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

‚ the sensitivity of reported results to changes in conditions and assumptions.
We believe the following accounting policies involve the most significant judgments and estimates used in
the preparation of our financial statements:
Depreciation and amortization
Our long-lived assets include property, plant and equipment, and intangible assets relating to technical
know-how. We amortize our long-lived assets using the straight-line method over the estimated useful lives of
the assets, taking into account the assets' estimated residual values. We estimate the useful lives and residual
values at the time we acquire the assets based on our management's knowledge on the useful lives of similar
assets and replacement costs of similar assets having been used for the same useful lives respectively in the
market, and taking into account anticipated technological or other changes. On this basis, we have estimated
the useful lives of our buildings to be 30 years, our plants and machinery to be 10 years, our furniture and
office equipment to be five years and our motor vehicles to be six years. For intangible assets of technical
know-how that we acquire from equipment manufacturers in connection with the operation of our acquired
production equipment, we amortize them over their estimated useful lives of 10 years. We review the
estimated useful life and residual value for each of our long-lived assets on a regular basis. If technological
changes are to occur more rapidly than anticipated, we may shorten the useful lives or lower the residual value
assigned to these assets, which will result in the recognition of increased depreciation and amortization
expense in future periods.
Impairment of long-lived assets
We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate
that their carrying amounts may not be recoverable, such as change of business plan, obsolescence, and
continuous loss suffered. We assess recoverability of assets by comparing the carrying amount of an asset to
the estimated undiscounted future cash flows expected to be generated by the asset. In determining estimates
of future cash flows, we have to exercise significant judgment in terms of projection of future cash flows and
assumptions. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge
is recognized by the amount by which the carrying amount of the asset exceeds its fair value. We estimate the
fair value of an asset based on the best information available, including prices for similar assets and, in the
absence of observable market prices, the result of using a present value technique to estimate the fair value of
the asset. For the periods presented, we recorded no impairment of our long-lived assets.
Share-based compensation
We adopted our 2006 stock incentive plan on July 31, 2006 and have outstanding options granted to
certain of our officers, directors and employees and certain service providers to purchase an aggregate of
8,510,700 ordinary shares as of the date of this prospectus. For a description of our stock options granted,
including the exercise prices and vesting periods, see ""Management Ì 2006 Stock Incentive Plan'' in this
prospectus. Under SFAS 123R, we are required to recognize share-based compensation as compensation
expense in our statement of operations based on the fair value of equity awards on the date of the grant, with
the compensation expense recognized over the period in which the recipient is required to provide service in
exchange for the equity award. A fair value-based method is used for measuring the compensation expense
related to share-based compensation. We estimate our forfeitures based on past employee retention rates and
our expectations of future retention rates, and we will prospectively revise our forfeiture rates based on actual
history. Our stock option compensation charges may change based on changes in our actual forfeitures. We
record compensation expense for the fair value of the options at the grant date. We then amortize share-based
compensation expenses over the vesting periods of the related options.
Determining the fair value of our ordinary shares requires making complex and subjective judgments
regarding projected financial and operating results, our unique business risks, the liquidity of our shares and
our operating history and prospects at the time of grant. Our revenues and earnings growth rates, as well as
major milestones that we have achieved, primarily since the end of 2006, have contributed significantly to the
increase in the fair value of our ordinary shares. However, as we were still a private company prior to the
completion of this offering, the determination of these fair values was inherently uncertain and highly
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