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)
(n) Revenue recognition
Sales represent the invoiced value of products sold and services rendered, net of value added taxes
(VAT). The Group records revenue from the sale of silicon wafers and other materials when the products are
delivered and title transfers, the risks and rewards of ownership have been transferred to the customer, the fee
is fixed and determinable and collection of the related receivable is reasonably assured. For domestic sales, the
majority of the Company's contracts provide that products are considered delivered when they reach
customer's destination and are signed-for by the customer. For export sales, products are considered delivered
when the goods have passed over the ship's rail at the named port of shipment. The customer bears all costs
and risks of loss or damage to the goods from that point. A majority of the Group's sales to domestic
customers require the customers to prepay before delivery has occurred. Such prepayments are recorded as
advances from customers in the Group's consolidated financial statements, until delivery has occurred.
Generally, no warranty is provided to customers except pursuant to a short period ranging from 7 to
15 days for sales return. Wafer products are standard and the Group conducts rigorous quality control and
testing procedures to ensure that the finished wafers meet the standard quality requirements before the
product is shipped. The Group estimates the amount of sales returns and the cost of replacement products
based on the level of returns to date, and the analysis of subsequent activity.
The Group recognizes revenue for processing services when the services are completed, which is generally
evidenced by delivery of processed products to the customers.
In the PRC, VAT of 17% on invoice amount is collected in respect of the sales of goods on behalf of tax
authorities. VAT collected from customers, net of VAT paid for purchase, is recorded as a liability in the
consolidated balance sheets until it is paid to the authorities.
(o) Buy/sell arrangements
The Group has buy/sell arrangements with certain customers wherein the Group sells wafers in exchange
for the acquisition of silicon materials, and sells multi-crystalline silicon materials in exchange for acquisition
of mono-crystalline bars. These arrangements are with counterparties in the same line of business as the
Group. The exchanges of inventories are recorded at fair value.
During the year ended December 31, 2006, the Group purchased and sold inventories of US$35,671 and
US$17,674 respectively under these buy/sell arrangements.
(p) Shipping and Handling
Costs to ship products to customers are included in selling expenses in the consolidated statement of
operations. Amounts billed to customers, if any, to cover shipping and handling are included in net sales. Cost
to ship products to customers were US$ nil and US$63 for the period from July 5, 2005 to December 31, 2005
and the year ended December 31, 2006, respectively.
(q) Research and development costs
Research and development costs are expensed as incurred. JXLDK has a research and development
team to enhance product quality and to achieve a more efficient production process. In addition, the Group
has a joint research and development program with Shanghai Jiaotong University to focus on developing
quality consumables and supplemental equipment.
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