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

Interest rate risk
Our exposure to interest rate risk relates to interest expenses incurred by our short-term and long-term
borrowings. We have not used any derivative financial instruments to manage our interest rate risk exposure.
Historically, we have not been exposed to material risks due to changes in interest rates on any third-party
debt; however, future interest expenses on our borrowings may increase due to changes in market interest
rates. We are currently not engaged in any interest rate hedging activities.
Inflation
Since our inception, inflation in China has not materially impacted our results of operations. According to
the National Bureau of Statistics of China, inflation as measured by the consumer price index in China was
3.9%, 1.8% and 1.5% in 2004, 2005 and 2006, respectively.
Off-balance Sheet Commitments and Arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment
obligations of third parties. We have not entered into any derivative contracts that are indexed to our shares
and classified as shareholder's equity or that are not reflected in our consolidated financial statements.
Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated
entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest
in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that
engages in leasing, hedging or research and development services with us. There are no off-balance sheet
arrangements that have or are reasonably likely to have a current or future effect on our financial condition,
net sales or expenses, results of operations, liquidity, capital expenditures or capital resources that is material
to you and other investors.
Restricted Net Assets
Our principal operating subsidiary, Jiangxi LDK Solar, is required under PRC laws and regulations to
make appropriations from net income as determined under PRC accounting standards and regulations to
nondistributable reserves, which include a general reserve and an employee benefits and bonus reserve. The
general reserve is required to be made at not less than 10% of the profit after tax as determined under PRC
accounting standards and regulations. The employee benefits and bonus reserve is determined by our board of
directors at its discretion. The general reserve is used to offset future extraordinary losses. Jiangxi LDK Solar
may, upon a resolution of its board of directors, convert the general reserve into capital. The employee benefits
and bonus reserve is used for the collective welfare of the employees of Jiangxi LDK Solar. These reserves
represent appropriations of the retained earnings determined under the PRC law. In addition to the general
reserve, Jiangxi LDK Solar is required to obtain approval from the local government authorities prior to
distributing any of its registered share capital. Accordingly, both the appropriations to the general reserve and
the registered capital of Jiangxi LDK Solar are considered as restricted net assets.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, ""Fair Value Measurements.'' SFAS No. 157
defines fair value, establishes a framework for measuring fair value under U.S. GAAP and expands disclosures
about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 with earlier application encouraged. We are currently evaluating the
impact, if any, of this statement on our consolidated financial statements.
In June 2006, the FASB released Interpretation No. 48, ""Accounting for Uncertainty in Income
Taxes Ì an Interpretation of FASB Statement No. 109,'' or FIN 48, which clarifies the accounting for
uncertainty in tax positions. This interpretation requires that we recognize in our consolidated financial
statements the impact of a tax position, if that position is more likely than not of being sustained upon
examination, based on the technical merits of the position. FIN 48 is effective for fiscal years beginning after
December 15, 2006. We do not expect the adoption of this interpretation to have a material effect on our
consolidated financial statements.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements, or SAB 108, to address diversity in practice in quantifying financial statement
misstatements. SAB 108 requires that misstatements be quantified based on their impact on the financial
statements and related disclosures. SAB 108 is effective as of the end of fiscal year 2006, allowing a one-time
transitional cumulative effect adjustment to retained earnings as of January 1, 2006 for errors that were not
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