply chains and logistics across various countries;
	·	inability to obtain, maintain or enforce intellectual property rights; and
	·	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 globally would be impaired, which may in turn have a material adverse effect on our business, financial condition, results of operations and prospects.

Other Risks

One of our existing shareholders has substantial influence over our company and its interests may not always be aligned with the interests of our other shareholders.

Hanwha Solar owns approximately 94.0% of our outstanding share capital, as of the date of this annual report. 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, and has appointed a majority of our directors. 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 the ADSs. In addition, without the consent of Hanwha Solar, we may 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. Hanwha Group, a business group that controls Hanwha Solar, also has several subsidiaries in the solar industry. We depend to a certain extent on the support of Hanwha Group. For example, entities of Hanwha Group are our existing customers and we may also source raw materials from entities of Hanwha Group in the future. If Hanwha Group reduces its shareholding in our company or chooses to devote resources to other priorities, such as other companies in which it holds interests, including other companies in the solar industry, for any reason and not to us, our results of operations could be adversely affected. How Hanwha Group positions our company among its subsidiaries and other investments could have a material impact on our results of operations. Hanwha Group’s strategic plan involving our company may not always be aligned with the interests of our other shareholders.

Our business involves a significant number of related party transactions.

We are party to significant number of related party transactions between us and other member companies of Hanwha Group under which we, among other things, purchase raw materials and sell our PV products for distribution. Such transactions may be challenged by tax authorities if such transactions are viewed as having been made on terms that were not on an arm’s-length basis. Furthermore, in some instances we may not be able to discontinue such related party transactions even if we have better business opportunities with non-affiliated parties. If the related party transactions we are engaged in do not benefit us as other available alternative transactions with non-affiliates would, our business may be materially and adversely affected.

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 intellectual property-related laws in certain countries in which we operate our business, including China, has historically been lacking, primarily because of ambiguities in the relevant laws and difficulties in enforcement. Accordingly, intellectual property rights and confidentiality protections in these countries may not be as effective as in the United States or other developed 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.

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.

Because the protections afforded by our patents are effective only in the jurisdiction where we have registered our patents, 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 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 may be exposed to infringement or misappropriation claims by third parties, 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 disputes involving intellectual property become more common, 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 United States, Japan, 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:

	·	pay damage awards;
	·	seek licenses from third parties;
	·	pay ongoing royalties;
	·	redesign our products; or
	·	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 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, natural disasters such as floods or earthquakes, or other unanticipated catastrophic events, including power interruption, telecommunications failures, cyber-attacks, equipment failures, break-ins, terrorist attacks or acts of war, could significantly disrupt our ability to manufacture our products and 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, the coverage of such insurance is limited and it may not be able to fully cover losses caused by the business interruption.

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.

We face risks related to health epidemics and other outbreaks.

Adverse public health epidemics or pandemics could disrupt our business in the countries where we do business. In the past few years, there were reports on the occurrences of avian flu in various parts of China, including a few confirmed human cases. In April 2013, there were reports of cases of H7N9 avian flu in southeast China, including deaths in Shanghai and Zhejiang Province. Any future outbreak of severe acute respiratory syndrome, avian flu, or other similar adverse public developments in China 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. For instance, in 2015, there occurred an outbreak of Middle East respiratory syndrome in Korea which claimed 38 lives and adversely affected the country’s economic activity of the year.

You may have difficulty enforcing judgments obtained against us.

We are a Cayman Islands company headquartered in Korea and substantially all of our assets are located outside of the United States. Substantially all of our current operations are conducted in the PRC, Germany, Malaysia and Korea. 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. In addition, there is uncertainty as to whether the courts of the Cayman Islands, the PRC, Germany, Malaysia or Korea would recognize or enforce judgments of U.S. courts based on certain civil liability provisions of U.S. securities laws.

The market price of the ADSs may be volatile.

The market price of the ADSs has exhibited, and may continue to exhibit, significant volatility. The closing price of our ADSs ranged from a low of $6.37 per ADS to a high of $9.52 per ADS in 2017.

Numerous factors, including many over which we have no control, may have a significant impact on the market price of the ADSs, including, among other things:

	·	actual or anticipated fluctuations in our quarterly operating results;
	·	announcements by other companies in our industry relating to their operations, strategic initiatives, financial condition or financial performance or to our industry in general;
	·	changes in financial estimates or other material comments by securities analysts relating to us, our competitors or our industry in general;
	·	regulatory developments in our target markets affecting us, our customers or our competitors;
	·	changes in the economic performance or market valuations of other PV technology companies;
	·	fluctuations in economic and market conditions that affect the viability of conventional and other renewable energy sources, such as increases or decreases in the prices of oil and other fossil fuels;
	·	changes in international trade policies and international barriers to trade;
	·	announcements of acquisitions or consolidations involving industry competitors or industry suppliers;
	·	sales or perceived sales of additional ordinary shares or ADSs;
	·	addition or departure of our executive officers and key research personnel;
	·	announcements regarding legal proceedings, including patent litigation, or the issuance of patents to us or our competitors;
	·	announcements of studies and reports relating to the conversion efficiencies of our products or those of our competitors;
	·	announcements of technological or competitive developments; and
	·	geopolitical events, including events related to the future of the Korean peninsula and Asia more generally, or of the European Union.

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 the ADSs, regardless of our operating performance.

Future issuances of ordinary shares, ADSs or equity-related securities may depress the trading price of the ADSs.

Any issuance of equity securities could dilute the interests of our existing shareholders and could substantially decrease the trading price of the ADSs. We may issue equity securities through public offerings or private placements in the future for a number of reasons, including to finance our operations and business strategy (including in connection with acquisitions, strategic collaborations or other transactions), to adjust our ratio of debt to equity and to satisfy our obligations upon the exercise of outstanding warrants or options or for other reasons.

Sales of a substantial number of ADSs or other equity-related securities in the public market could depress the market price of the ADSs, and impair our ability to raise capital through the sale of additional equity securities. We cannot predict the effect that future sales of the ADSs or other equity-related securities would have on the market price of the ADSs. In addition, the price of the ADSs could be affected by possible sales of the ADSs by investors who view the convertible notes as a more attractive means of obtaining equity participation in our company and by hedging or arbitrage trading activity that we expect to develop involving our convertible notes.

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 memorandum and articles of association contain provisions which may 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 allot, issue, grant options, rights or warrants over or otherwise dispose of shares of our company with or without preferred, deferred, qualified or other special rights or restrictions, whether with regard to dividend, voting, return of capital or otherwise and to such persons, at such times and on such other terms as they think proper, and this would allow our board of directors 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 the ADSs may fall and the voting and other rights of the holders of our ordinary shares and ADSs may be materially and adversely affected.

We may amend the deposit agreement governing the rights and restrictions of our American Depositary Shares underlying our ordinary shares, without consent from holders of ADSs and, if such holders disagree with our amendments, their choices will be limited to selling the ADSs or withdrawing the underlying ordinary shares.

We may agree with the depositary to amend the deposit agreement without consent from holders of ADSs. If an amendment increases fees to be charged to ADS holders or otherwise prejudices any substantial right of ADS holders, it will not become effective until 30 days after the depositary notifies ADS holders of the amendment. At the time an amendment becomes effective, ADS holders are considered, by continuing to hold their ADSs, to have agreed to the amendment and to be bound by the amended deposit agreement. If holders of ADSs do not agree with an amendment to the deposit agreement, their choices will be limited to selling the ADSs or withdrawing the underlying ordinary shares. No assurance can be given that a sale of ADSs could be made at a price satisfactory to the holder in such circumstances.

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 memorandum and 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 twenty days and the minimum notice period required to convene any other extraordinary general meeting is fourteen days. When a general meeting is convened, you may not receive sufficient notice of the general meeting to permit you to withdraw the ordinary shares underlying your ADSs to allow you to cast your vote with respect to such shares in respect of 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 the shares underlying 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 the shares underlying 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 cash dividends 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 for the ADS facility 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.

We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than that under U.S. law, ADS holders may have less protection for their shareholder rights than such holders 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.

In addition, most of our directors and officers are nationals and residents of countries other than the United States. Substantially all of our assets and a substantial portion of the assets of these persons are located outside the United States.

There are uncertainties as to whether Cayman Islands courts would:

	·	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
	·	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 in certain circumstances 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 and ADS holders 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 or ADS holders of a U.S. public company.

As a foreign private issuer, we are permitted to, and we will, rely on exemptions from certain Nasdaq corporate governance standards applicable to domestic U.S. issuers. This may afford less protection to holders of our ordinary shares and the ADSs.

We are exempted from certain corporate governance requirements of Nasdaq by virtue of being a foreign private issuer. We are required to provide a brief description of the significant differences between our corporate governance practices and the corporate governance practices required to be followed by domestic U.S. companies listed on Nasdaq. The standards applicable to us are considerably different from the standards applied to domestic U.S. issuers. For instance, we are not required to:

	·	have a majority of the board be independent (although all of the members of the audit committee must be independent under the Securities Exchange Act of 1934, as amended (the “Exchange Act”));
	·	have a compensation committee or a nominations committee consisting entirely of independent directors;
	·	have director nominees be selected, or recommended for the board’s selection, either by independent directors or a nominations committee consisting entirely of independent directors;
	·	obtain shareholder approval prior to the issuance of securities when the issuance will result in a change of control of us; or
	·	obtain shareholder approval prior to the issuance of securities involving the sale or issuance of 20% or more of our ordinary shares for less than the greater of book or market value of the shares.

We intend to rely on these exemptions. As a result, you may not be provided with the benefits of certain corporate governance requirements of Nasdaq.

We do not currently intend to pay dividends on our ordinary shares and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of the ADSs.

We do not currently intend to pay any cash dividends on our ordinary shares for the foreseeable future. We currently intend to retain all of our available funds and any future earnings to operate and expand our business. The payment of any future dividends will be determined by our board of directors in light of conditions then existing, including our operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.

We may be classified as a passive foreign investment company for U.S. federal income tax purposes, which could result in adverse U.S. federal income tax consequences to U.S. investors.

We do not believe we were a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes for our taxable year ended December 31, 2017 and do not expect to become a PFIC for the current taxable year or the foreseeable future. Our actual PFIC status for the current taxable year, however, will not be determinable until the close of the current taxable year ending December 31, 2018, 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, such as our company, is considered to be a PFIC for any taxable year if either (1) at least 75% of its gross income is passive income; or (2) at least 50% of the 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. Because PFIC status depends on the composition of a company’s income and assets, and the market value of its assets and of its shares from time to time, and the application of rules that are not always clear, there can be no assurance that we will not be classified as a PFIC for any taxable year.

If we are a PFIC for any taxable year during which a U.S. investor holds the ADSs or ordinary shares, such U.S. investor will generally be subject to materially adverse tax consequences including being subject to greater amounts of tax on gains and certain distributions as well as increased tax reporting obligations. U.S. investors should consult their own tax advisors about the circumstances that may cause us to be classified as a PFIC and the consequences if we are classified as a PFIC. For additional information on the Company’s status as a PFIC, refer to item “10.E Taxation.”

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 the ADSs.

The United States Securities and Exchange Commission (“SEC”), as required by Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), adopted rules requiring most public companies to include a management report on such company’s internal control over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal control over financial reporting. In addition, when a company meets the SEC’s criteria, an independent registered public accounting firm must report on the effectiveness of the company’s internal control over financial reporting.

Our management and independent registered public accounting firm have concluded that the internal control over financial reporting of Hanwha Q CELLS Co., Ltd. as of December 31, 2017 was not effective. In addition, we cannot guarantee that we will be able to remedy the material deficiencies identified in our internal control over financial reporting and 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. Furthermore, 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 the ADSs, and harm our reputation. Furthermore, we have incurred and expect to continue to incur considerable costs and use significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.

ITEM 4 INFORMATION ON THE COMPANY

A. History and Development of the Company

Hanwha SolarOne

Hanwha SolarOne commenced operations through Hanwha Q CELLS Qidong, formerly known as Hanwha SolarOne (Qidong) Co., Ltd., in August 2004. In anticipation of its initial public offering, Hanwha SolarOne, formerly known as Solarfun Power Holdings Co., Ltd. until December 20, 2010, was incorporated in the Cayman Islands on May 12, 2006 as the listing vehicle. In December 2006, Hanwha SolarOne conducted its initial public offering and the ADSs were listed on the Nasdaq Global Market under the symbol “SOLF.”

In September 2010, through a series of transactions with Hanwha SolarOne and its former shareholders, Hanwha Solar became Hanwha SolarOne’s largest shareholder. Hanwha SolarOne changed its name from “Solarfun Power Holdings Co., Ltd.” to “Hanwha SolarOne Co., Ltd.” on December 20, 2010 and its ticker from “SOLF” to “HSOL” on February 15, 2011. Hanwha Solar, a company that engages in solar business, is a wholly-owned subsidiary of Hanwha Chemical, a leading chemical producer publicly traded on the Korea Exchange whose principal activities are the production of chemicals, solar energy, construction, automotive and electronic materials and products.

Q CELLS

Q CELLS commenced its operation as Q-Cells AG in 1999 followed by an initial public offering in Germany in 2005 and a subsequent name change in 2008 to Q Cells SE. In 2009, it commenced the production of PV cells at its Malaysian facility. After a bankruptcy filing in Germany in April 2012 by Q Cells SE, its production facilities in Germany and Malaysia, as well as its research and development organization and certain marketing subsidiaries, were acquired in October 2012 by Hanwha Solar.

Hanwha SolarOne’s Acquisition of Q CELLS

In February 2015, we issued 3,701,145,330 ordinary shares to Hanwha Solar in exchange for the transfer of 100% of the outstanding share capital of Q CELLS by Hanwha Solar to us and Q CELLS became our wholly-owned subsidiary. As a result of the transaction, Hanwha Solar’s ownership of our ordinary shares increased from approximately 45.7% to approximately 94.0%. In connection with the transaction, we changed our name from “Hanwha SolarOne Co., Ltd.” to “Hanwha Q CELLS Co., Ltd.” and our ticker from “HSOL” to “HQCL” on February 9, 2015.

The transaction is accounted for as a reverse acquisition under the acquisition method of accounting, in accordance with ASC 805, “Business Combinations”. Q CELLS is determined as the accounting acquirer. Consequently, the historical consolidated financial statements for all periods prior to the consummation of the transaction only reflect the historical consolidated financial statements of Q CELLS.

Our principal executive offices are located at Hanwha Building, 86 Cheonggyecheon-ro, Jung-gu, Seoul, Korea. Our telephone number at this address is +82 (0)2 729-2930 and our fax number is +82 (0)2 729-1372. 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-qcells.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.

Capital Expenditures and Investment

As of December 31, 2017, we had annual production capacities of 4,300 MW for PV modules, 4,300 MW for PV cells, 1,100 MW for silicon wafers and 1,600 MW for silicon ingots. Our cells and modules are manufactured in China and Malaysia and the entirety of wafers and ingots are manufactured in China. In August, we shut down our wafer manufacturing facility in China as we determined that the cost of production was too high and the scale of operations was insufficient in order to stay competitive. Our wafer fab has been incurring sizable losses over the past three years and we believe the discontinuation of our wafer production will result in improved operating results moving forward.

We made capital expenditures of $110.2 million in 2017 which were used primarily to construct new PV module processing facilities in Malaysia and Korea, as well as to automate our existing manufacturing lines in China and upgrade our PV cell manufacturing facilities in Malaysia. We expect our capital expenditures will amount to approximately $90.3 million in 2018, which will be primarily used to fund on-going capital equipment upgrades in Malaysia and China and for research and development activities. We plan to fund our capital expenditure and investment requirements primarily with cash flows generated from operations in 2018. We will actively review our capital expenditure and investment plans on a regular basis and make appropriate changes in accordance with our business environment.

In the year ended December 31, 2017, we acquired a 50% interest in our Turkish joint venture with Kalyon for $26.2 million. The joint venture company will be classified as investments accounted for by the equity method. The joint venture company will be constructing an integrated manufacturing facility and a 1GW solar power plant in Turkey. The manufacturing facility will be producing ingots, wafers, cells, and modules. The solar power plant will be constructed using the modules produced in the Turkish factory and will sell electricity to the grid at a fixed price for the first 15 years of operation and at prevailing market prices for the following 15 years. We expect the Turkish joint venture to be subject to risks and uncertainties resulting from exchange rate volatilities and future electricity prices.

B. Business Overview

Overview

We are a leading global solar energy company involved in the manufacturing and sales of solar cells and modules. We manufacture a variety of PV cells and PV modules at our manufacturing facilities in China and Malaysia, using advanced manufacturing process technologies including those developed at our research and development facilities in Germany. We sell PV cells and PV modules directly to utility companies, system integrators and also through third-party distributors. We supply our solar products across the world; mainly to the United States, China, Europe, Korea, India and Japan, with sales to those countries comprising approximately 80.4% of our 2017 net revenues, compared to 84.4% in 2016. We are also growing a nascent engineering, procurement and construction (“EPC”) group that is focusing on markets in Europe, Turkey and Australia, in addition to the United States.

We have continuously improved process technology and product quality since we commenced our commercial production in 2005. Our Q.ANTUM (a product line utilizing passivated emitter rear contact technology) monocrystalline, Q.ANTUM multicrystalline and standard BSF multicrystalline PV cells achieved average conversion efficiency rates up to 22.0% , 20.4% and 19.0%, respectively, each based on the commercially produced PV cells in December 2017.

Our net revenues in 2017 amounted to $2,188.9 million, among which $461.3 million, or 21.1%, was derived from sales to related parties. We recorded a net loss of $12.4 million in 2017 and had accumulated earnings of $94.9 million, long-term borrowings and long-term notes (including the current position) of $830.5 million and short-term bank borrowings of $385.2 million as of December 31, 2017.

Our Products and Services

Our principal products include PV cells, PV modules, and silicon ingots. Substantially all of the ingots and PV cells we produce are used for our own PV module production. We also engage in PV downstream business by developing solar power projects and providing EPC and operation and management services.

The following tables set forth Q CELLS’ and our net revenues from principal products and services and related percentage data for the periods indicated:

	For the Year Ended December 31,
	2015					2016					2017
	Hanwha Q CELLS⁽¹⁾					Hanwha Q CELLS					Hanwha Q CELLS
	Net Revenues ($)		% of Net Revenues			Net Revenues ($)		% of Net Revenues			Net Revenues ($)		% of Net Revenues
	(In millions, except percentages)
PV Module		1,575.0		87.5	%		2,370.7		97.7	%		2,076.0		94.8	%
Module Processing Service		18.1		1.0			-		-	%		-		-
Other PV Products:
PV Cells		11.6		0.6	%		13.1		0.5	%		10.4		0.5	%
Ingots and Wafers		14.4		0.8			14.2		0.6	%		18.6		0.9	%
PV Downstream Business		177.8		9.9	%		19.0		0.8	%		41.4		1.9	%
Others⁽²⁾		3.9		0.2	%		9.0		0.4	%		42.5		1.9	%
Total Net Revenues		1,800.8		100.0	%		2,425.9		100.0	%		2,188.9		100.0	%

(1)	Our revenues in 2015 include Q CELLS’ revenues from January 1 through February 5, 2015 and our consolidated revenues from February 6 through December 31, 2015.
(2)	Includes sales of scrap and packaging materials.

PV Products

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, which range in power between 265 W and 310 W for 60-cell modules, and 315 W and 370 W for 72-cell modules in 2017.

The following table sets forth the types of PV modules we currently manufacture with the specifications indicated:

PV Module Manufactured with:	Manufacturing Facility	Dimensions (mm)	Weight (Kg)	Power (W)
BSF Multicrystalline Cell	China	1960 x 991 x 35	22.5±0.5	315 - 335
BSF Multicrystalline Cell	China	1650 x 991 x 35	18.0±0.5	260 - 280
BSF Monocrystalline Cell	China	1960 x 991 x 35	22.5±0.5	325 - 345
BSF Monocrystalline Cell	China	1650 x 991 x 35	18.0±0.5	270 - 290
Q.ANTUM Multicrystalline Cell	Korea⁽¹⁾ /Malaysia	1994 x 1000 x 35	24	335 - 345
Q.ANTUM Multicrystalline Cell	Korea⁽¹⁾/Malaysia	1670 x 1000 x 32	18.5	275 - 285
Q.ANTUM Multicrystalline Cell	Korea⁽¹⁾	1670 x 1000 x 40	20	275 - 285
Q.ANTUM Monocrystalline Cell	Korea⁽¹⁾	1994 x 1000 x 35	24	355 - 365
Q.ANTUM Monocrystalline Cell	Korea⁽¹⁾	1670 x 1000 x 40	20	295 - 305
Q.ANTUM Monocrystalline Cell	Korea⁽¹⁾	1670 x 1000 x 32	18.5	295 - 305
Q.ANTUM Monocrystalline Cell	Korea⁽¹⁾	1685 x 1000 x 32	18.7	315 - 330

(1)

We purchase assembled modules from an affiliated company, Hanwha Q CELLS Korea Corp., then resell to our customer under our brand and warranty.

All of the PV modules that we sell are produced from the PV cells manufactured by us or our affiliated company, Hanwha Q Cells Korea Corp.

A PV cell is a semiconductor device that converts sunlight into electricity by a process known as the photovoltaic effect. PV cells consist of a light-absorbing layer mounted on a substrate, together with top and back electrical contact points, much like a household battery. The key technical efficiency measurement of PV cells is the conversion efficiency rate. All things being equal, the higher the conversion efficiency rate, the lower the production cost of PV modules per watt because more power can be packed into a given size and module form factor. We use almost all of the PV cells that we manufacture to assemble our PV modules. The following table sets forth specifications of types of PV cells we currently produce:

PV Cell Type	Manufacturing Facility	Dimensions⁽¹⁾ (mm x mm)	Conversion Efficiency Rate (in 2017) (%)	Thickness (um)	Maximum Power per Cell (W)
Multicrystalline Silicon Q.ANTUM Cell	Malaysia	156.75 x 156.75	19.0 – 20.4	180 – 200	5.01

Multicrystalline BSF Silicon Cell	China	156.75 x 156.75	18.2 – 19.0	180 – 200	4.62

Monocrystalline BSF Silicon Cell	China	156.75 x 156.75	20.0 – 20.6	160 – 190	5.03

Monocrystalline Silicon Q.ANTUM Cell	China	156.75 x 156.75	20.8 – 22.0	180	5.37

(1)	We enlarged cell dimensions during 2016 in an effort to maximize our module power outputs. As of December 31, 2017, all of our multicrystalline silicon cells were produced in 156.75 mm by 156.75 mm size.

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, module power, and cost competitiveness of our solar products as we continue to devote significant financial and human resources in our various research and development programs. We introduced solar modules with anti-PID features before 2013, by improving the materials used for encapsulation and upgrading the technology of cells used in modules. Q CELLS also succeeded in 2014 in the commercial production of multicrystalline PERC cells, which have higher conversion efficiency rate than traditional BSF cells, at its German facilities and started marketing them under its “Q.ANTUM” brand, which are currently mass-produced from our cell and module manufacturing facilities in Malaysia.

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 believe it is important to secure a stable supply of raw materials, while not being overly dependent on a limited number of supply sources. The three largest wafer suppliers accounted for 87.4% of our total silicon wafer purchases in 2017. We seek to maintain multiple supply sources of raw materials to the extent practicable and have not in the past experienced any material disruption of our manufacturing process due to insufficient supply of raw materials. See “Item 3.D. Risk Factors—Financial Risks—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.”

We maintain different inventory levels of our raw materials, depending on the type of product and the lead time required for additional supplies when needed. 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 in a timely manner on the other. We had $84.5 million of raw materials in inventory as of December 31, 2017.

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. We currently use 6-inch wafers in our production. We produced a portion of our silicon wafer supplies internally through Hanwha Q CELLS Technology. In 2017, silicon wafers produced internally accounted for approximately 29.5% of our total silicon wafer supplies. We procure the remainder of our silicon wafer supplies from third-party suppliers on a purchase order basis. We may also procure a small portion of silicon wafer supplies through spot market purchases. Currently, our principal silicon wafer suppliers include GCL Silicon Technology Holdings Limited, HuanTai Silicon Science & Technology Co. Ltd and Zhenjian Rietech New Energy Science Technology Co., Tld. In August 2017, we decided to discontinue our wafer production as we determined that our wafer operations would not be capable of competing on a global scale. See “Item 3.D. Risk Factors—Financial Risks—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.”

The key raw material for our internal production of silicon ingots and wafers is polysilicon. Currently, our principal polysilicon supplier is Hanwha Chemical.

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 contributed significantly to our operating margins. 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 and Project Development

Production Facilities

We manufacture PV cells and PV modules through Hanwha Q CELLS Malaysia Sdn. Bhd., our wholly-owned subsidiary in Malaysia, with facilities occupying a gross floor area of 255,000 square meters in Cyberjaya, Malaysia, and through Hanwha Q CELLS Qidong, our wholly-owned PRC subsidiary, with facilities occupying a gross floor area of 173,220 square meters in Qidong, Jiangsu Province, China. As of December 31, 2017, we had annual production capacities of 4,300 MW for PV modules, 4,300 MW for PV cells, and 1,600 MW for silicon ingots.

We manufacture our silicon ingots and wafers through Hanwha Q CELLS Technology, one of our wholly-owned subsidiaries, with facilities occupying a gross floor area of approximately 104,479 square meters in Lianyungang, Jiangsu Province, China. As of December 31, 2017, Hanwha Q CELLS Technology had annual production capacities of 1,600 MW for silicon ingots. As of December 31, 2017, we did not have any wafer production capacity as we discontinued our wafer production in August 2017.

In the second quarter of 2016, as part of our plans to fully optimize our manufacturing cost structure and operational efficiency, we sold our 100% equity interest in the module manufacturing facility located in Eumseong, Korea to Hanwha Q CELLS Korea Corp. for $58.5 million in cash and the assumption by Hanwha Q CELLS Korea Corp. of all of our outstanding assets and liabilities related to this facility.

The table below sets forth our PV product manufacturing nameplate capacity at our manufacturing facilities as of December 31, 2017:

Products	Facilities locations	Rated manufacturing capacity per annum as of December 31, 2017 (in MW)
PV Cell	Cyberjaya, Malaysia		1,800

	Qidong, China		2,500

PV Module	Cyberjaya, Malaysia		1,800

	Qidong, China		2,500

Silicon Ingots	Lianyungang, China		1,600

We set our production plans 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.

Production Process

The following is an overview of the general production stages for our PV cells:

1. Rinsing: Rinsing in the process during which ultrasonic cleaning is performed on silicon wafers, followed by chemical treatment of the wafer surface, which reduces the cells’ reflection of sunlight and improves sunlight absorption capacity.

2. Diffusion: Diffusion is the process during which certain impurities are introduced into the silicon wafer through a thermal process to enable the formation of an electric field within the PV cell.

3. Etching: Etching is the process that is applied on the border of the wafers to prevent direct electrical shorting between the front and the back of each PV cell.

4. Secondary rinsing: Secondary rinsing is the process during which the wafer surface is chemically cleaned to remove the silicon dioxide that may have formed on the surface of the wafer in order to improve the cell’s capacity to absorb sunlight.

5. PECVD: PECVD is the process which produces a silicon nitride film on the wafer’s surface in the front, which improves the PV cell’s capacity to absorb sunlight.

6. Screen printing: Through the screen-printing process, negative and positive metal contacts, or electrodes, are printed on the front and back surfaces of the PV cell.

7. Firing: Silicon and metal electrodes are connected through and electrode firing process in a conveyor belt furnace at high temperature.

8. Testing and sorting: PV cells are tested to determine their electrical performance and sorted based on their conversion rate.

The following is an overview of the general production stages for our PV cells:

1. Welding: Multiple PV cells are interconnected based on the desired electrical configurations through welding.

2. Lamination: The interconnected cells are then laid out and laminated in vacuum through a heating process. Through lamination, PV modules are sealed in weatherproof packages that can withstand high levels of ultraviolet radiation and moisture.

3. Framing: Assembled PV modules are packaged in protective aluminum frames prior to testing.

4. Testing: PV modules are tested to determine their electrical performance.

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 that we currently maintain include ISO 9001:2015 quality management system certification for the process of design, production and sale of our PV modules, ISO 14001:2015 environmental management system certification, ISO 50001: 2011 energy management systems certification, OHSAS 18001:2007 occupational health and safety management system certification, IEC certification for our PV modules and CSA certification. The IEC certification is issued by independent institutes TÜV and VDE in Germany to certify our PV modules are qualified under 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, as well as countries in Asia, the Middle East and South Africa. We obtained CSA certification issued by Canadian Standard Association, independent product-safety testing and certification organizations, which enables us to sell our products to customers in the North America. Furthermore, in the United States, our modules have been certified by the California Energy Commission, the state’s primary energy policy and planning agency. We obtained a certification issued by KEA (previously known as KEMCO), an independent product-safety testing and certification organization in Korea, which enables us to sell our products to customers in Korea. We obtained an MCS certificate which enables us to sell products to the United Kingdom and Clean Energy Council listing for the Australian market. We also obtained a JPAC listing and passed JET qualification for entry into the Japan market. Further, our PV lab was recognized by VDE and CSA as a Test Data Acceptable Program, which means that our lab is qualified to conduct IEC and UL1703 testing by itself and reflects our lab’s capabilities and management.

Sales and Distribution

We sell our PV modules directly to utility companies, system integrators and through third-party global distributors. 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.

Almost all the silicon ingots, silicon wafers and PV cells we produce are internally consumed in our manufacturing process, except for a small portion of such products that are sold to third parties.

We have wholly-owned subsidiaries in Australia, the United States, Germany, Canada, Turkey and Chile that engage in the marketing and distribution of our PV products and related customer service. We also market and distribute our PV products through Hanwha Q CELLS Japan Co., Ltd., Hanwha Q CELLS USA Corp. and Hanwha Q CELLS Korea Corp., which are subsidiaries of Hanwha Corporation and not our consolidated subsidiaries.

The following table sets forth Q CELLS’ and our net revenues by geographic region based on the location of the customers, and the percentage contribution of each of these regions to the net revenues, for the periods indicated:

	Year Ended December 31,
	2015					2016					2017
	Hanwha Q CELLS⁽¹⁾					Hanwha Q CELLS					Hanwha Q CELLS
	Net		% of Net			Net		% of Net			Net		% of Net
Region	Revenues ($)		Revenues			Revenues ($)		Revenues			Revenues ($)		Revenues
	(In millions, except percentages)
United States		519.4		28.8	%		1,251.2		51.6	%		887.5		40.5	%
Japan		192.5		10.7	%		284.0		11.7	%		143.9		6.6	%
India		128.2		7.1	%		231.8		9.6	%		175.4		8.0	%
Turkey		120.3		6.7	%		178.4		7.4	%		79.9		3.7	%
Korea		204.6		11.4	%		155.4		6.4	%		190.8		8.7	%
PRC		140.9		7.8	%		126.0		5.1	%		362.7		16.6	%
Europe		360.8		20.0	%		81.1		3.3	%		228.0		10.4	%
Others		134.1		7.4	%		118.0		4.9	%		120.7		5.5	%
Total		1,800.8		100.0	%		2,425.9		100.0	%		2,188.9		100.0	%

(1)

Our revenues in 2015 include Q CELLS’ revenues from January 1 through February 5, 2015 and our consolidated revenues from February 6 through December 31, 2015.

Following the merger of Hanwha SolarOne and Q CELLS, we were able to expand our geographic footprint and realize synergies from coordinating the two companies’ sales and distribution operations. We seek to further diversify our geographic presence and customer base in order to achieve a balanced and sustainable growth.

Warranty

We provide long-term warranties for our PV products that are standard in the solar industry. Prior to 2012, Hanwha SolarOne’s PV products were typically sold with a two to five year warranty for technical defects, and a 10-year limited performance warranty against declines of greater than 10%, and a 25-year limited warranty against declines of greater than 20%, from their initial power generation capacity. From January 1, 2012, the standard warranty of Hanwha SolarOne provided a 12-year warranty against technical defects, and a 25-year linear warranty, which guaranteed: (i) no less than 97% of the nominal power generation capacity for multicrystalline PV modules and 96% of the nominal power generation capacity for monocrystalline PV modules in the first year, (ii) an annual output degradation of no more than 0.7% thereafter, and (iii) by the end of the 25th year, the actual power output shall be no less than 82% of initial power generation capacity.

Since 2015, we have offered our products with two sub-brands. For our products bearing the Hanwha SolarOne brand, we provide a material and workmanship warranty for PV modules for a period of 12 years. Under the 25-year linear warranty, we guarantee no less than 97.5% of the nominal power generation capacity for its typical multicrystalline PV modules in the first year, and an annual output degradation of no more than 0.7% thereafter. By the end of the 25th year, we warranty that the actual power output be no less than 82% of the nominal power generation capacity. For our products bearing the Q CELLS brand, we provide a material and workmanship warranty for PV products for a period of 12 years, and a performance warranty for PV modules for a period of 25 years. Under the 25-year performance warranty, in the first year, we guarantee no less than 97% of the nominal power generation capacity for PV modules and an annual output degradation of no more than 0.6% thereafter. By the end of the 25th year, we warranty that the actual power output be no less than 83% of the nominal power generation capacity. Our warranties may be transferred to third parties who purchase our PV modules.

Since our products have been in use for only a relatively short period of time, our assumptions regarding the durability and reliability of our products may not be accurate. In particular, the performance of newly developed products may be especially difficult to predict. 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. We estimate the amount of our warranty obligation primarily based on the results of technical analyses, our historical warranty claims experience, the warranty accrual practices of comparable companies, and the expected failure rate and future costs to service failed products. The estimate of warranty costs is 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 considerations above and management’s ability and intention to provide repairs, replacements or refunds for defective products, we have accrued warranty costs for identified specific issues, primarily an issue in 2013 with the connectivity of a junction box that transfers electricity generated by our PV modules to the grid, based on the estimated cost of the expected remediation efforts to a specific issue. For the remaining population, we accrue warranty costs for the Q CELLS brand based on 0.5% of the production costs of PV modules produced in 2013 or later (or 2.5% for production prior to 2013; production in 2013 and later are expected to involve a lower occurrence rate due to (i) improved testing methods to reduce PID, (ii) enhanced certified testing with extended test procedures and (iii) permanent quality monitoring of production) and warranty costs for Hanwha SolarOne brand against technical defects based on 1% of revenue for PV modules. No warranty cost accrual has been recorded for Hanwha SolarOne brand’s ten year or 20 to 25-year warranties for decline from initial power generation capacity. Upon the successful completion of the alignment of the quality control standards and global quality management process between the Q CELLS brand and the SolarOne brand, we unified the brands. Starting from April 1, 2016, the estimate of accrual for the 12-year warranty against technical defects based on 0.5% of revenue for PV modules and no warranty cost accrual has been recorded for the 25-year warranties for decline from initial power generation capacity. 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.

Research and Development and Intellectual Property

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. Our research and development department works closely with our manufacturing department to lower production costs by improving our production efficiency and also with universities and research institutes to develop new technology and products.

We have been developing advanced technologies to improve the conversion efficiency and reduce the production cost of our PV products. Our primary research and development center is located at Thalheim, Germany, which employed 176 highly trained researchers as of December 31, 2017. In the past, Q CELLS has developed and commercialized a wide range of products and standard production processes. For example, Q CELLS’ engineers developed the 6-inch solar cell, the 3-busbar layout and the full-square monocrystalline solar cell. Q CELLS also succeeded in 2014 in the commercial production of multicrystalline PERC cells, which have a higher conversion efficiency rate than traditional BSF cells, at its German facilities, and started marketing them under our “Q.ANTUM” brand. Our research and development expenses were $24.0 million in 2017.

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 the date of this annual report, we had been granted 92 patents and utility models and 49 applications for patents and utility models pending in China, 46 patents and 70 patent applications pending in Germany and 68 patents and 44 patent applications pending in other countries. Our issued patents and pending patent applications relate primarily to process technologies for manufacturing PV cells. We are the owner of “SolarOne” and “Q CELLS” trademarks and have registered them in major markets where we sell our PV products. We also registered “Shuo Wang” in Chinese character, our trademark for our secondary class modules, with the China Trademark Office, which allows us to use this trademark in China.

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 Business and 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.

We face competition from a number of global PV companies, including Trina Solar Limited, JinkoSolar Holding Co., Ltd., Canadian Solar Inc., JA Solar Holdings Co., Ltd., First Solar, Inc. and SunPower Corporation. In the upstream and midstream markets, we compete primarily on the basis of the conversion efficiency, quality, performance and appearance of our products, price, strength of supply chain and distribution network, after-sales service and brand image. In the downstream markets, we compete primarily on the basis of the financing capabilities, sales and marketing network, knowledge and understanding of local regulatory requirements and track records and reputation in the relevant local market. Some of our competitors may 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 advanced thin film 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 conventional and other renewable energy industries, such as the petroleum, natural gas and coal industries. The production cost per watt of solar energy is generally higher than other types of energy absent various forms of governmental incentives and policy supports. As a result, we cannot guarantee 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

We are subject to a wide array of local, national and international environmental, health and workplace safety laws, regulations and conventions. Our manufacturing processes involve the use of hazardous materials and chemicals and related equipment and generate noise, waste water, air emissions and other industrial wastes. We are required to maintain various environmental permits and authorizations with respect to these operations. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to potential liability for the remediation of contamination associated with both present and past hazardous waste generation, handling, and disposal activities.

Environmental laws are subject to change. We may become subject to stricter environmental standards in the future and face larger capital expenditures in order to comply with environmental laws which could have a material adverse effect on our business. 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 also maintain an ISO 14001 environmental management system certification, which is issued by the International Organization for Standardization to demonstrate our compliance with international environmental standards. While we have not been subject to any material proceedings or fines for environmental violations in the past three years, there is no assurance that we will not be subject to such fines or proceedings in the future.

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 the PV industry. 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 major markets and countries where we have significant operations, including China, the United States, the European Union, Japan and Malaysia.

China

Renewable Energy Law and Other Government Directives

Since early 2005, the public policy of China has generally encouraged and supported the development and use of solar and other renewable energy by enacting various laws, directives, measures and rules that establish financial incentives, preferential loans, tax preferences, subsidies, and feed-in tariffs. Following is a summary of those policies enacted in the past three years.

In June 2015, the National Energy Administration, the PRC Ministry of Industry and Information Technology and the PRC Certification and Accreditation Administration, jointly issued the Opinion on Promoting the Application of Advanced PV Products and Industry Upgrading, which requires higher technical standards for PV products, including (1) at least 15.5% and 16% PV conversion efficiency for polycrystalline silicon and monocrystalline silicon cell modules, (2) at least 28% PV conversion efficiency for high concentration PV products, and (3) at least 8%, 11%, 11% and 10% PV conversion efficiency for silicon-based, copper indium gallium selenide solar cells, cadmium telluride and other types of thin-film cell modules, respectively. In addition, the attenuation rate of polycrystalline silicon, monocrystalline silicon and thin-film cell modules must not be higher than 2.5%, and 3% respectively, in the first year, thereafter not higher than 0.7% per year, and ending with 20% at most during the whole project life cycle. For thin-film cell modules, the attenuation rate must not be higher than 5% in the first year, thereafter not higher than 0.4% per year, and ending with 15% at most during the whole project life cycle.

In February 2016, the NDRC, the PRC Ministry of Industry and Information Technology jointly promulgated the Guiding Opinions on Promoting the Development of "Internet Plus" Smart Energy, which encourages construction of smart PV power generation plants based on an internet cloud platform to realize the smart renewable energy power generation, as well as structuring of a real-time subsidy mechanism to PV power generation based on internet.

In March 2016, the NDRC released the Measures for the Administration of Full Purchase of Renewable Energy Power Generation, which requires that the grid enterprises shall, under the premise of safety, fully purchase electric power produced with renewable energy that has been connected to the power grid, and promotes the fullest use of electric power generated from renewable energy.

In April 2016, the Ministry of Industry and Information Technology promulgated the Administrative Measures for Industrial Energy Conservation, according to which, industrial enterprises are encouraged to create "green factories" and develop and utilize technologies including distributed photovoltaic power generation to develop and use green, clean and low-carbon energy.

In June 2016, the National Energy Administration announced the Circular regarding Implementation Plan on Construction of PV Power Generation in 2016, which among other things, states that the planned capacity of new PV power generation in 2016 is 18.1 million kilowatts.

In July 2016, the Standing Committee of the National People’s Congress promulgated the Energy Conservation Law, which encourages the installation and use of renewable energy systems, including solar energy in new buildings.

In December 2016, the State Council promulgated the Circular on Issuing the Comprehensive Work Plan for Energy Conservation and Emission Reduction in the 13th Five-Year Plan Period, which promotes the use of distributed photovoltaic power generation systems on building roofs, application of renewable energy in industry zones and substitution of coal with renewable energy during the 13th Five-Year Plan Period.

China’s National Energy Administration published its official solar statistics for 2017, revealing that China has installed a total of 52.83 gigawatts worth of new solar capacity in 2017. According to the data, China installed around 126 gigawatts of photovoltaic power, which increased 67% from 2016. This brings China’s cumulative solar capacity up to 130.25GW, around 7.3% of the country’s national power generation capacity.

In March 2018, the Ministry of Industry and Information Technology promulgated the 2018 PV Manufacturing Standards and Conditions, which replaced the 2015 PV Manufacturing Standards and Conditions. The 2018 PV Manufacturing Standards and Conditions strictly controls PV manufacturing projects simply expanding production capacity and guides PV manufacturer to strengthen technology innovation, improve product quality and decrease manufacturing costs. According to the 2018 PV Manufacturing Standards and Conditions, the PV manufacturer shall be incorporated in PRC as an independent legal entity; possess independent PV product manufacturing, supply and after sales capability; possess qualification of provincial or higher level independent R&D institute, technical center or high-tech enterprise; the expenses for R&D or process improvement shall not be lower than 3% of sales revenue and RMB 10 million; the actual production volume of previous year shall not be lower than 50% of the actual production capacity in the previous year. The minimum photoelectric conversion efficiency for polysilicon cells and crystal silicon cells shall not be lower than 18% and 19.5% respectively. The minimum photoelectric conversion efficiency for polysilicon modules and crystal silicon modules shall not be lower than 16% and 16.8% respectively.

Regulation of 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 April 10, 2015) (the “Guidance Catalogue”). Under the Guidance Catalogue, manufacturing of solar batteries, manufacturing of equipment specially for producing solar cells, and manufacturing of equipment of PV power generation fall 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 People’s 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 Hanwha Q CELLS Qidong.

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.

Foreign Currency Exchange

Foreign currency exchange in China is primarily governed by the following regulations:

	·	Foreign Exchange Administration Rules (1996), as amended; and
	·	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 valid commercial documents are provided and, in the case of capital account item transactions, after obtaining the approval from 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:

	·	Wholly Foreign-Owned Enterprise Law (1986), as amended; and
	·	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.

United States

In the United States, various policy mechanisms have been employed by the federal and state governments to accelerate the adoption of solar power. Examples of financial mechanisms intended to encourage demand for PV products include capital cost rebates, performance-based incentives, feed-in tariffs, tax credits and net metering. Some of these government mandates and economic incentives are scheduled to be reduced or expire, or could be eliminated altogether.

Capital cost rebates provide funds to purchasers of PV products based on the cost and size of such purchaser’s solar power system. Performance-based incentives provide funding to purchasers of PV products based on the energy produced by their solar power system. Under net metering, a customer with its own generation may be able to generate more energy than is needed to serve its own requirements. During these periods, the customer provides the excess electricity back to the grid and receives a credit on its retail electric bill. Feed-in tariffs pay electric generators for solar power system generation based on energy produced, at a rate that is generally guaranteed for a period of time, which is usually above the retail rate for electricity and is intended to provide a stable, long-term (usually 10-20 year) contractual revenue stream for project owners.

Tax incentive programs exist in the United States at both the federal and state levels and can take the form of investment and production tax credits, accelerated depreciation and sales and property tax exemptions and abatements. At the federal level, investment tax credits for business and residential solar systems have gone through several cycles of enactment and expiration. With the passage of the Energy Policy Act of 2005, the Solar Investment Tax Credit (“ITC”) was created. It allowed owners of solar energy systems to recoup 30% of the total cost of a solar energy system, subject to caps for residential systems. In December 2015, the U.S. Congress extended investment tax credits for solar systems: for utilities and commercial solar systems, 30% until 2019, 26% in 2020, 22% in 2021 and 10% in 2022; and for residential solar systems, 30% until 2019, 26% in 2020 and 22% in 2021. The investment tax credit is regarded as one of the primary economic drivers of solar installations in the United States. Although its extension through 2022 for utilities and commercial systems and 2021 for residential systems has improved medium-to-long term demand visibility in the United States, the continuing policy support with gradual decrease of the investment tax credits rate over an extended period underscores the need for solar systems’ cost to continue to decline toward grid parity.

On December 22, 2017, the U.S. enacted significant changes to U.S. tax law following the passage and signing of H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018" (the "The Tax Cuts and Jobs Act"). The Act mandates the reduction or elimination of assorted industry-specific tax incentives in return for corporate tax rates reductions. Under current law, the ITC will be reduced from approximately 30% to approximately 26% for solar systems placed into service after December 31, 2019, and then further reduced to approximately 22% for solar systems placed into service after December 31, 2020. Thereafter, the ITC will remain at 10% for commercial projects.

On January 23, 2018, President Trump issued Proclamation 9693, which imposed tariffs on imported solar cells and modules (the “Tariffs”). These Tariffs took effect on February 7, 2018. Modules will be subject tariffs of 30% in 2018, 25% in 2019, 20% in 2020 and 15% in 2021. Cells will also be subject to a 30% tariff, but only after total cell imports exceed 2.5 GW.

We expect the Tariffs to cause market volatility and price fluctuations, and will likely result in a range of impacts to the global manufacturing market, as well as our business in particular. Such tariffs are likely to increase the price of our solar products and result in significant additional costs to our customers, which could materially and adversely affect our business and results of operations.

In addition to the mechanisms described above, new market development mechanisms to encourage the use of renewable energy sources continue to emerge. For example, the majority of states in the United States have adopted renewable portfolio standards which mandate that a certain portion of electricity delivered over the grid come from eligible renewable energy resources. Under a renewable portfolio standard, regulated utilities and other load serving entities are required to procure a specified percentage of their total electricity supply to serve end-user customers from eligible renewable resources, such as solar generating facilities, by a specified date. Some programs may further require that a specified portion of the total percentage of renewable energy must come from solar generating facilities. Renewable portfolio standards legislation and implementing regulations vary significantly from state to state, particularly with respect to the required percentage of renewable energy credits.

Europe

In Europe, renewable energy targets, in conjunction with feed-in tariffs, have contributed to the growth in PV solar markets. Renewable energy targets prescribe how much energy consumption must come from renewable sources, while feed-in tariff policies are intended to support new supply development by providing investor certainty. A 2009 European Union directive on renewable energy, which replaced an earlier 2001 directive, sets varying targets for all European Union member states in support of the directive’s goal of a 20% share of energy from renewable sources in the European Union by 2020, and requires national action plans that establish clear pathways for the development of renewable energy sources.

The renewable energy laws in Germany require electricity transmission grid operators to connect various renewable energy sources to their electricity transmission grids and to purchase all electricity generated by such sources at guaranteed feed-in tariffs. The feed-in tariffs for residential solar projects in Germany are currently €0.1071-0.1270/kWh for systems below 11 kWp and €0.1214-0.0849/kWh for systems between 11 kWp to 100 kWp. The German government also introduced a subsidy for battery storage devices for PV systems, which came into effect on May 1, 2013 and shall provide subsidies until December 31, 2018. The subsidy covers until June 30, 2016 up to 25% of fundable costs of systems of up to 30 kW and shall be reduced degressively to up to 10% until December 31, 2018. Additional regulatory support measures include investment cost subsidies, low-interest loans and tax relief to end users of renewable energy.

However, following years of strong growth in solar power installations, the German government started to let the feed-in tariff mechanism phase out for PV systems >100 kWp in 2016 and replaced it with a tender system. Effective on April 1, 2012, the German government amended the Renewable Energy Act to implement staged reductions to the feed-in tariff and to exclude new PV systems above 10 MW from being eligible for the feed-in tariff. Also, a “Market Integration Model” was introduced, which allows for systems above 10 kW and up to 1 MW to be paid a feed-in tariff for only 90% of electricity produced with the remaining electricity being either self-consumed or sold on the free market. Systems below 10 kWp currently receive a feed-in tariff of 0.1270/kWh. Compared to the grid electricity price of 0.28-0.31/kWh, it is obvious that self-consumption of the produced electricity is more attractive than feeding the electricity into the grid.

Further amendments of the Renewable Energy Act became effective on August 1, 2014, introducing further degression of the feed-in-tariff and obligations to direct marketing of energy produced by new PV systems above 10 MW.

We must comply with legislation in EU jurisdictions which impose duties in respect of health and safety management, for example in relation to management of staff, engagement of contractors and the distribution, transportation and safe use of products. Failure to comply with health and safety law can involve in significant claims, penalties and, potentially, terms of imprisonment.

All products entering the EU must comply with product law. The manufacturer has the primary responsibility for designing and manufacturing products so as to ensure that they are "safe". We must ensure that we supply products which comply with product safety requirements, monitor the safety of products on the market and take steps to, for example, notify the relevant competent authority and to remove a product from the market if it is discovered to be unsafe.

Japan

Japan adopted the Renewables Portfolio Standard Act in 2002, which established minimum amounts of electricity generated from new energy sources that should be used by electric utilities. In addition, since 2012, in the aftermath of the tsunami in 2011, Japan has refocused its policies towards encouraging the growth of renewable energy, including the use of solar PV, by imposing a feed-in tariff scheme. Under this scheme, utilities are required to purchase electricity generated from renewable energy sources on a fixed-period contract for a fixed price. The rate and period are decided every year by an independent committee of the government. The costs incurred by the utility in purchasing renewable energy shall be transferred to all electricity consumers on a nationwide equal surcharge. For the 2017 fiscal year (ending in March 2018), were JPY21 per kWh for systems over 10 kW and JPY28 per kWh for systems less than 10 kW (JPY30 per kWh, if obligated to use an output control system). The amended scheme also introduced new authorization procedures including the submission of a project feasibility study.

Malaysia

Various environmental legislation (acts, rules, regulations and orders) regulations of Malaysia are particularly relevant to our day-to-day business activities in Malaysia. There are related to the prevention, abatement, control of pollution and enhancement of the environment. It restricts the discharge of wastes into the environment in contravention of the acceptable conditions. These prescribe industrial effluent standards, levels of emission from stationary sources, and list the applicable types of waste and spell out their prescribed method of treatment, disposal and transportation.

Malaysia’s environmental legislation also requires that environmental assessment be carried out at the planning stage of expansion of an existing facility, if the operation falls within the criteria for prescribed activities. In response to the quantitative increase in environmental pollution, Malaysia is increasing enforcement by gradually introducing stiffer regulatory controls and expanding and strengthening the structures of environmental administration. It is therefore incumbent upon us to properly implement environmental measures to comply with Malaysian law.

All labor relations including but not limited to contracts of service, payment of wages, employment of women, rest day, hours of work, termination, lay-off and retirement benefits and keeping of registers of employee at our Malaysian facilities are governed by Malaysian law. We must also comply with an occupational safety and health law and its subsidiary legislations which regulate and secure the safety, health and general welfare of persons at work, for protecting others against risks to safety or health in connection with the activities of persons at work.

Local employees registered with the Social Security Organization are insured in the manner provided under Malaysian law, where, for example, upon injuries occurring in the course of the employment, insured employees or their dependents are entitled to benefits. The employer shall insure their foreign workers under the Foreign Workers Health Insurance Protection Scheme (“SPIKPA”) and Foreign Workers Compensation Scheme (“FWCS”). Both schemes protect the welfare and interests of foreign workers in Malaysia. SPIKPA provides for medical protection while reducing the financial burden of the employer in the event of hospitalization and surgical due to illnesses or accidents of foreign workers. FWCS provides the compensation benefits to a foreign worker with valid employment document for injuries sustained or death due to an accident arising out of or during his course of employment which it is mandatory for employers to insure all their foreign workers under the scheme. These insurance companies who have been appointed and approved by the Ministry of Human Resources are liable to pay compensation and any expenses incurred in the treatment and rehabilitation of a workman for personal injuries by accident or accidental death arising out of and in the course of employment.

C. Organizational Structure

The following diagram illustrates our corporate structure as of December 31, 2017.

As of December 31, 2017, we were entitled to substantially all of the economic interests of five holdings companies in Turkey, each of which owned special purpose vehicles, by means of a usufruct contract. While we did not have any ownership interest in the five holdings and their special purpose vehicles, the usufruct contract enabled us to make decisions over the activities that most significantly impacted the economic performance of the holding companies and their respective special purpose vehicles. For the abovementioned reasons we concluded that we were the primary beneficiary of the five holdings companies and thus the five holdings companies and their respective special purpose vehicles were accounted for as consolidated variable interest entities (VIEs) for the year ended December 31, 2017.

The fair value measurements utilize estimates based on key assumptions of the Acquisition, and historical and current market data. In order to ultimately determine the fair values of intangible assets acquired for VIEs, the Group may engage a third party independent valuation specialist, however as of the date of this report, the valuation has not been undertaken. The preliminary allocation of the purchase price is based on the best information available and is pending. 805-10-25-13 requires that, if the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, the acquirer shall retrospectively adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date.

During the measurement period (which is the period required to obtain all necessary information that existed at the acquisition date, or to conclude that such information is unavailable, not to exceed one year), additional assets or liabilities may be recognized, or there could be changes to the amounts of assets or liabilities previously recognized on a preliminary basis, if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets or liabilities as of that date. The Group expects the purchase price allocations for the acquisition of VIEs to be completed by the end of the second quarter of fiscal year 2018.

D. Property, Plant and Equipment

Our corporate headquarters are located in Seoul, Korea. Our primary manufacturing facilities for the production of PV cells and modules are located in Cyberjaya, Malaysia and Qidong, Jiangsu Province, China. We also have research and development facilities in Thalheim, Germany, manufacturing facilities for silicon ingots and wafers in Lianyungang, Jiangsu Province, China, office facilities in Seoul, Korea and office and research and development facilities in Shanghai, China.

The following table sets forth certain information regarding our primary property and facilities owned or leased by us as of December 31, 2017.

Location

Land

Building

Size

Own or lease

Usage

Size

Own or lease

Usage

Productive
Capacity⁽¹⁾

Cyberjaya, Malaysia

255,000
square meters

Land use right expires in 2070

Office and
manufacturing
facilities

30,000
square meters

Owned

Office and manufacturing
facilities

Cell: 1,800 MW Module: 1,800 MW

Qidong, China

259,219
square meters

Land use right expires between 2053 and 2061

Office and
manufacturing
facilities

173,220
square meters

Owned

Office and
manufacturing
facilities

Cell: 2,500 MW Module: 2,500 MW

24,500
square meters

Owned

Manufacturing
facilities

Thalheim, Germany

359,000
square meters

Owned

Office,
research and
development

111,900
square meters

Owned

Office,
research and
development

For R&D activities

Lianyungang, China

976,905
square meters

Land use right expires in 2055

Office and
manufacturing
facilities

76,500
square meters

Owned

Office and
manufacturing
facilities

Ingot: 1,600 MW

Seoul, Korea

—

1,718.7 square
meters

Leased

Office

n/a

(1)

Production capacity figures only include that of commercial production activities.

We expect that our capital expenditures in 2018 will amount to approximately $90.3 million, which will be primarily used to fund manufacturing technology upgrades and certain R&D related expenditures. We will actively review our capital expenditure plan on a regular basis and make appropriate changes in accordance with our business environment.

ITEM 4A UNRESOLVED STAFF COMMENTS

None.

ITEM 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A. Operating Results

The following discussion should be read in conjunction with the rest of this annual report, including the section entitled “Selected Consolidated Financial and Operating Data” and our 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.

Overview

We are a global, leading solar energy company involved in manufacturing and sales of solar cells and modules. We manufacture a variety of PV cells and PV modules at our manufacturing facilities in Malaysia and China using advanced manufacturing process technologies including those developed at our research and development facilities in Germany. We supply our solar products across the world, mainly to the United States, China, India, and Japan with sales to those countries comprising approximately 72% of our 2017 net revenue. We sell PV cells and PV modules directly to utility companies, system integrators and also through third-party distributors. We are also growing a nascent EPC group that is focusing on markets in Europe, Turkey and Australia, in addition to the United States.

We shipped 2,956 MW, 4,583.0 MW and 5,438.3 MW of PV modules in 2015, 2016 and 2017, respectively. The average selling price of our PV modules was $0.58 per watt in 2015, $0.53 per watt in 2016 and $0.38 per watt in 2017.

Our net revenues in 2017, 2016, and 2015 were $2,188.9 million, $2,425.9 million, and $1,800.8 million, respectively. We recorded a net loss of $12.4 million 2017, net income of $127.5 million and $43.8 million in 2016 and 2015, respectively. As of December 31, 2017, we had accumulated earnings of $94.9 million and had total borrowings of $1,116.2 million and long-term notes of $99.5 million outstanding.

Key Factors Affecting Our Financial Performance

The most significant factors affecting our financial performance are:

	·	industry supply and demand;
	·	government subsidies and trade sanctions;
	·	average selling price of our PV products;
	·	price and availability of silicon and silicon wafers;
	·	manufacturing capacity and capacity utilization;
	·	process technologies;
	·	new strategic initiatives; and
	·	fluctuations in foreign exchange rates.

Industry Supply and Demand

Our business, revenue growth and profitability are materially impacted by the overall supply and demand of the PV industry.

The PV industry went through a prolonged period of oversupply from the second half of 2009 through 2015, in which the average selling price of our modules declined from $1.10 to $0.50 per watt. During this period of oversupply, an industry-wide capacity rationalization took place, resulting in the bankruptcy and/or consolidation of numerous suppliers lacking competitiveness. In 2015 and the first half of 2016, declining PV prices enabled PV to compete with other forms of energy in key markets such as Japan, China, and the United States. As a result corporate profitability improved across the entire spectrum of the industry’s value chain.

In the second half of 2016, an unfavorable government subsidy scheme in China led an oversupply driven by decrease in China demand. Average selling prices of modules dropped 25% in the second half of 2016 and remained at that level throughout 2017. All major PV manufacturers experienced a decline in profitability, driven by lower margins due to lower ASPs and comparatively higher input prices.

Towards the end of 2017, the U.S. administration’s pro-fossil fuel platform began imposing tariffs and quotas on imported CSPV products, leading to increased uncertainties regarding U.S. demand. While the long-term impacts of the tariffs are yet to be seen, adverse impacts to the U.S. utility sector, at least in the short-term, seem inevitable.

Despite the near term challenge from industry oversupply, we believe that our industry will continue to grow as solar power becomes a more economically viable energy solution on an unsubsidized basis in many countries. Such growth can be accelerated by further reduction in silicon materials prices and overall balance of systems costs.

Government Subsidies and Trade Sanctions

The imposition of anti-dumping or countervailing duties by the PRC against our products produced in other jurisdictions, or our raw materials, including polysilicon, could materially increase our cost of production and have a material adverse effect on our business and results of operations

We believe that the growth of the market for solar energy and PV products depends in large part on the availability and size of government subsidies and economic incentives. The cost of solar energy still 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 Japan, Germany, Spain, Italy, the United States, Australia, China, 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 and to reduce dependency on the conventional sources of energy. Accordingly, demand for PV modules in our targeted or potential markets is affected significantly by government subsidies and economic incentives.

Since 2012, the United States and the European Union have imposed trade sanctions against PV products manufactured in China, including anti-dumping and countervailing duties imposed in the United States and the minimum import price and quota in the European Union. These measures have negatively affected sales in the United States and Europe of our PV products manufactured in China. See “Item 3.D. Risk Factors—Risks Related to Our Business and Industry—Changes in international trade policies and international barriers to trade may materially and adversely affect our ability to export our products worldwide.” On the other hand, these measures contributed to the increase in sales in these markets of our PV products manufactured in Malaysia because these products faced less competition in these markets.

Since the January 2017 change of administration in the United States, U.S. government support for the energy industry has focused more on fossil-fuel-based and other conventional sources of supply. If this continues, the demand for our products may decline. We also expect that new legislation, policies, legal and administrative actions may be proposed or enacted that could curtail subsidies that benefit our products and that additional sanctions could be imposed that could materially and adversely affect demand for our products and our results of operations. See “Item 3.D. Risk Factors—Risks Related to Our Business and Industry—A recent petition filed with the U.S. International Trade Commission calling for new tariffs on solar cells and minimum prices for solar modules imported from outside the United States could harm our ability to sell our products inside the United States, and thereby materially and adversely affect our business prospects, results of operations and financial condition.”

In addition, the Chinese government has imposed anti-dumping duties on certain imports of solar grade polysilicon products imported from the United States and Korea since January 2014 and the European Union since May 2014. See, “Risk Factors—Risks Related to Our Business and Industry—The imposition of anti-dumping or countervailing duties on our raw materials, including polysilicon, could materially increase our cost of production and have a material adverse effect on our business and results of operations.” While these tariffs did not materially increase our cost of production in 2017, we cannot guarantee that these tariffs will not have a material and adverse effect in the future.

Average Selling Price of Our PV Products

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.

The average selling price of our PV modules was $0.38 per watt in 2017, $0.53 per watt in 2016, and $0.58 per watt in 2015. The changes in the average selling prices of our PV modules primarily reflected the prevailing market trend.

Price and Availability of Silicon and Silicon Wafers

In 2017, the market experienced a shortage of polysilicon due to more stringent environmental regulations in China. Polysilicon prices, which started the year at $ 15.37/kg recorded a high of $ 17.57/kg towards the end of the year. The effects of higher polysilicon prices, which spilled over to the wafer portion of the value chain, was combined with a supply-demand imbalance in the wafer portion of the value chain as manufacturers took capacities off-line to transition to diamond wire wafers from the traditional slurry wire wafers.

We acquire substantially all of our wafers from a limited number of suppliers at pre-determined terms linked to prevailing market prices. We also acquire a small portion of our polysilicon and silicon wafers through spot market purchases. The prices we pay for silicon and silicon wafers in spot market purchases vary according to the prevailing market price, which have been, and may continue to be, subject to significant fluctuations.

Manufacturing Capacity and Capacity Utilization

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 significantly expanded our manufacturing capacity in the past. An increase in capacity, if fully utilized, has a significant positive effect on our financial results, allowing us to produce and sell more PV products and achieve higher net revenues as well as lowering our average manufacturing costs per unit as a result of increased economies of scale. However, when our manufacturing capacity is underutilized, we will not be able to realize such benefits as underutilization increases our unit fixed costs while our revenue potential is diminished due to lower production volume. In addition, 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.

The following tables set forth Q CELLS’ and our production volume of silicon ingots, silicon wafers, PV cells and PV modules for the periods indicated:

	Year Ended December 31,
	2015			2016		2017
Products	Hanwha Q CELLS⁽¹⁾			Hanwha Q CELLS⁽³⁾		Hanwha Q CELLS
				(MW)
Volume of ingots produced		1,246			1,453		1,431
Volume of wafer produced		1,188			1,428		1,382
Volume of PV cells produced		3,244			3,862		4,273
Volume of PV modules produced		3,197	⁽²⁾		3,458		4,176

(1)	Includes Q CELLS’ production volume from January 1 through February 5, 2015 and our combined production volume from February 6 through December 31, 2015.
(2)	Includes 907 MW of PV modules processed by others in 2015.
(3)	Excludes PV cells and modules produced by our affiliated company, Hanwha Q CELLS Korea, Corp.

As of December 31, 2017, we had annual nameplate capacities of 4,300 MW for PV cells, 4,300 MW for PV modules, and 1,600 MW for silicon ingots.

Process Technologies

Advancements of process technologies improve the quality of PV products and enhance their conversion efficiencies. High conversion efficiencies reduce the manufacturing cost per watt of PV products and could thereby contribute to increased profitability. For this reason, solar energy companies, including us, are continuously developing advanced process technologies for large-scale manufacturing in addition to the efforts to reduce costs to maintain and improve profit margins.

We have continuously improved the process technology and product quality since we commenced our commercial production in November 2005. Both Q CELLS and Hanwha SolarOne introduced solar modules with anti-PID features by 2013, by improving the materials used for encapsulation and upgrading the technology of cells used in modules. In 2014, Q CELLS also successfully commenced its commercial production of multicrystalline PERC cells, which have comparable efficiency rates with traditional monocrystalline BSF cells, and started marketing them under its “Q.ANTUM” brand. Our advanced ingot growing and wafer sewing process technologies have also 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 profit margins. See “Item 3.D. Risk Factors—Risks Related to Our Business and Industry—Our future success substantially depends on our ability to manage our production effectively, improve our product quality and reduce our manufacturing costs. Our ability to achieve such goals is subject to a number of risks and uncertainties.”

Fluctuations in Foreign Exchange Rates

We enter into economic hedging transactions to minimize the impact of short-term exchange rate fluctuations on the mismatch between our receivables and payables. As we do not intend to fully hedge all of our open positions, we expect fluctuations in foreign exchange rates to continue to, to a certain extent, affect our results of operations. Although the impact of exchange rate fluctuations has in the past been partially mitigated by such transactions, our results of operations have historically been affected by exchange rate fluctuations and may continue to be affected.

Net Revenues

We currently generate the 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, PV kit system sales and scrap materials to third parties, as well as from our PV downstream business, such as solar power project development, engineering, procurement and construction services and operation and management services.

Substantially all of the silicon ingots, silicon wafers and PV cells we produce are used for our own PV module production. 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.

We record revenues net of all value-added taxes imposed by governmental authorities and collected by us from customers concurrent with revenue-producing transactions. 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.

We currently sell a substantial portion of our PV products and services to a limited number of customers and countries. Customers that accounted for a significant portion of our total net revenues in 2017 included NextEra Energy Resources, LLC (Florida Power and Light), Hanwha Q CELLS Korea, Hanwha Q CELLS Japan, Hanwha Q CELLS USA, and Jino0 Solar. Our five largest customers accounted for an aggregate of 39.8% of our net revenues in 2017, compared to 55.8% and 35.5% in 2016 and 2016, respectively.

Geographically, the United States, China, Europe, Korea, India, and Japan accounted for 40.5%, 16.6%, 10.4%, 8.7%, 8.0%, and 6.6% our net revenues, respectively, and were the top six countries or regions in terms of percentage contribution to our net revenues in 2017, compared to 51.6%, 5.1%, 3.3%, 6.4%, 9.6% and 11.7%, respectively, in 2016 and 28.8%, 7.8%, 20.0%, 11.4%, 7.1% and 10.7%, respectively, in 2015. Although we anticipate that our dependence on a limited number of customers in a few concentrated geographic regions, including Europe, Japan, the United States and China, 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 Korea, India, Australia, Turkey and Latin America.

Sales to our customers are typically made through non-exclusive, short-term arrangements.

Cost of Revenues and Operating Expenses

The following table sets forth Q CELLS’ and our cost of revenues and operating expenses and these amounts calculated as percentages of the net revenues for the periods indicated.

	Year Ended December 31,
	2015					2016					2017
	Hanwha Q CELLS⁽¹⁾					Hanwha Q CELLS					Hanwha Q CELLS
	Amount ($)		% of Net Revenues			Amount ($)		% of Net Revenues			Amount ($)			% of Net Revenues
	(In millions, except percentages)
Cost of revenues		1,466.8		81.5	%		1,985.6		81.9	%		1,944.1			88.8	%
Operating expenses:
Selling expenses		94.1		5.2	%		120.1		5.0	%		114.5			5.2	%
General and administrative expenses		91.7		5.1	%		78.2		3.2	%		99.1			4.5	%
Research and development expenses		48.3		2.7	%		49.2		2.0	%		24.0			1.1	%
Restructuring charges		22.0		1.2			0.7		0.0	%		-			-	%
Other income		-		-	%		-		-	%		(18.4	)		-0.8	%
Total operating expenses		256.1		14.2	%		248.2		10.2	%		219.2			10.0	%

(1)	Includes Q CELLS’ cost of revenues and operating expenses from January 1 through February 5, 2015 and our consolidated cost of revenues and operating expenses from February 6 through December 31, 2015.

Cost of Revenues

Our cost of revenues includes the cost of raw materials used for our PV module and PV cell production, such as silicon and silicon wafers, other direct raw materials and components including ethylene vinyl acetate, triphenyltin, tempered glass, connecting bands, welding bands, silica gel, aluminum alloy and junction boxes, inventory write-down as a result of reduced cost or market assessment and a regular provision for obsolescence, and provisions for doubtful collection of advance to suppliers. We expect the cost of silicon and silicon wafers, our primary raw material for the manufacturing of PV products, to continue constituting a substantial portion of our cost of revenues in the foreseeable future. Future increases or decreases in our suppliers’ cost of silicon wafers may also contribute to fluctuations in 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 when the raw materials are consumed in our manufacturing process and the finished products are sold and delivered. Certain silicon suppliers required 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.

Other items contributing to our cost of revenues are labor, which includes salaries and benefits for personnel directly involved in manufacturing activities, manufacturing overhead, which consists of utility, maintenance of production equipment, and other support expenses associated with the manufacturing of our PV products, and depreciation and amortization of manufacturing equipment and facilities.

Operating Expenses

Our operating expenses primarily consist of selling expenses, general and administrative expenses, research and development expenses and restructuring charges.

Selling Expenses

Our selling expenses primarily consist of warranty costs, shipping and handling costs for products sold, advertising and other promotional expenses, commissions paid to sales agents and salaries, commissions, traveling expenses and benefits for our sales and marketing personnel.

General and Administrative Expenses

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. 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. Following our acquisition of Q CELLS, we centralized our research and development activities by coordinating Hanwha SolarOne’s and Q CELLS’ research activities through our technology and innovation headquarters in Germany, which we expect would lead to more cost-effective research and development activities.

Restructuring Charges

In January 2015, we announced restructuring plans to restructure our global operations. This decision includes the shutdown of its production facilities in Thalheim, Germany and the transfer of machineries used for production to the production site in Malaysia. This plan resulted in a downsizing of the workforce in Germany, which was communicated in March 2015, and an alternate use for certain assets that cannot be transferred. The Group estimated that it recognized aggregate charges pursuant to the restructuring plan of up to $22.0 million and $0.7 million in 2015 and 2016, respectively, consisting of severance and other one-time termination benefits, cost to relocate long-lived assets, repayments of government subsidies and other costs. In 2017, we made payments in the amount of $1.5 million to settle restructuring charge related liabilities. As of December 31, 2017, we had $0.2 million of liabilities to be settled in relation to our 2015 restructuring.

Other operating income

In the first quarter of 2017, we sold certain intellectual properties relating to the production of PERC cells to Hanwha Q CELLS Korea and received EUR 16.3 million ($18.4 million) in exchange.

Taxation

Cayman Islands

Under the current law of the Cayman Islands law, the Company and its subsidiaries in Cayman Islands are not subject to tax on its income or capital gains. In addition, upon any payment of dividends by the Company, no withholding tax is imposed.

Korea

The basic Korean corporation national income tax rates are 10% on first 200million Korean Won(KRW), 20% for the tax base between KRW 200million and KRW 20billion, 22% for the excess. And additional local income tax rates are 1% on the first KRW 200million, 2% for the tax base between KRW 200million and KRW 20billion, 2.2% for the excess. And Effective from the tax year beginning on or after 1 January 2015 through the tax year including 31 December 2017, in order to motivate corporations to utilize corporate retained earnings to fund facility investment, wage increases, and dividend payments, the corporate income tax law has introduced a 10% additional tax if the company’s qualified expenditures for facility investment, wage increases, and dividend payments fall short of a certain threshold.

Malaysia

Hanwha Q CELLS Malaysia Sdn. Bhd was incorporated in Malaysia and is subject to 24% corporate income tax rate except for small business company that have paid-up capital with respect to ordinary shares of MYR 2,500,000 or less. For years of assessment 2017 and 2018, corporate income tax rate on incremental chargeable income derived from business sources, as compared to the immediate preceding year of assessment, is reduced from 1% to 4% if certain conditions are met. Malaysia offers a wide range of incentives such as tax holiday or investment tax allowances, which are granted to promote investments in selected industry sector or promoted areas.

China, People’s Republic of

The statutory standard rate of enterprise income tax in China, People’s Republic is 25%, effective from January 1, 2008. In accordance with the corporate income tax law, a company is entitled to a preferential income tax of 15% if qualifying as an Advanced and New Technology Enterprise. The preferential tax rate, once being approved by the relevant government authorities, is subject to renewal every three years. However, a company that enjoys the preferential income tax rate should perform self-assessment to ensure it maintains the required qualification during those three years.

Germany

Hanwha Q CELLS Gmbh was incorporated in Germany and is subject to 15% corporate income tax rate plus a solidarity surcharge of 5.5% on corporate income tax and a trade tax which is combination of a uniform rate of 3.5% and municipal tax at a rate of between 9.1% and 15.75%.

United States

Hanwha Q CELLS America Inc and its subsidiaries in USA are subject to progressive US federal statutory tax rate from 15% to 21% and also subject to the state of California income tax rate of 8.84%. The state income tax paid is deductible for US federal income tax.

Turkey

Hanwha Q CELLS Turkey and its subsidiaries in Turkey are liable for corporate income tax at a rate of 20% on net profits generated.

Chile

Hanwha Q CELLS Chile SpA and its subsidiaries were incorporated in Chile. The corporate income tax rate is 25% or 25.5%, depending on the tax regime elected by the company.

Australia

Hanwha Q CELLS Australia Pty Ltd was incorporated in Australia and is subject to a federal tax rate of 30% except for eligible small business company that have the aggregate turnover of less than AUD 2 million.

Hong Kong SAR

Hanwha Q CELLS Hong Kong Limited was incorporated in Hong Kong. Hong Kong adopts a territorial basis of taxation and profit tax is payable on profits arising in or derived from Hong Kong. No income tax provision has been made for Hanwha Q CELLS Hong Kong Limited in any period, as the entities did not have assessable profits subject to Hong Kong Profit Tax at the rate of 16.5% for the years presented.

Canada

Hanwha Q CELLS Canada, Corp. was incorporated in Canada. The basic rate of federal corporate tax for 2017 is 38%, but it is reduced to 15% by an abatement of 10 percentage points on a corporation’s taxable income earned in a province or territory and a general rate reduction of 13 percentage points on a corporation’s full-rate taxable income. Provincial and territorial tax rates are added to the federal tax and generally vary between 10% and 16% of taxable income.

British Virgin Islands

Under the British Virgin Islands Business Companies Act, companies incorporated under the British Virgin Islands Companies Act are exempt from all taxes.

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 management’s judgment. Starting from January 1, 2016, the estimated useful life of machinery in Malaysia has been changed to 10 years as part of the Group’s unification of the estimated useful life of tangible assets. In addition, starting from April 1, 2016, we unified our estimate of accrual for the 12-year warranty against technical defects based on 0.5% of revenue for PV modules and no warranty cost accrual has been recorded for the 25-year warranties for decline from initial power generation capacity.

Reverse Acquisition

On February 6, 2015, we completed the acquisition of Q CELLS from Hanwha Solar in an all-stock transaction (the “Transaction”). The Transaction is accounted for as a reverse acquisition under the acquisition method of accounting, in accordance with ASC 805, “Business Combinations”. Q CELLS is determined as the accounting acquirer. Consequently, the historical consolidated financial statements for all periods prior to the consummation of the Transaction only reflect the historical consolidated financial statements of Q CELLS. Upon the consummation of the Transaction, Q CELLS applied purchase accounting to the assets and liabilities of Hanwha SolarOne. Subsequent to the Transaction, the consolidated financial statements reflect the results of the combined company. The historical issued and outstanding Q CELLS common shares have been recast to retrospectively reflect the number of shares issued in the Transaction in all periods presented.

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 and PV cells and silicon ingots when the criteria of ASC 605-10, “Revenue Recognition: Overall” are met. These criteria include all of the following: existence of a persuasive evidence of an arrangement; occurrence of delivery; fixed or determinable sales price; and reasonable assurance of collection.

We perform ongoing credit assessment of each customer, including reviewing the customer’s 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 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. Payments received from customers for shipping and handling costs are included in net revenues. Shipping and handling costs relating to sales and purchases are included in selling expenses and cost of revenue, respectively.

We generally recognize revenue related to long-term solar systems integration services using the percentage-of-completion method which is the preferable method of revenue recognition for such contracts. 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 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. In certain arrangements which did not meet the requirements to measure revenue according to the progress towards completion, we recognized revenue upon completion of the contract.

We develop and sell solar power plants which generally include the lease of related real estate. We recognize revenue from such sale in accordance with ASC 360-20, “Real Estate Sales”. We record the sale as revenue using full accrual method when all of the following requirements are met: (a) the sales are consummated; (b) the buyer's initial and continuing investments are adequate to demonstrate its commitment to pay; (c) the receivable is not subject to any future subordination; and (d) we have transferred the usual risk and rewards of ownership to the buyer. Specifically, we consider the following factors in determining whether the sales have been consummated: (a) the parties are bound by the terms of a contract; (b) all consideration has been exchanged; (c) permanent financing for which the seller is responsible has been arranged; and (d) all conditions precedent to closing have been performed, and we do not have any substantial continuing involvement with the project.

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 the distributors or shipped directly to the end user, other than due to product defect.

Property, Plant and Equipment

Property, plant and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets as follows:

Buildings		20 to 50 years
Plant and machinery		5 to 15 years
Furniture, fixtures and office equipment		3 to 18 years
Others		1 to 20 years
Generation licenses		10 years

Repair and maintenance costs are charged to expense when incurred, whereas the cost of renewals and betterments 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 comprehensive income (loss).

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.

Warranty Costs

For a discussion of warranty costs, see “Item 4. Information on Company – B. Business Overview – Warranty”.

Impairment of Long-Lived Assets

We evaluate our long-lived assets or asset groups, including land use rights 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.

$36.3 million, $4.5 million and nil impairment charge was recognized for the years ended December 31, 2017, 2016, and 2015, respectively. The impairment recognized in the year ended December 31, 2017, was in relation to the discontinuation of our wafer production. Upon detailed review of the competitiveness of our wafer manufacturing operation, we determined that we do not have the production scale that will enable us to stay competitive in the global wafer market. The impairment amount and recoverability of remaining assets relating to wafer production were evaluated by an independent expert taking into account expected sales price of impaired assets less costs associated with the disposition of such assets.

Functional and Reporting Currencies

The functional currencies of our operating subsidiaries are generally their local currencies, as determined based on the criteria of ASC 830, “Foreign Currency Translation”. Our reporting currency is U.S. dollars.

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 into the functional currency at the balance sheet date exchange rate. Exchange gains and losses occurring from such transactions or assets and liabilities denominated in currencies different from the functional currencies are reported in the statement of comprehensive income (loss) and affect the net income (loss) for the period.

We use the average exchange rate prevailing during the year and the exchange rate at the balance sheet date to translate the operating results and financial position, respectively, of consolidated subsidiaries using functional currencies that are different from the reporting currency. Accumulated translation adjustments are reported in stockholders’ equity, as a component of accumulated other comprehensive income (loss).

Financial Instruments—Foreign Currency Derivative Contracts, Commodity Contracts and Interest Rate Swap Contract

Our foreign currency derivative contracts and interest rate swap contracts are used to manage our foreign currency risks principally arising from sales contracts denominated in the Euro, Australian Dollar, Korean Won and Japanese Yen, and interest rate risk arising from our long-term bank borrowings. We record these derivative instruments as current assets or current liabilities, measured at fair value.

Changes in the fair value of these derivative instruments are recognized in our consolidated statements of comprehensive income (loss). These derivative instruments are not designated and do not qualify as hedges and are adjusted to fair value through current earnings. As of December 31, 2017, the Group had outstanding cross-currency exchange rate contracts to deliver AUD 19.7 million, JPY 1,726.3 million, CAD 0.7 million, EUR 5.8million and receive $35.8 million and interest rate swap contracts with notional amount of $ 440.2 million in which the Company pays fixed interest and receives variable interest. We estimate the fair value of our foreign currency and interest rate swap derivatives using a pricing model based on market observable inputs.

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 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. 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 comprehensive income (loss).

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. As of December 31, 2017, we had $41.2 million of advances to suppliers outstanding.

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, we may seek to recover the advances from the suppliers and will provide for losses on advances in operating expenses where we believe the suppliers will be unable to fulfill their supply obligations. In such cases, a charge to operating expenses will be recorded in the period in which a loss is determined to be probable and the amount can be reasonably estimated.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09 (ASU 2014-09), “Revenue from Contracts with Customers (Topic 606)”. This guidance was issued to clarify the principles for recognizing revenue and developing a common revenue standard for U.S. GAAP and International Financial Reporting Standards (“IFRS”). In addition, in August 2015, the FASB issued Accounting Standards Update No. 2015-14 (ASU 2015-14): “Revenue from Contracts with Customers (Topic 606).” This update was issued to defer the effective date of ASU No, 2014-09 by one year. Therefore, the effective date of ASU No, 2014-09 for public business entities is for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.

The FASB allows two adoption methods under ASU 2014-09. Under one method, a company will apply the rules to contracts in all reporting periods presented, subject to certain allowable exceptions. Under the other method, a company will apply the rules to all contracts existing as of January 1, 2018, recognizing in beginning retained earnings an adjustment for the cumulative effect of the change and providing additional disclosures comparing results to previous rules ("modified retrospective method"). The Group evaluated the available adoption methods, and chooses the modified retrospective transition method. Under the chosen method, the potential effect the implementation will have on its revenue streams and financial statements are as follows;

a. The expected value—The expected value is the sum of probability-weighted amounts in a range of possible consideration amounts. An expected value may be an appropriate estimate of the amount of variable consideration if an entity has a large number of contracts with similar characteristics.

b. The most likely amount is the single most likely amount in a range of possible consideration amounts (that is, the single most likely outcome of the contract). The most likely amount may be an appropriate estimate of the amount of variable consideration if the contract has only two possible outcomes (for example, an entity either achieves a performance bonus or does not).

For customers in Europe, the Company provides credit notes in the following quarter if certain goals are achieved by the customer. Transaction price applicable for credit note to be provided in the future needs to be deferred. Furthermore, credit note provided to the customer based on the sales quantity, is variable consideration, and needs to be considered for determination of transition price. The entity expects the effect of these changes to decrease revenues by $0.6m based on the above assumptions being applied during 2017.

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. The amendments in this update are intended to simplify the presentation of deferred income taxes and require that deferred tax liabilities and assets be classified as noncurrent in a consolidated statement of financial position. The standard was retrospectively adopted by the Company on January 1, 2016. According to the Company retrospectively adopted the standard as of December 31, 2016, the line items current liabilities and non-current liabilities in our consolidated balance sheet would have been reduced and increased by $2.4 million respectively, as a result of reclassifying the current deferred tax liabilities.

In January 2016, the FASB issued Accounting Standards Update No. 2016-01 (ASU 2016-01), "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." The main objective of this update is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The new guidance addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2017. Early adoption by public entities is permitted only for certain provisions. The Group is in the process of evaluating the impact of the standard on its consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02), “Leases”. Under the new guidance, lessees will be required to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier application permitted. The Group is in the process of evaluating the impact of the standard on its consolidated financial statements.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (ASU 2016-13), “Financial Instruments – Credit Losses”, which introduces new guidance for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments, including, but not limited to, trade and other receivables, held-to-maturity debt securities, loans and net investments in leases. The new guidance also modifies the impairment model for available-for-sale debt securities and requires the entities to determine whether all or a portion of the unrealized loss on an available-for-sale debt security is a credit loss. The standard also indicates that entities may not use the length of time a security has been in an unrealized loss position as a factor in concluding whether a credit loss exists. The ASU is effective for public companies for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for all entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Group is in the process of evaluating the impact of the standard on its consolidated financial statements.

In August 2016, the FASB issued Accounting Standards Update No. 2016-15 (ASU 2016-15), “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments,” which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The ASU is effective for annual and interim periods beginning after December 15, 2017. The Group is in the process of evaluating the impact of the standard on its consolidated financial statements.

In November 2016, the FASB issued Accounting Standards Update No. 2016-18 (ASU 2016-18), “Statement of Cash Flows”, which amends ASC 230 to add or clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. The ASU is effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted. The Group is in the process of evaluating the impact of the standard on its consolidated financial statements.

In January 2017, the FASB issued Accounting Standards Update 2017-01 (ASU 2017-01), “Business Combinations (Topic 805): Clarifying the Definition of a Business”, which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The standard introduces a screen for determining when assets acquired are not a business and clarifies that a business must include, at a minimum, an input and a substantive process that contribute to an output to be considered a business. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Group does not expect that the new standard will have a material impact on its consolidated financial statements.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04 (ASU 2017-04), “Simplifies Goodwill Impairment TestIntagibles, Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. As a result, under the ASU, “an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.” The ASU is effective prospectively for fiscal years beginning after December 15, 2019. The Group does not expect that the new standard will have a material impact on its consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock compensation (Topic 718): Scope of modification accounting” to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. ASU 2017-09 is effective prospectively for all companies for annual periods beginning on or after December 15, 2017, and early adoption is permitted. The Group does not expect that the new standard will have a material impact on its consolidated financial statements.

In August 2017, the FASB issued Accounting Standards Update No. 2017-12 (ASU 2017-12), “Derivatives and Hedging”, – Targeted Improvements to Accounting for Hedging Activities, to simplify certain aspects of hedge accounting for both non-financial and financial risks and better align the recognition and measurement of hedge results with an entity’s risk management activities. ASU 2017-12 also amends certain presentation and disclosure requirements for hedging activities and changes how an entity assesses hedge effectiveness. ASU 2017-12 is effective for fiscal years and interim periods within those years beginning after December 15, 2018, and early adoption is permitted. The Group is in the process of evaluating the impact of the standard on its consolidated financial statements.

In February 2018, the FASB issued Accounting Standards Update No. 2018-02 (ASU 2018-02), “Income Statement – Reporting Comprehensive Income” – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, to allow entities to reclassify the income tax effects of the Tax Act on items within accumulated other comprehensive income to retained earnings. ASU 2018-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2018, and early adoption is permitted. The Group is in the process of evaluating the impact of the standard on its consolidated financial statements.

Consolidated Results of Operations

Following the consummation of the combination of Hanwha SolarOne and Q CELLS on February 6, 2015, Q CELLS was determined as the accounting acquirer in accordance with ASC 805, “Business Combinations”. Consequently, the consolidated financial statements of Q CELLS are treated as our historical financial statements for all periods prior to the consummation of the combination of Hanwha SolarOne and Q CELLS with our consolidated results of operations reflected from February 6, 2015. The following table sets forth our and Q CELLS’ summary consolidated statements of operations and comprehensive income (loss) for the periods indicated:

	Year Ended December 31,
	2015⁽¹⁾						2016						2017
	Hanwha Q CELLS						Hanwha Q CELLS						Hanwha Q CELLS
	($)			% of Net Revenues			($)			% of Net Revenues			($)			% of Net Revenues
	(In millions, except for percentages)
Consolidated Statement of Operations Data
Net revenues		1,800.8			100.0	%		2,425.9			100.0	%		2,188.9			100.0	%
Cost of Revenues		1,466.8			81.5	%		1,985.6			81.9	%		1,944.1			88.8	%
Gross profit		334.0			18.5	%		440.3			18.1	%		244.8			11.2	%
Operating expenses:
Selling expenses		94.1			5.2	%		120.1			5.0	%		114.5			5.2	%
General and administrative expenses		91.7			5.1	%		78.2			3.2	%		99.1			4.5	%
Research and development expenses		48.3			2.7	%		49.2			2.0	%		24.0			1.1	%
Restructuring charges		22.0			1.2	%		0.7			0.0	%		—			—	%
Other income		—			—	%		—			—	%		(18.4	)		-0.8	%
Total operating expenses		256.1			14.2	%		248.2			10.2	%		219.2			10.0	%
Operating income (loss)		77.9			4.3	%		192.1			7.9	%		25.6			1.2	%
Interest expense		(66.9	)		-3.7	%		(54.5	)		-2.2	%		(44.9	)		-2.1	%
Interest income		10.9			0.6	%		8.1			0.3	%		4.9			0.2	%
Foreign exchange gain (loss)		(23.6	)		-1.3	%		(3.5	)		-0.1	%		18.0			0.8	%
Changes in fair value of derivative contracts		9.6			0.5	%		(24.4	)		-1.0	%		(3.3	)		-0.2	%
Investment loss		(1.3	)		-0.1	%		—			—	%		(0.2	)		0.0	%
Share of losses of equity method investments		(0.6	)		0.0	%		(0.9	)		0.0	%		(0.5	)		0.0	%
Reversal of litigation accruals		48.5			2.7	%		—			—	%		—			—	%
Other income (expense), net		(0.6	)		0.0	%		6.3			0.3	%		0.0			0.0	%
Income (loss) before income taxes		53.9			3.0	%		123.2			5.1	%		(0.4	)		0.0	%
Income tax expenses (benefits)		10.1			0.6	%		(4.3	)		-0.2	%		12.0			0.6	%
Net income (loss)		43.8			2.4	%		127.5			5.3	%		(12.4	)		-0.6	%
Foreign currency translation adjustments		(34.6	)		-1.9	%		(59.8	)		-2.5	%		59.9			2.7	%
Pension adjustments		—			—	%		(0.3	)		0.0	%		(0.2	)		0.0	%
Comprehensive income (loss)		9.2			0.5	%		67.4			2.8	%		47.3			2.1	%

(1)

2017 Compared to 2016

Net Revenues

Our net revenues decreased by 9.8% to $2,188.9 million for 2017 from $2,425.9 million for 2016 due to lower PV module ASPs. Global PV Module ASPs which averaged $ 0.53/Wp in the first half of 2016 declined sharply to $0.42/Wp in the second half of 2016, due to the global oversupply caused by a decrease in domestic demand in PRC. APS continued to decline steadily in 2017, resulting in a revenue decrease of $237.0 million year over year. This decrease in revenue was partially off-set by the increased shipment volumes from 4,583 MW in 2016 to 5,438 MW in 2017. In 2017, our major markets were the United States, China, India, Europe, Korea, and Japan, accounting for 80.4% of our total revenues, compared to 88.4% in 2016.

Cost of Revenues and Gross Profit

Our cost of revenues decreased by 2.1% to $1,944.1 million for 2017 from $1,985.6 million for 2016 due primarily to the reduction in raw material and processing costs. Wafers, which were on average priced around $0.75 per piece during 2016, traded for an average of $0.61 per piece during 2017, resulting in a 7% decrease our manufacturing costs.

Our gross profit decreased by 44.4% to $244.8 million for 2017 from $440.3 million for 2016 as ASP decline outpaced manufacturing cost reduction and we recognized a one-time loss in the amount of $39.2 million upon discontinuation of our wafer manufacturing operations. Our gross profit margin decreased to 11.2% for 2017 from 18.1% for 2016.

Selling Expenses, General and Administrative Expenses, Research and Development Expenses, and Restructuring Charges

Our selling expenses primarily consist of warranty costs, marketing and promotional expenses, shipping and handling costs and salaries, commissions, traveling expenses and benefits of our sales and marketing personnel. Our selling expenses decreased by 4.7% to $114.5 million for 2017 from $120.1 million for 2016, due to continued cost cutting efforts. Selling expenses as a percentage of our total net revenues increased slightly to 5.2% of our revenues in 2017 compared to 5.0% in 2016.

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 for our administrative personnel, and bad debt expense. Our general and administrative expenses increased by 26.7% to $99.1 million for 2017 from $78.2 million for 2016, due primarily a one-time bad debt expense in the amount of $35.1 million. This one-time increase in general and administrative expenses was partially off-set by our continued cost cutting efforts. General and administrative expenses as a percentage of our total net revenues increased to 4.5% for 2017 from 3.2% for 2016.

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 decreased by 51.2% to $24.0 million for 2017 from $49.2 million for 2016. Research and development expenses as a percentage of our total net revenues decreased to 1.1% for 2017 from 2.0% for 2016.

In 2017, we recognized other income in the amount of $18.4 million resulting from a sale of certain intellectual properties relating to the mass production of PERC cells to a third party, resulting in a one-time deduction to our operating expenses.

Operating Income

As a result of the foregoing, our operating income was $25.6 million for 2017, compared to $192.1 million for 2016. Our operating profit margin was 1.2% for 2017, compared to 7.9% for 2016.

Interest Income and Expense and Foreign Exchange Gain

We generated interest income of $4.9 million and incurred interest expense of $44.9 million for 2017, compared to interest income of $8.1 million and interest expense of $54.5 million for 2016. The decrease in interest expense was due to the repayment of higher interest-bearing debt instruments, a temporary repayment of loans, and decrease in parental guarantee fees.

We recorded foreign exchange gain of $18.0 million for 2017, compared to foreign exchange loss of $3.5 million for 2016, due primarily to increased U.S. dollar denominated assets resulting from increased shipments to the U.S., which helped reduce our over-sold U.S. dollar position.

Income Tax Expenses

Our income tax expense was $12.0 million for 2017 compared to an income tax benefit of $4.3 million in 2016. In 2016, we recognized a tax benefit primarily due to the derecognition of a $17.9 million due to expiration of the period of exclusion regarding an uncertain tax position in China.

Net Results of Operations

As a result of the cumulative effect of the above factors, we had a net loss of $12.4 million for 2017, compared to a net income of $127.5 million for 2016. Our net profit margin was -0.6% for 2017, as compared to 5.3% for 2016.

Other Comprehensive Income (Loss)

We recorded foreign currency translation adjustments of positive $59.9 million and pension adjustment of negative $0.2 million for 2017, compared to negative $59.8 million foreign currency translation adjustments and a negative $0.3 million pension adjustment for 2016. Other comprehensive losses in 2017 resulted from depreciation of CNY, EUR, and MYR against the US dollar. Such depreciation of functional currencies in our Chinese, German, and Malaysian subsidiary resulted in the recognition of other comprehensive losses resulting from currency translation adjustments.

2016 Compared to 2015

Net Revenues

Our net revenues increased by 34.7% to $2,425.9 million for 2016 from $1,800.8 million for 2015 due to an increase in PV module shipments from 2,956.1 MW for 2015 to 4,583.0 MW for 2016, which was primarily as a result of the strong increase in demand for our PV products in key markets such as the United States, Japan and India. Our year-over-year revenue increase in the United States was particularly strong, with an increase of 140.9% to $1,251.2 million in 2016 from $519.4 million in 2015.

Cost of Revenues and Gross Profit

Our cost of revenues increased by 35.4% to $1,985.6 million for 2016 from $1,466.8 million for 2015 due primarily to the substantial increase of PV product shipments by 55.0% in 2016 from the previous year.

Our gross profit increased by 31.8% to $440.3 million for 2016 from $334.0 million for 2015 also as a result of our manufacturing cost reduction, as we completed the ramp-up of newly commissioned production capacities in late 2015 and early 2016. Our gross profit margin decreased to 18.1% for 2016 from 18.5% for 2015, which was partially due to the steep decline of the market average selling price of solar modules in the second half of 2016.

Selling Expenses, General and Administrative Expenses, Research and Development Expenses, and Restructuring Charges

Our selling expenses primarily consist of warranty costs, marketing and promotional expenses, shipping and handling costs and salaries, commissions, traveling expenses and benefits of our sales and marketing personnel. Our selling expenses increased by 27.6% to $120.1 million for 2016 from $94.1 million for 2015, which were largely in line with the increase in our sales volume. Selling expenses as a percentage of our total net revenues decreased to 5.0% for 2016 from 5.2% for 2015.

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 and insurance for our administrative personnel. Our general and administrative expenses decreased by 14.7% to $78.2 million for 2016 from $91.7 million for 2015, due primarily to our continuing cost controls measures. General and administrative expenses as a percentage of our total net revenues decreased to 3.2% for 2016 from 5.1% for 2015.

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 1.9% to $49.2 million for 2016 from $48.3 million for 2015. Research and development expenses as a percentage of our total net revenues decreased to 2.0% for 2016 from 2.7% for 2015.

Operating Income

As a result of the foregoing, our operating income was $192.1 million for 2016, compared to $77.9 million for 2015. Our operating profit margin was 7.9% for 2016, compared to 4.3% for 2015.

Interest Income and Expense and Foreign Exchange Gain

We generated interest income of $8.1 million and incurred interest expense of $54.5 million for 2016, compared to interest income of $10.9 million and interest expense of $66.9 million for 2015. The decrease in interest expense was due to pay down of higher interest-bearing debt instruments and the decrease in commission rate of guarantee fee.

We recorded foreign exchange loss of $3.5 million for 2016, compared to foreign exchange loss of $23.6 million for 2015, due primarily to increased U.S. dollar denominated assets resulting from increased shipments to the U.S., which helped reduce our over-sold U.S. dollar position.

Income Tax Expenses

Our income tax benefits were $4.3 million for 2016 compared to a $10.1 million tax expense in 2015, primarily due to the derecognition of a $17.9 million uncertain tax position. Management believes that the company will not be liable for this tax position due to the expiration of the statute of limitations. This income tax benefit was partially off-set by tax expenses recognized by our Korean and American subsidiaries on their respective pre-tax incomes. Our effective tax rate was 18.7% in 2015.

Net Income

As a result of the cumulative effect of the above factors, we had a net income of $127.5 million for 2016, compared to a net income of $43.8 million for 2015. Our net profit margin was 5.3% for 2016, as compared to 2.4% for 2015.

Other Comprehensive Income (Loss)

We recorded foreign currency translation adjustments of positive $59.9 million and pension adjustment of negative $0.2 million for 2017, compared to foreign currency translation adjustments of negative $59.8 million and pension adjustment of negative $0.3 million for 2016, compared to foreign currency translation adjustments of negative $34.6 million and pension adjustment of nil for 2015. Other comprehensive losses in 2017 resulted from depreciation of CNY, EUR, and MYR against the US dollar. Such depreciation of functional currencies in our Chinese, German, and Malaysian subsidiary resulted in the recognition of other comprehensive losses resulting from currency translation adjustments.

B. Liquidity and Capital Resources

We operate in an industry with significant financing requirements. Our principal sources of liquidity and capital have been:

	·	cash generated by our operations;
	·	proceeds from borrowings from banks; and
	·	proceeds from securities offerings.
	·	Our principal capital requirements or uses have been:
	·	financing our capital expenditures; and
	·	financing our working capital requirements.

We believe our working capital is sufficient for our present requirements.

Cash Flows

The following table sets forth a summary of our and Q CELLS’ cash flows for the periods indicated:

	Year Ended December 31,
	2015⁽¹⁾			2016			2017
	Hanwha Q CELLS			Hanwha Q CELLS			Hanwha Q CELLS
	(In millions $)
Net cash provided by (used in) operating activities		250.6			137.4			(48.8	)
Net cash provided by (used in) investing activities		(171.8	)		(21.0	)		(199.5	)
Net cash provided by (used in) financing activities		(16.5	)		117.2			17.4
Net increase (decrease) in cash and cash equivalents		62.3			233.6			(230.9	)

(1)	Our cash flows for 2015 represent Q CELLS’ cash flows for the period from January 1, 2015 to February 5, 2015 and our cash flows for the period from February 6, 2015 to December 31, 2015.

Cash Flows from Operating Activities

Net cash provided by (used in) operating activities primarily consists of net income (loss), as adjusted for non-cash items such as depreciation and amortization, allowance for doubtful accounts, foreign exchange translation gains and losses and non-cash interest income and expenses, and the effect of changes in certain operating assets and liabilities line items such as trade accounts receivable, inventories, other current assets, restricted cash, trade accounts payable, warranty provisions, accrued expenses, other payables and other current liabilities.

Our net cash used in operating activities was $48.8 million for 2017, which was derived from net loss of $12.4 million, adjusted to reflect a net positive adjustment relating to non-cash items and a net positive effect from changes in operating assets and liabilities. The adjustments relating to non-cash items were primarily comprised of depreciation, amortization and impairment of $111.2 million, foreign currency exchange gain of $28.7 million. The adjustments relating to changes in operating assets and liabilities, which resulted in a net negative effect of $141.8 million, were primarily comprised of:

	·	a decrease of $16.9 million in deferred revenue due primarily to the increase in cash payments received from customers in advance of the delivery of our PV modules;
	·	an increase of $123.3 million in trade accounts receivable;
	·	a decrease of $23.6 million in inventories due primarily to the improvement in inventory controls; and
	·	a decrease of $47.9 million in restricted cash due primarily to a decrease in cash provided to banks as collateral in relation to the purchase of raw materials and sale of goods and for our working capital financings.

Our net cash provided by operating activities was $137.4 million for 2016, which was derived from net income of $127.5 million, adjusted to reflect a net positive adjustment relating to non-cash items and a net positive effect from changes in operating assets and liabilities. The adjustments relating to non-cash items were primarily comprised of depreciation, amortization and impairment of $94.1 million, foreign currency exchange loss of $35.3 million, and non-cash interest expenses on amortization of long-term debt and litigation accruals of $8.4 million. The adjustments relating to changes in operating assets and liabilities, which resulted in a net negative effect of $106.1 million, were primarily comprised of:

	·	a decrease of $383.2 million in deferred revenue due primarily to the increase in cash payments received from customers in advance of the delivery of our PV modules;
	·	an increase of $72.4 million in trade accounts receivable;
	·	a decrease of $15.5 million in inventories due primarily to the improvement in inventory controls; and
	·	a decrease of $50.1 million in restricted cash due primarily to a decrease in cash provided to banks as collateral in relation to the purchase of raw materials and sale of goods and for our working capital financings.

Our net cash provided by operating activities was $250.6 million for 2015, which was derived from net income of $43.8 million, adjusted to reflect a net positive adjustment relating to non-cash items and a net positive effect from changes in operating assets and liabilities. The adjustments relating to non-cash items were primarily comprised of depreciation, amortization and impairment of $83.3 million, foreign currency exchange loss of $37.0 million, and non-cash interest expenses on amortization of long-term debt and litigation accruals of $9.8 million, partially offset by reversal of litigation accruals of $48.5 million. The adjustments relating to changes in operating assets and liabilities, which resulted in a net positive effect of $103.2 million, were primarily comprised of:

	·	an increase of $402.1 million in deferred revenue due primarily to the increase in cash payments received from customers in advance of the delivery of our PV modules;
	·	an increase of $196.4 million in trade accounts receivable;
	·	an increase of $74.0 million in inventories due primarily to the expansion of sales activities; and
	·	an increase of $67.0 million in restricted cash due primarily to an increase in cash provided to banks as collateral in relation to the purchase of raw materials and sale of goods and for our working capital financings.

Cash Flows from Investing Activities

Our net cash used in investing activities primarily consists of cash used for capital expenditures, net cash received from an acquisition and cash used in the acquisition of fixed assets.

Our net cash used in investing activities was $199.5 million for 2017, primarily consisting of $110.2 million of cash used in acquisition of fixed and intangible assets for capacity expansion and upgrades in our Malaysia and Chinese facilities and $13.0 million of cash received from repayment of loans by related parties.

Our net cash used in investing activities was $21.0 million for 2016, primarily consisting of $174.9 million of cash used in acquisition of fixed and intangible assets for capacity expansion and upgrades in our Malaysia, Korean and Chinese facilities and $150.9 million of cash received from repayment of loans by related parties.

Our net cash used in investing activities was $171.8 million for 2015, primarily consisting of $200.0 million of cash used in acquisition of fixed and intangible assets for capacity expansion and upgrades in our Malaysia, Korean and Chinese facilities and $70.2 million of cash received from an acquisition in connection with the combination of Hanwha SolarOne and Q CELLS.

Our capital expenditures amounted to $110.2 million in 2017 which were primarily used to fund on-going capital equipment enhancements in Malaysia and China, as well as entitled to substantially all of the economic interests of five holdings companies in Turkey, each of which owned special purpose vehicles, by means of a usufruct contract.

Our capital expenditures amounted to $174.9 million in 2016 which were primarily used to fund expansion of our production facilities in Korea and on-going capital equipment upgrades in Malaysia and China.

Our capital expenditures amounted to $200.0 million in 2015 which were primarily used to construct new PV module processing facilities in Malaysia and Korea, as well as automate our existing manufacturing lines in China and upgrade our PV cell manufacturing facilities in Malaysia.

We expect that our capital expenditures will amount to approximately $90.3 million in 2018, which will be primarily used to fund on-going capital equipment upgrades in Malaysia and China and certain R&D activities. We plan to fund our capital expenditure and investment requirements with cash from operations, bank borrowings, proceeds from our securities offerings and other forms of financing, if necessary. We will actively review our capital expenditure and investment plans on a regular basis and make appropriate changes in accordance with our business environment.

Cash Flows from Financing Activities

Our net cash provided by (used in) financing activities primarily consists of proceeds from borrowings from banks, as offset by repayments of bank borrowings.

Our net cash provided by financing activities was $17.4 million for 2017. This was mainly attributable to repayment of bank borrowings of $447.9 million, partially offset by proceeds from borrowings from banks of $430.5 million.

Our net cash provided by financing activities was $117.2 million for 2016. This was mainly attributable to repayment of bank borrowings of $484.6 million, partially offset by proceeds from borrowings from banks of $634.2 million.

Our net cash used in financing activities was $16.5 million for 2015. This was mainly attributable to repayment of bank borrowings of $684.6 million, partially offset by proceeds from borrowings from banks of $655.8 million and proceeds from borrowings from related parties of $35.8 million.

Capital Resources

We have financed our operations primarily through cash flows from operations and proceeds from bank loans, capital contribution from Hanwha Solar and proceeds from our securities offerings.

As of December 31, 2017, we had long-term debt (including the current portion) of $731.0 million and short-term debt of $385.2 million. Our long-term debt consists mainly of long-term borrowings from commercial banks, a loan from the Malaysian government and long-term notes.

As of December 31, 2017, we had short-term bank borrowings from various commercial banks with an aggregate outstanding balance of $385.2 million. Our short-term bank borrowings outstanding as of December 31, 2017 bore average interest rates of 4.09% per annum. These short-term bank borrowings have terms of one month 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, 2017, we had long-term bank borrowings (including current portion) from various commercial banks with an aggregate outstanding balance of $593.2 million. The long-term bank borrowings outstanding as of December 31, 2017 bore an average interest rate of 3.33% per annum and had maturities ranging from 2018 through 2020. 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. Certain bank borrowings were guaranteed by Hanwha Chemical. See Note 13 to our consolidated financial statements included elsewhere in this annual report.

As of December 31, 2017, the principal amount of the Malaysian government loan was MYR 835,000,000 million ($205.3 million, translated at the rate of $0.2459 per one Malaysian Ringgit) and is repayable in installments from 2013 through 2031. Interest rates are variable, with a fixed 0% interest through 2019, a fixed 1% interest through 2027 and a fixed 2% interest through maturity. The fixed assets of Hanwha Q CELLS Malaysia were pledged as collateral and the loan was guaranteed by Hanwha Chemical. The book value of the Malaysian government loan as of December 31, 2017 was $137.8 million, which is approximately the fair value of the loan measured at an effective interest rate of 4.3% per annum.

As of December 31, 2017, we had cash and cash equivalents of $183.4 million. Our cash and cash equivalents primarily consist of cash on hand and bank deposits, which are unrestricted as to withdrawal and use and have original maturities less than 90 days. As of December 31, 2017, we had restricted cash in the amount of $139.7 million, which represents amounts held by a bank as security for letters of credit facilities, notes payable and bank borrowings and, therefore, are not available for our use. The restriction on the use of restricted cash is generally expected to be released at the maturity of the underlying letter of credit facilities, notes payable and bank borrowings which range from three months to 12 months, unless the underlying liabilities are rolled over or a default occurs. As we expect to roll over most of the underlying short-term liabilities, we do not expect the total amount of restricted cash to change substantially in the foreseeable future. As of December 31, 2017, unused loan facilities for short-term and long-term borrowings amounted to $64.7 million.

C. Research and Development, Patents and Licenses

We have been developing advanced technologies to improve the conversion efficiency and reduce the production cost of our PV products. Following the acquisition of Q CELLS in February 2015, we were able to share best practices between the former SolarOne and Q CELLS and roll-out Q CELLS’ advanced technology and research processes to improve our product performance and reliability and reduce production costs. Our primary research and development center is located at Thalheim, Germany, which employed 207 highly trained researchers as of December 31, 2016. In the past, Q CELLS has developed and commercialized a wide range of products and standard production processes. For example, Q CELLS’ engineers developed the 6-inch solar cell, the 3-busbar layout and the full-square monocrystalline solar cell. Q CELLS also succeeded in 2014 in the commercial production of multicrystalline PERC cells, which have higher conversion efficiency rate than traditional BSF cells, at its German facilities and started marketing them under our “Q.ANTUM” brand. Our research and development expenses were $23.1 million in 2017, $49.2 million in 2016 and $48.3 million in 2015.

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, 2018 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 material 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, 2017:

	Payment Due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
	(In millions $)
Long-term debt obligations⁽¹⁾		896.8		294.3		400.4		2.5		199.6
Operating lease obligations		4.4		2.8		1.6		-		-
Commitments relating to the acquisition of fixed assets		28.9		28.9		-		-		-
Total		930.1		326.0		402.0		2.5		199.6

(1)

The long-term debt obligations represent the principals and the interests of (i) long-term bank borrowings, (ii) long-term notes and (iii) loan from the Malaysian government. Please see Note 13, “Borrowings”, and Note 19, “Long-Term Notes”, to our audited consolidated financial statements.

G. Safe Harbor

This annual report 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 “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Our Business.” 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;
	·	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;
	·	future economic or capital market conditions; and
	·	those described under the section entitled “Risk Factors.”

This annual report also contains data related to the PV market worldwide 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 the 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 relate only to events or information as of the date on which the statements are made in this annual report. 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 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 as of December 31, 2017.

Name	Age	Position/Title	Term
Seong Woo Nam	60	Director, Chairman and Chief Executive Officer	December 2020
Jung Pyo Seo	51	Director and Chief Financial Officer	December 2020
Moon Seong Choi	47	Director and Senior Vice President of Corporate Planning	December 2019
Joo Yoon	47	Head of Sales Planning	December 2019
Seung Heon Kim	60	Independent Director	December 2019
Hyun Chul Chun	59	Independent Director	December 2019
Young S. Kim	67	Independent Director	December 2018

Directors

Mr. Seong Woo Nam has served as our chairman of the board and chief executive officer since April 2014. Prior to his current position, Mr. Nam was the executive vice president and general manager of Samsung Electronics’ IT Solutions Business. Prior to leading the IT Solutions Business at Samsung Electronics, Mr. Nam spent eight years directing the business innovation team at Samsung Electronics across a broad range of business segments including planning, supply chain management, logistics, and information strategy. He received his bachelor’s degree in political science from Sogang University in 1983.

Mr. Jung Pyo Seo has served as our director since April 2014 and as our chief financial officer since July 2011. He also serves as a member of our corporate governance and nominating committee. Prior to his current position, Mr. Seo served as chief financial officer and chief operating officer of Azdel Inc., in Virginia from 2008 to 2011. While with Azdel Inc., Mr. Seo rebuilt the company’s cash and debt management systems and processes, implemented a new ERP system, managed commercial banking relationships, raised capital and helped the company expand market share in a competitive market with rising raw material prices. He also played an important role in the acquisition and post-acquisition integration of Azdel Inc. by Hanwha Corporation. Prior to that, Mr. Seo held a variety of accounting, finance and sales-related positions at Hanwha Resorts Corporation and Hanwha Chemical for 12 years. Mr. Seo received an MBA with a concentration in Finance from the University of Washington, and a B.A. with a concentration in Finance and Accounting from Seoul National University.

Mr. Moon Seong Choi is VP of Corporate Planning at Hanwha Q CELLS with responsibility for corporate level strategy, business planning and human resources. He joined Hanwha Group in 1996 and held positions in Hanwha Chemical Corp.’s Finance and Accounting teams and Hanwha Group’s Planning & Management Headquarters, where he played a critical role in developing mid- to long-term strategies for the Group. Mr. Choi was also instrumental in numerous high-profile M&A deals and brings to the board his experiences as the Head of Planning for Hanwha Chemical’s polysilicon business and the Head of Q CELLS’ Southeast Asia sales. He received his bachelor’s degree in Business from Korea University, Seoul, Korea in 1993 and his MBA at Seoul National University, Seoul, Korea in 2017.

Mr. Joo Yoon is currently Head of Global Sales Planning as well as Product Management & Marketing at Hanwha Q CELLS. He joined Hanwha Group in 1996 and held positions at the EVA and Overseas Business Teams at the former Hanwha L&C Corporation, where he took part in overseas sales of PV components and electronic materials. He also led the Business Innovation Team as Head of the Business Innovation Task Force at Hanwha L&C, after which he held positions as the Head of PV System Sales at Hanwha Q CELLS Japan Co., Ltd. for four years. Mr. Yoon brings a diverse skillset to the Company, which encompasses the fields of engineering, product management, marketing/sales, and corporate innovation. He received his bachelor’s degree in Chemical Engineering from Kyung Hee University, Seoul, Korea in 1996.

Mr. Seung Heon Kim has served as our independent director since January 2016 and is a vice president at the Defense Acquisition Program Institute, a non-profit organization licensed by the Defense Acquisition Program Administration, where Mr. Kim served as Director General of Cost Accounting and Verification Group from August 2011 to August 2013. He also served as a non-executive member of the board of directors of the Korea Consumer Agency, a public institution established under the Fair Trade Commission, from 2013 to 2015. From 1988 to 2011, Mr. Kim held several positions at Samil PricewaterhouseCoopers, including as audit partner, where he led audit services to a broad range of Korean and multinational companies in a variety of industries. Mr. Kim is a certified public accountant licensed in Korea and California and has spent over 30 years holding accounting and audit related positions. He received both his BA and MBA degrees from Seoul National University in Korea.

Mr. Hyun Chul Chun has served as our independent director since January 2016 and has been a managing partner at Saesidae Accounting Corporation, which he joined in April 2014. He is also a member of the board of directors and audit committee of Aekyung Industry Co., Ltd., and a part-time auditor of Unicef Korea. From 1994 to 2014, he held several positions at Deloitte Anjin LLC, including as audit partner and dean of Deloitte Academy. Mr. Chun is a certified public accountant licensed in Korea and has spent over 30 years holding accounting and audit related positions. He received both his BA and MBA degrees from Yonsei University in Korea.

Mr. Young S. Kim has served as our independent director since January 2017 and is currently a technical advisor at Realgain. Also, he served as a technical advisor at ISU Chemical for new business development. He was a project engineer at DOW Chemical of Freeport, Texas. He received his BA in Chemical Engineering from Seoul National University in Korea in 1974 and a master’s degree in Industrial Engineering from Dow International Vocational School in Texas in 1980.

B. Compensation

Compensation

In 2017, we paid aggregate cash compensation of approximately $1.8 million to our directors and executive officers. For equity incentive awards such as incentive stock options and non-statutory stock options granted to officers and directors, see “—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 company’s 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.

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. Following the termination of the 2007 equity incentive plan, we adopted the 2018 equity incentive plan providing for the grant of shared based compensations to our employees.

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.

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 the date of this annual report.

Name	ADSs Underlying Outstanding Option		Exercise Price		Date of Grant	Expiration Date
			($/ADS)
Seong Woo Nam		—		—	—	—
Jung Pyo Seo		—		—	—	—
Moon Seong Choi		—		—	—	—
Joo Yoon		—		—	—	—
Seung Heon Kim		—		—	—	—
Hyun Chul Chun		—		—	—	—
Young S. Kim		—		—	—	—
Other individuals as a group		1,138		67.2	Oct. 16, 2008	Oct. 15, 2018
		100		67.2	Mar. 17, 2009	Mar. 16, 2019
		400		37.1	Apr. 28. 2009	Apr. 27. 2019
		4,676		68.6	Dec. 3, 2009	Dec. 2, 2019
		750		74.8	Jun. 28, 2010	Jun. 27, 2020
Total		7,064

—

No outstanding share option was held by such person.

The following table sets forth certain information regarding our granted restricted stock units under our 2007 equity incentive plan as of the date of this annual report.

Name	ADSs Underlying Granted Restricted Stock Units		Date of Grant	Date of Vesting

Seong Woo Nam		—	—	—
Jung Pyo Seo		861	Mar. 1, 2015	Mar. 1, 2016
Moon Seong Choi		—	March 1, 2015
Joo Yoon		—	—
Seung Heon Kim		—	—
Hyun Chul Chun		—	—
Young S. Kim		—	—
Other individuals as a group		2,000	Nov. 30, 2007	Nov. 30, 2007
		750	Jan. 1, 2008	Jan. 1, 2008
		750	Jan. 1, 2009	Jan. 1, 2009
		1,500	Jan. 1, 2010	Jan. 1, 2010
		1,500	Jan. 1, 2011	Jan. 1, 2011
		1,200	Feb. 28, 2011	Feb. 28, 2011
		4,500	May 31, 2011	May 31, 2011
		4,312	Nov. 29, 2011	Nov. 29, 2011
		1,500	Jan. 1, 2012	Jan. 1, 2012
		2,250	Apr. 30, 2012	Apr. 30, 2013
		3,000	Jan. 1, 2013	Jan. 1, 2013
		3,000	Jan. 1, 2014	Jan. 1, 2014
		11,579	Aug. 1, 2014	Feb. 1, 2015
		15,720	Aug. 1, 2014	Aug. 1, 2017
		3,000	Jan. 1, 2015	Jan. 1, 2015
		32,792	Mar. 1, 2015	Mar. 1, 2016
		1,500	Jan. 1, 2016	Jan. 1, 2016
		27,506	Mar. 1, 2016	Mar. 1, 2017
		55,184	March 1, 2017	Mar. 1, 2018
Total		174,404

—

No restricted stock units have been granted to such person.

C. Board Practices

Directors’ Term and Directorship Period as of filing date

Name	Appointed	Term Expiration	Period in Office
Seong Woo Nam	December 2014	December 2020	3 years and 5 month
Jung Pyo Seo	December 2014	December 2020	3 years and 5 month
Moon Seong Choi	November 2017	December 2019	6 months
Joo Yoon	November 2017	December 2019	6 months
Seung Heon Kim	December 2015	December 2019	2 years and 5 months
Hyun Chul Chun	December 2015	December 2019	2 years and 5 months
Young S. Kim	December 2016	December 2018	1 years and 5 months

Committees of the Board of Directors

Audit Committee

Name	Appointed	Term Expiration	Period in Office
Seung Heon Kim	January 2016	December 2019	2 years and 4 months
Hyun Chul Chun	January 2016	December 2019	2 years and 4 months
Young S. Kim	January 2017	December 2018	1 year and 4 months

The audit committee is chaired by Mr. Hyun Chul Chun, a director with accounting and financial management expertise as required by the Nasdaq corporate governance rules (the “Nasdaq Rules”).

Our board of directors has determined that each of Mr. Seung Heon Kim and Mr. Hyun Chul Chun qualifies as an “audit committee financial expert” as set forth under the applicable rules of the SEC. Each of the members of the audit committee is an “independent director” as defined in the Nasdaq Marketplace Rules.

All of the members of our audit committee satisfy the “independence” requirements of the Nasdaq Rules. The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:

	·	selecting our independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by our independent auditors;
	·	reviewing with our independent auditors any audit problems or difficulties and management’s 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

Name	Appointed	Term Expiration	Period in Office
Seung Heon Kim	January 2016	December 2019	2 years and 4 months
Hyun Chul Chun	January 2016	December 2019	2 years and 4 months
Young S. Kim	January 2017	December 2018	1 year and 4 months

The compensation committee is chaired by Mr. Young S. Kim. 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

Name	Appointed	Term Expiration	Period in Office
Seung Heon Kim	January 2016	December 2019	2 year sand 4 months
Hyun Chul Chun	January 2016	December 2019	2 years and 4 months
Young S. Kim	January 2017	December 2018	1 year and 4 months
Jung Pyo Seo	April 2014	December 2019	4 years and 1 month

The corporate governance and nominating committee is chaired by Mr. Seung Heon Kim.

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;
	·	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 owe to us fiduciary duties, including a duty of loyalty, a duty to act honestly, and a duty to act in what they consider in good faith to be in 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 hold office until the expiration of such term as may be specified in the resolution appointing such director, or if no such term is specified until such time as they are removed from office by ordinary resolution or the unanimous written resolution of all shareholders. Any director appointed by the directors (either to fill a casual vacancy or as an addition to the existing directors) shall hold office only until the next following annual general meeting and shall then be eligible for re-election at that meeting. Any director may be removed by an ordinary resolution of our shareholders (including by a unanimous written resolution signed by all our shareholders). In addition, the office of a director will automatically be vacated if (i) he gives notice in writing to our company that he resigns the office of director, (ii) all of the directors (other than the one to be removed) pass a resolution or sign a notice effecting his removal from his office as such, (iii) he is prohibited from being a director under any applicable law, rules or regulations and the Nasdaq Rules, (iv) he absents himself (without being represented by proxy or an alternate director appointed by him) from three consecutive meetings of the board of directors without special leave of absence from the directors, and all of the directors (other than the one to be removed) pass a resolution that he has by reason of such absence vacated office, (v) he dies, becomes bankrupt or makes any arrangement or composition with his creditors, or (vi) he is found to be or becomes 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.

D. Employees

The following table sets forth the number of our full-time employees by function as of December 31, 2015, 2016 and 2017.:

	As of December 31,
	2015		2016		2017
	Hanwha Q CELLS		Hanwha Q CELLS		Hanwha Q CELLS
Manufacturing and engineering		7,792		6,294		5,718
General and administration		783		536		609
Quality control		557		541		483
Research and development		386		308		363
Purchasing and logistics		147		148		177
Marketing and sales		240		176		160
Total		9,905		8,003		7,510

The following table sets forth the number of our full-time employees by geographic location as of December 31, 2015, 2016 and 2017:

	As of December 31,
	2015		2016		2017
	Hanwha Q CELLS		Hanwha Q CELLS		Hanwha Q CELLS
China		6,555		5,290		4,626
Germany		448		395		397
Malaysia		1,887		2,150		2,309
Korea		795		90		95
Others		220		78		83
Total		9,905		8,003		7,510

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.

We are subject to the local labor and employment laws of various jurisdictions in which we operate. For example, in Germany, our employees are covered by various labor laws that provide employees, through works councils, with rights of information and consultation with respect to specific matters involving their employer’s business and operations, including downsizing or closure of facilities and employment terminations. The German worker protection laws could impair our flexibility in streamlining or restructuring our business operations in Germany. In China, 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 by the Group in 2017 was $14.4 million.

Our employees in Germany are represented by the works council organized under the German law, which is entitled to consultation and, in some areas, to co-determination rights concerning labor conditions. None of our employees in Malaysia is represented by a union.

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.

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, 2017, options to purchase 353,200 ordinary shares were granted and outstanding, and restricted stock units equivalent to 2,909,500 ordinary shares were scheduled to vest in March 1, 2018. Both types of stock awards were granted under the 2007 Equity Incentive 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 two 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 29, 2013, Hanwha Q CELLS 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 Hanwha Q CELLS Qidong who are PRC citizens and is effective from March 29, 2013 to March 17, 2019.

In March 2015, as part of our strategy to reduce manufacturing cost, Q CELLS ceased the production of PV cells and modules at its manufacturing facilities in Thalheim, Germany. The manufacturing equipment was relocated to our other facilities in Malaysia in the first half of 2015.

In connection with the relocation of our manufacturing facilities, we have restructured our workforce in Germany. The production transfer to other sites and the corresponding restructuring has led to a reduction of the workforce in Germany by approximately 550 positions. We continue to maintain approximately 450 jobs in Germany. In February 2015, we have reached an agreement with the works council representing the employees in Germany on the terms and conditions of the restructuring program. In 2016, we incurred approximately $0.7 million of restructuring cost, including termination payments, in connection with the restructuring. In 2017, we incurred no restricting costs. In comparison, we incurred $22.0 million for 2015 in connection with our restructuring including discontinuation of commercial production in Germany. Due to the restructuring of our workforce, we may be subject to disputes with our former employees and the related cost could have a material adverse effect on our business and results of operations.

E. Share Ownership

The following table sets forth information with respect to the beneficial ownership of our ordinary shares as of April 20, 2018, 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:
Seong Woo Nam		—		—
Jung Pyo Seo		—		—
Moon Seong Choi		—		—
Joo Yoon		—		—
Hyun Chul Chun		—		—
Young S. Kim		—		—
Steve Kim		—		—

Major Shareholders:
Hanwha Solar Holdings Co., Ltd.⁽³⁾		3,910,394,773		94.0	%

—

The person does not beneficially own any ordinary share or options exercisable within 60 days of the date of this annual report.

(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 shares beneficially owned by each listed person as of March 31, 2018. 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 March 31, 2018. Percentage of beneficial ownership of each listed person is based on 4,162,038,802 ordinary shares outstanding as of March 31, 2018, as well as the ordinary shares underlying share options exercisable by such person within 60 days of the date of this annual report. This number excludes: (i) the remaining 401,408 ADSs which were issued to facilitate our convertible notes offering in January 2008; (ii) the remaining 20,062,348 ordinary shares issued to Hanwha Solar at par value of $0.0001 per ordinary share, in connection with Hanwha Solar’s purchase of 36,455,089 ordinary shares of our company in September 2010; and (iii) the 10,136 ADSs (representing 506,800 ordinary shares) which have been reserved by our company as of March 31, 2018 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 would be 4,182,607,925 if those numbers mentioned above are to be included.

(3)

Held 3,903,989,723 ordinary shares (excluding the remaining 20,062,348 ordinary shares issued to Hanwha Solar at par value of $0.0001 per ordinary share, in connection with Hanwha Solar’s purchase of 36,455,089 ordinary shares of our company in September 2010) and 128,101 ADSs (representing 6,405,050 ordinary shares) as of March 31, 2016. 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 and Hanwha Chemical may therefore be deemed to be the beneficial owner of our ordinary shares held by Hanwha Solar. Hanwha Corporation together with its affiliates hold approximately 36.30% of the issued and outstanding shares of Hanwha Chemical and Hanwha Corporation may therefore be deemed to be the beneficial owner of our ordinary shares held by Hanwha Solar. Mr. Seung-Youn Kim, a representative director and executive officer of Hanwha Chemical and Hanwha Corporation, together with his affiliates hold approximately 36.05% of the issued and outstanding shares of Hanwha Corporation and Mr. Seung-Youn Kim may therefore be deemed to be the beneficial owner of our ordinary shares held by Hanwha Solar.

As of April 19, 2018, 5,221,959 ADSs, were held in the form of ADSs in the United States by 38 record holders, among which 35 record holders were U.S. holders.

ITEM 7 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

Please refer to “Item 6.E. Share Ownership.”

B. Related Party Transactions

We engage from time to time in various transactions with related parties, including our affiliates. We believe that we (and, historically, both Q CELLS and Hanwha SolarOne) have conducted our transactions with related parties as we would in comparable arm’s-length transactions with a non-related party, on a basis substantially as favorable to us as would be obtainable in such 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.

In the first quarter of 2017, we sold certain intellectual properties to Hanwha Q CELLS Korea and received EUR 16.3 million ($18.4 million) in exchange.

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 $2.144 per share for an aggregate sale price of $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 were to remain outstanding so long as and to the extent that the 901,961 ADSs we issued to facilitate our convertible notes offering in January 2008 remain outstanding. In October 2011, we repurchased and cancelled 25,017,671 ordinary shares from Hanwha Solar at par value of $0.0001 per ordinary share.

In connection with our public offering of 920,000 ADSs in November 2010, we issued in a private placement to Hanwha Solar an additional 45,981,604 ordinary shares at a price of $1.8 per ordinary share for an aggregate sale price of $82.8 million pursuant to a shareholder agreement we and Hanwha Solar entered into on September 16, 2010.

In February 2015, we issued 3,701,145,330 ordinary shares to Hanwha Solar in exchange for the transfer of 100% of the outstanding share capital of Q CELLS by Hanwha Solar to us and Q CELLS became a wholly-owned subsidiary of us. The new shares issued by us to Hanwha Solar in the transaction represent approximately 8.09 newly issued shares for each of our then-outstanding shares on a fully diluted basis.

Shareholder Agreement

In connection with the our acquisition of Q CELLS from Hanwha Solar and the issuance of our new shares to Hanwha Solar, we and Hanwha Solar entered into a shareholder agreement, dated as of December 8, 2014, which replaced the existing shareholder agreement, dated as of September 16, 2010, as amended by amendment No. 1, dated as of November 12, 2013.

Below is a summary of the key provisions of the shareholder agreement.

Registration Rights

Under the shareholder agreement, Hanwha Solar will be entitled to specified registration rights with respect to any potential public offering of our ordinary shares or ADSs in the United States, and will be entitled to any analogous or equivalent rights with respect to any other offering of shares in any other jurisdiction pursuant to which we undertake to publicly offer or list such securities for trading on a recognized securities exchanges subject to applicable law.

Board of Directors

Three members of the board of directors will be “independent directors”, as defined under Nasdaq Marketplace Rule 5605(a)(2) and otherwise satisfying the independence requirements imposed by Rule 10A-3 of the Exchange Act. Each independent director will be appointed for a two year term (or such other period of time as is generally applicable to other members of the board of directors).

The shareholder agreement does not specify the number of directors of our board of directors, while our memorandum and articles of association, as amended, provides that our board of directors will consist of not less than five and not more than ten directors.

Audit Committee

So long as we qualify as a “foreign private issuer” (as defined in Rule 3b-4(c) under the Exchange Act), Hanwha Solar will be entitled (but not required) to appoint one individual to serve as an observer to our audit committee so long as such individual (i) satisfies the “no compensation” prong of the independence requirements under Rule 10A-3 of the Exchange Act, (ii) is not a voting member or the chair of, our audit committee and (iii) is not an executive officer of Hanwha Solar or us.

Specific Approvals

The prior approval of a majority of our independent directors will be required to delist the ADSs from Nasdaq, deregister our ordinary shares or the ADSs under the Exchange Act, or amend any provision of our organizational documents to the extent that such amendment would be inconsistent with or conflict with the provisions of the shareholder agreement.

Any “related party transaction,” as defined in Nasdaq Marketplace Rule 5630, or transactions or matters involving a “related person” as defined under Item 404 of Regulation S-K promulgated under the Exchange Act, will require the prior approval of our audit committee.

In the event any matter is presented to our board of directors for prior approval or determination and any director who has been nominated by Hanwha Solar has an actual or potential conflict of interest with respect to such matter, as determined in good faith by a majority of our independent directors, then the approval or determination with respect to such matter will be made by a majority of the members of our board of directors without such conflict of interest.

Restrictions on Further Purchases by Hanwha Solar

Hanwha Solar will not acquire, directly or indirectly, by purchase, squeeze-out, merger, consolidation, compulsory acquisition, scheme of arrangement, recapitalization, negotiated transaction or otherwise, that number of our securities that would result in a beneficial ownership percentage of 95.03% or greater unless such acquisition, however structured, shall have been approved in advance by a majority of our independent directors.

Restrictions on Transfer by Hanwha Solar

Hanwha Solar will not effect any transaction or series of related transactions involving a sale(s) of our ordinary shares to any non-affiliated third-party if, after giving effect to such sale, such third-party (individually or together with its affiliates or other persons which would constitute a “group” (as defined under Section 13(d) of the Exchange Act) with such third-party or its affiliates) would beneficially own 30% or more of the total number of issued and outstanding ordinary shares unless (i) approved in advance by a majority of the our independent directors, (ii) after giving effect to such sale(s), Hanwha Solar together with its affiliates continues to control us or (iii) such third-party, its affiliates and/or persons which constitute a “group” with such third-party, as the case may be, agree in writing to be bound by the terms of the shareholder agreement to the same extent as Hanwha Solar.

Equity Incentive Plan

See “Item 6.B. Compensation—2007 Equity Incentive Plan.”

Material Transactions with Certain Shareholders and Affiliated Companies

A summary of our material transactions with related parties is set forth below. In addition, see Note 26 to our audited consolidated financial statements included elsewhere in this annual report for a description of material transactions with related parties.

Transactions between Hanwha SolarOne and Q CELLS

In 2014, Hanwha SolarOne provided PV module processing services to Q CELLS to produce PV modules from PV cells provided by Q CELLS, which generated revenues amounting to $84.1 million. Hanwha SolarOne also purchased PV cells and other raw materials from Q CELLS to produce its own PV modules, which amounted to $9.1 million in 2014. Since our acquisition of Q CELLS in February 2015, transactions between Hanwha SolarOne and Q CELLS have become intercompany transactions not reported in our consolidated financial statements.

Transactions with Hanwha Corporation

Hanwha Corporation is the controlling shareholder of Hanwha Chemical, which is the parent company of Hanwha Solar, our largest shareholder, and it is engaged in the global trading business, among others. We sell (and, historically, both Q CELLS and Hanwha SolarOne sold) PV modules to Hanwha Corporation, which then resells the PV modules purchased from us to system integrators and third-party distributors in various markets. We also purchase (and, historically, both Q CELLS and Hanwha SolarOne purchased) raw materials, primarily polysilicon and silver paste, from Hanwha Corporation. In 2017, 2016 and 2015, our sales to Hanwha Corporation amounted to nil, $38.7 million and $117.5 million, respectively, and our purchase of raw materials from Hanwha Corporation amounted to nil, $259.8 million and $306.7 million, respectively.

As of December 31, 2017 and 2016, we had amounts due to Hanwha Corporation of $6.6 million and $27.5 million, respectively, which primarily consisted of accounts payable related to purchases of raw materials, and amounts due from Hanwha Corporation of $2.2 million, and nil, respectively, which primarily consisted of accounts receivable related to sales of PV modules.

Transactions with Hanwha Q CELLS USA Corp.

Hanwha Q CELLS USA Corp. is a wholly-owned subsidiary of Hanwha Q CELLS Americas Holdings Corp., an indirect subsidiary of Hanwha Corporation, and primarily engages in the sale and distribution of PV products and PV downstream business in the United States. Hanwha Q CELLS Americas Holdings Corp. is not our consolidated subsidiary. We sell (and, historically, Q CELLS sold) PV modules to Hanwha Q CELLS USA Corp., which then resells the PV modules purchased from us to system integrators and third-party distributors in the United States. Our sales to Hanwha Q CELLS USA Corp. in 2017, 2016 and 2015 amounted to $109.8 million, nil and $139.7 million, respectively. In 2017, 2016 and 2015, we also purchased PV modules from Hanwha Q CELLS USA Corp. for the amounts of $0.2 million, nil and $20.4 million, respectively.

As of December 31, 2017 and 2016, we had amounts due from Hanwha Q CELLS USA Corp. of $74.6 million and $20.8 million, respectively, which primarily consisted of accounts receivable/payable related to sales of PV modules.

Transactions with Hanwha Q CELLS Japan Co., Ltd.

Hanwha Q CELLS Japan Co., Ltd. is a direct subsidiary of Hanwha Corporation and is not our consolidated subsidiary. It primarily engages in the sale and distribution of PV products and PV downstream business in Japan. We sell (and, historically, both Q CELLS and Hanwha SolarOne sold) PV modules to Hanwha Q CELLS Japan Co., Ltd., which then resells the PV modules purchased from us to system integrators and third-party distributors in Japan. Our sales to Hanwha Q CELLS Japan Co., Ltd. in 2017, 2016 and 2015 amounted to $143.9 million, $284.0 million and $193.4 million, respectively.

As of December 31, 2017 and 2016, we had amounts due from Hanwha Q CELLS Japan Co., Ltd. of $28.5 million, and $33.4 million, respectively, which primarily consisted of accounts receivable related to sales of PV modules.

Transactions with Hanwha Q CELLS Korea Corp.

Hanwha Q CELLS Korea Corp. is a direct subsidiary of Hanwha General Chemical Corporation and is not our consolidated subsidiary. It primarily engages in the sale and distribution of PV products and PV downstream business in Korea. We sell (and, historically, both Q CELLS and Hanwha SolarOne sold) PV modules to Hanwha Q CELLS Korea Corp., which then resells the PV modules purchased from us to system integrators and third-party distributors in Korea. Our sales to Hanwha Q CELLS Korea Corp. in 2017, 2016 and 2015 amounted to $153.5 million, $105.5 million and $76.5 million, respectively.

As of December 31, 2017 and 2016, we had amounts due from Hanwha Q CELLS Korea Corp. of $54.4 million, and $43.9 million, respectively, which primarily consisted of accounts receivable related to sales of PV modules.

On March 31, 2017, the Group entered into a sale agreement with Hanwha Q CELLS Korea Corp. to sell certain intellectual properties to Hanwha Q CELLS Korea Corp. for proceeds of USD $18.4 million.

Transactions with Hanwha Chemical

Hanwha Chemical, which is the parent company of Hanwha Solar, our largest shareholder, has guaranteed certain borrowings and notes of us (and, historically, both Q CELLS and Hanwha SolarOne), which have paid guarantee fees to Hanwha Chemical. As of December 31, 2017 and 2016, the amount of our bank borrowings guaranteed or jointly guaranteed by Hanwha Chemical amounted to $868.3 million and $789.7 million, respectively. In 2017, 2016 and 2015, we purchased raw materials from Hanwha Chemical for the amounts of $56.7 million, $53.7 million and $35.6 million, respectively.

Transactions with Hanwha Advanced Materials Corp.

Hanwha Advanced Materials Corp. is a wholly-owned subsidiary of Hanwha Chemical that engages in the manufacturing of various automotive and electronics materials, and is not our consolidated subsidiary. We purchase (and, historically, both Q CELLS and Hanwha SolarOne purchased) raw materials from Hanwha Advanced Materials Corp. Our purchase of raw materials from Hanwha Advanced Materials Corp. in 2017, 2016 and 2015 amounted to $19.3 million, $43.4 million and $47.3 million, respectively.

As of December 31, 2017 and 2016, we had amounts due to Hanwha Advanced Materials Corp. of $7.5 million, and $7.3 million, respectively, which primarily consisted of accounts payable related to purchases of raw materials.

C. Interests of Experts and Counsel

Not applicable.

ITEM 8 FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

We have appended consolidated financial statements filed as part of this annual report.

Legal and Administrative Proceedings

Litigations and Arbitrations

On July 26, 2012, Hanwha SolarOne Hong Kong, Limited brought a lawsuit against Hoku Corporation and Hoku Materials, Inc. (collectively, “Hoku”), one of our polysilicon suppliers, at the Los Angeles Superior Court for Hoku’s failure to perform a multi-year framework polysilicon supply agreement entered into on November 19, 2007. Hoku never made any delivery of polysilicon, and failed to return a $49 million prepayment to us. Hoku Corporation and Hoku Materials, Inc. each filed a Chapter 7 Petition in the Bankruptcy Court of Pocatello, Idaho (the “U.S.’ Bankruptcy Court”) on July 2, 2013. In the summer of 2015, Hoku Corporation’s Chapter 7 Trustee initiated approximately 175 adversary proceedings against Hoku Materials, Inc.’s vendors and suppliers seeking to avoid the payments made to them by Corporation as constructively fraudulent transfers. In an apparent response to these claims, many of the vendor-defendants have asked the Court to substantively consolidate the bankruptcy cases and estates of Hoku Corporation and Hoku Materials, Inc. Due to the nominal amount, Hanwha SolarOne Hong Kong, Limited, purposefully opted out to participate in the substantive consolidation proceedings. On October 24, 2017, the U.S. Bankruptcy Court granted a request to withdraw from the case.

We face payment collection difficulties with respect to certain customers, which may materially and adversely impact our operating margins. For example, on June 8, 2012, we submitted an arbitration request to Guangzhou Arbitration Commission requiring Guo Hua, owner of a PV project for which we acted as an EPC contractor, to pay a total amount of RMB92 million ($14.2 million) including, among other things, overdue payment of EPC contract price, accrued interest, damages and legal cost in accordance with the EPC contract. On August 5, 2012, Guo Hua submitted an counterclaim to Guangzhou Arbitration Commission alleging that we have substantially breached the EPC contract, and Guo Hua requested termination of the EPC contract and demanded us to pay a total amount of approximately RMB187 million ($28.9 million) for breach of contract. On September 11, 2014, Guangzhou Arbitration Commission issued their arbitral award which dismissed Guo Hua’s counterclaim for approximately RMB187 million and ordered Guo Hua to pay RMB78.2 million ($12.1 million) plus interests for late payment at the rate of 8.33% per month since December 20, 2010 until the RMB78.2 million is fully paid. On January 13, 2015, we filed an application to Guangdong Heyuan Court to enforce such arbitral award, and two days later Guangdong Heyuan Court ordered Guo Hua to perform its obligations under the arbitral award. Guo Hua failed to do so. On December 7, 2015, Guangdong Heyuan Court ordered the evaluation and auction of Guo Hua’s assets to enforce the arbitral award. As of the date of this annual report, the evaluation is still on-going. We claimed that Guo Hua’s shareholders shall be held jointly liable for a part of the arbitral award. As a result, the Court found that the shareholders are jointly liable for the total of RMB 73.9 million (approximately $11.7 million). The shareholders appealed. We have collected RMB 1.1 million so far.

On September 30, 2014, a European customer initiated arbitration proceedings against Hanwha Q CELLS Qidong, one of our subsidiaries, under the rules of the London Court of International Arbitration. In its initial pleading, the European customer alleged that certain solar modules it purchased from Hanwha Q CELLS Qidong between 2009 and 2011 were defective. As November 8, 2017 the LCIA Court dismissed the above-reference arbitration upon its receipt and review of the letter informing that the Parties have reached a settlement. In accordance with Article 26.8 of the LCIA Arbitration Rules (1998), the LCIA Court informed Hanwha Q CELLS Qidong that the Arbitration has been discharged and that the arbitration proceedings have been concluded and dismissed with prejudice.

On December 16, 2014, Konca Solar Cells Co. Ltd. (“Konca”) raised a counterclaim against Q CELLS in an arbitration proceeding initiated by Q CELLS in which Q CELLS claimed that Konca was to return $7.2 million of advance payments made by Q CELLS. Konca claimed a damage of $22.0 million alleging that Q CELLS owed Konca the amounts invoiced to, and unpaid by, the former Q Cells SE. Q CELLS asserted that in accordance with the asset purchase agreement pursuant to which Hanwha Solar acquired Q CELLS’ business in October 2012, it assumed assets of the former Q Cells SE but was specifically exempted from those liabilities claimed by Konca. This claim was settled on December 29, 2015, whereas Konca agreed to pay a settlement sum of $5.5 million to Q CELLS.

In response to increasing trade tensions in the international solar market, especially in the United States and the European Union solar markets, we are undertaking efforts to avoid or alleviate the impacts from the present and foreseeable anti-dumping and countervailing duty proceedings. However, we cannot guarantee that these efforts will be successful due to potential policy changes or other changes in the activities and practices of the various national trade authorities responsible for enforcement of anti-dumping and countervailing duties. We note below major anti-dumping and countervailing duty proceedings and other restrictive practices relevant to us in the United States and the European Union:

As a result of a petition filed on October 9, 2012 by U.S. producers of solar crystalline silicon PV cells, or solar panels, on December 7, 2012, the USDOC, published an Antidumping Duty Order and a Countervailing Duty Order on solar panels imported from China. Consequently, imports of solar panels from Hanwha Q CELLS Qidong are subject to a combined effective anti-dumping and countervailing duty deposit rate of 29.18%, of which 15.24% is attributable to the countervailing duty. Imports of solar panels from Hanwha Q CELLS Hong Kong are subject to a combined effective rate of 254.66%, which is comprised of an anti-dumping duty of 239.42% and a countervailing duty of 15.24%.

Actual anti-dumping and countervailing duties ultimately due are determined by the DOC after its review of actual transactions. Such review takes place annually in the anniversary month (December) of the publication of the anti-dumping and countervailing duty Orders, and covers the preceding one-year period. In December 2013, the U.S. industry requested administrative reviews in both the anti-dumping and countervailing duty cases and the resulting reviews were initiated by the USDOC on February 3, 2014. The U.S. industry requested that Hanwha Q CELLS Qidong be reviewed in both the anti-dumping and countervailing duty cases.

In the course of those reviews, based on the USDOC’s regulations, the U.S. industry withdrew its requests for the anti-dumping and countervailing duty reviews of Hanwha Q CELLS Qidong. As a consequence, its anti-dumping and countervailing duty rates remained unchanged and the previous anti-dumping duty deposits paid on entries into the United States made from May 25, 2012 to November 30, 2013 are to be liquidated at the deposit rate in effect at the time of entry. Similarly, countervailing duty deposits paid on entries into the United States made from March 26 to December 31, 2012 are to be liquidated at the deposit rate in effect at the time of entry. Additionally, no request of Hanwha Q CELLS Qidong’s anti-dumping duty entries made during the period from December 1, 2013 to November 30, 2015 or of its countervailing duty entries made during the period from January 1, 2013 to December 31, 2014 was made to the USDOC. Consequently, these entries are to be liquidated at the deposit rates in effect at the time of entry.

In addition, on December 31, 2013, SolarWorld Americas, Inc. filed new anti-dumping duty cases against similar CSPV products from China and Taiwan and a new countervailing duty case against China. These new cases seek anti-dumping and countervailing duties against (i) CSPV products with cells with any stage of production in China, if the cells are assembled in China, regardless of the country of origin of the cells, as well as (ii) CSPV products containing cells that were of Taiwanese origin. The USDOC and USITC initiated investigations on January 21, 2014.

In its final determinations in these investigations, the USDOC found that PRC and Taiwanese exporters were selling subject CSPV products to the United States at less than fair value (“Anti-Dumping Investigation”) and/or that PRC exporters are receiving actionable subsidies (“Countervailing Duty Investigation”). The USITC published its final determination on February 10, 2015 that the American industry was materially injured as a result of these imports, and the USDOC published final orders on February 18, 2015, requiring importers of subject CSPV products, including Hanwha Q CELLS Qidong and Hanwha Q CELLS Hong Kong, to pay anti-dumping duty and/or countervailing duty deposits for their entries of subject CSPV products into the United States.

In connection with the USDOC’s anti-dumping investigation of subject CSPV products from China, the USDOC applied an anti-dumping duty deposit rate of 52.13% to Hanwha Q CELLS Qidong and Hanwha Q CELLS Hong Kong as “separate rate” companies, based on the USDOC’s findings with respect to the other Chinese exporters selected for individual examination. In connection with the USDOC’s Anti-Dumping Investigation of subject CSPV products from Taiwan, the USDOC applied an anti-dumping duty deposit rate of 19.50% to Hanwha Q CELLS Qidong and Hanwha Q CELLS Hong Kong as “all others” companies, based on the USDOC’s findings with respect to other Taiwanese exporters selected for individual examination. Moreover, in connection with the Countervailing Investigation and Final Order, the USDOC applied a countervailing duty deposit rate of 38.43% to Hanwha Q CELLS Qidong and Hanwha Q CELLS Hong Kong as an “all-other” company. In 2017, as a result of the decision by the United States Court of International Trade (CIT) in the case of Changzhou Trina Solar Energy Co., Ltd, Et al. v. United States (Consol. Court No. 15-00068) (September 8, 2017), USDOC applied a countervailing duty deposit rate of 33.58%, a changed rate down from 38.43%.

Moreover, entries of subject CSPV products made before USITC’s final determination are potentially subject to different anti-dumping and countervailing duty rates than those identified in the USDOC Final Orders. In connection with the Countervailing Investigation, U.S. Customs and Border Protection (“CBP”) has continued to suspend liquidation of unliquidated countervailing duty deposits of 26.89% for entries of subject cells from the PRC entering the United States on or after June 10, 2014 (the date on which the USDOC published its preliminary countervailing duty determination) but before October 8, 2014 (the date on which the USDOC instructed CBP to discontinue the suspension of liquidation).

Similarly, in connection with the Anti-Dumping Investigations, CBP will continue to suspend liquidation of unliquidated anti-dumping duty deposits of 42.33% for entries of Photovoltaic Products from China and 24.23% for entries of Photovoltaic Products from Taiwan entering the United States on or after July 31, 2014 (the date on which the USDOC published its preliminary anti-dumping duty determination) but before January 28, 2015 (the date provisional measures expires).

Because Hanwha Q CELLS Qidong and Hanwha Q CELLS Hong Kong were not subject to the first administrative review, which was initiated on April 7, 2016, their entries made during the respective periods subject to the reviews will be liquidated at the deposit rates in effect at the time of entry. The ultimate liability for entries made during these periods (which is the liability of the importer of record) will be assessed based on liquidation instructions issued by the USDOC on July 8, 2016.

On March 6, 2017, at Hanwha’s request, the USDOC initiated a “changed circumstances” review and preliminarily found that (a) Hanwha Q CELLS Qidong is the successor-in-interest to SolarOne Qidong for purposes of the anti-dumping duty orders on solar cells and solar products from the PRC; and (b) Q CELLS Hong Kong is the successor-in-interest to SolarOne Hong Kong for purposes of the anti-dumping duty order on solar products from the PRC.

The final results released on April 13, 2017, provide that the USDOC will instruct U.S. Customs and Border Protection (CBP) to suspend liquidation of entries of solar products and solar cells exported by Q CELLS Qidong at the anti-dumping duty cash-deposit rates applicable to SolarOne Qidong. Those cash deposit rates are 13.18% and 30.06% respectively. In addition, the USDOC will instruct CBP to suspend liquidation of entries of solar products exported to exported by Q CELLS Hong Kong at the anti-dumping duty cash-deposit rate applicable to SolarOne Hong Kong. That cash deposit rate is 30.06 percent.

On September 6 and November 8, 2012, the European Commission initiated an anti-dumping proceeding and an anti-subsidy proceeding concerning imports of crystalline silicon PV modules and key components, such as cells and wafers, originating in China. On July 27, 2013, the European Union and Chinese trade negotiators announced that an agreement had been reached pursuant to which Chinese manufacturers, including Hanwha SolarOne, would limit our export of solar panels and cells to the European Union and for no less than a minimum price, in exchange for the European Union agreeing to forgo the imposition of anti-dumping duties on these solar panels from China. The offer was approved by the European Commission on August 2, 2013, and the final version was published on December 5, 2013. The Chamber of Commerce for Import and Export of Machinery and Electronic Product of China was responsible for allocating the quota between PV companies and Hanwha SolarOne was allocated a portion of the quota, which amounted to 324.73 MW of modules and 7.52 MW of cells in 2014 and 225.73 MW of modules and 5.22 MW of cells in 2015. The duties were imposed for a period of two years and remained in force while the European Commission carried out an expiry review and other reviews published on December 5, 2015. On March 3, 2017, the European Commission finished the expiry review and concluded that the undertaking and the duties will remain in place for another 18 months. On October 1, 2017, the European Commission introduced a new minimum import price scheme (MIP). This new MIP foresees a quarterly reduction of the minimum import price until September 2018. The MIP would phase out in September 2018 unless European manufactures (EU Prosun) request an expiry review until June 3 2018. In case of such request the European Commission will have 3 months to decide whether or not to open an expiry review. If the European Commission proceeds to launch an expiry review, the minimum import price remains in place for another 12 months.

Solar panels and cells imported in excess of the annual quota will be subject to anti-dumping and anti-subsidy duties. This price undertaking and annual quota have also resolved the parallel anti-subsidy investigation. For companies that would violate the price undertaking or the quota, or which do not form part of the agreement, definitive duties will be levied as per the definitive anti-dumping and anti-subsidy Regulations that were published on December 5, 2013. Finally, it should be noted wafers have been excluded from the scope of both the anti-dumping and anti-subsidy measures. In connection with the implementation of the undertaking, the European Commission conducted an on-spot verification at Hanwha Q CELLS Qidong from July 17, 2014 to July 18, 2014 and another on-spot verification at SolarOne GmbH from October 30, 2014 to October 31, 2014. On May 22, 2015, we received communication from the European Commission regarding the verifications confirming our compliance with the undertaking, as well as some further practical instructions. On June 8, 2015, we provided our responses to those instructions and on October 22, 2015 received follow-up questions on some of our responses. On October 30, 2015, we provided clarifications in response to the follow-up inquiry. As of the date of this annual report, we have not received any further written decision from the European Commission regarding the verifications. See “Item 3.D. Risk Factors—Risks Related to Our Business and Industry—Changes in international trade policies and international barriers to trade may material adversely affect our ability to export our products worldwide.”

In May 2015, having determined that sufficient prima facie evidence existed for the initiation of an investigation pursuant to the relevant European Union regulation, the European Commission initiated an investigation of a number of Chinese manufacturers including us, and conducted an anti-circumvention review to ascertain whether a circumvention of anti-dumping and countervailing duty measures imposed by the European Union on imports of PV modules and cells from China, Malaysia and Taiwan takes place. If the European Commission establishes that the circumvention of the existing anti-dumping and countervailing duties has taken place, the duties will be imposed in respect of imports consigned from Malaysia and Taiwan. The review is not targeted specifically against us. However, in order to ensure that no duties are imposed in respect of products produced at our production facilities in Malaysia, on June 17, 2015, we claimed an exemption from any possible countervailing and anti-dumping duties in respect of the products consigned from Malaysia. On February 12, 2016, the European Commission officially published the outcome of its investigation regarding the possible circumvention of the existing trade defense measures through Malaysia and Taiwan and extended the definitive anti-dumping duty to imports of PV modules and cells from Malaysia and Taiwan, whether declared as originating in Malaysia and in Taiwan or not. While the import duties have generally been imposed on PV modules and cells imported from Malaysia and Taiwan, Hanwha Q CELLS Malaysia Sdn. Bhd., our wholly-owned subsidiary in Malaysia, has been explicitly exempted from this regulation as one of five companies from Malaysia.

On December 5, 2015, the European Commission initiated expiry reviews and a partial interim review, with the aim of examining whether the continued imposition of the measures on cells is still in the European Union’s interest, of the anti-dumping and the countervailing measures applicable to imports of PV modules and cells from China. Given that the Commission has opened expiry reviews into the measures in force on imports of solar panels from China, then the duties, the undertaking and the Minimum Import Price will remain in force until the reviews are finished. Expiry reviews can only keep the measures in force exactly as they are (including the undertaking) or remove the measures altogether, whereas interim reviews may result in an adoption of certain measures. The Commission decided to also open an interim review at the same time, in order to consider changing the measures in force. The review was opened as there was prima facie evidence that the circumstances on the basis of which the original measures were imposed had changed. The review was limited to examining whether it is in the interest of the European Union to maintain the measures currently in force on solar cells.

On December 20, 2016, in order to describe the details of the proceedings and to outline the results of the investigations, the European Commission published a “General Disclosure Document on the expiry review and a partial interim review of the countervailing measures applicable to imports of crystalline silicon photovoltaic modules and key components (i.e. cells) originating in or consigned from the People's Republic of China”. In view of the conclusions reached by the Commission with regard to the continuation and the likelihood of recurrence of subsidization and of continuation of injury, it recommended that, in accordance with Article 18(2) of the basic Regulation, the countervailing measures applicable to imports of crystalline silicon photovoltaic modules and key components (i.e. cells) originating in consigned from the PRC, imposed by Regulation (EU) No 1239/2013, should be maintained. Accordingly, the Commission has proposed the extension of existing trade duties on Chinese solar products for a further two years.

On March 3rd, 2017, the European Commission published in the Official Journal of the European Union its decision that the anti-dumping and anti-subsidy duties on cells and modules imported from China will be extended by 18 months, instead of the originally proposed 24 months. At the same time the European Commission initiated a new interim review with the goal of changing the mechanism by which the minimum import price is derived. The results are expected to be published by December 3, 2017.

In addition, it is also possible that anti-dumping duty, countervailing duty or other import restrictive proceedings may be initiated in other jurisdictions. For example, in December 2014, Canada initiated anti-dumping and countervailing duty investigations against certain PV modules and laminates originating in or exported from China. In June 2015, Canada made a final determination imposing anti-dumping and countervailing duties and subjecting our PV modules produced in China to an anti-dumping duty rate of 154.4% and a countervailing duty rate of RMB0.34 per Watt. In another case, the Ministry of Economy of the Republic of Turkey published on July 1, 2016, an initiation notice for an anti-dumping investigation against PV panels and modules originating from China. On April 1, 2017, the Turkish ministry published its final findings and Hanwha Q CELLS Qidong, was assessed an anti-dumping duty of $20 per square meter, and other non-respondents were assessed $25 per square meter.

On July 21, 2017, Indian Solar Manufacturers Association filed an application before the Directorate of Anti-Dumping & Allied Duties (DGAD) for initiation of anti-dumping investigation and imposition of anti-dumping duties concerning imports of “Solar Cells whether or not assembled in Modules or Panels or on glass or some other suitable substrates” originating in or exported from People’s Republic of China (PRC), Taiwan, and Malaysia.” On September 5, 2017, a Questionnaire Response and MET Response have been filed on behalf of Hanwha Q CELLS (Qigong) Co., Ltd., Hanwha Q CELLS Malaysia Sdn. Bhd. and Singaporean exporter. In November 2017, on-site verification in China and Singapore has been completed, and the public hearing was held on December 12, 2017. Thereafter, the petitioners submitted the termination request to DGAD on February 27, 2018, which, DGAD accepted the request to terminate the anti-dumping investigation pursuant to Rule 14(a) of the Anti-Dumping Rules (“The designated authority shall, by issue of a public notice, terminate an investigation immediately if (a) it receives a request in writing for doing so from or on behalf of the domestic industry affected, at whose instance the investigation was initiated”).

On November 28, 2017, India Solar Manufacturers Association Safeguard investigation concerning imports of “Solar Cells whether or not assembled in Modules or Panels” into India (“Product under Consideration/PUC”) to protect the Domestic Industry of like and directly competitive products against serious injury or threat of serious injury caused by their increased imports. On December 19, 2017, a safeguard investigation was initiated on the PUC. On January 5, 2018, Preliminary Findings were announced by the designated authority stating that: (i) domestic industry (DI) continues to suffer a serious injury and are facing further threat of serious injury; (ii) a provisional Safeguard Duty is to be imposed at the rate of 70% ad valorem on the imports of the PUC from all countries with the exception of the developing countries for a period of 200 days and (iii) People’s Republic of China (PRC) and Malaysia are not included in the exception of the developing countries. Hanwha Q CELLS (Qidong) Co., Ltd. has been selected as part of the CCCME committee in PRC which is established for the purpose of joint-defense against safeguard investigation.

We cannot guarantee that in proceedings involving us, we will get the most favorable anti-dumping duty or countervailing duty rates in comparison with our competitors. In addition, if such proceedings were successfully pursued in jurisdictions where we export the majority of our products, our business, financial condition and results of operations and prospects could be materially and adversely affected. Violations of laws of anti-dumping and countervailing duty can result in significant additional duties imposed on exports of our products into these countries, which could increase our costs of accessing future additional markets.

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.

Dividend Policy

We made a one-time cash dividend payment in the aggregate amount of RMB7.2 million ($1.1 million) to the holders of the series A convertible preference shares on December 31, 2006. Except for the foregoing, 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 (provided always that under Cayman Islands law, we may pay a dividend only out of either profit or our share premium account, and provided further that in no circumstances may we pay a dividend if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business). 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, ADS holders will receive payment 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. See “Description of American Depositary Shares” for the description of a summary of the material provisions of the deposit agreement.

B. Significant Changes

There have been no significant changes since December 31, 2017, the date of the annual consolidated financial statements in this annual report.

ITEM 9 THE OFFER AND LISTING

A. Offering and Listing Details

The ADSs, each representing fifty of our ordinary shares, have been listed on the Nasdaq Global Market since December 20, 2006. Our ticker symbol is “HQCL.”

In 2017, the trading price of the ADSs on the Nasdaq Global Market has ranged from a low of $6.17 per ADS to a high of $9.52 per ADS, as adjusted retrospectively to reflect the current ratio of the ADSs to ordinary shares of one ADS representing fifty ordinary shares effective as of June 15, 2015.

The following table provides the high and low trading prices for the ADSs on the Nasdaq Global Market for the periods indicated, and all prices have been retrospectively adjusted to reflect the current ADS to ordinary share ratio of one ADS to fifty ordinary shares effective on June 15, 2015 for all periods presented.

	Sales Price
	High		Low
Annual High and Low
2013		57.00		8.60
2014		42.40		10.50
2015		28.87		7.70
2016		22.66		7.50
2017		9.52		6.17
Quarterly High and Low
First Quarter 2016		22.66		13.69
Second Quarter 2016		15.75		10.81
Third Quarter 2016		15.33		10.35
Fourth Quarter 2016		12.22		7.50
First Quarter 2017		9.52		6.70
Second Quarter 2017		7.45		6.17
Third Quarter 2017		9.22		6.52
Fourth Quarter 2017		9.05		7.02
Monthly Highs and Lows
October 2017		8.39		7.45
November 2017		9.05		7.51
December 2017		7.66		7.02
January 2018		7.59		7.11
February 2018		8.67		7.06
March 2018		8.48		7.34
April 2018 (through April 20, 2018)		7.75		7.20

B. Plan of Distribution

Not applicable.

C. Markets

The ADSs, each representing fifty of our ordinary shares, have been listed on the Nasdaq Global Market since December 20, 2006 and are under the symbol “HQCL.”

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 authorized share capital from $50,000 to $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. Our shareholders adopted amendments to our amended and restated memorandum and articles of association by special resolutions passed at an extraordinary general meeting on February 4, 2015 and effective on February 6, 2015. The adopted Second Amended and Restated Memorandum of Association included our name change to “Hanwha Q CELLS Co., Ltd.”, the increase of our authorized share capital from $100,000 to $700,000 and the following provisions, among others:

	·	our board of directors to consist of not less than five and not more than ten directors (exclusive of alternate directors);
	·	directors are elected at the annual general meeting and hold the office for a term as specified in the resolution that appointed them or if no such term is specified then they hold the office until they are removed from office by ordinary resolution or by unanimous written consent of all the shareholders; If for any cause, the directors shall not have been elected at an annual general meeting, they may be elected as soon thereafter as convenient at an extraordinary general meeting;
	·	so long as our ADSs are listed or quoted on Nasdaq, we will establish and maintain an audit committee as a committee of the board of directors satisfying the following criteria:

(i) the audit committee will be comprised three members, each of whom shall be (a) a member of the board of directors and (b) an independent director; and

(ii) the authority and duties of the audit committee will be in accordance with (a) SEC rules, (b) the Nasdaq Rules (without regards to any “home country” exception under Nasdaq Rule 5615(a)(3)) and (c) the audit committee’s charter and adopting resolutions in effect from time to time;

	·	in the event any matter is presented to our board of directors for prior approval or determination and any director who has been nominated by Hanwha Solar has an actual or potential conflict of interest with respect to such matter, as determined in good faith by a majority of our independent directors, then the approval or determination with respect to such matter will be made by a majority of the members of our board of directors without such conflict of interest;
	·	the prior approval of our audit committee or a majority of our independent directors will be required to delist our ADSs from Nasdaq, deregister our ordinary shares or the ADSs under the Exchange Act, or enter into any “related party transaction,” as defined in Nasdaq Marketplace Rule 5630, or transactions or matters involving a “related person” as defined under Item 404 of Regulation S-K promulgated under the Exchange Act.

On April 6, 2015, our shareholders adopted further amendment to our amended and restated memorandum and articles of association by a special resolution passed at an extraordinary general meeting which deleted the fixed ratio of five ordinary shares represented by one ADS.

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 in China is primarily governed by the following regulations:

	·	Foreign Exchange Administration Rules (1996), as amended; and
	·	Regulations of Settlement, Sale and Payment of Foreign Exchange (1996).

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. Payments of dividends and capital in respect of the ordinary shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of ordinary shares, nor will gains derived from the disposal of the ordinary shares be subject to Cayman Islands income or corporation tax. 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 applicable to any payments made by or to our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.

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 is based on the Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed U.S. Treasury regulations promulgated thereunder, and administrative and judicial interpretations thereof, all as of the date of this annual report. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below. This discussion is not a complete description of all tax considerations that may be relevant. Further, it applies only to U.S. Holders that hold the ADSs or ordinary shares as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment) and use the U.S. dollar as their functional currency. This section does not address state, local, or foreign tax considerations that may be applicable, the Medicare Contribution tax on net investment income, or any U.S. federal estate or gift tax consequences, and does not address tax considerations applicable to U.S. Holders subject to special rules, such as:

	·	a dealer in securities or currencies;
	·	a trader in securities that elects to use a mark-to-market method of accounting;
	·	a bank or other financial institution;
	·	a regulated investment company or real estate investment trust;
	·	an insurance company;
	·	a retirement plan;
	·	certain former citizens or residents of the United States;
	·	a tax-exempt organization;
	·	a person that holds the ADSs or ordinary shares as part of a hedge, integration, straddle or conversion transaction for tax purposes;
	·	a person that enters into “constructive sales” involving ADSs or ordinary shares or substantially identical property;
	·	a person liable for the alternative minimum tax; or
	·	a person that directly, indirectly or constructively owns 10% or more of our stock, by vote or value

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.

For purposes of this discussion, you are a “U.S. Holder” if you are a beneficial owner of an ADS or ordinary share and you are, for U.S. federal income tax purposes:

	·	an individual citizen or resident of the United States;
	·	a corporation (or other entity taxable as a corporation) organized under the laws of the United States, any state in the United States, or the District of Columbia;

	·	an estate whose income is subject to U.S. federal income taxation regardless of its source; or
	·	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) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

YOU ARE URGED TO CONSULT YOUR TAX ADVISORS ABOUT THE APPLICATION OF THE U.S. FEDERAL TAX RULES TO YOUR PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF ADSS OR ORDINARY SHARES.

The discussion below assumes that the representations contained in the deposit agreement are true and that the obligations in the deposit agreement and any related agreement will be complied with in accordance with their terms. If you hold ADSs, you generally will 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 PFIC rules discussed below, the gross amount of any distribution (including constructive dividends) to you with respect to the ADSs or ordinary shares, including the amount of any taxes withheld therefrom, 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). We do not currently 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. The dividends generally 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, dividends may constitute “qualified dividend income” and be taxed at the lower applicable capital gains rate, provided that (1) the ADSs or ordinary shares with respect to which the dividends are paid are readily tradable on an established securities market in the United States, (2) we are not a PFIC (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 Global Market, as the ADSs are. We do not, however, expect our ordinary shares that are not represented by ADSs to be readily tradable on an established securities market in the United States. You should consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to the ADSs or ordinary shares.

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.”

Taxation of a Sale or Other Disposition of ADSs or Ordinary Shares

Subject to the PFIC rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of an ADS or ordinary share equal to the difference between the amount realized for the ADS or ordinary share and your tax basis in the ADS or ordinary share. The gain or loss generally will be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, 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.

Passive Foreign Investment Company Status

Special and adverse U.S. federal income tax rules apply to U.S. holders that own, directly or indirectly, shares of a “PFIC.” A non-U.S. corporation is considered to be a PFIC for any taxable year if, after applying certain look-through rules, either: (1) at least 75% of its gross income is passive income, or (2) 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. For this purpose, passive income generally includes dividends, interest, royalties and rents (other than royalties and rents derived in the active conduct of a trade or business and not derived from a related person). The PFIC determination is made annually, and a non-U.S. corporation’s status could change depending, among other things, upon changes in the composition of its gross income and assets, and the market value of its assets and its stock.

We do not believe that we were a PFIC for U.S. federal income tax purposes for the taxable year that ended December 31, 2017, and we do not currently 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, however, will not be determinable until the close of the current taxable year ending December 31, 2018, and accordingly, there is no guarantee that we will not be a PFIC for the current taxable year or any future taxable year.

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:

	·	the excess distribution or gain will be allocated ratably over your holding period for the ADSs or ordinary shares;
	·	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
	·	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 described above. If you make a mark-to-market election for the ADSs or ordinary shares, you will include in income each year that we are a PFIC an amount equal to the excess, if any, of the fair market value of the ADSs or ordinary shares as of the close of your taxable year over your adjusted basis in such ADSs or ordinary shares. You 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 any such 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 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 Global Market, or other market, as defined in applicable U.S. Treasury regulations. The ADSs are listed on the Nasdaq Global Market, and we expect that they will continue to be regularly traded on the Nasdaq Global Market. 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 we are a PFIC with respect to you for any taxable year, to the extent any of our subsidiaries are also PFICs or we make direct or indirect equity investments in other entities that are PFICs, you may be deemed to own shares in such lower-tier PFICs that are directly or indirectly owned by us in that proportion which the value of the ADSs or ordinary shares you own bears to the value of all of our ADSs or ordinary shares, as applicable, and you may be subject to the rules described in the preceding paragraphs with respect to the shares of such lower-tier PFICs that you are deemed to own. You generally will not, however, be eligible to make a mark-to-market election with respect to any such lower-tier PFICs. You should consult your tax advisors regarding the application of the PFIC rules to any of our subsidiaries.

If you hold ADSs or ordinary shares in any year in which we are a PFIC, you generally will be required to file an annual report with the U.S. Internal Revenue Service, subject to certain exceptions based on the value of PFIC stock held.

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.

You are urged to consult your tax advisor regarding the application of the PFIC rules to your investment in ADSs or ordinary shares and any applicable filing requirements.

Information Reporting and Backup Withholding

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. You should consult your tax advisor 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 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 SEC at the SEC’s 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.”

ITEM 11 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Exchange Risk

Our consolidated financial results and financial position may be materially affected by fluctuations in exchange rates, particularly among the U.S. dollar, Renminbi, Euro, Korean Won, Japanese Yen, and Malaysian Ringgit. A substantial portion of our sales is denominated in U.S. dollars, Japanese Yen and Euros, while a substantial portion of our costs and expenses is denominated in Renminbi and U.S. dollars. To the extent that we incur costs in one currency and make revenue in another, our profit margins may be affected by changes in the exchange rates between the two currencies. Exchange rate fluctuations can also affect the value of our assets and liabilities denominated in different currencies.

We have entered into foreign currency derivative contracts to manage risks principally associated with foreign currency fluctuations for our sales contracts denominated in Japanese Yen, Australian dollar, the Euro, and the Canadian Dollar. As of December 31, 2017, we had outstanding cross-currency exchange rate contracts to deliver JPY 1,328.7 million, AUD 17.7 million, EUR 5.8 million, $ 2.8 million, and CAD 0.7 million and receive $33.0 million and JPY 307.9 million and interest rate swap contracts with notional amount of $397.0 million in which the Company pays fixed interest and receives variable interest.

The estimated impact on our income (loss) before income taxes for 2017, from our holdings of assets and liabilities denominated in foreign currencies as of December 31, 2017, of a 1% change in U.S. dollar exchange rates against the specified currencies, assuming that all other variables remain constant and ignoring any impact on forecasted sales and purchases, is as follows:

	For the Year Ended December 31, 2017
	1% depreciation of $			1% appreciation of $
	(In millions $)
Renminbi		2.3			(2.3	)
Euro		-			-
Korean Won		0.3			(0.3	)
Malaysian Ringgit		(0.2	)		0.2

Interest Rate Risk

Our exposure to interest rate risks relates to interest expense incurred in connection with 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. We have entered into interest rate swap agreements to manage risk with respect to our floating interest rate debt. As of December 31, 2017, we had an outstanding interest rate swap contract with notional amount of $440.2 million, under which we agreed to pay fixed interest rate rather than floating rate. We estimate the fair value of interest rate swap derivatives using a pricing model based on market observable inputs. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. However, our future interest expense may increase due to changes in market interest rates.

In 2017, if interest rates on our floating interest rate borrowings outstanding as of December 31, 2017 had been 1% point higher or lower with all other variables held constant, it would have had the following impact on our income (loss) before income tax:

	For the Year Ended December 31, 2017
	1% point decrease in interest rate	1% point increase in interest rate
	(In millions $)
Impact on Income (Loss) Before Income Tax	10.2	(10.2)

Inflation

Since our inception, inflation in China, Germany or Malaysia has not materially affected our results of operations.

ITEM 12 DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A. Debt Securities

Not applicable.

B. Warrants and Rights

Not applicable.

C. Other Securities

Not applicable.

D. American Depositary Shares

The Bank of New York Mellon, the depositary of our ADS program, collects its fees for issuance and cancellation of ADSs directly from investors 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.

Persons Depositing or Withdrawing Shares Must Pay:

For: $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 $0.05 (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 $0.05 (or less) per ADS 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 2017, we did not receive any reimbursement from the depositary.

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.

ITEM 15 CONTROLS AND PROCEDURES

Disclosure controls and procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures can provide only reasonable, not absolute, assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Our Management, under the supervision of our Chief Executive Officer and our Chief Financial Officer, performed an evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of December 31, 2017. As a result of the material weaknesses described below, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2017, our disclosure controls and procedures were not effective at the reasonable assurance level.

Management’s annual report on internal control Over financial reporting

The Board of Directors and Management of Hanwha Q CELLS Co., Ltd. are responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act.

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 and procedures may deteriorate.

Management conducted an assessment of the effectiveness of internal control over financial reporting as of December 31, 2017. In making this assessment, management used the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).

Our auditors identified material misstatements in the bad debt provision, disposal of the wafer business and accounting for Hanwha Q CELLS Güneş Enerjisi A.Ş (‘HQCT’) variable interest entities (‘VIE’) caused by the following deficiencies:

- We did not effectively operate our controls over evaluating the existence of and determining the amount of the bad debt provision in China.

- We did not effectively operate our controls over the performance and review of accounting analysis over disposal of the wafer business and accounting for VIEs of HQCT. We did not effectively operate our controls over the financial statement presentation and disclosures of the aforementioned transactions.

We have concluded that these deficiencies in the operation of our internal controls constituted material weaknesses and accordingly that our internal control over financial reporting was ineffective as of December 31, 2017.

The effectiveness of our internal control over financial reporting as of December 31, 2017, has been audited by Ernst & Young Han Young, the independent registered public accounting firm that audited the financial statements included in this annual report.

Remediation plans

We are currently working to remediate the material weaknesses described above. We will carry out the following specific procedures to address the weaknesses identified.

- The company will train its financial accounting team on accounting standards by increasing the frequency of trainings (training sessions will be held at least quarterly to keep the finance team apprised of accounting developments) and by involving financial experts (outside advisers will be hired as needed to ensure complex technical matters and new accounting standards are understood). In doing so, it is intended to enable accounting personnel to make appropriate decisions in respect of the accounting and disclosure for unusual and complex transactions, in accordance with US GAAP and that the Company appropriately documents its conclusions in technical accounting memos, referencing the appropriate accounting standards.

- Related to the specific balances that still remain unreserved, the company will continue to monitor these receivables and assess the value of the pledged collateral. The Company (i) will establish controls over the process of setting a time line for the details of the litigation proceedings and obtaining security arrangements in relation to uncollected accounts receivables in China, and will receive reports through the asset valuation representative and the legal representative. The design of these controls are intended to monitor compliance with the Group’s collection terms and conditions in China, and that accurate levels of bad debt reserves are provided for; and (ii) plans to increase the number of people involved in the collection and evaluation of the debt collection for more effective review of the process.

- We will execute additional measures to address potential control deficiencies or modify the remediation plan described above and will continue to review and make necessary changes to the overall design and operation of our internal controls. We believe these measures, once implemented and operated for a sufficient period of time, will remediate the control deficiencies identified and strengthen our internal control over financial reporting.

Report of the independent registered public accounting firm

Ernst & Young Han Young has audited and reported the results of its audit of the effectiveness of Hanwha Q CELLS Co., Ltd. internal control over financial reporting as of December 31, 2017, in "Item 18. Financial Statements".

Changes in internal control over financial reporting

There have been no changes in our internal control over financial reporting that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and the Shareholders of

Hanwha Q CELLS Co., Ltd.

Opinion on Internal Control over Financial Reporting

We have audited Hanwha Q CELLS Co., Ltd.’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the “COSO criteria”). In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, Hanwha Q CELLS Co., Ltd. (the “Company”) has not maintained effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses have been identified and described in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 15.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of comprehensive income or less, changes in shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2017, and the related notes. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2017 consolidated financial statements, and this report does not affect our report dated April 27, 2018, which expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s 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 Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s 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 company’s 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 company’s assets that could have a material effect on the financial statements.

/s/ Ernst & Young Han Young
Seoul, the Republic of Korea
April 27, 2018

ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that each of Mr. Seung Heon Kim and Mr. Hyun Chul Chun 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-qcells.com. The information contained on our website is not part of this annual report. 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 person’s 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 Han Young (“EY Korea”), our principal external auditors, for the periods indicated.

	Year Ended December 31,
	2016		2017
	($)		($)
Accountant	EY Korea		EY Korea
Audit fees⁽¹⁾		718,000		932,000
Audit-Related fees⁽²⁾		—		—
Tax fees⁽³⁾		183,543		—
All other fees⁽⁴⁾		—		—

	(1)	“Audit fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal auditors for the 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.
	(2)	“Audit-Related fees” means the aggregate fees billed in each of the fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of the registrant’s financial statements and are not reported under Audit fees.
	(3)	“Tax fees” means the aggregated fees for services rendered in connection with technical tax advice.
	(4)	“All other fees” means the aggregated fees for other services rendered including legal and translation services.

The policy of our audit committee is to pre-approve all audit and non-audit services provided by EY Korea, including audit services and other services as described above, other than those for de minimis 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 REGISTRANT’S CERTIFYING ACCOUNTANT

We engaged Ernst & Young Hua Ming LLP, the independent accountant for Hanwha SolarOne prior to the reverse acquisition, to be our principal independent registered public accounting firm with respect to Hanwha Q CELLS Co., Ltd.’s consolidated financial statements as of December 31, 2015 on March 16, 2016. Such engagement was approved by our audit committee.

During the two fiscal years ended December 31, 2014 and through April 27, 2016, the issuance date of Q CELLS' consolidated financial statements as of and for the year ended December 31, 2014, neither we nor anyone on our behalf consulted Ernst & Young Hua Ming LLP as it relates to Q CELLS’ consolidated financial statements ending on or prior to December 31, 2014, regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our consolidated financial statements, and we have not obtained any written report or oral advice that Ernst & Young Hua Ming LLP concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue, or (ii) any matter that was either the subject of a "disagreement", as defined in Item 16F(a)(1)(iv) of Form 20-F and related instructions to Item 16-F of Form 20-F, with Ernst & Young Hua Ming LLP or a "reportable event" as described in Item 16F(a)(1)(v) of Form 20-F.

After our headquarters were relocated to Korea in 2016, we dismissed Ernst & Young Hua Ming LLP and engaged Ernst & Young Han Young, the independent accountant for our subsidiary Hanwha Q CELLS Corp., to be our principal independent registered public accounting firm on August 11, 2016. We wanted a local accounting firm that was closer to the new headquarters. The dismissal of Ernst & Young Hua Ming LLP and the subsequent engagement of Ernst & Young Han Young was approved by our audit committee.

During the fiscal year ended December 31, 2015 and through August 11, 2016, there were no: (1) disagreements with Ernst & Young Hua Ming LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which such disagreements, if not resolved to their satisfaction, would have caused them to make reference thereto in connection with their opinion, or (2) reportable events as defined by the instructions to Item 16F of the Form 20-F.

The audit report of Ernst & Young Hua Ming LLP on the consolidated financial statements of Hanwha Q CELLS Co., Ltd. as of and for the year ended December 31, 2015 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles.

During the two fiscal years ended December 31, 2014 and 2015 and through April 28, 2017, neither we nor anyone on our behalf consulted Ernst & Young Han Young regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our consolidated financial statements, and we have not obtained any written report or oral advice that Ernst & Young Han Young concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue except for Ernst & Young Han Young’s involvement as independent accountants for our subsidiary, Hanwha Q CELLS Co., Ltd., for the year ended December 31, 2015, or (ii) any matter that was either the subject of a "disagreement", as defined in Item 16F(a)(1)(iv) of Form 20-F and related instructions to Item 16-F of Form 20-F, with Ernst & Young Han Young or a "reportable event" as described in Item 16F(a)(1)(v) of Form 20-F.

A letter from Ernst & Young Hua Ming LLP is attached as Exhibit 15.5 to this annual report.

ITEM 16G CORPORATE GOVERNANCE

We understand that:

	·	Nasdaq Marketplace Rule 5605(b)(1) requires that the company’s the board of directors be comprised of a majority of independent directors.
	·	Nasdaq Marketplace Rule 5605-2 contemplates executive sessions among independent directors at least twice a year in conjunction with regularly scheduled board meetings.
	·	Nasdaq Marketplace Rule 5605(d) requires (i) independent director involvement in the determination of executive compensation, by having a compensation committee comprised solely of independent directors or (ii) independent director involvement in the determination of executive compensation, by submitting such matters for approval or recommendation by a majority of the independent directors meeting in executive session.
	·	Nasdaq Marketplace Rule 5605(e)(1) requires (i) independent director involvement in the selection of director nominees, by having a nominations committee comprised solely of independent directors or (ii) independent director involvement in the selection of director nominees, by having director nominees selected or recommended by a majority of the company’s independent directors meeting in executive session.
	·	Nasdaq Marketplace Rule 5635 requires shareholder approval prior to an issuance of securities in connection with (i) the acquisition of the stock or assets of another company; (ii) equity-based compensation of officers, directors, employees or consultants; (iii) a change of control; and (iv) private placements.

However, Nasdaq Marketplace Rule 5615(a)(3) allows a foreign private issuer to follow its home country practice in lieu of most of the requirements under Nasdaq Marketplace Rules 5600 Series, including the rules listed above. Our home country practice does not impose similar requirements to the above Nasdaq Marketplace Rules. As a result, we have decided to follow our home country practice and have decided not to follow the requirements stated above.

Except as stated above, we have followed and intend to continue to follow the applicable corporate governance standards under Nasdaq Marketplace Rules.

ITEM 16H MINE SAFETY DISCLOSURE

Not applicable.

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:

Audited Consolidated Financial Statements of Hanwha Q CELLS Co., Ltd.

	·	Reports of Independent Registered Public Accounting Firms
	·	Consolidated Balance Sheets as of December 31, 2016 and 2017
	·	Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2015, 2016 and 2017
	·	Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2016 and 2017
	·	Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2015, 2016 and 2017

ITEM 19 EXHIBITS

The following exhibits are furnished along with annual report or are incorporated by reference as indicated.

Exhibit Number		Description of Document

1.1		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)

1.2		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)

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 (incorporated by reference to Exhibit 1.3 from our 20-F annual report (File No. 001-33208), as amended, initially filed with the Commission on June 3, 2011)

1.4		Second Amended and Restated Memorandum and Articles of Association of Hanwha Q CELLS Co., Ltd., as amended by Special Resolution passed on April 6, 2015. (incorporated by reference to Exhibit 1.4 from our 20-F annual report (File No. 001-33208) filed with the Commission on April 17, 2015)

2.1		Form of Certificate for Ordinary Shares of Hanwha Q CELLS Co., Ltd. (incorporated by reference to Exhibit 2.1 from our 20-F annual report (File No. 001-33208) filed with the Commission on April 17, 2015)

2.2		Form of American Depositary Receipt evidencing American Depositary Shares (included in Exhibit 2.3)

2.3		Amended and Restated Deposit Agreement, among Hanwha SolarOne Co., Ltd., the depositary and owners and holders of the American Depositary Shares (incorporated by reference to Exhibit 2.3 from our 20-F annual report (File No. 001-33208) filed with the Commission on April 17, 2015)

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		Shareholder Agreement between Hanwha SolarOne Co., Ltd. and Hanwha Solar Holdings Co., Ltd. dated December 8, 2014 (incorporated by reference to Exhibit 99.3 from Form 6-K (File No. 001-33208) submitted with the Commission on December 8, 2014)

4.6		Share Purchase Agreement among Hanwha Solar Holdings Co., Ltd., Hanwha SolarOne Co., Ltd. and Hanwha Q CELLS Investment Co., Ltd., dated December 8, 2014 (incorporated by reference to Exhibit 99.2 from Form 6-K (File No. 001-33208) submitted with the Commission on December 8, 2014)

4.7		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 (File No. 001-33208) submitted with the Commission on November 9, 2010)

4.8		Amendment No. 1, dated November 12, 2013, to the Share Issuance and Repurchase Agreement, dated as of September 16, 2010 by and among Hanwha SolarOne Co., Ltd., and Hanwha Solar Holdings Co., Ltd. (incorporated by reference to Exhibit 99.3 from Form 6-K (File No. 001-33208) submitted with the Commission on November 14, 2013)

8.1*		Subsidiaries of Hanwha Q CELLS Co., Ltd.

11.1		Code of Business Conduct and Ethics of Hanwha Q CELLS 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 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

13.2*		CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

15.1*		Consent of Independent Registered Public Accounting Firm Ernst & Young Han Young

15.2*		Consent of Independent Registered Public Accounting Firm Ernst & Young Hua Ming LLP

15.5*		Letter from Ernst & Young Hua Ming LLP regarding Item 16F of this annual report

101*		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of December 31, 2016 and 2017; (ii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2015, 2016 and 2017; (iii) Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2016 and 2017; (iv) Consolidated Statements of Changes in Equity for the years ended December 31, 2015, 2016 and 2017; and (v) Notes to Consolidated Financial Statements, tagged as blocks of text.

*	Filed with this Annual Report on Form 20-F.

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 Q CELLS CO., LTD.

	/s/ Seong Woo Nam
	Name:		Seong Woo Nam
	Title:		Chairman and Chief Executive Officer

Date: April 27, 2018

Hanwha Q CELLS Co., Ltd.

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

	Page

Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm	F-2

Consolidated Balance Sheets as of December 31, 2016 and 2017	F-5

Consolidated Statements of Comprehensive Income or Loss for the Years Ended December 31, 2015, 2016 and 2017	F-6

Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2016 and 2017	F-7

Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2015, 2016 and 2017	F-9

Notes to the Consolidated Financial Statements	F-10

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and the Shareholders

Hanwha Q CELLS Co., Ltd.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Hanwha Q CELLS Co., Ltd. (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of comprehensive income or loss, changes in shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of Hanwha Q CELLS Co., Ltd. at December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2017, 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) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated April 27, 2018 expressed an adverse opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young Han Young

We have served as the Company’s auditor since 2016.

Seoul, the Republic of Korea

April 27, 2018

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and the Shareholders

Hanwha Q CELLS Co., Ltd.

Opinion on Internal Control over Financial Reporting

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of comprehensive income or loss, changes in shareholders’ equity and cash flows for each of the two years in the period ended December 31, 2017, and the related notes. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2017 consolidated financial statements, and this report does not affect our report dated April 27, 2018, which expressed an unqualified opinion thereon.

Basis for Opinion

Definition and Limitations of Internal Control Over Financial Reporting

/s/ Ernst & Young Han Young

Seoul, the Republic of Korea

April 27, 2018

F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and the Shareholders

Hanwha Q CELLS Co., Ltd.

We have audited the accompanying consolidated statements of operations and comprehensive income or loss, changes in stockholders’ equity, and cash flows of Hanwha Q CELLS Co., Ltd. (the “Company”) for the year ended December 31, 2015. These financial statements are the responsibility of the Company’s 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 results of its operations and its cash flows for the year in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young Hua Ming LLP

Shanghai, the People’s Republic of China

April 27, 2016

F-4

Hanwha Q CELLS Co., Ltd.

CONSOLIDATED BALANCE SHEETS

(in millions of US dollars except share data)

		As of December 31,
	Note	2016			2017

Assets
Current assets:
Cash and cash equivalents			390.0			183.4
Restricted cash			116.8			139.7
Accounts receivable (net of allowance for doubtful accounts of $22.3 and $61.3 as of December 31, 2016 and 2017, respectively)	5		321.4			338.0
Notes receivable	5		6.7			25.7
Inventories	6		317.6			293.6
Advance to suppliers – net	7		25.5			41.2
Derivative contracts	18		0.4			0.5
Amount due from related parties	26		96.6			161.7
Other current assets -net	8		55.6			68.3

Total current assets			1,330.6			1,252.1

Non-current assets:
Fixed assets – net	9		755.5			837.6
Intangible assets – net	10		16.6			32.0
Land use rights – net	11		47.9			49.0
Goodwill	3		1.1			8.6
Long-term investments	12		20.7			47.6
Amount due from related parties	26		6.6			5.6
Deferred tax assets – net	24		6.1			9.1
Other non-current assets			24.0			21.0

Total non-current assets			878.5			1,010.5

Total assets			2,209.1			2,262.6


Liabilities and Shareholders’ Equity
Current liabilities:
Short-term borrowings	13		377.4			385.2
Long-term borrowings, current portion	13		150.5			294.3
Accounts payable			171.1			180.3
Notes payable	17		107.2			76.3
Accrued expenses and other liabilities	14		80.7			66.1
Warranty provision	15		42.2			31.0
Customer deposits	16		17.3			10.4
Deferred revenue	20		18.9			2.0
Derivative contracts	18		1.0			0.4
Amount due to related parties	26		161.6			198.2

Total current liabilities			1,127.9			1,244.2

Non-current liabilities:
Long-term borrowings	13		543.7			436.7
Long-term notes	19		100.0			99.5
Long-term warranty provision	15		19.0			17.5
Deferred tax liabilities -net	24		10.3			8.7

Total non-current liabilities			673.0			562.4

Total liabilities			1,800.9			1,806.6


Shareholders’ equity:
Ordinary shares (par value $0.0001 per share; 7,000,000,000 shares authorized; 4,161,175,592 and 4,162,556,067 shares issued and outstanding at December 31, 2016 and December 31, 2017, respectively)			0.4			0.4
Additional paid-in capital			431.7			432.2
Accumulated earnings			107.3			94.9
Accumulated other comprehensive loss	21		(131.2	)		(71.5	)

Total shareholders’ equity			408.2			456.0

Total liabilities, redeemable ordinary shares and shareholders’ equity			2,209.1			2,262.6

The accompanying notes are an integral part of the consolidated financial statements.

F-5

Hanwha Q CELLS Co., Ltd.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OR LOSS

(in millions of US dollars, except share data and net income per share)

		For the year ended December 31,
	Note	2015			2016			2017

Net revenues
Third parties			1,134.2			1,849.6			1,727.6
Related parties	26		666.6			576.3			461.3

Total net revenues			1,800.8			2,425.9			2,188.9

Cost of revenues
Third parties			923.8			1,604.9			1,567.7
Related parties			543.0			380.7			376.4

Total cost of revenues			1,466.8			1,985.6			1,944.1

Gross profit			334.0			440.3			244.8

Operating expenses:
Selling expenses			94.1			120.1			114.5
General and administrative expenses			91.7			78.2			99.1
Research and development expenses			48.3			49.2			24.0
Other income	26		-			-			(18.4	)
Restructuring charges	4		22.0			0.7			-

Total operating expenses			256.1			248.2			219.2

Operating income			77.9			192.1			25.6

Interest expense			(66.9	)		(54.5	)		(44.9	)
Interest income			10.9			8.1			4.9
Exchange gains (losses)			(23.6	)		(3.5	)		18.0
Changes in fair value of derivative contracts	18		9.6			(24.4	)		(3.3	)
Investment loss	25		(1.3	)		-			(0.2	)
Share of losses of equity method investments	12		(0.6	)		(0.9	)		(0.5	)
Reversal of litigation accruals	29		48.5			-			-
Miscellaneous income (loss) – net			(0.6	)		6.3			-

Income (loss) before income taxes			53.9			123.2			(0.4	)

Income tax expense (benefit)	24		10.1			(4.3	)		12.0

Net income (loss)			43.8			127.5			(12.4	)

Net income (loss) per share:
Basic	31	$	0.01		$	0.03		$	(0.00	)
Diluted	31	$	0.01		$	0.03		$	(0.00	)

Number of shares used in computation of net income per share:
Basic	31		4,120,369,328			4,158,984,882			4,162,018,711
Diluted	31		4,120,689,668			4,159,297,541			4,162,018,711

Other comprehensive income (loss), net of tax
Foreign currency translation adjustment	21		(34.6	)		(59.8	)		59.9
Pension adjustments	21, 28		-			(0.3	)		(0.2	)

Comprehensive income attributable to Hanwha Q CELLS Co., Ltd.’s shareholders			9.2			67.4			47.3

The accompanying notes are an integral part of the consolidated financial statements.

F-6

Hanwha Q CELLS Co., Ltd.

CONSOLIDATED statements of cash flows

(in millions of US dollars)

		For the year ended December 31,
	Note	2015			2016			2017

Cash flows from operating activities:
Consolidated net income (loss)			43.8			127.5			(12.4	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Unrealized loss (gain) from derivative contracts	18		0.9			-			(1.0	)
Depreciation, amortization and impairment			83.3			94.1			111.2
Loss from disposal of subsidiaries	25		1.3			-			0.2
Gain from sale of manufacturing facility to a related party	26		-			(3.0	)		-
Gain on disposal of intangible assets	26		-			-			(18.4	)
Share of losses of equity method investments	12		-			0.9			0.5
Stock compensation expenses	22		0.7			0.6			0.5
Write-down of inventories	6		10.2			0.9			4.0
Reversal of litigation accruals	29		(48.5	)		-			-
Reversal of unrecognized tax benefit	24		-			(17.9	)		-
Provision for doubtful collection of accounts receivable	5		4.3			3.3			36.4
Deferred tax expense (benefit)	24		4.6			(6.6	)		(4.7	)
Non-cash interest expense on amortization of long-term debt and litigation accruals			9.8			8.4			5.4
Unrealized foreign currency exchange loss (gain)			37.0			35.3			(28.7	)
Changes in operating assets and liabilities:
Restricted cash			(67.0	)		50.1			47.9
Accounts receivable			(196.4	)		(72.4	)		(66.5	)
Notes receivable			(0.7	)		(6.3	)		(18.7	)
Inventories			(63.5	)		23.3			23.6
Advance to suppliers and long-term prepayments			10.1			(28.0	)		(15.3	)
Other current assets			(11.2	)		12.1			(11.9	)
Other non-current assets			(2.5	)		0.4			(14.9	)
Amount due from related parties			(44.8	)		172.4			(56.8	)
Accounts payable			42.2			47.1			6.4
Notes payable			26.8			(9.8	)		(31.7	)
Accrued warranty costs			9.0			4.9			0.6
Accrued expenses and other liabilities			22.1			37.3			(15.3	)
Amount due to related parties			(14.4	)		10.7			34.4
Customer deposits			1.9			43.1			(7.0	)
Derivative contracts			-			-			0.3
Deferred revenue			402.1			(383.2	)		(16.9	)

Net cash (used in) provided by operating activities			261.1			145.2			(48.8	)

The accompanying notes are an integral part of the consolidated financial statements.

F-7

Hanwha Q CELLS Co., Ltd.

CONSOLIDATED statements of cash flows – CONTINUED

(in millions of US dollars)

		For the year ended December 31,
	Note	2015			2016			2017

Cash flows from investing activities:
Net cash received from an acquisition	3		70.2			-			0.3
Net cash received from asset acquisitions	3		9.1			-			-
Acquisition of fixed assets and intangible assets			(200.0	)		(174.9	)		(110.2	)
Change in restricted cash			4.4			5.3			(70.8	)
Proceeds from disposal of fixed assets and intangible assets			0.4			46.9			0.5
Issuance of loans to related parties	26		(66.1	)		(101.1	)		-
Issuance of loans to third parties			(10.5	)		(7.8	)		(6.3	)
Repayment of loans by related parties			25.0			150.9			13.0
Purchase of long-term investments	12		(16.9	)		(6.6	)		(26.0	)
Proceeds received from sale of manufacturing facility to related party	26		-			58.5			-
Net cash received from disposal of subsidiaries	25		2.1			-			-

Net cash used in investing activities			(182.3	)		(28.8	)		(199.5	)

Cash flows from financing activities:
Proceeds from borrowings			655.8			634.2			447.9
Principal payments on borrowings			(684.6	)		(484.6	)		(430.5	)
Principal payments on government loan			(0.8	)		-			-
Proceeds from related party borrowings	26		35.8			-			-
Repayment of related party borrowings			(13.0	)		(32.4	)		-
Proceed from issuance of long-term notes	19		-			100.0			-
Repayment of long-term notes	19		-			(100.0	)		-
Principal payments on capital lease obligations			(6.6	)		-			-
Arrangement fee for short-term bank borrowings			(2.1	)		-			-
Arrangement fee and other related costs for long-term notes			(1.0	)		-			-

Net cash (used in) provided by financing activities			(16.5	)		117.2			17.4

Net increase(decrease) in cash and cash equivalents			62.3			233.6			(230.9	)

Effect of exchange rate changes on cash and cash equivalents			(19.0	)		(43.6	)		24.3

Cash and cash equivalents at the beginning of year			156.7			200.0			390.0

Cash and cash equivalents at the end of year			200.0			390.0			183.4

Supplemental disclosure of cash flow information:
Interest paid			50.6			54.5			41.5
Income tax paid			-			3.9			23.4
Realized gain from derivative contracts	18		10.5			24.4			4.3

Supplemental schedule of non-cash activities:

Acquisition of fixed assets included in accounts payable, accrued expenses and other liabilities			28.0			-			-

The accompanying notes are an integral part of the consolidated financial statements.

F-8

Hanwha Q CELLS Co., Ltd.

CONSOLIDATED statements of chAnges in shareholders’ equity

(in millions of US dollars except share data)

	Note	Number of ordinary shares			Ordinary shares		Additional paid-in capital		Accumulated earnings			Accumulated other comprehensive income (loss)			Total shareholders’ equity

As of January 1, 2015			3,701,145,330			0.4		329.8		(64.0	)		(36.5	)		229.7
Vesting of restricted stock units			795,304			-		-		-			-			-
Settlement of restricted stock units vested with shares held by depository bank			(795,304	)		-		-		-			-			-
Share-based compensation	22		-			-		0.5		-			-			0.5
Share issued to depository bank			1,550,000			-		-		-			-			-
Acquired in the Transaction			457,980,262			-		100.8		-			-			100.8
Net income for the year			-			-		-		43.8			-			43.8
Other comprehensive loss	21		-			-		-		-			(34.6	)		(34.6	)

As of December 31, 2015			4,160,675,592			0.4		431.1		(20.2	)		(71.1	)		340.2
Vesting of restricted stock units			1,648,500			-		-		-			-			-
Settlement of restricted stock units vested with shares held by depository bank			(1,648,500	)		-		-		-			-			-
Share-based compensation	22		-			-		0.6		-			-			0.6
Share issued to depository bank			500,000			-		-		-			-			-
Net income for the year			-			-		-		127.5			-			127.5
Other comprehensive loss	21		-			-		-		-			(60.1	)		(60.1	)

As of December 31, 2016			4,161,175,592			0.4		431.7		107.3			(131.2	)		408.2

Vesting of restricted stock units			1,643,900			-		-		-			-			-
Settlement of restricted stock units vested with shares held by depository bank			(1,643,900	)		-		-		-			-			-
Share-based compensation	22		-			-		0.5		-			-			0.5
Share issued to depository bank			1,380,475			-		-		-			-			-
Net loss for the year			-			-		-		(12.4	)		-			(12.4	)
Other comprehensive income	21		-			-		-		-			59.7			59.7

As of December 31, 2017			4,162,556,067			0.4		432.2		94.9			(71.5	)		456.0

The accompanying notes are an integral part of the consolidated financial statements.

F-9

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.	ORGANIZATION

Hanwha Q CELLS 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 Company through its subsidiaries is principally engaged in the development, manufacturing and sales of photovoltaic (“PV”) products and providing services for the development and installation of ground-mounted and commercial rooftop PV systems.

On February 6, 2015, the Company acquired a 100% equity interest in Hanwha Q CELLS Investment Co., Ltd. (“Q CELLS”) and its subsidiaries from Hanwha Solar Holdings Co., Ltd. (“Hanwha Solar”), a wholly owned subsidiary of Hanwha Chemical Corporation (“Hanwha Chemical”), in an all-stock transaction (the “Transaction”) as disclosed in Note 3, Reverse Acquisition. Q CELLS was formed on September 12, 2012. Q CELLS Group’s business activities commenced in 2012 with the acquisition of the former Q-Cells SE, a manufacturer of solar cells and modules, in a business combination which was completed on October 16, 2012.

Concurrent with the completion of the acquisition of Q CELLS, the Company changed its name from Hanwha SolarOne Co., Ltd. to Hanwha Q CELLS Co., Ltd. The Company together with its subsidiaries listed below are referred to as the “Group” hereinafter.

The following table sets forth information concerning the Company’s major subsidiaries as of December 31, 2017:

Name of the entity	Date of incorporation/ establishment	Place of incorporation/ establishment	Percentage of shareholding/ ownership						Principal activities
			2017			2016
Hanwha Q CELLS Investment Co., Ltd.	September 12, 2012	Cayman Islands		100	%		100	%	Investment holding

Hanwha Q CELLS GmbH	May 3, 2012	Germany		100	%		100	%	Sales of PV products and downstream operations

Hanwha Q CELLS Malaysia Sdn. Bhd.	March 21, 2008	Malaysia		100	%		100	%	Manufacturing and sales of PV products

Hanwha Q CELLS Chile SpA	March 14, 2014	Chile		100	%		100	%	Sales of PV products and downstream operations

Hanwha Q CELLS Güneş Enerjisi A.Ş	March 13, 2014	Turkey		100	%		100	%	Sales of PV products and downstream operations

Hanwha Q CELLS Australia Pty Ltd.	December 14, 2009	Australia		100	%		100	%	Sales of PV products

Hanwha Q CELLS Corp.	December 19, 2014	Korea		100	%		100	%	Sales of PV products

Hanwha Q CELLS Hong Kong Limited	May 16, 2007	Hong Kong		100	%		100	%	Investment holding and sales of PV products

F-10

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.	ORGANIZATION (CONT’D)

Name of the entity	Date of incorporation/ establishment	Place of incorporation/ establishment	Percentage of shareholding/ ownership						Principal activities
			2017			2016
Hanwha Q CELLS (Qidong) Co., Ltd.	August 27, 2004	PRC		100	%		100	%	Manufacturing and sales of PV products

Hanwha Q CELLS America Inc.	September 18, 2007	United States		100	%		100	%	Sales of PV products

Hanwha Q CELLS Canada Inc.	April 26, 2012	Canada		100	%		100	%	Sales of PV products

Hanwha SolarOne (Shanghai) Co., Ltd.	March 29, 2006	PRC		100	%		100	%	Sales of PV products

Hanwha Q CELLS Technology Co., Ltd.	August 1, 2007	PRC		100	%		100	%	Manufacturing of silicon ingots

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation and Presentation

The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”).

Reverse Acquisition

On February 6, 2015, the Company completed the acquisition of Q CELLS Group from Hanwha Solar in an all-stock transaction.

The Transaction is accounted for as a reverse acquisition under the acquisition method of accounting, in accordance with ASC 805, Business Combinations. Q CELLS is determined as the accounting acquirer. Consequently, the historical consolidated financial statements for all periods prior to the consummation of the Transaction only reflect the historical consolidated financial statements of Q CELLS. Upon the consummation of the Transaction, Q CELLS applied purchase accounting to the assets and liabilities of the SolarOne Group. Subsequent to the Transaction, the consolidated financial statements reflect the results of the combined company. The historical issued and outstanding Q CELLS common shares have been recast to retrospectively reflect the number of shares issued in the Transaction in all periods presented. See Note 3, Reverse Acquisition, for further information on the Transaction.

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. The Company consolidates entities in which it has a controlling financial interest. The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”). The usual condition for a controlling financial interest in a VOE is ownership of a majority voting interest. If the Company has a majority voting interest in a VOE, the entity is consolidated. The Company has a controlling financial interest in a VIE when the Company has a variable interest that provides it with (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company reassesses its initial evaluation of whether an entity is a VIE when certain reconsideration events occur.

F-11

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	Summary of significant accounting policies (cont’d)

Foreign Currency

The functional currencies of the operating subsidiaries are generally their local currencies, as determined based on the criteria of ASC 830, Foreign Currency Translation. The reporting currency of the Group is United States dollars (“$”), which is also the functional currency of the Company. 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 comprehensive income or loss. The Group translates assets and liabilities of its foreign operations into the reporting currency at the exchange rates in effect at the balance sheet date. The Group translates income and expense items of such foreign operations into the reporting currency at the average exchange rate during the year. The resulting translation adjustments are recorded in other comprehensive income (OCI). The Group operates internationally and is exposed to potentially adverse movements in currency exchange rates.

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. Areas where management uses subjective judgment include, provision for doubtful debts, provision for advance to suppliers, provision for warranty, inventory write-down, useful lives of fixed assets and land use rights, impairment of fixed assets, land use rights, definite and indefinite-lived intangible assets and goodwill, impairment of long-term investments, valuation allowances on deferred tax assets, stock-based compensation expenses and contingent liabilities arising from litigation. Changes in facts and circumstances may result in revised estimates. Actual results could differ from these estimates, and as such, differences may be material to the financial statements.

Cash and Cash Equivalents

Cash and cash equivalents are stated at cost, which approximates fair value, and consist of cash on hand and bank deposits, which are unrestricted as to withdrawal and use and have original maturities less than 90 days.

Restricted Cash

Restricted cash represents amounts held by banks as security for letters of credit facilities, notes payable and bank borrowings, guarantees and performance bonds and, therefore, are not available for the Group’s use. Changes in restricted cash that relate to the purchase of raw materials or sale of goods are classified within cash flows from operating activities, changes in restricted cash that relate to the purchase of fixed assets are classified within cash flows from investing activities and changes in restricted cash that relate to bank borrowings are classified within cash flows from financing activities. The restriction on cash is expected to be released within the next twelve months.

Accounts and Notes Receivable

Accounts and notes receivable are recognized and carried at original invoiced amount less an allowance for credit losses. 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.

Arrangement Fees

Arrangement fees represent the incurred costs directly attributable to the borrowings from financial institutions. These costs are deferred and amortized using the effective interest method over the term of the respective borrowing.

F-12

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	Summary of significant accounting policies (CONT’D)

Inventories

Inventories include (1) raw materials, work-in-progress and final goods and (2) project assets.

Inventories are carried at lower of cost or market. The Group applies the weighted-average cost flow assumption. Market is defined as current replacement cost, but not greater than net realizable value (estimated selling price less reasonable costs of completion and sale) and not less than net realizable value reduced by a normal sales margin. 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.

Project assets comprise of direct costs relating to solar power projects in various stages of development that are capitalized prior to the sale of the solar power projects. These costs include modules, installation and other direct development costs. The Group reviews project development cost for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In determining whether or not the project assets are recoverable, the Group considers a number of factors, including changes in environment, ecological, permitting, or regulatory conditions that affect the project. Such changes may cause the cost of the project to increase or the selling price of the project to decrease. If a project is not considered recoverable, the Group impairs the respective project development costs and adjusts the carrying value to the estimated recoverable amount, with the resulting impairment recorded within the consolidated statements of comprehensive income or loss. The Group did not recognize any impairment loss for the years ended December 31, 2015, 2016, and 2017, respectively.

The cash flows associated with the acquisition, construction, and sale of solar power projects are classified as operating activities in the consolidated statements of cash flows. Solar power projects are often held in separate legal entities which are formed for the special purpose of constructing the solar power projects, which the Group refers to as "Project Companies". The Group consolidates the Project Companies.

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	20-50 years
Plant and machinery	5-15 years
Furniture, fixtures and office equipment	3-18 years
Others	1-20 years

As a result of our annual reviews to evaluate the reasonableness of the depreciable lives for the Malaysia entity’s property, plant and equipment, the Group changed the estimates of the remaining economic lives of machinery used in production lines, effective January 2016. These changes resulted in a net decrease in depreciation expense of $9.4 million for the year ended December 31, 2016. This net decrease in depreciation expense, net of tax, increased consolidated net income by $9.4 million, or nil per basic and diluted ordinary share, for the year ended December 31, 2016.

On August 1, 2016, the Group changed the estimates of the remaining economic lives of certain cells and modules production line, which were no longer being utilized and had been replaced by upgraded cells and modules production lines acquired during the year. These changes resulted in an increase in amortization expense of $13.2 million for the year ended December 31, 2016. This increase in amortization expense, net of tax, reduced consolidated net income by $13.2 million, or nil per basic and diluted common share, for the year ended December 31, 2016. As of December 31, 2016, the machinery and equipment were fully depreciated.

Repair and maintenance costs are expensed when incurred, whereas the cost of renewals and betterments 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 comprehensive income or loss.

F-13

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	Summary of significant accounting policies (CONT’D)

Fixed Assets (Cont’d)

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 asset is ready for its intended use. Total interest costs incurred during 2015, 2016, and 2017 were $69.9 million, $56.4 million, and $46.1 million, respectively and interest costs capitalized during 2015, 2016, and 2017 amounted to $3.0 million, $1.9 million, and $1.2 million, respectively.

Intangible Assets

Intangible assets are carried at cost less accumulated amortization. Amortization is recognized on a straight-line basis over the estimated useful life of the respective asset.

Customer relationships	12 years
Technologies	3 years
Trademarks	Indefinite lives
Software licenses	3 years
Generation licenses	10 years

A trademarks with an indefinite useful life is not amortized, but is tested for impairment annually, on December 31, and more frequently if events and circumstances indicate that the asset might be impaired in accordance with ASC subtopic 350-30 (“ASC 350-30”), Intangibles-Goodwill and Other: General Intangibles Other than Goodwill.

Land Use Rights

Land use rights represent amounts paid for the right to use land in the PRC and Chile. They are recorded at purchase cost less accumulated amortization. Amortization is provided on a straight-line basis over the terms of the land use rights agreements, the amortization period of which is 50 years.

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 at December 31 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, 2017, goodwill relates to the acquisitions as disclosed in Note 3.

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 unit’s 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 unit’s goodwill. If the implied fair value of goodwill is less than its carrying value, the difference is recognized as an impairment loss.

F-14

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	Summary of significant accounting policies (CONT’D)

Goodwill (Cont’d)

In accordance with ASC 350, the Group assigned and assessed goodwill for impairment at the reporting unit level. A reporting unit is an operating segment or one level below the operating segment. The Group performed a goodwill impairment test as of December 31, 2017, which did not result in an impairment.

Long-term Investments

The Group carries the investment at cost and only adjusts for other-than-temporary declines in fair value and distributions of earnings for investments in an investee over which the Group does not have significant influence in accordance with ASC 325-20, Investments - Other: Cost Method Investments.

The Group holds equity investments in affiliates in which it does not have a controlling financial interest, but has the ability to exercise significant influence over the operating and financial policies of the investee. These investments are accounted for under equity method of accounting in accordance with ASC323-10, Investments – Equity Method and Joint Ventures. Under the equity method, the Group initially records its investment at cost and prospectively recognizes its proportionate share of the investees' income or loss in its consolidated statements of comprehensive income or loss.

Investments are evaluated for impairment when facts or circumstances indicate that the fair value of the investment is less than its carrying value. An impairment loss is recognized when a decline in fair value is determined to be other-than-temporary. The Group reviews several factors to determine whether a loss is other-than-temporary. These factors include, but are not limited to, the: (1) nature of the investment; (2) cause and duration of the impairment; (3) extent to which fair value is less than cost; (4) financial conditions and near term prospects of the investees; and (5) ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value.

The Group recognized $1.3 and $0.2 million of impairment losses upon disposal and liquidation of certain investments in the years ended December 31, 2015 and 2017, respectively. No impairment occurred in the year ended December 31, 2016.

Impairment of Long-Lived Assets Other Than Goodwill

The Group evaluates its long-lived assets or asset groups, including land use rights 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 recognizes an impairment loss based on the excess of the carrying amount of the asset group over its fair value. In relation to the long-lived assets other than goodwill, the Group recognized an impairment loss of $4.5 million and $36.3 million in the year ended December 31, 2016 and 2017, respectively. No impairment occurred in the years ended December 31, 2015.

Fair Value of Financial Instruments

Financial instruments include cash and cash equivalents, restricted cash, accounts and notes receivable, other receivables, accounts and notes payable, customer deposits, short-term bank borrowings, amounts due to/from related parties, long-term borrowings, long-term notes and derivative contracts. The carrying amounts of these financial instruments other than long-term borrowings and long term notes approximate their fair values due to the short-term nature of these instruments. The carrying amount of the long-term borrowings and long-term notes also approximate their fair value since they bear floating interest rates which approximate market interest rates.

F-15

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	Summary of significant accounting policies (CONT’D)

Financial instruments – Foreign Currency Derivative Contracts and Interest Rate Swap Contracts

The Group’s primary objective for holding foreign currency derivative contracts and interest rate swap contracts is to manage its foreign currency risk principally arising from sales contracts denominated in Euros, Australian Dollar, Korean Won and Japanese Yen, and the interest rate risk for the long-term borrowings. The Group records these derivative instruments as current assets or current liabilities, measured at fair value.

During the year ended December 31, 2015, the Group entered into cross-currency exchange rate agreements and interest rate swap agreements to pay fixed interest rate rather than floating rate. Changes in the fair value of these derivative instruments are recognized in the consolidated statements of comprehensive income or loss. These derivative instruments are not designated and do not qualify for hedge accounting and are adjusted to fair value through current earnings. As of December 31, 2017, the Group had outstanding cross-currency exchange rate contracts with the notional amounts of $38.2 million (2016: $ 16.0 million) and interest rate swap contracts with the notional amount of $440.2 million (2016: $440.2 million). The Group estimates the fair value of its foreign currency and interest rate swap derivatives using a pricing model based on market observable inputs.

Revenue Recognition

Solar power products

The Group produces and sells PV modules. The Group periodically, upon special request from customers, sells PV cells, wafer and silicon ingots. The Group records revenues from 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: existence of persuasive evidence of an arrangement; occurrence of delivery; determinability of sales price; and reasonable assurance of collection.

The Group performs ongoing credit assessment of each customer, including reviewing the customer’s 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 Group 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.

Payments received from customers for shipping and handling costs are included in net revenues. Shipping and handling costs relating to sales and purchases are included in selling expenses and cost of revenues, respectively.

Engineering, procurement, construction (“EPC”) services

The Group recognizes revenue related to long-term solar systems integration services on the percentage-of-completion method. The Group 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 Group 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 Group determines that total estimated costs will exceed total revenues under a contract, it records a loss accordingly. Unbilled amounts are included in the consolidated balance sheets as “unbilled solar systems integration revenue”. In certain arrangements which did not meet the requirements to measure revenue according to the progress towards completion, the Group recognized revenue upon completion of the contract.

F-16

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	Summary of significant accounting policies (CONT’D)

Revenue Recognition (Cont’d)

Processing services

In 2015, the Group entered into a processing service arrangement to assemble PV cells into PV modules with a third party. For this service arrangement, the Group “purchases” PV cells from related parties and contemporaneously agrees to “sell” the processed PV modules back to the same related parties. The quantity of PV modules sold back to the same related party under these processing arrangements is consistent with the amount of PV cells purchased from the same party based on current production conversion rates. In accordance with ASC 845-10, Accounting for Purchases and Sales of Inventory with the Same Counterparty, the Group records revenue on these transactions based on the amount received for PV modules sold less the amount paid for the PV cells purchased from the same related party. These sales are subject to all of the above-noted criteria relating to revenue recognition. No processing service arrangement was entered into during the year ended December 31, 2017.

Solar power projects

The Group develops and sells solar power plants which generally include the lease of related properties. The Group recognizes revenue from such sale in accordance with ASC 360-20, Real Estate Sales. The Group records the sale as revenue using the full accrual method when all of the following requirements are met: (a) the sales are consummated; (b) the buyer's initial and continuing investments are adequate to demonstrate its commitment to pay; (c) the receivable is not subject to any future subordination; and (d) the Group has transferred the usual risk and rewards of ownership to the buyer. Specifically, the Group considers the following factors in determining whether the sales have been consummated: (a) the parties are bound by the terms of a contract; (b) all consideration has been exchanged; (c) permanent financing for which the seller is responsible for has been arranged; and (d) all conditions precedent to closing have been performed, and the Group does not have any substantial continuing involvement with the project. No such sales were recognized in the years ended December 31, 2015, 2016 and 2017.

Revenue is recognized net of all applicable taxes imposed by governmental authorities and collected from customers concurrent with revenue-generating 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 Revenues

Cost of revenues includes direct, indirect production costs and project development costs.

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.” The Group recognized advertising expenses of $1.9 million, $2.4 million and $9.5million for the years ended December 31, 2015, 2016, and 2017, respectively.

Warranty Cost

The Group primarily provides standard warranty coverage on PV modules sold to customers. Q CELLS Group provides the following warranties on its products to its customers: a 12 year product warranty in which the Group warrants that its modules will not show any material defects or workmanship defects for a period of twelve years after initial purchase (invoice date). A 25 year performance warranty in which the Group warrants that 1) its modules will produce a minimum power output of at least 97% specified in the data sheet in the first year and performance degradation will be no more than 0.6% per year for the next 25 years, resulting in an output no less than 83% of the stated output 25 years after the invoice date. The Group accrues warranty expenses for BoS (balance of system) parts used in projects. Terms of such warranties are the same as the original manufacturer’s warranty as the Group passes the liabilities incurred under such warranties to the original manufacturer.

F-17

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	Summary of significant accounting policies (CONT’D)

Warranty Cost (Cont’d)

From January 1, 2012, the standard warranty of the SolarOne Group provides a 12-year warranty against technical defects, and a 25-year linear warranty, which guarantees: 1) no less than 97% of the nominal power generation capacity for multicrystalline PV modules and 96% of the nominal power generation capacity for monocrystalline PV modules in the first year, 2) an annual output degradation of no more than 0.7% thereafter, and 3) by the end of the 25th year, the actual power output shall be no less than 82% of initial power generation capacity. Since January 2015, the SolarOne Group updated the 25-year linear warranty, which guarantees no less than 97.5% of the nominal power generation capacity for its multicrystalline PV modules in the first year, and an annual output degradation of no more than 0.7% thereafter. By the end of the 25th year, the actual power output shall be no less than 82% of the nominal power generation capacity.

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 testing procedures conducted by the Group’s engineering team, 2) the Group’s 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 management’s ability and intention to provide repairs, replacements or refunds for defective products, the management accrued warranty costs for the Q CELLS Group for the 25-year warranty period based on 0.5% of the production costs of PV modules for the years ended December 31, 2014 and 2015 and the three months ending March 31, 2016. The SolarOne Group also accrued for warranty costs for the two to 12-year warranty against technical defects based on 1% of revenue for PV modules for the same period. Furthermore, no warranty cost accrual has been recorded for the 10-year or 20 to 25-year warranties for decline from the initial power generation capacity because the SolarOne 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.

Starting from April 1, 2016, the Group has unified the estimate of accrual for the 12-year warranty against technical defects based on 0.5% of revenue for PV modules. The new estimate is derived based on the historical claim received for the past 10 years. The change was initiated as part of the Group’s restructuring process to align their quality management process and standards after the Transaction in 2015. The processes have been successfully implemented and effective since April 2016. The change resulted in a decrease in selling expenses of $8.1 million for the year ended December 31, 2016. This net decrease in selling expenses, net of tax, increased consolidated net income by $8.1 million, or $0.00 per basic and diluted ordinary share, for the year ended December 31, 2016. No warranty cost accrual has been recorded for the 25-year warranties for decline from initial power generation capacity because the Group assessed 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 Group reviews the basis for the warranty accrual periodically based on actual experience. The Group does not sell extended warranty coverage that is separately priced or optional.

F-18

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	Summary of significant accounting policies (CONT’D)

Government Grants

Government grants received by the Group 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. For the government grants with no further conditions to be met, the amounts are recorded by offset to the operating expenses or cost of revenues when received; whereas for the government grants with certain operating conditions, the amounts are recorded as liabilities when received and will be recorded by offset to the operating expenses or cost of revenues when the conditions are met.

For the years ended December 31, 2015, 2016, and 2017, the Group recorded $0.8 million, nil, and $2.5million respectively, of government subsidies as an offset to its operating expenses and cost of revenues. The government grants recorded in operating expense are not subject to adjustment and do not have any restrictions as to the use of funds.

As of December 31, 2016 and 2017, the Group recorded $7.1 million and nil, respectively, of government grants received as other payable because the Group has not fulfilled the conditions required by the government.

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.

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. 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 comprehensive income or loss.

Value-Added Tax (“VAT”)

In accordance with the relevant tax laws in certain countries, 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 has paid more than collected, the difference represents a net VAT recoverable balance at the balance sheet date. Value added tax is presented on a net basis and excluded from revenues.

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 asset’s 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. The Group recognized rental expenses amounting to $3.0 million, $3.9 million and $2.2 million for the years ended December 31, 2015, 2016 and 2017, respectively.

F-19

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	Summary of significant accounting policies (CONT’D)

Net Income Per Share

Net income per share is calculated in accordance with ASC 260-10, Earnings Per Share. Basic income 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 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. 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 per share if their effects would be anti-dilutive. Net income per share for periods prior to the Transaction were retrospectively adjusted to reflect the number of weighted-average adjusted shares received by Solar Holdings, the former parent company of the Q CELLS Group.

Defined Benefit Plan

A defined benefit plan is a post-employment benefit plan other than defined contribution plans. The Group’s net obligation in respect of its defined benefit plan is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The fair value of any plan assets is deducted.

The calculation is performed annually by an independent actuary using the projected unit credit method. The discount rate is the yield at the reporting date on high quality corporate bonds that have maturity dates approximating the terms of the Group’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The Group recognizes all actuarial gains and losses arising from defined benefit plans in retained earnings immediately.

The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Consequently, the net interest on the net defined benefit liability (asset) now comprises: interest cost on the defined benefit obligation, interest income on plan assets, and interest on the effect of the asset ceiling.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.

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.

F-20

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	Summary of significant accounting policies (CONT’D)

Recent Accounting Pronouncements

Variable consideration on quantity discount – Under 606-10-32-5 if the consideration promised in a contract includes a variable amount, an entity shall estimate the amount of consideration to which the entity will be entitled in exchange for transferring the promised goods or services to a customer. Also under 606-10-32-8 an entity shall estimate an amount of variable consideration by using either of the following methods, depending on which method the entity expects to better predict the amount of consideration to which it will be entitled: a. The expected value—The expected value is the sum of probability-weighted amounts in a range of possible consideration amounts. An expected value may be an appropriate estimate of the amount of variable consideration if an entity has a large number of contracts with similar characteristics. b. The most likely amount is the single most likely amount in a range of possible consideration amounts (that is, the single most likely outcome of the contract). The most likely amount may be an appropriate estimate of the amount of variable consideration if the contract has only two possible outcomes (for example, an entity either achieves a performance bonus or does not). For customers in Europe, the Company provides credit notes in the following quarter if certain goals are achieved by the customer. Transaction price applicable for credit note to be provided in the future needs to be deferred. Furthermore, credit note provided to the customer based on the sales quantity, is variable consideration, and needs to be considered for determination of transition price. The entity expects the effect of these changes to decrease revenues by $0.6m based on the above assumptions being applied during 2017.

F-21

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	Summary of significant accounting policies (CONT’D)

In October 2016, the FASB issued Accounting Standards Update No. 2016-16 (ASU 2016-16), “Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory”. The new guidance requires that entities recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset is sold to an outside party. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period (as of the first interim period if an entity issues interim financial statements). The new guidance requires adoption on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Group does not expect that the new standard will have a material impact on its consolidated financial statements.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04 (ASU 2017-04), “Intagibles, Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. As a result, under the ASU, “an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.” The ASU is effective prospectively for fiscal years beginning after December 15, 2019. The Group does not expect that the new standard will have a material impact on its consolidated financial statements.

F-22

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	Summary of significant accounting policies (CONT’D)

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, advance to suppliers and long-term prepayments.

As of December 31, 2017, the Group has $73.1 million, $12.8 million, $8.0 million, $38.0 million and $12.0 million of cash and bank deposits in the PRC, United States, Korea, Germany and Malaysia, which constitute about 39.9%, 7.0%, 4.4%, 20.7% and 6.5%, respectively of total cash and cash equivalents.

(i)	The PRC

	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 China’s 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 increased 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.

(ii)	United States, Korea, Germany and Malaysia

	In the event of bankruptcy of financial institutions, it is uncertain whether the Group will be able to receive its deposits back in full.

The Group mitigates its risk of loss by continuing to monitor the financial strength of the financial institutions in which it makes deposits.

As of December 31, 2016 and 2017, as a percentage of accounts receivable, the top four customers accounted for an aggregate of 38.0% and 32.7%, respectively. The Group conducts periodic credit evaluation of its customers but does not require collateral or other security from its customers.

Advances to suppliers and long-term prepayments 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 five suppliers with largest advance balances accounted for an aggregate of 50.9% and 74.4% of total advance to suppliers balance as of December 31, 2016 and 2017, respectively. Due to the Group’s 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 Group’s suppliers may cause a material loss to the Group and have a material adverse effect on the Group’s financial condition and results of operations (Note 7). 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.

Concentration of customers

As a percentage of revenues, the top five customers accounted for an aggregate of 35.3%, 55.8% and 39.2% for the years ended December 31, 2015, 2016 and 2017, respectively. The loss of sales from any of these customers would have a significant negative impact on the Group’s business. Sales to customers are mostly made through non-exclusive, short-term arrangements. Due to the Group’s dependence on a limited number of customers, any negative events with respect to the Group’s customers may cause material fluctuations or declines in the Group’s revenue and have a material adverse effect on the Group’s financial condition and results of operations.

F-23

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.	Summary of significant accounting policies (CONT’D)

Concentration of suppliers

A significant portion of the Group’s purchases are made from a limited number of suppliers. Purchases from its five largest suppliers who collectively account for an aggregate of 42.4%, 31.5% and 41.3% of the Group’s purchases for the years ended December 31, 2015, 2016 and 2017, 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 Group’s business, financial condition and results of operations.

3.	ACQUISITIONS

(i) Reverse Acquisition

On February 6, 2015, the Group completed the acquisition of the Q CELLS Group from Hanwha Solar in an all-stock transaction. Following the acquisition, the Group was able to achieve a greater degree of operating efficiency and strengthen its market position. The Group issued 3,701,145,330 of its ordinary shares to Hanwha Solar in exchange for the transfer of 100% of the outstanding share capital of Q CELLS by Hanwha Solar to the Group and Q CELLS became the Group’s wholly-owned subsidiary. As a result of the Transaction, Hanwha Solar’s ownership of the Group’s ordinary shares increased from 45.7% to 94.0%.

Fair Value of Assets and Liabilities Acquired

The following table summarizes the calculation of the fair value of the total consideration transferred and the amounts recognized as of the Transaction Date (in millions of $, except shares and stock price):

Calculation of consideration transferred

The Company’s shares outstanding		457,980,262
The Company’s closing stock price at February 6, 2015	$	0.22
Consideration attributable to common stock		100.8
Pre-existing amount due from Q CELLS Group to SolarOne Group		5.0

Total consideration transferred		95.8

F-24

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3.	ACQUISITIONS (CONT’D)

Fair Value of Assets and Liabilities Acquired (Cont’d)

Assets acquired and liabilities assumed

Cash and cash equivalents			70.2
Accounts receivable			156.5
Other current assets			408.3
Fixed assets			614.5
Land use rights			54.9
Other long-term assets			8.9
Total assets acquired			1,313.3

Short-term debt			219.4
Current portion of long-term debt			351.6
Other current liabilities			394.2
Long-term debt, net of current portion			248.6
Other long-term liabilities			4.8
Total liabilities assumed			1,218.6

Total net identifiable assets acquired			94.7
Goodwill arising on acquisition			1.1
Purchase consideration transferred			95.8

The net purchase consideration of the Transaction is determined as the value of equity of the accounting acquiree (in this case, the Company, the legal acquirer), adjusted by the settlement of the pre-existing relationship at the acquisition date. Consequently, the net purchase consideration is $95.8 million, which is the difference between (i) the value of the Company’s equity of $100.8 million using its closing stock price on February 6, 2015 of $ 11.00 per ADS (as retrospectively adjusted to reflect the current ADS to ordinary share ratio of one ADS to 50 ordinary shares effective on June 15, 2015) and (ii) the net balance of $5.0 million of the pre-existing receivables and payables that are due from the Q CELLS Group to the SolarOne Group.

F-25

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3.	ACQUISITIONS (CONT’D)

Fair Value of Assets and Liabilities Acquired (Cont’d)

The purchase price allocation described above was determined with the assistance of a third party valuation firm. The valuation report utilizes and considers generally accepted valuation methodologies such as the income, market and cost approach. As a result of the valuation, the fair value of the acquired assets and liabilities, other than the fixed assets and the land use rights, approximates their carrying values. Adjustments of $117.6 million and $12.6 million were recorded to decrease and increase the carrying values of the SolarOne Group’s fixed assets as well as land use rights, to their fair values, respectively. Specifically, the valuation of the SolarOne Group’s fixed assets and land use rights were performed using the depreciated replacement cost method, accompanied by an economic obsolescence factor derived from a profitability test.

Goodwill is primarily attributed to expected synergies from combining the Q CELL Group’s and the SolarOne Group’s existing businesses, including, but not limited to, expected cost synergies from overhead savings resulting from streamlining certain redundant corporate functions, improved operating efficiencies, including provision of certain corporate level administrative and support functions at a lower cost. The Group also anticipates opportunities for growth through expanded geographic and customer segment diversity and the ability to leverage additional brands. The acquired goodwill is not deductible for income tax purposes.

The amount of net sales and net income of the SolarOne Group included in the Group’s consolidated statement of comprehensive income or loss from the acquisition date of February 6, 2015 to December 31, 2015 are as follows:

In millions of $	For the year ended December 31,
	2015

Net revenues		1,280.2
Net income		29.8
Total comprehensive loss		3.9

Unaudited pro forma consolidated financial information

The following unaudited pro forma consolidated financial information for the years ended December 31, 2014 and 2015 are presented as if the Transaction had occurred as of January 1, 2014. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the acquisition actually taken place on the date indicated. The pro forma adjustments are based on available information and certain assumptions the management believes are reasonable.

In millions of $	For the year ended December 31,
	2014			2015

Net revenues		1,464.1			1,831.3
Net income (loss)		(90.5	)		29.8
Income (loss) per share – basic	$	(0.02	)	$	0.01

These amounts have been computed after applying the effects of the Group’s accounting policies.

Transaction Expenses

Advisory, financing, integration and other transaction costs directly related to the Transaction totaled $3.2 million for the year ended December 31, 2015.

F-26

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3.	ACQUISITIONS (CONT’D)

(ii) Acquisition of Variable Interest Entities

VIEs are entities with any of the following characteristics: (i) the entity does not have enough equity to finance its activities without additional financial support (ii) the equity holders, as a group, lack the characteristics of a controlling financial interest or (iii) the entity is structured with non-substantive voting rights.

As of December 31, 2017, we were entitled to substantially all of the economic interests of five holdings companies in Turkey, each of which owned special purpose vehicles, by means of a usufruct contract. While we did have any ownership interest in the five holdings and their special purpose vehicles, the usufruct contract enabled us to make decisions over the activities that most significantly impacted the economic performance of the holding companies and their respective special purpose vehicles. Our assessment concluded that our financial interest as whole creates a variable interest in the five holding companies as variable interest entities. In addition, for the abovementioned reasons we concluded that we were the primary beneficiary of the five holding companies and thus the five holding companies and their respective special purpose vehicles in consolidation were accounted for as consolidated VIEs for the year ended December 31, 2017.

Name of the entity	Date of incorporation/ establishment	Place of incorporation/ establishment	Principal activities

Aslan Güneş Enerjisi A.Ş.	June 3, 2015	Turkey	Operation of Special Purpose Vehicle

Hiprom Enerji Yatırımları A.Ş.	January 14, 2015	Turkey	Operation of Special Purpose Vehicle

Fior Güneş Enerjisi Anonim Şirketi	December 8, 2015	Turkey	Operation of Special Purpose Vehicle

Ulu Güneş Enerjisi Anonim Şirketi	December 8, 2015	Turkey	Operation of Special Purpose Vehicle

Uno Enerji Anonim Şirketi	November 24, 2015	Turkey	Operation of Special Purpose Vehicle

In Turkey, foreign company is limited to operate solar power project. In order to facilitate the solicitation of project more efficiently by local business professionals with access to developers and other stakeholders, and this is important within, a very fast moving solar energy business in Turkey, the Group found a partnership with shareholders of Variable Interests Entities(“VIEs”) through proxy agreement and usufruct agreement.

The operational capital of the VIEs was mainly funded by the Group through loans extended to the authorized individuals who were the shareholders of the VIEs. The Group subsequently entered into usufruct agreement with the shareholders of the VIEs through the Group’s subsidiaries (“Primary Beneficiaries”), which give the Primary Beneficiaries the power to direct the activities that most significantly affect the economic performance of the VIEs and to acquire the equity interests in the VIEs when permitted by the Turkey laws. This usufruct agreement obligates the Primary Beneficiaries to absorb losses of the VIEs’ that could potentially be significant to the VIEs or entitle the Primary Beneficiaries to receive economic benefits from the VIEs that could potentially be significant to the VIEs.

Despite the lack of technical majority ownership, there exists a parent-subsidiary relationship between the Primary Beneficiaries and the VIEs through the aforementioned agreements with the shareholders of the VIEs. The shareholders of the VIEs solely assigned all of their voting rights underlying their equity interest in the VIEs to the Primary Beneficiaries. Based on these contractual arrangements, the Company consolidates the VIEs as required by ASC topic 810, Consolidation, because the Company holds all the variable interests of the VIEs through the Primary Beneficiaries.

F-27

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3.	ACQUISITIONS (CONT’D)

Loan Agreements

Pursuant to loan agreements amongst the VIEs provided loans with an aggregate amount of $24.6 million to the VIEs solely to fund the capitalization of VIEs. The terms of the loan agreements will expire on June 30, 2019 at the earliest and can be extended with the written consent of both parties before its expiration.

Proxy Agreement/Usufruct Agreement

Pursuant to the proxy agreement signed in December, 2017 between the shareholders of VIE and Primary Beneficiaries agreed to grant all the rights to exercise their voting power and any other rights as shareholders of VIEs. The proxy agreement would be in effect for an unlimited term unless terminated in writing by Primary Beneficiaries earlier. The power of attorney would be in effect for as long as the shareholders of VIEs hold any equity interests in VIEs.

The fair value of the consideration transferred, assets acquired and liabilities assumed are as follows:


(In millions of $)	Amount
Consideration transferred(*1)		24.6
Identifiable assets acquired and liabilities assumed:
Cash and cash equivalents		0.3
Inventories		0.4
Account Receivables		0.6
Other current assets		1.2
Property, plant and equipment		18.5
Other non-current assets		0.2
Account Payables		(15.8	)
Other current liabilities		(0.2	)
Identifiable net asset		5.2
Intangible Assets(*)		11.9
Goodwill (*2)		7.5

(*1) Consideration transferred is equal to the loan amount abovementioned in Loan Agreement.

(*2) The fair value measurements utilize estimates based on key assumptions of the acquisition, and historical and current market data. In order to ultimately determine the fair values of intangible assets acquired for VIEs, the Group may engage a third party independent valuation specialist, however as of the date of this report, the valuation has not been completed due to the Group’s ongoing assessment of information available from each VIE and related project . The preliminary allocation of the purchase price is based on the best information available and the Group plans to update once the pending valuation of intangible assets is completed. ASC 805-10-25-13 requires that, if the initial accounting for a business combination is incomplete at the end of the reporting period in which the combination occurs, the acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete.

F-28

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3.	ACQUISITIONS (CONT’D)

As of December 31, 2017, the carrying amounts and classifications of the consolidated VIEs' assets and liabilities included in the Group's consolidated balance sheet are as follows:

In millions of $	As of December 31, 2017
Current assets:
Cash and cash equivalents		0.3
Inventories		0.4
Account Receivables		0.6
Other current assets		1.2

Total current assets		2.5

Non-current assets:
Property, plant and equipment		18.5
Intangible assets		11.9
other non-current assets		0.2

Total non-current assets		30.6

Total assets		33.1

Current liabilities:
Account Payables		15.8
Other current liabilities		0.2

Total current liabilities		16.0

Total liabilities		16.0

The carrying amounts of the assets and liabilities of our VIEs are subject to adjustment within one-year measurement period per ASC 805-20-30-1.

F-29

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4.	RESTRUCTURING CHARGES

In January 2015, the Group announced restructuring plans to restructure its global operations. This decision includes the shutdown of its production facilities in Thalheim, Germany and the transfer of machineries used for production to the production site in Malaysia. This plan results in a downsizing of the workforce in Germany which was communicated in March 2015 and no alternate use for certain assets that cannot be transferred. The Group estimated that it will recognize aggregate charges pursuant to the restructuring plan of up to $22.0 million, $0.7 million and nil in 2015, 2016 and 2017 respectively, consisting of severance and other one-time termination benefits, cost to relocate long-lived assets, repayments of government subsidies and other costs.

The following table summarized the activities related to the restructuring charges as discussed.

In millions of $	Employee severance			Other			Total

Liability as of January 1, 2016		4.0			1.7			5.7
Restructuring charges		0.7			0.0			0.7
Cash payments		(3.1	)		(1.7	)		(4.8	)
Effect of foreign currency translation		0.0			0.0			0.0

Liability as of December 31, 2016		1.6			-			1.6
Restructuring charges		-			-			-
Cash payments		(1.5	)		-			(1.5	)
Effect of foreign currency translation		0.1			-			0.1

Liability as of December 31, 2017		0.2			-			0.2

The Group reported such restructuring expenses as a separate line item of “restructuring charges” within the operating expenses in the consolidated statement of comprehensive income or loss for the years ended December 31, 2015 and 2016, respectively.

5.	AccOUNTS AND Notes receivable

The Group’s accounts receivable is net of the allowance for doubtful accounts. Changes in allowance for doubtful accounts for the years ended December 31, 2016 and 2017 are as follows:

In millions of $	As of December 31,
	2016			2017

Beginning balance		23.7			22.3
Provision for doubtful debt		3.3			36.4
Write-off of doubtful debt		(3.2	)		(0.1	)
Effect of foreign currency translation		(1.5	)		2.7

Ending balance		22.3			61.3

Notes receivable represents 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 Group. The carrying amount of notes receivable approximates fair value.

F-30

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

6.	InVENTORIES

Inventories consist of the following:

in millions of $	As of December 31,
	2016		2017

Raw materials		76.0		84.5
Work-in-progress		29.5		13.8
Finished goods		211.1		193.9
Project assets*		1.0		1.4

		317.6		293.6

The write-down of inventories amounted to $10.2 million, $0.9 million and $4.0 million for the years ended December 31, 2015, 2016 and 2017, respectively.

* Reclassifications have been made to the 2016 and 2015 consolidated financial statements to conform to the current period presentation. The Group has reclassified the amount of $ 10.5 million and $20.9 million from inventories to amount due from third parties (non-current assets) for the year ended December 31, 2015 and 2016, respectively. The Company evaluated the impact to all periods and concluded that prior financial statements were not materially misstated and the impact to the current period financial statements was not material. Due to the reclassification of inventories, cash flows from operation activities in 2015 and 2016 increased by $10.5 million and $7.8 million, respectively, cash flows from investing activities in 2015 and 2016 decreased by $10.5 million and $7.8 million, respectively.

7.	Advance to suppliers-NET

Advance to suppliers and long-term prepayments represent interest-free cash deposits paid to suppliers in order to secure wafer supplies at favorable terms.

In circumstances where a supplier is in contractual default and the Group has termination rights that require repayment of its remaining deposit and the Group has asserted such rights, the advances are reclassified to other current assets in the consolidated balance sheets. Similarly, the Group reclassifies advances to other current assets when legal proceedings have commenced wherein the Group is claiming a breach of contract and is seeking monetary recovery of the remaining deposit. A provision for loss is recognized in operating expenses in the period in which the loss on such assets is determined to be probable and the amount can be reasonably estimated.

F-31

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

8.	OTHER CURRENT ASSETS - net

Other current assets consist of the following:

in millions of $	As of December 31,
	2016		2017

VAT recoverable		28.1		29.7
Other receivables – net		13.1		29.8
Prepaid expenses – net		13.6		8.2
Others		0.8		0.6

		55.6		68.3

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.

Income taxes recoverable represent the excess of income taxes paid to tax authority over the current income taxes. This amount can be applied against income taxes in future years or may be reimbursed by the tax authorities.

F-32

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

9.	fixed assets – net

Fixed assets, including those held under capital leases, consist of the following:

in millions of $	As of December 31,
	2016			2017

Land and buildings		220.8			262.2
Plant and machinery		539.8			620.5
Furniture, fixtures and office equipment		15.5			18.2
Others		0.8			1.0
		776.9			901.9
Less:
Accumulated depreciation		(115.2	)		(193.2	)
		661.7			708.7
Construction-in-progress		93.8			128.9

		755.5			837.6

Depreciation expenses were $76.9 million, $85.1 million and $68.7 million for the years ended December 31, 2015, 2016 and 2017, respectively.

Depreciation of plant and machinery under capital leases was $6.1 million, nil, and nil for the years ended December 31, 2015, 2016 and 2017, respectively. Due to the restructuring mentioned in Note 4, the Group terminated the capital leases contracts during the year ended December 31, 2015.

As of December 31, 2017, buildings with a net book value of $78.9 million, and plant and machinery with a net book value of $104.0 million, were pledged for short-term bank borrowings of $187.7 million (Note 13). As of December 31, 2016, buildings with a net book value of $74.6 million, and plant and machinery with a net book value of $169.6 million, were pledged for short- term bank borrowings of $89.5 million. As of December 31, 2016 and 2017, property, plant and equipment with book values of $230.0 million and $560.2 million were pledged for the Malaysian Government Loan of $123.7 million and $205.3 million, respectively (Note 13).

In the fourth quarter of 2016, the Group retired some outdated production lines located in the Qidong facilities. Accelerated depreciation on property, plant and equipment was recorded in cost of revenues of $15.1 million related to the retirement of such production lines in 2016.

In the fourth quarter of 2017, the Group retired wafer production lines located in the Hanwha Q CELLS Technology Co., Ltd. (LYG) facilities, and recognized impairment on machinery and furniture, fixtures and office equipment in the amount of $36.2 and $0.1 million, respectively, as cost of sales.

F-33

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10.

INTANGIBLE ASSETS – NET

Intangible assets as of December 31, 2017 consist of the following:

in millions of $	Acquisition cost		Accumulated amortization			Book value

Customer relationships		3.8		(1.7	)		2.1
Technologies		4.6		(4.6	)		-
Trademarks		5.9		-			5.9
Software licenses		30.0		(22.2	)		7.8
Generation licenses		11.9		-			11.9
Others		4.8		(0.5	)		4.3

		61.0		(29.0	)		32.0

Intangible assets as of December 31, 2016 consist of the following:

in millions of $	Acquisition cost		Accumulated amortization			Book value

Customer relationships		3.4		(1.2	)		2.2
Technologies		11.0		(11.0	)		-
Trademarks		5.2		-			5.2
Software licenses		28.2		(20.9	)		7.3
Others		2.4		(0.5	)		1.9

		50.2		(33.6	)		16.6

Trademarks represent the Q CELLS trademark, which has an indefinite useful life. The amortization of customer relationships is presented in selling and marketing costs whereas the amortization of technologies, software licenses and generation licenses are reported in cost of sales, selling and administrative costs, and research and development costs based on their use.

Aggregate amortization expense for intangible assets for the years ended December 31, 2015, 2016 and 2017 was $5.3 million, $3.4 million and $4.6 million respectively. Estimated amortization expense for the next five years is as follows:

in millions of $	Amortization

For the years ending December 31,
2018		4.0
2019		3.7
2020		3.5
2021		3.5
2022		3.4
Beyond 2023		8.0

F-34

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11.

LaND USE RIGHTS - NET

Land use rights as of December 31, 2016 and 2017 consist of the following:

in millions of $	As of December 31,
	2016			2017

Land use rights
Cost		51.9			54.7
Less: Accumulated amortization		(4.0	)		(5.7	)

		47.9			49.0

Land use rights represent amounts paid for the rights to use eleven parcels of land in the PRC and Chile where the Group’s premises are located.

As of December 31, 2017, land use rights with a net book value of $28.5 million were pledged for short-term borrowings of $187.7 million (Note 13). As of December 31, 2016, land use rights with a net book value of $23.4 million were pledged for short-term borrowings of $89.5 million.

The amortization expense for the years ended December 31, 2015, 2016 and 2017 was $1.1 million, $1.1 million and $1.6 million, respectively. For each of the next five years, the estimated annual amortization expense of land use rights is $1.7 million.

12.

LONG-TERM INVESTMENTS

Long-term investments include the equity investments in the following investees as of December 31, 2017:

Name of investee	Percentage of ownership			in millions of $
Renew Akshay Urja Private Limited		44	%		17.3
HQC PR Solar Holdings LLC		49	%		3.2
Hanwha Kalyon Güneş Teknolojileri Üretim A.Ş.		50	%		20.8
Hanwha Kalyon Güneş Enerjisi Üretim A.Ş.		50	%		5.4
Others		20~50	%		0.9

Investments are accounted for under the equity method.

The movement of the investments accounted for under the equity method is as follows:

in millions of $	For the year ended December 31,
	2016			2017

At the beginning of the year		17.1			20.7
Investment		6.6			26.0

Share of gain (loss) of equity method investments		(0.9	)		2.3
Impairment		-			(2.8	)
Effects of foreign currency translation		(2.1	)		1.4

At the end of the year		20.7			47.6

F-35

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12.

LONG-TERM INVESTMENTS (CONT’d)

One of our project assets, in which we hold a 49% interest in, located in Puerto Rico was damaged due to a natural disaster in 2017. We recognized a loss of $2.8 million to reduce the book value of our share in the project assets to the amount we believe recoverable through insurance.

13.

BORROWINGS

Borrowings as of December 31, 2016 and 2017 consist of the following:

in millions of $	As of December 31,
	2016		2017
Comprised of:
Short-term borrowings		377.4		385.2
Long-term borrowings, current portion		149.8		293.6
Malaysian government loan, current portion		0.7		0.7
		527.9		679.5

Long-term borrowings, non-current portion		420.0		299.6
Malaysian government loan, non-current portion		123.7		137.1
		543.7		436.7

		1,071.6		1,116.2

The short-term borrowings outstanding as of December 31, 2016 and 2017 bore an average interest rate of 3.49% and 4.09% per annum, respectively, and were denominated in Renminbi, U.S. Dollar, and Euro. These borrowings were obtained from financial institutions and have terms of one month to one year.

The long-term bank borrowings outstanding as of December 31, 2016 and 2017 bore an average interest rate of 2.66% and 3.33% per annum, respectively, and were denominated in Renminbi and U.S. Dollar. These borrowings were obtained from financial institutions and will mature between 2018 and 2020.

The current and non-current portions of long-term borrowings as of December 31, 2017 will be due in installments between the periods from January 1, 2018 to December 31, 2018, 2019, 2020 and 2021.

As of December 31, 2016 and 2017, unused loan facilities for short-term and long-term borrowings amounted to $43.5 million and $64.7 million, respectively.

F-36

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

13.

BORROWINGS (cont’d)

Borrowings from financial institutions as of December 31, 2017 were secured/guaranteed as follows:

Amount		Secured/guaranteed by
in millions of $

	619.8	Guaranteed by Hanwha Chemical
	43.2	Guaranteed by Hanwha Chemical and the Company’s plant and machinery with net book value of $58.1 million
	187.7	Secured by the Company’s buildings, plant and machinery and land use rights with net book value of $78.9 million, $104.0 million and $28.5 million, respectively
	205.3	Guaranteed by Hanwha Chemical and Company’s buildings, plant and machinery and other assets with net book value of $52.8 million, $177.2 million and $330.2 million, respectively
	1,056.0

As of December 31, 2017, the maturities of these long-term borrowings are as follows:

in millions of $	As of December 31, 2017

2018		294.3
2019		11.2
2020		111.2

The original principal amount of a loan from the Malaysian government is MYR 850.0 million ($209.0 million) (the “Government Loan”). The remaining balance, net of present value discounts as at December 31, 2017 is MYR 575.6 million ($137.8 million). The scheduled repayments began in 2013. The final maturity of the loan is in 2031. Interest rates are variable, with a fixed 0% interest through 2019, a fixed 1% interest through 2027, and a fixed 2% interest through maturity.

F-37

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

14.

ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities as of December 31, 2016 and 2017 consist of the following:

in millions of $	As of December 31,
	2016		2017

Accrued wages and other employee welfare		14.9		18.9
Taxes payable		16.4		9.2
Pension (Note 28)		7.1		11.4
Restructuring charges (Note 4)		1.6		0.2
Accrued interest expense for bank borrowings		4.0		2.0
Accrued utility expenses		-		9.0
Accrued professional service fees		1.1		0.3
Accrued sales commission		0.4		0.0
Interest payable for long-term notes (Note 19)		0.9		1.5
Litigation accrual		0.2		-
Other accrued expenses and liabilities		34.1		13.6

		80.7		66.1

15.

WARRANTY PROVISION

The movement of the accrued warranty costs is as follows:

in millions of $	For the year ended December 31,
	2016			2017

Beginning balance		61.0			61.2
Transfer upon sale of manufacturing facility to a related party		(1.8	)		-
Accrued warranty cost		12.2			8.2
Warranty reversal		(1.2	)		(7.6	)
Warranty claims		(6.0	)		(17.8	)
Effects of foreign currency translation		(3.0	)		4.5

Ending balance		61.2			48.5
Thereof:
Current warranty provision		42.2			31.0
Non-current warranty provision		19.0			17.5

16.

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 refundable if the sales contract is terminated.

17.

NOTES PAYABLE

As of December 31, 2016 and 2017, notes payable were non-interest bearing and were secured by $89.3 million and $52.0 million of the Group’s restricted cash respectively. The Group did not pay any commission to the banks to obtain the notes payable facilities. These notes as of December 31, 2017 are due for repayment over the next six months ending June 30, 2018.

F-38

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

18.

Derivative contracts

The Group is exposed to certain risks related to its business operations. The risks that the Group seeks to manage by using derivative instruments are fluctuations in foreign exchange rates and interest rates. The Group recognizes all derivative instruments as either assets or liabilities at fair value in the consolidated balance sheets. The Group’s 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 comprehensive income or loss and the amount of realized and unrealized gains (losses) recognized in current earnings for the derivative contracts not designated as hedging instruments for the years ended December 31, 2015, 2016 and 2017:

in millions of $	Statement of comprehensive income (loss) location	For the year ended December 31,
		2015			2016			2017

Foreign exchange derivative contracts (not designated as hedging instruments) - realized	Changes in fair value of derivative contracts		11.0			(23.6	)		(3.3	)
Foreign exchange derivative contracts (not designated as hedging instruments) - unrealized	Changes in fair value of derivative contracts		(1.4	)		1.1			-
Interest rate swap derivative contracts (not designated as hedging instruments) - realized	Changes in fair value of derivative contracts		(0.5	)		(0.8	)		(1.0	)
Interest rate swap derivative contracts (not designated as hedging instruments) - unrealized	Changes in fair value of derivative contracts		0.5			(1.1	)		1.0

			9.6			(24.4	)		(3.3	)

The following table reflects the fair values of derivatives included in the consolidated balance sheets as of December 31, 2016 and 2017:

in millions of $	Balance sheet location	Fair value as of December 31,
		2016		2017

Derivative assets (not designated as hedging instruments):
Foreign exchange derivative contracts	Current assets: Derivative contracts		0.4		0.1
Interest rate swap derivative contracts	Current assets: Derivative contracts		-		0.4

			0.4		0.5
Derivative liabilities (not designated as hedging instruments):
Foreign exchange derivative contracts	Current liabilities: Derivative contracts		-		0.1
Interest rate swap derivative contracts	Current liabilities: Derivative contracts		1.0		0.3

			1.0		0.4

F-39

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

19.

LONG-TERM NOTES

On January 16, 2013, Hanwha Q CELLS Hong Kong Limited completed its issuance of three-year-period notes of $100 million (the “2013 Notes”). The 2013 Notes bear interests at a floating rate indexed to the three-month LIBOR plus a margin of 2.23% per annum. Interests are payable on a quarterly basis from April 15, 2013 to January 15, 2016.

On January 11, 2016, the Group issued three-year-period notes of $100 million (the “2016 Notes”). The 2016 Notes bear interests at a floating rate indexed to the three-month LIBOR plus a margin of 2.9% per annum. Interests are payable on a quarterly basis from April 11, 2016 to January 11, 2019. The Group repaid the 2013 Notes using the proceeds from the issuance of 2016 Notes in January 2016.

The debt issuance costs are being amortized through interest expense over the period from January 11, 2016, the date of issuance, to January 10, 2019, the date of expiration, using the effective interest rate method which was 4.66% for the year ended December 31, 2017.

20.

Deferred revenue

Deferred revenue represents cash payments received from a customer in advance of the delivery of PV modules. Revenue is recognized when the conditions for revenue recognition have been met. The deferred revenue is non-refundable unless the Group fails to fulfill the terms of the sales contract.

21.

ACCUMULATED OTHER COMPREHENSIVE income or LOSS

The movement of accumulated other comprehensive income or loss is as follows:

in millions of $	Foreign currency translation adjustments			Pension adjustments			Total

Balance as of December 31, 2014		(36.5	)		-			(36.5	)
Other comprehensive loss		(34.6	)		-			(34.6	)

Balance as of December 31, 2015		(71.1	)		-			(71.1	)
Other comprehensive loss		(59.8	)		(0.3	)		(60.1	)

Balance as of December 31, 2016		(130.9	)		(0.3	)		(131.2	)
Other comprehensive income (loss)		59.9			(0.2	)		59.7

Balance as of December 31, 2017		(71.0	)		(0.5	)		(71.5	)

F-40

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

22.

SHARE-BASED COMPENSATION PLANS

As a result of the reverse acquisition accounting treatment for the Transaction, previously issued SolarOne Group stock options and restricted stock units under the Group’s 2006 Share Option Plan and 2007 Equity Incentive Plan, granted to employees and directors that were outstanding and unvested at the date of the Transaction, were accounted for as an exchange of awards. The fair value of such awards was insignificant. On November 30, 2016, all outstanding stock options granted under the 2006 Share Option Plan expired in accordance with the terms specified in the 2006 Share Option Plan. On the date of expiration, none of the expired options were in the money.

The following tables summarize the Group’s share option activity under 2007 Incentive Plan:

	Number of options			Weighted- average exercise price		Weighted- average remaining contractual life		Aggregate intrinsic value
				($)		(Years)		($)

Outstanding, January 1, 2017		412,200			1.48		2.64		-
Forfeited		(10,000	)		1.36		0.05
Expired		(49,000	)		0.92		-		-

Outstanding, December 31, 2017		353,200			1.34		1.75		-

Vested and expected to be vested at December 31, 2017		353,200			1.34		1.75		-

Exercisable at December 31, 2017		353,200			1.34		1.75		-

The aggregate intrinsic value in the table above represents the total intrinsic value (the aggregate difference between the Company’s closing stock price of $0.1632 and $0.1404 per ordinary share as of December 31, 2016 and 2017, respectively, 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, 2016 and 2017.

No share options were granted, vested or exercised in 2017.

F-41

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

22.

SHARE-BASED COMPENSATION PLANS (cOnt’d)

The following table summarized the Group’s RSU activity under the 2007 Incentive Plan:

	Number of RSUs			Weighted- average grant date fair value
				($)

Unvested, January 1, 2017		40,888			18.57

Granted		52,584			8.98
Vested		(32,878	)		17.05
Forfeited		(10,030	)		16.43

Unvested, December 31, 2017		50,564			8.98

The aggregate fair value of vested RSUs for 2016 and 2017 measured based on respective grant-date fair values was $0.4 million and $0.6 million, respectively. 1 RSU represent 1 ADS, and they are equivalent to 50 ordinary shares each. The aggregate fair value of the unvested RSUs as of December 31, 2016 and 2017 was $0.8 million and $0.5 million, respectively, based on the quoted market price of the Group’s 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.

As of December 31, 2017, there was $0.1 million of unrecognized share-based compensation cost related to RSUs which is expected to be recognized over a weighted-average vesting period of 4 months. To the extent the actual forfeiture rate is different from current estimation, actual share-based compensation related to these awards may be different from the expectation.

Total compensation expense relating to share options and RSUs recognized for the year ended December 31, 2015, 2016 and 2017 is as follows:

in millions of $	For the year ended December 31,
	2015		2016		2017

Cost of revenues		0.2		0.2		0.3
Selling expenses		0.1		0.0		0.0
General and administrative expenses		0.3		0.3		0.2
Research and development expenses		0.1		0.1		0.1

		0.7		0.6		0.6

23.

Redeemable ordinary shares

On January 29, 2008 and concurrently with SolarOne Group’s convertible bond issuance (which was substantially repaid in January 2014), the Group issued and sold 901,961 ADSs (as retrospectively adjusted to reflect the current ADS to ordinary share ratio of one ADS to 50 ordinary shares effective on June 15, 2015), representing 45,098,055 of the Company’s ordinary shares at the par value per share of $0.0001. On October 25, 2011 and November 22, 2016, the Group repurchased and cancelled 500,553 ADSs and 401,408 ADSs (as retrospectively adjusted to reflect the current ADS to ordinary share ratio of one ADS to 50 ordinary shares effective on June 15, 2015), representing 25,027,680 and 20,070,375, respectively, of the Company’s ordinary shares at the par value per share of $0.0001. There are no outstanding redeemable ordinary shares as of December 31, 2016 and 2017.

F-42

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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. The Company is subject to corporate income taxes in Germany, the PRC, Hong Kong, Malaysia, South Korea, USA, Australia, Chile, Turkey and United Kingdom. Taxes in the consolidated statements of comprehensive income and balance sheets reflect current and deferred taxes in these countries. The current and deferred tax assets and liabilities of the Group are measured based on local tax rates. The statutory income tax rates for the Group where it has significant operations are as follows:

	For the year ended December 31,
	2015			2016			2017

PRC		25.00	%		25.00	%		25.00	%
Hong Kong		16.50	%		16.50	%		16.50	%
Germany		29.13	%		29.13	%		29.13	%
Malaysia		25.00	%		25.00	%		25.00	%
South Korea		22.00	%		22.00	%		22.00	%
USA*		35.00	%		35.00	%		35.00	%

* The U.S. Tax Reform reduced the tax rate from 35% to 21% for taxable years beginning January 1, 2018

Income (loss) before income taxes consists of:

In millions of $	For the year ended December 31,
	2015			2016			2017

PRC		62.3			18.4			(32.0	)
Germany		-			(60.8	)		5.9
Malaysia		-			63.6			31.0
South Korea		-			51.7			(19.6	)
USA		4.5			3.2			25.1
Cayman		(17.2	)		48.5			(7.2	)
Others		4.3			(1.4	)		(3.6	)

		53.9			123.2			(0.4	)

F-43

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

24.

income taxes (cont’d)

Income tax expense (benefit) consists of:

In millions of $	For the year ended December 31,
	2015		2016			2017

Current		5.5		2.3			16.7
Deferred		4.6		(6.6	)		(4.7	)

		10.1		(4.3	)		12.0

The reconciliation of tax computed by applying the statutory income tax rate of the Company to income tax expense (benefit) is as follows:

In millions of $	For the year ended December 31,
	2015			2016			2017

Income tax computed at parent statutory tax rate		-			-			-
Non-deductible expenses		5.7			10.7			0.9
Foreign tax rate differences		12.0			25.2			6.5
Income not subject to taxation		(0.2	)		(29.7	)		(2.9	)
Others		(5.2	)		(21.0	)		8.6
Changes in the valuation allowance		(2.2	)		10.5			(1.1	)

		10.1			(4.3	)		12.0

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:

F-44

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

24.

income taxes (cont’d)

Deferred Taxation (Cont’d)

In millions of $	As of December 31,
	2016			2017

Deferred tax assets:

Account receivables and other assets		35.7			0.2
Provisions		51.4			1.8
Warranty provision		0.8			1.7
Inventory write-off		-			0.0
Allowance for doubtful accounts		116.9			38.6
Tax losses		85.5			67.6
Fixed assets		49.3			15.8
Unabsorbed capital allowance		-			16.7
Others		3.9			15.4
Valuation allowance		(336.9	)		(141.7	)
Offsetting		(0.5	)		(7.0	)

Net deferred tax assets		6.1			9.1


Deferred tax liabilities:

Financial assets		0.9			0.0
Accounts receivable and other assets		1.7			0.0
Liabilities		-			0.0
Land use rights		2.8			2.8
Intangible assets		4.0			4.4
Fixed assets		1.4			7.9
Others		-			0.6
Offsetting		(0.5	)		(7.0	)

Net deferred tax liabilities		10.3			8.7

F-45

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

24.

income taxes (cont’d)

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.

As of December 31, 2017, the Group has a net tax operating loss from its PRC subsidiaries of $53 million which will expire between 2018 and 2022. Tax losses carried forward in Germany, Malaysia and Australia are not subject to expiration.

Uncertain Tax Positions

As of December 31, 2015, the Group’s unrecognized tax benefit of $17.9 million related to tax incentive received. In 2016, the Group reversed the unrecognized tax benefit as management believes it is more-likely-than-not that the liability no longer required due to expiration of statute of limitations. Reconciliation of accrued unrecognized tax benefit is as follows:

In millions of $	For the year ended December 31,
	2015		2016			2017

Beginning balance		-		17.9			-
Expiration of statute of limitations		-		(17.9	)		-
Acquired in the Transaction		17.9		-			-

Ending balance		17.9		-			-

The Group’s PRC subsidiaries for the years ended December 31, 2012 to December 31, 2017 remain open to potential examination by the tax authorities. The Group’s operations in Germany has the audit for the tax authorities for the years from 2012 to 2013. The Group expects that it is more-likely-than-not that the ongoing dispute will be finalized in favor of Germany without any tax payment. In addition, the Group’s operations in America and Malaysia remain subject to audit by tax authorities from 2013 and 2010, respectively.

As of December 31, 2016 and 2017, the Group did not accrue any penalties and interests related to the unrecognized tax benefits.

F-46

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

25.

Investment Loss

Investment loss consists of the gain (loss) from the following investments:

in millions of $	For the year ended December 31,
	2015			2016		2017

Loss on disposal of Nantong Hanwha PV-Tech Energy Co., Ltd.		(1.6	)		-		-
Gain on liquidation of Hanwha Solar Australia Pty Ltd.		0.3			-		-
Loss on disposal of Bourton Renewables Limited		-			-		(0.1	)
Loss on disposal of Harelaw Renewables Limited		-			-		(0.0	)
Loss on disposal of High Ercall Renewables Limited		-			-		(0.1	)
Loss on disposal of Solarpark HZBG Infrastruktur GmbH & Co. KG		-			-		(0.0	)
Loss on disposal of Solarpark NSTR Infrastruktur GmbH & Co. KG		-			-		(0.0	)

		(1.3	)		-		(0.2	)

On May 27, 2015, Nantong Hanwha PV-Tech Energy Co., Ltd., a wholly owned subsidiary of the Group, was sold to a third party company with total consideration of $1.0 million, and the Group recognized $1.6 million of investment loss for the disposal.

On November 30, 2015, Hanwha Solar Australia Pty Ltd., a wholly owned subsidiary of the Group, applied for liquidation, and the Group recognized $0.3 million of investment gain upon liquidation.

In 2017, Hanwha Q CELLS GmbH liquidated Bourton Renewables Limited, Harelaw Renewables Limited, High Ercall Renewables Limited, Solarpark HZBG Infrastruktur GmbH & Co. KG, Solarpark NSTR Infrastruktur GmbH & Co. KG as its management determined that it was more probable than not that these investments are not recoverable.

F-47

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

26.

related party transactions

Name and Relationship with Related Parties

Name of related party		Relationship with the Group

Hanwha Corporation		A major shareholder of Hanwha Chemical Corporation
Hanwha Chemical Corporation		Holding company of Hanwha Solar
Hanwha S&C Co., Ltd.		A company controlled by significant shareholders of Hanwha Corporation, subsequently spun-off from H-Solution Co., Ltd.
H-Solution Co., Ltd.		A company controlled by significant shareholders of Hanwha Corporation
Hanwha Europe GmbH		A subsidiary of Hanwha Corporation
Foodist Food Culture (Shanghai) Co., Ltd.		A subsidiary of Hanwha Corporation
Hanwha TechM Hungary Zrt.		A subsidiary of Hanwha Corporation
Hanwha Engineering & Construction		A subsidiary of Hanwha Corporation
Hanwha International LLC		A subsidiary of Hanwha Chemical Corporation
Hanwha Advanced Materials Corporation		A subsidiary of Hanwha Chemical Corporation
Hanwha Chemical (Thailand) Co., Ltd.		A subsidiary of Hanwha Chemical Corporation
Hanwha Chemical Malaysia Sdn. Bhd.		A subsidiary of Hanwha Chemical Corporation
Hancomm, Inc. *		A company in which Hanwha S&C has a significant shareholding
Hanwha S&C Trading (Shanghai) Co., Ltd.		A subsidiary of Hanwha S&C
Hanwha Chemical Trading (Shanghai) Co., Ltd.		A subsidiary of Hanwha Chemical Corporation
Hanwha Life Insurance Co., Ltd.		A Pension for the benefit of employees
Hanwha Q CELLS Japan Co., Ltd.		A company related with Hanwha Chemical Corporation
Hanwha Q CELLS USA Corp.		A company related with Hanwha Chemical Corporation
Hanwha Q CELLS Korea Corp.		A company related with Hanwha Chemical Corporation
Hanwha Non-Life Insurance Co., Ltd.		A Pension for the benefit of employees
Bt1 Enerji Iç Ve Diş Tic.San.Ve Tic.Ltd.Şti.**		A subsidiary of H-Solution Co., Ltd.
Primo Güneş Enerjisi A.Ş.**		A subsidiary of H-Solution Co., Ltd.
Razin Elektrik Üretim Sanayi Ve Ticaret Anonim Şirketi**		A subsidiary of H-Solution Co., Ltd.
Razin En. San. ve Tic. A.S.**		A subsidiary of H-Solution Co., Ltd.
Altinorda Enerji Iç Ve Diş Tic.San.Ve Tic.Ltd.Şti.**		A subsidiary of H-Solution Co., Ltd.
Bahçesaray Enerji Iç Ve Diş Tic.San.Ve Tic.Ltd.Şti.**		A subsidiary of H-Solution Co., Ltd.
Meca Enerji Iç Ve Diş Tic.San.Ve Ticaret Limited Şirketi**		A subsidiary of H-Solution Co., Ltd.
174 Power Global Corporation**		A subsidiary of H-Solution Co., Ltd.
Burdur Enerji A.Ş.		A joint venture of Hanwha Q CELLS Güneş Enerjisi A.Ş
ReNew Akshay Urja Private Limited		An investee company of Hanwha Q CELLS Corp.
Tri Energy Global Pte. Ltd.		A subsidiary of Hanwha S&C

* Hancomm, Inc. has been excluded from the criteria of related party during 2015.

** The companies have been subsidiaries of Hanwha S&C prior to the spin-off from H-Solution Co., Ltd.

F-48

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

26.

related party transactions (cont’d)

Significant Related Party Transactions (Cont’d)

In addition to the information disclosed elsewhere in the financial statements, the Group had the following significant related party transactions during the years presented:

In millions of $	For the year ended December 31,
	2015		2016		2017

Purchase of product from:
Hanwha Corporation		306.7		259.8		0.0
Hanwha Advanced Materials Corporation		47.3		43.4		19.3
Hanwha Chemical Corporation		35.6		53.7		56.7
Hanwha Q CELLS USA Corp.		20.4		-		0.2
Hanwha Q CELLS Korea Corp.		2.7		496.4		519.0
Hanwha International LLC		2.3		-		-
Hanwha Q CELLS Japan Co., Ltd.		3.1		5.9		-
Hanwha Europe GmbH		-		0.1		0.1
Others		1.1		-		-

		419.2		859.3		595.3

Purchase of services from:
Hanwha Corporation		40.1		1.6		3.7
Foodist Food Culture (Shanghai) Co., Ltd.		4.9		4.4		3.8
Hanwha S&C Co., Ltd.		2.5		6.9		3.8
Hanwha Q CELLS Korea		-		-		2.6
Hanwha International LLC		1.8		-		-
Hanwha Q CELLS USA Corp.		0.8		-		0.6
Hanwha Advanced Material Corporation		-		1.6		-
Hanwha Chemical Corporation		-		0.8		0.9
Hancomm		0.3		-		-
Hanwha Life Insurance Co., Ltd.		-		0.8		0.7
Hanwha Non-Life Insurance Co., Ltd.		-		0.9		0.6
Others		3.4		1.3		2.2
		53.8		19.2		18.9

Purchase of fixed assets from:
Hanwha Corporation*		89.4		-		1.0

* Hanwha Corporation has merged Hanwha TechM Co., Ltd. manufacturing division

F-49

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

26.

related party transactions (cont’d)

Significant Related Party Transactions (Cont’d)

The Group had the following significant related party transactions during the years presented:

In millions of $	For the year ended December 31,
	2015		2016		2017
Sales of products to:
Hanwha Q CELLS Japan Co., Ltd.		193.4		284.0		143.9
Hanwha Q CELLS USA Corp.		139.7		-		109.8
Hanwha Corporation		117.5		38.7		-
Hanwha Q CELLS Korea Corp.		76.5		105.5		153.5
Hanwha International LLC		75.0		-		-
Renew Akshay Urja Private Limited		38.4		51.3		-
Burdur Enerji A.Ş.		10.2		0.0		-
Bt1 Enerji Iç Ve Diş Tic.San.Ve Tic.Ltd.Şti.		5.7		3.0		-
Hanwha Engineering & Construction		3.7		-		-
Razin Elektrik Üretim Sanayi Ve Ticaret Anonim Şirketi		2.0		25.1		-
Altinorda Enerji Iç Ve Diş Tic.San.Ve Tic.Ltd.Şti.		1.4		0.7		-
Bahçesaray Enerji Iç Ve Diş Tic.San.Ve Tic.Ltd.Şti.		1.4		0.7		-
Meca Enerji Iç Ve Diş Tic.San.Ve Ticaret Limited Şirketi		1.4		0.7		-
Tri Energy Global Pte. Ltd..		-		59.7		16.6
Others		0.3		-		-

		666.6		569.1		423.8

Sales of services to:
Hanwha Q CELLS Korea Corp.		-		7.2		36.2
Hanwha Q CELLS USA Corp.		-		-		0.6
174 Power Global Corporation		-		-		0.2
Hanwha Energy Corporation		-		-		0.2
Razin Elk. Urt. San. ve Tic. A.S.		-		-		0.1
BT1 Enerji IC ve Dis Ticaret Sanayi ve Ticaret Ltd. Sti.		-		-		0.1
Razin En. San. ve Tic. A.S.		-		-		0.1

		-		7.2		37.5

Sales of intangible assets to:
Hanwha Q CELLS Korea Corp.*		-		-		18.4

*In the first quarter of 2017, the Group sold certain intellectual properties to Hanwha Q CELLS Korea and received EUR 16.3 million ($18.4 million) in exchange.

F-50

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

26.

related party transactions (cont’d)

Significant Related Party Transactions (Cont’d)

The Group had the following significant related party transactions during the years presented (cont’d):

In millions of $	For the year ended December 31,
	2015		2016		2017
Borrowings from:
Hanwha S&C Trading (Shanghai) Co., Ltd.		16.0		-		-
Hanwha Chemical (Thailand) Co., Ltd.		5.0		-		-
Hanwha Chemical Malaysia Sdn. Bhd.		5.0		-		-
Hanwha Europe GmbH		9.8		-		-
						-
		35.8		-		-

Loans to:
Hanwha Q CELLS USA Corp.		30.0		1.0		-
Hanwha Q CELLS Korea Corp.		30.0		100.0		-
Primo Güneş Enerjisi A.Ş.		5.1		0.1		3.2
Burdur Enerji A.Ş.		1.0		-		2.4

		66.1		101.1		5.6

Interest paid to:
Hanwha S&C Co., Ltd.		0.7		-		-
Hanwha TechM Hungary Zrt.		-		0.1		-
Hanwha Chemical Trading(Shanghai) Co., Ltd.		-		0.1		-

		0.7		0.2		-

Interest received from:
Hanwha Q CELLS USA Corp.		0.9		-		0.9
Primo Gunes Enerjisi A.S.		-		-		0.3
Hanwha Q CELLS Korea Corp.		0.7		2.4		-

		1.6		2.4		1.2

Commission fee for bank borrowings and long-term notes paid to:
Hanwha Chemical Corporation		7.7		5.7		5.1

F-51

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

26.

related party transactions (cont’d)

Significant Related Party Transactions (Cont’d)

As of December 31, 2016 and 2017 balances with related parties are comprised of the following:

In millions of $	As of December 31,
	2016		2017

Amount due from related parties:
Hanwha Q CELLS Korea Corp.		43.9		54.4
Hanwha Corporation		-		2.2
Hanwha Q CELLS USA Corp.		20.8		74.6
Hanwha Q CELLS Japan Co., Ltd.		33.4		28.5
Hanwha Chemical Corporation		0.3		0.2
Primo Güneş Enerjisi A.Ş.		3.2		3.5
Burdur Enerji A.Ş.		-		2.5
Tri Energy Global Pte. Ltd..		0.2		-
Hanwha Life Insurance Co., Ltd.		0.7		0.8
Hanwha Non-Life Insurance Co., Ltd.		0.2		0.3
Others		0.5		0.3

		103.2		167.3
Thereof:
Current amount due from related parties		96.6		161.7
Non-current amount due from related parties		6.6		5.6
Amount due to related parties:
Hanwha Corporation		27.5		6.6
Hanwha Advanced Materials Coporation		7.3		7.5
Hanwha Chemical Corporation		9.1		5.8
Hanwha S&C Trading (Shanghai) Co., Ltd.		-		1.2
Hanwha Q CELLS USA Corp.		-		0.1
Hanwha Q CELLS Korea Corp.		117.1		176.5
Hanwha S&C Co., Ltd.		0.2		-
Others		0.4		0.5

		161.6		198.2

F-52

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

26.

related party transactions (cont’d)

Sale of manufacturing facility

On May 31, 2016, the Group signed a contract transferring assets and liabilities of PV manufacturing segment to our related party, Hanwha Q CELLS Korea Corp. located in Eumseong, South Korea. As a result, the Group received a cash consideration of $58.5 million for the transaction and recognized $3.0 million gain on sale.

The book value of related assets and liabilities transferred is as follows:

	In millions of $
Current assets:
Inventories		51.2
Accounts receivable and other receivables		66.4
Other current assets		30.9

Total current assets		148.5

Non-current assets:
Fixed assets		63.4
Intangible assets		0.8
Other non-current assets		0.2

Total non-current assets		64.4

Total assets		212.9

Current liabilities:
Accounts payable and other payables		83.0
Long-term borrowings, current portion		7.8
Other current liabilities		31.0

Total current liabilities		121.8

Non-current liabilities:
Defined benefit obligation		1.5
Long-term borrowings		33.9
Other long-term liabilities		1.8

Total non-current liabilities		37.2

Total Liabilities		159.0

Net assets		53.9

F-53

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

27.

employee defined contribution plan

Full-time employees of the Group’s 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 Group make contributions to the government for these benefits based on about 41% of the employees’ salaries on a monthly basis. The Group’s 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 $13.2 million, $13.7 million and $13.0 million for the years ended December 31, 2015, 2016 and 2017, respectively.

Full-time employees of the Group’s subsidiaries in Malaysia participate in a defined contribution plan, a post-employment benefit plan under which the Group pays fixed contribution into separate entities or funds and will have no legal or constructive obligation to pay further contributions if any of the funds do not hold sufficient assets to pay all employee benefits relating to employee services in the current and preceding financial years. Malaysian labor regulations require that the Malaysian subsidiaries of the Group make contributions to the government for these benefits based on about 12~13% of the employees’ salaries on a monthly basis. The total amounts for such employee benefits, which were expensed as incurred, were $1.1 million, $1.3 million and $1.4 million for the years ended December 31, 2015, 2016 and 2017, respectively.

28.

PENSION

The Group’s pension plan includes retirement benefit obligations of $11.4 million and other employee benefit obligations of $0.3 million. Changes in retirement benefit obligation for the years ended December 31, 2016 and 2017 are as follows:

In millions of $	For the year ended December 31, 2016			For the year ended December 31, 2017

Beginning balance		6.5			7.1
Current service cost		2.3			1.7
Payment of severance		(0.7	)		(0.1	)
Transferred-in from affiliated company		1.4			2.0
Transferred-out to affiliated company		(1.0	)		(0.6	)
Transfer of business		(1.5	)		-
Unrealized actuarial losses		0.3			0.2
Effect of foreign currency translation		(0.2	)		1.1

Ending balance		7.1			11.4

Unrealized actuarial losses are recorded in “pension adjustments” in other comprehensive income.

The assumed discount rate used in the accounting of the pension plan is 3.1% and 3.4%, and the estimated salary increasing rate is 4.5% and 4.4% for the year ended December 31, 2016 and 2017, respectively.

F-54

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

29.

commitments and contingencies

Acquisition of Fixed Assets

As of December 31, 2017, the Group had commitments of $28.9 million related to the acquisition of fixed assets, which is expected to be settled within the next 12 months.

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, 2017 are as follows:

In millions of $	As of December 31, 2017

Year 2018		2.8
Year 2019		1.2
Year 2020		0.4

Total		4.4

The terms of the leases do not contain rent escalation or contingent rent.

Litigation

As of December 31, 2017, the Group is involved in various commercial litigations in the People’s Republic of China, Germany and Turkey. For certain proceedings, the Group is currently unable to estimate the reasonably possible loss or a range of reasonably possible losses. The Group is often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the range of possible loss, such as quantification of a damage demand from plaintiffs, discovery from other parties and investigation of factual allegations, rulings by the court on motions or appeals, analysis by experts, or the progress of settlement negotiations. On an annual basis, the Group reviews relevant information with respect to litigation contingencies, and updates its accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews.

For certain proceedings that the Group is involved as the plaintiff and expects favorable outcome, an estimated gain from a gain contingency is not reflected in the consolidated balance sheets or statements of comprehensive income until the realization of the gain contingency.

F-55

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

30.

segment reporting

After the Transaction on February 6, 2015, the Group identified two operating segments, Q CELLS Group and the SolarOne Group because the Company’s chief operating decision maker (“CODM”) reviewed the operating results of each operating segment in order to allocate resources and assess the Group’s performance.

In 2016, the Group initiated a restructuring process to align the quality management process and standards and other key operational processes for the Q CELLS Group and the SolarOne Group and now operates their business as one single business segment, which is the development, manufacturing, and sale of PV-related products. In accordance with ASC 280, Segment Reporting, the Company’s CODM has been identified as the Chief Executive Officer, who reviews the consolidated results of operations when making decisions about allocating resources and assessing performance of the Group as a whole; hence, the Group has only one operating segment. The Group does not distinguish between markets or segments for the purpose of internal reporting.

The following table summarizes the Group’s net revenues by country based on the location of the customers:

In millions of $	For the year ended December 31,
	2015		2016		2017

USA		519.4		1,251.2		887.5
South Korea		204.6		155.4		190.8
Japan		192.5		284.0		143.9
UK		187.5		17.9		49.7
The PRC		140.9		126.0		362.7
India		128.2		231.8		175.4
Turkey		120.3		178.4		79.9
Australia		73.0		44.5		62.3
Spain		59.0		0.1		9.1
Germany		42.6		43.7		102.3
France		35.8		10.1		25.0
Chile		23.4		0.2		1.5
Italy		16.0		7.5		18.7
Canada		13.0		11.8		11.1
Belgium		9.6		-		1.4
Switzerland		9.2		0.2		1.2
Malaysia		8.6		16.1		7.5
Israel		4.9		11.2		5.8
Mexico		1.3		0.3		0.4
South Africa		0.6		0.1		0.1
Portugal		0.5		-		0.1
Greece		0.3		-		0.3
Netherlands		0.3		1.6		17.3
Austria		-		-		2.9
Uruguay		-		12.3		13.9
Senegal		-		9.8		0.1
Zimbabwe		-		3.4		-
Others		9.3		8.3		18.0

Total net revenue		1,800.8		2,425.9		2,188.9

The proportion of the Group’s long-lived assets for the PRC and Malaysia are 59.3% and 27.8%, respectively, as of December 31, 2017.

F-56

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

30.

segment reporting (cont’d)

The customers that accounted for 10% or more of total net revenue for the years ended December 31, 2015, 2016 and 2017 are as follows:

In millions of $	For the year ended December 31,
	2015		2016		2017

Hanwha Q CELLS Japan Co., Ltd.		193.4		284.0		*
NextEra Energy Resources, LLC		*		808.7		345.4

* Less than 10%

31.

Income PER SHARE

Basic and diluted net income per share for each period presented are calculated as follows (in millions of $, except share and per share amounts):

	For the year ended December 31,
	2015		2016		2017

Numerator:
Income (loss) attributable to ordinary shareholders – basic and diluted		43.8		127.5		(12.4	)

Denominator:
Weighted-average number of shares outstanding – basic		4,120,369,328		4,158,984,882		4,162,018,711
Effects of dilution of stock options and RSUs granted in connection with the stock option plan		320,340		312,659		-

Weighted-average number of shares outstanding – diluted		4,120,689,668		4,159,297,541		4,162,018,711

Basic net income (loss) per share	$	0.01	$	0.03	$	(0.00	)

Diluted net income (loss) per share	$	0.01	$	0.03	$	(0.00	)

The historical issued and outstanding ordinary shares of Q CELLS have been recast to retrospectively reflect the number of shares issued in the Transaction in all periods presented.

The Group issued ordinary shares 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 Group for this issuance of these ordinary shares. The unused ordinary issued to the share depository bank are legally issued and outstanding but are treated as escrowed shares for accounting purposes and, therefore, have been excluded from the computation of loss per share. Any ordinary shares not used in the settlement of stock option awards will be returned to the Group.

The redeemable shares have been excluded in both basic and diluted net loss per share as they are not entitled to the earnings of the Group.

F-57

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

32.

Fair value measurementS

ASC subtopic 820-10 (“ASC 820-10”), Fair Value Measurements and Disclosures, 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 derivatives and interest rate swap are classified within Level 2 because they are valued using models utilizing market observable and other inputs.

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2016 and 2017 are summarized below:

	Fair value measurements at December 31, 2016 using:
In millions of $	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total fair value at December 31, 2016

Cash and cash equivalents
- Time deposits		-		390.0		-		390.0
- Restricted cash		116.8		-		-		116.8

Foreign currency and interest rate swap derivatives
- Financial assets		-		0.4		-		0.4
- Financial liabilities		-		1.0		-		1.0

	Fair value measurements at December 31, 2017 using:
In millions of $	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total fair value at December 31, 2017

Cash and cash equivalents
- Time deposits		-		183.4		-		183.4
- Restricted cash		139.7		-		-		139.7

Foreign currency and interest rate swap derivatives
- Financial assets		-		0.5		-		0.5
- Financial liabilities		-		0.4		-		0.4

F-58

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

33.

ADDITIONAL FINANCIAL INFORMATION OF THE parent Company

Condensed Balance Sheets

In millions of $	Note	As of December 31, 2016			As of December 31, 2017

Assets
Current assets:
Cash and cash equivalents			2.5			7.0
Other current assets			1.8			1.6
Amount due from subsidiaries	b		314.6			448.1

Total current assets			318.9			456.7

Non-current assets:
Intangible assets			0.3			0.3
Investments in subsidiaries	a		629.9			598.5
Other long-term assets			0.2			-

Total non-current assets			630.4			598.8

Total assets			949.3			1,055.5

Liabilities and Shareholders’ Equity
Current liabilities:
Accrued expenses and other payables			3.4			2.2
Amount due to subsidiaries	b		230.7			277.1
Long term borrowing - current portion	c		87.0			119.8
Total current liabilities			321.1			399.1

Non-current liabilities:
Long-term borrowings	c		120.0			86.9
Notes payable			100.0			99.5
Total non-current liabilities			220.0			186.4

Total liabilities			541.1			585.5

Redeemable ordinary shares (par value $0.0001 per share; 20,062,348 and nil issued and outstanding at December 31, 2016 and December 31, 2017, respectively)			-			-

Shareholders’ equity
Ordinary shares (par value $0.0001 per share; 7,000,000,000 shares authorized; 4,161,175,592 and 4,162,556,067 shares issued and outstanding at December 31, 2016 and December 31, 2017, respectively)			0.4			0.4
Additional paid-in capital			431.7			432.2
Accumulated earnings deficit			107.3			65.7
Accumulated other comprehensive loss			(131.2	)		(28.3	)
Total shareholders’ equity			408.2			470.0

Total liabilities, redeemable ordinary shares and shareholders’ equity			949.3			1,055.5

F-59

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

33.

ADDITIONAL FINANCIAL INFORMATION OF THE parent Company (Cont’d)

Condensed Statements of Comprehensive Income

In millions of $	For the year ended December 31, 2016			For the year ended December 31, 2017

Net revenues		-			-
Cost of revenues		0.2			0.1

Gross loss		(0.2	)		(0.1	)

Operating expenses		2.2			0.8

Operating loss		(2.4	)		(0.9	)

Share of income (loss) from subsidiaries		140.3			(34.4	)
Interest expenses - net		(4.3	)		(3.9	)
Other income - net		2.1			0.2
Exchange loss		(7.8	)		(2.6	)

Income (loss) before income taxes		127.9			(41.6	)

Income tax expenses		0.4			-

Net income (loss)		127.5			(41.6	)

Other comprehensive income (loss), net of tax
Share of other comprehensive income (loss) from subsidiaries		(60.1	)		102.9

Comprehensive income		67.4			61.3

Condensed Statements of Cash Flows

In millions of $	For the year ended December 31, 2016			For the year ended December 31, 2017

Net cash used in operating activities		(7.9	)		(0.5	)

Net cash provided by (used in) investing activities		69.2			(33.5	)

Net cash provided by (used in) financing activities		(59.5	)		38.5

Net increase in cash and cash equivalents		1.8			4.5

Cash and cash equivalents at the beginning of year		0.7			2.5

Cash and cash equivalents at the end of year		2.5			7.0

F-60

Hanwha Q CELLS Co., Ltd.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

33.

ADDITIONAL FINANCIAL INFORMATION OF THE parent Company (Cont’d)

Notes to the Condensed Financial Statements of the Group

(a) Basis of presentation

In the Company’s stand-alone condensed financial statements, the Company’s investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since inception or acquisition. The Company’s stand-alone condensed financial statements should be read in conjunction with the Company’s 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 condensed balance sheets as “Investment in subsidiaries”. The Company’s share of the subsidiaries’ profit (loss) and other comprehensive income (loss) are presented as “share of profit (loss) from subsidiaries” and “share of other comprehensive income (loss) loss from subsidiaries”, respectively, on the condensed statements of comprehensive income. Under the equity method of accounting, the Company adjusts the carrying amount of the investment for its share of the subsidiary's cumulative losses until the investment balance reaches zero, unless it is contractually obligated to continue to pick up the subsidiary's losses.

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 balance

As of December 31, 2017, all balances with related parties are unsecured, non-interesting bearing and repayable on demand.

The Group did not have any significant commitments or long-term obligations, other than the long-term borrowing, as of December 31, 2017.

F-61