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

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our revenue and customer base to target other leading photovoltaic cell and module producers around the world. For the year ended December 31, 2006 and the three months ended March 31, 2007, we derived approximately 75.5% and 50.0%, respectively, of our net sales from sales to manufacturers of photovoltaic products in China and approximately 24.5% and 50.0%, respectively, from exports. During the year ended December 31, 2006 and the three months ended March 31, 2007, our top five customers collectively accounted for approximately 70.2% and 56.8%, respectively, of our net sales. Suntech and Solarfun contributed 39.7% and 13.9%, respectively, of such net sales for the year ended December 31, 2006. During the three months ended March 31, 2007, Suntech and Solarfun contributed 18.3% and 9.7%, respectively, of our net sales. Chinalight contributed 13.6% of our net sales for the three-month period. We have written agreements with our principal customers: ‚ Pursuant to our cooperation agreement with Suntech, we have committed to supply to Suntech 100 MW of wafers in 2007 and, in each year from 2008 to 2015, wafers equal to 40% to 60% of our annual production. This cooperation agreement contemplates that the parties will agree annually on the specific quantities and prices of wafers to be supplied each year. We and Suntech have periodically negotiated the specific quantities and prices of wafers to be supplied under this cooperation agreement and, as a result, we have generally delivered less quantities than provided in the cooperation agreement. ‚ Pursuant to our agreement with CSI, we have committed to supply to CSI an aggregate of approximately 260 MW of wafers over a four-year period from 2007 to 2010, at prices to be determined through negotiation on a monthly basis. ‚ Pursuant to our agreement with E-Ton, we have committed to supply to E-Ton an aggregate of 200 MW of wafers over a four-year period, from January 2007 through the end of 2010, at a fixed price for the first six months of 2007 and at prices to be negotiated later for the remaining term of the agreement. ‚ Pursuant to our agreement with Q-Cells, we have agreed to supply to Q-Cells approximately 180 MW of wafers over a three-year period from 2007 to 2009, at prices to be negotiated from time to time. In addition, we have agreed to supply to Q-Cells additional quantities of wafers from 2007 to 2009 in exchange for certain quantities of silicon feedstock supplied by Q-Cells to us. ‚ Pursuant to our agreement with Solarfun, we have also agreed to supply to Solarfun approximately 10 MW of wafers from December 2006 to July 2007 at a fixed price, and approximately 60 MW of wafers from July 2007 to June 2008 at prices to be negotiated later. ‚ We have also entered into a five-year solar wafer supply agreement with Solland Solar, commencing on January 1, 2006 through December 31, 2010 and automatically renewable at one-year increments. Both parties have agreed to determine the wafer supply quantities and prices for 2007 and each subsequent year through negotiation. ‚ In addition, we have entered into agreements with BP Solar, Motech and Ningbo Solar pursuant to which we have committed to supply each of them with specific annual quantities of wafers over the next few years. Our commitments to Suntech and other major customers have not materially affected our strategy to diversify our customer base. As we expand our production capacity, we have been able to sell more of our products to other customers and to broaden our geographic presence. During the three months ended March 31, 2007, our net sales to China decreased to 50.0% of our total net sales as compared to 75.5% during the year ended December 31, 2006, while our net sales to Asia Pacific ex-China during the three-month period increased to 31.8% from 16.3% in 2006, with net sales to North America during the period increased to 8.2% from 5.0% in 2006 and net sales to Europe increased to 10.0% from 3.2% in 2006. We have written agreements with most of our customers although our sales to some of our customers have been based on periodic purchase orders. Our sales to Chinalight and Solartech Energy have been based on short-term sales contracts and monthly and quarterly purchase orders. We typically require our customers to prepay a portion of the contracted purchase price before we deliver our products. 76
Suppliers Raw materials and consumables The materials used to produce our solar wafers include virgin polysilicon, recyclable polysilicon acquired from semiconductor manufacturers and equipment vendors and related consumables. The majority of our polysilicon feedstock consists of polysilicon scraps and recyclable polysilicon. We source our polysilicon feedstock from both domestic and international sources, including: ‚ semiconductor materials trading companies, such as Komex, Kunical and Prime; ‚ solar cell and module makers, such as CSI and Q-Cells; and ‚ solar-grade virgin polysilicon manufacturers, such as MEMC and Wacker. For the year ended December 31, 2006 and the three months ended March 31, 2007, polysilicon feedstock comprised approximately 75% and 76% of our costs of goods sold, respectively. We have inventory and commitments from suppliers that we believe will satisfy over 90% of our estimated polysilicon requirements for 2007 and approximately 50% of our estimated requirements for 2008. Many of our polysilicon supply agreements are subject to fluctuating market prices or price negotiations with our suppliers. We source a portion of polysilicon feedstock from the spot market from time to time depending on the price and our requirements. Since our inception, we have relied on a combination of one-time purchase orders and long-term purchase contracts with our suppliers in order to fulfill our polysilicon requirements. In addition, we have diversified our polysilicon sourcing through purchase and sale arrangements with our solar cell and module customers that possess solar-grade polysilicon feedstock. Through these arrangements, these customers sell us a certain amount of polysilicon feedstock and we sell them certain quantities of solar wafers. We have written agreements with our principal suppliers: ‚ Our framework silicon purchase contract with Komex entered into in December 2006 has a term of eight years from January 2007 to January 2015. Pursuant to the contract, Komex is required to supply at least 35 tons of solar-grade polysilicon feedstock to us at market prices for each month during the term of the contract. The Komex contract provides for a monthly delivery schedule and we are required to pay 100% of the purchase price in advance for each shipment. ‚ Our cooperation agreement with Kunical entered into in December 2006 has a term of four years from 2007 to 2010. Pursuant to this contract, Kunical is required to use its best efforts to supply to us 200 tons of polysilicon feedstock each year during the term of the contract for a total price of $96 million. Kunical is required to deliver polysilicon feedstock within seven business days upon receipt of our purchase order and we are required to pay 100% of the purchase price for each shipment five days after receipt of its invoice. ‚ Our raw materials supply contract with Technischer Warenhandel Heller and NCA Fortin Inc., as cosellers, entered into in October 2006 has a term of five years from October 2006 to December 2011. Our purchase price is subject to renegotiation every six months. The contract provides for a monthly delivery schedule and we are required to pay 15 days in advance for each monthly shipment. Although we have paid $3.0 million as our partial prepayment with respect to the first shipment of silicon feedstock scheduled for delivery in November 2006, Technischer Warenhandel Heller and NCA Fortin Inc. have not commenced delivery of polysilicon as required and have informed us that delivery under this contract will be delayed. We are currently re-negotiating this contract with Technischer Warenhandel Heller and NCA Fortin Inc. and we expect to enter into a new agreement by the end of July 2007. There can be no assurance that we will be successful in negotiating a new agreement or as to the timing of any new agreement. In addition, the terms of any new agreement could be materially less favorable to us than the current agreement, including a material reduction in the amount of the committed polysilicon supply. We believe, however, that the outcome of this contract re-negotiation will not have a material adverse effect on our overall polysilicon supply situation. 77
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PROSPECTUS 17,384,000 American Depo
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We were incorporated in the Cayman
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percentage of light energy from the
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Listing ÏÏÏÏÏÏÏÏÏÏÏÏÏ
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(1) Gross profit for the year ended
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RISK FACTORS Investment in our ADSs
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Reduction or elimination of governm
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capacity or to increase our manufac
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delivery or failure to meet deliver
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specifications or product defects.
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Compliance with environmental regul
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operations or the price of our ADSs
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tax rates and other measures. Forei
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Page 38 and 39: CAPITALIZATION The following table
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ADS with a view to selling it to th
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EXPENSES RELATING TO THIS OFFERING
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‚ no new admissible evidence rele
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WHERE YOU CAN FIND ADDITIONAL INFOR
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REPORT OF INDEPENDENT REGISTERED PU
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LDK SOLAR CO., LTD. AND SUBSIDIARIE
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