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

listed public company in the United States upon completion of this offering, including investor relations and
compliance-related costs.
Research and development expenses
Research and development expenses primarily relate to raw materials used in our research and
development activities, research and development personnel costs, and other costs related to the design,
development, testing and enhancement of our products and processes. Research and development expenses
also include the share-based compensation attributable to our research and development personnel. Our
research and development expenses also include costs incurred in connection with our joint research and
development program with Shanghai Jiaotong University. We expense research and development costs as
incurred. We have not incurred any development costs that meet the U.S. GAAP criteria for capitalization for
deferral and amortization over the period over which we expect to benefit from the resulting product or
process.
We expect our research and development expenses to increase substantially in the near future as we hire
additional research and development personnel, devote more resources toward improving manufacturing
processes and optimizing polysilicon use in the production of our solar wafers and ingots.
Share-based Compensation Expenses
For the year ended December 31, 2006, we recorded share-based compensation expenses of approximately
$2,028,000. We allocated these share-based compensation expenses as follows:
‚ approximately $174,000 to our cost of goods sold;
‚ approximately $1,697,000 to our general and administrative expenses; and
‚ approximately $157,000 to our research and development expenses.
For the three months ended March 31, 2007, we recorded share-based compensation expenses of
approximately $1,106,000. We allocated these share-based compensation expenses as follows:
‚ approximately $155,000 to our cost of goods sold;
‚ approximately $1,000 to our selling expenses;
‚ approximately $885,000 to our general and administrative expenses; and
‚ approximately $65,000 to our research and development expenses.
We made the above allocations on the basis of the job functions of grantees to whom we granted the stock
options. As of December 31, 2006 and March 31, 2007, there was unrecognized compensation cost in the
aggregate of $10.0 million and $14.6 million, respectively, relating to non-vested stock options. We expect to
recognize this stock option compensation cost over the remaining vesting period of the related options. We will
incur additional share-based compensation expenses in 2007 and future periods due to amortization of the
unrecognized cost as of December 31, 2006 as well as additional stock option grants after December 31, 2006.
We estimate that our total share based compensation expenses for our option grants after March 31, 2007
will be as follows:
‚ approximately $1,740,000 for the 100,000 options granted on April 17, 2007 to Gang Wang, one of our
directors, at an exercise price of $9.00 per share;
‚ approximately $3,478,000 for the 350,900 options deemed to be granted on May 14, 2007, the date of
the preliminary prospectus for this offering, to our employees at an exercise price of $25.00 per share;
and
‚ approximately $1,925,000 for the 100,000 options deemed to be granted on the date of this prospectus
to Louis T. Hsieh, who becomes one of our directors on the date of this prospectus, at an exercise price
of $9.00 per share. We calculated such expenses based on a fair value of $27.00 per share, the initial
public offering price in this offering.
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