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

ended September 30, 2006, net income per ordinary share was 0.04 per share on both basic and diluted bases.
Without the tax holiday as described in ""Ì Net income'' above, our basic net income per ordinary share
would have been reduced by $0.11 and $0.05 for the three months ended December 31, 2006 and the three
months ended September 30, 2006, respectively, and our diluted net income per ordinary share would have
been reduced by $0.09 and $0.05 for the three months ended December 31, 2006 and the three months ended
September 30, 2006, respectively.
Three months ended September 30, 2006 compared with three months ended June 30, 2006
We were still at pre-operating stage prior to April 2006. During the three months ended March 31, 2006,
we did not generate any sales revenue and had a net loss of approximately $440,000. We made our first
commercial sale of wafers in April 2006 and have experienced rapid growth in sales since then.
Net sales. For the three months ended September 30, 2006, our net sales were approximately
$31.5 million, an increase of $19.3 million from our net sales of $12.1 million for the three months ended
June 30, 2006. This increase was primarily due to our increased sales volume. We sold 14.0 MW of wafers
during the three months ended September 30, 2006 and 4.8 MW of wafers during the three months ended
June 30, 2006. We increased our production capacity over this period to meet the demand for our products.
We had 30 DSS furnaces and 12 wire saws installed as of September 30, 2006 compared with 12 DSS
furnaces and eight wire saws as of June 30, 2006.
Gross profit. Our gross profit increased by $9.8 million to $12.4 million for the three months ended
September 30, 2006 from $2.6 million for the three months ended June 30, 2006. Our gross margin increased
to 39.4% for the three months ended September 30, 2006 from 21.0% for the three months ended June 30,
2006, primarily due to our improved manufacturing efficiencies and economies of scale.
Operating expenses. For the three months ended September 30, 2006, our operating expenses were
$1.8 million, an increase of $1.4 million from our operating expenses of $445,000 for the three months ended
June 30, 2006. This increase was primarily due to an increase of $1.3 million in general and administrative
expenses as a result of our hiring of an additional 25 administrative personnel and the corresponding increases
in salaries, benefits and traveling expenses during the three months ended September 30, 2006. Our research
and development expenses, although relatively small in absolute amounts, increased substantially between
these periods.
Interest income and expense. For the three months ended September 30, 2006, our interest income
increased to approximately $26,000 from approximately $22,000 for the three months ended June 30, 2006 as
a result of an increased average balance of our cash in interest-bearing saving accounts. For the three months
ended September 30, 2006, our interest expense increased to $5.0 million from $837,000 for the three months
ended June 30, 2006 primarily due to $4.4 million of debt discount amortization in connection with the
issuance in July 2006 of our exchangeable notes which contained beneficial conversion features.
Foreign currency exchange loss, net. For the three months ended September 30, 2006, our foreign
currency exchange loss, net, increased to approximately $667,000 from approximately $36,000 for the three
months ended June 30, 2006 primarily because we held a much larger amount of foreign currency
denominated assets in our current accounts, such as prepayments to our foreign suppliers of polysilicon
feedstock, deposits with our production equipment vendors overseas and trade accounts receivable, during the
three months ended September 30, 2006 on a net basis than we did for the three months ended June 30, 2006.
We recognized an exchange loss with respect to these assets due to the appreciation of Renminbi.
Income tax benefit. We incurred pre-operating expenses prior to our commencement of first commercial
sales by our principal operating subsidiary, Jiangxi LDK Solar, in April 2006. For the three months ended
June 30, 2006, we recognized a deferred tax credit of approximately $57,000 as the portion of our preoperating
expenses attributable to the quarter before we started our operations. For the three months ended
September 30, 2006, we had no such deferred tax credit. Jiangxi LDK Solar is entitled to exemptions from the
PRC national and local enterprise income tax for at least two and five years, respectively, beginning with
calendar year 2006. As a result, we made no provision for any current income tax during each of the threemonth
periods ended June 30 and September 30, 2006.
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