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)
In assessing the realizability of deferred tax assets, management considers 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 or utilized. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.
Based upon an assessment of the level of historical taxable income and projections for future taxable income
over the periods in which the deferred tax assets are deductible or can be utilized, no valuation allowance has
been provided as of December 31, 2005 and 2006. The deferred tax assets of US$35 and US$148 as of
December 31, 2005 and 2006 respectively, represent the tax benefits of deductible temporary differences
which are more likely than not to be realized in a non tax holiday year. Deductible temporary differences as at
December 31, 2005 and 2006 represent pre-operating expenses incurred by JXLDK during its start-up period
from July 5, 2005 to April 2006, which can be deductible for income tax purposes over 5 years starting from
when JXLDK had its first commercial sale. The amount of the deferred tax assets considered realizable,
however, could be reduced in the near term if estimates of future taxable income are reduced.
The PRC tax system is subject to substantial uncertainties and has been subject to recently enacted
changes, the interpretation and enforcement of which are also uncertain. There can be no assurance that
changes in PRC tax laws or their interpretation or their application will not subject the Group's PRC entities
to substantial PRC taxes in the future.
(13) COMMITMENTS AND CONTINGENCIES
(a) Capital commitments
Capital commitments outstanding at December 31, 2005 and 2006 not provided for in the financial
statements were as follows:
December 31, December 31,
2005 2006
Production line construction projects ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 35,404 212,317
(b) Purchase commitments
The Group has entered into several purchase agreements with certain suppliers whereby the Group is
committed to purchase a minimum amount of raw materials to be used in the manufacture of its products:
December 31, December 31,
2005 2006
Future minimum purchasesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì 847,790
Included in the above purchase commitments was an amount of US$729.6 million that related to a longterm
supply contract to procure an agreed quantity of raw materials at an agreed price during 2006 to 2011.
Pursuant to that contract, the contract price is to be renegotiated every six months. The purchase commitment
of US$729.6 million included above was determined based on the agreed quantities and the effective contract
price as at December 31, 2006.
(c) Outstanding bills receivable discounted
As of December 31, 2006, the Group has retained a recourse obligation of US$816 in respect of a bill
receivable discounted with and sold to a bank. The recourse obligation represents the amount the Group will
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