LDK Solar Co., Ltd. - Asia Europe Clean Energy (Solar) Advisory Co ...

LDK SOLAR CO., LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
FOR THE PERIOD FROM JULY 5, 2005 TO DECEMBER 31, 2005
AND THE YEAR ENDED DECEMBER 31, 2006
(Amounts in US$ thousands, except share and per share data)
5) The issuance of 8,000,000 Series B redeemable convertible preferred shares to a group of
unrelated investors for cash consideration of US$48,000 (refer to note 16);
6) The issuance of 3,000,000 Series C redeemable convertible preferred shares to a group of
unrelated investors for cash consideration of US$22,500 (refer to note 16);
7) The formation of a fully owned subsidiary, LDK International on September 5, 2006 in Hong
Kong Special Administrative Region (""HK SAR'').
Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with
U.S. generally accepted accounting principles (""US GAAP'').
Since the controlling and majority shareholder of JXLDK prior to the Reorganization remained the
controlling and majority shareholder of the Company after consummation of the Reorganization, the
Reorganization is considered to be a transfer of equity interests between entities under common control and
has been accounted for in a manner similar to a pooling of interests. Accordingly, the assets and liabilities of
JXLDK transferred to the Company have been recognized at JXLDK's historical carrying amount and as if
the transfer of assets and liabilities and related business operations had occurred as of July 5, 2005, the earliest
date presented in the accompanying consolidated financial statements. Cash consideration of US$8,000 paid
by the Company to SZ Liouxin and HK Liouxin in connection with the transfer of JXLDK, has been
accounted for as a distribution to shareholders on July 21, 2006.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of consolidation
The consolidated financial statements include the financial statements of the Company and its
subsidiaries. All significant intercompany transactions and balances are eliminated on consolidation.
(b) Use of estimates
The preparation of financial statements in conformity with US GAAP requires management of the
Group to make estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an
ongoing basis, management reviews its estimates, including those related to realization of inventories,
depreciable lives and residual values of long-lived assets, the recoverability of the carrying values of long-lived
assets, and the determination of fair values of financial instruments and share-based instruments. Changes in
facts and circumstances may result in revised estimates.
(c) Foreign currency translation
The functional currency of the Company is the United States dollar (""US$''). The functional currency of
JXLDK is Renminbi (""RMB''). The functional currency of LDK International is the Hong Kong dollar
(""HK$''). Transactions denominated in other currencies are recorded in the functional currency at the rates
of exchange prevailing when the transactions occur. Monetary assets and liabilities denominated in other
currencies are translated into the functional currency at rates of exchange in effect at the balance sheet dates.
Exchange gains and losses are included in the statements of operations.
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