LDK Disclosing More Write-downs and Provisions (LDK)

LDK Solar Co.Ltd. (NYSE: LDK) has announced plans to file its 2008 report with the SEC tomorrow.  As many have become used to with LDK, there is some negative news as well.  The company said that during the preparation of the 2008 annual report, management determined that a further write-down to inventories and additional recovery provisions were needed.

LDK plans to write down $87.5 million in inventories and plans to add $12.3 million as a provision for doubtful recoveries for prepayments made to suppliers for December 31, 2008.

The good news here is that these amounts are manageable near-term on the surface if you look at the books.  It listed $255.5 million in cash, $83.3 million in pledged bank deposits, and $94.7 million in accounts receivable.  But it is also carrying a huge inventory of $616.9 million.  If you add up the liabilities, that figure comes to $2.59 billion.  While this may be manageable near-term on the books, it is questionable as to whether or not the company needs to raise money after you start looking at the books.  There is also the notion that LDK has had to deal with more issues than just running a solar business at a time when prices and volumes are shrinking.

LDK lost money to the tune of $217.5 million in that last quarter of 2008 and we should find out today if the company lost money in the Q1-2009 period as analysts expect. It seems as though analysts are not looking for losses beyond the Q1 period, so there is plenty of room for upside and downside surprises alike.

For the quarter’s revision, this now puts the loss at -$2.04 EPS rather than -$1.25 EPS.  The entire 2008 period is now being shown as $0.64 EPS rather than the $1.42 EPS originally disclosed.

With shares down 5% at $9.05, LDK’s 52-week trading range is $3.75 to $52.40.

JON C. OGG
May 21, 2009