As filed with the Securities and Exchange Commission on April 30, 2014
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
(cid:0)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
⌧
(cid:0)
(cid:0)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 2013
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
Date of event requiring this shell company report
For the transition period from to
Commission file number 1-32238
LG Display Co., Ltd.
(Exact name of Registrant as specified in its charter)
LG Display Co., Ltd.
(Translation of Registrant’s name into English)
The Republic of Korea
(Jurisdiction of incorporation or organization)
LG Twin Towers, 128 Yeoui-daero, Yeongdeungpo-gu, Seoul 150-721, Republic of Korea
(Address of principal executive offices)
Suk Heo
LG Twin Towers, 128 Yeoui-daero, Yeongdeungpo-gu, Seoul 150-721, Republic of Korea
Telephone No.: +82-2-3777-1010
Facsimile No.: +82-2-3777-0797
(Name, telephone, e-mail and/or facsimile number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
American Depositary Shares, each representing one-half
of one share of Common Stock
￦
Name of each exchange on which registered
New York Stock Exchange
Common Stock, par value
5,000 per share
New York Stock Exchange*
* Not for trading, but only in connection with the registration of the American Depositary Shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period
covered by the annual report.
357,815,700 shares of common stock, par value
￦
5,000 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
⌧
(cid:2)
Act.
Yes
No
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Yes
Section 13 or 15 (d) of the Securities Exchange Act of 1934.
No
⌧
(cid:2)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes
No
⌧
(cid:2)
Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
No
(cid:2)
(cid:2)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
⌧
Accelerated filer
(cid:2)
Non-accelerated filer
(cid:2)
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this
filing:
(cid:2)
U.S. GAAP
International Financial Reporting Standards
as issued by the International Accounting
Standards Board
⌧
(cid:2)
Other
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the
(cid:2)
(cid:2)
registrant has elected to follow.
Item 17
Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
(cid:2)
⌧
Exchange Act).
Yes
No
TABLE OF CONTENTS
Presentation of Financial and Other Information
Forward-Looking Statements
PART I
Item 1.
Identity of Directors, Senior Management and Advisers
Item 2.
Offer Statistics and Expected Timetable
Item 3.
Key Information
Item 3.A. Selected Financial Data
Item 3.B. Capitalization and Indebtedness
Item 3.C. Reasons for the Offer and Use of Proceeds
Item 3.D. Risk Factors
Item 4.
Information on the Company
Item 4.A. History and Development of the Company
Item 4.B. Business Overview
Item 4.C. Organizational Structure
Item 4.D. Property, Plants and Equipment
Item 4A. Unresolved Staff Comments
Item 5.
Operating and Financial Review and Prospects
Item 5.A. Operating Results
Item 5.B. Liquidity and Capital Resources
Item 5.C. Research and Development, Patents and Licenses, etc.
Item 5.D. Trend Information
Item 5.E. Off-Balance Sheet Arrangements
Item 5.F. Tabular Disclosure of Contractual Obligations
Item 5.G. Safe Harbor
Item 6.
Directors, Senior Management and Employees
Item 6.A. Directors and Senior Management
Item 6.B. Compensation
(i)
Page
1
2
3
3
3
3
6
6
6
25
25
26
38
38
40
40
40
56
59
61
61
62
62
62
62
64
Item 6.C. Board Practices
Item 6.D. Employees
Item 6.E. Share Ownership
Item 7. Major Shareholders and Related Party Transactions
Item 7.A. Major Shareholders
Item 7.B. Related Party Transactions
Item 7.C. Interests of Experts and Counsel
Item 8. Financial Information
Item 8.A. Consolidated Statements and Other Financial Information
Item 8.B. Significant Changes
Item 9. The Offer and Listing
Item 9.A. Offer and Listing Details
Item 9.B. Plan of Distribution
Item 9.C. Markets
Item 9.D. Selling Shareholders
Item 9.E. Dilution
Item 9.F. Expenses of the Issue
Item 10. Additional Information
Item 10.A. Share Capital
Item 10.B. Memorandum and Articles of Association
Item 10.C. Material Contracts
Item 10.D. Exchange Controls
Item 10.E. Taxation
Item 10.F. Dividends and Paying Agents
Item 10.G. Statements by Experts
Item 10.H. Documents on Display
Item 10.I. Subsidiary Information
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Item 12. Description of Securities Other than Equity Securities
(ii)
64
66
66
67
67
67
68
69
69
72
72
72
72
73
77
77
77
77
77
77
82
82
85
89
89
89
89
90
92
PART II
Item 13.
Defaults, Dividend Arrearages and Delinquencies
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
Item 15.
Controls and Procedures
Item 16.
[RESERVED]
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions from the Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 16F. Change in Registrant’s Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
PART III
Item 17.
Financial Statements
Item 18.
Financial Statements
Item 19.
Exhibits
(iii)
93
93
93
94
94
94
94
94
94
95
95
96
97
97
98
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
In this annual report, the terms “we,” “us,” “our” and “LG Display” refer to LG Display Co., Ltd. and, unless otherwise
indicated or required by context, our consolidated subsidiaries. Notwithstanding the foregoing, in the context of any legal proceedings
or governmental investigations, “LG Display” refers to LG Display Co., Ltd. and does not include any of its subsidiaries, or any other
entities or persons.
The financial statements included in this annual report are prepared in accordance with International Financial Reporting
Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. As such, we make an explicit and
unreserved statement of compliance with IFRS, as issued by the IASB, with respect to our consolidated financial statements as of
December 31, 2012 and 2013 and for each of the years ended in the three-year period ended December 31, 2013 included in this
annual report.
In accordance with rule amendments adopted by the U.S. Securities and Exchange Commission, or the SEC, which became
effective on March 4, 2008, we are not required to provide a reconciliation to generally accepted accounting principles in the United
States, or U.S. GAAP.
The consolidated financial statements included in our annual reports on Form 20-F previously filed with the SEC in respect
of the years ended December 31, 2009, 2008, 2007, 2006, 2005 and 2004 were prepared in accordance with U.S. GAAP. For
additional information, please refer to our annual reports on Form 20-F previously filed with the SEC.
Unless expressly stated otherwise, all financial data included in this annual report are presented on a consolidated basis.
All references to “Korean Won,” “Won” or “
￦
” in this annual report are to the currency of the Republic of Korea, all
references to “U.S. dollars” or “US$” are to the currency of the United States, all references to “Japanese Yen,” “Yen” or “¥” are to
the currency of Japan, all references to “RMB” or “Chinese Renminbi” are to the currency of the People’s Republic of China, all
references to “NT$” are to the currency of Taiwan, all references to “Euro” or “€€ ” are to the official currency of the European
Economic and Monetary Union, all references to “PLN” are to the currency of the Republic of Poland, all references to “MXN” are to
the currency of Mexico, and all references to “SG$” are to the currency of Singapore.
Any discrepancies in any table between the totals and the sums of the amounts listed are due to rounding.
For your convenience, this annual report contains translations of Won amounts into U.S. dollars at the noon buying rate in
New York City for cable transfers in Korean Won as certified by the Federal Reserve Bank of New York for customs purposes in
effect on December 31, 2013, which was
1,055.25 = US$1.00.
￦
1
FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this annual report. Our forward-looking statements contain information
regarding, among other things, our financial condition, future plans and business strategy. Words such as “contemplate,” “seek to,”
“anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and similar expressions, as they relate to us, are intended to identify a
number of these forward-looking statements. These forward-looking statements reflect management’s present expectations and
projections about future events and are not a guarantee of future performance. Although we believe that these expectations and
projections are reasonable, such forward-looking statements are inherently subject to risks, uncertainties and assumptions about us,
including, among other things:
•
•
•
•
•
•
•
•
•
•
•
the cyclical nature of our industry;
our dependence on introducing new products on a timely basis;
our dependence on growth in the demand for our products;
our ability to compete effectively;
our dependence on a select group of key customers;
our ability to successfully manage our capacity expansion and allocation in response to changing industry and
market conditions;
our dependence on key personnel;
general economic and political conditions, including those related to the display panel industry;
possible disruptions in commercial activities caused by events such as natural disasters, terrorist activity and armed
conflict;
fluctuations in foreign currency exchange rates; and
those other risks identified in the “Risk Factors” section of this annual report.
Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the events
discussed in the forward-looking statements in this annual report might not occur and our actual results could differ materially from
those anticipated in these forward-looking statements.
All subsequent forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in
their entirety by the cautionary statements contained or referred to in this section.
2
Item 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
PART I
Item 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
Item 3.
KEY INFORMATION
Item 3.A.
Selected Financial Data
The selected consolidated financial data set forth below as of and for the years ended December 31, 2009, 2010, 2011, 2012 and
2013 have been derived from our consolidated financial statements and the related notes, which have been prepared under IFRS as issued by
the IASB. Our audited consolidated financial statements as of December 31, 2012 and 2013 and for each of the years in the three-year period
ended December 31, 2013 and the related notes are included in this annual report.
The information set forth below is not necessarily indicative of the results of future operations and should be read in conjunction
with “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements and related notes included in this
annual report.
In addition to preparing financial statements in accordance with IFRS as issued by the IASB included in this annual report, we also
prepare financial statements in accordance with Korean International Financial Reporting Standards, or K-IFRS, as adopted by the Korean
Accounting Standards Board, or KASB, which we are required to file with the Financial Services Commission and the Korea Exchange under
the Financial Investment Services and Capital Markets Act of Korea. See “Item 10.B. Memorandum and Articles of Association—Business
Report.” English translations of such financial statements are furnished to the SEC on Form 6-K, which are not incorporated by reference to
this or any of our previous annual reports on Form 20-F. The operating profit or loss presented in the consolidated statements of
comprehensive income or loss prepared in accordance with K-IFRS for the years ended December 31, 2012 and 2013 included in the Form 6-
1,163 billion, respectively. For further information, please see
K furnished to the SEC on February 27, 2014 is a profit of
the Form 6-K furnished to the SEC on February 27, 2014, which is not incorporated by reference to this annual report.
912 billion and
￦
￦
Pursuant to the IFRS as issued by IASB, we are not required to separately present operating profit or loss in our consolidated
statements of comprehensive income or loss prepared in accordance with IFRS. Therefore, the financial statements included in this annual
report, which are prepared in accordance with IFRS as issued by IASB, do not present operating profit or loss as a separate line item.
Consolidated statements of comprehensive income (loss) data
2009
2010
2011
2012
2013
Year Ended December 31,
Revenue
Cost of sales
Gross profit
Selling expenses
Administrative expenses (2)
Research and development
expenses (2)
Profit (loss) before income tax
Income tax expense (benefit)
Profit (loss) for the period
Total comprehensive income (loss)
for the period
Basic earnings (loss) per share
Diluted earnings (loss) per share
￦
20,038
(17,477)
2,561
(713)
(305)
(428)
1,013
(105)
1,118
1,051
3,124
3,124
2013 (1)
(in millions of US$, except
for per share data)
￦
(in billions of Won, except for per share data)
￦
￦
￦
25,512
(21,781)
3,731
(846)
(428)
(768)
1,266
106
1,159
1,178
3,232
3,152
24,291
(23,081)
1,210
(728)
(430)
(816)
(1,081)
(293)
(788)
(757)
(2,155)
(2,155)
3
29,430
(26,425)
3,005
(814)
(494)
27,033 US$
(23,525)
3,508
(732)
(518)
(785)
459
222
237
97
652
652
(1,096)
830
411
419
397
1,191
1,191
25,618
(22,293)
3,324
(694)
(491)
(1,039)
787
389
397
376
1.13
1.13
Consolidated statements of financial position data
2009
2010
As of December 31,
2012
2011
2013
Cash and cash equivalents
Deposits in banks
Trade accounts and notes receivable, net
Inventories
Total current assets
Property, plant and equipment, net
Total assets
Trade accounts and notes payable
Current financial liabilities
Other accounts payable
Total current liabilities
Non-current financial liabilities
Long-term advance received
Total liabilities
Share capital and share premium
Retained earnings
Total equity
Other financial data
Gross margin (3)
Net margin (4)
EBITDA (5)
Capital expenditures
Depreciation and amortization (6)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing
activities
￦
818
2,500
2,950
1,668
8,226
9,596
19,703
2,031
2,007
1,596
6,495
2,076
584
9,663
4,040
6,051
10,040
￦
(in billions of Won)
￦
￦
￦
1,631
1,503
3,001
2,215
8,840
12,815
23,858
2,962
2,101
2,593
8,882
2,543
945
12,797
4,040
7,031
11,061
1,518
815
2,740
2,317
7,858
14,697
25,163
3,783
895
3,993
9,911
3,722
669
15,032
4,040
6,063
10,131
2,339
315
3,334
2,390
8,915
13,108
24,456
4,147
1,015
2,811
9,206
3,441
1,050
14,215
4,040
6,239
10,240
2013 (1)
(in millions of US$)
968
1,234
2,965
1,832
7,327
11,190
20,578
2,843
860
1,378
6,434
2,838
405
10,346
3,828
6,314
10,232
1,022 US$
1,302
3,129
1,933
7,732
11,808
21,715
3,000
908
1,454
6,789
2,995
427
10,918
4,040
6,663
10,797
2009
2010
Year Ended December 31,
2012
2013
2011
12.8%
5.6%
￦
3,845
3,761
2,842
4,153
(4,564)
(in billions of Won, except for percentages)
10.2%
0.8%
5.0%
(3.2)%
14.6%
4.5%
￦
￦
￦
4,200
4,942
2,926
4,884
(4,515)
2,657
4,063
3,651
3,666
(3,494)
5,087
3,972
4,469
4,570
(3,688)
13.0%
1.5%
￦
4,784
3,473
3,834
3,585
(4,504)
US$
(117)
408
(278)
(48)
(391)
2013 (1)
(in millions of US$, except
for per share data)
13.0%
1.5%
4,534
3,291
3,633
3,397
(4,268)
(371)
(1) For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of
1,055.25 to US$1.00, the noon buying rate in effect on December 31,
2013 as certified by the Federal Reserve Bank of New York for customs purposes. This translation should not be construed as a representation that the Korean
Won amounts represent, have been or could be converted to U.S. dollars at that rate or any other rate.
￦
(2) Amortization expenses related to certain research and development activities included in “administrative expenses” for the years ended December 31, 2009, 2010
and 2011 have been reclassified as “research and development expenses” to conform to the criteria of classification for the years ended December 31, 2012 and
2013.
(3) Gross margin represents gross profit divided by revenue.
(4) Net margin represents profit (loss) for the period divided by revenue.
(5) EBITDA is defined as profit (loss) for the period excluding interest expense, income tax expense (benefit), depreciation and amortization of intangible assets and
interest income. EBITDA is a key financial measure used by our senior management to internally evaluate the performance of our business and for other required
or discretionary purposes. Specifically, our significant capital assets are in different stages of depreciation, and because we do not have separate operating
divisions, our senior management uses EBITDA internally to measure the performance of these assets on a comparable basis. We also believe that the presentation
of EBITDA will enhance an investor’s understanding of our operating performance as we believe it is commonly reported and widely used by analysts and
investors in our industry. It also provides useful information for comparison on a more comparable basis of our operating performance and those of our
competitors, who follow different accounting policies. For example, depreciation on most of our equipment is made based on a four-year useful life while most of
our competitors use different depreciation schedules from our own. EBITDA is not a measure determined in accordance with IFRS. EBITDA should not be
considered as an alternative to gross profit, cash flows from operating activities or profit (loss) for the period, as determined in accordance with IFRS. Our
calculation of EBITDA may not be comparable to similarly titled measures reported by other companies. A reconciliation of profit (loss) for the period to
EBITDA is as follows:
4
Profit (loss) for the period
Interest income
Interest expense
Income tax expense (benefit)
Depreciation
Amortization of intangible assets
EBITDA
(6)
Includes amortization of intangible assets.
Operating data
Number of panels sold by product category:
Televisions (1)
Notebook computers (2)
Desktop monitors (3)
Tablet computers (4)
Mobile and other applications (5)
Total
Year Ended December 31,
2009
2010
￦
￦
2011
(in billions of Won)
￦
￦
2012
1,118
(123)
113
(105)
2,779
63
3,845
￦
1,159
(91)
100
106
2,757
169
4,200
￦
(788)
(58)
145
(293)
3,413
238
2,657
￦
237
(29)
188
222
4,196
273
5,087
￦
2013
￦
2013 (1)
(in millions of US$)
397
(37)
151
389
3,410
224
4,534
419 US$
(39)
159
411
3,598
236
￦
4,784 US$
2009
Year Ended December 31,
2010 2011 2012
2013
(in thousands)
35,316 51,184 53,084 56,490 53,797
50,577 58,854 62,923 69,559 55,559
43,384 49,336 50,247 51,819 49,986
9 11,875 35,640 56,526 63,840
161,850 188,193 164,702 164,409 162,011
291,136 359,442 366,596 398,803 385,193
(1) For the years ended December 31, 2010, 2011 and 2012, includes television sets manufactured and sold by our joint venture company L&T Display Technology
(Xiamen) Limited.
(2) For the years ended December 31, 2011, 2012 and 2013, includes semi-finished products manufactured by our joint venture company LUCOM Display
Technology (Kunshan) Ltd.
(3) For the years ended December 31, 2010, 2011, 2012 and 2013, includes desktop monitors manufactured and sold by our joint venture company L&T Display
Technology (Fujian) Limited.
(4) We established tablet computers as a new product category in our audited consolidated financial statements for the three-year period ended December 31, 2013
included in this annual report. Previously, tablet computer panels were reported in the notebook computer and mobile and other application product categories.
For comparison purposes, we have restated the number of notebook computer, tablet computer and mobile and other application panels sold for the years ended
December 31, 2009 and 2010.
Includes, among others, panels for mobile devices, including smartphones and other types of mobile phones, and industrial and other applications, including
entertainment systems, automotive displays, portable navigation devices and medical diagnostic equipment.
(5)
Revenue by product category:
Televisions (1)
Notebook computers (2)
Desktop monitors (3)
Tablet computers (4)
Mobile and other applications (5)
Total sales of goods
Royalties
Others
Revenue
2009
2010
￦
￦
Year Ended December 31,
2011
(in billions of Won)
￦
2012
￦
￦
2013
2013 (6)
(in millions of US$)
10,965
3,565
4,640
1
818
19,989
22
27
20,038
￦
￦
14,079
3,621
5,390
824
1,554
25,468
23
21
25,512
￦
￦
11,579
3,246
4,975
2,224
2,190
24,214
61
16
24,291
￦
￦
13,512
3,667
5,039
3,714
3,371
29,303
38
89
29,430
￦
￦
11,795 US$
2,819
5,256
3,575
3,537
26,982 US$
19
32
27,033 US$
￦
￦
11,177
2,671
4,981
3,388
3,352
25,569
18
31
25,618
(1) For the years ended December 31, 2010, 2011 and 2012, includes television sets manufactured and sold by our joint venture company L&T Display Technology
(Xiamen) Limited.
(2) For the years ended December 31, 2011, 2012 and 2013, includes semi-finished products manufactured by our joint venture company LUCOM Display
Technology (Kunshan) Ltd.
(3) For the years ended December 31, 2010, 2011, 2012 and 2013, includes desktop monitors manufactured and sold by our joint venture company L&T Display
Technology (Fujian) Limited.
(4) We established tablet computers as a new product category in our audited consolidated financial statements for the three-year period ended December 31, 2013
included in this annual report. Previously, tablet computer panels were reported in the notebook computer and mobile and other application product categories.
For comparison purposes, we have restated revenue derived from the notebook computer, tablet computer and mobile and other application product categories for
the years ended December 31, 2009 and 2010.
5
(5)
Includes, among others, panels for mobile devices, including smartphones and other types of mobile phones, and industrial and other applications, including
entertainment systems, automotive displays, portable navigation devices and medical diagnostic equipment.
￦
(6) For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of
1,055.25 to US$1.00, the noon buying rate in effect on December 31, 2013
as certified by the Federal Reserve Bank of New York for customs purposes. This translation should not be construed as a representation that the Korean Won
amounts represent, have been or could be converted to U.S. dollars at that rate or any other rate.
Exchange Rates
The table below sets forth, for the periods and dates indicated, information concerning the noon buying rate for Korean Won,
expressed in Korean Won per one U.S. dollar. The “noon buying rate” is the rate in New York City for cable transfers in foreign
currencies as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise stated, translations of Korean
Won amounts into U.S. dollars in this annual report were made at the noon buying rate in effect on December 31, 2013, which was
￦
1,055.25 to US$1.00. We do not intend to imply that the Korean Won or U.S. dollar amounts referred to herein could have been or
could be converted into U.S. dollars or Korean Won, as the case may be, at any particular rate, or at all. On April 25, 2014, the noon
buying rate was
1,041.0 = US$1.00.
￦
Fluctuation in the exchange rate between the Korean Won and the U.S. dollar will affect the amount of U.S. dollars received
in respect of cash dividends or other distributions paid in Korean Won by us on, and the Korean Won proceeds received from any sales
of, our common stock.
Year Ended December 31,
2009
2010
2011
2012
2013
October
November
December
2014 (through April 25)
January
February
March
April (through April 25)
At End of Period
￦
1,163.7
1,130.6
1,158.5
1,063.2
1,055.3
1,060.8
1,057.8
1,055.3
1,041.0
1,080.4
1,066.0
1,064.7
1,041.0
High
Average Rate (1)
(Korean Won per US$1.00)
￦
￦
1,270.0
1,158.7
1,105.2
1,119.6
1,094.7
1,065.9
1,061.6
1,055.6
1,063.6
1,067.1
1,071.3
1,070.5
1,044.2
1,570.1
1,253.2
1,197.5
1,185.0
1,161.3
1,075.5
1,072.7
1,061.4
1,084.3
1,083.7
1,084.3
1,079.6
1,058.3
Low
￦
1,149.0
1,104.0
1,049.2
1,063.2
1,050.1
1,057.5
1,054.8
1,050.1
1,035.4
1,050.3
1,062.1
1,064.1
1,035.4
(1) The average rate for each full year is calculated as the average of the noon buying rates on the last business day of each month during the relevant year. The average
rate for a full month (or portion thereof) is calculated as the average of the noon buying rates on each business day during the relevant month (or portion thereof).
Item 3.B. Capitalization and Indebtedness
Not applicable.
Item 3.C. Reasons for the Offer and Use of Proceeds
Not applicable.
Item 3.D. Risk Factors
You should carefully consider the risks described below.
Risks Relating to Our Industry
Our industry is subject to cyclical fluctuations, including recurring periods of capacity increases, that may adversely affect our
results of operations.
Display panel manufacturers are vulnerable to cyclical market conditions. Intense competition and expectations of growth in
demand across the industry may cause display panel manufacturers to make additional investments in manufacturing capacity on similar
schedules, resulting in a surge in capacity when production is ramped up at new fabrication facilities. During such surges in capacity
growth, as evidenced by past experiences, customers can exert strong downward pricing pressure, resulting in sharp declines in average
selling prices and significant fluctuations in the panel manufacturers’ gross margins. Conversely, demand surges and fluctuations in the
supply chain can lead to price increases.
6
In recent years, we have been affected by overcapacity in the industry relative to the general demand for TFT-LCD panels
which, together with lingering uncertainties in the global economic environment, has resulted in a general decline in the average
selling prices of a number of our TFT-LCD products. We attempt to counteract, at least in part, the effects of overcapacity in the
industry by increasing the proportion of high margin, differentiated specialty products based on newer technologies in our product
mix, which are relatively less affected by the industry-wide overcapacity problems affecting TFT-LCD products using older
technologies. Due in part to these efforts, our average revenue per square meter of net display area, which is derived by dividing our
total revenue by total square meters of net display area shipped, increased by 13.5% from US$679 in 2011 to US$771 to 2012.
However, our average revenue per square meter of net display area decreased by 6.2% to US$723 in 2013 as the operation of new
fabrication facilities by our competitors coupled with inventory adjustments by our customers of television panels in particular, which
was partly in response to the expiration of a Chinese government sponsored consumer rebate program for purchases of energy
efficient televisions in May 2013, resulted in downward pricing pressure.
While we believe that overcapacity and other cyclical issues in the industry are best addressed by increasing the proportion
of high margin, differentiated specialty products based on newer technologies in our product mix that are tailored to our customers’
evolving needs, we also address overcapacity issues by, in the short-term, adjusting the utilization rates of our existing fabrication
facilities based on our assessment of industry inventory levels and demand for our products and, in the mid- to long-term, by fine-
tuning our investment strategies relating to capacity growth in light of our assessment of future market conditions.
However, we cannot provide any assurance that an increase in demand, which helped to mitigate the impact of industry-
wide overcapacity in the past, can be sustained in future periods. We will therefore continue to closely monitor the overcapacity
issues in the industry and respond accordingly. However, construction of new fabrication facilities and other capacity expansion
projects in the display panel industry are undertaken with a multiple-year time horizon based on expectations of future market trends.
Therefore, even if overcapacity issues persist in the industry, there may be continued capacity expansion in the near future due to pre-
committed capacity expansion projects in the industry that were undertaken in past years. Any significant industry-wide capacity
increases that are not accompanied by a sufficient increase in demand could further drive down the average selling price of our
panels, which would negatively affect our gross margin. Any decline in prices may be further compounded by a seasonal weakening
in demand growth for end products such as personal computer products, consumer electronics products and mobile and other
application products. Furthermore, once the differentiated products that had a positive impact on our performance mature in their
technology cycle, if we are not able to develop and commercialize newer products to offset the price erosion of such maturing
products in a timely manner, our ability to counter the impact of cyclical market conditions on our gross margins would be further
limited. We cannot provide assurance that any future downturns resulting from any large increases in capacity or other factors
affecting the industry would not have a material adverse effect on our business, financial condition and results of operations.
A global economic downturn may result in reduced demand for our products and adversely affect our profitability.
In recent years, difficulties affecting the global financial sectors, adverse conditions and volatility in the worldwide credit
and financial markets, fluctuations in oil and commodity prices and the general weakness of the global economy have increased the
uncertainty of global economic prospects in general and have adversely affected the global and Korean economies. The recent global
economic downturn has adversely affected demand for consumer products manufactured by our customers in Korea and overseas,
including televisions, notebook computers, desktop monitors, tablet computers and mobile and other application products utilizing
TFT-LCD panels, which in turn led them to reduce or plan reductions of their production. Even though we saw an increase in demand
for our products since the end of 2011, initially due in part to channel inventory replenishment and then, especially in the second half
of 2012, due in large part to increasing demand for our differentiated specialty products used in certain types of televisions, tablet
computers and smartphones, demand for our products decreased in 2013 due in part to inventory adjustments by our customers in
light of lingering uncertainties in the global economic environment.
We cannot provide any assurance that demand for our products can be sustained at current levels in future periods or that
the demand for our products will not decrease again in the future due to another such economic downturn which may adversely affect
our profitability. We may decide to adjust our production levels in the future subject to market demand for our products, the
production outlook of the global display panel industry, in particular, the TFT-LCD industry, and global economic conditions in
general. Any decline in demand for display panel products may adversely affect our business, results of operations and/or financial
condition.
7
Our industry continues to experience steady declines in the average selling prices of display panels irrespective of cyclical
fluctuations in the industry, and our margins would be adversely impacted if prices decrease faster than we are able to reduce our
costs.
The average selling prices of display panels have declined in general and are expected to continually decline with time
irrespective of industry-wide cyclical fluctuations as a result of, among other factors, technological advancements and cost reductions.
Although we may be able to take advantage of the higher selling prices typically associated with new products and technologies when
they are first introduced in the market, such prices decline over time, and in certain cases, very rapidly, as a result of market
competition or otherwise. If we are unable to effectively anticipate and counter the price erosion that accompanies our products, or if
the average selling prices of our display panels decrease faster than the speed at which we are able to reduce our manufacturing costs,
our gross margin would decrease and our results of operations and financial condition may be materially and adversely affected.
We operate in a highly competitive environment and we may not be able to sustain our current market position.
The display panel industry is highly competitive. We have experienced pressure on the prices and margins of our major
products due largely to additional capacity from panel makers in Korea, Taiwan, China and Japan. Our main competitors in the
industry include Samsung Display (which was spun off from Samsung Electronics in 2012), Hydis Technologies, AU Optronics,
Innolux, Chunghwa Picture Tubes, HannStar Display, BOE, China Star Optolectronics Technology, Japan Display (which was
founded in 2011 by integrating the TFT-LCD panel businesses of Hitachi and TMDisplay, as well as certain businesses of Sony
Mobile Display), Sharp and Panasonic LCD. Some of our competitors may currently, or at some point in the future, have greater
financial, sales and marketing, manufacturing, research and development or technological resources than we do. In addition, our
competitors may be able to manufacture panels on a larger scale or with greater cost efficiencies than we do and we anticipate
increases in production capacity in the future by other display panel manufacturers using similar display panel technologies as us.
Any price erosion resulting from strong global competition or additional industry capacity may materially adversely affect our
financial condition and results of operations.
In addition, industry consolidation among our competitors may result in increased competition as the entities emerging
from such consolidation may have greater financial, manufacturing, research and development and other resources than we do,
especially if such mergers or consolidations are sponsored by a government entity. Recently, certain of our competitors have pursued
strategic alternatives such as mergers or formation of new alliances, resulting in, for example, the creation of Japan Display in 2011.
Increased competition resulting from such mergers or consolidations may lead to decreased margins, which may have a material
adverse effect on our financial condition and results of operations.
We and our competitors each seek to establish our own products and technologies as the industry standards. For example,
in the large-sized television panel market, we currently manufacture primarily 32-inch, 42-inch, 47-inch, 49-inch and 55-inch
television panels and utilize FPR and white RGB, or WRGB, technologies for our 3D and organic light-emitting diode, or OLED,
television panels, respectively. Other display panel manufacturers produce competing large-sized television panels in slightly
different dimensions, such as 39-inch, 40-inch, 46-inch, 48-inch and 50-inch panels and utilize competing display panel technologies
such as shutter glass and direct emission technologies for their 3D and OLED television panels, respectively. If our competitors’
panels or the technologies they adopt become the market standard, we may lose market share and may not realize the expected return
on our investments in the technologies we utilize in our display panels, which may have a material adverse effect on our financial
condition and results of operations.
Our ability to compete successfully also depends on factors both within and outside our control, including product pricing,
performance and reliability, our relationship with customers, successful and timely investment and product development, success or
failure of our end-brand customers in marketing their brands and products, component and raw material supply costs, and general
economic and industry conditions. We cannot provide assurance that we will be able to maintain a competitive edge with respect to
all these factors and, as a result, we may be unable to sustain our current market position.
8
Our operating results fluctuate from period to period, so you should not rely on period-to-period comparisons to predict our future
performance.
Our industry is affected by market conditions that are often outside the control of manufacturers. Our results of operations
may fluctuate significantly from period to period due to a number of factors, including seasonal variations in consumer demand,
capacity ramp-up by competitors, industry-wide technological changes, the loss of a key customer and the postponement,
rescheduling or cancellation of large orders by a key customer, any of which may or may not reflect a continued trend from one
period to the next. As a result of these factors and other risks discussed in this section, you should not rely on period-to-period
comparisons to predict our future performance.
Risks Relating to Our Company
Our financial condition may be adversely affected if we cannot introduce new products to adapt to rapidly evolving customer
needs on a timely basis.
Our success will depend greatly on our ability to respond quickly to rapidly evolving customer requirements and to
develop new and differentiated products in anticipation of future demand. A failure or delay on our part to develop products of such
quality and technical specifications that meet our customers’ evolving needs may adversely affect our business.
Close cooperation with our customers to gain insights into their product needs and to understand general trends in the end-
product market is a key component of our strategy to produce successful products. In addition, when developing new products, we
often work closely with equipment suppliers to design equipment that will make our production processes for such new products
more efficient. If we are unable to work together with our customers and equipment suppliers, or to sufficiently understand their
respective needs and capabilities or general market trends, we may not be able to introduce new products in a timely manner, which
may have a material adverse effect on our financial situation.
In addition, product differentiation, especially the ability to develop and market differentiated specialty products that
command higher premiums in a timely manner, has become a key competitive strategy in the display panel market. This is in part due
to trends in consumer electronics and other markets, such as televisions, tablet computers and mobile devices, where the growth in
demand is led by end products employing newer technologies with specifications tailored to deliver enhanced performance,
convenience and user experience in a cost-efficient manner. Accordingly, we have focused our efforts on developing and marketing
differentiated specialty products, including our television panels utilizing FPR 3D and ultra-high definition, or Ultra HD,
technologies, Advanced High-Performance In-Place Switching or, AH-IPS, panels for tablet computers, mobile devices, notebook
computers and desktop monitors, curved OLED television panels utilizing WRGB OLED technology, smartphone panels utilizing
flexible plastic OLED technology and ultra-large displays for television, public display and interactive whiteboard panels. In addition,
we have developed differentiated sales and marketing strategies to promote our panels for such products as part of our strategy to
grow our operations to meet increasing demand for new applications in consumer electronics and other markets. However, we cannot
provide assurance that the differentiated products we develop and market will be responsive to our end customers’ needs nor that our
products will be successfully incorporated into end products or new applications that lead market growth in consumer electronics or
other markets.
Problems with product quality, including defects, in our products could result in a decrease in customers and sales, unexpected
expenses and loss of market share.
Our products are manufactured using advanced, and often new, technology and must meet stringent quality requirements.
Products manufactured using advanced and new technology such as ours may contain undetected errors or defects, especially when
first introduced. For example, our latest display panels may contain defects that are not detected until after they are shipped or
installed because we cannot test for all possible scenarios. Such defects could cause us to incur significant re-designing costs, divert
the attention of our technology personnel from product development efforts and significantly affect our customer relations and
business reputation. In addition, future product failures could cause us to incur substantial expense to repair or replace defective
products. We recognize a provision for warranty obligations based on the estimated costs that we expect to incur under our basic
limited warranty for our products, which covers defective products and is normally valid for eighteen months from the date of
purchase. The warranty provision is largely based on historical and anticipated rates of warranty claims, and therefore we cannot
provide assurance that the provision would be sufficient to cover any surge in future warranty expenses that significantly exceed
historical and anticipated rates of warranty claims. In addition, if we deliver products with errors or defects, or if there is a perception
that our products contain errors or defects, our credibility and the market acceptance and sales of our products could be harmed.
Widespread product failures may damage our market reputation and reduce our market share and cause our sales to decline.
9
We sell our products to a select group of key customers, including our largest shareholder, and any significant decrease in their
order levels will negatively affect our financial condition and results of operations.
A substantial portion of our sales is attributable to a limited group of end-brand customers and their designated system
integrators. Sales attributed to our end-brand customers are for their end-brand products and do not include sales to these customers for
their system integration activities for other end-brand products, if any. Our top ten end-brand customers, including LG Electronics Inc.,
our largest shareholder, together accounted for approximately 71% of our sales in 2011, 71% in 2012 and 76% in 2013.
We benefit from the strong collaborative relationships we maintain with our end-brand customers by participating in the
development of their products and gaining insights about levels of future demand for our products and other industry trends. Customers
look to us for a dependable supply of quality products, even during downturns in the industry, and we benefit from the brand recognition
of our customers’ end products. The loss of these end-brand customers, as a result of their entering into strategic supplier arrangements
with our competitors or otherwise, would thus result not only in reduced sales, but also in the loss of these benefits. We cannot provide
assurance that a select group of key end-brand customers, including our largest shareholder, will continue to place orders with us in the
future at the same levels as in prior periods, or at all.
We engage in related party transactions with LG Electronics and its affiliates:
•
•
Sales to LG Electronics – sales to LG Electronics and its subsidiaries, which include sales to LG Electronics both as an
end-brand customer and a system integrator, amounted to 21.4%, 21.0% and 22.9% of our sales in 2011, 2012 and
2013, respectively.
Sales to LG International – sales to LG International Corp., our affiliated trading company, and its subsidiaries
amounted to 6.3%, 5.0% and 5.4% of our sales in 2011, 2012 and 2013, respectively.
We expect that we will continue to be dependent upon LG Electronics and its affiliates for a significant portion of our
revenue for the foreseeable future. See “Item 7.B. Related Party Transactions” for a description of these related party transactions with
LG Electronics and its affiliates. Our results of operations and financial condition could therefore be affected by the overall performance
of LG Electronics and its affiliates.
Any material deterioration in the financial condition of our key end-brand customers, their system integrators or our affiliated
trading company will have an adverse effect on our results of operations.
Our top ten end-brand customers together accounted for approximately 71% of our sales in 2011, 71% in 2012 and 76% in
2013. Although we negotiate directly with our end-brand customers concerning the price and quantity of the sales, for some sales
transactions we invoice the end-brand customers’ designated system integrators. In addition, a portion of our sales to end-brand
customers and their system integrators located in certain regions are sold through our affiliated trading company, LG International and
its subsidiaries. Our credit policy typically requires payment within 30 to 90 days, and payments on the vast majority of our sales have
typically been collected within 60 days. Although we have not experienced any material problems relating to customer payments to date,
as a result of our significant dependence on a concentrated group of end-brand customers and their designated system integrators, as well
as the sales we make to our affiliated trading company and its subsidiaries, we are exposed to credit risks associated with these entities.
Consolidation and other changes at our end-brand customers could cause sales of our products to decline.
Mergers, acquisitions, divestments or consolidations involving our end-brand customers can present risks to our business, as
management at the new entity may change the way they do business, including their transactions with us, or may decide not to use us as
one of their suppliers of TFT-LCD or other products. In addition, we cannot provide assurance that a combined entity resulting from a
merger, acquisition or consolidation or a newly formed entity resulting from a divestment will continue to purchase TFT-LCD or other
panels from us at the same level, if at all, as each entity purchased in the aggregate when they were separate companies or that a divested
company will purchase panels from us at the same level, if at all, as prior to the divestment.
Our results of operations depend on our ability to keep pace with changes in technology.
Advances in technology typically lead to rapid declines in sales volumes for products made with older technologies and may
lead to these products becoming less competitive in the marketplace, or even obsolete. As a result, we will likely be required to make
significant expenditures to develop or acquire new process and product technologies. For example, the rapidly expanding mobile display
market for smart devices such as smartphones and certain tablet computers has resulted in increased demand for display panels using
new energy-efficient technologies that provide for greater resolutions, wider viewing angles, high light transmittance and stability of
images even when used on a touchscreen device. We have introduced mobile display products based on AH-IPS, which have helped us
quickly secure a leading role in this market.
10
While the TFT-LCD technology undergoes continued innovation, we and our competitors are also developing new display
technologies that depart from TFT-LCD technology, such as OLED technology. In particular, we and some of our competitors have
already commenced commercial production of OLED products. We commenced limited production of glass OLED panels for mobile
devices for a number of our strategic customers in September 2011 and commenced mass production of flexible plastic OLED panels
for smartphones in the fourth quarter of 2013 at our AP2 and E2 fabrication facilities. In addition, we started production of OLED
television panels toward the end of 2012 and are in the process of converting a second set of production lines in our P8 fabrication
facility, our first eighth-generation fabrication facility, for the production of OLED television panels. We expect to commence mass
production on the second set of lines sometime in the second half of 2014, subject to market conditions and any changes in our
investment timetable. With the launch of retail sales of flat and curved 55-inch OLED televisions by certain of our customers starting
in the first and third quarters of 2013, respectively, we intend to deploy greater resources into expanding our large-sized OLED panel
fabrication capabilities with the aim of establishing an early competitive edge in the market. Our ability to develop differentiated
products with new display technologies and utilize advanced manufacturing processes to increase production yields while lowering
production cost will be critical to our sustained competitiveness. However, we cannot provide assurance that we will be able to
continue to successfully develop new products or manufacturing processes through our research and development efforts or through
obtaining technology licenses, or that we will keep pace with technological changes in the marketplace.
Our revenue depends on continuing demand for televisions, notebook computers, desktop monitors, tablet computers and mobile
and other application products with panels of the type we produce. Our sales may not grow at the rate we expect if consumers do
not purchase these products.
Currently, our total sales are derived principally from customers who use our products in televisions, notebook computers,
desktop monitors, tablet computers and mobile and other application products with display devices. In particular, a substantial
percentage of our sales is derived from end-brand customers, or their designated system integrators, who use our panels in their
televisions, which accounted for 47.7%, 45.9% and 43.6% of our total revenue in 2011, 2012 and 2013, respectively. A substantial
portion of our sales is also derived from end-brand customers, or their designated system integrators, who use our panels in their
notebook computers, which accounted for 13.4%, 12.5% and 10.4% of our total revenue in 2011, 2012 and 2013, respectively, those
who use our panels in their desktop monitors, which accounted for 20.5%, 17.1% and 19.4% of our total revenue in 2011, 2012 and
2013, respectively, those who use our panels in their tablet computers, which accounted for 9.2%, 12.6% and 13.2% of our total
revenue in 2011, 2012 and 2013, respectively, and those who use our panels in their mobile and other applications, which accounted
for 9.0%, 11.5% and 13.1% of our total revenue in 2011, 2012 and 2013, respectively. Although sales of our television panels
decreased in 2012 and 2013 as compared to previous years, television panels remain our largest product category in terms of revenue
and we will therefore continue to be dependent on continuing demand from the television industry. In addition, we will continue to be
dependent on continuing demand from the personal computer industry, the tablet computer industry and the mobile device industry
for a substantial portion of our sales. Any downturn in any of those industries in which our customers operate would result in reduced
demand for our products, which may in turn result in reduced revenue, lower average selling prices and/or reduced margins.
The introduction of alternative display panel technologies, including those currently under development by our competitors and
us, may erode future sales of TFT-LCD panels, which may have a material adverse effect on our financial condition and results of
operations.
New display technologies, such as OLED technology, which are at various stages of development and production by us
and other display panel makers, may gain wider market acceptance than TFT-LCD technology for use in certain consumer products,
such as televisions, smartphones and tablet computers, and industrial and other applications, including public displays, interactive
whiteboards, entertainment systems, automotive displays, portable navigation devices and medical diagnostic equipment. If
consumers do not purchase products utilizing TFT-LCD panels as we expect, or if TFT-LCD technology itself is rendered obsolete, or
if we are unable to develop and commercialize OLED and other technologies in a commercially viable and timely manner, or if
consumers prefer products manufactured by our competitors utilizing competing technologies we have not adopted, this would have a
material adverse effect on our financial condition and results of operations to the extent we cannot offset such loss in demand for
TFT-LCD products by selling products using other display technologies.
11
We will have significant capital requirements in connection with our business strategy and if capital resources are not available
we may not be able to implement our strategy and future plans.
In connection with our strategy to further enhance the diversity and capacity of our display panel production, we estimate
￦
that we will continue to incur significant capital expenditures for the enhancement of existing production facilities, including the
construction of additional production lines, and the construction of new production facilities. In March 2011, we commenced mass
production at the second expansion to our P8 fabrication facility. In June 2012, we also commenced mass production at P9, our
newest eighth-generation panel fabrication facility located in our Paju Display Cluster in Paju, Korea. In December 2013, we
commenced mass production at our E2 fabrication facility. In addition, in May 2012, we held a groundbreaking ceremony for the
construction of an eighth-generation fabrication facility in Guangzhou, China. We expect mass production to commence at the
Guangzhou fabrication facility in the middle of 2014, subject to market conditions and any changes in our investment timetable. In
January 2011, we signed a memorandum of understanding with Gumi City regarding its administrative support for our
1.35 trillion
investment to expand our module production facilities in Gumi City, Korea, over a five-year period starting in 2011, and in July 2012,
we entered into an agreement with Gumi City and North Gyeongsang Province for their administrative assistance in connection with
our
1.20 trillion investment to convert existing production lines in our P61 fabrication facility located in Gumi City that produced
amorphous silicon, or a-Si, based TFT backplanes into production lines that produce low temperature polycrystalline silicon, or
LTPS, based TFT backplanes. Mass production on the converted LTPS production lines commenced in the first quarter of 2014. In
September 2013, we entered into another memorandum of understanding with Gumi City and North Gyeongsang Province for their
administrative assistance in connection with our additional
0.83 trillion investment to convert additional a-Si production lines into
LTPS production lines in our P61 fabrication facility. We expect mass production to commence at the additional converted LTPS
production lines in the second half of 2014, subject to market conditions and any changes in our investment timetable. In addition,
starting in the first quarter of 2013, we began expanding our large-sized OLED television panel production capacity at our P8
fabrication facility, for which we expect to invest
OLED panel production lines in the second half of 2014, subject to market conditions and any changes in our investment timetable.
0.71 trillion. Mass production is expected to commence at the new large-sized
￦
￦
￦
In 2013, our total capital expenditure on a cash out basis amounted to
￦
3.5 trillion. In 2014, we currently expect that our
total capital expenditures on a cash out basis will be similar to that of 2013, primarily to fund the construction of our eighth-
generation fabrication facility in Guangzhou, China and expansion of our OLED panel and LTPS backplane technology-based panel
production capacities, as well as other expansions and improvements to our existing facilities. This amount is subject to periodic
assessment, and we cannot provide any assurance that this amount may not change materially after assessment.
These capital expenditures will be made well in advance of any additional sales that will be generated from these
expenditures. However, in the event of adverse market conditions, or if our actual expenditures far exceed our planned expenditures,
our external financing activities combined with our internal sources of liquidity may not be sufficient to effect our current and future
operational plans, and we may decide not to expand the capacity of certain of our facilities or construct new production facilities as
scheduled or at all. Our ability to obtain additional financing will depend upon a number of factors outside our control, including
general economic, financial, competitive, regulatory and other considerations.
In recent years, difficulties affecting the global financial sectors, adverse conditions and volatility in the worldwide credit
and financial markets, fluctuations in oil and commodity prices and the general weakness of the global economy have increased the
uncertainty of global economic prospects in general and have adversely affected the global and Korean economies. Because we rely
on financing both within and outside of Korea from time to time, the difficulties affecting the global and Korean economies, including
any increase in market volatility and their lingering effects, could adversely affect our ability to obtain sufficient financing on
commercially reasonable terms. The failure to obtain sufficient financing on commercially reasonable terms to complete our
expansion plans could delay or impair our ability to pursue our business strategy, which could materially and adversely affect our
business and results of operations.
Our manufacturing processes are complex and periodic improvements to increase efficiency can expose us to potential disruptions
in operations.
The manufacturing processes for TFT-LCD, OLED and other display products are highly complex, requiring sophisticated
and costly equipment that is periodically modified and upgraded to improve manufacturing yields and product performance, and
reduce unit manufacturing costs. These updates expose us to the risk that from time to time production difficulties will arise that could
cause delivery delays, reduced output or both. We cannot provide assurance that we will not experience manufacturing problems in
achieving acceptable output, product delivery delays or both as a result of, among other factors, construction delays, difficulties in
upgrading or modifying existing production lines or building new plants, difficulties in modifying existing or adopting new
manufacturing line technologies or processes or delays in equipment deliveries, any of which could constrain our capacity and
adversely affect our results of operations.
12
We may be unable to successfully execute our growth strategy or manage and sustain our growth on a timely basis, if at all, and,
as a result, our business may be harmed.
We have experienced, and expect to continue to experience, rapid growth in the scope and complexity of our operations
due to building new fabrication facilities and the expansion and conversion of existing fabrication facilities to meet the evolving
demands of our customers. For example, we increased our capacity at our Korean facilities by commencing mass production at the
second expansion to our P8 fabrication facility in March 2011, P9 in June 2012 and E2 in December 2013. In addition, we converted
a number of production lines in our P61 fabrication facility, which originally produced a-Si based display panels, to produce LTPS
based display panels for mobile devices and commenced mass production in the first quarter of 2014. In addition, we converted a
number of production lines in our P8 fabrication facility to produce OLED panels for televisions and commenced production in the
fourth quarter of 2012. We are currently converting additional production lines to expand our LTPS and OLED production capacities,
and we expect to commence mass production on the additional LTPS and OLED lines in the second half of 2014, subject to market
conditions and any changes in our investment timetable. See “Item 4.D. Property, Plants and Equipment—Expansion Projects.” With
respect to our overseas facilities in recent years, we commenced mass production at our module production plant in Reynosa, Mexico
in March 2012, and we commenced construction of an eighth-generation fabrication facility in Guangzhou, China, in May 2012. We
expect mass production to commence at the Guangzhou fabrication facility in the middle of 2014, subject to market conditions and
any changes in our investment timetable. See also “—We will have significant capital requirements in connection with our business
strategy and if capital resources are not available we may not be able to implement our strategy and future plans” above.
Sustained growth in the scope and complexity of our operations may strain our managerial, financial, manufacturing and
other resources. We may experience manufacturing difficulties in starting new production lines, upgrading existing facilities or
building new plants as a result of cost overruns, construction delays or shortages of, or quality problems with, materials, labor or
equipment, any of which could result in a loss of future revenue. In addition, failure to keep up with our competitors in future
investments in next-generation panel fabrication facilities or in the upgrading of manufacturing capacity of existing facilities would
impair our ability to effectively compete within the display panel industry. Failure to obtain intended economic benefits from
expansion projects could adversely affect our business, financial condition and results of operations.
If we cannot maintain high capacity utilization rates, our profitability will be adversely affected.
The production of TFT-LCD and OLED panels entails high fixed costs resulting from considerable expenditures for the
construction of complex fabrication and assembly facilities and the purchase of costly equipment. We aim to maintain high capacity
utilization rates so that we can allocate these fixed costs over a greater number of panels produced and realize a higher gross margin.
However, due to any number of reasons, including fluctuating demand for our products or overcapacity in the display industry, we
may need to reduce production, resulting in lower-than-optimal capacity utilization rates. As such, we cannot provide assurance that
we will be able to sustain our capacity utilization rates in the future nor can we provide assurance that we will not reduce our
utilization rates in the future as market and industry conditions change.
Limited availability of raw materials, components and manufacturing equipment could materially and adversely affect our
business, results of operations or financial condition.
Our production operations depend on obtaining adequate supplies of quality raw materials and components on a timely
basis. As a result, it is important for us to control our raw material and component costs and reduce the effects of fluctuations in price
and availability. In general, we source most of our raw materials as well as key components, such as glass substrates, driver integrated
circuits, polarizers and color filters used in both our TFT-LCD and OLED products, backlight units and liquid crystal materials used
in our TFT-LCD products and hole transport materials and emission materials used in our OLED products, from two or more
suppliers for each key component. However, we may establish a working relationship with a single supplier if we believe it is
advantageous to do so due to performance, quality, support, delivery, capacity, price or other considerations. We may experience
shortages in the supply of these key components, as well as other components or raw materials, as a result of, among other things,
anticipated capacity expansion in the display industry or our dependence on a limited number of suppliers. Our results of operations
would be adversely affected if we were unable to obtain adequate supplies of high-quality raw materials or components in a timely
manner or make alternative arrangements for such supplies in a timely manner.
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Furthermore, we may be limited in our ability to pass on increases in the cost of raw materials and components to our
customers. We do not typically enter into binding long-term contracts with our customers, and even in those cases where we do enter
into long-term agreements with certain of our major end-brand customers, the price terms are contained in the purchase orders which
are generally placed by them one month in advance of delivery. Except under certain special circumstances, the price terms in the
purchase orders are not subject to change. Prices for our products are generally determined through negotiations with our customers,
based generally on the complexity of the product specifications and the labor and technology involved in the design or production
processes. However, if we become subject to any significant increase in the cost of raw materials or components that were not
anticipated when negotiating the price terms after the purchase orders have been placed, we may be unable to pass on such cost
increases to our customers.
We have purchased, and expect to purchase, a substantial portion of our equipment from a limited number of qualified
foreign and local suppliers. From time to time, increased demand for new equipment may cause lead times to extend beyond those
normally required by the equipment vendors. The unavailability of equipment, delays in the delivery of equipment, or the delivery of
equipment that does not meet our specifications, could delay implementation of our expansion plans and impair our ability to meet
customer orders. This could result in a loss of revenue and cause financial stress on our operations.
Earthquakes, tsunamis, floods and other natural calamities could materially adversely affect our business, results of operations or
financial condition.
If earthquakes, tsunamis, floods or any other natural calamities were to occur in the future in any area where any of our
assets, suppliers or customers are located, our business, results of operations or financial condition could be adversely affected. A
number of suppliers of our raw materials, components and manufacturing equipment, as well as customers of our products, are
located in Japan, which suffered an earthquake and tsunami in March 2011, which also resulted in the release of radioactive materials
from a nuclear plant that had been damaged by the earthquake. While we believe the impact was not material to our financial
condition or operating results, any future recurrence of such natural calamities in Japan or any other countries where our suppliers are
located may lead to shortages or delays in the supply of raw materials, components or manufacturing equipment. In addition, natural
calamities in areas where our customers are located, including Japan, may cause disruptions in their businesses, which in turn could
adversely impact their demand for our products.
Purchase orders from our customers, which are placed generally one month in advance of delivery, vary in volume from period to
period, and we operate with a modest inventory, which may make it difficult for us to efficiently allocate capacity on a timely basis
in response to changes in demand.
Our major customers and their designated system integrators provide us with three- to six-month rolling forecasts of their
product requirements. However, firm orders are not placed until one month before delivery when negotiations on purchase prices are
also finalized. Firm orders may be less than anticipated based on these three- to six-month forecasts. Due to the cyclicality of the
display industry, purchase order levels from our customers have varied from period to period. Although we typically operate with a
two- to four-week inventory, it may be difficult for us to adjust production costs or to allocate production capacity in a timely manner
to compensate for any such volatility in order volumes. Our inability to respond quickly to changes in overall demand for display
products as well as changes in product mix and specifications may result in lost revenue, which would adversely affect our results of
operations.
We may experience losses on inventories.
Frequent new product introductions in the computer and consumer electronics industries can result in a decline in the
average selling prices of our TFT-LCD and other panels and the obsolescence of our existing TFT-LCD or other panel inventory.
This can result in a decrease in the stated value of our panel inventory, which we value at the lower of cost or market value.
We manage our inventory based on our customers’ and our own forecasts and typically operate with a two- to four-week
inventory. Although adjustments are regularly made based on market conditions, we typically deliver our goods to the customers one
month after a firm order has been placed. While we maintain open channels of communication with our major customers to avoid
unexpected decreases in firm orders or subsequent changes to placed orders, and try to minimize our inventory levels, such actions by
our customers may have an adverse effect on our inventory management.
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Sanctions or judgments against us and other TFT-LCD panel producers for possible anti-competitive activities may have a direct
and indirect material impact on our operations.
In December 2006, LG Display received notices of investigation by the U.S. Department of Justice, the European
Commission, the Korea Fair Trade Commission and the Japan Fair Trade Commission with respect to possible anti-competitive
activities in the TFT-LCD industry. Subsequently, the Competition Bureau of Canada, the Secretariat of Economic Law of Brazil, the
Taiwan Fair Trade Commission and the Federal Competition Commission of Mexico announced investigations regarding the same.
In November 2008, LG Display executed an agreement with the U.S. Department of Justice whereby LG Display and LG
Display America pleaded guilty to a Sherman Antitrust Act violation and agreed to pay a single total fine of US$400 million. In
December 2008, the U.S. District Court for the Northern District of California accepted the terms of the plea agreement and entered a
judgment against LG Display and LG Display America and ordered the payment of US$400 million. The agreement resolved all
federal criminal charges against LG Display and LG Display America in the United States in connection with this matter, provided
that LG Display continues to cooperate with the U.S. Department of Justice in connection with the ongoing proceedings.
In December 2010, the European Commission issued a decision finding that LG Display engaged in anti-competitive
activities in the TFT-LCD industry in violation of European Union competition laws, and imposed a fine of €€ 215 million. In February
2011, LG Display filed with the European Union General Court an application for partial annulment and reduction of the fine
imposed by the European Commission. In November 2011, LG Display received a request for information from the European
Commission relating to certain alleged anti-competitive activities in the TFT-LCD industry and has responded to the request. In
February 2014, the European Union General Court reduced the fine to €€ 210 million. We plan to appeal the European Union General
Court’s decision to the European Court of Justice.
In November 2009, the Taiwan Fair Trade Commission terminated its investigation without any finding of violations or
levying of fines. Also, in February 2012, the Competition Bureau of Canada terminated its investigation without any finding of
violations or levying of fines. As of April 29, 2014, no decision has been issued by the Japan Fair Trade Commission, and we believe
the statutory time period by which the Commission was required to have issued a decision has already lapsed. As of April 29, 2014,
the investigation by the Secretariat of Economic Law of Brazil is ongoing, and LG Display filed its defense to the Secretariat of
Economic Law of Brazil in February 2014.
In December 2011, the Korea Fair Trade Commission imposed a fine of
￦
31.4 billion after finding that LG Display and
certain of its subsidiaries engaged in anti-competitive activities in violation of Korean fair trade laws. In December 2011, LG Display
filed an appeal of the decision with the Seoul High Court. In February 2014, the Seoul High Court annulled the decision of the Korea
Fair Trade Commission. In March 2014, the Korea Fair Trade Commission filed an appeal of the Seoul High Court decision with the
Supreme Court of Korea. As of April 29, 2014, no decision has been issued by the Supreme Court of Korea.
After the commencement of the U.S. Department of Justice investigation, a number of class action complaints were filed
against LG Display, LG Display America and other TFT-LCD panel manufacturers in the United States and Canada alleging violation
of respective antitrust laws and related laws. In a series of decisions in 2007 and 2008, the class action lawsuits in the United States
were transferred to the Northern District of California for pretrial proceedings, which we refer to as the MDL Proceedings. In March
2010, the federal district court granted the class certification motion filed by the indirect purchaser plaintiffs, and granted in part and
denied in part the class certification motion filed by the direct purchaser plaintiffs. In January 2011, 78 entities (including groups of
affiliated entities) submitted requests for exclusion from the direct purchaser class. In April 2012, ten entities (including groups of
affiliated companies) submitted requests for exclusion from the indirect purchaser class. In addition, since 2010, the attorneys general
of Arkansas, California, Florida, Illinois, Michigan, Mississippi, Missouri, New York, Oklahoma, Oregon, South Carolina,
Washington, West Virginia and Wisconsin filed complaints against LG Display, alleging similar antitrust violations as alleged in the
MDL Proceedings.
In June 2011, LG Display reached a settlement with the direct purchaser class, which the federal district court approved in
December 2011. In July 2012, LG Display reached a settlement with the indirect purchaser class plaintiffs and with the state attorneys
general of Arkansas, California, Florida, Michigan, Missouri, New York, West Virginia and Wisconsin, which was approved by the
federal district court in April 2013 and, in the case of the state attorneys general actions, by their respective state governments. In
March 2013, the attorney general of Oklahoma dismissed its action as to LG Display pursuant to a separate settlement agreement. In
February 2014, the attorneys general of Mississippi and South Carolina dismissed their actions as to LG Display pursuant to
settlement. As of April 29, 2014, the Illinois, Oregon and Washington attorneys general actions remain pending. While the Oregon
attorney general action is pending in the MDL Proceedings, the Illinois and Washington attorneys general actions are pending in their
respective state courts.
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In addition, in relation to the MDL Proceedings, in 2009, ATS Claim, LLC (assignee of Ricoh Electronics, Inc.), AT&T
Corp. and its affiliates, Motorola Mobility, Inc., and Electrograph Technologies Corp. and its subsidiary filed separate claims in the
United States, and all of the actions were subsequently consolidated into the MDL Proceedings. In November 2010, ATS Claim, LLC
dismissed its action as to LG Display pursuant to a settlement agreement. In addition, in 2010, TracFone Wireless Inc., Best Buy Co.,
Inc. and its affiliates, Target Corp., Sears, Roebuck and Co., Kmart Corp., Old Comp Inc., Good Guys, Inc., RadioShack Corp., Newegg
Inc., Costco Wholesale Corp., Sony Electronics, Inc. and its affiliate, SB Liquidation Trust and the trustee of the Circuit City Stores, Inc.
Liquidation Trust filed claims in the United States. In addition, in 2011, the AASI Creditor Liquidating Trust on behalf of All American
Semiconductor Inc., CompuCom Systems, Inc., Interbond Corporation of America, Jaco Electronics, Inc., Office Depot, Inc., P.C.
Richard & Son Long Island Corporation, MARTA Cooperative of America, Inc., ABC Appliance, Inc., Schultze Agency Services, LLC
on behalf of Tweeter Opco, LLC and its affiliate, T-Mobile U.S.A., Inc., Tech Data Corporation and its affiliate filed similar claims in
the United States. In 2012, ViewSonic Corp., NECO Alliance LLC, Rockwell Automation LLC, Proview Technology Inc. and its
affiliates filed similar claims. In November 2013, Acer America Corporation and its affiliates filed similar claims in the United States.
To the extent these claims were not filed in the MDL Proceedings, they have been transferred to the MDL Proceedings for pretrial
proceedings. In December 2012, Sony Europe Limited and its affiliate filed similar claims in the High Court of Justice in the United
Kingdom. In January 2013, AT&T Corp. and its affiliates dismissed their action as to LG Display pursuant to settlement. In January
2013, the trustee of Circuit City Stores, Inc. Liquidation Trust dismissed its action as to LG Display pursuant to settlement, which was
approved by the U.S. Bankruptcy Court. In April 2013, Sony Electronics, Inc. and Sony Europe Limited, together with their respective
affiliates, dismissed their actions as to LG Display pursuant to settlement. LG Display reached a settlement with T-Mobile, U.S.A., Inc.
in April 2013. In August 2013, Best Buy Co., Inc. and its affiliates dismissed their actions as to LG Display pursuant to settlement. In
September 2013, Target Corporation, Sears, Roebuck and Co., Kmart Corporation, Old Comp Inc., Good Guys, Inc., RadioShack
Corporation, and Newegg, Inc. dismissed their actions as to LG Display pursuant to settlement. In October 2013, Rockwell Automation,
Inc., Jaco Electronics, Inc. and ViewSonic Corporation dismissed their actions as to LG Display pursuant to settlement.
In 2007, class action complaints alleging violations of Canada competition laws were filed against LG Display and other
TFT-LCD manufacturers in Canadian provinces of British Columbia, Ontario and Quebec. The Ontario Superior Court of Justice
certified the class action complaints filed by the direct and indirect purchasers in May 2011. We are pursuing an appeal of the class
certification decision. The actions in Quebec and British Columbia have been stayed.
In December 2013, a class action complaint was filed in the Central District in Israel. As of April 29, 2014, we have yet to
receive the service of complaint from the class. We plan to vigorously defend against any claims asserted by the class.
In October 2012, Arkema France and Altuglas International SAS filed a request for arbitration in the International Court of
Arbitration of the International Chamber of Commerce regarding the termination of a supply contract with LG Display. In April 2014,
LG Display and Arkema France reached settlement.
In April 2014, Deyi Investment Limited filed a complaint against LG Display in the High Court of the Hong Kong Special
Administrative Region Court of First Instance alleging breach of contract. As of April 29, 2014, we have yet to receive the service of the
complaint. We plan to vigorously defend against the claims asserted by the plaintiff.
In each of these ongoing matters, we are continually evaluating the merits of the respective claims and vigorously defending
ourselves. Irrespective of the validity or the successful assertion of the claims described above, we may incur significant costs with
respect to litigating or settling any or all of the asserted claims. See “Item 8.A. Consolidated Statements and Other Financial
Information—Legal Proceedings—Antitrust and Others” for a description of these matters. While we continue to vigorously defend the
various proceedings described above, it is possible that one or more proceedings may result in cash outflow to settle or resolve these
claims. We have recognized provisions with respect to those legal claims in which our management has concluded that there is a present
or constructive obligation arising from a past event, it is more likely than not that an outflow of resources will result, and the amount of
the assessment and/or remediation can be reasonably estimated. However, actual outcome may be materially different from that
estimated as of December 31, 2013 and may have a material adverse effect on our operating results or financial condition.
We need to observe certain financial and other covenants under the terms of our debt obligations, the failure to comply with which
would put us in default under such debt obligations.
We are subject to financial and other covenants, including maintenance of credit ratings and debt-to-equity ratios, under
certain of our debt obligations. The documentation for such debt also contains negative pledge provisions limiting our ability to provide
liens on our assets as well as cross-default and cross-acceleration clauses, which give related creditors the right to accelerate the amounts
due under such debt if an event of default or acceleration has occurred with respect to our existing or future indebtedness, or if any
material part of our indebtedness or indebtedness of our subsidiaries is capable of being declared payable before the stated maturity date.
In addition, such covenants restrict our ability to raise future debt financing.
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If we breach the financial or other covenants contained in the documentation governing our debt obligations, our financial
condition will be adversely affected to the extent we are not able to cure such breaches, obtain a waiver from the relevant lenders or
debtholders or repay the relevant debt.
Our results of operations are subject to exchange rate fluctuations.
There has been considerable volatility in foreign exchange rates in recent years, including rates between the Korean Won
and the U.S. dollar and between the Korean Won and the Japanese Yen. To the extent that we incur costs in one currency and make
sales in another, our profit margins may be affected by changes in the exchange rates between the two currencies.
Our sales of display panels are denominated mainly in U.S. dollars, whereas our purchases of raw materials are
denominated mainly in U.S. dollars and Japanese Yen. Our expenditures on capital equipment are denominated principally in Korean
Won. In 2013, 97.5% of our sales were denominated in U.S. dollars. During the same period, 83.2% of our purchases of raw materials
and components were denominated in U.S. dollars and 15.5% in Japanese Yen. In addition, 57.5% of our equipment purchases and
construction costs were denominated in Korean Won, 17.5% in Chinese Renminbi, 13.8% in Japanese Yen and 10.8% in U.S. dollars.
Accordingly, fluctuations in exchange rates, in particular between the U.S. dollar and the Korean Won as well as between
the Japanese Yen and the Korean Won, affect our pre-tax income, and in recent years, the value of the Won relative to the U.S. dollar
and Japanese Yen has fluctuated widely. See “Item 3.A. Selected Financial Data—Exchange Rates.” Although a depreciation of the
Korean Won against the U.S. dollar increases the Korean Won value of our export sales and enhances the price-competitiveness of
our products in foreign markets in U.S. dollar terms, it also increases the cost of imported raw materials and components in Korean
Won terms and our cost in Korean Won of servicing our U.S. dollar denominated debt. A depreciation of the Korean Won against the
Japanese Yen increases the Korean Won cost of our Japanese Yen denominated purchases of raw materials and components and, to
the extent we have any debt denominated in Japanese Yen, our cost in Korean Won of servicing such debt, but has relatively little
impact on our sales as most of our sales are denominated in U.S. dollars. In addition, continued exchange rate volatility may also
result in foreign exchange losses for us. Although a depreciation of the Korean Won against the U.S. dollar, in general, has a net
positive impact on our results of operations that more than offsets the net negative impact caused by a depreciation of the Korean
Won against the Japanese Yen, we cannot provide assurance that the exchange rate of the Korean Won against foreign currencies will
not be subject to significant fluctuations, including a sharp appreciation of the Korean Won against the U.S. dollar or the Japanese
Yen, or that the impact of such fluctuations will not adversely affect the results of our operations.
Our business relies on our patent rights which may be narrowed in scope or found to be invalid or otherwise unenforceable.
Our success will depend, to a significant extent, on our ability to obtain and enforce our patent rights both in Korea and
worldwide. The coverage claimed in a patent application can be significantly reduced before a patent is issued, either in Korea or
abroad. Consequently, we cannot provide assurance that any of our pending or future patent applications will result in the issuance of
patents. Patents issued to us may be subjected to further proceedings limiting their scope and may not provide significant proprietary
protection or competitive advantage. Our patents also may be challenged, circumvented, invalidated or deemed unenforceable. In
addition, because patent applications in certain countries generally are not published until more than 18 months after they are first
filed, because we currently monitor patent applications filed only by other parties in Korea, Japan and the United States, and because
publication of discoveries in scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were, or
any of our licensors was, the first creator of inventions covered by pending patent applications, that we or any of our licensors will be
entitled to any rights in purported inventions claimed in pending or future patent applications, or that we were, or any of our licensors
was, the first to file patent applications on such inventions.
Furthermore, pending patent applications or patents already issued to us or our licensors may become subject to dispute,
and any dispute could be resolved against us. For example, we may become involved in re-examination, reissue or interference
proceedings and the result of these proceedings could be the invalidation or substantial narrowing of our patent claims. We also could
be subject to court proceedings that could find our patents invalid or unenforceable or could substantially narrow the scope of our
patent claims. In addition, depending on the jurisdiction, statutory differences in patentable subject matter may limit the protection we
can obtain on some of our inventions.
Failure to protect our intellectual property rights could impair our competitiveness and harm our business and future prospects.
We believe that developing new products and technologies that can be differentiated from those of our competitors is
critical to the success of our business. We take active measures to obtain international protection of our intellectual property by
obtaining patents and undertaking monitoring activities in our major markets. However, we cannot assure you that the measures we
are taking will effectively deter competitors from improper use of our proprietary technologies. Our competitors may misappropriate
our intellectual property, disputes as to ownership of intellectual property may arise and our intellectual property may otherwise
become known or independently developed by our competitors.
17
Any failure to protect our intellectual property could impair our competitiveness and harm our business and future
prospects.
Our rapid introduction of new technologies and products may increase the likelihood that third parties will assert claims that our
products infringe upon their proprietary rights.
The rapid technological changes that characterize our industry require that we quickly implement new processes and
components with respect to our products. Often with respect to recently developed processes and components, a degree of uncertainty
exists as to who may rightfully claim ownership rights in such processes and components. Uncertainty of this type increases the risk
that claims alleging that such components or processes infringe upon third party rights may be brought against us. Although we take
and will continue to take steps to ensure that our new products do not infringe upon third party rights, if our products or
manufacturing processes are found to infringe upon third party rights, we may be subject to significant liabilities and be required to
change our manufacturing processes or be prohibited from manufacturing certain products, which could have a material adverse effect
on our operations and financial condition.
We may be required to defend against charges of infringement of patent or other proprietary rights of third parties.
Although patent and other intellectual property disputes in our industry have often been settled through licensing or similar
arrangements, such defense could require us to incur substantial expense and to divert significant resources of our technical and
management personnel, and could result in our loss of rights to develop or make certain products or require us to pay monetary
damages or royalties to license proprietary rights from third parties. Furthermore, we cannot be certain that the necessary licenses
would be available to us on acceptable terms, if at all. Accordingly, an adverse determination in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling certain of our products. Any such
litigation, whether successful or unsuccessful, could result in substantial costs to us and diversions of our resources, either of which
could adversely affect our business.
In February 2007, Anvik Corporation filed a complaint in the U.S. District Court for the Southern District of New York
against LG Display and LG Display America, along with other TFT-LCD manufacturing companies, for alleged patent infringement
in connection with the use of photo-masking equipment manufactured by Nikon Corporation. In April 2012, the district court granted
Nikon Corporation’s motion for summary judgment of invalidity of the patents-in-suit and entered a judgment in favor of Nikon
Corporation, LG Display and LG Display America and the other TFT-LCD manufacturing companies, dismissing the case. Anvik
Corporation appealed the district court’s decision to the U.S. Court of Appeals for the Federal Circuit in April 2012. In March 2013,
the U.S. Court of Appeals for the Federal Circuit reversed the district court’s summary judgment ruling and remanded the case back
to the district court for further proceedings. In January 2014, LG Display and Anvik Corporation filed a stipulation for dismissal of
the case and amicably settled all claims between the parties.
In February 2012, the United States International Trade Commission, or USITC, granted a motion by Industrial
Technology Research Institute, or ITRI, to add LG Display and LG Display America as additional respondents in a Section 337
investigation pending before the USITC. ITRI sought an exclusion order prohibiting the importation of televisions and monitors
incorporating LG Display’s products into the United States for alleged patent infringement. In October 2012, USITC issued a
preliminary finding that LG Display and LG Display America had not infringed ITRI’s patents. In May 2013, USITC issued a final
determination finding that the asserted patent was invalid and LG Display and LG Display America had not infringed ITRI’s asserted
patent. ITRI appealed USITC’s decision to the United States Court of Appeals for the Federal Circuit.
In December 2013, Delaware Display Group LLC and Innovative Display Technologies LLC filed a complaint in the U.S.
District Court for the District of Delaware against LG Display and LG Display America for alleged patent infringement. LG Display
is currently defending against their claims.
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In September 2012, Samsung Display filed a complaint in the Seoul Central District Court against LG Display claiming
misappropriation of trade secrets relating to OLED technology and seeking injunctive relief. In September 2012, LG Display filed a
complaint in the Seoul Central District Court against Samsung Display and Samsung Electronics claiming infringement of certain of
LG Display’s patents relating to OLED display technology and manufacturing methods and sought monetary damages. In addition, in
December 2012, Samsung Display filed a complaint in the Seoul Central District Court against LG Display and LG Electronics
claiming infringement of certain of Samsung Display’s patents relating to TFT-LCD technology and sought monetary damages. Also,
in December 2012, LG Display filed an application in the Seoul Central District Court seeking temporary injunctive relief to prohibit
Samsung Display and Samsung Electronics from manufacturing and selling products that we claimed to be infringing upon certain of
LG Display’s patents relating to IPS technology and the related manufacturing methods. In February 2013, under the mediation of the
Korean government, LG Display and Samsung Display agreed in principle to work toward resolving the foregoing patent
infringement proceedings through an amicable settlement. In September 2013, LG Display and Samsung Display reached an amicable
settlement and withdrew their respective claims.
We rely on technology provided by third parties and our business will suffer if we are unable to renew our licensing arrangements
with them.
From time to time, we have obtained licenses for patent, copyright, trademark and other intellectual property rights to
process and device technologies used in the production of our display panels. We have entered into key licensing arrangements with
third parties, for which we have made, and continue to make, periodic license fee payments. In addition, we also have cross-license
agreements with certain other third parties. These agreements terminate upon the expiration of the respective terms of the patents. See
“Item 5.C. Research and Development, Patents and Licenses, etc.—Intellectual Property—License Agreements.”
If we are unable to renew our technology licensing arrangements on acceptable terms, we may lose the legal protection to
use certain of the processes we employ to manufacture our products and be prohibited from using those processes, which may prevent
us from manufacturing and selling certain of our products, including our key products. In addition, we could be at a disadvantage if
our competitors obtain licenses for protected technologies on more favorable terms than we do.
In the future, we may also need to obtain additional patent licenses for new or existing technologies. We cannot provide
assurance that these license agreements can be obtained or renewed on acceptable terms or at all, and if not, our business and
operating results could be adversely affected.
We rely upon trade secrets and other unpatented proprietary know-how to maintain our competitive position in the display panel
industry and any loss of our rights to, or unauthorized disclosure of, our trade secrets or other unpatented proprietary know-how
could negatively affect our business.
We also rely upon trade secrets, unpatented proprietary know-how and information, as well as continuing technological
innovation in our business. The information we rely upon includes price forecasts, core technology and key customer information. We
enter into confidentiality agreements with each of our employees and consultants upon the commencement of an employment or
consulting relationship. These agreements generally provide that all inventions, ideas, discoveries, improvements and copyrightable
material made or conceived by the individual arising out of the employment or consulting relationship and all confidential
information developed or made known to the individual during the term of the relationship is our exclusive property. We cannot
provide assurance that these types of agreements will be fully enforceable, or that they will not be breached. We also cannot be
certain that we will have adequate remedies for any such breach. The disclosure of our trade secrets or other know-how as a result of
such a breach could adversely affect our business. Also, our competitors may come to know about or determine our trade secrets and
other proprietary information through a variety of methods. Disputes may arise concerning the ownership of intellectual property or
the applicability or enforceability of our confidentiality agreements, and there can be no assurance that any such disputes would be
resolved in our favor. Furthermore, others may acquire or independently develop similar technology, or if patents are not issued with
respect to technologies arising from our research, we may not be able to maintain information pertinent to such research as
proprietary technology or trade secrets and that could have an adverse effect on our competitive position within the display panel
industry.
We rely on key researchers and engineers, senior management and production facility operators, and the loss of the services of
any such personnel or the inability to attract and retain them may negatively affect our business.
Our success depends to a significant extent upon the continued service of our research and development and engineering
personnel, and on our ability to continue to attract, retain and motivate qualified researchers and engineers, especially during periods
of rapid growth. In particular, our focus on leading the market in introducing new products and advanced manufacturing processes
has meant that we must aggressively recruit research and development personnel and engineers with expertise in cutting-edge
technologies.
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We also depend on the services of experienced key senior management, and if we lose their services, it would be difficult
to find and integrate replacement personnel in a timely manner, if at all. We also employ highly skilled line operators at our various
production facilities.
The loss of the services of any of our key research and development and engineering personnel, senior management or
skilled operators without adequate replacement, or the inability to attract new qualified personnel, would have a material adverse
effect on our operations.
The interests of LG Electronics, our largest shareholder, and any directors or officers nominated by it, may differ from or conflict
with those of us or our other shareholders.
When exercising its rights as our largest shareholder, LG Electronics may take into account not only our interests but also
its interests and the interests of its affiliates. The interests of display businesses of LG Electronics may at times conflict with ours
since the growth of our business depends, in part, on successful competition with other display technologies. These conflicts may
result in alternative display technologies gaining wider market acceptance than TFT-LCDs or a decision by our largest shareholder to
sell products using other display technologies.
Various other conflicts of interest between LG Electronics and us may arise in the future in a number of areas relating to
our business, including potential acquisitions of businesses or properties, incurrence of indebtedness, financial commitments, sales
and marketing functions, indemnity arrangements, service arrangements and the exercise by LG Electronics of significant influence
over our management and affairs. See “Item 6.A. Directors and Senior Management” for a description of the composition of our
current board of directors and senior management.
Labor unrest may disrupt our operations.
As of December 31, 2013, approximately 72% of our total employees, including those of our subsidiaries, were union
members, and production employees accounted for substantially all of these members. We have a collective bargaining arrangement
with our labor union, which is negotiated once a year. Any deterioration in our relationship with our employees or labor unrest
resulting in a work stoppage or strike may have a material adverse effect on our financial condition and results of operations.
We may be exposed to potential claims for unpaid wages and become subject to additional labor costs arising from the Supreme
Court of Korea’s interpretation of ordinary wages.
Under the Labor Standards Act, an employee is legally entitled to “ordinary wages”. Under the guidelines previously
issued by the Ministry of Employment and Labor (formerly the Ministry of Labor), ordinary wages include base salary and certain
fixed monthly allowances for overtime work performed during night shifts and holidays. Prior to the Supreme Court of Korea’s
decision described below, we and other companies in Korea had interpreted these guidelines as excluding from the scope of ordinary
wages, fixed bonuses that are paid other than on a monthly basis, namely on a bi-monthly, quarterly or biannual basis.
On December 18, 2013, the Supreme Court of Korea ruled that regular bonuses (including those that are paid other than on
a monthly basis) shall be deemed ordinary wages if these bonuses are paid “regularly” and “uniformly” on a “fixed basis”
notwithstanding differential amounts based on seniority. Under this decision, any collective bargaining agreement or labor-
management agreement which attempts to exclude such regular bonuses from ordinary wage will be deemed void for violation of the
mandatory provisions of Korean law. However, the Supreme Court of Korea further ruled that an employee’s claim for
underpayments under the expanded scope of ordinary wages for the past three years within the statute of limitations may be denied
based on principles of good faith if (i) there is an agreement between the employer and employees that the regular bonus shall be
excluded from ordinary wage in determining the total amount of wage, (ii) such claim results in further wage payments that far
exceed the level of total amount of wage agreed between the employer and employees and (iii) such claim would cause an unexpected
financial burden to the employer leading to material managerial difficulty or a threat to the employer’s existence. The principles of
good faith, however, do not apply to an agreement on wages entered into between the employer and employees after December 18,
2013, the date of the above decision of the Supreme Court of Korea.
While we anticipate that it is not likely that this decision would result in additional labor costs to us in the form of
additional payments under the expanded scope of ordinary wages incurred in the past three years, if any such additional payments are
incurred, they may have an adverse effect on our financial condition and results of operation.
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We are subject to strict environmental regulations and we may be subject to fines or restrictions that could cause our operations to
be interrupted.
Our manufacturing processes generate chemical waste, waste water and other industrial waste at various stages in the
manufacturing process, and we are subject to a variety of laws and regulations relating to the use, storage, discharge and disposal of
such chemical by-products and waste substances. We have installed various types of anti-pollution equipment, consistent with
industry standards, for the treatment of chemical waste and equipment for the recycling of treated waste water at our various facilities.
See “Item 4.B. Business Overview—Environmental Matters” for a description of the anti-pollution equipment that we have installed
in our various facilities. However, we cannot provide assurance that environmental claims will not be brought against us or that the
local or national governments will not take steps toward adopting more stringent environmental standards.
Any failure on our part to comply with any present or future environmental regulations could result in the assessment of
damages or imposition of fines against us, suspension of production or a cessation of operations. In addition, environmental
regulations could require us to acquire costly equipment or to incur other significant compliance expenses that may materially and
negatively affect our financial condition and results of operations.
Risks Relating to our American Depositary Shares, or ADSs, or our Common Stock
Future sales of shares of our common stock in the public market may depress our stock price and make it difficult for you to
recover the full value of your investment in our common stock or our ADSs.
We cannot predict the effect, if any, that market sales of shares of our common stock or the availability of our common
stock for sale will have on the market price of our common stock prevailing from time to time. Our largest shareholder, LG
Electronics, currently owns 37.9% of our voting stock. There is no assurance that LG Electronics will not sell all or a part of its
ownership interest in us.
Any future sales by LG Electronics or any future issuance by us of a significant number of shares of our common stock in
the public market, or the perception that any of these events may occur, could cause the market price of our common stock to
decrease or to be lower than it might be in the absence of these events or perceptions.
Our public shareholders may have more difficulty protecting their interests than they would as shareholders of a U.S. corporation.
Our corporate affairs are governed by our articles of incorporation and by the laws governing Korean corporations. The
rights and responsibilities of our shareholders and members of our board of directors under Korean law may be different from those
that apply to shareholders and directors of a U.S. corporation. For example, minority shareholder rights afforded under Korean law
often require the minority shareholder to meet minimum shareholding requirements in order to exercise certain rights. In the case of
public companies, a shareholder must own, individually or collectively with other shareholders, at least 0.01% of our common stock
for at least six consecutive months in order to file a derivative suit on our behalf. While the facts and circumstances of each case will
differ, the duty of care required of a director under Korean law may not be the same as the fiduciary duty of a director of a U.S.
corporation. Therefore, holders of our common stock or our ADSs may have more difficulty protecting their interests against actions
of our management, members of our board of directors or controlling shareholders than they would as shareholders of a U.S.
corporation.
You may be limited in your ability to deposit or withdraw the common stock underlying the ADSs, which may adversely affect the
value of your investment.
Under the terms of our deposit agreement, holders of common stock may deposit such common stock with the depositary’s
custodian in Korea and obtain ADSs, and holders of ADSs may surrender ADSs to the depositary and receive common stock.
However, to the extent that a deposit of common stock exceeds the difference between:
•
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the aggregate number of shares of common stock we have consented to allow to be deposited for the issuance of
ADSs (including deposits in connection with offerings of ADSs and stock dividends or other distributions relating to
ADSs); and
the number of shares of common stock on deposit with the custodian for the benefit of the depositary at the time of
such proposed deposit,
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such common stock will not be accepted for deposit unless (1) our consent, subject to governmental authorization, with respect to
such deposit has been obtained or (2) such consent is no longer required under Korean laws and regulations.
Under the terms of the deposit agreement, no consent is required if the shares of common stock are obtained through a
dividend, free distribution, rights offering or reclassification of such stock. The current limit on the number of shares that may be
deposited into our ADR facility is 68,095,700 as of April 29, 2014. The number of shares issued or sold in any subsequent offering by
us or our major shareholders, subject to government authorization, raises the limit on the number of shares that may be deposited into
the ADR facility, except to the extent such deposit is prohibited by applicable laws or violates our articles of incorporation, or we
decide with the ADR depositary to limit the number of shares of common stock so offered that would be eligible for deposit under the
deposit agreement in order to maintain liquidity for the shares in Korea as may be requested by the relevant Korean authorities. We
might not consent to the deposit of any additional shares of common stock. As a result, if a holder surrenders ADSs and withdraws
common stock, it may not be able to deposit the common stock again to obtain ADSs.
Holders of ADSs will not have preemptive rights in some circumstances.
The Korean Commercial Code of 1962, as amended, and our articles of incorporation require us, with some exceptions, to
offer shareholders the right to subscribe for new shares of our common stock in proportion to their existing shareholding ratio
whenever new shares are issued, except under certain circumstances as provided in our articles of incorporation. Accordingly, if we
issue new shares to non-shareholders based on such exception, a holder of our ADSs may experience dilution in its holdings.
Furthermore, if we offer any right to subscribe for additional shares of our common stock or any rights of any other nature to existing
shareholders subject to their preemptive rights, the depositary, after consultation with us, may make the rights available to holders of
our ADSs or use reasonable efforts to dispose of the rights on behalf of such holders and make the net proceeds available to such
holders. The depositary, however, is not required to make available to holders any rights to purchase any additional shares of our
common stock unless it deems that doing so is lawful and feasible and
•
•
a registration statement filed by us under the U.S. Securities Act of 1933, as amended, is in effect with respect to
those shares; or
the offering and sale of those shares is exempt from or is not subject to the registration requirements of the
Securities Act.
We are under no obligation to file any registration statement with the SEC or to endeavor to cause such a registration
statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act.
Accordingly, a holder of our ADSs may be unable to participate in our rights offerings and may experience dilution in its holdings. If
a registration statement is required for a holder of our ADSs to exercise preemptive rights but is not filed by us or is not declared
effective, the holder will not be able to exercise its preemptive rights for additional ADSs and it will suffer dilution of its equity
interest in us. If the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or feasible, it
will allow the rights to lapse, in which case the holder will receive no value for these rights.
Holders of ADSs will not be able to exercise dissent and appraisal rights unless they have withdrawn the underlying shares of our
common stock and become our direct shareholders.
In some limited circumstances, including the transfer of the whole or any significant part of our business and our merger or
consolidation with another company, dissenting shareholders have the right to require us to purchase their shares under Korean law.
However, a holder of our ADSs will not be able to exercise such dissent and appraisal rights if the depositary refuses to do so on their
behalf. Our deposit agreement does not require the depositary to take any action in respect of exercising dissent and appraisal rights.
In such a situation, holders of our ADSs must initiate the withdrawal of the underlying common stock from the ADS facility (and
incur charges relating to that withdrawal) by the day immediately following the date of public disclosure of our board of directors’
resolution of a merger or other events triggering appraisal rights and become our direct shareholder prior to the record date of the
shareholders’ meeting at which the relevant transaction is to be approved, in order to exercise dissent and appraisal rights.
Dividend payments and the amount you may realize upon a sale of our common stock or ADSs that you hold will be affected by
fluctuations in the exchange rate between the U.S. dollar and the Korean Won.
Cash dividends, if any, in respect of the shares represented by our ADSs will be paid to the depositary in Korean Won and
then converted by the depositary into U.S. dollars, subject to certain conditions. Accordingly, fluctuations in the exchange rate
between the Korean Won and the U.S. dollar will affect, among other things, the amounts a holder will receive from the depositary in
respect of dividends, the U.S. dollar value of the proceeds that a holder would receive upon sale in Korea of the shares of our
common stock obtained upon surrender of ADSs and the secondary market price of ADSs. Such fluctuations will also affect the U.S.
dollar value of dividends and sales proceeds received by holders of our common stock.
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Risks Relating to Korea
If economic conditions in Korea deteriorate, our current business and future growth could be materially and adversely affected.
In recent years, adverse conditions and volatility in the worldwide financial markets, fluctuations in oil and commodity
prices and the general weakness of the U.S. and global economy have contributed to the uncertainty of global economic prospects in
general and have adversely affected, and may continue to adversely affect, the Korean economy. The value of the Won relative to
major foreign currencies in general and the U.S. dollar in particular has also fluctuated widely. See “Item 3.A. Selected Financial
Data—Exchange Rates.” A depreciation of the Won increases the cost of imported goods and services and the Won revenue needed
by Korean companies to service foreign currency denominated debt. An appreciation of the Won, on the other hand, causes export
products of Korean companies to be less competitive by raising their prices in terms of the relevant foreign currency and reduces the
Won value of such export sales. Furthermore, as a result of adverse global and Korean economic conditions, there has been
continuing volatility in the stock prices of Korean companies. See “Item 9.C. Markets—The Korea Exchange.” Future declines in the
KOSPI and large amounts of sales of Korean securities by foreign investors and subsequent repatriation of the proceeds of such sales
may continue to adversely affect the value of the Won, the foreign currency reserves held by financial institutions in Korea, and the
ability of Korean companies to raise capital. Any future deterioration of the Korean or global economy could adversely affect our
business, financial condition and results of operations.
Developments that could have an adverse impact on Korea’s economy in the future include:
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•
difficulties in the financial sectors in Europe and elsewhere and increased sovereign default risks in selected
countries, such as Argentina, and the resulting adverse effects on the global financial markets;
adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange
rates (including fluctuation of the U.S. dollar or Japanese Yen exchange rates or revaluation of the Chinese
Renminbi), interest rates, inflation rates or stock markets;
continuing adverse conditions in the economies of countries that are important export markets for Korea, such as the
United States, Japan and China, or in emerging market economies in Asia or elsewhere;
any adverse economic impact from the recently commenced scale-down by the U.S. Federal Reserve Board of its
“quantitative easing” stimulus program;
further decreases in the market prices of Korean real estate;
increasing delinquencies and credit defaults by consumer and small- and medium-sized enterprise borrowers;
declines in consumer confidence and a slowdown in consumer spending;
the continued emergence of the Chinese economy, to the extent its benefits (such as increased exports to China) are
outweighed by its costs (such as competition in export markets or for foreign investment and the relocation of the
manufacturing base from Korea to China);
social and labor unrest;
a decrease in tax revenue and a substantial increase in the Korean government’s expenditures for fiscal stimulus
measures, unemployment compensation and other economic and social programs that, together, would lead to an
increased Korean government budget deficit;
financial problems or lack of progress in the restructuring of large troubled companies, their suppliers or the
financial sector;
loss of investor confidence arising from corporate accounting irregularities or corporate governance issues at certain
Korean companies;
the economic impact of any pending or future free trade agreements;
geo-political uncertainty and risk of further attacks by terrorist groups around the world;
the occurrence of severe health epidemics in Korea or other parts of the world;
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•
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deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including
deterioration resulting from territorial or trade disputes or disagreements in foreign policy;
political uncertainty or increasing strife among or within political parties in Korea;
natural disasters that have a significant adverse economic or other impact on Korea or its major trading partners;
hostilities or political or social tensions involving oil producing countries in the Middle East or North Africa and any
material disruption in the supply of oil or increase in the price of oil; and
an increase in the level of tensions or an outbreak of hostilities between North Korea and Korea or the United States.
Escalations in tensions with North Korea could have an adverse effect on us and the market value of our common stock.
Relations between Korea and North Korea have been tense throughout Korea’s modern history. The level of tension
between the two Koreas has fluctuated and may increase abruptly as a result of future events. In particular, since the death of Kim
Jong-il in December 2011, there has been increased uncertainty with respect to the future of North Korea’s political leadership and
concern regarding its implications for political and economic stability in the region. Although Kim Jong-il’s third son, Kim Jong-un,
has assumed power as his father’s designated successor, the long-term outcome of such leadership transition remains uncertain.
In addition, there have been heightened security concerns in recent years stemming from North Korea’s nuclear weapon
and long-range missile programs as well as its hostile military and other actions against Korea. Some of the significant incidents in
recent years include the following:
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In April 2013, North Korea blocked access to the inter-Korean industrial complex in its border city of Gaeseong to
South Koreans, while the United States deployed nuclear-capable stealth bombers and destroyers to Korean air and
sea space as part of its joint military exercises with Korea.
In March 2013, North Korea stated that it had entered “a state of war” with Korea, declaring the 1953 armistice
invalid, and put its artillery at the highest level of combat readiness to protest the Korea-U.S. joint military exercises
and additional international sanctions imposed on North Korea for its missile and nuclear tests.
North Korea renounced its obligations under the Nuclear Non-Proliferation Treaty in January 2003 and conducted
three rounds of nuclear tests between October 2006 to February 2013, which increased tensions in the region and
elicited strong objections worldwide. In response, the United Nations Security Council unanimously passed
resolutions that condemned North Korea for the nuclear tests and expanded sanctions against North Korea, most
recently in March 2013.
•
In December 2012, North Korea launched a satellite into orbit using a long-range rocket, despite concerns in the
international community that such a launch would be in violation of the agreement with the United States as well as
United Nations Security Council resolutions that prohibit North Korea from conducting launches that use ballistic
missile technology.
•
In November 2010, North Korea fired more than one hundred artillery shells that hit Korea’s Yeonpyeong Island
near the Northern Limit Line, which acts as the de facto maritime boundary between Korea and North Korea on the
west coast of the Korean peninsula, causing casualties and significant property damage. The Korean government
condemned North Korea for the attack and vowed stern retaliation should there be further provocation. In March
2010, a Korean naval vessel was destroyed by an underwater explosion, killing many of the crewmen on board. The
Korean government formally accused North Korea of causing the sinking, while North Korea denied responsibility.
North Korea’s economy also faces severe challenges. For example, in November 2009, the North Korean government
redenominated its currency at a ratio of 100 to 1 as part of a currency reform undertaken in an attempt to control inflation and reduce
income gaps. In tandem with the currency redenomination, the North Korean government banned the use or possession of foreign
currency by its residents and closed down privately run markets, which led to severe inflation and food shortages. Such developments
may further aggravate social and political tensions within North Korea.
There can be no assurance that the level of tension on the Korean peninsula will not escalate in the future. Any further
increase in tensions, which may occur, for example, if North Korea experiences a leadership crisis, high level contacts between Korea
and North Korea break down or military hostilities occur, could have a material adverse effect on our operations and the market value
of our common stock and ADSs.
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If the Korean government deems that emergency circumstances are likely to occur, it may restrict holders of our ADSs and the
depositary from converting and remitting dividends and other amounts in U.S. dollars.
Under the Korean Foreign Exchange Transaction Law, if the Korean government deems that certain emergency
circumstances, including sudden fluctuations in interest rates or exchange rates, extreme difficulty in stabilizing the balance of
payments or substantial disturbance in the Korean financial and capital markets, are likely to occur, it may impose any necessary
restrictions as requiring Korean or foreign investors to obtain prior approval from the Minister of Strategy and Finance for the
acquisition of Korean securities or the repatriation of interest, dividends or sales proceeds arising from disposition of such securities
or other transactions involving foreign exchange. See “Item 10.D. Exchange Controls.”
Item 4.
INFORMATION ON THE COMPANY
Item 4.A. History and Development of the Company
We are a leading innovator of thin-film transistor liquid crystal display, or TFT-LCD, technology and other display panel
technologies, including OLED technology. We manufacture display panels in a broad range of sizes and specifications primarily for
use in televisions, notebook computers, desktop monitors, tablet computers and various other applications, including mobile devices.
The origin of our TFT-LCD business can be traced to the TFT-LCD research that began in 1987 at the Goldstar R&D
Center, which was then part of LG Electronics Inc. TFT-LCD research continued at the Anyang R&D Center, a research and
development center established by LG Electronics in 1990 in Anyang, Korea, which was subsequently moved to our Paju Display
Cluster in 2008, and which today continues to lead our technology innovation efforts. In 1993, the TFT-LCD business division was
launched within LG Electronics, and in September 1995 mass production of TFT-LCD panels began at P1, its first fabrication facility,
producing mainly TFT-LCD panels for notebook computers and other applications. In December 1997, LG Semicon Inc., a subsidiary
of LG Electronics, began mass production at P2, producing mainly TFT-LCD panels for notebook computers.
We were incorporated in 1985 under the laws of the Republic of Korea under the original name of LG Soft, Ltd., a
subsidiary of LG Electronics whose main business was the development and marketing of software. At the end of 1998, LG
Electronics and LG Semicon transferred their respective TFT-LCD-related businesses to LG Soft, which, as part of the business
transfer, changed its name to LG LCD Co., Ltd.
In July 1999, LG Electronics entered into a joint venture agreement with Koninklijke Philips Electronics N.V., pursuant to
which Philips Electronics acquired a 50% interest in LG LCD. In connection with this transaction, LG LCD transferred its existing
software-related business to LG Electronics in order to focus solely on the TFT-LCD business. The joint venture, which was renamed
LG.Philips LCD Co., Ltd., was officially launched in August 1999. In July 2004, we completed our initial public offering and listed
shares of our common stock on the Korea Exchange under the identifying code “034220” and our ADSs on the New York Stock
Exchange under the symbol “LPL”. Prior to the listings, LG Electronics and Philips Electronics terminated the joint venture
agreement and entered into a shareholders’ agreement to reflect new arrangements between them as controlling shareholders. The
shareholders’ agreement automatically terminated upon Philips Electronics’ sale of all of its remaining ownership interest in us in
March 2009. Effective March 3, 2008, we changed our name from LG.Philips LCD Co., Ltd. to LG Display Co., Ltd.
Our principal executive offices are located at LG Twin Towers, 128 Yeoui-daero, Yeongdeungpo-gu, Seoul 150-721 and
our telephone number is +82-2-3777-1010.
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We have continued to develop our manufacturing process technologies and expand our production facilities. Each successive
generation of our fabrication facilities has been designed to process increasingly larger-size glass substrates, which allows us to cut a larger
number of panels, sometimes with larger sizes, from each glass substrate. The ability to process larger glass substrates allows us to produce a
larger variety of display sizes to accommodate evolving business and consumer demands. For example, in order to respond to business and
consumer demands for large-sized panels for televisions, in March 2011, we commenced mass production at the second expansion to our P8
fabrication facility, which is optimized to produce 32-inch, 47-inch and 55-inch display panels for televisions. In addition, in June 2012, we
commenced mass production at our P9 fabrication facility, which is optimized to produce 7.85-inch and 9.7-inch display panels for tablet
computers and 21.5-inch and 23-inch display panels for desktop monitors in response to demand for such display panels of those sizes. In
addition, due to the large number of fabrication facilities we operate, we have the flexibility to make strategic decisions based on market
demand to convert existing production lines within a fabrication facility to manufacture display panels based on newer technologies. For
example, we converted a number of production lines in our P61 fabrication facility, which originally produced a-Si based display panels, to
produce LTPS based display panels for mobile devices and commenced mass production in the first quarter of 2014. In addition, we converted
a number of production lines in our P8 fabrication facility to produce OLED panels for televisions and commenced production in the fourth
quarter of 2012. We work closely with the local authorities where our fabrication facilities are located, and starting from January 2011, we
have signed a number of memoranda of understandings with Gumi City and North Gyeongsang Province for their administrative assistance in
connection with the recent expansion and conversion of facilities in our Gumi Display Cluster.
With respect to our on-going expansion and conversion projects, we are currently constructing an eighth-generation fabrication
facility in Guangzhou, China, which is expected to commence mass production in the middle of 2014. We are also in the process of converting
additional production lines in our P61 fabrication facility to increase our LTPS production capacity and expect to commence mass production
on the additional LTPS production lines in the second half of 2014. In addition, we are also in the process of converting additional production
lines in our P8 fabrication facility to produce OLED panels for televisions and expect to commence mass production on the additional OLED
production lines in the second half of 2014. Each of our on-going expansion and conversion projects are subject to market conditions and any
changes in our investment timetable. See “Item 4.D. Property, Plants and Equipment—Expansion Projects.”
With respect to our assembly facilities, from 1995 to early 2003, we assembled all panels in our Gumi assembly facility adjacent to
our P1 facility. In May 2003, we commenced operations at a new assembly facility in Nanjing, China, which we built and have since
expanded, in order to better serve the needs of our global customers with manufacturing facilities in China. In November 2005, we
commenced operations at a new assembly facility in Paju, Korea. In March 2007, we commenced mass production at our module production
plant in Wroclaw, Poland. In January 2008, we commenced mass production at our module production plant in Guangzhou, China, our second
such module production site in China. In addition, in March 2012, we commenced mass production at our module production plant in
Reynosa, Mexico, to better serve the needs of our customers in that region.
For a description of cash outflows relating to our capital expenditures in the past three fiscal years, see “Item 5.A. Operating
Results—Overview—Manufacturing Productivity and Costs.”
Item 4.B. Business Overview
Overview
We manufacture TFT-LCD panels in a broad range of sizes and specifications primarily for use in televisions, notebook
computers, desktop monitors, tablet computers and mobile devices, including smartphones, and we are one of the world’s leading suppliers of
high-definition, or HD, television panels. We also manufacture TFT-LCD panels for industrial and other applications, including entertainment
systems, automotive displays, portable navigation devices and medical diagnostic equipment. In 2013, we sold a total of 186.6 million display
panels that are nine inches or larger. According to DisplaySearch, we had a global market share for display panels of nine inches or larger of
approximately 27% based on sales revenue in 2013.
In addition to TFT-LCD panels, we also manufacture OLED panels. Our OLED business began with our acquisition of LG
Electronics’ active matrix OLED, or AMOLED, business in January 2008 by way of taking over its inventory, intellectual property rights and
employees related to the AMOLED business. In December 2009, we launched our Mobile/OLED Business Division in anticipation of future
growth of the OLED business. In September 2011, we commenced limited production of glass OLED panels for mobile devices for a number
of our strategic customers at our AP2 fabrication facility. In 2012, partly in recognition of the growing importance of OLED to the future of
our business, especially in connection with large-sized products, we restructured our internal organization relating to our OLED business,
breaking up the Mobile/OLED Business Division and transferring our mobile-related business (including OLED products for mobile and other
applications) to the newly created IT/Mobile Business Division and transferring our OLED television panel business to the Television
Business Division. In addition, we started production of 55-inch OLED television panels on one of our eighth-generation production lines
toward the end of 2012. With the launch of retail sales of flat and curved 55-inch OLED televisions by certain of our customers starting in the
first and third quarters of 2013, respectively, we intend to deploy greater resources into expanding our large-sized OLED panel fabrication
capabilities with the aim of establishing an early competitive edge in the market. We also commenced mass production of flexible plastic
OLED panels for smartphones in the fourth quarter of 2013 at our AP2 and E2 fabrication facilities.
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We currently operate a total of thirteen panel fabrication facilities, including expansions to certain facilities, located in our
Display Clusters in Gumi and Paju, Korea. We also currently operate module facilities located in China (Nanjing, Guangzhou and
Yantai), Korea (Gumi and Paju), Poland (Wroclaw) and Mexico (Reynosa). For a full description of our current facilities, see “Item
4.D. Property, Plants and Equipment—Current Facilities.”
We seek to build our market position based on collaborative relationships with our customers and suppliers, a focus on
high-end differentiated specialty display products and manufacturing productivity. Our end-brand customers include many of the
world’s leading manufacturers of televisions, notebook computers, desktop monitors, tablet computers and mobile phones such as LG
Electronics. For a description of our sales to LG Electronics, our largest shareholder, see “Item 7.B. Related Party Transactions.”
At the direction of our end-brand customers, we typically ship our display panels to their original equipment
manufacturers, known as “system integrators,” who use our display panels in products they assemble on a contract basis for our end-
brand customers. Our sales are conducted through our multi-channel sales and distribution network, including direct sales to end-
brand customers and their system integrators, sales through our overseas subsidiaries and sales through our affiliated trading
company, LG International, and its subsidiaries. For a description of our sales arrangements with LG International, see “Item 7.B.
Related Party Transactions.”
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Our sales were
24,291 billion in 2011,
29,430 billion in 2012 and
27,033 billion (US$25,618 million) in 2013.
Technology Description
TFT-LCD Technology
A TFT-LCD panel consists of two thin glass substrates and polarizer films between which a layer of liquid crystals is
deposited and behind which a light source called a backlight unit is mounted. The frontplane glass substrate is fitted with a color
filter, while the backplane glass substrate, also called a TFT array, has many thin film transistors, or TFT, formed on its surface. The
liquid crystals are normally aligned to allow the polarized light from the backlight unit to pass through the two glass panels to form a
picture element, or pixel. When voltage is applied to the transistors on the TFT array, the liquid crystals change their alignment and
alter the amount of light that passes through them. Meanwhile, the color filter on the frontplane glass substrate gives each pixel its
own color. The combination of these pixels in different colors and levels of brightness forms the image on the panel.
The process for manufacturing a TFT-LCD panel consists of four steps:
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TFT array process – involves fabricating a large number of thin film transistors on the backplane glass substrate.
The number of transistors corresponds to the number of pixels on the screen. The process is similar to the process
for manufacturing semiconductor chips, except that transistors are fabricated on large glass substrates instead of
silicon wafers. Unlike in the semiconductor industry, however, the number of transistors per glass substrate is not a
primary driver of the manufacturing costs for TFT-LCDs. Once the TFT array process on glass substrates is
completed, the substrates are cut into panel-sized pieces;
Color filter process – involves fabricating a large number of color regions on the frontplane glass substrate that will
overlay the TFT array prior to the cell process. The colored dots of red, green and blue combine to form various
colors. The process is similar to the TFT array process but involves depositing colored dyes instead of transistors;
Cell process – involves joining together the backplane glass substrate that is arrayed with transistors and the
frontplane glass substrate that is patterned with a color filter. The space between the two glass substrates is filled
with liquid crystal materials. The resulting panel is called a cell; and
Module assembly process – involves connecting additional components, such as driver integrated circuits and
backlight units, to the cell.
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The TFT array, color filter and cell processes are capital-intensive and require highly automated production equipment and
are the primary determinants of fixed manufacturing cost. In contrast, the module assembly process involves semi-automated
production equipment and manual labor to assemble the various components. Materials are the primary drivers of variable
manufacturing cost.
IPS Technology
In-Plane Switching, or IPS, is a liquid crystal switching technology that was developed to address commonly faced
problems with TFT-LCD panels that utilized other liquid crystal technologies, namely narrow viewing angles, inconsistent picture
uniformity and slow response times. Unlike other liquid crystal technologies where the liquid crystals are aligned vertically or at an
angle in relation to the glass substrate, with IPS technology, the liquid crystals are aligned horizontally in parallel to the glass
substrate, which allows for wider viewing angles, greater picture uniformity and faster response times. Our TFT-LCD display panels,
including our TFT-LCD television panels, utilize IPS technology.
Advanced High Performance IPS, or AH-IPS, is our next-generation IPS technology that integrates ultra-fine pitch
technology and high transmittance technology, which allows for ultra-high resolution imagery, increased luminance and greater
energy efficiency. For example, in May 2012, we released a 5-inch panel with a resolution of 440 pixels-per-inch. AH-IPS is
currently utilized in our smartphone panels and other mobile display products, as well as certain of our panels for notebook
computers, tablet computers and desktop monitors.
OLED Technology
An OLED panel consists of a thin film of organic material encased between anode and cathode electrodes. When a current
is applied, light is emitted directly from the organic material. Because a separate backlight is not needed, OLED panels can be lighter
and thinner compared to TFT-LCD panels, which require a separate backlight. In addition, images projected on OLED panels have
higher contrast ratios and more realistic color reproduction compared to images projected on TFT-LCD panels. We commenced mass
production of OLED panels for mobile and other applications in September 2011. We produce OLED products for mobile and other
applications using LTPS backplane technology and large-sized OLED products primarily for use in televisions using oxide TFT
backplane technology, as described in greater detail below. In addition, we are developing plastic OLED products for mobile and
other applications using LTPS backplane technology.
Our large-sized OLED products, including the 55-inch OLED television panel, are produced using OLED technologies and
processes that are different from the ones we use for our smaller-sized OLED products. Our large-sized OLED products are produced
using oxide TFT backplane technology as compared to our smaller-sized OLED products which utilize LTPS backplane technology,
as described in greater detail below. Our OLED products are produced at fabrication facilities in our Paju Display Cluster.
Backplane Technology
Oxide TFT
We use oxide TFT technology to produce backplanes for use in our large-sized OLED panels, such as the panels used in
OLED television products. The traditional amorphous silicon-based TFT, or a-Si TFT, backplane technology has certain limitations
that render it unsuitable for producing backplanes for use in large-sized OLED panels with high resolutions and fast refresh rates. For
example, in larger and higher-resolution display panels, a-Si TFT backplanes consume increased rates of power and experience a
decrease in the rate at which each transistor is able to switch between images, or the rate of mobility.
As an alternative to a-Si TFT backplane technology, we have successfully adopted a metal oxide-based TFT, or simply
oxide TFT, backplane technology. In place of the amorphous silicon-based semiconductors used in a-Si TFT backplanes, oxide TFT
backplanes utilize metal oxide-based semiconductors, which consume less energy, have a higher rate of mobility and allow for
construction of display panels with narrower bezels as compared to display panels with traditional a-Si TFT backplanes.
We were the first company in the display industry to successfully adopt oxide TFT technology in large-sized OLED
products, which has been a key factor in reducing the costs of manufacturing large-sized OLED panels in large quantities. Because
the manufacturing process of oxide TFT-based OLED panels are similar to the process used to manufacture TFT-LCD panels, we are
able to use our existing TFT-based fabrication lines with relatively little modification to mass produce large-sized OLED panels.
28
Low Temperature Polycrystalline Silicon
Low temperature polycrystalline silicon, or LTPS, backplanes have superior current-driving capacity and produce brighter
images, while consuming less energy compared to a-Si TFT or oxide TFT backplanes, due to their higher mobility rates. However,
due to a complex manufacturing process, LTPS backplanes have relatively higher production costs compared to a-Si TFT or oxide
TFT backplanes, making it uneconomical to use in the production of large-sized panels. As a result, we generally utilize LTPS
backplanes in the production of smaller-sized panels, particularly in TFT-LCD and OLED smartphone panels.
3D Technology
Film-Type Patterned Retarder
Film-Type Patterned Retarder 3D, or FPR 3D, technology is utilized in display panels to display three-dimensional
imagery when viewed with polarized glasses. A patterned retarder film polarizes images projected on the display panel into left and
right images, which are then received by the respective side of the polarized glasses worn by the viewer to create a 3D effect. As both
the right and left images are received simultaneously by the polarized glasses, there is no flicker effect commonly associated with
display panels utilizing shutter glass technology, which projects left and right images in alternative succession. Since 3D television
sets using our FPR 3D television panel products were first introduced to the market in March 2011, television sets using FPR 3D
technology rapidly increased their market share. According to DisplaySearch, television sets using FPR 3D technology accounted for
51.5% of the global 3D television market in 2013.
Products
We manufacture display panels of various specifications that are integrated by our customers into principally the following
products:
•
•
•
•
•
Televisions, which typically utilize large-sized display panels ranging from 17 inches to 105 inches in size,
including Ultra HD television panels, which have four times the number of pixels compared to conventional HD
television panels;
Notebook computers, which typically utilize display panels ranging from 10.1 inches to 17.3 inches in size;
Desktop monitors, which typically utilize large-sized display panels ranging from 15 inches to 34 inches in size;
Tablet computers, which typically utilize display panels ranging from 7 inches to 12.9 inches in size; and
Mobile and other applications, which utilize a wide array of display panel sizes, including smartphones and other
types of mobile phones and industrial and other applications, including entertainment systems, automotive displays,
portable navigation devices and medical diagnostic equipment.
Unless otherwise specified, when we refer to panels in this annual report, we mean assembled cells with added
components, such as driver integrated circuits and backlight units.
We design and manufacture our panels to meet the various size and performance specifications of our customers, including
specifications relating to thinness, weight, resolution, color quality, power consumption, response times and viewing angles. The
specifications vary from product to product. For television panels, a premium is placed on faster response times, wider viewing
angles, higher resolution and greater color fidelity. Notebook computer panels require an emphasis on thinness, light weight and
power efficiency, while desktop monitor panels demand a greater focus on brightness, color brilliance and wide viewing angles.
In addition to manufacturing and selling display panels, we also manufacture and sell television sets and desktop monitors
through our joint venture companies. See “—Joint Ventures.”
29
Televisions
Our television display panels range from 17 inches to 105 inches in size. We began mass production of television display
￦
￦
panels in 2001. Our sales of display panels for televisions were
billion, or 45.9% of our total revenue, in 2012 and
constituted our largest product category in each of the past three years.
￦
11,579 billion, or 47.7% of our total revenue, in 2011,
11,795 billion (US$11,177 million), or 43.6% of our total revenue, in 2013 and
13,512
Our product portfolio includes panels of various sizes such as 17-inch, 19-inch, 20-inch, 22-inch, 26-inch, 32-inch, 37-
inch, 42-inch, 47-inch, 49-inch, 50-inch, 55-inch, 60-inch, 65-inch, 72-inch, 84-inch and 105-inch display panels. In 2013, our
principal products in this category in terms of sales revenue consisted of 32-inch, 42-inch, 47-inch and 55-inch display panels. A
substantial portion of our larger panels shipped in 2013 were equipped with FPR 3D technology.
Brand manufacturers of televisions and their distribution channels prefer long-term arrangements with a limited number of
display panel suppliers that can offer a full product line, and we believe that we are well positioned to meet their requirements with
our strengths in technology, manufacturing scale and efficiency as well as the breadth of our product portfolio.
Notebook Computers
Our display panels for notebook computers range from 10.1 inches to 17.3 inches in size in a variety of display formats and
constituted our fifth largest product category in terms of sales revenue in 2013. Revenue from sales of our display panels for notebook
￦
computers was
￦
3,667 billion, or 12.5% of our total revenue, in 2012 and
3,246 billion, or 13.4% of our total revenue, in 2011,
￦
2,819 billion (US$2,671 million), or 10.4% of our total revenue, in 2013. In 2013, our principal products in terms of sales revenue
in this category were 13.3-inch, 14.0-inch and 15.6-inch display panels.
Consumer demand for notebook computers has steadily declined in recent years due in part from competition from tablet
computers and smartphones that are more economical and convenient to use compared to notebook computers while offering similar
levels of computing functionality.
Desktop Monitors
Our desktop monitor display panels range from 15 inches to 34 inches in size in a variety of display resolutions and
￦
formats. Revenue from sales of our display panels for desktop monitors was
￦
￦
4,975 billion, or 20.5% of our total revenue, in 2011,
5,039 billion, or 17.1% of our total revenue, in 2012 and
5,256 billion (US$4,981 million), or 19.4% of our total revenue, in
2013 and constituted our second largest product category in each of the past three years.
In recent years, consumer demand for larger panels for desktop monitors has steadily grown. In 2013, our principal
products in terms of sales revenue in this category were 21.5-inch, 23-inch and 27-inch display panels.
Tablet Computers
Our tablet computer display panels range from 7 inches to 12.9 inches in size in a variety of display formats and
￦
constituted our third largest product category in 2013. Revenue from sales of our display panels for tablet computers was
billion, or 9.2% of our total revenue, in 2011,
million), or 13.2% of our total revenue, in 2013.
3,714 billion, or 12.6% of our total revenue, in 2012 and
￦
￦
3,575 billion (US$3,388
2,224
Consumer demand for tablet computers has steadily grown since they were introduced. In 2013, our principal products in
terms of sales revenue in this category were display panels smaller than 10 inches.
Mobile and Other Applications
Our product portfolio also includes panels for mobile and other applications, which utilize a wide array of display panel
sizes, including smartphones and other types of mobile phones and industrial and other applications, including entertainment systems,
automotive displays, portable navigation devices and medical diagnostic equipment. TFT-LCD panels that are nine inches and smaller
are referred to as small and medium-sized panels, with those smaller than four inches being considered small-sized panels.
30
Along with panels for tablet computers, this is our fastest growing category of products in terms of revenue growth in
￦
￦
recent years, driven largely by an increase in demand for smartphone panels. Revenue from sales of our display panels for mobile and
other applications was
and
constitute a significant majority in terms of both sales revenue and sales volume in the mobile and other applications category.
3,537 billion (US$3,352 million), or 13.1% of our total revenue, in 2013. In 2013, sales of panels for smartphones continued to
3,371 billion, or 11.5% of our total revenue, in 2012
2,190 billion, or 9.0% of our total revenue, in 2011,
￦
Some of the panels we produce for industrial products, such as medical diagnostic equipment, are highly specialized niche
products manufactured to the specifications of our clients, while others, such as industrial controllers, may be manufactured by
slightly modifying a standard product design for our other products, such as desktop monitors. Display panels for these other
applications broaden our sales base and product mix. They are also often a good channel through which we can commercialize a
particular technology that we have developed. We generally determine the production level and specification of our TFT-LCD panels
for mobile and other applications by assessing various business opportunities as they arise.
Sales and Marketing
Customer Profile
Our display panels are included primarily in televisions, notebook computers, desktop monitors, tablet computers and
mobile and other applications sold by our global end-brand customers, including LG Electronics. LG Electronics is our largest
shareholder, and the terms of our sales to LG Electronics are negotiated based on then-prevailing market prices as adjusted for LG
Electronics’ requirements, including volume and specifications. See “Item 7.B. Related Party Transactions” for further description of
our sales to LG Electronics.
We negotiate directly with our end-brand customers concerning the terms and conditions of the sales, but typically ship our
display panels to designated system integrators at the direction of these end-brand customers. Sales data to end-brand customers
include direct sales to these end-brand customers as well as sales to their designated system integrators, including through our
affiliated trading company, LG International, and its subsidiaries, as further discussed below under “—Sales.”
A substantial portion of our sales is attributable to a limited number of our end-brand customers. Our top ten end-brand
customers together accounted for approximately 71% of our sales in 2011, 71% in 2012 and 76% in 2013. Of our top ten end-brand
customers, two of them accounted for more than 10% of our sales on an individual basis for each of the past three years. For example,
sales to LG Electronics amounted to 21.4%, 21.0% and 22.9% of our sales in 2011, 2012 and 2013, respectively.
In addition to our top ten end-brand customers, we sell our TFT-LCD panels to a variety of other manufacturers of
computers and electronic products. Sales to these other manufacturers constituted approximately 29% of our sales in 2011, 29% in
2012 and 24% in 2013, respectively.
The following table sets forth for the periods indicated the geographic breakdown of our sales by the region where
purchase orders are originated, without regard to the location of end-brand customers. The figures below therefore reflect orders from
our end-brand customers, their system integrators and our affiliated trading company, LG International, and its subsidiaries:
Korea
China
Europe
Asia (excluding China)
Americas
Others (1)
Total (2)
2011
2012
Year Ended December 31,
2013
Sales(3)
%
Sales
￦
￦
Sales
Sales %
%
(in billions of Won and millions of US$, except for percentages)
2,692 US$ 2,551
14,433
3,436
2,424
2,318
456
15,230
3,626
2,558
2,446
481
2,150
16,767
4,403
2,736
3,209
165
8.1%
58.9
14.5
9.3
9.1
0.2
57.0
15.0
9.3
10.9
0.5
1,964
14,293
3,526
2,248
2,217
43
7.3%
￦
￦
￦
￦
10.0%
56.3
13.4
9.5
9.0
1.8
24,291 100.0%
29,430 100.0%
27,033 US$25,618 100.0%
Includes Oceania, Africa and the Middle East.
(1)
(2) Figures provided in this table include our revenue attributable to royalty and others.
(3) For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of
￦
1,055.25 to US$1.00, the noon buying rate in effect on December 31,
2013 as certified by the Federal Reserve Bank of New York for customs purposes. This translation should not be construed as a representation that the Korean
Won amounts represent, have been or could be converted to U.S. dollars at that rate or any other rate.
31
Sales
Our sales and marketing departments seek to maintain and strengthen relationships with our current customers in existing
markets as well as expand our business in new markets and with new customers. We currently have wholly-owned sales subsidiaries
in the United States, Japan, Germany, Taiwan, China and Singapore. As of December 31, 2013, our sales and marketing force
employed a total of approximately 1,400 employees in regional offices in these countries and in our head office in Korea.
The focus of our sales activities is on strengthening our relationships with large end-brand customers, with whom we
maintain strong collaborative relationships. Customers look to us for a reliable supply of a wide range of display products. We believe
our reliability and scale as a supplier helps support our customers’ product positions. We view our relationships with our end-brand
customers as important to their product development strategies, and we collaborate with our end-brand customers in the design and
development stages of their new products. In addition, our sales teams coordinate closely with our end-brand customers’ designated
system integrators to ensure timely delivery. For each key customer, we appoint an account manager who is primarily responsible for
our relationship with that specific customer, complemented by a product development team consisting of engineers who participate in
meetings with that customer to understand the customer’s specific needs.
We do not typically enter into binding long-term contracts with our customers. However, we have in place long-term
supply and purchase agreements with certain major end-brand customers, whereby we and our end-brand customers agree on general
volume parameters and, in some cases, product specifications and delivery terms. These agreements serve as an indication of the size
and key components of a customer’s order, and neither party is committed to supply or purchase any products until a firm purchase
order is issued.
Our sales are conducted through our multi-channel sales and distribution network, including direct sales to end-brand
customers and their system integrators, sales through our overseas subsidiaries and sales through our affiliated trading company, LG
International, and its subsidiaries. Our sales subsidiaries procure purchase orders from, and distribute our products to, system
integrators and end-brand customers located in their region. In regions where we do not have a sales subsidiary, or where doing so is
consistent with local market practices, we sell our products to LG International and its subsidiaries. These subsidiaries of LG
International process orders from and distribute products to customers located in their region. Sales to LG International and its
subsidiaries amounted to 5.4% in 2013. See “Item 7.B. Related Party Transactions” for further discussion of these sales arrangements.
We may establish sales subsidiaries in the relevant geographical markets when the benefit of doing so outweighs the cost
of solely utilizing LG International or its subsidiaries, and where local market practice permits. For example, in January 2009, we
established a sales subsidiary in Singapore to replace LG International Singapore Ltd. in conducting sales to system integrators
located in Singapore. We may establish additional sales subsidiaries in the future in these or other regions as sales volumes to
customers located in these regions increase and/or market practice warrants.
Our end-brand customers or their system integrators generally place purchase orders with us one month prior to delivery
based on our non-binding supply and purchase agreements with them. Generally, the head office of an end-brand customer provides
us with three- to six-month forecasts, which, together with our own forecasts, enable us to plan our production schedule in advance.
Our customers usually issue monthly purchase orders containing prices we have negotiated with the end-brand customer one month
prior to delivery, at which point the customer becomes committed to the order at the volumes and prices indicated in the purchase
orders. Under certain special circumstances, however, a negotiated price may be subject to change during the one-month period prior
to delivery.
Prices for our products are generally determined based on negotiations with our end-brand customers. Pricing of our
display panel products is generally market-driven, based on the complexity of the product specifications and the labor and technology
involved in the design or production processes.
We generally provide a limited warranty to our end-brand customers, including the provision of replacement parts and
after-sale services for our products. Costs incurred under our warranty liabilities consist primarily of repairs. We set aside a warranty
reserve based on our historical experience and future expectations as to the rate and cost of claims under our warranties.
32
Our credit policy typically requires payment within 30 to 90 days, and payments on the vast majority of our sales have typically
been collected within 60 days. Where system integrators located in certain regions are invoiced directly, we have established certain
measures, such as factoring arrangements and accounts receivable insurance programs, to protect us from excessive exposure to credit risks.
To date we have not experienced any material problems relating to customer payments.
Competition
The display panel industry is highly competitive. Due to the capital intensive nature of the display panel industry and the high
production volumes required to achieve economies of scale, the international market for display devices is characterized by significant
barriers to entry, but the competition among the relatively small number of major producers is intense. In the case of TFT-LCD panel
manufacturers, currently almost all of them are located in Asia, and we compete principally with manufacturers from Korea, Taiwan, China
and Japan.
The principal elements of competition for customers in the display panel market include:
•
•
•
•
•
•
product portfolio range and availability;
product specifications and performance;
price;
capacity allocation and reliability;
customer service, including product design support; and
logistics support and proximity of regional stocking facilities.
Our principal competitors are:
•
•
•
•
Samsung Display and Hydis Technologies in Korea;
AU Optronics, Innolux, Chunghwa Picture Tubes and HannStar Display in Taiwan;
Japan Display, Sharp and Panasonic LCD in Japan; and
BOE and China Star Optoelectronics in China.
According to DisplaySearch, in 2013, Korean display panel manufacturers had a market share of 48.2% of the 9-inch or larger panel market
based on revenue, Taiwanese manufacturers had 34.0%, Japanese manufacturers had 8.0% and Chinese manufacturers had 9.8%. Our market
share of the 9-inch or larger panel market based on revenue was approximately 27%.
Components, Raw Materials and Suppliers
Components and raw materials accounted for 69.2% of our cost of sales in 2011, 68.5% in 2012 and 66.7% in 2013. The key
components and raw materials of our display products include glass substrates, driver integrated circuits, polarizers and color filters used in
both our TFT-LCD and OLED products, backlight units and liquid crystal materials used in our TFT-LCD products, and hole transport
materials and emission materials used in our OLED products. We source these components and raw materials from outside sources,
although, unlike many other display panel manufacturers, we produce a substantial portion of the color filters we use. With respect to glass
substrates, Paju Electric Glass Co., Ltd., a joint venture company of which we and Nippon Electric Glass Co., Ltd. own 40% and 60%,
respectively, provides us with a stable supply at competitive prices.
We generally negotiate non-binding master supply agreements with our suppliers several times a year, but pricing terms are
negotiated on a quarterly basis, or if necessary, on a monthly basis. Firm purchase orders are issued generally six weeks prior to the
scheduled delivery, except in the case of purchase orders for driver integrated circuits, which are issued generally six to ten weeks prior to
the scheduled delivery. We purchase our components and raw materials based on forecasts from our end-brand customers as well as our own
assessments of our end-brand customers’ needs.
In order to reduce our component and raw material costs and our dependence on any one supplier, we generally develop
compatible components and raw materials and purchase our components and raw materials from more than one source. However, we source
certain key components and raw materials from a limited group of suppliers in order to ensure timely supply and consistent quality. Also, in
order to facilitate implementation of our cost reduction strategies, we continually review for potential cost savings in sourcing our
components and raw materials from suppliers based in Korea and those based abroad, including competitiveness of the prices offered by
such suppliers and any potential for reduction in logistics and transportation costs. We perform periodic evaluations of our component and
raw material suppliers based on a number of factors, including the quality and price of the components, delivery and response time, the
quality of the services and the financial health of the suppliers. We reassess our supplier pool accordingly.
33
We maintain a strategic relationship with many of our material suppliers, and from time to time, we make equity
investments in our material suppliers as part of our efforts to secure a stable supply of key components and raw materials. For
example, in April 2012, we invested
19.8% of its then outstanding capital stock.
2.0 billion in Glonix Co., Ltd., a supplier of tempered glass used for touchscreens, in return for
￦
We generally maintain a component and raw material inventory sufficient for approximately 10 days, or 20 days for driver
integrated circuits, as a safeguard against potential disruptions in supply.
In addition to components and raw materials, the manufacturing of our products requires significant quantities of electricity
and water. In order to obtain and maintain reliable electric power and water supplies, we have our own back-up power generation
facilities and water storage tanks as well as easy access to nearby water sources. To date we have not experienced any material
problems with our electricity and water supplies.
Equipment, Suppliers and Third Party Processors
We depend on a limited number of equipment manufacturers for equipment tailored to specific requirements. Since our
manufacturing processes depend on the quality and technological capacity of our equipment, we work closely with the equipment
manufacturers in the design process to ensure that the equipment meets our specifications. The principal types of equipment we use to
manufacture TFT-LCD panels include chemical deposition equipment, steppers, developers and coaters.
We purchase equipment from a small number of qualified vendors to ensure consistent quality, timely delivery and
performance. We maintain strategic relationships with many equipment manufacturers as part of our efforts to ensure quality while
reducing costs. For example, in April and June 2011, we invested a total of
30 billion in return for an aggregate 23.0% of the then
outstanding equity interests of Narae Nanotech Corporation, a Korean equipment manufacturer that supplies us with coaters.
￦
Historically, we have relied on a small number of overseas vendors for equipment purchases, but in recent years, we have
diversified and localized our equipment purchases by shifting some of our purchases to local vendors. In 2013, approximately 78% of
our equipment for our facilities in Korea was purchased from local vendors on an invoiced basis. We plan to maintain this localization
effort as part of our sourcing diversification and cost reduction strategy. A large majority of the equipment purchased from overseas
vendors are from Japanese vendors. In the procurement of equipment from Japan, we also use LG International’s subsidiary in Japan
in order to take advantage of their relationships with vendors, experience in negotiations and logistics as well as their ability to obtain
volume discounts. See “Item 7.B. Related Party Transactions.”
Our engineers begin discussions with equipment manufacturers far in advance of the planned installation of equipment in a
new fabrication facility, and we typically execute a letter of intent with the vendors in advance of our planned installation to ensure
timely delivery of main equipment with long-term delivery schedules. Engineers from our vendors typically accompany the new
equipment to our fabrication facilities to assist in the installation process to ensure proper operation. To date, we have not experienced
any material problems with our equipment supplies or after-delivery services.
In addition, we outsource certain manufacturing processes to third party processers from time to time to supplement our
processing capacity, and in certain cases, we maintain strategic relationships with such third party processors. For example, in
December 2011, we invested approximately
return for 20.3% of its then outstanding common stock.
11 billion in AVATEC Co., Ltd., a third party processor that etches glass substrates, in
￦
Quality Control
We believe that our advanced production capabilities and our reputation for high quality and reliable products have been
important factors in attracting and retaining key customers. We have implemented quality inspection and testing procedures at all of
our fabrication facilities and assembly facilities. Our quality control procedures are carried out at three stages of the manufacturing
process:
•
•
•
incoming quality control with respect to components and raw materials;
in-process quality control, which is conducted at a series of control points in the manufacturing process; and
outgoing quality control, which focuses on packaging, delivery and post-delivery services to customers.
34
With respect to incoming quality control, we perform quality control procedures for the raw materials and components that
we purchase. These procedures include testing samples of large batches, obtaining vendor testing reports and testing to ensure
compatibility with other components and raw materials, as well as vendor qualification and vendor rating. Our in-process quality
control includes various programs designed to detect, as well as prevent, quality deviations, reduce manufacturing costs, ensure on-
time delivery, increase in-process yields and improve field reliability of our products. We perform outgoing quality control based on
burn-in testing and final visual inspection of our products and accelerated life testing of samples. We inspect and test our completed
display panels to ensure that they meet our high production standards. We also provide post-delivery services to our customers, and
maintain warranty exchange inventories in regional hubs to meet our customers’ needs.
Our quality assurance team works to ensure effective and consistent application of our quality control procedures, which
includes six-sigma quality control procedures, and to introduce new methodologies that could further enhance our quality control
procedures. Our quality assurance programs have received accredited ISO/TS 16949 certifications. The ISO/TS certification process
involves subjecting our manufacturing processes and quality management systems to reviews and observation for various fixed
periods. ISO/TS certification is required by certain European countries and the United States in connection with sales of industrial
products in those countries, and provides independent verification to our customers regarding the quality control measures employed
in our manufacturing and assembly processes.
Insurance
We currently have insurance coverage for our production facilities in Gumi and Paju, Korea, for up to
2.5 trillion per
claim, which includes business interruption coverage. We also have insurance coverage for work-related injuries to our employees,
accidents during overseas business travel, damage during construction, damage to products and equipment during shipment, damage
to equipment during installation at our fabrication facilities, automobile accidents, bodily injury and property damage from gas
accidents, as well as mandatory unemployment insurance for our workers and director and officer liability insurance. In addition, we
maintain general and product liability, employment practice liability and aviation product liability insurance. Our dormitories in Gumi
and Paju, Korea have fire insurance coverage for up to
452 billion per claim. Our subsidiaries also have insurance coverage for
damage to office fixtures and equipment, cargo insurance and life and disability insurance for their employees. All of our overseas
manufacturing subsidiaries also carry property insurance, business interruption insurance and commercial general liability insurance.
￦
￦
Environmental Matters
Our production processes generate various forms of chemical and other industrial waste, waste water and greenhouse gas
emissions at various stages in the manufacturing process. We have installed various types of anti-pollution equipment for the
treatment and recycling of such waste products and aggressively engage in greenhouse gas emission reduction and energy
conservation efforts.
As a member of the World LCD Industry Cooperation Committee, or WLICC, a TFT-LCD industry organization focusing
on environmental issues, we have voluntarily agreed to reduce emission of greenhouse gases, such as nitrogen trifluoride, or NF3, and
sulfur hexafluoride, or SF6, gases, by developing and adopting cost-effective abatement technologies and systems and increasing the
number of abatement systems installed in our facilities. We installed NF3 abatement systems at all of our production lines when the
production facilities were being constructed. In addition, we have voluntarily installed SF6 abatement systems in P1, P61 and P7.
We also have an internal monitoring system to control the use of hazardous substances in the manufacture of our products
as we are committed to compliance with all applicable environmental laws and regulations, including European Union Restriction of
Hazardous Substances, or RoHS, Directive 2011/65/EU, which restricts the use of certain hazardous substances in the manufacture of
electrical and electronic equipment. Furthermore, we are operating a “green purchasing system,” which excludes the hazardous
materials at the purchasing stage. This system has enabled us to comply with various environmental legislations of hazardous
substances, including the European Union RoHS. For the more efficient operation of our waste water treatment equipment, we have
also entered into a three year agreement with HiEntech, a wholly owned subsidiary of LG Electronics, for the operation of our water
treatment system.
35
Operations at our manufacturing plants are subject to regulation and periodic scheduled and unscheduled on-site
inspections by the Korean Ministry of Environment and local environmental protection authorities. We believe that we have adopted
adequate anti-pollution measures for the effective maintenance of environmental protection standards consistent with local industry
practice, and that we are in compliance in all material respects with the applicable environmental laws and regulations in Korea,
including the Framework Act on Low Carbon, Green Growth, the Korean government, under which we are required to submit
periodic greenhouse gas emission and energy usage statements, performance reports and greenhouse gas emission and energy usage
reduction plans to the Korean government. Expenditures related to such compliance may be substantial and are generally included in
capital expenditures. As required by Korean law, we employ licensed environmental specialists for each environmental area,
including air quality, water quality, toxic materials and radiation.
We have been certified by the Korean Ministry of Environment as a “Green Company”, with respect to our environmental
record for our P1 through P61 facilities and our module production plant in Gumi. In addition, we have received ISO 14001 and ISO
50001 certifications from the International Organization for Standardization and KS 7001 and KS 7002 certifications from the Korean
Standards Service network with respect to our environmental and energy management systems for our P1 through P9 facilities and
our Gumi and Paju module production plants. Our module production plants in Nanjing, Yantai and Guangzhou, China have also
received ISO 14001 certification.
Joint Ventures
We consider joint ventures an important part of our business, both operationally and strategically. We have used joint
ventures to enter into new geographic markets, in particular China, to gain new customers and/or strengthen positions with existing
customers and to procure certain components and raw materials. When entering new geographic markets where we do not have
substantial local experience and infrastructure, teaming up with a local partner can reduce capital investment by leveraging the pre-
existing infrastructure of local partners. In addition, local partners in these markets can provide knowledge and insight into local
customs and practices and access to local suppliers of raw materials and components. All of these advantages can reduce the risk, and
thereby enhance the prospects for the success, of an entry into a new geographic market. If the partner of the joint venture already has
an established customer base, it can also be an effective means to acquire such new customers. Joint venture arrangements also allow
us to access technology we would otherwise have to develop independently, thereby reducing the time and cost of development. They
can also provide the opportunity to create synergies and applications of technology that would not otherwise be possible.
In recent years, we have pursued a number of joint venture initiatives. For example:
•
In September 2012, we entered into a joint venture agreement with Guangzhou GET Technologies Development
Co., Ltd., or GET Tech, and Shenzhen SKYWORTH-RGB Electronic Co., Ltd., or Skyworth, establishing LG
Display (China) Co., Ltd., which will own and operate the new eighth-generation fabrication facility that is currently
under construction in Guangzhou, China. See “Item 4.D. Property, Plants and Equipment—Expansion Projects.” We
acquired a 70.0% equity interest in LG Display (China) and have committed to invest a total of approximately
US$934 million over a period of two years from the date of incorporation of LG Display (China). Each of GET Tech
and Skyworth owns a 20.0% and 10.0% equity interest in LG Display (China), respectively.
We intend to continue to seek strategic acquisition and joint venture opportunities and conduct feasibility studies with
respect to establishing new manufacturing subsidiaries in strategic locations to deepen our market penetration, achieve economies of
scale, increase our customer base, expand our geographical reach and reduce costs.
36
Subsidiaries
The following table sets forth summary information for our subsidiaries as of December 31, 2013:
Subsidiary
LG Display Taiwan Co., Ltd.
LG Display America, Inc.(1)
LG Display Japan Co., Ltd.
LG Display Germany GmbH
LG Display Nanjing Co., Ltd.
LG Display Shanghai Co., Ltd.
LG Display Poland Sp. zo.o.
LG Display Guangzhou Co., Ltd. (2)
LG Display Shenzhen Co., Ltd.
LG Display Singapore Pte. Ltd.
LG Display Yantai Co., Ltd
L&T Display Technology (Xiamen) Ltd.
L&T Display Technology (Fujian) Ltd.
LUCOM Display Technology (Kunshan) Ltd.
LG Display USA Inc.
LG Display Reynosa S.A. de C.V.
Nanumnuri Co., Ltd.
LG Display (China) Co., Ltd.(3)
Unified Innovative Technology, LLC
Main
Activities
Sales
Sales
Sales
Sales
Manufacturing
and sales
Sales
Manufacturing
and sales
Manufacturing
and sales
Sales
Sales
Manufacturing
and sales
Manufacturing
and sales
Manufacturing
and sales
Manufacturing
and sales
Manufacturing
and sales
Manufacturing
Workplace
services
Manufacturing
and sales
Managing
intellectual
property
Jurisdiction
of
Organization
Taiwan
U.S.A.
Japan
Germany
China
Total Equity
Investment
Date of
Organization
April 1999
NT$
September 1999 US$
October 1999
November 1999
July 2002
115,500,000
375,000,000
95,000,000
¥
€
960,000
RMB 2,834,206,315
China
Poland
January 2003
September 2005
RMB
4,138,650
PLN 410,327,700
China
June 2006
RMB 992,062,354
China
Singapore
China
August 2007
January 2009
April 2010
3,775,250
RMB
SG$
1,400,000
RMB 525,016,000
China
January 2010
RMB
41,785,824
China
January 2010
RMB
59,197,026
China
December 2010
RMB
50,353,677
U.S.A.
October 2011
US$
10,920,000
Mexico
Korea
November 2011 MXN 111,998,058
800,000,000
Won
March 2012
China
December 2012
RMB 2,313,523,882
U.S.A.
March 2014
US$
9,000,000
Percentage
of Our
Ownership
Interest
Percentage
of Our
Voting
Power
100%
100%
100%
100%
100%
100%
80%
100%
100%
100%
100%
51%
51%
51%
100%
100%
100%
70%
100%
100%
100%
100%
100%
100%
100%
80%
100%
100%
100%
100%
51%
51%
51%
100%
100%
100%
70%
100%
(1)
(2)
(3)
In June and December 2013, we invested US$40 million and US$75 million, respectively, in LG Display America, Inc. The investments did not affect our
percentage interest.
In October 2013, Skyworth TV Holdings Limited (Skyworth) exercised its put option on its 10% equity interest in LG Display Guangzhou Co., Ltd. pursuant to a
derivatives contract entered into with us, and we were required to purchase Skyworth’s 10% equity in LG Display Guangzhou Co., Ltd. at RMB 96 million, which
increased our percentage interest from 90% to 100%.
In March, September, October and November 2013, we invested RMB 703 million, RMB 372 million, RMB 1,059 million and RMB 3 million, respectively, in
LG Display (China) Co., Ltd. The investments did not affect our percentage interest.
37
Item 4.C. Organizational Structure
These matters are discussed under Item 4.B. where relevant.
Item 4.D.
Property, Plants and Equipment
Current Facilities
We currently operate a total of thirteen panel fabrication facilities, including expansions to certain facilities (P2 through P9
and AP3 located in our Gumi and Paju Display Clusters, and AP2, E2 and M1 located in our Paju Display Cluster). The following
table sets forth the size, primary use and capacity of our fabrication facilities.
Facility
P1 (3)
P2
P3
P4
P5
P61 (4)
P7
P8 (5)
P62
P9
AP2
E2 (6)
M1 (7)
AP3
Generation(1)
2
3.5
4
5
5
6
7
8
6
8
4.5
3.5
8.5
6
Gross Floor
Area
(in square
meters)
38,838
71,149
71,149
93,278
93,278
288,602
310,136
422,702
101,607
85,950
86,042
3,884
6,102
N/A
Input Substrates
Size (in mm)/
Mass Production
Commencement
370 x 470
September 1995
590 x 670
December 1997
680 x 880
July 2000
1,000 x 1,200
March 2002
1,100 x 1,250
May 2003
1,500 x 1,850
August 2004
1,950 x 2,250
January 2006
2,200 x 2,500
March 2009
1,500 x 1,850
April 2009
2,200 x 2,500
June 2012
730 x 920
May 2010
730 x 460
December 2013
2,200 x 1,250
January 2014
1,500 x 1,850
January 2014
Nominal TFT Capacity
as of December 31, 2013
(in input substrates
per month)(2)
Primary Size of Panels
Produced or
Other Activity
—
6.4”, 10.4”
79,000
4.5”, 5.0”, 6.1”, 7.0”
84,000
4.0”, 4.67”
131,000
13.3”, 14.0”, 17.3”
109,000
132,000
197,000
321,000
59,000
10.1”, 12.5”, 15.4”,
15.6”
7.85”, 9.7”, 24.0” and
LTPS based TFT
backplanes
42.0”, 50.0”
32.0”, 47.0”, 55.0” and
backplanes for OLED
(TV)
15.6”, 18.5”, 20.0”
58,000
7.85”, 9.7”, 21.5”, 23.0”
75,000
N/A
N/A
20,000
4.0” and backplanes for
OLED (mobile)
5.98”
55”, 65”, 77” for OLED
(TV)
4.0”
N/A = Not applicable.
(1) Based on internal reference to evolutions in facility design, material flows and input substrate sizes. There are several definitions of “generations” in the display
industry. There has been no consensus in the display industry on a uniform definition. References to generations made in this annual report are based on our
current definition of generations as indicated in the table below.
38
Substrate Sizes (in millimeters)
Gen 2 Gen 3
360 x 465
370 x 470
400 x 500
550 x 650
590 x 670
600 x 720
620 x 750
650 x 830
Gen 4
680 x 880
730 x 920
Gen 5
1,000 x 1,200
1,100 x 1,250
1,100 x 1,300
1,200 x 1,300
Gen 6
1,500 x 1,800
1,500 x 1,850
Gen 7
1,870 x 2,200
1,950 x 2,250
Gen 8
2,200 x 2,500
Facility
P1
P2
P3
P4
P5
P61
P7
P8
P62
P9
AP2
E2
M1
AP3
370 x 470
590 x 670
680 x 880
1,000 x 1,200
1,100 x 1,250
730 x 920
730 x 460
1,500 x 1,850
1,950 x 2,250
1,500 x 1,850
1,500 x 1,850
2,200 x 2,500
2,200 x 2,500
2,200 x 1,250
(2) Reflects processing capacity for TFT glass substrates only. Currently, all of our fabrication facilities except AP2, E2 and M1 have the capacity to process both
TFT and color filter substrates.
(3) We ceased production and closed P1 in July 2013.
(4) Gross floor area of P61 includes gross floor area of AP3.
(5)
(6)
(7)
Includes two expansions, which commenced mass production in May 2010 and March 2011.
Input substrates are OLED backplanes produced at AP2.
Input substrates are OLED backplanes produced at P8.
We also currently operate module assembly facilities located in China (Nanjing, Guangzhou and Yantai), Korea (Gumi and
Paju), Poland (Wroclaw) and Mexico (Reynosa). In addition, we operate a research and development facility in Paju, Korea, which
we refer to as the R&D Center. We opened the R&D Center in April 2012 to consolidate our research and development efforts for
next-generation display technologies. The following table sets forth the size of our R&D Center and module assembly facilities.
Facility
R&D Center
Gumi assembly facility
Nanjing assembly facility
Paju assembly facility
Wroclaw assembly facility
Guangzhou assembly facility
Yantai assembly facility
Reynosa assembly facility
Gross Floor Area
(in square meters)
Mass Production Commencement
January 1995
69,857 Not applicable (opened in April 2012)
164,210
165,002 May 2003
223,664 November 2005
106,928 March 2007
139,590
January 2008
78,285 May 2010
76,129 March 2012
Expansion Projects
We are currently constructing an eighth-generation fabrication facility in Guangzhou, China. We held a groundbreaking
ceremony in May 2012, and we expect to commence mass production at the Guangzhou fabrication facility in the middle of 2014. In
connection with the construction of the Guangzhou fabrication facility, we entered into a joint venture agreement with GET Tech and
Skyworth in September 2012, establishing LG Display (China) Co., Ltd. which will own and operate the Guangzhou fabrication
facility. Under the terms of the joint venture agreement, we own a 70.0% equity interest in LG Display (China) and each of GET Tech
and Skyworth owns a 20.0% and a 10.0% equity interest, respectively.
39
We are also in the process of converting additional production lines in our P61 fabrication facility to increase our LTPS
￦
production capacity, for which we expect to invest
0.83 trillion. We expect to commence mass production on the additional LTPS
production lines in the second half of 2014. In addition, we are also in the process of converting additional production lines in our P8
fabrication facility to produce OLED panels for televisions, for which we expect to invest
mass production on the additional OLED production lines in the second half of 2014. Each of our expansion and conversion projects
is subject to market conditions and any changes in our investment timetable.
0.71 trillion. We expect to commence
￦
￦
We currently expect that, in 2014, our total capital expenditures on a cash out basis will be similar to last year’s amount of
3.5 trillion, primarily to fund the construction of our eighth-generation fabrication facility in Guangzhou, China and expansion of
our OLED panel and LTPS backplane technology-based panel production capacities, as well as other expansions and improvements
to our existing facilities. This amount is subject to periodic assessment, and we cannot provide any assurance that this amount may
not change materially after assessment. We may undertake further expansion projects in the future with respect to our existing
facilities as our overall business strategy may require.
Item 4A.
UNRESOLVED STAFF COMMENTS
We do not have any unresolved comments from the SEC staff regarding our periodic reports under the Exchange Act.
Item 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Item 5.A. Operating Results
Overview
Our results of operations are affected principally by overall market conditions, our manufacturing productivity and costs,
and our product mix.
Market Conditions
The industry in which we operate is affected by market conditions that are often outside the control of individual
manufacturers. Our results of operations might fluctuate significantly from period to period due to market factors, such as seasonal
variations in consumer demand, surges in production capacity by competitors and changes in technology. Over the past decade, our
industry has grown significantly as a result of cost reductions and product improvements that stimulated consumer demand and
supported the technology substitution of traditional CRT-based displays for TFT-LCD panels. According to DisplaySearch, total unit
sales in the TFT-LCD industry grew from 117 million units in 2001 to 2,785 million units in 2013. Market revenue grew from US$14
billion to US$118 billion during the same period.
In recent years, the display industry has witnessed the introduction of display panels based on new technologies, such as
OLED technology, that could potentially compete with TFT-LCD panels. In particular, we and some of our competitors have already
commenced commercial production of OLED panels. Currently, small-sized panels for use in mobile devices such as smartphones
make up the bulk of the OLED panel market, accounting for almost 95% of industry revenue from global sales of OLED panels in
2013. These small-sized OLED panels compete with more advanced TFT-LCD products such as our AH-IPS products. However, as
of 2013, the OLED market was relatively small compared to the TFT-LCD market. According to DisplaySearch, 270 million OLED
panel units were sold in 2013, with market revenue of approximately US$11 billion in that same year. We believe, however, the
market may change rapidly as large-sized OLED panels are introduced to the market and advances in the related technology and
manufacturing processes enable mass production in a cost-efficient manner. We have already begun production of flat and curved 55-
inch OLED panels, and certain of our customers have already launched retail sales of television products using our flat and curved 55-
inch OLED panels in the first and third quarters of 2013, respectively.
40
While the display industry has grown rapidly, it has also experienced business cycles with significant and rapid price
declines from time to time. Historically, TFT-LCD manufacturers have increased display area fabrication capacity rapidly. Capacity
expansion occurs especially rapidly when several manufacturers ramp-up new factories at the same time. During such surges in the
rate of supply growth, our customers are able to exert downward pricing pressure, leading to sharp declines in average selling prices
and significant fluctuations in our gross margin. In addition, regardless of relative capacity expansion, we expect average selling
prices of our existing products will decline as the cost of manufacturing declines due to technology advances and component cost
reductions. Conversely, constraints in the industry supply chain or increased demand for new technology products have led to
increased prices for TFT-LCD panels in some past periods.
In 2012, the TFT-LCD industry recovered as a whole compared to 2011, with total market revenue growing from US$105
billion in 2011 to US$119 billion in 2012, according to DisplaySearch. According to the same source, the average selling price of
TFT-LCD panels that are nine inches or larger increased during the same period by 3.7% from approximately US$107 in 2011 to
approximately US$111 in 2012. We believe that while our industry continued to be affected by lingering global economic
uncertainties and overcapacity issues in 2012, industry-wide demand grew for premium products for use in large-sized televisions,
ultra-slim notebooks, tablet computers and smartphones, helped in particular by a surge in seasonal demand in the second half of
2012. In 2013, the TFT-LCD industry contracted slightly, with total market revenue decreasing from US$119 billion in 2012 to
US$118 billion in 2013. The average selling price of TFT-LCD panels that are nine inches or larger decreased during the same period
by 2.7% from approximately US$111 in 2012 to approximately US$108 in 2013. We believe that our industry has faced renewed
overcapacity issues due to capacity expansion by our competitors coupled with inventory adjustments by our customers of television
panels in particular, which was partly in response to the expiration of a Chinese government sponsored consumer rebate program for
purchases of energy efficient televisions in May 2013, resulted in downward pricing pressure.
We strive to mitigate the effect of industry cyclicality and the resulting price fluctuations by planning capacity expansions
and capacity allocations, or shifting our product mix, to capture premium prices in specific emerging product categories. For example,
in the face of industry-wide overcapacity, we have tried to carefully balance the need to scale back our production by lowering the
utilization rate of some of our facilities with respect to certain products, while carefully selecting and pursuing areas of expansion in
anticipation of future growth with respect to certain other products. Since the end of 2011, we saw an increase in demand for our
products, initially due in part to channel inventory replenishment and then, especially in the second half of 2012, due in large part to
increasing demand for our differentiated specialty products used in certain types of televisions, tablet computers and smartphones. As
a result, we have raised our utilization rates since the end of 2011, which were previously lowered in response to industry-wide
overcapacity issues. While we continue to closely monitor market conditions and adjust our production levels accordingly, we have
also been proceeding with the construction of new fabrication facilities and additional investments to upgrade and convert existing
facilities to produce display panels based on newer technologies that are important to our growth strategy. For example, we started
mass production at the second expansion to our P8 fabrication facility in March 2011 and our P9 fabrication facility in June 2012.
Construction of an eighth-generation fabrication facility in Guangzhou, China is currently under way and we expect mass production
to commence at that fabrication facility in the middle of 2014, subject to market conditions and any changes in our investment
timetable. In addition, we made a
located in Gumi City into LTPS production lines and commenced mass production on the converted LTPS production lines in the first
quarter of 2014. We intend to invest an additional
production lines in our P61 fabrication facility. We expect mass production to commence at the additional converted LTPS
production lines in the second half of 2014, subject to market conditions and any changes in our investment timetable. Also, starting
in the first quarter of 2013, we began expanding our large-sized OLED television panel production capacity at our P8 fabrication
facility, for which we expect to invest
production lines in the second half of 2014, subject to market conditions and any changes in our investment timetable. In addition,
since 2011, we have been making investments to expand our module production facilities in Gumi, Korea, which investments are
being undertaken with a five-year investment horizon, amounting to
1.20 trillion investment to convert existing a-Si production lines in our P61 fabrication facility
0.71 trillion. Mass production is expected to commence at the new large-sized OLED panel
0.83 trillion investment to convert additional a-Si production lines into LTPS
1.35 trillion in total.
￦
￦
￦
￦
In addition, we are vigorously pursuing our strategy to develop differentiated specialty products and technologies that
better address our customers’ needs, thereby delivering greater value to our customers. In many cases, these efforts go hand-in-hand
with our efforts to develop products based on new technologies that allow us to realize greater premiums. For example, we have
allocated greater amounts of our resources to the development and production of FPR 3D television panels, public display panels,
display panels utilizing AH-IPS technology for various tablet computers, smartphones, notebook computers, desktop monitors and
other applications and flexible plastic OLED technology for smartphones. In particular, we are deploying greater resources into large-
sized OLED panels to establish an early competitive edge in the market.
Another key aspect of our strategy is to foster close cooperation with our customers and build on our strategic relationships
with many of our key suppliers. Success of a new product depends on, among other things, working closely with our customers to
gain insights into their product needs and to understand general trends in the market. At the same, we often work with our equipment
suppliers to design equipment that can enhance the efficiency of our production processes for such new products.
41
Manufacturing Productivity and Costs
We seek to continually enhance our manufacturing productivity and thereby reduce the cost of producing each panel. We
have significantly expanded our production capacity by investing in fabrication facilities that can process increasingly larger-size
glass substrates. The following table shows the input substrate size, initial design capacity and year-end input capacity as a result of
ramp-up for each of our fabrication facilities as of the dates indicated:
Fabrication Facility
P1(3)
P2
P3
P4
P5
P61
P7
P8(4)
P62
P9
AP2
E2(5)
M1(6)
AP3
Mass
Production
Input
Substrates Size
Commencement (in millimeters)
Initial
Design Capacity
(in input substrates
per month)
September 1995
December 1997
July 2000
March 2002
May 2003
August 2004
January 2006
March 2009
April 2009
June 2012
May 2010
December 2013
January 2014
January 2014
370 x 470
590 x 670
680 x 880
1,000 x 1,200
1,100 x 1,250
1,500 x 1,850
1,950 x 2,250
2,200 x 2,500
1,500 x 1,850
2,200 x 2,500
730 x 920
730 x 460
2,200 x 1,250
1,500 x 1,850
30,000
60,000
60,000
60,000
60,000
90,000
90,000
271,000
60,000
60,000
21,000
N/A
N/A
20,000
Year-end Input Capacity(1)
2012
2011
2013
(in input substrates per month)(2)
N/A
12,000
42,000
79,000
76,000
84,000
84,000
82,000
111,000
131,000
149,000
147,000
109,000
134,000
166,000
132,000
159,000
190,000
197,000
202,000
196,000
321,000
338,000
303,000
59,000
63,000
63,000
58,000
58,000
N/A
75,000
71,000
68,000
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A = Not applicable.
(1) Year-end input capacity is the total input substrates for the month that had the highest monthly input substrates during the fiscal year.
(2) Reflects processing capacity for TFT glass substrates only. Currently, all of our fabrication facilities except AP2 have the capacity to process both TFT and color
filter substrates.
(3) We ceased production and closed P1 in July 2013.
(4)
(5)
(6)
Includes two expansions, which commenced mass production in May 2010 and March 2011.
Input substrates are OLED backplanes produced at AP2.
Input substrates are OLED backplanes produced at P8.
Our cash outflows for capital expenditures amounted to
￦
4,063 billion in 2011,
￦
3,972 billion in 2012 and
￦
3,473
billion (US$3,291 million) in 2013. Such capital expenditures relate mainly to the construction and equipping of our P9 fabrication
facility and our module production plant in Reynosa, Mexico, as well as additional investments in our AP2 fabrication facility and
module production facilities in Gumi, in 2011, the construction and equipping of our P9, E2, M1 and Guangzhou, China fabrication
facilities and investments undertaken to convert certain of our existing production lines in our P61 fabrication facility into LTPS
production lines, as well as continuing investments to expand our module production facilities in Gumi, in 2012 and the construction
and equipping of production lines for OLED television panels in our P8 fabrication facility, as well as continued investments in our
E2, M1 and Guangzhou, China fabrication facilities and LTPS production lines in our P61 fabrication facilities, in 2013. Capital
expenditures were also incurred for the acquisition of new equipment during the same period. Our depreciation expense as a
percentage of revenue increased from 14.1% in 2011 to 14.3% in 2012 and decreased to 13.3% in 2013. The increase in 2012 was
primarily due to recognition of depreciation expenses for P9 and other purchased equipment. The decrease in 2013 was primarily due
to the end of the estimated useful life of certain machinery and equipment assets in our P8 and P62 fabrication facilities. We currently
expect that, in 2014, our total capital expenditures on a cash out basis will be similar to last year’s amount of
3.5 trillion, primarily
to fund the construction of our eighth-generation fabrication facility in Guangzhou, China and expansion of our OLED panel and
LTPS backplane technology-based panel production capacities, as well as other expansions and improvements to our existing
facilities. This amount is subject to periodic assessment, and we cannot provide any assurance that this amount may not change
materially after assessment.
￦
Since inception we have designed our fabrication facilities in-house and co-developed most equipment sets with our
suppliers. These efforts have enabled us to gain valuable experience in designing and operating next generation fabrication facilities
capable of processing increasingly larger-size glass substrates. We have been able to leverage this experience to achieve and maintain
high production output and yields at our fabrication facilities, thereby lowering costs. In addition, in recent years, we have substituted
a portion of our equipment purchased from overseas vendors with purchases from local vendors to diversify our supply source and
reduce costs. For example, in 2013, we purchased approximately 78% of our equipment for our facilities in Korea from local
suppliers on an invoiced basis. We also fabricate certain components internally, such as color filters, which are one of the industry’s
higher-cost components.
42
We also continue to make various process improvements at our fabrication facilities, including enhancing the performance
of process equipment, efficiency of material flows and quality of process and product designs. For example, we have reduced the
number of mask steps in the TFT process from four to three with respect to certain models, thereby enabling us to process a higher
number of substrates in a given period of time. Such process improvements result in increased unit output of our fabrication facilities
without significant capital investment, thus enabling us to reduce fixed costs on a per panel basis. In addition, as we prepare for the
mass production of large-sized OLED products, we have been making modifications to certain of our existing TFT-LCD fabrication
lines to convert them into OLED panel fabrication lines. Because our large-sized OLED panels employ oxide TFT backplane
technology, which can be produced using manufacturing processes similar to the processes used to manufacture TFT-LCD panels,
relatively little modification has been necessary, thereby reducing the costs of additional investments needed for the conversion of our
fabrication lines.
Raw materials comprise the largest component of our costs. In 2013, approximately 84% of the raw materials procured for
our facilities in Korea were sourced from local suppliers. To the extent overseas suppliers are able to provide raw materials at
competitive prices, we intend to diversify our supplier base by also procuring raw materials from such overseas suppliers. We have
also been able to leverage our scale and leading industry position to obtain competitive prices from our suppliers. Certain strategic
decisions, such as fabricating our own color filters, one of the higher cost components, have also been important drivers of our cost
control.
The size of our operations has also expanded considerably from 2002 to date, enabling us to benefit from economies of
scale. However, in 2012, while we continued to benefit from increasing cost efficiencies, our cost of sales per square meter of net
display area, which is derived by dividing total cost of sales by total square meters of net display area shipped, increased by 7.4%
from US$645 in 2011 to US$693 in 2012. The increase was primarily due to a shift in our product mix in 2012 caused mainly by
higher demand for our differentiated specialty products that tend to have high-end specifications and employ the latest technologies,
and therefore entail higher per square meter cost. Also, a number of our differentiated specialty products, which include products used
in ultra-slim notebooks, tablet computers and mobile devices, such as smartphones, have a smaller size per unit than our traditional
products, which contributed to the increase in the cost of sales per square meter of display area. In 2013, our cost of sales per square
meter of net display area decreased by 9.2% to US$629 primarily due to a decrease in the cost of raw materials and component parts
due in part to the weakening of the Japanese Yen, which we used to purchase 15.5% of our raw materials and component parts in
2013, against the Korean Won.
Product Mix
Our product mix reflects our strategic capacity allocation among various product markets, and is continually reviewed and
adjusted based on the demand for, and our assessment of the profitability of, display panels in different markets and size categories. In
recent years, we believe market demand has been shaped by a shift toward larger-sized panels, especially in the television and desktop
panel markets, and a shift toward differentiated specialty products based on newer technologies, especially in the relatively new
markets for Ultra HD televisions, ultra-thin notebooks, tablet computers and smartphones. In response to such market trends, we have
increased our production capacity and sales of larger-sized panels, as well as developing and commercializing differentiated specialty
products for a variety of applications. For example, with respect to our television panel product portfolio, we increased sales of our
large-sized panels and the proportion of sales of our 47-inch, 49-inch and 55-inch television panels in our product mix increased
between 2011 and 2013. In addition, with respect to our desktop monitor products, we have expanded our product portfolio to offer
panels with full high-definition, or Full HD, resolution ranging from 21.5 inches to 34 inches in a variety of screen aspect ratios,
including 21:9 screen aspect ratio for ultra-widescreen monitors, in order capture the market for large-size desktop monitors. At the
same time, in response to increasing market demand for differentiated specialty products, we have developed and commercialized, for
example, tablet computer panels with AH-IPS technology with increasingly higher resolution and other features, smartphone panels
utilizing flexible plastic OLED technology and large-sized curved television panels utilizing our FPR 3D, Ultra HD and OLED
technologies.
43
The following table sets forth our revenue by product category for the periods indicated and revenue in each product
category as a percentage of our total revenue:
Panels for:
Televisions(1)
Notebook computers(2)
Desktop monitors(3)
Tablet computers (4)
Mobile and other applications(5)
Sales of goods
Royalties and others
Revenue
2011
2012
Year Ended December 31,
2013
Sales(6)
%
Sales
￦
￦
￦
Sales
47.7%
Sales %
%
(in billions of Won and millions of US$, except for percentages)
11,795 US$ 11,177
2,671
4,981
3,388
3,352
26,982 US$ 25,569
49
13,512
3,667
5,039
3,714
3,371
29,303
127
12.5
17.1
12.6
11.5
99.6%
0.4
13.4
20.5
9.2
9.0
99.7%
0.3
2,819
5,256
3,575
3,537
11,579
3,246
4,975
2,224
2,190
24,214
77
45.9%
51
￦
￦
￦
￦
￦
￦
43.6%
10.4
19.4
13.2
13.1
99.8%
0.2
24,291 100.0%
29,430 100.0%
27,033 US$ 25,618 100.0%
(1) For the years ended December 31, 2011 and 2012, includes television sets manufactured and sold by our joint venture company L&T Display Technology
(Xiamen) Limited.
Includes panels for semi-finished products manufactured by our joint venture company LUCOM Display Technology (Kunshan) Ltd.
Includes desktop monitors manufactured and sold by our joint venture company L&T Display Technology (Fujian) Limited.
(2)
(3)
(4) We established tablet computers as a new product category in our audited consolidated financial statements for the three-year period ended December 31, 2013
included in this annual report. Previously, tablet computer panels were reported in the notebook computer and mobile and other application product categories.
Includes, among others, panels for mobile devices, including smartphones and other types of mobile phones, and industrial and other applications, including
entertainment systems, automotive displays, portable navigation devices and medical diagnostic equipment.
(5)
(6) For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of
1,055.25 to US$1.00, the noon buying rate in effect on December 31,
2013 as certified by the Federal Reserve Bank of New York for customs purposes. This translation should not be construed as a representation that the Korean
Won amounts represent, have been or could be converted to U.S. dollars at that rate or any other rate.
￦
The following table sets forth our sales volume by product category for the periods indicated and as a percentage of our
total panels sold:
Panels for
Televisions (1)
Notebook computers (2)
Desktop monitors (3)
Tablet computers (4)
Mobile and other applications (5)
Total
2011
Year Ended December 31,
2012
2013
Number of
Panels
%
Number of
Panels
%
Number of
Panels
%
(in thousands, except for percentages)
53,084
62,923
50,247
35,640
164,702
366,596 100.0%
14.5%
17.2
13.7
9.7
44.9
56,490
69,559
51,819
56,526
164,409
398,803
14.2%
17.4
13.0
14.2
41.2
100.0%
53,797
55,559
49,986
63,840
162,011
385,193 100.0%
14.0%
14.4
13.0
16.6
42.1
(1) For the years ended December 31, 2011 and 2012, includes television sets manufactured and sold by our joint venture company L&T Display Technology
(Xiamen) Limited.
Includes panels for semi-finished products manufactured by our joint venture company LUCOM Display Technology (Kunshan) Ltd.
Includes desktop monitors manufactured and sold by our joint venture company L&T Display Technology (Fujian) Limited.
(2)
(3)
(4) We established tablet computers as a new product category in our audited consolidated financial statements for the three-year period ended December 31, 2013
included in this annual report. Previously, tablet computer panels were reported in the notebook computer and mobile and other application product categories.
Includes, among others, panels for mobile devices, including smartphones and other types of mobile phones, and industrial and other applications, including
entertainment systems, automotive displays, portable navigation devices and medical diagnostic equipment.
(5)
44
Average Selling Prices
Our product mix has an impact on our average selling prices. In addition to business cycles, industry-wide supply and
demand balances and other market- or industry-wide variables, our product cost and price vary with the product display area, as well
as the technology and specification of such product. Therefore, the average selling price of our products can vary over time as a result
of business cycles and the choices we make in capacity allocation for specific products. The overall average selling price of our
display panels can fluctuate significantly. Our average selling price per panel, which is derived by dividing total sales of goods by the
total number of panels sold, increased by 11.2% from
￦
73,477 in 2012 but decreased by 4.7% to
70,048 (US$66) in 2013. In 2012 compared to 2011, the positive impact of the continued shift in our product mix, along with
slightly improved market conditions, contributed to the increase in our average selling price. In 2013, our average selling price
decreased primarily due to industry-wide overcapacity coupled with inventory adjustments by our customers of television panels in
particular, which was partly in response to the expiration of a Chinese government sponsored consumer rebate program for purchases
of energy efficient televisions in May 2013, resulted in downward pricing pressure. The following table sets forth our average selling
price per panel by markets for the periods indicated:
66,051 per panel in 2011 to
￦
￦
Televisions (1)
Notebook computers (2)
Desktop monitors (3)
Tablet computers (4)
Mobile and other applications (5)
All panels
Average Selling Price (6)
Year Ended December 31,
￦
2011
218,126
51,587
99,011
62,402
13,297
66,051
￦
2012
239,193
52,718
97,242
65,704
20,504
73,477
￦
2013 (7)
219,250
50,739
105,149
55,999
21,832
70,048
US$ 208
48
100
53
21
66
(1) For the years ended December 31, 2011 and 2012, includes television sets manufactured and sold by our joint venture company L&T Display Technology
(Xiamen) Limited.
Includes panels for semi-finished products manufactured by our joint venture company LUCOM Display Technology (Kunshan) Ltd.
Includes desktop monitors manufactured and sold by our joint venture company L&T Display Technology (Fujian) Limited.
(2)
(3)
(4) We established tablet computers as a new product category in our audited consolidated financial statements for the three-year period ended December 31, 2013
included in this annual report. Previously, tablet computer panels were reported in the notebook computer and mobile and other application product categories.
Includes, among others, panels for mobile devices, including smartphones and other types of mobile phones, and industrial and other applications, including
entertainment systems, automotive displays, portable navigation devices and medical diagnostic equipment.
(5)
(5) Average selling price for each market represents revenue per market divided by unit sales per market.
(6) For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of
1,055.25 to US$1.00, the noon buying rate in effect on December 31,
2013 as certified by the Federal Reserve Bank of New York for customs purposes. This translation should not be construed as a representation that the Korean
Won amounts represent, have been or could be converted to U.S. dollars at that rate or any other rate.
￦
Our average revenue per square meter of net display area, which is derived by dividing our total revenue by total square
meters of net display area shipped, increased by 13.5% from US$679 per square meter of net display area in 2011 to US$771 in 2012.
In 2013, our average revenue per square meter of net display area shipped decreased by 6.2% to US$723.
Critical Accounting Policies
We have prepared our consolidated financial statements in accordance with IFRS as issued by the IASB. These accounting
principles require us to make certain estimates and judgments that affect the reported amounts in our consolidated financial
statements. Our estimates and judgments are based on historical experience, forecasted future events and various other assumptions
that we believe to be reasonable under the circumstances. Estimates and judgments may differ under different assumptions or
conditions. We evaluate our estimates and judgments on an ongoing basis. We believe the critical accounting policies discussed
below are the most important to the portrayal of our financial condition and results of operations. Each of them is dependent on
projections of future market conditions and they require us to make the most difficult, subjective or complex judgments.
45
Inventories
We state our inventory at the lower of cost and net realizable value. We make adjustments to reduce the cost of inventory
to its net realizable value, if required, for estimated excess, obsolescence or impaired balances. Factors influencing these adjustments
include changes in demand, technological changes, product life cycle, component cost trends, product pricing, and physical
deterioration. Revisions to these adjustments would be required if these factors differ from our estimates. If future demand or market
conditions for our products are less favorable than forecasted, we may be required to recognize additional write-downs, which would
negatively affect our results of operations in the period in which the write-downs are recognized. The write-downs of inventories
increased by 2.3% from
211 billion (US$200
million) in 2013. The increases were due in part to the increase in demand for differentiated specialty panels with high-end
specifications. The amount of any such adjustment is recognized as cost of sales in the period for which the assessment relates.
136 billion in 2012 and further increased by 55.1% to
133 billion in 2011 to
￦
￦
￦
Income Taxes
We have significant deferred income tax assets that may be used to offset taxable income in future periods. Our ability to
utilize deferred income tax assets is dependent on our ability to generate future taxable income sufficient to utilize these deferred
income tax assets before their expiration. Changes in estimates of our ability to realize our deferred tax assets are generally
recognized in earnings as a component of our income tax (benefit) expense. At each reporting date, we review our deferred tax assets
for recoverability considering historical profitability, projected future taxable income, the expected timing of reversals of existing
temporary differences and expiration of unused tax losses and tax credits. If we are unable to generate sufficient future taxable
income, or if we are unable to identify suitable tax planning strategies, the deferred tax assets are reduced to the extent that it is no
longer probable that the related tax benefit will be realized. An increase in unrecognized deferred tax assets would result in an
increase in our effective tax rate and could materially adversely impact our operating results. Conversely, if conditions improve and
we determine that previously unrecognized deferred tax assets should be recognized because of changes in estimates in future taxable
income or other conditions that affect our expected recovery of deferred tax assets, this would result in an increase in reported
earnings in such period. As of December 31, 2011, 2012 and 2013, unused tax credit carryforwards of
and
220 billion in unrecognized tax credit carryforwards in 2012 compared to 2011 and
realization would be probable. The increase of
100 billion in 2013 compared to 2012 were due to lowered estimates of future taxable income and, with respect to
the increase of
the increase in 2013 compared to 2012, an increase in the minimum applicable income tax from 14% in 2012 to 16% in 2013. If the
unrecognized deferred tax assets are recognized as deferred tax assets in a future period, the effective tax rate for the period could
decrease. In estimating projected future taxable income, we considered a variety of factors, including recent overcapacity issues in the
display industry and the industry-wide response to scale back capacity expansion plans and adjust utilization rates, as well as trends in
demand for display products.
429 billion
529 billion (US$501 million), respectively, were not recognized as deferred tax assets because we did not believe that their
209 billion,
￦
￦
￦
￦
￦
Provisions –Warranty Obligations
We recognize a provision for warranty obligations based on the estimated costs that we expect to incur under our basic
limited warranty for our products. This warranty covers defective products and is normally valid for eighteen months from the date of
purchase. These liabilities are accrued when product revenue are recognized. Warranty costs primarily include raw materials and
labor costs. Factors that affect our warranty liability include historical and anticipated rates of warranty claims on repairs, calculated
based on our sales volume and cost per claim to satisfy our warranty obligation. There were no changes in assumptions or methods
used which had a significant impact on the amount of warranty obligations from 2011 to 2013. As these factors are impacted by
actual experience and future expectations, we periodically assess the adequacy of our recorded warranty liabilities and adjust the
amounts as necessary. We recognized warranty obligations amounting to
as of December 31, 2011, 2012 and 2013, respectively. Warranty expenses in 2012 increased to
2011 largely due to an increase in sales volume in 2012 compared to 2011 and an increase in per unit warranty expenses as a result of
the continued shift in our product mix toward larger-sized panels equipped with relatively newer technologies, partially offset by
decreases resulting from continued improvements in our product quality and our cost reduction efforts in general. In 2013, warranty
expenses increased to
99 billion largely due to certain defects in our products equipped with newer technologies.
47 billion (US$45 million)
55 billion and
￦
79 billion from
56 billion in
62 billion,
￦
￦
￦
￦
￦
Long-Lived Assets: Useful Lives, Valuation and Impairment
Property, plant and equipment are recorded at cost less accumulated depreciation over the estimated useful lives of the
individual assets, with depreciation calculated on a straight line basis. The determination of an asset’s useful life and salvage value
requires judgment based on our historical and anticipated use of the asset. Since 1999, all new machinery is being depreciated on a
straight-line basis over four or five years. For goodwill and other intangible assets that have indefinite useful lives or that are not yet
available for use, as the case may be, the recoverable amount is estimated each year at the same time irrespective of whether there is
any indication of impairment.
46
We review the carrying amounts of long-lived assets or cash-generating units at each reporting date to determine whether
there is any indication of impairment. If any such indication exists, then the recoverable amount of the relevant asset or cash
generating unit is estimated. If circumstances require that a long-lived asset or cash-generating unit be tested for possible impairment,
and the carrying value of such long-lived asset or cash-generating unit is considered impaired after such test, an impairment charge is
recorded for the amount by which the carrying value of the long-lived asset or cash-generating unit exceeds its estimated recovery
value. The recoverable amount of a long-lived asset or cash-generating unit is the greater of its value in use and its fair value less
costs to sell. Fair value is determined by employing a variety of valuation techniques as necessary, including discounted cash flow
models, quoted market values and third-party independent appraisals. The determination of the value in use and the fair value requires
our judgments and assumptions about future operations. The determination of an asset’s useful life, and the potential impairment of
our long-lived assets could have a material effect on our results of operations. In 2011, such impairment losses amounted to
billion. In 2012, we recognized impairment losses of
from certain goodwill and in-process research and development assets. In 2013, we recognized impairment losses of
(US$2.4 million). Impairment loss is recognized as other expenses.
40.0 billion resulting primarily from lowered estimates of economic benefits
2.5 billion
9.2
￦
￦
￦
Employee Benefits
Our accounting for employee benefits, which mainly consists of our defined benefit plan, involves judgments about
uncertain events including, but not limited to, discount rates, life expectancy and future pay inflation. The discount rates are
determined by reference to the yield at the reporting date on high quality corporate bonds that have maturity dates approximating the
terms of our benefits obligations and that are denominated in the same currency in which the benefits are expected to be paid. Due to
changing market and economic conditions, the underlying key assumptions may differ from actual developments and may lead to
significant changes in our defined benefit plan. We immediately recognize all actuarial gains and losses arising from defined benefit
plans in retained earnings.
Provisions – Legal Proceedings
We are involved from time to time in certain routine legal proceedings and governmental investigations incidental to our
business. See “Item 8.A. Consolidated Statements and Other Financial Information—Legal Proceedings.” We recognize provisions
for claims, assessments, litigation, fines, and penalties and other sources when there is a present or constructive obligation arising
from a past event, it is more likely than not that an outflow of our resources will result, and the amount of the assessment and/or
remediation can be reasonably estimated. In determining whether a provision should be recognized, we evaluate, among other factors,
whether it is more likely than not that our defense to a claim will be successful and if it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation. We estimate the amount of loss, considering factors such as the
nature of the litigation, claim, or assessment, the progress of the case and the opinions or views of legal counsel and other advisers.
These estimates have been based on our assessment of the facts and circumstances at each reporting date and are subject to change
based upon new information and intervening events. Revisions to estimates may significantly impact future net income. If any of the
legal proceedings or governmental investigations results in an outcome that differs from our estimates, we may incur charges in
excess of the recorded provisions for such proceeding or investigation and our results of operations or financial position may be
materially adversely affected. We recognized provisions for litigation and claims amounting to
201 billion and
￦
223 billion,
￦
￦
157 billion (US$149 million) in the statements of financial position as of December 31, 2011, 2012 and 2013, respectively. Legal
costs incurred in connection with loss contingencies are expensed as incurred.
47
Operating Results
The following presents our consolidated results of operation information and as a percentage of our revenue for the periods
indicated:
Revenue
Cost of sales
Gross profit
Selling expenses
Administrative expenses (2)
Research and development expenses (2)
Other income
Other expenses
Finance income
Finance costs
Equity income on investments, net
Profit (loss) before income tax
Income tax expense (benefit)
Profit (loss) for the period
Other comprehensive income (loss) for the period, net of income tax
Total comprehensive income (loss) for the period
2011
Year Ended December 31,
2013
%
2012
(in billions of Won and in millions of US$, except for percentages)
2013(1)
%
￦
￦
￦
%
24,291 100.0%
(23,081)
1,210
(728)
(430)
(816)
1,224
(1,400)
207
(363)
15
(1,081)
(293)
(788)
31
(757)
95.0
5.0
3.0
1.8
3.4
5.0
5.8
0.9
1.5
0.1
4.5
1.2
3.2
0.1
3.1%
￦
29,430 100.0%
(26,425)
3,005
(814)
(494)
(785)
1,261
(1,614)
293
(437)
44
459
222
237
(140)
97
89.8
10.2
2.8
1.8
2.6
4.3
5.5
1.0
1.5
0.1
1.6
0.8
0.8
0.5
0.3%
￦
(22,293)
3,324
(694)
(491)
27,033 US$ 25,618 100.0%
(23,525)
3,508
(732)
(518)
(1,096)
1,109
(1,269)
185
(382)
25
830
411
419
(22)
397 US$
87.0
13.0
2.7
1.9
(1,039) 4.1
1,051 4.1
4.7
(1,203)
0.7
175
1.4
(362)
0.1
23
3.1
787
1.5
389
1.5
397
0.1
(21)
1.5%
376
￦
(1) For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of
1,055.25 to US$1.00, the noon buying rate in effect on December 31,
2013 as certified by the Federal Reserve Bank of New York for customs purposes. This translation should not be construed as a representation that the Korean
Won amounts represent, have been or could be converted to U.S. dollars at that rate or any other rate.
￦
(2) Amortization expenses related to certain research and development activities included in “administrative expenses” for the year ended December 31, 2011 have
been reclassified as “research and development expenses” to conform to the criteria of classification for the years ended December 31, 2012 and 2013.
Comparison of 2013 to 2012
Revenue
Our revenue decreased by 8.1% from
￦
29,430 billion in 2012 to
￦
27,033 billion (US$25,618 million) in 2013. The
decrease in revenue resulted from decreases in revenue from sales of panels for televisions, notebook computers and tablet products,
which were in turn mainly due to decreases in the average selling prices of panels for televisions and notebook computers, coupled
with decreases in the number of notebook computers and television panels sold, offset in part by slight increases in revenue derived
from sales of panels for monitors and mobile and other applications. In particular:
•
Demand for our large-sized television panels, comprising 42-inch and larger panels, which category includes three
of our top selling television panels in 2013, namely 42-inch, 47-inch and 55-inch panels, grew in 2013, leading to an
increase in the number of those panels sold by 2.9% from approximately 27.3 million panels in 2012 to
approximately 28.1 million panels in 2013. However, the increase in the number of our large-size television panels
sold was more than offset by a decrease in the average selling price of those panels, resulting in a decrease in
revenue derived from those panels.
•
•
Demand for our 15.6-inch or smaller notebook computer panels, which category includes three of our top selling
notebook computer panels in 2013, namely 13.3-inch, 14-inch and 15.6-inch panels, fell in 2013, resulting in a
decrease in the number of those panels sold by 19.6% from approximately 66.3 million panels in 2012 to
53.3 million panels in 2013 and a slight decrease in the average selling price of those panels, resulting in a decrease
in revenue derived from those panels.
The number of units sold of our large-sized desktop monitor panels, comprising 21.5-inch and larger panels, which
category includes three of our top selling desktop monitor panels, namely 21.5-inch, 23-inch and 27-inch panels,
increased by 14.6% from approximately 28.8 million panels in 2012 to 33.0 million panels in 2013. The average
selling price of those panels increased slightly, together resulting in an increase in revenue derived from those
panels. The increase in revenue derived from our large-sized desktop panels in 2013 compared to 2012 led to an
increase in overall revenues from desktop monitor panels sales, but was offset in part by a decrease in revenue
derived from our small-sized desktop panels over the same period, which was due to decreases in both the sales
volume and average selling price of those panels.
48
•
•
Demand for our tablet computer panels smaller than 10 inches grew in 2013, leading to an increase in the number of
those panels sold by 10.8% from 55.7 million panels in 2012 to 61.7 million panels in 2013. However, the increase
in the number of those panels sold was more than offset by a decrease in the average selling price of those panels,
resulting in a decrease in revenue derived from those panels.
In our mobile and other applications category, we experienced continued growth in demand for increasingly larger
smartphone panels in 2013 as compared to 2012. For example, the number of units sold of panels in this category
that are between 3.5-inch and 6-inch, which category includes all of our smartphone panels and accounts for more
than 80% of our sales volume and amount in this category, increased by 2.8% from approximately 133.8 million
panels in 2012 to 137.5 million panels in 2013. The average selling price of those panels also increased slightly,
together resulting in an increase in revenue derived from those panels.
￦
￦
239,193 in 2012 to approximately
Revenue attributable to sales of panels for televisions decreased by 12.7% from approximately
13,512 billion in 2012 to
11,795 billion (US$11,177 million) in 2013, resulting from decreases in both the number of units sold and average
approximately
selling price of our panels in this category in 2013 compared to 2012. The average selling price of panels for televisions decreased by
219,250 (US$208) in 2013, and the total unit sales of panels in this
8.3% from approximately
category decreased by 4.8% from approximately 56.5 million panels in 2012 to approximately 53.8 million in 2013. The decrease in
revenue attributable to sales of panels for televisions primarily reflected a decrease in the average selling price mainly due to
increased downward pricing pressure resulting from capacity expansion by our competitors coupled with inventory adjustments by
our customers in response to the expiration of a Chinese government sponsored consumer rebate program for purchases of energy
efficient televisions in May 2013. Notwithstanding the overall decrease in sales volume of our television panels, the sales volume of
our television panels that are more than 42-inch in size increased over the same period, in particular panels incorporating
differentiated specialty features.
￦
￦
Revenue attributable to sales of panels for notebook computers decreased by 23.1% from approximately
￦
2,819 billion (US$2,671 million) in 2013, resulting from decreases in both the number of units sold and
2012 to approximately
average selling price of our panels in this category in 2013 compared to 2012. The total unit sales of panels for notebook computers
decreased by 20.1% from approximately 69.6 million panels in 2012 to approximately 55.6 million in 2013, and the average selling
price of panels in this category decreased by 3.8% from approximately
2013. The decrease in revenue attributable to sales of panels for notebook computers primarily reflected a continued general shift in
consumer demand for tablet computers as an alternative to notebook computers, which in turn results in a similar shift in market
demand for tablet computer panels over notebook computer panels, as well as increased downward pricing pressure resulting from
capacity expansion by our competitors.
52,718 in 2012 to approximately
50,739 (US$48) in
￦
￦
￦
3,667 billion in
Revenue attributable to sales of panels for desktop monitors increased by 4.3% from approximately
5,039 billion in 2012
￦
5,256 billion (US$4,981 million) in 2013, resulting from an increase in the average selling price in 2013
to approximately
compared to 2012, partially offset by a decrease in the number of units sold in this category in 2013 compared to 2012. The average
selling price of panels in this category increased by 8.1% from approximately
(US$100) in 2013, whereas the total unit sales of panels for desktop monitors decreased by 3.5% from approximately 51.8 million
panels in 2012 to approximately 50.0 million in 2013. The increase in revenue attributable to sales of panels for desktop monitors
primarily resulted from the continued shift in market demand toward larger-sized desktop monitors in 2013, which led to increases in
both the sales volume and average selling price of our desktop monitor panels that are 21.5-inch or larger in size in 2013 compared to
2012, offset by decreases in the sales volume and average selling price of our desktop monitor panels that are less than 21.5-inch in
size over the same period.
97,242 in 2012 to approximately
105,149
￦
￦
￦
￦
Revenue attributable to sales of panels for tablet computers decreased by 3.7% from approximately
3,714 billion in 2012
3,575 billion (US$3,388 million) in 2013, resulting from a decrease in the average selling price in 2013 compared
to approximately
to 2012, partially offset by an increase in the number of units sold in this category in 2013 compared to 2012. The average selling
price of panels in this category decreased by 14.8% from approximately
55,999 (US$53) in
2013, whereas the total unit sales of panels for tablet computers increased by 12.9% from approximately 56.5 million panels in 2012
to approximately 63.8 million in 2013. The decrease in revenue attributable to sales of panels for tablet computers primarily resulted
from decreases in the average selling price and number of units sold of one of our older top selling tablet computer panels in 2013
compared to 2012 as the product life cycle of that panel approaches maturity, offset in part by increases in the average selling price
and number of units sold of a newer tablet computer panel.
65,704 in 2012 to approximately
￦
￦
￦
49
Revenue attributable to sales of panels for mobile and other applications increased by 4.9% from approximately
3,371
￦
￦
billion in 2012 to approximately
3,537 billion (US$3,352 million) in 2013, resulting from an increase in the average selling price of
our panels in this category in 2013 compared to 2012, which was offset in part by a slight decrease in the number of units sold in this
category in 2013 compared to 2012. The average selling price of panels for mobile and other applications increased by 6.5% from
approximately
from approximately 164.4 million in 2013 to approximately 162.0 million. The increase in the average selling price primarily reflected a
shift in our product mix toward increasingly larger panels equipped with newer technologies that enable higher resolutions and meet
more advanced performance specifications, particularly in the case of panels for smartphones, which tend to command a higher price
premium.
21,832 (US$21) in 2013, while the total unit sales of panels in this category decreased by 1.5%
20,504 in 2012 to
￦
￦
In addition, our revenue attributable to royalty and others decreased by 59.8% from
￦
127 billion in 2012 to
￦
51 billion
(US$49 million) in 2013. The decrease was due to a decrease in other revenue, consisting primarily of sales of raw materials on-sold to
89 billion in
our customers for module assembly purposes and sales of components to third party after-sales service providers, from
2012 to
million) in 2013 due to a decrease in lump-sum royalty payments from our licensees in 2013 compared to 2012.
32 billion (US$30 million) in 2013, as well as a decrease in royalties from
38 billion in 2012 to
19 billion (US$18
￦
￦
￦
￦
Cost of Sales
Cost of sales decreased by 11.0% from
￦
26,425 billion in 2012 to
￦
23,525 billion (US$22,293 million) in 2013. As a
percentage of revenue, cost of sales decreased from 89.8% in 2012 to 87.0% in 2013. The decrease in our cost of sales in 2013 compared
to 2012 was attributable mainly to decreases in raw materials and component costs and change in inventories due in part to the
weakening of the Japanese Yen, in which 15.5% of our raw materials and component part purchases were denominated in 2013, against
the Korean Won in 2013 compared to 2012. In addition, a decrease in depreciation and amortization costs, resulting mainly from the end
of estimated useful life of certain machinery and equipment assets in our P8 and P62 fabrication facilities contributed to the decrease in
cost of sales in 2013 compared to 2012. Such decreases more than offset increases in overhead costs and labor costs in 2013 compared to
2012.
As a percentage of our total cost of sales, raw materials and component costs and depreciation and amortization costs
decreased from 68.5% and 15.8%, respectively, in 2012 to 66.7% and 15.6%, respectively, in 2013, while overhead costs and labor costs
increased from 7.6% and 7.3%, respectively, in 2012 to 9.4% and 8.3%, respectively, in 2013.
Cost of sales per square meter of net display area, which is derived by dividing total cost of sales by total square meters of net
display area shipped, decreased by 9.2% from US$693 per square meter of net display area in 2012 to US$629 in 2013. Cost of sales per
panel sold, which is derived by dividing total cost of sales by total number of panels sold, decreased by 7.8% from
￦
66,261 in 2012 to
￦
61,074 (US$58) in 2013.
Gross Profit and Gross Margin
As a result of the cumulative effect of the reasons explained above, our gross profit increased by 16.7% from
￦
3,005 billion
3,508 billion (US$3,324 million) in 2013, and our gross margin improved from 10.2% in 2012 to 13.0% in 2013. Even
in 2012 to
though our revenue decreased in 2013 compared to 2012, which was mainly due to decreases in the average selling price and number of
panels sold over the same period, the decrease in revenue was outpaced by the decrease in the cost of goods sold in 2013 compared to
2012, which was the primary reason for the increases in our gross profit and gross margin.
￦
Selling and Administrative Expenses
Selling and administrative expenses decreased by 4.4% from
￦
1,308 billion in 2012 to
￦
1,250 billion (US$1,185 million) in
2013. In contrast, as a percentage of revenue, our selling and administrative expenses increased slightly from 4.4% in 2012 to 4.6% in
2013. The decrease in selling and administrative expenses in 2013 compared to 2012 was attributable primarily to decreases in:
•
•
shipping costs, resulting primarily from a decrease in costs relating to our usage of air freight due to reduced usage of
such freight and a general decrease in our overall sales volume in 2013 compared to 2012; and
depreciation expense, resulting primarily from the end of estimated useful life of certain IT equipment assets.
Such decreases were offset in part by an increase in advertising expense in 2013 compared to 2012 resulting from an increase
in our advertising activities, in particular in connection with our new OLED and Ultra HD panels, and an increase in other employee
benefits in 2013 compared to 2012 resulting from the establishment of an employment benefit fund at our subsidiaries in China in 2013.
50
The following are the major components of our selling and administrative expenses for each of the years in the two-year
period ended December 31, 2013:
Year Ended December 31,
2012
2013
Salaries
Expenses related to defined benefit plan
Other employee benefits
Shipping costs
Fees and commissions
Depreciation
Taxes and dues
Advertising
After-sales service
Rent
Insurance
Travel
Training
Others
Total
￦
￦
￦
(in billions of Won)
224
20
57
350
190
113
29
104
106
26
11
21
13
44
1,308
232
22
70
215
197
96
34
145
117
23
12
23
12
52
1,250
￦
Research and Development Expenses
Research and development expenses increased by 39.6% from
￦
785 billion in 2012 to
1,096 billion (US$1,039 million)
￦
in 2013. As a percentage of revenue, our research and development expenses increased from 2.7% in 2012 to 4.1% in 2013. The
increase in research and development expenses in 2013 compared to 2012 was attributable to increase in research and development
activities related to OLED and next generation technologies and products and the average number of research and development
employees over the same period.
Other Income (Expense), Net
Other income includes primarily foreign currency gains from operating activities, and other expenses include primarily
foreign currency losses from operating activities and expenses related to legal proceedings or claims, and others. Our total net other
expense decreased by 54.7% from
160 billion (US$152 million) in 2013, primarily due to a decrease in
expenses related to legal proceedings or claims and others by 43.4% from
2013, offset in part by a decrease in net foreign currency gain by 39.6% from
2013, mainly due to the depreciation of the U.S. dollar against the Korean Won in 2013 compared to 2012.
260 billion (US$246 million) in
￦
81 billion (US$77 million) in
459 billion in 2012 to
￦
353 billion in 2012 to
134 billion in 2012 to
￦
￦
￦
￦
We recognized expenses related to legal proceedings or claims of
456 billion and
259 billion (US$245 million) in
￦
￦
2012 and 2013, respectively. These expenses include provisions with respect to certain legal proceedings as well as settlement
payments in connection with related claims. See “Item 8.A.—Consolidated Statements and Other Financial Information—Legal
Proceedings” for a discussion of our legal proceedings and associated settlement payments.
Finance Income (Costs), Net
Finance income recognized in profit or loss includes primarily interest income and foreign currency gains. Finance cost
recognized in profit or loss includes primarily interest expense and foreign currency loss.
￦
￦
Our total net finance costs increased by 36.8% from
144 billion in 2012 to
197 billion (US$187 million) in 2013. Our
total net finance costs increased because of a decrease in finance income in 2013 compared to 2012, offset in part by a decrease in
finance costs over the same period.
Our finance income decreased by 36.9% from
293 billion in 2012 to
￦
185 billion (US$175 million) in 2013,
￦
142 billion (US$135 million)
attributable primarily to a decrease in foreign currency gain by 45.4% from
in 2013 as the depreciation of the U.S. dollar against the Korean Won in 2013 compared to 2012 was smaller than the depreciation of
the U.S. dollar against the Korean Won in 2012 compared to 2011.
260 billion in 2012 to
￦
￦
51
￦
￦
Our finance costs decreased by 12.6% from
￦
437 billion in 2012 to
￦
382 billion (US$362 million) in 2013 primarily due to a
decrease in interest expense by 15.4% from
decrease in the average interest rates applicable to our financial liabilities, as well as a decrease in our average amounts of financial liabilities
outstanding, in 2013 compared to 2012, and a decrease in loss on sale of trade accounts and notes receivable by 40.6% from
2012 to
notes receivable sold to financial institutions and a decrease in funding costs in 2013 compared to 2012.
19 billion (US$18 million) in 2013, largely reflecting a decrease in the average amounts of our outstanding trade accounts and
159 billion (US$151 million) in 2013, resulting primarily from a
188 billion in 2012 to
32 billion in
￦
￦
Income Tax Expense
￦
￦
Our income tax expense increased significantly from
￦
411 billion (US$389 million) in 2013, primarily
830 billion (US$787 million) in 2013. Our effective
due to a significant increase in profit before income tax from
tax rate increased from 48.4% in 2012 to 49.5% in 2013 mainly due to a reduction in tax credits for capital expenditures in 2013 compared to
2012. The difference between our effective tax rate and our statutory tax rate in 2012 and 2013 was mainly due to the change in
unrecognized deferred tax assets of
statements. As of December 31, 2013, unused tax credit carryforwards of
tax assets because we did not believe realization of such amounts would be probable. As of December 31, 2012, unused tax credit
carryforwards of
215 billion (US$204 million), respectively. See Note 29 of the notes to our financial
529 billion (US$501 million) were not recognized as deferred
429 billion were not recognized.
222 billion in 2012 to
￦
459 billion in 2012 to
198 billion and
￦
￦
￦
￦
Profit for the Period
As a result of the cumulative effect of the reasons explained above, our profit for the period increased by 76.8% from
237
￦
billion in 2012 to
419 billion (US$397 million) in 2013.
￦
Comparison of 2012 to 2011
Revenue
Our revenue increased by 21.2% from
29,430 billion in 2012. Increases in the average selling
prices of panels for televisions, notebook computers, tablet computers and mobile and other applications, coupled with increases in the
number of panels for televisions, notebook computers, desktop monitors and tablet computers sold, were the primary contributing factors to
this increase, offset in part by slight decreases in the average selling price of desktop monitors and the number of panels for mobile and other
applications sold. In particular:
24,291 billion in 2011 to
￦
￦
•
Demand for our large-sized television panels, comprising 42-inch and larger panels, grew in 2012, leading to an increase
in the number of those panels sold in 2012 compared to 2011. The number of our 42-inch and larger panels sold increased
by 33.2% from approximately 20.5 million panels in 2011 to approximately 27.3 million in 2012. In particular, the number
of units sold of our 55-inch television panels increased by 75.0% from approximately 2.0 million panels in 2011 to
approximately 3.5 million in 2012. Increases in both the sales volume and average selling price of our large-sized
television panels in 2012 compared to 2011, particularly of our large-sized television panels equipped with FPR 3D
technology which accounted for about half the number of units sold of our large-sized television panels in 2012, outpaced
decreases in both the sales volume and average selling price of our television panels that are less than 42-inch in size
during the same period.
•
Demand for our 15.6-inch or smaller notebook computer panels, which category includes three of our top selling notebook
computer panels in 2012, namely 13.3-inch, 14-inch and 15.6-inch, grew in 2012, resulting in a 13.5% increase in the
number of units sold of our 15.6-inch or smaller notebook computer panels from approximately 58.4 million panels in
2011 to 66.3 million in 2012. The average selling price of our 15.6-inch or smaller notebook computer panels increased in
2012 compared to 2011, in part due to the increased demand for our AH-IPS panels used in notebook computers and our
Shuriken panels used in ultra-slim notebook computers.
•
The number of units sold of our large-sized desktop monitor panels, comprising 21.5-inch and larger panels, grew in 2012,
whereas the average selling price of such panels decreased slightly over the same period. In the case of our 21.5-inch
desktop monitor panels, for example, the number of units sold increased by 15.1% from approximately 10.6 million panels
in 2011 to approximately 12.2 million in 2012, which outpaced a 6.1% decrease in the average selling price of such model
of during the same period. In contrast, the number of units sold of desktop monitor panels that are less than 21.5-inch in
size decreased in 2012 compared to 2011, whereas the average selling price of such panels increased slightly.
•
Demand for our tablet computer panels smaller than 10 inches, which category includes panels with new sizes that were
added to our product lineup in 2012, grew in 2012, leading to an increase in the number of those panels sold by 60.5%
from 34.7 million panels in 2011 to 55.7 million panels in 2012 and an increase in the average selling price during the
same period, which in turn resulted in an increase in revenue derived from those panels.
52
•
In our mobile and other applications category, we experienced continued growth in demand for increasingly larger
smartphone panels in 2012 as compared to 2011. For example, the number of units sold of smartphone panels that
are 3.5-inch or larger increased in 2012 compared to 2011. In particular, certain models that incorporate advanced
technology such as AH-IPS technology, including our 4-inch panels, saw large increases in both their average
selling prices and number of units sold in 2012 as compared to 2011. In contrast, the average selling prices and sales
volume of certain other panels in our mobile and other applications category, such as smaller-sized panels used in
older mobile phones that have been increasingly superseded in the market by smartphones, continued to decline in
2012 compared to 2011.
Revenue attributable to sales of panels for televisions increased by 16.7% from approximately
￦
￦
218,126 in 2011 to approximately
13,512 billion in 2012, resulting from increases in both the average selling price and number of units sold of our
approximately
panels in this category in 2012 compared to 2011. The average selling price of panels for televisions increased by 9.7% from
approximately
6.4% from approximately 53.1 million panels in 2011 to approximately 56.5 million in 2012. The increase in revenue attributable to
sales of panels for televisions primarily reflected a continued growth in market demand in 2012 for increasingly larger-sized
television panels, in particular for panels incorporating differentiated specialty features such as FPR 3D, which commanded a higher
average selling price in 2012 compared to 2011. In addition, the general recovery in demand for television panels in 2012 contributed
to the increase in sales volume of such panels in 2012. This increase was partially offset by decreases in both the sales volume and
average selling price of our television panels that are less than 42-inch in size during the same period.
239,193 in 2012, and the total unit sales of panels in this category increased by
￦
￦
11,579 billion in 2011 to
￦
Revenue attributable to sales of panels for notebook computers increased by 13.0% from approximately
3,246 billion in
3,667 billion in 2012, resulting from increases in both the number of units sold and average selling price of
2011 to approximately
our panels in this category in 2012 compared to 2011. The total unit sales of panels for notebook computers increased by 10.7% from
approximately 62.9 million panels in 2011 to approximately 69.6 million in 2012, and the average selling price of panels in this
category increased by 2.2% from approximately
attributable to sales of panels for notebook computers primarily reflected continued growth in demand in 2012 for high performance
panels used ultra-slim notebooks. These products incorporate newer technologies and therefore command higher price premiums
compared to more traditional products, which contributed to the increase in average selling price of our panels in this category in
2012 compared to 2011.
52,718 in 2012. The growth in revenue
51,587 in 2011 to approximately
￦
￦
￦
￦
Revenue attributable to sales of panels for desktop monitors increased by 1.3% from approximately
4,975 billion in 2011
5,039 billion in 2012, resulting from an increase in the number of units sold in this category in 2012 compared to
to approximately
2011, partially offset by a decrease in the average selling price of such panels during the same period. The total unit sales of panels
for desktop monitors increased by 3.2% from approximately 50.2 million panels in 2011 to approximately 51.8 million in 2012,
whereas the average selling price of panels in this category decreased by 1.8% from approximately
approximately
the continued shift in market demand toward larger-sized desktop monitors in 2012, which led to an increase in the sales volume of
our desktop monitor panels that are 21.5-inch or larger in size in 2012 compared to 2011, partially offset by a decrease in the sales
volume of our desktop monitor panels that are less than 21.5-inch in size over the same period. In addition, the decrease in the
average selling price of our panels in this category in 2012 compared to 2011 partially offset the increase in sales volume of such
panels over the same period.
97,242 in 2012. The increase in revenue attributable to sales of panels for desktop monitors primarily resulted from
99,011 in 2011 to
￦
￦
￦
Revenue attributable to sales of panels for tablet computers increased by 67.0% from approximately
2,224 billion in
￦
3,714 billion in 2012, resulting from increases in both the number of units sold and average selling price in
2011 to approximately
2012 compared to 2011. The total unit sales of panels for tablet computers increased by 58.7% from approximately 35.6 million
panels in 2011 to 56.5 million in 2012. The average selling price of panels in this category increased by 5.3% from approximately
￦
65,704 in 2012. The increase in revenue attributable to sales of panels for tablet computers
primarily resulted from sales derived from panels with new sizes that were added to our product lineup in this category in 2012.
62,402 in 2011 to approximately
￦
￦
￦
Revenue attributable to sales of panels for mobile and other applications increased by 53.9% from approximately
2,190
3,371 billion in 2012, resulting from an increase in the average selling price of our panels in this
billion in 2011 to approximately
category while the number of units sold remained relatively flat. The average selling price of panels for mobile and other applications
increased by 54.2% from approximately
decreased by 0.2% from approximately 164.7 million panels in 2011 to approximately 164.4 million in 2012. The increase in the
average selling price primarily reflected a shift in our product mix toward increasingly larger panels equipped with newer
technologies that enable higher resolutions and meet more advanced performance specifications, particularly in the case of panels for
smartphones, which tend to command a higher price premium.
20,504 in 2012, while the total unit sales of panels in this category
13,297 in 2011 to
￦
￦
￦
53
In addition, our revenue attributable to royalty and others increased by 64.9% from
2012. The increase was primarily due to an increase in other revenue, consisting primarily of sales of raw materials on-sold to our
customers for module assembly purposes and sales of components to third party after-sales service providers, from
16 billion in
￦
2011 to
in 2011 to
89 billion in 2012. Such increase was partially offset by a decrease in royalty income included in revenue from
￦
38 billion in 2012 due to a decrease in lump-sum royalty payments from our licensees in 2012 compared to 2011.
￦
61 billion
￦
77 billion in 2011 to
￦
￦
127 billion in
Cost of Sales
Cost of sales increased by 14.5% from
￦
23,081 billion in 2011 to
￦
26,425 billion in 2012. As a percentage of revenue,
cost of sales decreased from 95.0% in 2011 to 89.8% in 2012. The increase in our cost of sales in 2012 compared to 2011 was
attributable primarily to an increase in raw materials and component costs due to an increase in the number of panels sold in 2012
compared to 2011, as well as the increased share of high-end products in our product mix which contributed to the increase in costs
on a per unit basis during the same period. In addition, an increase in depreciation and amortization costs, resulting mainly from
recognition of depreciation costs in respect of newly constructed facilities and newly purchased equipment, and an increase in labor
costs also contributed to the increase in cost of sales in 2012 compared to 2011.
As a percentage of our total cost of sales, raw materials and component costs decreased slightly from 69.2% in 2011 to
68.5% in 2012, while depreciation and amortization costs and labor costs increased slightly from 14.9% and 7.1%, respectively, in
2011 to 15.8% and 7.3%, respectively, in 2012.
Cost of sales per square meter of net display area, which is derived by dividing total cost of sales by total square meters of
net display area shipped, increased by 7.4% from US$645 per square meter of net display area in 2011 to US$693 in 2012. Cost of
sales per panel sold, which is derived by dividing total cost of sales by total number of panels sold, increased by 5.2% from
in 2011 to
66,261 in 2012.
￦
￦
62,960
Gross Profit and Gross Margin
￦
As a result of the cumulative effect of the reasons explained above, our gross profit increased significantly from
1,210
3,005 billion in 2012. Our gross margin improved from 5.0% in 2011 to 10.2% in 2012, primarily as a result of
billion in 2011 to
an 11.2% increase in the average selling price of our products in 2012 compared to 2011, which outpaced a 5.2% increase in the cost
of sales per panel sold over the same period. The continued shift in our product mix toward higher-end products in 2012 resulted in
increases in both the average selling price and cost of sales per panel sold in 2012 compared to 2011, but the increase in average
selling price outpaced the increase in cost of sales per panel sold because the higher-end products in our product mix tend to
command higher premiums and we were able to partially offset the increase in per unit costs by continuing to improve the efficiency
of our production processes, as well as maintaining higher utilization rates in 2012 compared to 2011.
￦
Selling and Administrative Expenses
Selling and administrative expenses increased by 13.0% from
￦
1,158 billion in 2011 to
￦
1,308 billion in 2012. In
contrast, as a percentage of revenue, our selling and administrative expenses decreased slightly from 4.8% in 2011 to 4.4% in 2012.
The increase in selling and administrative expenses in 2012 was attributable primarily to increases in:
•
•
•
shipping costs, resulting primarily from an increase in sales volume shipped to the Americas and Europe, an increase
in costs relating to our usage of air freight and a general increase in our overall sales volume in 2012 compared to
2011;
depreciation expense, resulting primarily from recognition of depreciation and amortization costs relating to
installation of new upgrades to our IT systems; and
after-sales service expense, resulting primarily from an increase in our overall sales volume in 2012 compared to
2011, as well as the continued shift in our product mix in 2012 toward larger-sized panels equipped with relatively
newer technologies, which tend to increase the per unit after-sales service costs.
Such increases were offset in part by a decrease in advertising expense in 2012 compared to 2011 as the initial costs of
certain of our advertising campaigns that were undertaken starting in 2011, including FPR 3D promotion activities in markets such as
China and Brazil, had a relatively smaller impact on our advertising expense in 2012 compared to 2011.
54
The following are the major components of our selling and administrative expenses for each of the years in the two-year
period ended December 31, 2012:
Salaries
Expenses related to defined benefit plan
Other employee benefits
Shipping costs
Fees and commissions
Depreciation
Taxes and dues
Advertising
After-sales service
Rent
Insurance
Travel
Training
Others
Total
Year Ended December 31,
2011(1)
2012
￦
(in billions of Won)
￦
203
20
63
262
174
59
32
136
72
29
9
26
18
55
1,158
￦
224
20
57
350
190
113
29
104
106
26
11
21
13
44
1,308
￦
(1) Components of selling and administrative expenses for the year ended December 31, 2011 have been reclassified to conform to the criteria of classification for the
year ended December 31, 2012.
Research and Development Expenses
Research and development expenses decreased by 3.8% from
￦
816 billion in 2011 to
￦
785 billion in 2012. As a percentage
of revenue, our research and development expenses decreased from 3.4% in 2011 to 2.7% in 2012. The decrease in research and
development expenses in 2012 compared to 2011 was attributable to a decrease in costs of certain supplies, particularly photo masks and
molds, and raw materials used for our research and development activities, offset in part by an increase in average salaries paid to our
research and development employees and an increase in depreciation and amortization costs recognized as research and development
expenses.
Other Income (Expense), Net
Other income includes primarily foreign currency gains from operating activities, and other expenses include primarily
foreign currency losses from operating activities and expenses related to legal proceedings or claims, and others. Our total net other
expense increased from
￦
proceedings or claims and others from
￦
459 billion in 2012, offset in part by a net foreign currency gain of
￦
353 billion in 2012, primarily due to an increase in expenses related to legal
151 billion in 2011 to
176 billion in 2011 to
￦
￦
￦
134 billion in 2012 compared to a net foreign currency loss of
29 billion in 2011.
￦
￦
We recognized expenses related to legal proceedings or claims of
150 billion and
456 billion in 2011 and 2012,
respectively. These expenses include provisions with respect to certain legal proceedings as well as settlement payments in connection
with related claims. See “Item 8.A.—Consolidated Statements and Other Financial Information—Legal Proceedings” for a discussion of
our legal proceedings and associated settlement payments.
Finance Income (Costs), Net
Finance income recognized in profit or loss includes primarily interest income and foreign currency gains. Finance cost
recognized in profit or loss includes primarily interest expense and foreign currency loss.
￦
￦
Our total net finance costs decreased by 7.7% from
156 billion in 2011 to
144 billion in 2012. Our total net finance costs
decreased because of an increase in finance income in 2012 compared to 2011, offset in part by an increase in finance costs over the
same period.
Our finance income increased by 41.5% from
￦
￦
207 billion in 2011 to
￦
67 billion in 2012 compared to a net foreign currency loss of
foreign currency gain of
recording a net foreign currency translation gain in respect of our foreign currency denominated debt in 2012 compared to a loss in 2011
resulting from a higher year-end value of the Korean Won against the U.S. dollar in 2012 compared to 2011, offset in part by a net
foreign currency exchange loss in 2012 compared to a gain in 2011 due to a lower average value of the Korean Won against the U.S.
dollar in 2012 compared to 2011. The increase in our finance income in 2012 compared to 2011 was offset in part by a
decrease in interest income primarily due to a decrease in the average interest rates applicable to our time deposits and reduced average
amounts of cash held in the form of time deposits in 2012 compared to 2011.
29 billion
￦
￦
293 billion in 2012, attributable primarily to a net
32 billion in 2011 due in large part to
55
Our finance costs increased by 20.4% from
43 billion
increase in interest expense resulting primarily from an increase in the average interest rates applicable to our financial liabilities, as
well as an increase in our average amounts of financial liabilities outstanding, in 2012 compared to 2011, and an increase of
billion in loss on sale of trade accounts and notes receivable in 2012 compared to 2011, largely reflecting the increase in trade
accounts and notes receivable sold to financial institutions resulting from increased sales in 2012 compared to 2011.
437 billion in 2012 primarily due to a
363 billion in 2011 to
12
￦
￦
￦
￦
Income Tax Expense (Benefit)
We recognized income tax expense of
￦
primarily due to recording a profit before income tax of
in 2011. As a result, our effective income tax rate was 48.4% in 2012 compared to 27.1% in 2011. As of December 31, 2012, unused
￦
tax credit carryforwards of
amounts would be probable. As of December 31, 2011, unused tax credit carryforwards of
429 billion were not recognized as deferred tax assets because we did not believe realization of such
459 billion in 2012 compared to a loss before income tax of
209 billion were not recognized.
1,081 billion
￦
222 billion in 2012 compared to an income tax benefit of
￦
293 billion in 2011,
￦
Profit (Loss) for the Period
As a result of the cumulative effect of the reasons explained above, our profit for the period was
237 billion in 2012
￦
compared to a loss of
788 billion in 2011.
￦
￦
Item 5.B.
Liquidity and Capital Resources
Our principal sources of liquidity have been net cash flows generated from our operating activities and debt financing
￦
￦
1,518 billion,
activities. We had cash and cash equivalents of
2,339 billion and
December 31, 2011, 2012 and 2013, respectively. We also had deposits in banks of
(US$1,234 million), respectively, as of December 31, 2011, 2012 and 2013. Our primary use of cash has been to fund capital
expenditures related to the expansion and improvement of our production capacity with respect to existing and newly developed
products, including the construction and ramping-up of new, or in certain cases, expansions of existing, fabrication facilities and the
acquisition of new equipment. We also use cash flows from operations for our working capital requirements and servicing our debt
payments. We expect our cash requirements for 2014 to be primarily for capital expenditures and repayment of maturing debt.
￦
1,022 billion (US$968 million) as of
815 billion,
315 billion and
1,302 billion
￦
￦
￦
￦
￦
As of December 31, 2011, we had current assets of
7,858 billion and current liabilities of
￦
current liabilities of
￦
2,053 billion. As of December 31, 2012, we had current assets of
￦
￦
8,915 billion and current liabilities of
9,911 billion, resulting in net
￦
9,206 billion, resulting in net current liabilities of
291 billion. As of December 31, 2013, we had current assets of
7,732 billion
￦
￦
￦
￦
￦
943 billion
6,789 billion (US$6,434 million), resulting in net current assets of
(US$7,327 million) and current liabilities of
(US$894 million). The decrease in net current liabilities as of December 31, 2012 compared to December 31, 2011 was primarily
attributable to a
1,182 billion decrease in other accounts payable mainly as a result of repayment of accounts payable amounts
associated with the construction of our P9 fabrication facility, OLED panel and LTPS backplane technology-based panel production
facilities and other investment projects, a
594 billion increase in trade accounts and notes receivable mainly as a result of increased
321 billion increase in cash and cash equivalents, net of decreases in
sales volume, particularly in the second half of 2012, and a
deposits in banks, mainly due to an increase in cash received from sales and an increase in the amount of trade accounts and notes
receivable sold to financial institutions as of December 31, 2012 compared to December 31, 2011. The decrease in net current
liabilities as of December 31, 2012 compared to December 31, 2011 was partially offset by a
and notes payable mainly due to increases in purchases of raw materials and components resulting from increased production
activities in 2012, particularly in the second half of 2012. The change from net current liabilities as of December 31, 2012 to net
current assets as of December 31, 2013 was primarily attributable to a
December 31, 2013 compared to December 31, 2012 as result of continued repayment of accounts payable amounts associated with
the construction of our P9 fabrication facility, OLED panel and LTPS backplane technology-based panel production facilities and
other investment projects and a
December 31, 2012 as a result of a decrease in purchases of raw materials and components resulting from decreased production
activities in 2013 compared to 2012.
1,147 billion decrease in trade accounts and notes payable as of December 31, 2013 compared to
1,357 billion decrease in other accounts payable as of
364 billion increase in trade accounts
￦
￦
￦
56
Our management constantly monitors our working capital, and we have historically been able to satisfy our cash
requirements from cash flows from operations and debt financing. We believe that we have sufficient working capital for our present
requirements. We issued domestic debentures in the aggregate principal amount of
590 billion in 2013, proceeds from which have
been primarily used for our capital expenditure requirements. In addition, in each of January and December 2013, we entered into a
facility loan agreement for an aggregate principal amount of up to
drawn and outstanding as of December 31, 2013.
369 billion in long-term loans, under which the full amount was
￦
￦
Our ability to satisfy our cash requirements from cash flows from operations and financing activities will be affected by
our ability to maintain and improve our margins and, in the case of external financing, market conditions, which in turn may be
affected by several factors outside of our control. Therefore, we re-evaluate our capital requirements regularly in light of our cash
flows from operations, the progress of our expansion plans and market conditions. To the extent that we do not generate sufficient
cash flows from our operations to meet our capital requirements, we may rely on other financing activities, such as external long-term
borrowings and securities offerings, including the issuance of equity, equity-linked and other debt securities.
￦
￦
￦
Our net cash provided by operating activities amounted to
3,585
billion (US$3,397 million) in 2013. The increase in net cash provided by operating activities in 2012 compared to 2011 was mainly
due to an increase in cash collected from our customers as a result of an increase in sales volumes in 2012 compared to 2011, an
increase in the amount of trade accounts and notes receivable sold to financial institutions in 2012 compared to 2011 and an increase
in long-term advance received in 2012 compared to 2011. The increase in net cash provided by operating activities in 2012 compared
to 2011 was offset in part by an increase in cash paid for purchases of components and raw material due to our increased sales and
related production volumes in 2012. The decrease in net cash provided by operating activities in 2013 compared to 2012 was mainly
due to a decrease in cash collected from sales resulting from a decrease in sales, a decrease in the receipt of advances received and an
increase in payments relating to legal proceedings including settlements during the same period.
4,570 billion in 2012 and
3,666 billion in 2011,
The cyclical market conditions that are characteristic of our industry, as well as the regular ramp-up of our new fabrication
facilities and our cost reduction measures, contribute to the fluctuations in our inventory levels from period to period. In 2012, an
increase in our inventory of supplies such as photo masks and molds, a further increase in the production capacity of our existing
facilities and the commencement of mass production at our P9 fabrication facility contributed to a 3.2% increase in our inventory
levels from year-end 2011. In 2013, a decrease in our inventory of finished goods and a reduction of utilization rates of our facilities
in response to market conditions contributed to a 19.1% decrease in our inventory levels from year-end 2012. Inventories consisted of
the following for the periods indicated:
Finished goods
Work in process
Raw materials
Supplies
Total
As of December 31,
2012
2013
2013(1)
(in billions of Won and millions of US$)
￦
￦
2011
￦
922
772
458
165
2,317
￦
1,044
653
371
322
2,390
￦
734
606
262
331
1,933
￦
US$
696
574
248
315
US$ 1,832
(1) For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of
1,055.25 to US$1.00, the noon buying rate in effect on December 31,
2013 as certified by the Federal Reserve Bank of New York for customs purposes. This translation should not be construed as a representation that the Korean
Won amounts represent, have been or could be converted to U.S. dollars at that rate or any other rate.
￦
Our net cash used in investing activities amounted to
￦
3,494 billion in 2011,
￦
3,688 billion in 2012 and
￦
4,504 billion
(US$4,268 million) in 2013. Net cash used in investing activities primarily reflected the substantial capital expenditures we have
made in connection with the expansion and improvement of our production capacity in recent years, mainly relating to construction of
our new, or in certain cases, expansions or conversions of existing, fabrication and module assembly facilities and acquisition of new
equipment. These cash outflows from capital expenditures amounted to
(US$3,291 million) in 2011, 2012 and 2013, respectively. We intend to fund our capital requirements associated with our expansion
and construction projects with cash flows from operations and financing activities, such as external long-term borrowings.
3,972 billion and
4,063 billion,
3,473 billion
￦
￦
￦
We currently expect that, in 2014, our total capital expenditures on a cash out basis will be similar to that of last year’s
￦
3.5 trillion, primarily to fund the construction of our eighth-generation fabrication facility in Guangzhou, China and
amount of
expansion of our OLED panel and LTPS backplane technology-based panel production capacities, as well as other expansions and
improvements to our existing facilities. However, our overall expenditure levels and our allocation among projects are subject to
many uncertainties. We review the amount of our capital expenditures and may make adjustments from time to time based on cash
flows from operations, the progress of our expansion plans and market conditions.
57
Our net cash used in financing activities amounted to
￦
278 billion in 2011,
￦
48 billion in 2012 and
￦
391 billion
(US$371 million) in 2013. The net cash used in financing activities in 2011 reflects primarily the repayment of foreign currency
denominated short-term borrowings and, to a lesser degree, certain long-term debt and the payment of dividends. The net cash used in
financing activities in 2012 reflects primarily the repayment of foreign currency denominated long-term debt, offset in part by cash
provided by our incurrence of Won denominated long-term debt. The net cash used in financing activities in 2013 reflects primarily
the net repayment of long-term debt and debentures. On March 11, 2011, we declared a cash dividend of
shareholders of record as of December 31, 2010 and distributed the cash dividend to such shareholders on April 7, 2011. At our
shareholders meetings on March 9, 2012, March 8, 2013 and March 7, 2014, we did not declare a cash dividend to our shareholders.
179 billion to our
￦
￦
￦
￦
We had a total of
21 billion (US$20 million) of short-term borrowings outstanding as of
December 31, 2011, 2012 and 2013, respectively. The weighted average interest rate under the terms of our short-term borrowings
was 0.95% as of December 31, 2013.
36 billion and
22 billion,
As of December 31, 2013, we maintained accounts receivable negotiating facilities with several banks for up to aggregate
amounts of US$1,713 million and ¥5,000 million. Our subsidiaries have also entered into various accounts receivable negotiating
facilities. For further information regarding these facilities, please see Note 20 of the notes to our financial statements.
As of December 31, 2013, we had outstanding long-term debt including current portion and discounts on debentures in the
￦
￦
amount of
US$700 million of U.S. dollar denominated long-term loans and
3,882 billion (US$3,679 million), consisting primarily of
￦
2,640 billion of Korean Won denominated debentures,
509 billion of Korean Won denominated long-term loans.
The terms of some of our long-term debt contain provisions that would trigger a requirement for early payment. The
principal and interest under these obligations may be accelerated if there is a default, including defaults triggered by failure to comply
with financial covenants and cross defaults triggered under our other debt obligations. We believe we were in compliance with the
covenants under our debt obligations at December 31, 2013. For further information about our short- and long-term debt obligations
as of December 31, 2013, see Note 14 of the notes to our financial statements.
Set forth below are the aggregate amounts, as of December 31, 2013, of our future contractual financing and licensing
obligations under our existing debt and other contractual arrangements:
Contractual Obligations
Long-Term Debt, including current portion
Fixed License Payment
Long-Term Other Payables
Total
Total
￦
3,890,642
81,386
40,266
4,012,294
￦
Estimates of interest payment based on contractual
interest rates effective as of December 31, 2013
￦
Less than
1 year
Payments Due by Period
1-3 years
(in millions of Won)
￦
3-5 years
￦
887,315
40,693
5,320
933,328
2,465,336
40,693
34,930
2,540,959
￦
￦
536,733
—
16
536,749
￦
￦
￦
￦
￦
More than
5 years
￦
￦
￦
1,258
—
—
1,258
322,798
142,696
157,804
22,259
39
In addition to fixed license payments listed above that we are obligated to make under certain technology license
agreements, we also have continuing obligations to make cash royalty payments under our technology license agreements, the amount
of which are generally determined based on a percentage of sales of our TFT-LCD products. We also have similar royalty payment
obligations under our license agreements relating to certain OLED technology.
￦
Expenses relating to our license fees and royalty payments under existing license agreements were
35 billion in 2011;
￦
43 billion in 2012 and
63 billion (US$60 million) in 2013, representing 2.7% of our research and development related
￦
expenditures in 2011, 3.1% in 2012 and 3.8% in 2013. We expect to make additional license fee payments as we enter into new
technology license agreements from time to time with third parties.
58
Taxation
￦
In 2013, the effective statutory corporate income tax rate applicable to us was 11.0% (including local income surtax) for
200 million
200 million of our taxable income, 22.0% (including local income surtax) for our taxable income between
￦
￦
20 billion and 24.2% (including local income surtax) for our taxable income in excess of
20 billion.
￦
the first
and
Tax Credits
We are entitled to a number of tax credits relating to certain investments in technology and human resources development.
For example, under the Special Tax Treatment Control Law, we are entitled to a tax credit of 5% for our capital investments made on
or before December 31, 2011.
Tax credits not utilized in the fiscal year during which the relevant investment was made may be carried forward over the
next five years in the case of capital investments and five years in the case of investments relating to technology and human resources
development. As of December 31, 2013, we had available deferred tax assets related to these credits of
million), which may be utilized against future income tax liabilities through 2018. In addition, we also had unused tax credit
carryforwards of
529 billion (US$501 million) as of December 31, 2013 for which no deferred tax asset was recognized.
538 billion (US$510
￦
￦
Item 5.C.
Research and Development, Patents and Licenses, etc.
Research and Development
The display panel industry is subject to rapid technological changes. We believe that effective research and development is
essential to maintaining our position as one of the industry’s leading technology innovators. Our research and development related
expenditures amounted to
1,373 billion in 2012 and
representing 5.4% of our revenue in 2011, 4.7% in 2012 and 6.2% in 2013.
1,675 billion (US$1,587 million) in 2013,
1,314 billion in 2011,
￦
￦
￦
We believe that the future trends for display products will include the widespread use of affordable large-sized flat panel
products with higher performance qualities and the use of different types of display products for a variety of purposes, such as using
flexible display panels in a range of products, using large-sized display panels for public display or advertising, and using small-sized
panels for mobile devices. To meet the demands of the future trends, we have formulated a long-term research and development
strategy aimed at enhancing the process, device and design aspects of the existing products and diversifying the use of display panels
as new opportunities arise with the development of communication systems and information technology. The following are examples
of products and technologies that have been developed through our research and development activities in recent years:
•
•
In 2011, we developed a 4.5-inch HD TFT-LCD panel that utilized AH-IPS technology, which allows for wide
viewing angles and high resolution imagery for use in 4G smartphones. In addition, we became the first display
panel manufacturer to develop a 55-inch OLED panel that utilized WRGB OLED technology, for which we were
awarded the industrial bronze medal by the Korea Invention Promotion Association. We also developed a 55-inch
Full HD TFT-LCD panel with a super narrow bezel of just 5.3 mm for use in public displays. The super narrow
bezel allows the public displays to be displayed alongside each other to create a large 165-inch multi-screen public
display capable of producing large near seamless imagery.
In 2012, we developed an 84-inch Ultra HD TFT-LCD panel, which has a substantially higher screen resolution
compared to Full HD panels and may be used in classrooms as interactive whiteboards and in home theaters. In
addition, we developed a 55-inch Full HD OLED panel for retail sales with a thickness of just 4 millimeters, wide
viewing angles and near-infinite contrast. We also developed a 29-inch ultra-wide TFT-LCD panel with a 21:9
screen aspect ratio to be used in desktop monitors and all-in-one personal computers. In addition, we also developed
a 5-inch product with 1920 x 1080 Full HD resolution at 440 pixels-per-inch. We developed 32-inch, 42-inch, 47-
inch and 55-inch super narrow bezel TFT-LCD panels that are borderless on three sides and 42-inch, 47-inch, 55-
inch and 60-inch super narrow bezel TFT-LCD panels that are borderless on all four sides.
59
•
In 2013, we developed and unveiled the world’s first 55-inch curved 3D Full HD OLED television panel and a 77-
inch curved Ultra HD OLED television panel. In addition, we developed a 105-inch Ultra HD curved TFT-LCD
television panel with a 21:9 screen aspect ratio, which allows for an unprecedented level of viewer immersion. We
also collaborated with Intel Corporation, or Intel, and was the first in the world to incorporate Intel’s Wireless
Display, or WiDi, technology in a display panel with the development of our 23.8-inch TFT-LCD monitor panel.
WiDi technology allows viewers to seamlessly stream content from one display device, such as a notebook
computer or smartphone, wirelessly to a display device with WiDi technology without the need for any intermediary
device. With respect to smartphones, we developed the world’s first 5.5-inch quad high-definition panel, which has
four times the resolution of a conventional HD panel while being significantly brighter and thinner (only 1.22 mm).
Furthermore, we developed and commenced mass production of a flexible plastic OLED panel for smartphones. The
plastic substrates allow the panel to be bendable and virtually shatterproof while being much lighter and thinner
compared to panels with conventional glass substrates.
As the product life cycle of display panels using certain of the existing TFT-LCD technology is approaching maturity, we
plan to further focus on OLED and other newer display technologies, while also exploring new growth opportunities in the
application of display panels, such as in tablet computers, smartphones, public displays and automotive displays.
In order to maintain our position as one of the industry’s technology leaders, we believe it is important not only to increase
direct spending on research and development, but also to manage our research and development capability effectively in order to
successfully implement our long-term strategy. In connection with our efforts to consolidate our research and development efforts for
next-generation display technologies, we opened the R&D Center in Paju, Korea in April 2012, which houses approximately 2,700
engineers, researchers, designers, technicians and support personnel.
We complement our in-house research and development capability with collaborations with universities and other third
parties. For example, we provide project-based funding to both domestic and overseas universities as a means to recruit promising
engineering students and to research and develop new technologies. In July 2012, we entered into an agreement with Seoul National
University to establish the LGD-SNU Cooperation Center within the university’s Research Institute of Advanced Materials to conduct
research into display panel technologies, including OLED technology. We also enter into joint research and development agreements
from time to time with third parties for the development of technologies in specific fields. In addition, we belong to several display
industry consortia, and we receive annual government funding to support our research and development efforts. In addition to these
collaborations, we may form strategic technology alliances with the research arms of LG Electronics, as well as suppliers and
equipment makers in “cluster” industries, that is, industries related to the TFT-LCD industry, in order to enhance our capability to
develop new technology.
We have developed a research and development management system whereby we encourage our engineers to propose new
projects freely and to implement rigorous evaluation criteria for each stage of project development. We select our projects primarily
based on their feasibility and alignment with our research and development strategy, and we review the progress of all ongoing
projects on a quarterly basis. As of December 31, 2013, we employed approximately 4,400 engineers, researchers, designers,
technicians and support personnel in connection with our research and development activities.
While we primarily rely on our own capacity for the development of new technologies in the display panel design and
manufacturing process, we rely on third parties for certain key technologies to enhance our technology leadership, as further
described in “—Intellectual Property” below.
Intellectual Property
Overview
Our business has benefited from our patent portfolio, which includes patents for display technologies, manufacturing
processes, products and applications related to the production of TFT-LCD and OLED panels. We hold a large number of patents in
Korea and in other countries, including in the United States, China, Japan, Germany, France, Great Britain and Taiwan. These patents
will expire at various dates upon the expiration of their respective terms ranging from 2014 to 2033. In March 2014, we formed
Unified Innovative Technology, LLC in the United States, a limited liability company solely owned by us for the purpose of patent
portfolio management.
60
As part of our ongoing efforts to prevent infringements on our intellectual property rights and to keep abreast of critical
technology developments by our competitors, we closely monitor patent applications in Korea, Japan and the United States. We also
plan to initiate monitoring activities in China. We intend to continue to file patent applications, where appropriate, to protect our
proprietary technologies. We also enter into confidentiality agreements with each of our employees and consultants upon the
commencement of an employment or consulting relationship. These agreements generally provide that all inventions, ideas,
discoveries, improvements and copyrightable material made or conceived by the individual arising out of the employment or
consulting relationship and all confidential information developed or made known to the individual during the term of the relationship
are our exclusive property. In addition, we have increased our efforts to safeguard our propriety information by engaging in in-house
information protection awareness activities with our employees.
License Agreements
We enter into license or cross-license agreements from time to time with third parties with respect to various device and
process technologies to complement our in-house research and development. We engage in regular discussions with third parties to
identify potential areas for additional licensing of key technologies.
￦
43 billion in 2012 and
Expenses relating to our license fees and royalty payments under existing license agreements were
￦
35 billion in 2011,
63 billion (US$60 million) in 2013, representing 2.7%, 3.1% and 3.8% of our research and development
￦
￦
related expenditures in 2011, 2012 and 2013, respectively. We recognized royalty income in the amount of
billion in 2012 and
recent years:
23 billion (US$22 million) in 2013. The following are examples of license agreements we have entered into in
69 billion in 2011,
￦
42
￦
•
•
•
•
•
We have a license agreement with each of Lemelson Foundation, Columbia University, Penn State University,
Honeywell International, Honeywell Intellectual Properties, Plasma Physics Corporation and Fergason Patent
Properties. Each license agreement provides for a non-exclusive license under certain patents relating to TFT-LCD
technologies.
We entered into a license agreement with Semiconductor Energy Laboratory which provides for a non-exclusive
license under certain patents relating to TFT-LCD and AMOLED technologies. For IPS technologies, we have a
non-exclusive license with Merck & Co.
We entered into a cross-license agreement with each of Hitachi, HannStar and Hydis for a non-exclusive license
under certain patents relating to display technologies.
We entered into separate cross-license agreements with each of NEC, Chunghwa Picture Tubes and AU Optronics in
connection with the settlement of certain patent infringement lawsuits. Under the agreements, each party grants the
other party a license under certain patents relating to TFT-LCD technologies.
We are licensed to use certain patents for our TFT-LCD products pursuant to a cross license agreement between
Philips Electronics and Toshiba Corporation.
In addition to the above, we have also entered into license or cross-license agreements with other third parties in the course of our
business operations in connection with certain patents which such third parties own or control.
As well as licensing key technologies from third parties, we aim to benefit from our own patents and other intellectual
property rights by granting licenses to third parties from time to time in return for royalty payments. For example, we entered into a
license agreement with Rockwell Collins Inc. under which we granted to Rockwell a non-exclusive, non-transferable license under
our patents primarily for use in military applications. We have also entered into certain patent purchase and license agreements with
third parties, where we receive a portion of the license payments.
Item 5.D.
Trend Information
These matters are discussed under Item 5.A. and Item 5.B. above where relevant.
Item 5.E. Off-Balance Sheet Arrangements
For a discussion of our off-balance sheet arrangements, please see “— Factoring and securitization of accounts receivable”,
“— Letters of credit” and “— Payment guarantees” in Note 20 of the notes to our financial statements.
61
Item 5.F.
Tabular Disclosure of Contractual Obligations
Presented in Item 5.B. above.
Item 5.G.
Safe Harbor
See “Forward-Looking Statements.”
Item 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
Item 6.A. Directors and Senior Management
Board of Directors
Our board of directors has the ultimate responsibility for the management of our business affairs. Our articles of
incorporation provide for a board consisting of between five and seven directors, more than half of whom must be outside directors.
Our shareholders elect all directors at a general meeting of shareholders. Under the Korean Commercial Code, a representative
director of a company established in Korea is authorized to represent and act on behalf of such company and has the power to bind
such company. Sang Beom Han is currently our sole representative director.
The term of office for our directors shall not exceed the closing of the annual general meeting of shareholders convened in
respect of the last fiscal year within three years after they take office. Our board must meet at least once every quarter, and may meet
as often as the chairman of the board of directors or the person designated by the regulation of the board of directors deem necessary
or advisable.
The tables below set forth information regarding our current directors and executive officers. The business address of all of
the directors and executive officers is LG Twin Towers, 128 Yeoui-daero, Yeongdeungpo-gu, Seoul 150-721, Korea.
Our Outside Directors
Our current outside directors are set out in the table below. Each of our outside directors meets the applicable independence
standards set forth under the rules of the Korean Commercial Code and also meets the applicable independence criteria set forth under
Rule 10A-3 of the Exchange Act.
Name
Tae Sik Ahn
Date of Birth
March 21, 1956
Position
Director
First Elected/
Appointed
March 2010
Term Expires
March 2016
Jin Jang
November 28, 1954
Director
March 2011
March 2017
Dong Il Kwon
February 5, 1957
Director
March 2012
March 2015
Joon Park
October 30, 1954
Director
March 2013
March 2016
Principal Occupation
Professor, School of
Business, Seoul
National University
Chair Professor,
Department of
Information Display,
Kyung Hee University
Professor, Department
of Materials
Engineering, Seoul
National University
Professor, School of
Law, Seoul National
University
62
Our Non-Outside Directors
Our current non-outside directors are set out in the table below:
Name
Sang Beom Han
Date of Birth
June 18, 1955
Sangdon Kim
October 20, 1962
Position
Representative Director,
President and Chief
Executive Officer
Director, Senior Vice
President and Chief
Financial Officer
First Elected/
Appointed
March 2012
Term Expires
March 2015
—
Principal Occupation
March 2014
March 2017
—
Yu Sig Kang
November 3, 1948
Director
March 2011
March 2017
Vice Chairman, LG
Management
Development Institute
Our Non-Director Executive Officers
Our current non-director executive officers are set out in the table below:
Name
Yu Seoung Yin
Date of Birth
Position
First Elected/Appointed
June 20, 1956
Executive Vice President
January 2009
Division/Department
Head of China Operation
Group
Sang Deog Yeo
December 3, 1955
Cheol Dong Jeong
May 11, 1961
Executive Vice President and
Chief Technology Officer
January 2005
Executive Vice President and
Chief Production Officer
January 2013
—
—
We and our subsidiaries do not have any service contracts with our directors providing for benefits upon termination of
their employment with us or our subsidiaries.
Sang Beom Han has served as representative director since March 2012 and chief executive officer since December 2011.
Mr. Han also served as head of the TV Business Division, the Panel Center and as vice-president for our P5 facility and the
Manufacturing Technology Center since joining LG Display in December 2001. Prior to joining LG Display, Mr. Han served as vice
president of Hynix Semiconductor Inc. Mr. Han holds a Ph.D. degree in material science from Stevens Institute of Technology.
Sangdon Kim has served as director since March 2014 and senior vice president and chief financial officer since January
2014. Prior to joining LG Display, he served as senior vice president and chief financial officer of Serveone. Mr. Kim holds a
bachelor’s degree in business administration from Yonsei University and a master’s degree in business administration from the
University of Washington.
Yu Sig Kang has served as director since March 2011. Mr. Kang is currently vice chairman of LG Management
Development Institute. He also served as representative director of LG Corp. and the head of LG Corp’s Restructuring Office.
Mr. Kang holds a bachelor’s degree in business administration from Seoul National University.
Tae Sik Ahn has served as outside director since March 2010. Mr. Ahn is currently a professor of the School of Business
Administration at Seoul National University. Mr. Ahn holds a bachelor’s degree in business administration from Seoul National
University and a Ph.D. in accounting from the University of Texas, Austin.
Jin Jang has served as outside director since March 2011. Mr. Jang is currently the chair professor of the Department of
Information Display at Kyung Hee University. Mr. Jang holds a bachelor’s degree in physics from Seoul National University, and a
master’s degree and a Ph.D. in physics from the Korea Advanced Institute of Science and Technology.
63
Dong Il Kwon has served as outside director since March 2012. Mr. Kwon is currently a professor of the Department of
Materials Engineering at Seoul National University. Mr. Kwon holds a bachelor and master’s degree in Metallurgical Engineering
from Seoul National University and a Ph.D. in Materials Engineering from Brown University.
Joon Park has served as outside director since March 2013. Mr. Park is currently a professor of the School of Law at Seoul
National University. Mr. Park previously practiced law at a Korean law firm. Mr. Park holds a bachelor’s degree in law from Seoul
National University.
Yu Seoung Yin has served as executive vice president since January 2009 and head of the China Operation Group since
December 2013. Mr. Yin also served as head of our IT/Mobile Business Division and China Center. Prior to joining LG Display,
Mr. Yin served as executive vice president of the Chairman’s Office at LG Holdings. Mr. Yin holds a bachelor’s degree in mass
communication from Chung-Ang University.
Cheol Dong Jeong has served as executive vice president since January 2013 and chief production officer since December
2011. Mr. Jeong also served as head of Manufacturing Technology Center. Mr. Jeong holds a bachelor’s degree in electronic
engineering from Kyungpook National University and a master’s degree in electronic engineering from Chungbuk National
University.
Sang Deog Yeo has served as executive vice president since January 2005 and as chief technology officer since May 2012.
Mr. Yeo previously served as head of the Mobile/OLED Business Division prior to our internal reorganization in 2012. Prior to
joining LG Display, Mr. Yeo served as head of Monitor Product Development at LG Electronics. Mr. Yeo holds a bachelor’s degree
in electronic engineering from Kyungpook National University.
Item 6.B.
Compensation
The aggregate remuneration and benefits-in-kind we paid in 2013 to our executive officers and our directors was
￦
￦
billion (US$3.8 million). This included
Sang Beom Han, our CEO, and
(Hoyoung) Jeong, our former CFO. In addition, as of December 31, 2013, our accrued severance and retirement benefits to those
officers and directors amounted to
427 million (US$0.4 million) in salary and
￦
207 million (US$0.2 million) in bonus paid to
115 million (US$0.1 million) in bonus paid to James
945 million (US$0.9 million) in salary and
1.9 billion (US$1.8 million).
￦
￦
￦
4.0
Our articles of incorporation provide for a stock option plan to aid retention of executives and key staff and to provide an
incentive to meet strategic objectives. All of the stock options we have previously granted have expired and none are currently
outstanding. In addition, remuneration for our directors is determined by shareholder resolution, and severance payments to our
directors are made in accordance with our regulations on severance payments adopted by our shareholders. We also maintain a cash-
based incentive plan for our executive officers and other key managerial employees adopted by our board of directors. Incentive
payments are determined based on various long-term performance criteria and paid annually, subject to our cash resources and
performance in such year. In addition, our executive officers and other key managerial employees are also eligible for bonuses
payable under our employee profit sharing plan if certain performance criteria are met.
We carry liability insurance for the benefit of our directors and officers against certain liabilities incurred by them in their
official capacities. This insurance covers our directors and officers, as well as those of our subsidiaries, against certain claims,
damages, judgments and settlements, including related legal costs, arising from a covered individual’s actual or alleged breaches of
duty, neglect or other errors, arising in connection with such individual’s performance of his or her official duties. The insurance
protection also extends to claims, damages, judgments and settlements, including related legal costs, arising out of shareholders’
derivative actions or otherwise relating to our securities. Policy exclusions include, but are not limited to, claims relating to fraud,
willful misconduct or criminal acts, as well as the payment of punitive damages. In 2013, we paid a premium of approximately
US$1.8 million in respect of this insurance policy.
Item 6.C.
Board Practices
See “Item 6.A. Directors and Senior Management” above for information concerning the terms of office and contractual
employment arrangements with our directors and executive officers.
64
Committees of the Board of Directors
We currently have three committees that serve under our board of directors:
•
•
•
Audit Committee;
Outside Director Nomination Committee; and
Management Committee
Our board of directors may establish other committees if they deem them necessary.
Our board of directors will appoint each member of these committees except that candidates for the Audit Committee will
first be elected by our shareholders at the general meeting of shareholders.
Audit Committee
Under Korean law and our articles of incorporation, we are required to have an Audit Committee. Our Audit Committee is
currently comprised of three outside directors: Tae Sik Ahn, Jin Jang and Joon Park. The chairman is Tae Sik Ahn. Members of the
Audit Committee are elected by our shareholders at the annual general meeting of shareholders and all members must meet the
applicable independence criteria set forth under the rules and regulations of the Sarbanes-Oxley Act of 2002 and the Korean Commercial
Code. The committee reviews all audit and compliance-related matters and makes recommendations to our board of directors. The Audit
Committee’s primary responsibilities include the following:
•
•
•
•
•
•
•
•
•
engaging or dismissing independent auditors;
approving independent audit fees;
approving audit and non-audit services;
reviewing annual and interim financial statements;
reviewing audit results and reports, including management comments and recommendations;
reviewing our system of controls and policies, including those covering conflicts of interest and business ethics;
assessing compliance with disclosure and filing obligations;
considering significant changes in accounting practices; and
examining improprieties or suspected improprieties.
In addition, in connection with general meetings of shareholders, the committee examines the agenda for, and financial
statements and other reports to be submitted by, the board of directors at each general meeting of shareholders. Our external auditor
reports directly to the Audit Committee. Our external auditor is invited to attend meetings of this committee when needed or when
matters pertaining to the audit are discussed.
The committee holds regular meetings at least once each quarter, and more frequently as needed.
Outside Director Nomination Committee
Under Korean law and our articles of incorporation, we are required to have an Outside Director Nomination Committee. Our
Outside Director Nomination Committee is comprised of two outside directors, Tae Sik Ahn and Dong Il Kwon, and one non-outside
director, Yu Sig Kang. The chairman is Yu Sig Kang. The Outside Director Nomination Committee reviews the qualifications of
potential candidates for outside directors and proposes nominees to serve on our board of directors.
The committee holds regular meetings at least once each year, and more frequently as needed.
Management Committee
The Management Committee was created at our annual general meeting of shareholders in March 2012. The Management
Committee is comprised of two non-outside directors, Sang Beom Han and Sangdon Kim. The chairman is Sang Beom Han. The
committee’s primary responsibilities include making recommendations regarding matters relating to our operation and other matters
delegated to the committee by our board of directors.
The committee holds meetings from time to time as needed.
65
Item 6.D.
Employees
As of December 31, 2013, we had 51,205 employees, including 17,470 employees in our overseas subsidiaries. The
following table provides a breakdown of our employees by function as of December 31, 2011, 2012 and 2013:
Employees(1)
Production
Technical(2)
Sales & Marketing
Management & Administration
Total
As of December 31,
2011
45,744
7,587
1,633
1,065
56,029
2012
45,564
7,456
1,559
1,042
55,621
2013
40,975
7,809
1,436
985
51,205
(1)
(2)
Includes employees of our subsidiaries.
Includes research and development and engineering personnel.
To recruit promising engineering students at leading Korean universities, we work with these universities on research
projects where these students can gain exposure to our research and development efforts. We also provide on-the-job training for our
new employees and develop training programs to identify and promote new leaders.
As of December 31, 2013, approximately 72% of our employees, including those of our subsidiaries, were union members,
and production employees accounted for substantially all of these members. We have a collective bargaining arrangement with our
labor union, which is negotiated once a year. We consider our relationship with our employees to be good.
The salaries of our employees are reviewed annually. Salaries are adjusted based on individual and team performance,
industry standards and inflation. As an incentive, discretionary bonuses may be paid based on the performance of individuals, and a
portion of our profits may be paid to our employees under our profit sharing plan if certain performance criteria are achieved. We also
provide a wide range of benefits to our employees including medical insurance, employment insurance, workers compensation, free
medical examinations, child tuition and education fee reimbursements and low-cost housing for certain employees.
Under the Guarantee of Workers’ Retirement Benefits Act, employees with one year or more of service are entitled to
receive, upon termination of their employment, a lump-sum severance payment based on the length of their service and their average
wage during the last three months of employment. As of December 31, 2013, our recognized liabilities for defined benefit obligations
amounted to
calculating our recognized liabilities for defined benefit obligations.
319 billion (US$302 million). See Note 18 of the notes to our financial statements for a discussion on the method of
￦
As of December 31, 2013, our employee stock ownership association owned approximately 0.001% of our common stock.
Item 6.E.
Share Ownership
Common Stock
The persons who are currently our executive officers held, as a group, 8,858 shares of our common stock as of April 29,
2014, the most recent date for which this information is available. Our executive officers acquired our shares of common stock
through our employee stock ownership association and pursuant to open market purchases on the Korea Exchange. Due to Korean
law restrictions, our chief executive officer and chief financial officer did not participate in the employee stock ownership association.
Each of our directors and executive officers beneficially owns less than one percent of our common stock on an individual basis.
Starting in 2013, where bonus and incentive payments exceed certain thresholds, our executive officers and certain other
key managerial employees are required to use a certain percentage of their bonus and incentive payments to purchase our shares of
common stock, which are then required to be held until their resignation or termination.
In addition, our articles of incorporation provide for a stock option plan to aid retention of executives and key staff and to
provide an incentive to meet strategic objectives. All of the stock options we have previously granted have expired and none are
currently outstanding
66
Item 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Item 7.A. Major Shareholders
The following table sets forth information regarding beneficial ownership of our common stock as of April 29, 2014 by
each person or entity known to us to own beneficially more than 5% of our outstanding shares:
Beneficial Owner
LG Electronics
National Pension Service
Number of Shares of
Common Stock
135,625,000
25,237,480
Percentage
37.9%
7.1%
Other than as set forth above, no other person or entity known by us to be acting in concert, directly or indirectly, jointly or
severally, owned more than 5% or more of our outstanding common stock or exercised control or could exercise control over us as of
April 29, 2014. None of our major shareholders identified above has voting rights different from those of our other shareholders.
Item 7.B. Related Party Transactions
We engage from time to time in a variety of transactions with related parties, including the sale of our products to, and the
purchase of raw materials and components from, such related parties. See Notes 10 and 23 of the notes to our financial statements.
We have conducted our transactions with related parties based on arm’s length negotiations taking into account such considerations as
we would in comparable transactions with a non-related party.
We provide payment guarantees in favor of certain of our subsidiaries. For a discussion of such payment guarantee
obligations, please see “Item 5.B. Liquidity and Capital Resources” and Note 20 of the notes to our financial statements.
Transactions with Companies in the LG Group
Sales to LG Electronics
We sell TFT-LCD and other display panels, primarily large-sized panels for televisions, notebook computers and desktop
monitors and small-sized panels for tablet computers and mobile and other applications, to LG Electronics and its subsidiaries on a
regular basis, as both an end-brand customer and as a systems integrator for use in products they assemble on a contract basis for
other end-brand customers. Pricing and other principal terms of the sales to LG Electronics are negotiated based on then-prevailing
market terms and prices as adjusted for LG Electronics’ requirements such as volume and product specifications and our internal
projections regarding market trends, which are the same considerations that we take into account when negotiating pricing and
principal terms of sales to our non-affiliated end-brand customers.
Sales to LG Electronics and its subsidiaries, which include sales to LG Electronics as an end-brand customer and system
￦
integrator, amounted to
6,182 billion (US$5,858 million), or 22.9% of our sales, in 2013.
Sales to LG International
We sell our products to certain subsidiaries of LG International, our affiliated trading company, in regions where doing so
is consistent with local market practices. These subsidiaries of LG International process orders from and distribute products to
customers located in their region.
Sales to LG International and its subsidiaries amounted to
￦
1,468 billion (US$1,391 million), or 5.4% of our sales, in
2013. We sell our products to these subsidiaries of LG International at such prices and on terms determined based on then-prevailing
market terms and prices as adjusted for LG International’s requirements such as volume and our internal projections regarding market
trends.
We establish sales subsidiaries in the relevant geographical markets when the benefit of doing so outweighs the cost of
utilizing LG International or its subsidiaries and where local market practice permits. Based on this approach, we have established
sales subsidiaries in Shenzhen and Shanghai, China, Taiwan, Singapore, Japan, Germany and the United States. We may establish
additional sales subsidiaries in the future in other regions as sales volumes to customers located in these regions increase and/or
market practice warrants.
67
Purchases from LG Electronics
We purchase printed circuit boards, photo masks, raw materials, components and certain services, such as waste water
management and transportation, warehousing and other related logistics services, from LG Electronics and its subsidiaries. Our
purchases from LG Electronics and its subsidiaries amounted to
2013.
825 billion (US$782 million), or 4.7% of our total purchases, in
￦
Purchases from LG International
We procure a portion of our production materials, supplies and services, from LG International and its subsidiaries. We use
LG International and its subsidiaries in order to take advantage of their relationships with vendors, experience in negotiations and
logistics as well as their ability to obtain volume discounts. Purchase prices we pay to these subsidiaries of LG International and other
terms of our transactions with them are negotiated based on then-prevailing market terms and prices as adjusted for our requirements
such as volume and specifications and our internal projections regarding market trends. We expect to continue to utilize LG
International’s overseas subsidiaries for the procurement of a portion of our production materials, supplies and services.
Our purchases, including purchases of materials, supplies and services, from LG International and its subsidiaries,
￦
amounted to
512 billion (US$485 million), or 2.9% of our total purchases, in 2013.
Other Purchases
Under a master purchase agreement, we procure, on an “as-needed” basis, certain of the raw materials, components and
other materials necessary for our production process from other companies in the LG Group. Our purchases of raw materials, such as
￦
polarizers, from LG Chem, an affiliate of LG Corp., amounted to
purchases, in 2013.
1,974 billion (US$1,871 million), or 11.2% of our total
Our total purchases, including purchases of materials, supplies and services, from companies in the LG Group, excluding
￦
LG Electronics, LG International and LG Chem and their respective subsidiaries, amounted to
7.8% of our total purchases, in 2013.
1,368 billion (US$1,296 million), or
Intellectual Property Related Agreements with LG Corp. and LG Electronics
We have entered into successive trademark license agreements with LG Corp., the holding company of the LG Group, for
use of the “LG” name. Under the terms of the current agreement, which we entered into in December 2013 and is effective from
January 1, 2014 to December 31, 2014, we are required to make monthly payments to LG Corp. in the aggregate amount per year of
0.2% of our sales after deducting advertising expenses. As of April 29, 2014, we have made all monthly payments required to be
made to LG Corp. in accordance with the terms of the current agreement.
In addition, we benefit from certain licenses extended to us from license or cross-license agreements between LG
Electronics and third parties. Under the terms of the joint venture agreement establishing LG.Philips LCD Co., Ltd., LG Electronics
had assigned most of its patents relating to the development, manufacture and sale of TFT-LCD products to us and we had agreed to
maintain joint ownership of those patents that were not assigned to us. Pursuant to a grantback agreement entered into with LG
Electronics in July 2004, in the event of any intellectual property dispute between LG Electronics and a third party relating to those
patents jointly owned by LG Electronics and us, we intend to allow LG Electronics to assert ownership in those patents for all non
TFT-LCD applications and to license or grant other rights in such patents for use by the licensee in non-TFT-LCD applications in
order to settle such disputes.
Transactions with Directors and Officers
Certain of our directors and executive officers also serve as executive officers of companies with which we do business.
None of our directors or executive officers has or had any interest in any of our business transactions that are or were unusual in their
nature or conditions or significant to our business.
Item 7.C.
Interests of Experts and Counsel
Not applicable.
68
Item 8.
FINANCIAL INFORMATION
Item 8.A. Consolidated Statements and Other Financial Information
See “Item 18. Financial Statements” and pages F-1 through F-94.
Legal Proceedings
We are involved from time to time in certain routine legal actions incidental to our business. However, except for the
ongoing proceedings described below, we are not currently involved in any material litigation or other proceedings the outcome of
which we believe might, individually or taken as a whole, have a material adverse effect on our results of operations or financial
condition. In addition, except as described below, we are not aware of any other material pending or threatened litigation against us.
Intellectual Property
In February 2007, Anvik Corporation filed a complaint in the U.S. District Court for the Southern District of New York
against LG Display and LG Display America, along with other TFT-LCD manufacturing companies, for alleged patent infringement
in connection with the use of photo-masking equipment manufactured by Nikon Corporation. In April 2012, the district court granted
Nikon Corporation’s motion for summary judgment of invalidity of the patents-in-suit and entered a judgment in favor of Nikon
Corporation, LG Display and LG Display America and the other TFT-LCD manufacturing companies, dismissing the case. Anvik
Corporation appealed the district court’s decision to the U.S. Court of Appeals for the Federal Circuit in April 2012. In March 2013,
the U.S. Court of Appeals for the Federal Circuit reversed the district court’s summary judgment ruling and remanded the case back
to the district court for further proceedings. In January 2014, LG Display and Anvik Corporation filed a stipulation for dismissal of
the case and amicably settled all claims between the parties.
In February 2012, the United States International Trade Commission, or USITC, granted a motion by Industrial
Technology Research Institute, or ITRI, to add LG Display and LG Display America as additional respondents in a Section 337
investigation pending before the USITC. ITRI sought an exclusion order prohibiting the importation of televisions and monitors
incorporating LG Display’s products into the United States for alleged patent infringement. In October 2012, USITC issued a
preliminary finding that LG Display and LG Display America had not infringed ITRI’s patents. In May 2013, USITC issued a final
determination finding that the asserted patent was invalid and LG Display and LG Display America had not infringed ITRI’s asserted
patent. ITRI appealed USITC’s decision to the United States Court of Appeals for the Federal Circuit.
In December 2013, Delaware Display Group LLC and Innovative Display Technologies LLC filed a complaint in the U.S.
District Court for the District of Delaware against LG Display and LG Display America for alleged patent infringement. LG Display
is currently defending against their claims.
In September 2012, Samsung Display filed a complaint in the Seoul Central District Court against LG Display claiming
misappropriation of trade secrets relating to OLED technology and seeking injunctive relief. In September 2012, LG Display filed a
complaint in the Seoul Central District Court against Samsung Display and Samsung Electronics claiming infringement of certain of
LG Display’s patents relating to OLED display technology and manufacturing methods and sought monetary damages. In addition, in
December 2012, Samsung Display filed a complaint in the Seoul Central District Court against LG Display and LG Electronics
claiming infringement of certain of Samsung Display’s patents relating to TFT-LCD technology and sought monetary damages. Also,
in December 2012, LG Display filed an application in the Seoul Central District Court seeking temporary injunctive relief to prohibit
Samsung Display and Samsung Electronics from manufacturing and selling products that we claimed to be infringing upon certain of
LG Display’s patents relating to IPS technology and the related manufacturing methods. In February 2013, under the mediation of the
Korean government, LG Display and Samsung Display agreed in principle to work toward resolving the foregoing patent
infringement proceedings through an amicable settlement. In September 2013, LG Display and Samsung Display reached an amicable
settlement and withdrew their respective claims.
Antitrust and Others
In December 2006, LG Display received notices of investigation by the U.S. Department of Justice, the European
Commission, the Korea Fair Trade Commission and the Japan Fair Trade Commission with respect to possible anti-competitive
activities in the TFT-LCD industry. Subsequently, the Competition Bureau of Canada, the Secretariat of Economic Law of Brazil, the
Taiwan Fair Trade Commission and the Federal Competition Commission of Mexico announced investigations regarding the same.
69
In November 2008, LG Display executed an agreement with the U.S. Department of Justice whereby LG Display and LG
Display America pleaded guilty to a Sherman Antitrust Act violation and agreed to pay a single total fine of US$400 million. In
December 2008, the U.S. District Court for the Northern District of California accepted the terms of the plea agreement and entered a
judgment against LG Display and LG Display America and ordered the payment of US$400 million. The agreement resolved all
federal criminal charges against LG Display and LG Display America in the United States in connection with this matter, provided
that LG Display continues to cooperate with the U.S. Department of Justice in connection with the ongoing proceedings.
In December 2010, the European Commission issued a decision finding that LG Display engaged in anti-competitive
activities in the TFT-LCD industry in violation of European Union competition laws, and imposed a fine of €€ 215 million. In February
2011, LG Display filed with the European Union General Court an application for partial annulment and reduction of the fine
imposed by the European Commission. In November 2011, LG Display received a request for information from the European
Commission relating to certain alleged anti-competitive activities in the TFT-LCD industry and has responded to the request. In
February 2014, the European Union General Court reduced the fine to €€ 210 million. We plan to appeal the European Union General
Court’s decision to the European Court of Justice.
In November 2009, the Taiwan Fair Trade Commission terminated its investigation without any finding of violations or
levying of fines. Also, in February 2012, the Competition Bureau of Canada terminated its investigation without any finding of
violations or levying of fines. As of April 29, 2014, no decision has been issued by the Japan Fair Trade Commission, and we believe
the statutory time period by which the Commission was required to have issued a decision has already lapsed. As of April 29, 2014,
the investigation by the Secretariat of Economic Law of Brazil is ongoing, and LG Display filed its defense to the Secretariat of
Economic Law of Brazil in February 2014.
In December 2011, the Korea Fair Trade Commission imposed a fine of
￦
31.4 billion after finding that LG Display and
certain of its subsidiaries engaged in anti-competitive activities in violation of Korean fair trade laws. In December 2011, LG Display
filed an appeal of the decision with the Seoul High Court. In February 2014, the Seoul High Court annulled the decision of the Korea
Fair Trade Commission. In March 2014, the Korea Fair Trade Commission filed an appeal of the Seoul High Court decision with the
Supreme Court of Korea. As of April 29, 2014, no decision has been issued by the Supreme Court of Korea.
After the commencement of the U.S. Department of Justice investigation, a number of class action complaints were filed
against LG Display, LG Display America and other TFT-LCD panel manufacturers in the United States and Canada alleging violation
of respective antitrust laws and related laws. In a series of decisions in 2007 and 2008, the class action lawsuits in the United States
were transferred to the Northern District of California for pretrial proceedings, which we refer to as the MDL Proceedings. In March
2010, the federal district court granted the class certification motion filed by the indirect purchaser plaintiffs, and granted in part and
denied in part the class certification motion filed by the direct purchaser plaintiffs. In January 2011, 78 entities (including groups of
affiliated entities) submitted requests for exclusion from the direct purchaser class. In April 2012, ten entities (including groups of
affiliated companies) submitted requests for exclusion from the indirect purchaser class. In addition, since 2010, the attorneys general
of Arkansas, California, Florida, Illinois, Michigan, Mississippi, Missouri, New York, Oklahoma, Oregon, South Carolina,
Washington, West Virginia and Wisconsin filed complaints against LG Display, alleging similar antitrust violations as alleged in the
MDL Proceedings.
In June 2011, LG Display reached a settlement with the direct purchaser class, which the federal district court approved in
December 2011. In July 2012, LG Display reached a settlement with the indirect purchaser class plaintiffs and with the state attorneys
general of Arkansas, California, Florida, Michigan, Missouri, New York, West Virginia and Wisconsin, which was approved by the
federal district court in April 2013 and, in the case of the state attorneys general actions, by their respective state governments. In
March 2013, the attorney general of Oklahoma dismissed its action as to LG Display pursuant to a separate settlement agreement. In
February 2014, the attorneys general of Mississippi and South Carolina dismissed their actions as to LG Display pursuant to
settlement. As of April 29, 2014, the Illinois, Oregon and Washington attorneys general actions remain pending. While the Oregon
attorney general action is pending in the MDL Proceedings, the Illinois and Washington attorneys general actions are pending in their
respective state courts.
70
In addition, in relation to the MDL Proceedings, in 2009, ATS Claim, LLC (assignee of Ricoh Electronics, Inc.), AT&T
Corp. and its affiliates, Motorola Mobility, Inc., and Electrograph Technologies Corp. and its subsidiary filed separate claims in the
United States, and all of the actions were subsequently consolidated into the MDL Proceedings. In November 2010, ATS Claim, LLC
dismissed its action as to LG Display pursuant to a settlement agreement. In addition, in 2010, TracFone Wireless Inc., Best Buy Co.,
Inc. and its affiliates, Target Corp., Sears, Roebuck and Co., Kmart Corp., Old Comp Inc., Good Guys, Inc., RadioShack Corp.,
Newegg Inc., Costco Wholesale Corp., Sony Electronics, Inc. and its affiliate, SB Liquidation Trust and the trustee of the Circuit City
Stores, Inc. Liquidation Trust filed claims in the United States. In addition, in 2011, the AASI Creditor Liquidating Trust on behalf of
All American Semiconductor Inc., CompuCom Systems, Inc., Interbond Corporation of America, Jaco Electronics, Inc., Office
Depot, Inc., P.C. Richard & Son Long Island Corporation, MARTA Cooperative of America, Inc., ABC Appliance, Inc., Schultze
Agency Services, LLC on behalf of Tweeter Opco, LLC and its affiliate, T-Mobile U.S.A., Inc., Tech Data Corporation and its
affiliate filed similar claims in the United States. In 2012, ViewSonic Corp., NECO Alliance LLC, Rockwell Automation LLC,
Proview Technology Inc. and its affiliates filed similar claims. In November 2013, Acer America Corporation and its affiliates filed
similar claims in the United States. To the extent these claims were not filed in the MDL Proceedings, they have been transferred to
the MDL Proceedings for pretrial proceedings. In December 2012, Sony Europe Limited and its affiliate filed similar claims in the
High Court of Justice in the United Kingdom. In January 2013, AT&T Corp. and its affiliates dismissed their action as to LG Display
pursuant to settlement. In January 2013, the trustee of Circuit City Stores, Inc. Liquidation Trust dismissed its action as to LG Display
pursuant to settlement, which was approved by the U.S. Bankruptcy Court. In April 2013, Sony Electronics, Inc. and Sony Europe
Limited, together with their respective affiliates, dismissed their actions as to LG Display pursuant to settlement. LG Display reached
a settlement with T-Mobile, U.S.A., Inc. in April 2013. In August 2013, Best Buy Co., Inc. and its affiliates dismissed their actions as
to LG Display pursuant to settlement. In September 2013, Target Corporation, Sears, Roebuck and Co., Kmart Corporation, Old
Comp Inc., Good Guys, Inc., RadioShack Corporation, and Newegg, Inc. dismissed their actions as to LG Display pursuant to
settlement. In October 2013, Rockwell Automation, Inc., Jaco Electronics, Inc. and ViewSonic Corporation dismissed their actions as
to LG Display pursuant to settlement.
In 2007, class action complaints alleging violations of Canada competition laws were filed against LG Display and other
TFT-LCD manufacturers in Canadian provinces of British Columbia, Ontario and Quebec. The Ontario Superior Court of Justice
certified the class action complaints filed by the direct and indirect purchasers in May 2011. We are pursuing an appeal of the class
certification decision. The actions in Quebec and British Columbia have been stayed.
In December 2013, a class action complaint was filed in the Central District in Israel. As of April 29, 2014, we have yet to
receive the service of complaint from the class. We plan to vigorously defend against any claims asserted by the class.
In October 2012, Arkema France and Altuglas International SAS filed a request for arbitration in the International Court of
Arbitration of the International Chamber of Commerce regarding the termination of a supply contract with LG Display. In April 2014,
LG Display and Arkema France reached settlement.
In April 2014, Deyi Investment Limited filed a complaint against LG Display in the High Court of the Hong Kong Special
Administrative Region Court of First Instance alleging breach of contract. As of April 29, 2014, we have yet to receive the service of
the complaint. We plan to vigorously defend against the claims asserted by the plaintiff.
In each of the foregoing matters that are ongoing, we are continually evaluating the merits of the respective claims and
vigorously defending ourselves. Irrespective of the validity or the successful assertion of the claims described above, we may incur
significant costs with respect to litigating or settling any or all of the asserted claims. While we continue to vigorously defend the
various proceedings described above, it is possible that one or more proceedings may result in cash outflow to settle or resolve these
claims. We have recognized provisions with respect to those legal claims in which our management has concluded that there is a
present or constructive obligation arising from a past event, it is more likely than not that an outflow of resources will result, and the
amount of the assessment and/or remediation can be reasonably estimated. However, actual outcome may be materially different from
that estimated as of December 31, 2013 and may have a material adverse effect on our operating results or financial condition.
Dividends
Annual dividends must be approved by the shareholders at the annual general meeting of shareholders and interim
dividends must be approved by the board of directors. Cash dividends may be paid out of retained earnings that have not been
appropriated to statutory reserves.
On March 11, 2011, we declared a cash dividend of
178.9 billion to our shareholders of record as of December 31, 2010
and distributed the cash dividend to such shareholders on April 7, 2011. At our annual general meeting of shareholders that was held
on March 9, 2012, March 8, 2013 and March 7, 2014 we did not declare a cash dividend to our shareholders.
￦
71
Item 8.B. Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our
audited consolidated financial statements included in this annual report.
Item 9.
THE OFFER AND LISTING
Item 9.A. Offer and Listing Details.
Market Price Information
The principal trading market for our common stock is the Korea Exchange. Our common stock, which is in registered form
￦
5,000 per share of common stock, has been listed on the Korea Exchange since July 23, 2004 under the
and has a par value of
identifying code 034220. As of December 31, 2013, 357,815,700 shares of common stock were outstanding. Our common stock is
also listed on the New York Stock Exchange in the form of ADSs. The ADSs have been issued by Citibank as ADS depositary and
have been listed on the New York Stock Exchange under the symbol “LPL” since July 22, 2004. One ADS represents one-half of one
share of common stock. As of December 31, 2013, 19,789,200 ADSs were outstanding.
The table below sets forth, for the periods indicated, the high and low closing prices and the average daily volume of
trading activity on the Korea Exchange for our common stock, and their high and low closing prices and the average daily volume of
trading activity on the New York Stock Exchange for our ADSs:
Korea Exchange
New York Stock Exchange
2009
2010
2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2012
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2013
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
October
November
December
2014
Closing Price Per
Common Stock
Low
High
39,250
47,900
40,950
40,950
40,900
31,300
26,300
36,200
30,450
27,850
29,400
36,200
22,800
33,250
17,500
33,650
28,050
17,500
18,150
20,050
24,950
20,050
21,050
26,350
33,050
31,950
29,650
25,850
25,850
25,050
25,350
27,450
25,950
25,950
22,300
23,900
22,300
23,300
First Quarter
January
February
March
April (through April 29)
29,200
26,950
29,200
26,650
29,200
23,100
24,750
23,100
23,100
26,700
Source: Korea Exchange; New York Stock Exchange.
Item 9.B. Plan of Distribution
Not applicable.
72
Average Daily
Trading Volume
(in thousands of shares)
Closing Price Per ADS
Low
High
3,962
2,877
3,250
2,711
3,463
3,410
3,394
2,499
2,621
2,377
2,208
2,602
2,286
2,049
1,966
2,050
2,970
1,660
1,492
1,698
1,916
1,629
1,715
1,539
16.93
21.10
18.81
18.11
18.81
14.55
11.75
16.79
13.61
12.16
13.31
16.79
14.93
14.24
13.47
12.08
12.08
11.76
12.00
7.78
14.03
7.72
15.03
13.04
7.72
7.80
8.52
10.83
8.52
9.08
11.79
12.68
11.22
11.55
10.54
11.20
10.54
11.02
14.16
12.76
12.43
12.50
14.16
10.69
11.62
11.33
10.69
12.76
Average Daily
Trading Volume
(in thousands of DRs)
1,646
1,465
1,210
1,134
1,372
1,332
999
661
760
580
506
773
1,008
669
432
354
491
291
267
553
480
636
582
522
Item 9.C. Markets
The Korea Exchange
On January 27, 2005, the Korea Exchange was established pursuant to the Korea Securities and Futures Exchange Act by
consolidating the Korea Stock Exchange, the Korea Futures Exchange, the KOSDAQ Stock Market, Inc., or the KOSDAQ, and the
KOSDAQ Committee of the Korea Securities Dealers Association, which had formerly managed the KOSDAQ. There are three
different markets operated by the Korea Exchange: the KRX KOSPI Market, the KRX KOSDAQ Market and the KRX Derivatives
Market. The Korea Exchange has two trading floors located in Seoul, one for the KRX KOSPI Market and one for the KRX
KOSDAQ Market, and one trading floor in Busan for the KRX Derivatives Market. The Korea Exchange is a limited liability
company, the shares of which are held by (i) financial investment companies that were formerly members of the Korea Futures
Exchange or the Korea Stock Exchange and (ii) the stockholders of the KOSDAQ. Currently, the Korea Exchange is the only stock
exchange in Korea and is operated by membership, having as its members Korean financial investment companies and some Korean
branches of foreign securities companies.
As of December 31, 2013, the aggregate market value of equity securities listed on the Korea Exchange was
￦
1,186.0
trillion. The average daily trading volume of equity securities for 2013 was 328.3 million shares with an average transaction value of
￦
3,993.4 billion.
The Korea Exchange has the power in some circumstances to suspend trading in the shares of a given company or to de-list
a security pursuant to the Regulation on Listing on the Korea Exchange. The Korea Exchange also restricts share price movements.
All listed companies are required to file accounting reports annually, semi-annually and quarterly and to release immediately all
information that may affect trading in a security.
The Korean government has in the past exerted, and continues to exert, substantial influence over many aspects of the
private sector business community that can have the intention or effect of depressing or boosting the market. In the past, the Korean
government has informally both encouraged and restricted the declaration and payment of dividends, induced mergers to reduce what
it considers excess capacity in a particular industry and induced private companies to offer publicly their securities.
The Korea Exchange publishes the KOSPI every ten seconds, which is an index of all equity securities listed on the Korea
Exchange. On January 1, 1983, the method of computing KOSPI was changed from the Dow Jones method to the aggregate value
method. Under the new method, the market capitalizations of all listed companies are aggregated, subject to certain adjustments, and
this aggregate is expressed as a percentage of the aggregate market capitalization of all listed companies as of the base date,
January 4, 1980.
73
Movements in KOSPI for the periods indicated are set out in the following table:
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014 (through April 29)
Source: The Korea Exchange
Low Closing
High
Opening
134.46 115.59 121.21
122.52
142.46 115.25 142.46
115.25
163.37 131.40 163.37
139.53
161.40
279.67 153.85 272.61
525.11 264.82 525.11
264.82
532.04
922.56 527.89 907.20
919.61 1,007.77 844.75 909.72
928.82 566.27 696.11
908.59
763.10 586.51 610.92
679.75
691.48 459.07 678.44
624.23
697.41
874.10 605.93 866.18
879.32 1,138.75 855.37 1,027.37
1,013.57 1,016.77 847.09 882.94
986.84 651.22 651.22
888.85
792.29 350.68 376.31
653.79
385.49
579.86 280.00 562.46
587.57 1,028.07 498.42 1,028.07
1,059.04 1,059.04 500.60 504.62
704.50 468.76 693.70
520.95
937.61 584.04 627.55
724.95
822.16 515.24 810.71
635.17
936.06 719.59 895.92
821.26
893.71 1,379.37 870.84 1,379.37
1,389.27 1,464.70 1,203.86 1,434.46
1,435.26 2,064.85 1,355.79 1,897.13
1,853.45 1,888.88 938.75 1,124.47
1,132.87 1,723.17 992.69 1,682.77
1,696.14 2,052.97 1,532.68 2,051.00
2,070.08 2,228.96 1,652.71 1,825.12
1,826.37 2,049.28 1,769.31 1,997.05
2,031.10 2,059.58 1,780.63 2,011.34
1,967.19 2,008.61 1,886.85 1,964.77
Shares are quoted “ex-dividend” on the first trading day of the relevant company’s accounting period. Since the calendar
year is the accounting period for the majority of listed companies, this may account for the drop in KOSPI between its closing level at
the end of one calendar year and its opening level at the beginning of the following calendar year.
With certain exceptions, principally to take account of a share being quoted “ex-dividend” and “ex-rights,” permitted
upward and downward movements in share prices of any category of shares on any day are limited under the rules of the Korea
Exchange to 15% of the previous day’s closing price of the shares, rounded down as set out below:
Previous Day’s Closing Price (Won)
Less than 5,000
5,000 to less than 10,000
10,000 to less than 50,000
50,000 to less than 100,000
100,000 to less than 500,000
500,000 or more
74
Rounded Down to Won
5
10
50
100
500
1,000
As a consequence, if a particular closing price is the same as the price set by the fluctuation limit, the closing price may not
reflect the price at which persons would have been prepared, or would be prepared to continue, if so permitted, to buy and sell shares.
Orders are executed on an auction system with priority rules to deal with competing bids and offers.
Due to deregulation of restrictions on brokerage commission rates, the brokerage commission rate on equity securities
transactions may be determined by the parties, subject to commission schedules being filed with the Korea Exchange by the financial
investment companies. In addition, a securities transaction tax of 0.15% of the sales price will generally be imposed on the transfer of
shares or certain securities representing rights to subscribe for shares. An agricultural and fishery special surtax of 0.15% of the sales
prices will also be imposed on transfer of these shares and securities on the Korea Exchange. See “Item 10.E. Taxation—Korean
Taxation.”
The number of companies listed on the KRX KOSPI Market, the corresponding total market capitalization at the end of the
periods indicated and the average daily trading volume for those periods are set forth in the following table:
Market Capitalization on
the Last Day of Each Period
Average Daily Trading Volume, Value
Year
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014 (through April 29)
(Billions
of Won)
(Millions
of US$)(1)
(Millions
of Won)
(Thousands
of US$)(1)
Thousands
of Shares
Number of
Listed
Companies
4,361
5,941
9,325
7,425
3,490
328
6,207
10,642
14,847
12,829
5,149
336
7,362
12,315
18,925
13,798
6,570
342
13,863
32,870
31,755
37,991
11,994
355
32,884
20,353
70,185
88,183
26,172
389
93,895
10,367 198,364
288,571
64,544
502
140,119
11,757 280,967
412,338
95,477
626
109,872
10,866 183,692
255,412
79,020
669
95,541
14,022 214,263
279,973
73,118
686
107,027
24,028 308,246
389,445
84,712
688
138,870
35,130 574,048
707,566
112,665
693
190,762
36,862 776,257
979,257
151,217
699
181,943
26,130 487,762
628,721
141,151
721
760
138,490
26,571 486,834
928,418
117,370
41,881
41,525 555,759
327,881
70,989
776
547,619
97,716 660,429
114,261
137,799
748
307,662 278,551 3,481,620 3,064,806
349,504
725
148,415 306,163 2,602,211 2,053,837
188,042
704
194,785 473,241 1,997,420 1,520,685
255,850
689
216,071 857,245 3,041,595 2,540,590
258,681
683
298,624 542,010 2,216,636 1,862,719
355,363
684
398,597 372,895 2,232,109 2,156,419
412,588
683
648,589 467,629 3,157,662 3,126,398
655,075
702
704,588
757,622 279,096 3,435,180 3,693,742
731
951,900 1,017,205 363,741 5,539,653 5,919,697
745
457,122 355,205 5,189,644 4,112,238
576,888
763
770
763,060 485,657 5,795,552 4,980,495
887,935
766 1,114,882 1,260,486 379,171 5,607,749 6,340,121
899,438 353,760 6,863,146 5,924,166
791 1,041,999
784 1,154,294 1,014,229 486,480 4,823,643 4,536,740
777 1,185,974 1,123,880 328,325 3,993,422 3,784,337
770 1,170,174 1,124,086 231,824 3,702,083 3,556,275
Source: The Korea Exchange
(1) Converted at the noon buying rate as certified by the Federal Reserve Bank of New York in effect on the last business day of the
year indicated other than for 2014, which is converted at the noon buying rate as certified by the Federal Reserve Bank of New
York in effect on April 25, 2014 (the latest available noon buying rate prior to filing this annual report).
75
The Korean securities markets are principally regulated by the Financial Services Commission and the Financial
Investment Services and Capital Markets Act. The Financial Investment Services and Capital Markets Act imposes restrictions on
insider trading and price manipulation, requires specified information to be made available by listed companies to investors and
establishes rules regarding margin trading, proxy solicitation, takeover bids, acquisition of treasury shares and reporting requirements
for shareholders holding substantial interests. In addition, it also regulates the securities and derivatives markets in Korea.
Further Opening of the Korean Securities Market
Starting May 1, 1996, foreign investors were permitted to invest in warrants representing the right to subscribe for shares
of a company listed on the KRX KOSPI Market or the KRX KOSDAQ Market, subject to certain investment limitations. A foreign
investor may not acquire such warrants with respect to shares of a class of a company for which the ceiling on aggregate investment
by foreigners has been reached or exceeded.
A stock index futures market was opened on May 3, 1996 and a stock index option market was opened on July 7, 1997, in
each case at the Korea Exchange. Remittance and repatriation of funds in connection with foreign investment in stock index futures
and options are subject to regulations similar to those that govern remittance and repatriation in the context of foreign investment in
Korean stocks.
In addition, on January 28, 2002, the Korea Exchange opened a new options market for the stock of seven companies
(Samsung Electronics, SK Telecom, KT Corporation, Korea Electric Power Corporation, POSCO, Kookmin Bank and Hyundai
Motor Company), and as of June 13, 2011, the Korea Exchange expanded this market to include the stock of 33 companies.
Foreigners are permitted to invest in such options subject to the same procedural requirements and investment limitations applicable
to Korean investors.
As of December 30, 1997, foreign investors were permitted to invest in all types of corporate bonds, bonds issued by
national or local governments and bonds issued in accordance with certain special laws without being subject to any aggregate or
individual investment ceiling. The Financial Services Commission sets forth procedural requirements for such investments. The
Korean government announced on February 8, 1998 its plans for the liberalization of the money market with respect to investment in
money market instruments by foreigners in 1998. In accordance with the plan, foreigners have been permitted to invest in money
market instruments issued by corporations, including commercial paper, starting February 16, 1998 with no restrictions as to the
amount. Starting May 25, 1998, foreigners have been permitted to invest in certificates of deposit and repurchase agreements.
Currently, foreigners are permitted to invest in certain other securities including shares of Korean companies that are not
listed on the Korea Exchange and in bonds that are not listed.
Protection of Customer’s Interest in Case of Insolvency of Financial Investment Companies
Under Korean law, the relationship between a customer and a financial investment company with a brokerage license in
connection with a securities sell or buy order is deemed to be a consignment and the securities acquired by a consignment agent (i.e.,
the financial investment company with a brokerage license) through such sell or buy order are regarded as belonging to the customer
in so far as the customer and the consignment agent’s creditors are concerned. Therefore, in the event of a bankruptcy or
reorganization procedure involving a financial investment company with a brokerage license, the customer of the financial investment
company is entitled to the proceeds of the securities sold by such financial investment company.
76
When a customer places a sell order with a financial investment company with a brokerage license that is not a member of
the KRX KOSPI Market or the KRX KOSDAQ Market and such financial investment company places a sell order with another
financial investment company with a brokerage license that is a member of the KRX KOSPI Market or the KRX KOSDAQ Market,
the customer is still entitled to the proceeds of the securities sold and received by the non-member company from the member
company regardless of the bankruptcy or reorganization of the non-member company.
Under the Financial Investment Services and Capital Markets Act, the Korea Exchange is obliged to indemnify any loss or
damage incurred by a counterparty as a result of a breach by members of the KRX KOSPI Market or the KRX KOSDAQ Market. If a
financial investment company with a brokerage license that is a member of the KRX KOSPI Market or the KRX KOSDAQ Market
breaches its obligation in connection with a buy order, the Korea Exchange is obliged to pay the purchase price on behalf of the
breaching member. Therefore, the customer can acquire the securities that have been ordered to be purchased by the breaching
member.
When a customer places a buy order with a non-member company and the non-member company places a buy order with a
member company, the customer has the legal right to the securities received by the non-member company from the member company
because the purchased securities are regarded as belonging to the customer in so far as the customer and the non-member company’s
creditors are concerned.
As the cash deposited with a financial investment company with a brokerage license is regarded as belonging to such
financial investment company, which is liable to return the same at the request of its customer, the customer cannot take back
deposited cash from the financial investment company if a bankruptcy or reorganization procedure is instituted against such financial
investment company and, therefore, can suffer from loss or damage as a result. However, the Depositor Protection Act provides that
the Korea Deposit Insurance Corporation will, upon the request of the investors, pay investors up to
50 million of cash deposited
with such financial investment company in case of such financial investment company’s bankruptcy, liquidation, cancellation of
securities business license or other insolvency events. Pursuant to the Financial Investment Services and Capital Markets Act, as
amended, financial investment companies with a brokerage license are required to deposit the cash received from its customers to the
extent the amount is not covered by the insurance with the Korea Securities Finance Corporation, a special entity established pursuant
to the Financial Investment Services and Capital Markets Act. Set-off or attachment of cash deposits by such financial investment
company is prohibited. The premiums related to this insurance are paid by such financial investment company.
￦
Item 9.D.
Selling Shareholders
Not applicable.
Item 9.E. Dilution
Not applicable.
Item 9.F.
Expenses of the Issue
Not applicable.
Item 10.
ADDITIONAL INFORMATION
Item 10.A. Share Capital
Not applicable.
Item 10.B. Memorandum and Articles of Association
Description of Capital Stock
This section provides information relating to our capital stock, including brief summaries of material provisions of our
current articles of incorporation, the Financial Investment Services and Capital Markets Act and the Korean Commercial Code. The
following summaries are subject to, and are qualified in their entirety by reference to, our articles of incorporation and the applicable
provisions of the Financial Investment Services and Capital Markets Act and the Korean Commercial Code.
77
General
Under our articles of incorporation, which was last amended in March 2013, the total number of shares authorized to be
issued by us is 500,000,000 shares, which consists of shares of common stock and non-voting preferred stock, both with par value of
￦
5,000 per share. We are authorized to issue preferred stock of up to 40,000,000 shares. As of December 31, 2013, 357,815,700
shares of common stock were issued. All of the issued and outstanding shares are fully-paid and non-assessable and are in registered
form. We issue share certificates in denominations of 1, 5, 10, 50, 100, 500, 1,000 and 10,000 shares.
Dividends
We distribute dividends to our shareholders in proportion to the number of shares owned by each shareholder. The shares
represented by the ADSs have the same dividend rights as other outstanding shares.
Holders of preferred shares are entitled to receive dividends in priority to the holders of common stock. The amount of
dividends for preferred shares is determined by our board of directors within a range of 1% to 10% of par value at the time the shares
are issued, provided that if the dividend amount on the shares of common stock exceeds that on the preferred shares, holders of
preferred shares will also participate in the distribution of the excess dividend amount in the same proportion as holders of common
stock. If the amount available for dividends is less than the aggregate amount of such minimum dividend, the holders of preferred
shares will be entitled to receive the accumulated unpaid dividends in priority to the holders of common stock from the dividends
payable in respect of the next fiscal year.
We declare dividends annually at the annual general meeting of shareholders which is held within three months after the
end of the fiscal year. We pay the annual dividend shortly after the annual general meeting to the shareholders of record as of the end
of the preceding fiscal year. We may distribute the annual dividend in cash or in shares. However, a dividend of shares must be
distributed at par value. If the market price of the shares is less than their par value, dividends in shares may not exceed one-half of
the annual dividend. We have no obligation to pay any annual dividend unclaimed for five years from the payment date.
Under the Korean Commercial Code, we may pay an annual dividend only out of the excess of our net assets, on a non-
consolidated basis, over the sum of (1) our stated capital and (2) the total amount of our capital surplus reserve and legal reserve
accumulated up to the end of the relevant dividend period. We may not pay an annual dividend unless we have set aside a legal
reserve in an amount equal to at least 10% of the cash portion of the annual dividend or unless we have accumulated a legal reserve of
not less than one-half of our stated capital. We may not use legal reserves to pay cash dividends but may transfer amounts from legal
reserves to capital stock or use legal reserves to reduce an accumulated deficit.
Also, we may pay an interim dividend in accordance with a resolution of the board of directors to our shareholders who are
registered in the shareholders’ register as of July 1 of the relevant fiscal year, and such an interim dividend shall be made in cash.
Distribution of Free Shares
In addition to paying dividends in shares out of our retained or current earnings, we may also distribute to our shareholders
an amount transferred from our capital surplus or legal reserve to our stated capital in the form of free shares. Free shares are shares
newly issued to existing shareholders without consideration, much like stock dividends, except that in the case of free shares a portion
of the reserves, as opposed to earnings, is transferred to capital. We must distribute such free shares to all of our shareholders in
proportion to their existing shareholdings. We may distribute free shares when we determine that our capital surplus or legal reserves
are too large relative to our paid-in capital.
Preemptive Rights and Issuance of Additional Shares
We may issue authorized but unissued shares at the times and, unless otherwise provided in the Korean Commercial Code,
on the terms our board of directors may determine. All of our shareholders are generally entitled to subscribe for any newly issued
shares in proportion to their existing shareholdings. We must offer new shares on uniform terms to all shareholders who have
preemptive rights and are listed on our shareholders’ register as of the relevant record date. However, under the Korean Commercial
Code, we may vary the specific terms of these preemptive rights for different classes of shares without shareholder approval. To the
extent that such different terms result in placing any particular class of shareholders at a disadvantage relative to other classes, a
special resolution by that disadvantaged class of shareholders is necessary.
78
We must give public notice of the preemptive rights regarding new shares and their transferability at least two weeks
before the relevant record date. Our board of directors may determine how to distribute shares for which preemptive rights have not
been exercised or where fractions of shares occur.
Under our articles of incorporation, we may issue new shares pursuant to a board resolution to persons other than existing
shareholders, who however will not have preemptive rights, if the new shares are, among others:
•
•
•
•
•
•
publicly offered pursuant to the Financial Investment Services and Capital Markets Act;
issued to members of our employee stock ownership association;
represented by depositary receipts;
issued upon exercise of stock options granted to our officers and employees;
issued to corporations, institutional investors or domestic or overseas financial institutions to achieve our operational
objectives; or
issued for the purpose of drawing foreign investment when we deem it necessary for our business needs;
provided that the aggregate number of shares so issued do not exceed 20% of the total number of issued and outstanding shares.
￦
In addition, we may issue convertible bonds or bonds with warrants, respectively, up to an aggregate face amount of
2.5
trillion to persons other than existing shareholders. The classes of shares to be issued upon conversion of bonds or exercise of
warrants shall be common stock.
Members of our employee stock ownership association, whether or not they are our shareholders, generally have a
preemptive right to subscribe for up to 20% of the shares publicly offered pursuant to the Financial Investment Services and Capital
Markets Act. As of December 31, 2013, approximately 0.001% of the outstanding shares were held by our employee stock ownership
association.
General Meeting of Shareholders
We hold the annual general meeting of shareholders within three months after the end of each fiscal year. Subject to a
board resolution or court approval, we may hold an extraordinary general meeting of shareholders:
•
•
•
•
as necessary;
at the request of holders of an aggregate of 3% or more of our outstanding shares;
at the request of shareholders holding an aggregate of 1.5% or more of our outstanding shares for at least six
consecutive months; or
at the request of our audit committee.
Holders of preferred shares may request a general meeting of shareholders only after the preferred shares become entitled
to vote or are enfranchised, as described under “—Voting Rights” below.
We must give shareholders written notice setting out the date, place and agenda of the meeting at least two weeks before
the date of the general meeting of shareholders. However, for holders of less than 1% of the total number of issued and outstanding
voting shares, we may give notice by placing at least two public notices in at least two daily newspapers or providing such notice in
the electronic notification system of the Financial Supervisory Service or the Korea Exchange at least two weeks in advance of the
meeting. We will use Maeil Business Newspaper and The Chosun Ilbo, published in Seoul, Korea, for public notice purposes.
Shareholders not on the shareholders’ register as of the record date are not entitled to receive notice of the general meeting of
shareholders, attend or vote at the meeting. Holders of non-voting preferred shares, unless enfranchised, are not entitled to receive
notice of general meetings of shareholders.
The place of our general meetings of shareholders is decided by our board of directors, which can be our head office, our
Paju Display Cluster or any other place as designated by our board of directors.
79
Voting Rights
Holders of our common stock are entitled to one vote for each share of common stock, except that voting rights may not be
exercised with respect to shares of common stock held by us or by a corporate shareholder in which we own, directly or indirectly,
more than 10% of its voting stock. The Korean Commercial Code permits cumulative voting, under which voting method each
shareholder would have multiple voting rights corresponding to the number of directors to be appointed in the voting and may
exercise all voting rights cumulatively to elect one director. However, our articles of incorporation prohibit cumulative voting.
According to our current articles of incorporation, our shareholders may adopt resolutions at a general meeting by an
affirmative majority vote of the voting shares present or represented at the meeting, where the affirmative votes also represent at least
one-fourth of our total voting shares then issued and outstanding. However, under the Korean Commercial Code and our articles of
incorporation, the following matters, among others, require approval by the holders of at least two-thirds of the shares present or
represented at a meeting, where the affirmative votes also represent at least one-third of our total voting shares then issued and
outstanding:
•
•
•
•
•
•
•
amending our articles of incorporation;
removing a director;
effecting any dissolution, merger or consolidation of us;
transferring the whole or any significant part of our business;
effecting our acquisition of all of the business of any other company;
effecting our acquisition of a part of the business of any other company that has a material effect on our business; or
issuing any new shares at a price lower than their par value.
In general, holders of preferred shares are not entitled to vote on any resolution or receive notice of any general meeting of
shareholders. However, in the case of amendments to our articles of incorporation, any merger or consolidation involving us, capital
reductions or in certain other cases in which the rights or interests of the preferred shares are affected, approval of the holders of
preferred shares is required. We may obtain such approval by a resolution of holders of at least two-thirds of the preferred shares
present or represented at a class meeting of the holders of preferred shares, where the affirmative votes also represent at least one-
third of our total issued and outstanding preferred shares. In addition, if we are unable to pay dividends on preferred shares as
provided in our articles of incorporation, the holders of preferred shares will become enfranchised and will be entitled to exercise
voting rights until those dividends are paid. The holders of enfranchised preferred shares have the same rights as holders of common
stock to request, receive notice of, attend and vote at a general meeting of shareholders.
Shareholders may exercise their voting rights by proxy.
Holders of ADRs exercise their voting rights through the ADR depositary, an agent of which is the record holder of the
underlying shares. Subject to the provisions of the deposit agreement, ADR holders are entitled to instruct the ADR depositary how to
vote the shares underlying their ADSs.
Rights of Dissenting Shareholders
In some limited circumstances, including the transfer of all or any significant part of our business and our merger or
consolidation with another company, dissenting shareholders have the right to require us to purchase their shares. To exercise this
right, shareholders must submit to us a written notice of their intention to dissent before the general meeting of shareholders. Within
20 days after the relevant resolution is passed at such meeting, the dissenting shareholders must make a request to us in writing to
purchase their shares. We are obligated to purchase the shares of dissenting shareholders no later than one month after the end of such
20-day period. The purchase price for the shares is required to be determined through negotiation between the dissenting shareholders
and us. If we cannot agree on a price through negotiation, the purchase price will be the average of (1) the weighted average of the
daily closing prices of shares on the Korea Exchange for the two-month period before the date of the adoption of the relevant board
resolution, (2) the weighted average of the daily closing price of shares on the Korea Exchange for the one-month period before the
date of the adoption of the relevant board resolution and (3) the weighted average of the daily closing price of shares on the Korea
Exchange for the one-week period before the date of the adoption of the relevant board resolution. If we or the dissenting
shareholders that had requested the purchase of their shares do not accept the purchase price, we or the dissenting shareholders may
request a court to determine the purchase price. Holders of ADSs will not be able to exercise dissenter’s rights unless they have
withdrawn the underlying common stock and become our direct shareholders.
80
Register of Shareholders and Record Dates
Our transfer agent, Korea Securities Depository, maintains the register of our shareholders at its office in Seoul, Korea. It
will register transfers of shares on the register of shareholders on presentation of the share certificates.
The record date for annual dividends is December 31. For the purpose of determining the shareholders entitled to annual
dividends, the register of shareholders may be closed for the period from January 1 to January 15 of each year. Further, for the
purpose of determining the shareholders entitled to some other rights pertaining to the shares, we may, on at least two weeks’ public
notice, set a record date and/or close the register of shareholders for not more than three months.
Business Report
At least one week before the annual general meeting of shareholders, we must make our business report and audited
consolidated Korean IFRS financial statements available for inspection at our principal office and at all of our branch offices. In
addition, copies of business reports, the audited consolidated Korean IFRS financial statements and any resolutions adopted at the
general meeting of shareholders will be available to our shareholders.
Under the Financial Investment Services and Capital Markets Act, we must file with the Financial Services Commission
and the Korea Exchange (1) a yearly report (including audited non-consolidated financial statements and audited consolidated
financial statements) within 90 days after the end of our fiscal year and (2) interim reports with respect to the three-month period, six-
month period and nine-month period from the beginning of each fiscal year within 45 calendar days following the end of each such
period. Copies of these reports will be available for public inspection at the Financial Services Commission and the Korea Exchange.
Transfer of Shares
Under the Korean Commercial Code, the transfer of shares is effected by delivery of share certificates. However, to assert
shareholders’ rights against us, the transferee must have his name and address registered on our register of shareholders. For this
purpose, a shareholder is required to file his name, address and seal with us. A non-Korean shareholder may file a specimen signature
in place of a seal, unless he is a citizen of a country with a sealing system similar to that of Korea. In addition, a non-resident
shareholder must appoint an agent authorized to receive notices on his behalf in Korea and file a mailing address in Korea. The above
requirements do not apply to the holders of ADSs.
Under current Korean regulations, the Korea Securities Depository, foreign exchange banks (including domestic branches
of foreign banks), financial investment companies with a dealing, brokerage or collective investment license and internationally
recognized custodians may act as agents and provide related services for foreign shareholders. Certain foreign exchange controls and
securities regulations apply to the transfer of shares by non-residents or non-Koreans. See “Item 10.D. Exchange Controls.”
Acquisition of Shares by Us
Under the Korean Commercial Code, we may acquire our own shares pursuant to a resolution adopted at a general meeting
of shareholders through either (i) purchases on a stock exchange or (ii) with respect to shares other than any redeemable shares as set
forth in Article 345, Paragraph (1) of the Korean Commercial Code, purchases from each shareholder in proportion to such
shareholder’s existing shareholding ratio through the methods set forth in the Presidential Decree, provided that the aggregate
purchase price does not exceed the amount of our profit that may be distributed as dividends in respect of the immediately preceding
fiscal year.
In addition, pursuant to the Financial Investment Services and Capital Markets Act, we may acquire shares through
purchases on the Korea Exchange or through a tender offer. We may also acquire interests in our own shares through agreements with
trust companies or retrieve our own shares from a trust company upon termination of the trust agreement. The aggregate purchase
price for shares purchased through such means may not exceed the total amount available for distribution of dividends at the end of
the preceding fiscal year, subject to certain procedural requirements.
Liquidation Rights
In the event of our liquidation, after payment of all debts, liquidation expenses and taxes, our remaining assets will be
distributed among shareholders in proportion to their shareholdings. Holders of preferred shares have no preference in liquidation.
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Item 10.C. Material Contracts
We have not entered into any material contracts during the two years immediately preceding the date of this annual report,
other than in the ordinary course of our business. For information regarding our agreements and transactions with certain related
parties, see “Item 7.B. Related Party Transactions.” For descriptions of certain agreements related to our capital commitments and
obligations and certain agreements related to our joint ventures, which we believe were not material to our results of operations and
financial condition in the periods in which such agreements were entered, see “Item 5.B. Liquidity and Capital Resources” and “Item
4.B. Business Overview—Joint Ventures, “ respectively.
Item 10.D. Exchange Controls
The Foreign Exchange Transaction Act of Korea and the Presidential Decree and regulations under that Act and Decree,
which we refer to collectively as the Foreign Exchange Transaction Laws, regulate investments in Korean securities by non-residents
and issuances of securities outside Korea by Korean companies. Non-residents may invest in Korean securities pursuant to the
Foreign Exchange Transaction Laws. The Financial Services Commission has also adopted, pursuant to its authority under the Korean
Securities and Exchange Act, regulations that restrict investments by foreigners in Korean securities and regulate issuances of
securities outside Korea by Korean companies.
Subject to certain limitations, the Ministry of Strategy and Finance has the authority to take the following actions under the
Foreign Exchange Transaction Laws:
•
if the government deems it necessary on account of war, armed conflict, natural disaster or grave and sudden and
significant changes in domestic or foreign economic circumstances or similar events or circumstances, the Ministry
of Strategy and Finance may temporarily suspend performance under any or all foreign exchange transactions, in
whole or in part, to which the Foreign Exchange Transaction Laws apply (including suspension of payment and
receipt of foreign exchange) or impose an obligation to deposit, safe-keep or sell any means of payment to The Bank
of Korea or certain other governmental agencies, foreign exchange equalization funds or financial institutions; and
•
if the government concludes that the international balance of payments and international financial markets are
experiencing or are likely to experience significant disruption or that the movement of capital between Korea and
other countries is likely to adversely affect the Korean Won, exchange rates or other macroeconomic policies, the
Ministry of Strategy and Finance may take action to require any person who intends to effect a capital transaction to
obtain permission or to require any person who effects a capital transaction to deposit a portion of the means of
payment acquired in such transactions with The Bank of Korea, foreign exchange equalization funds or financial
institutions.
Government Review of Issuance of ADSs
In order for us to issue ADSs outside Korea, we are required to submit a report to the Ministry of Strategy and Finance or
our designated foreign exchange bank (depending on the aggregate issue amount) with respect to the issuance of the ADSs. No
further governmental approval is necessary for the offering and issuance of the ADSs.
Under current Korean laws and regulations and the terms of the deposit agreement, the depositary is required to obtain our
consent for the number of shares of common stock to be deposited in any given proposed deposit that exceeds the difference between:
(1)
the aggregate number of shares of our common stock deposited by us for the issuance of our ADSs (including
deposits in connection with the initial issuance and all subsequent offerings of our ADSs and stock dividends or
other distributions related to these ADSs); and
(2)
the number of shares of our common stock on deposit with the depositary at the time of such proposed deposit.
We can give no assurance that we would, subject to governmental authorization, grant our consent, if our consent is
required. Therefore, a holder of ADRs who surrenders ADRs and withdraws shares may not be permitted subsequently to deposit
those shares and obtain ADRs.
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Reporting Requirements for Holders of Substantial Interests
Under the Financial Investment Services and Capital Markets Act, any person whose direct or beneficial ownership of our
common stock with voting rights, whether in the form of shares of common stock or ADSs, certificates representing the rights to
subscribe for shares and equity-related debt securities including convertible bonds, bonds with warrants and exchangeable bonds,
which we refer to collectively as equity securities, together with the equity securities directly or beneficially owned by certain related
persons or by any person acting in concert with the person, accounts for 5% or more of our total outstanding equity securities, is
required to report the status and purpose (in terms of whether the purpose of the shareholding is to participate in the management of
the issuer) of the holdings to the Financial Services Commission and the Korea Exchange within five business days after reaching the
5% ownership interest. In addition, any change (i) in the ownership interest subsequent to the report that equals or exceeds 1% of the
total outstanding equity securities from the previous report or (ii) in the shareholding purpose, is required to be reported to the
Financial Services Commission and the Korea Exchange within five business days from the date of the change (or, in the case of a
person with no intent to seek management control or an institutional investor prescribed by the Financial Services Commission,
within ten days of the end of the month in which the change occurred).
Violation of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment and/or
prohibition on the exercise of voting rights with respect to the ownership of equity securities exceeding the reported number of shares.
Furthermore, the Financial Services Commission may order the disposal of the unreported equity securities.
When a person’s shareholding ratio reaches or exceeds ten percent or more of the company’s issued and outstanding shares
with voting rights, the person must file a report to the Securities and Futures Commission and to the Korea Exchange within five
business days following the date on which the person reached such shareholding limit. In addition, such person must file a report to
the Securities and Futures Commission and to the Korea Exchange regarding any subsequent change in his/her shareholding. These
subsequent reports on changes in shareholding are required within five business days after the relevant change has occurred. Violation
of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment.
Restrictions Applicable to ADSs
No Korean governmental approval is necessary for the sale and purchase of our ADSs in the secondary market outside
Korea or for the withdrawal of shares of our common stock underlying the ADSs and the delivery inside Korea of shares in
connection with the withdrawal, provided, that a foreigner who intends to acquire the shares must obtain an investment registration
card from the Financial Supervisory Service as described below. The acquisition of the shares by a foreigner must be immediately
reported to the governor of the Financial Services Commission, either by the foreigner or by his standing proxy in Korea.
Persons who have acquired shares of our common stock as a result of the withdrawal of shares underlying our ADSs may
exercise their preemptive rights for new shares, participate in free distributions and receive dividends on shares without any further
Korean governmental approval.
Restrictions Applicable to Shares
As a result of amendments to the Foreign Exchange Transaction Laws and Financial Services Commission regulations,
adopted in connection with the stock market opening from January 1992, which we refer to collectively as the Investment Rules, after
that date, foreigners may invest, with limited exceptions and subject to procedural requirements, in shares of all Korean companies
listed on the KRX KOSPI Market or the KRX KOSDAQ Market unless prohibited by specific laws. Foreign investors may trade
shares listed on the KRX KOSPI Market or the KRX KOSDAQ Market only through the KRX KOSPI Market or the KRX KOSDAQ
Market, except in limited circumstances, including:
•
•
•
•
•
odd-lot trading of shares;
acquisition of shares, which we refer to as converted shares, by exercise of warrants, conversion rights or exchange
rights under bonds with warrants, convertible bonds or exchangeable bonds or withdrawal rights under depositary
receipts issued outside of Korea by a Korean company;
acquisition of shares as a result of inheritance, donation, bequest or exercise of shareholders’ rights, including
preemptive rights or rights to participate in free distributions and receive dividends;
over-the-counter transactions between foreigners of a class of shares for which the ceiling on aggregate acquisition
by foreigners, as explained below, has been reached or exceeded;
shares acquired by way of direct investment and/or the disposal of such shares by the investor;
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•
•
•
•
•
the disposal of shares pursuant to the exercise of appraisal rights of dissenting shareholders;
the disposal of shares in connection with a tender offer;
the acquisition of shares by a foreign depositary in connection with the issuance of depositary receipts;
the acquisition and disposal of shares through an overseas stock exchange market if such shares are simultaneously
listed on the KRX KOSPI Market or the KRX KOSDAQ Market and such overseas stock exchange; and
arm’s-length transactions between foreigners, if all of such foreigners belong to the investment group managed by the
same person.
For over-the-counter transactions of shares between foreigners outside the KRX KOSPI Market or the KRX KOSDAQ
Market for shares with respect to which the limit on aggregate foreign ownership has been reached or exceeded, a financial investment
company with a brokerage license in Korea must act as an intermediary. Odd-lot trading of shares outside the KRX KOSPI Market or
the KRX KOSDAQ Market must involve a financial investment company with a dealing license in Korea as the other party. Foreign
investors are prohibited from engaging in margin transactions by borrowing shares from financial investment companies with respect to
shares that are subject to a foreign ownership limit.
The Investment Rules require a foreign investor who wishes to invest in shares on the KRX KOSPI Market or the KRX
KOSDAQ Market (including converted shares and shares being issued for initial listing on the KRX KOSPI Market or the KRX
KOSDAQ Market) to register its identity with the Financial Supervisory Service prior to making any such investment unless it has
previously registered. However, the registration requirement does not apply to foreign investors who acquire converted shares (including
upon conversion of ADSs into shares and upon exercise of conversion rights of convertible bonds) with the intention of selling such
converted shares within three months from the date of acquisition of the converted shares. Upon registration, the Financial Supervisory
Service will issue to the foreign investor an investment registration card, which must be presented each time the foreign investor opens a
brokerage account with a financial investment company with a brokerage license. Foreigners eligible to obtain an investment registration
card include foreign nationals who have not been residing in Korea for a consecutive period of six months or more, foreign
governments, foreign municipal authorities, foreign public institutions, international financial institutions or similar international
organizations, corporations incorporated under foreign laws and any person in any additional category designated by a decree
promulgated under the Financial Investment Services and Capital Markets Act. All Korean branch offices of a foreign corporation as a
group are treated as a separate foreigner from the offices of the corporation located outside of Korea for the purpose of investment
registration. However, a foreign corporation or depositary issuing depositary receipts may obtain one or more investment registration
cards in its name in certain circumstances as described in the relevant regulations.
Upon a foreign investor’s purchase of shares through the KRX KOSPI Market or the KRX KOSDAQ Market, no separate
report by the investor is required because the investment registration card system is designed to control and oversee foreign investment
through a computer system. However, a foreign investor’s acquisition or sale of shares outside the KRX KOSPI Market or the KRX
KOSDAQ Market (as discussed above) must be reported by the foreign investor or his standing proxy to the governor of the Financial
Supervisory Service at the time of each such acquisition or sale; provided, however, that a foreign investor must ensure that any
acquisition or sale by it of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market in the case of trades in connection with
a tender offer, odd-lot trading of shares or trades of a class of shares for which the aggregate foreign ownership limit has been reached or
exceeded, is reported to the governor of the Financial Supervisory Service by the financial investment company engaged to facilitate
such transaction. A foreign investor may appoint a standing proxy from among the Korea Securities Depository, foreign exchange banks
(including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment
license and internationally recognized custodians which will act as a standing proxy to exercise shareholders’ rights or perform any
matters related to the foregoing activities if the foreign investor does not perform these activities itself. Generally, a foreign investor may
not permit any person, other than its standing proxy, to exercise rights relating to its shares or perform any tasks related thereto on its
behalf. However, a foreign investor may be exempted from complying with these standing proxy rules with the approval of the governor
of the Financial Supervisory Service in cases deemed inevitable by reason of conflict between the laws of Korea and the home country
of the foreign investor.
Certificates evidencing shares of Korean companies must be kept in custody with an eligible custodian in Korea. Only the
Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies
with a dealing, brokerage or collective investment license and internationally recognized custodians are eligible to act as a custodian of
shares for a non-resident or foreign investor; provided, however, that a foreign investor may have the certificate evidencing shares
released from such custody when it is necessary to exercise its rights to such shares or to inspect and confirm the presence of the
certificate(s) of such shares. A foreign investor must ensure that its custodian deposits its shares with the Korea Securities Depository.
However, a foreign investor may be exempted from complying with this deposit requirement with the approval of the governor of the
Financial Supervisory Service in circumstances where compliance with that requirement is made impracticable, including cases where
compliance would contravene the laws of the home country of such foreign investor.
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Under the Investment Rules, with certain exceptions, foreign investors may acquire shares of a Korean company without being
subject to any foreign investment ceiling. As one such exception, designated public corporations are subject to a 40% ceiling on the
acquisition of shares by foreigners in the aggregate. Designated public corporations may set a ceiling on the acquisition of shares by a
single person in their articles of incorporation. Currently, Korea Electric Power Corporation is the only designated public corporation
which has no ceiling specifically set for foreign shareholders but has set a ceiling on the acquisition of shares by a single person
regardless of its nationality within 3% of the total number of shares by its articles of incorporation. Furthermore, an investment by a
foreign investor in 10% or more of the outstanding shares with voting rights of a Korean company is defined as a foreign direct
investment under the Foreign Investment Promotion Act of Korea. Generally, a foreign direct investment must be reported to the foreign
exchange bank designated by the Ministry of Trade, Industry & Energy or the Korea Trade-Investment Promotion Agency prior to such
investment (within 30 days from the date of such investment, if the company is listed on the Korea Exchange). The acquisition of shares
of a Korean company by a foreign investor may also be subject to certain foreign or other shareholding restrictions in the event that the
restrictions are prescribed in a specific law that regulates the business of the Korean company.
Under the Foreign Exchange Transaction Laws, a foreign investor who intends to acquire shares must designate a foreign
exchange bank at which he must open a foreign currency account and a Korean Won account exclusively for stock investments. No
approval is required for remittance into Korea and deposit of foreign currency funds in the foreign currency account. Foreign currency
funds may be transferred from the foreign currency account at the time required to place a deposit for, or settle the purchase price of, a
stock purchase transaction to a Korean Won account opened at a financial investment company with a securities dealing or brokerage
license. Funds in the foreign currency account may be remitted abroad without any Korean governmental approval.
Dividends on shares of Korean companies are paid in Korean Won. No Korean governmental approval is required for foreign
investors to receive dividends on, or the Korean Won proceeds of the sale of, any shares to be paid, received and retained in Korea.
Dividends paid on, and the Korean Won proceeds of the sale of, any shares held by a non-resident of Korea must be deposited either in a
Korean Won account with the investor’s financial investment company or in his Korean Won account. Funds in the investor’s Korean
Won account may be transferred to his foreign currency account or withdrawn for local living expenses, provided that any withdrawal of
local living expenses in excess of a certain amount is reported to the Financial Supervisory Service by the foreign exchange bank at which
the Won account is maintained. Funds in the Korean Won account may also be used for future investment in shares or for payment of the
subscription price of new shares obtained through the exercise of preemptive rights.
Financial investment companies with a securities dealing, brokerage or collective investment license are allowed to open
foreign currency accounts with foreign exchange banks exclusively for accommodating foreign investors’ stock investments in Korea.
Through these accounts, such financial investment companies may enter into foreign exchange transactions on a limited basis, such as
conversion of foreign currency funds and Korean Won funds, either as a counterparty to or on behalf of foreign investors, without the
investors having to open their own accounts with foreign exchange banks.
Item 10.E. Taxation
The following summary is based upon the tax laws of the United States and the Republic of Korea as in effect on the date of
this annual report, and is subject to any change in U.S. or Korean law that may come into effect after such date. Investors in the shares of
common stock or ADSs are advised to consult their own tax advisers as to the United States, Korean or other tax consequences of the
purchase, ownership and disposition of such securities, including the effect of any national, state or local tax laws.
Korean Taxation
The following summary of Korean tax considerations applies to you so long as you are not:
•
•
•
a resident of Korea;
a corporation having its head office, principal place of business or place of effective management in Korea (i.e., a
Korean corporation); or
engaged in a trade or business in Korea through a permanent establishment or a fixed base to which the relevant income
is attributable or with which the relevant income is effectively connected.
Taxation of Dividends on Shares of Common Stock or ADSs
We will deduct Korean withholding tax from dividends (whether in cash or in shares) paid to you at a rate of 22% (including
local income surtax). If you are a qualified resident in a country that has entered into a tax treaty with Korea, you may qualify for a
reduced rate of Korean withholding tax. See “—Tax Treaties” below for a discussion of treaty benefits. If we distribute to you free shares
representing a transfer of certain capital reserves or asset revaluation reserves into paid-in capital, that distribution may be subject to
Korean withholding tax.
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Taxation of Capital Gains from Transfer of Shares of Common Stock or ADSs
As a general rule, capital gains earned by non-residents upon transfer of shares of our common stock or ADSs are subject
to Korean withholding tax at the lower of (1) 11% (including local income surtax) of the gross proceeds realized or (2) subject to the
production of satisfactory evidence of acquisition costs and certain direct transaction costs of the shares or ADSs, 22% (including
local income surtax) of the net realized gain, unless exempt from Korean income taxation under the applicable Korean tax treaty with
the non-resident’s country of tax residence. See “—Tax Treaties” below for a discussion on treaty benefits. Even if you do not qualify
for an exemption under a tax treaty, you will not be subject to the foregoing withholding tax on capital gains if you qualify under the
relevant Korean domestic tax law exemptions discussed in the following paragraphs.
With respect to shares of our common stock, you will not be subject to Korean income taxation on capital gains realized
upon the transfer of such shares through the Korea Exchange if you (1) have no permanent establishment in Korea and (2) did not
own or have not owned (together with any shares owned by any entity with which you have a certain special relationship and possibly
including the shares represented by the ADSs) 25% or more of our total issued and outstanding shares at any time during the calendar
year in which the sale occurs and during the five calendar years prior to the calendar year in which the sale occurs.
Under the tax law amendments effective for capital gains recognized or to be recognized from disposition of ADSs on or
after January 1, 2008, ADSs are viewed as shares of stock for capital gains tax purposes. Accordingly, capital gains from sale or
disposition of ADSs are taxed (if taxable) as if such gains are from sale or disposition of shares of our common stock. It should be
noted that (i) capital gains earned by you (regardless of whether you have a permanent establishment in Korea) from a transfer of
ADSs outside Korea will generally be exempt from Korean income taxation by virtue of the Special Tax Treatment Control Law of
Korea, or the STTCL, provided that the issuance of ADSs is deemed to be an overseas issuance under the STTCL, but (ii) in the case
where an owner of the underlying shares of stock transfers ADSs after conversion of the underlying shares into ADSs, the exemption
under the STTCL described in (i) will not apply. In the case where an owner of the underlying shares of stock transfers the ADSs
after conversion of the underlying shares of stock into ADSs, such person is obligated to file corporate income tax returns and pay tax
unless a purchaser or a financial investment company with a brokerage license, as applicable, withholds and pays the tax on capital
gains derived from transfer of ADSs, as discussed below.
If you are subject to tax on capital gains with respect to the sale of ADSs, or of shares of common stock which you
acquired as a result of a withdrawal, the purchaser or, in the case of the sale of shares of common stock on the Korea Exchange or
through a financial investment company with a brokerage license in Korea, the financial investment company, is required to withhold
Korean tax from the sales price in an amount equal to 11% (including local income surtax) of the gross realization proceeds and to
make payment of these amounts to the Korean tax authority, unless you establish your entitlement to an exemption under an
applicable tax treaty or domestic tax law. See the discussion under “—Tax Treaties” below for an additional explanation of claiming
treaty benefits.
Tax Treaties
Korea has entered into a number of income tax treaties with other countries, including the United States, which reduce or
exempt Korean withholding tax on dividend income and capital gains on transfer of shares of common stock or ADSs. For example,
under the Korea-U.S. income tax treaty, reduced rates of Korean withholding tax on dividends of 16.5% or 11%, respectively
(including local income surtax), depending on your shareholding ratio, and an exemption from Korean withholding tax on capital
gains are available to residents of the United States that are beneficial owners of the relevant dividend income or capital gains.
However, under Article 17 (Investment or Holding Companies) of the Korea-U.S. income tax treaty, such reduced rates and
exemption do not apply if (1) you are a U.S. corporation, (2) by reason of any special measures, the tax imposed on you by the United
States with respect to such dividends or capital gains is substantially less than the tax generally imposed by the United States on
corporate profits, and (3) 25% or more of your capital is held of record or is otherwise determined, after consultation between
competent authorities of the United States and Korea, to be owned directly or indirectly by one or more persons who are not
individual residents of the United States. Also, under Article 16 (Capital Gains) of the Korea-U.S. income tax treaty, the exemption
on capital gains does not apply if you are an individual, and (a) you maintain a fixed base in Korea for a period or periods aggregating
183 days or more during the taxable year and your ADSs or shares of common stock giving rise to capital gains are effectively
connected with such fixed base or (b) you are present in Korea for a period or periods of 183 days or more during the taxable year.
You should inquire for yourself whether you are entitled to the benefit of an income tax treaty with Korea. It is the responsibility of
the party claiming the benefits of an income tax treaty in respect of dividend payments or capital gains to submit to us, the purchaser
or the financial investment company, as applicable, a certificate as to his tax residence. In the absence of sufficient proof, we, the
purchaser or the financial investment company, as applicable, must withhold tax at the normal rates.
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Furthermore, in order for you to claim the benefit of a tax rate reduction or tax exemption on certain Korean source income
(e.g., dividends and capital gains) under an applicable tax treaty, subject to certain exceptions, Korean tax law requires you (or your
agent) as the beneficial owner of such Korean source income to submit the relevant application (Application for Entitlement to
Reduced Tax Rate or Application for Tax Exemption, as the case may be) along with a certificate of your tax residency issued by a
competent authority of your country of tax residence (“BO Application”). Such application should be submitted to the withholding
agent prior to the payment date of such Korean source income. Subject to certain exceptions, where the Korean source income is paid
to an overseas investment vehicle that is not the beneficial owner of such income (“OIV”), a beneficial owner claiming the benefit of
an applicable tax treaty with respect to the Korean source income must submit its BO application to such OIV, which must submit an
OIV report and a schedule of beneficial owners to the withholding agent prior to the payment date of such Korean source income. In
the case of an application for tax exemption, the withholding agent is required to submit the application (together with the applicable
OIV report in the case of income paid to an OIV) to the relevant district tax office by the ninth day of the month following the date of
the payment of such income.
Inheritance Tax and Gift Tax
If you die while holding an ADS or donate an ADS, it is unclear whether, for Korean inheritance and gift tax purposes, you
will be treated as the owner of the shares of common stock underlying the ADSs. If the tax authority interprets depositary receipts as
the underlying share certificates, you may be treated as the owner of the shares of common stock and your heir or the donee (or in
certain circumstances, you as the donor) will be subject to Korean inheritance or gift tax presently at the rate of 10% to 50% based on
the value of the ADSs or shares of common stock and the identity of the individual against whom the tax is assessed.
If you die while holding a share of common stock or donate a share of common stock, your heir or donee (or in certain
circumstances, you as the donor) will be subject to Korean inheritance or gift tax at the same rate as indicated above.
At present, Korea has not entered into any tax treaty relating to inheritance or gift taxes.
Securities Transaction Tax
If you transfer shares of common stock on the Korea Exchange, you will be subject to securities transaction tax at the rate
of 0.15% and an agriculture and fishery special surtax at the rate of 0.15% of the sale price of the shares of common stock. If your
transfer of the shares of common stock is not made on the Korea Exchange, subject to certain exceptions, you will be subject to a
securities transaction tax at the rate of 0.5% and will not be subject to an agriculture and fishery special surtax.
Depositary receipts, which the ADSs constitute, are included in the scope of securities the transfers of which are subject to
securities transaction tax effective starting with transfers occurring on or after January 1, 2011. However, transfer of depositary
receipts listed on a foreign securities exchange similar to that of Korea (e.g., the New York Stock Exchange or the Nasdaq Stock
Market) will not be subject to the securities transaction tax.
In principle, the securities transaction tax, if applicable, must be paid by the transferor of the shares or certain rights
including rights to subscribe to each shares. When the transfer is effected through a securities settlement company, such settlement
company is generally required to withhold and pay the tax to the tax authorities. When such transfer is made through a financial
investment company only, such financial investment company is required to withhold and pay the tax. Where the transfer is effected
by a non-resident without a permanent establishment in Korea, other than through a securities settlement company or a financial
investment company, the transferee is required to withhold the securities transaction tax.
Non-reporting or under-reporting of securities transaction tax will generally result in penalties equal to 20% to 40% of the
non-reported tax amount or 10% to 40% of the under-reported tax amount, respectively. Also, a failure to timely pay securities
transaction tax will result in a penalty equal to 10.95% per annum of the due but unpaid tax amount. The penalties are imposed on the
party responsible for paying the securities transaction tax or, if such tax is required to be withheld, on the party that has the obligation
to withhold.
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United States Taxation
This summary describes certain material U.S. federal income tax consequences for a U.S. holder (as defined below) of
acquiring, owning, and disposing of ADSs. This summary applies to you only if you hold the ADSs as capital assets for tax purposes.
This summary does not apply to you if you are a member of a class of holders subject to special rules, such as:
•
•
•
•
•
•
•
•
•
a dealer in securities or currencies;
a trader in securities that elects to use a mark-to-market method of accounting for securities holdings;
a bank;
a life insurance company;
a tax-exempt organization;
a person that holds ADSs that are a hedge or that are hedged against interest rate or currency risks;
a person that holds ADSs as part of a straddle or conversion transaction for tax purposes;
a person whose functional currency for tax purposes is not the U.S. dollar; or
a person that owns or is deemed to own 10% or more of any class of our stock.
This summary is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed
regulations promulgated thereunder, published rulings and court decisions, all as currently in effect. These laws are subject to change,
possibly on a retroactive basis.
Please consult your own tax advisers concerning the consequences of purchasing, owning, and disposing of ADSs in your
particular circumstances, including the possible application of state, local, non-U.S. or other tax laws.
For purposes of this summary, you are a “U.S. holder” if you are a beneficial owner of an ADS and you are:
•
•
•
a citizen or resident of the United States;
a U.S. domestic corporation; or
otherwise subject to U.S. federal income tax on a net income basis with respect to income from the ADS.
In general, if you are the beneficial owner of ADSs, you will be treated as the beneficial owner of the common stock
represented by those ADSs for U.S. federal income tax purposes, and no gain or loss will be recognized if you exchange an ADS for
the common stock represented by that ADS.
Dividends
The gross amount of cash dividends that you receive (prior to deduction of Korean taxes) generally will be subject to U.S.
federal income taxation as foreign source dividend income. Dividends paid in Korean Won will be included in your income in a U.S.
dollar amount calculated by reference to the exchange rate in effect on the date of the depositary’s receipt of the dividend, regardless
of whether the payment is in fact converted into U.S. dollars. If such a dividend is converted into U.S. dollars on the date of receipt,
you generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. Subject to certain
exceptions for short-term (60 days or less) and hedged positions, the U.S. dollar amount of “qualified dividends” received by an
individual U.S. holder in respect of ADSs generally will be subject to taxation at a lower rate than other ordinary income. Dividends
paid on the ADSs will be treated as qualified dividends if (i) the ADSs are readily tradable on an established securities market in the
United States and (ii) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the
dividend is paid, a passive foreign investment company, or PFIC. The ADSs are listed on the New York Stock Exchange and will
qualify as readily tradable on an established securities market in the United States so long as they are so listed. Based on our audited
financial statements and relevant market and shareholder data, we believe that we were not treated as a PFIC for U.S. federal income
tax purposes with respect to our 2013 taxable year. In addition, based on our audited financial statements and our current expectations
regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do
not anticipate becoming a PFIC for our 2014 taxable year.
Distributions of additional shares in respect of ADSs that are made as part of a pro-rata distribution to all of our
shareholders generally will not be subject to U.S. federal income tax.
88
Sale or Other Disposition
For U.S. federal income tax purposes, gain or loss you realize on the sale or other disposition of ADSs will be treated as
U.S. source capital gain or loss, and will be long-term capital gain or loss if the ADSs were held for more than one year. Your ability
to offset capital losses against ordinary income is limited. Long-term capital gain recognized by an individual U.S. holder generally is
subject to taxation at a reduced rate.
Foreign Tax Credit Considerations
You should consult your own tax advisers to determine whether you are subject to any special rules that limit your ability
to make effective use of foreign tax credits, including the possible adverse impact of failing to take advantage of benefits under the
income tax treaty between the United States and Korea. If no such rules apply, you may claim a credit against your U.S. federal
income tax liability for Korean taxes withheld from cash dividends on the ADSs, so long as you have owned the ADSs (and not
entered into specified kinds of hedging transactions) for at least a 16-day period that includes the ex-dividend date. Instead of
claiming credit, you may, at your election, deduct such Korean taxes in computing your taxable income, subject to generally
applicable limitations under U.S. tax law. Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain
hedged positions in securities and may not be allowed in respect of arrangements in which a U.S. holder’s expected economic profit is
insubstantial.
Any Korean securities transaction tax or agriculture and fishery special surtax that you pay will not be creditable for
foreign tax credit purposes.
The calculation of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of
deductions involve the application of complex rules that depend on a U.S. holder’s particular circumstances. You should consult your
own tax advisers regarding the creditability or deductibility of such taxes.
U.S. Information Reporting and Backup Withholding Rules
Payments of dividends and sales proceeds that are made within the United States or through certain U.S. related financial
intermediaries are subject to information reporting and may be subject to backup withholding unless the holder (i) is a corporation or
other exempt recipient or (ii) provides a taxpayer identification number and certifies that no loss of exemption from backup
withholding has occurred.
Item 10.F. Dividends and Paying Agents
Not applicable.
Item 10.G. Statements by Experts
Not applicable.
Item 10.H. Documents on Display
We are subject to the information requirements of the Exchange Act and, in accordance therewith, are required to file
reports, including annual reports on Form 20-F, and other information with the SEC. These materials, including this annual report and
the exhibits thereto, may be inspected and copied at the SEC’s public reference rooms in Washington, D.C., New York, New York
and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. As a foreign
private issuer, we are also required to make filings with the SEC by electronic means. Any filings we make electronically will be
available to the public over the Internet at the SEC’s web site at http://www.sec.gov.
Item 10.I.
Subsidiary Information
Not applicable.
89
Item 11.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Overview
Market risk is the risk of loss related to adverse changes in market prices, including interest rates and foreign exchange rates,
of financial instruments. We are exposed to various financial market risks in our ordinary course of business transactions, primarily from
changes in interest rates and foreign exchange rates, and we utilize financial derivatives to mitigate these risks. We also used various
derivative instruments, principally forward contracts with maturities of one year or less, to manage our exposure associated with net
asset and liability positions and cash flows denominated in foreign currencies. We have used, and intend to continue to use, these
financial derivatives only for hedging purposes and not for speculative purposes.
Our primary market risk exposures relate to interest rate movements on floating rate borrowings and exchange rate
movements on foreign currency denominated accounts receivable, as well as foreign currency denominated future cash flows from sales,
mostly denominated in U.S. dollars and foreign currency denominated accounts payable for purchases of raw materials and supplies,
primarily denominated in U.S. dollars and Japanese Yen. The fair value of our financial instruments has been determined as the price, as
of the applicable measurement date, that we would receive when selling an asset or that we would pay when transferring a liability, in an
orderly transaction between market participants. Fair value is based on quoted market prices where available.
For a further discussion of our market risk and fair value of our financial assets and liabilities, see Note 13 to the notes to our
financial statements.
Interest Rate Risks
Our exposure to interest rate risks relates primarily to our long-term debt obligations, which are typically incurred to fund
capital expenditures and repay maturing debt, as well as for working capital and other general corporate purposes. As of December 31,
2013, we had outstanding long-term debt, including current portion, in the amount of
3,882 billion (US$3,679 million).
￦
From time to time, we may enter into interest rate swap contracts to hedge against the effects of interest rate fluctuations of
certain of our floating rate long-term debt. As of December 31, 2013, we had no interest rate swap contracts outstanding.
We may be exposed to interest rate risks on additional debt financing that we may periodically undertake to fund capital
expenditures required for our capacity expansion. Upward fluctuations in interest rates increase the cost of new debt. The interest rate
that we will be able to obtain in a new debt financing will depend on market conditions at that time and may differ from the rates we
have secured on our current debt.
As of December 31, 2013, we had US$700 million aggregate principal amount of U.S. dollar denominated long-term loans
and bonds. The interest rates on these loans and bonds are set based on three-month U.S. dollar LIBOR plus 0.90% to 1.90% and six-
month U.S. dollar LIBOR plus 1.78%, as applicable. The table below provides information about our financial instruments that are
sensitive to changes in interest rates. The risk associated with fluctuating interest expense is principally limited to our U.S. dollar
denominated term loans, and we do not believe that a near-term 10% change of the effective interest rate would have a significant
impact on our cash flows. We currently do not have any capital lease obligations.
2014
2015
Expected Maturity Dates
2017
2016
Thereafter
(in billions of Won, except for interest rate percentages)
2018
Fair Value at
December 31,
2013
Total
￦
￦
640.1
4.8%
4.0
￦
￦
758.7
4.4%
2.2
￦
￦
1,201.7
4.3%
0.8
￦
￦
￦
1.8%
￦
1.8%
￦
1.8%
￦
242.7
126.6
369.4
￦
239.1
294.5
4.3%
0.5
1.8%
—
￦
￦
3.3%
0.0
1.8%
—
￦
￦
￦
2.1%
2.1%
1.5%
—
—
￦
3,135.5
3,215.3
7.5
￦
￦
7.5
738.7
738.7
￦
￦
￦
1.4
2.8%
—
—
—
—
Long-term debt
obligations
￦
Fixed rate (
)
Average interest
rate
￦
Variable Rate (
)
Average interest
rate
Variable rate (US$)
Average interest
rate
For a further discussion of our interest rate risk exposures, including a further sensitivity analysis on our interest rate risk
exposures, see Note 13(d) of the notes to our financial statements.
90
Foreign Currency Risk
The primary foreign currency to which we are exposed is the U.S. dollar. We are also exposed, to a lesser extent, to other
foreign currencies, including the Chinese Renminbi, the Japanese Yen and the Euro. As of December 31, 2013, we had U.S. dollar
denominated sales-related trade accounts and notes receivable of US$2,463 million, which represented 83.1% of our trade accounts
and notes receivable, and U.S. dollar denominated sales-related trade accounts payable of US$1,858 million, which represented
65.4% of our trade accounts payable.
As of December 31, 2013, we also had RMB denominated sales-related trade accounts and notes receivable of RMB1,391
million, Euro denominated sales-related trade accounts and notes receivable of €€ 19 million and Japanese Yen denominated sales-
related trade accounts and notes receivable of ¥6,410 million, which represented 7.7%, 0.9% and 2.1% of our trade accounts and
notes receivable, net, respectively. In addition, we had RMB denominated sales-related trade accounts payable of RMB1,858 million,
Euro denominated sales-related trade accounts payable of €€ 15 million and Japanese Yen denominated sales-related trade accounts
payable of ¥30,834 million, which represented 10.8%, 0.7% and 10.3% of our trade accounts and notes receivable, net, respectively.
In addition to relying on natural hedges created by foreign currency payables and receivables, we enter into short-term
foreign currency forward contracts with major financial institutions to minimize the impact of foreign currency fluctuations on our
results of operations. Gains and losses on foreign currency forward contracts are recorded in the period of the exchange rate changes
as foreign exchange gain or loss or other comprehensive income. As of December 31, 2013, we did not have any outstanding foreign
currency forward contracts.
Based on our overall foreign currency exposure as of December 31, 2013, a short-term 10% appreciation or depreciation of
the U.S. dollar against the Korean Won may have a material effect on our short-term financial condition, results of operations or cash
flows.
For a further discussion of our foreign currency risk exposures, including a sensitivity analysis on our currency risk
exposures, see Note 13(c) of the notes to our financial statements.
Other Risks
We are exposed to credit risk in the event of non-performance by the counterparties under our foreign currency forward
contracts at maturity. In order to minimize this risk, we limit the transaction amount with any one party and continually monitor the
credit quality of the counterparties to these financial instruments. We do not anticipate any material losses from these contracts, and
we believe the risk of non-performance by the counterparties under these contracts is remote.
A substantial portion of our sales is attributable to a limited number of our end-brand customers. Our top ten end-brand
customers, including our largest shareholder as an end-brand customer, together accounted for approximately 71% of our sales in
2011, 71% in 2012 and 76% in 2013. While we negotiate directly with our end-brand customers concerning the price and quantity of
the sales, for some sales transactions we invoice the end-brand customers’ designated system integrators. In addition, a portion of our
sales to end-brand customers and their system integrators located in certain regions are sold through LG International’s overseas
subsidiaries. Although our sales to LG International and its subsidiaries only accounted for 5.4% of our sales in 2013, in the past we
have sold a significantly greater amount to these entities. As a result of our significant dependence on a concentrated group of end-
brand customers and their designated system integrators, as well a significant amount of sales we may make to our affiliated trading
company, LG International, and its subsidiaries, we are exposed to credit risks associated with these entities. We have established
certain measures, such as factoring arrangements and requirement of credit insurance from customers, to protect us from excessive
exposure to such credit risks.
Our credit policy typically requires payment within 30 to 90 days, and payments on the vast majority of our sales have
typically been collected within 60 days. We manage our accounts receivable and credit exposure to customers by establishing credit
limits for each customer to whom we supply products on an open account basis in accordance with our internal credit guidelines. We
assess credit risk through quantitative and qualitative analysis, and based on this analysis, we establish credit limits and determine
whether we will seek to use one or more credit support devices, such as obtaining some form of third-party guaranty or stand-by letter
of credit, obtaining credit insurance or through factoring of all or part of accounts receivables. Our credit policy does not require
credit limits on accounts receivable created on letters of credit. To date we have not experienced any material problems relating to
customer payments. For a further discussion of our credit risk exposures, see Note 13(a) to the notes to our financial statements.
According to the Korean Statistical Information Service, the rate of inflation in Korea was 4.0% in 2011, 2.2% in 2012 and
1.3% in 2013. Inflation has not had a material impact on our results of operations in recent years.
91
Item 12.
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Fees and Charges
Under the terms of the deposit agreement, as a holder of our ADSs, you are required to pay the following service fees to
the depositary:
Services
Issuance of ADSs
Cancellation of ADSs
Up to $0.05 per ADS issued
Up to $0.05 per ADS canceled
Fees
Distribution of cash dividends or ADSs pursuant to stock dividends Up to $0.02 per ADS held
Distribution of cash proceeds or free shares in the form of ADSs
Up to $0.02 per ADS held
Distribution of securities other than ADSs or rights to purchase
additional ADSs
Distribution of ADSs pursuant to exercise of rights to purchase
additional ADSs
Up to $0.05 per security distributed
Up to $0.02 per ADS held
As a holder of our ADSs, you are also responsible for paying certain fees and expenses incurred by the depositary and
certain taxes and governmental charges such as the following:
•
•
•
•
•
Fees for the transfer and registration of shares charged by the registrar and transfer agent for the shares in Korea
(i.e., upon deposit and withdrawal of shares).
Expenses incurred for converting foreign currency into U.S. dollars.
Expenses for cable, telex and fax transmissions and for delivery of securities.
Taxes and duties upon the transfer of securities (i.e., when shares are deposited or withdrawn from deposit).
Fees and expenses incurred in connection with the delivery or servicing of shares on deposit.
Depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary by the brokers (on
behalf of their clients) receiving the newly issued ADSs from the depositary and by the brokers (on behalf of their clients) delivering
the ADSs to the depositary for cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in
connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary to the
holders of record of ADSs as of the applicable ADS record date.
The depositary fees payable for cash distributions are deducted from the cash being distributed. In the case of distributions
other than cash (i.e., stock dividend, rights), the depositary charges the applicable fee to the ADS record date holders concurrent with
the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in direct
registration), the depositary sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and
custodian accounts (via the Depository Trust Company, or DTC), the depositary collects its fees through the systems provided by
DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC
accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount
of the fees paid to the depositary.
In the event of refusal to pay the depositary fees, the depositary may, under the terms of the deposit agreement, refuse the
requested service until payment is received or may set off the amount of the depositary fees from any distribution to be made to such
holder of ADSs.
92
Note that the fees and charges you may be required to pay may vary over time and may be changed by us and by the
depositary. You will receive prior notice of such changes.
Fees and Payments from the Depositary to Us
In 2013, we received the following payments, after deduction of applicable U.S. taxes, from the depositary:
Reimbursement of listing fees:
Reimbursement of proxy process expenses (printing, postage and
distribution):
US$42,000
US$42,267
PART II
Item 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
Not applicable.
Item 15.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management has evaluated, with the participation of our chief executive officer and chief financial officer, the
effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act, as of December 31, 2013. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures,
including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even
effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon
our evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were
effective as of such date. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by
us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Commission’s rules and forms, and that it is accumulated and communicated to our management, including
our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Rules 13a-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial
reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the
supervision and with the participation of our management, including our chief executive officer and chief financial officer, we
conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal
Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31,
2013. The effectiveness of our internal control over financial reporting as of December 31, 2013 has been audited by KPMG Samjong
Accounting Corp., an independent registered public accounting firm, as stated in its attestation report which is included in Item 18 of
this Form 20-F.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during 2013 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
93
Item 16.
[RESERVED]
Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Tae Sik Ahn qualifies as an “audit committee financial expert” and is independent
within the meaning of this Item 16A.
Item 16B. CODE OF ETHICS
We have adopted a code of ethics, as defined in Item 16B of Form 20-F under the Exchange Act. Our Code of Ethics applies
to our chief executive officer, chief financial officer and persons performing similar functions as well as to our non-executive directors
and other officers and employees. Our Code of Ethics is available on our website at www.lgdisplay.com. If we amend the provisions of
our Code of Ethics that apply to our chief executive officer and chief financial officer and persons performing similar functions, or if we
grant any waiver of such provisions, we will disclose such amendment or waiver on our website at the same address.
Item 16C.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the fees billed to us by our independent auditors, KPMG Samjong Accounting Corp., a member
firm of KPMG International, and their respective affiliates, which we collectively refer to as KPMG, during the fiscal years ended
December 31, 2012 and 2013:
Year ended December 31,
2013
2012
Audit fees
Audit-related fees
Tax fees
All other fees
Total fees
￦
￦
￦
(in millions of Won)
3,115
—
134
—
3,249
￦
3,225
—
105
130
3,460
Audit fees in the above table are the fees billed by KPMG in connection with the audit of our annual financial statements and
the review of our interim financial statements.
Audit-related fees in the above table are the aggregate fees billed by KPMG for agreed upon procedures related to various
transactions involving us and our subsidiaries.
Tax fees in the above table are fees billed by KPMG for tax compliance services and other tax advice.
All other fees in the above table are the aggregate fees billed by KPMG for advisory services in establishing a compliance
system in connection with our disclosure obligations under the SEC’s conflict mineral rule.
Audit Committee Pre-Approval Policies and Procedures
Our audit committee has not established pre-approval policies and procedures for the engagement of our independent auditors
for services. Our audit committee expressly approves on a case-by-case basis any engagement of our independent auditors for audit and
non-audit services provided to our subsidiaries or to us.
The audit committee is permitted to approve certain fees for audit and non-audit services before the completion of the
engagement that are recurring, in the ordinary course of business and otherwise comply with the de minimis exception to the applicable
rules of the SEC. In 2013, no fees were approved pursuant to the de minimis exception.
Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
Item 16E.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Neither we nor any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act, purchased any of our equity
securities during the period covered by this annual report.
94
Item 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
Item 16G. CORPORATE GOVERNANCE
The following is a summary of the significant differences between the New York Stock Exchange’s corporate governance
standards and those that we follow under Korean law.
NYSE Corporate Governance Standards
Nomination/Corporate Governance Committee
Listed companies must have a nomination/corporate governance
committee composed entirely of independent directors.
LG Display’s Corporate Governance Practice
We maintain an Outside Director Nomination Committee
composed of two outside directors and one non-outside
director.
Compensation Committee
Listed companies must have a compensation committee composed
entirely of independent directors.
Under Korean law, we are not required to establish a
compensation committee. Accordingly, we do not currently
have a compensation committee, and our board of directors is
directly responsible for matters relating to salaries and
incentive compensation for our directors and executive
officers.
Executive Session
Listed companies must hold meetings solely attended by non-
management directors to more effectively check and balance
management directors.
We do not normally hold executive sessions solely attended by
non-management directors as that is not required under Korean
law but we may elect to do so at the discretion of the directors.
Audit Committee
Listed companies must have an audit committee that satisfies the
requirements of Rule 10A-3 under the Exchange Act.
We maintain an Audit Committee composed of three outside
directors who meet the applicable independence criteria set
forth under Rule 10A-3 of the Exchange Act.
Audit Committee Additional Requirements
Listed companies must have an audit committee that is composed of
at least three directors.
Shareholder Approval of Equity Compensation Plan
Our Audit Committee has three directors, as described above.
Listed companies must allow its shareholders to exercise their
voting rights with respect to any material revision to the company’s
equity compensation plan.
We currently have two equity compensation plans: one
providing for the grant of stock options to officers and key
employees and an Employee Stock Ownership Plan, or ESOP.
Stock options to officers and key employees may be granted
pursuant to a resolution of the shareholders in an amount not
to exceed 15% of the total number of our issued and
outstanding shares. However, the board of directors may grant
stock options to non-director officers and employees up to 1%
of the total number of our issued and outstanding shares,
which grant must be approved by a resolution of the
subsequent general meeting of shareholders, except for the
stock options granted before March 30, 2006.
95
All material matters related to the granting of stock options are
provided in our articles of incorporation, and any amendments
to the articles of incorporation are subject to shareholders’
approval. Matters related to the ESOP are not subject to
shareholders’ approval under Korean law.
We do not maintain formal corporate governance guidelines.
Our board of directors is responsible for overseeing our
policies, practices and procedures in the area of corporate
governance.
We have adopted the Code of Ethics for all directors, officers
and employees. A copy of our Code of Ethics is available on
our website at www.lgdisplay.com.
Corporate Governance Guidelines
Listed companies must adopt and disclose corporate governance
guidelines.
Code of Business Conduct and Ethics
Listed companies must adopt and disclose a code of business
conduct and ethics for directors, officers and employees, and
promptly disclose any waivers of the code for directors or executive
officers.
Item 16H. MINE SAFETY DISCLOSURE
Not applicable.
96
PART III
Item 17.
FINANCIAL STATEMENTS
Not applicable.
Item 18.
FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated statements of financial position as of December 31, 2012 and 2013
Consolidated statements of comprehensive income (loss) for the years ended December 31, 2011, 2012 and 2013
Consolidated statements of changes in equity for the years ended December 31, 2011, 2012 and 2013
Consolidated statements of cash flows for the years ended December 31, 2011, 2012 and 2013
Notes to consolidated financial statements
Page
F-2
F-4
F-5
F-6
F-7
F-9
97
Item 19.
EXHIBITS
Number
1.1*
2.1*
2.2*
2.3*
Description
Amended and Restated Articles of Incorporation (translation in English) (incorporated by reference to Exhibit 1.1 to
the Registrant’s Annual Report (No. 001-32238) on Form 20-F, filed on April 26, 2013)
Form of Common Stock Certificate (translation in English) (incorporated by reference to Exhibit 4.1 to the
Registrant’s Registration Statement (No. 333-116819) on Form F-1, filed on July 13, 2004)
Deposit Agreement (including Form of American Depositary Receipt) (incorporated by reference to Exhibit (a) to the
Registrant’s Registration Statement (No. 333-147661) on Form F-6, filed on November 28, 2007)
Letter from Citibank, N.A., as depositary, dated as of November 29, 2007, to the Registrant relating to the direct
registration system for the American depositary receipts (incorporated by reference to Exhibit 2.3 to the Registrant’s
Annual Report (No. 001-32238) on Form 20-F, filed on April 16, 2008)
8.1**
List of subsidiaries of LG Display Co., Ltd.
12.1
12.2
13.1
13.2
*
**
Section 302 certification of the Chief Executive Officer
Section 302 certification of the Chief Financial Officer
Section 906 certification of the Chief Executive Officer
Section 906 certification of the Chief Financial Officer
Filed previously.
Incorporated by reference to Note 1 of the notes to the consolidated financial statements of LG Display Co., Ltd. included in this
annual report.
98
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and
authorized the undersigned to sign this annual report on its behalf.
SIGNATURES
LG DISPLAY CO., LTD.
(Registrant)
/s/ SANG BEOM HAN
(Signature)
Name: Sang Beom Han
Title: Representative Director, President and Chief
Executive Officer
/s/ SANGDON KIM
(Signature)
Name: Sangdon Kim
Title:
Director, Senior Vice President and Chief
Financial Officer
Date: April 30, 2014
INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 2012 AND 2013
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED DECEMBER
31, 2011, 2012 AND 2013
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2011, 2012
AND 2013
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2011, 2012 AND
2013
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-2
F-4
F-5
F-6
F-7
F-9
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
LG Display Co., Ltd.:
We have audited the accompanying consolidated statements of financial position of LG Display Co., Ltd. and subsidiaries as of
December 31, 2012 and 2013 and the related consolidated statements of comprehensive income (loss), changes in equity and cash
flows for each of the years in the three-year period ended December 31, 2013. We also have audited LG Display Co., Ltd.’s internal
control over financial reporting as of December 31, 2013, based on criteria established in Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992). LG Display Co., Ltd.’s management is
responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting, included in “Management’s Annual Report on Internal
Control over Financial Reporting”. Our responsibility is to express an opinion on these consolidated financial statements and an
opinion on LG Display Co., Ltd.’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a
reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
F-2
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
LG Display Co., Ltd. and subsidiaries as of December 31, 2012 and 2013 and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 2013, in conformity with International Financial Reporting Standards
as issued by the International Accounting Standards Board. Also, in our opinion, LG Display Co., Ltd. maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control
– Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992).
/s/ KPMG Samjong Accounting Corp.
Seoul, Korea
April 24, 2014
F-3
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Financial Position
As of December 31, 2012 and 2013
(In millions of won)
Assets
Cash and cash equivalents
Deposits in banks
Trade accounts and notes receivable, net
Other accounts receivable, net
Other current financial assets
Inventories
Prepaid income taxes
Other current assets
Total current assets
Investments in equity method investees
Other non-current financial assets
Property, plant and equipment, net
Intangible assets, net
Deferred tax assets
Other non-current assets
Total non-current assets
Total assets
Liabilities
Trade accounts and notes payable
Current financial liabilities
Other accounts payable
Accrued expenses
Income tax payable
Provisions
Advances received
Other current liabilities
Total current liabilities
Non-current financial liabilities
Non-current provisions
Employee benefits
Long-term advances received
Deferred tax liabilities
Other non-current liabilities
Total non-current liabilities
Total liabilities
Equity
Share capital
Share premium
Reserves
Retained earnings
Total equity attributable to equity holders of the Controlling
Company
Non-controlling interests
Total equity
Total liabilities and equity
See accompanying notes to the consolidated financial statements.
F-4
Note
December 31, 2012
￦
December 31, 2013
6, 13
6, 13
7, 13, 20, 23
7, 13
9, 13
8
7
10
9, 13
11, 24
12, 24
30
7
13, 23
13, 14
13
15
20
19
13, 14
15
18
20
30
19
22
22
￦
￦
2,338,661
315,092
3,334,341
199,007
3,828
2,390,007
8,483
325,266
8,914,685
402,158
86,432
13,107,511
497,602
1,294,813
152,310
15,540,826
24,455,511
4,147,036
1,015,272
2,811,161
412,055
56,521
250,984
485,468
27,661
9,206,158
3,440,585
6,515
180,640
1,049,678
—
331,755
5,009,173
14,215,331
1,789,079
2,251,113
(69,370)
6,238,989
10,209,811
30,369
10,240,180
24,455,511
￦
1,021,870
1,301,539
3,128,626
89,545
919
1,933,241
4,066
251,982
7,731,788
406,536
46,259
11,808,334
468,185
1,037,000
217,182
13,983,496
21,715,284
2,999,522
907,942
1,454,339
491,236
46,777
200,731
656,775
31,597
6,788,919
2,994,837
5,005
319,087
427,397
119
382,500
4,128,945
10,917,864
1,789,079
2,251,113
(91,674)
6,662,655
10,611,173
186,247
10,797,420
21,715,284
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
For the years ended December 31, 2011, 2012 and 2013
(In millions of won, except earnings per share)
Revenue
Cost of sales
Gross profit
Selling expenses
Administrative expenses
Research and development expenses
Other income
Other expenses
Finance income
Finance costs
Equity income on investments, net
Profit (loss) before income tax
Income tax benefit (expense)
Profit (loss) for the year
Other comprehensive income (loss)
Items that will never be reclassified to profit or loss
Remeasurements of defined benefit liability
Related income tax
Items that are or may be reclassified to profit or loss
Net change in fair value of available-for-sale financial assets
Foreign currency translation differences for foreign operations
Share of loss from sale of treasury stocks by associates
Related income tax
Other comprehensive income (loss) for the year, net of income tax
Total comprehensive income (loss) for the year
Profit (loss) attributable to:
Owners of the Controlling Company
Non-controlling interests
Profit (loss) for the year
Total comprehensive income (loss) attributable to:
Owners of the Controlling Company
Non-controlling interests
Total comprehensive income (loss) for the year
Earnings (loss) per share
Basic earnings (loss) per share
Diluted earnings (loss) per share
See accompanying notes to the consolidated financial statements.
F-5
Note
23, 24, 25
8, 23
17
17
26
26
28
28
29
18, 29
18, 29
28, 29
28, 29
29
29
31
31
￦
2011
24,291,289
(23,081,322)
1,209,967
(728,419)
(429,511)
(816,054)
1,223,545
(1,400,491)
207,266
(363,309)
16,047
(1,080,959)
293,064
(787,895)
2012
29,429,668
(26,424,756)
3,004,912
(813,742)
(493,694)
(785,111)
1,260,945
(1,614,040)
293,172
(436,696)
42,779
458,525
(222,180)
236,345
2013
27,033,035
(23,524,851)
3,508,184
(732,199)
(517,622)
(1,095,727)
1,109,432
(1,268,588)
185,011
(381,851)
23,665
830,305
(411,332)
418,973
(23,732)
6,059
(17,673)
2,700
47,443
(214)
(1,101)
48,828
31,155
(756,740)
(771,223)
(16,672)
(787,895)
(741,417)
(15,323)
(756,740)
(2,155)
(2,155)
￦
￦
￦
￦
￦
(75,899)
18,325
(57,574)
4,764
(86,320)
(48)
(1,043)
(82,647)
(140,221)
96,124
233,204
3,141
236,345
94,079
2,045
96,124
652
652
998
(334)
664
826
(22,100)
(802)
(225)
(22,301)
(21,637)
397,336
426,118
(7,145)
418,973
404,478
(7,142)
397,336
1,191
1,191
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Changes in Equity
For the years ended December 31, 2011, 2012 and 2013
(In millions of won)
Balances at January 1, 2011
Total comprehensive income (loss)
for the year
Loss for the year
Other comprehensive income
(loss)
Transaction with owners, recognized
directly in equity
Dividends to equity holders
Changes in ownership interests in
subsidiaries
Balances at December 31, 2011
Balances at January 1, 2012
Total comprehensive income (loss)
for the year
Profit for the year
Other comprehensive income
(loss)
Transaction with owners, recognized
directly in equity
Incorporation of subsidiaries
Balances at December 31, 2012
Balances at January 1, 2013
Total comprehensive income (loss)
for the year
Profit (loss) for the year
Other comprehensive income
(loss)
Attributable to owners of the Controlling Company
Share of gain (loss)
Share from sale of treasury Translation Fair value Retained Non-controlling
premium stocks by associates
reserve
reserve earnings
interests
2,251,113
810
(30,548)
(5,560) 7,031,163
24,910
￦
Share
capital
1,789,079
Total
equity
11,060,967
—
—
—
￦
—
—
—
—
—
—
1,789,079
￦
￦
—
2,251,113
1,789,079
2,251,113
—
(214)
(214)
—
—
596
596
—
—
(771,223)
(16,672)
(787,895)
45,989
45,989
1,704
1,704
(17,673)
(788,896)
1,349
(15,323)
31,155
(756,740)
—
—
(178,908)
—
(178,908)
—
15,441
15,441
—
—
(3,856) 6,063,359
5,709
15,296
5,709
10,131,028
(3,856) 6,063,359
15,296
10,131,028
—
—
—
—
— 233,204
3,141
236,345
￦
—
—
—
—
(48)
(48)
(85,293)
(85,293)
3,790
3,790
(57,574)
175,630
(1,096)
2,045
(140,221)
96,124
—
—
1,789,079 2,251,113
￦
￦
1,789,079
2,251,113
—
—
—
￦
—
—
—
—
548
548
—
(69,852)
(69,852)
—
—
(66) 6,238,989
13,028
13,028
30,369 10,240,180
(66) 6,238,989
30,369
10,240,180
—
(802)
(802)
—
(22,140)
(22,140)
—
638
638
426,118
(7,145)
418,973
664
426,782
3
(7,142)
(21,637)
397,336
Transaction with owners, recognized
directly in equity
Capital contribution from non-
controlling interests and others
Balances at December 31, 2013
￦
—
1,789,079
2,251,113
(254)
(91,992)
572
(3,116)
6,662,655
163,020
186,247
159,904
10,797,420
See accompanying notes to the consolidated financial statements.
F-6
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2011, 2012 and 2013
(In millions of won)
Cash flows from operating activities:
Profit (loss) for the year
Adjustments for:
Income tax expense (benefit)
Depreciation
Amortization of intangible assets
Gain on foreign currency translation
Loss on foreign currency translation
Expenses related to defined benefit plans
Gain on disposal of property, plant and equipment
Loss on disposal of property, plant and equipment
Impairment loss on property, plant and equipment
Impairment loss on inventories
Bad debt expense (reversal)
Loss on disposal of intangible assets
Impairment loss on intangible assets
Reversal of impairment loss on intangible assets
Finance income
Finance costs
Equity in income of equity method investees, net
Other income
Other expenses
Change in trade accounts and notes receivable
Change in other accounts receivable
Change in other current assets
Change in inventories
Change in other non-current assets
Change in trade accounts and notes payable
Change in other accounts payable
Change in accrued expenses
Change in other current liabilities
Change in long-term advances received
Change in other non-current liabilities
Change in provisions
Change in defined benefit liabilities
Cash generated from operating activities
Income taxes paid
Interests received
Interests paid
Net cash provided by operating activities
See accompanying notes to the consolidated financial statements.
F-7
Note
2011
2012
2013
￦
(787,895)
236,345
418,973
29
11, 16
12, 16
18, 27
10
(293,064)
3,413,450
237,996
(85,804)
132,295
113,970
(740)
862
3,589
133,341
130
1,588
5,574
—
(59,542)
238,737
(16,047)
(19,591)
210,008
3,228,857
296,561
(90,398)
11,010
(235,494)
(39,796)
792,128
97,686
(158,640)
(5,384)
281,975
13,770
(208,390)
(69,727)
3,914,158
(162,266)
65,600
(151,634)
3,665,858
222,180
4,196,487
272,925
(234,912)
73,391
138,879
(5,925)
3,728
—
135,720
356
704
40,012
—
(133,711)
209,104
(42,779)
(8,235)
560,458
5,664,727
(1,457,299)
15,515
(46,216)
(208,357)
(47,872)
440,883
(292,443)
158,698
359,132
789,670
2,453
(390,974)
(180,599)
4,807,318
(77,643)
33,302
(193,282)
4,569,695
411,332
3,598,472
236,046
(76,111)
55,870
159,453
(9,620)
1,639
853
211,363
(689)
452
1,661
(296)
(52,862)
163,183
(23,665)
(412)
351,953
5,447,595
(251,063)
133,734
89,456
245,403
(120,054)
(1,110,098)
(289,441)
68,162
(7,846)
—
9,808
(315,266)
(19,627)
3,880,763
(159,286)
36,686
(173,390)
3,584,773
￦
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
For the years ended December 31, 2011, 2012 and 2013
(In millions of won)
Cash flows from investing activities:
Dividends received
Proceeds from withdrawal of deposits in banks
Increase in deposits in banks
Acquisition of investments in equity method investees
Proceeds from disposal of investments in equity method investees
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Acquisition of intangible assets
Proceeds from disposal of intangible assets
Government grants received
Proceeds from settlement of derivatives
Increase in short-term loans
Proceeds from collection of short-term loans
Acquisition of other non-current financial assets
Proceeds from disposal of other non-current financial assets
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from short-term borrowings
Repayments of short-term borrowings
Proceeds from issuance of debentures
Proceeds from long-term debt
Repayments of long-term debt
Repayments of current portion of long-term debt and debentures
Capital contribution from non-controlling interests
Payments of cash dividends
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at January 1
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at December 31
See accompanying notes to the consolidated financial statements.
F-8
2011
2012
2013
￦
6,130
2,401,500
(1,713,500)
(53,226)
2,045
(4,063,070)
643
(215,286)
—
1,605
23,784
—
92
(59,444)
174,266
(3,494,461)
1,292,804
(2,483,997)
1,145,209
941,921
—
(1,000,987)
5,709
(178,908)
(278,249)
(106,852)
1,631,009
(6,180)
1,517,977
￦
686
913,500
(413,512)
(6,599)
3,938
(3,972,479)
58,846
(285,888)
—
3,962
742
(10)
—
(55,276)
63,905
(3,688,185)
3,455,548
(3,441,632)
298,783
494,000
—
(867,851)
13,028
—
(48,124)
833,386
1,517,977
(12,702)
2,338,661
14,582
1,657,082
(2,644,204)
(18,744)
5,023
(3,473,059)
39,838
(184,754)
1,902
59,629
—
—
2
(5,410)
43,792
(4,504,321)
1,430,041
(1,444,717)
587,603
372,785
(301,229)
(1,195,340)
159,873
—
(390,984)
(1,310,532)
2,338,661
(6,259)
1,021,870
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
1.
Reporting Entity
(a) Description of the Controlling Company
LG Display Co., Ltd. (the “Controlling Company”) was incorporated in February 1985 under its original name of LG Soft,
Ltd. as a wholly owned subsidiary of LG Electronics Inc. In 1998, LG Electronics Inc. and LG Semicon Co., Ltd.
transferred their respective Thin Film Transistor Liquid Crystal Display (“TFT-LCD”) related business to the Controlling
Company. The main business of the Controlling Company and its subsidiaries is to manufacture and sell TFT-LCD panels.
The Controlling Company is a stock company (“Jusikhoesa”) domiciled in the Republic of Korea with its address at 128,
Yeouidae-ro, Yeongdeungpo-gu, Seoul, the Republic of Korea. In July 1999, LG Electronics Inc. and Koninklijke Philips
Electronics N.V. (“Philips”) entered into a joint venture agreement. Pursuant to the agreement, the Controlling Company
changed its name to LG.Philips LCD Co., Ltd. However, in February 2008, the Controlling Company changed its name to
LG Display Co., Ltd. considering the decrease of Philips’s share interest in the Controlling Company and the possibility of
its business expansion to other display products including Organic Light Emitting Diode (“OLED”) and Flexible Display
products. As of December 31, 2013, LG Electronics Inc. owns 37.9% (135,625,000 shares) of the Controlling Company’s
common shares.
As of December 31, 2013, the Controlling Company has TFT-LCD manufacturing plants, an OLED manufacturing plant
and an Research & Development Center in Paju and TFT-LCD manufacturing plants in Gumi. The Controlling Company
has overseas subsidiaries located in North America, Europe and Asia.
The Controlling Company’s common stock is listed on the Korea Exchange under the identifying code 034220. As of
December 31, 2013, there are 357,815,700 shares of common stock outstanding. The Controlling Company’s common
stock is also listed on the New York Stock Exchange in the form of American Depository Shares (“ADSs”) under the
symbol “LPL.” One ADS represents one-half of one share of common stock. As of December 31, 2013, there are
19,789,200 ADSs outstanding.
F-9
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
1.
Reporting Entity, Continued
(b) Consolidated Subsidiaries as of December 31, 2013
(In millions)
Subsidiaries
LG Display America,
Inc. (*1)
LG Display Japan Co.,
Ltd.
LG Display Germany
GmbH
LG Display Taiwan Co.,
Ltd.
Location
San Jose,
U.S.A.
Tokyo,
Japan
Ratingen,
Germany
Percentage
of
ownership
100%
Fiscal year
end
December 31
100%
December 31
Date of
incorporation
September 24,
1999
October 12,
1999
Business
Sell TFT-LCD
products
Sell TFT-LCD
Products
100%
December 31
November 5,
1999
Sell TFT-LCD
products
Taipei, Taiwan
100%
December 31
LG Display Nanjing Co.,
Ltd.
Nanjing,
China
100%
December 31
April 12,
1999
July 15,
2002
Sell TFT-LCD
products
Manufacture and
sell TFT-LCD
products
LG Display Shanghai
Co., Ltd.
LG Display Poland Sp. z
o.o.(*2)
Shanghai,
China
Wroclaw,
Poland
100%
December 31
January 16,
2003
Sell TFT-LCD
products
80%
December 31
September 6,
2005
LG Display Guangzhou
Co., Ltd. (*3)
Guangzhou,
China
100%
December 31
LG Display
Shenzhen Co., Ltd.
LG Display Singapore
Pte. Ltd.
Shenzhen, China
100%
December 31
Singapore
100%
December 31
L&T Display Technology
(Xiamen) Limited
Xiamen,
China
51%
December 31
L&T Display Technology
(Fujian) Limited
LG Display Yantai Co.,
Ltd.
LUCOM Display
Technology
(Kunshan) Limited
Fujian,
China
Yantai,
China
Kunshan,
China
51%
December 31
100%
December 31
51%
December 31
December 15,
2010
F-10
June 30,
2006
August 28,
2007
January 12,
2009
January 5,
2010
January 5,
2010
April 19,
2010
Manufacture and
sell TFT-LCD
products
Manufacture and
sell TFT-LCD
products
Sell TFT-LCD
products
Sell TFT-LCD
products
Manufacture
LCD module
and TV sets
Manufacture
LCD module
and monitor sets
Manufacture and
sell TFT-LCD
products
Manufacture
notebook
borderless
hinge-up
Capital
stocks
USD 375
JPY 95
EUR 1
NTD 116
CNY 2,834
CNY 4
PLN 511
CNY 992
CNY 4
SGD 1.4
CNY 82
CNY 116
CNY 525
CNY 99
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
1.
Reporting Entity, Continued
(b) Consolidated Subsidiaries as of December 31, 2013, Continued
(In millions)
Subsidiaries
LG Display U.S.A. Inc.
Location
McAllen,
U.S.A.
Percentage
of ownership
100%
Fiscal
year end
December 31
LG Display Reynosa
S.A. de C.V.
Reynosa,
Mexico
100%
December 31
Nanumnuri Co., Ltd.
LG Display China Co.,
Ltd. (*4)
Gumi,
South Korea
Guangzhou,
China
100%
December 31
70%
December 31
Date of
incorporation
October 26,
2011
November 4,
2011
March 21,
2012
December 10,
2012
Capital
stocks
USD 11
MXN 112
KRW 800
CNY 3,305
Business
Manufacture
and sell TFT-
LCD products
Manufacture
TFT-LCD
products
Janitorial
services
Manufacture
and sell TFT-
LCD products
(*1) In June and December 2013, the Controlling Company invested a total of
￦
128,708 million in cash for the capital increase of
LG Display America, Inc. (“LGDUS”). There were no changes in the Controlling Company’s ownership percentage in LGDUS
as a result of these additional investments.
(*2) Toshiba Corporation (“Toshiba”) acquired 20% of LG Display Poland Sp. z o.o. (“LGDWR”) in December 2007 through a
stock purchase agreement. With the acquisition of the 20% interest, Toshiba and the Controlling Company and LGDWR entered
into a derivative contract with LGDWR’s equity shares as its underlying assets. According to the contract, the Controlling
Company or LGDWR has a call option to buy Toshiba’s 20% interest in LGDWR and Toshiba has a put option to sell its 20%
interest in LGDWR to the Controlling Company or LGDWR under the same terms: the exercise price of the call is equal to the
price of the put option which is the total amount of Toshiba’s investment at cost. The call and put options are exercisable after
five years from the date of acquisition and on each anniversary thereafter with no stated expiration date in whole or in part.
Toshiba’s investment in LGDWR is regarded as financing due to the options and recorded as other accounts payable in the
consolidated statement of financial position of LG Display Co., Ltd. and its subsidiaries (the “Group”). Accordingly, LGDWR is
consolidated as a wholly owned subsidiary in the consolidated financial statements.
(*3) Skyworth TV Holdings Limited (“Skyworth”) acquired a 16% equity interest in LG Display Guangzhou Co., Ltd. (“LGDGZ”)
in June 2008. With the acquisition of the 16% interest in June 2008 (which was reduced to 10% at December 31, 2009 with the
additional investment in LGDGZ by the Controlling Company), Skyworth and the Controlling Company entered into a
derivative contract with LGDGZ’s equity interest as its underlying assets. According to the contract, the Controlling Company
had a call option to buy Skyworth’s interest in LGDGZ and Skyworth had a put option to sell its interest in LGDGZ to the
Controlling Company under the same terms: the exercise price of the call option was equal to the exercise price of the put option
which was the total amount of Skyworth’s investment at cost. In October 2013, Skyworth exercised its put option in whole at
￦
16,889 million and LGDGZ became a wholly owned subsidiary of the Controlling Company. Skyworth’s investment in
LGDGZ had been regarded as financing due to the options and recorded as other accounts payable in the consolidated statement
of financial position of the Group and, accordingly, LGDGZ had been consolidated as a wholly owned subsidiary in the
consolidated financial statements prior to the exercise of the options.
F-11
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
1.
Reporting Entity, Continued
(b) Consolidated Subsidiaries as of December 31, 2013, Continued
(*4)
In March, September and October 2013, the Controlling Company contributed a total of
337,329 million in cash
for the capital increase of LG Display (China) Co., Ltd. (“LGDCA”) and as of December 31, 2013, the Controlling
Company’s ownership percentage in LGDCA is 64%. Meanwhile, LGDGZ, a wholly owned subsidiary of the
Controlling Company, owns 6% of LGDCA.
In April and June 2013, the Controlling Company invested aggregate total of
6,730 million in cash to participate in the
disproportionate capital increase of L&I Electronic Technology (Dongguan) Limited and acquired the remaining interests
from non-controlling shareholder. In November 2013, L&I Electronic Technology (Dongguan) Limited completed
liquidation. In July 2013, I&M, which was a subsidiary of the Controlling Company, completed liquidation.
￦
￦
Dividends received from consolidated subsidiaries for the years ended December 31, 2011, 2012 and 2013 amounted to
￦
￦
36,490 million,
55,114 million and zero, respectively.
F-12
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
1.
Reporting Entity, Continued
(c) Associates and Joint Ventures (Equity Method Investees) as of December 31, 2013
(In millions of won)
Associates and joint
ventures
Suzhou Raken
Technology Co., Ltd. (*1)
Location
Suzhou,
China
Percentage
of
ownership
2013 2012
51%
51%
Fiscal year end
December 31
Guangzhou New Vision
Technology Research and
Development Limited (*2)
Guangzhou,
China
Global OLED Technology
LLC
Herndon,
U.S.A
—
50%
December 31
33%
33%
December 31
Paju Electric Glass Co.,
Ltd.
Paju,
South Korea
40%
40%
December 31
TLI Inc. (*3, 4)
AVACO Co., Ltd. (*3)
New Optics Ltd. (*5)
LIG ADP Co., Ltd. (*3)
Seongnam,
South Korea
Daegu,
South Korea
Yangju,
South Korea
Seongnam,
South Korea
10%
12%
December 31
16%
16%
December 31
46%
42%
December 31
13%
13%
December 31
WooRee E&L Co.,
Ltd. (*6)
Ansan,
South Korea
21%
30%
December 31
LB Gemini New Growth
Fund No. 16 (*7)
Seoul,
South Korea
31%
31%
December 31
Can Yang Investments
Limited (*3)
Hong Kong
9%
9%
December 31
F-13
Date of
incorporation
Business
Carrying
amount
October
2008
July
2008
December
2009
January
2005
October
1998
January
2001
August
2005
January
2001
June
2008
December
2009
January
2010
￦
Manufacture and
sell LCD modules
and LCD TV sets
134,508
R&D on design of
LCD modules and
LCD TV sets
Managing and
licensing OLED
patents
Manufacture
electric glass for
FPDs
Manufacture and
sell semiconduct-
or parts for FPDs
Manufacture and
sell equipment for
FPDs
Manufacture back
light parts for
TFT-LCDs
Develop and
manufacture
equipment for
FPDs
Manufacture LED
back light unit
packages
Invest in small and
middle sized
companies and
benefit from M&A
opportunities
Develop,
manufacture and
sell LED parts
—
31,162
79,417
5,596
8,892
34,095
1,523
27,273
19,483
11,754
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
1.
Reporting Entity, Continued
(c) Associates and Joint Ventures (Equity Method Investees) as of December 31, 2013, Continued
(In millions of won)
Associates and joint
ventures
YAS Co., Ltd. (*3)
Percentage
of
ownership
2013 2012
19%
19%
Fiscal
year end
Date of
incorporation
December 31
April 2002
Location
Paju,
South Korea
Eralite Optoelectronics
(Jiangsu) Co., Ltd.
Suzhou,
China
20%
20%
December 31
August 2010
Narenanotech
Corporation
Yongin,
South Korea
23%
23%
December 31
December
1995
AVATEC Co., Ltd.
(*3, 8)
Glonix Co., Ltd. (*9)
Dynamic Solar Design
Co., Ltd. (*10)
Daegu,
South Korea
Gimhae,
South Korea
Suwon,
South Korea
16%
17%
December 31
August 2000
20%
20%
December 31
October 2006
—
40%
December 31
April 2009
Business
Develop and
manufacture
deposition
equipment for
OLEDs
Manufacture LED
Packages
Manufacture and
sell FPD
manufacturing
equipment
Process and sell
glass for FPDs
Manufacture and
sell LCD
Develop,
manufacture and
sell equipment for
manufacturing
solar battery and
FPDs
Carrying
amount
￦
9,826
1,830
25,497
15,680
—
—
￦
406,536
(*1)
(*2)
￦
11,918 million in cash for the capital increase of Suzhou Raken
In September 2013, the Controlling Company invested
Technology Co., Ltd (“Raken”). There was no change in the Controlling Company’s ownership percentage in Raken as a result
of this additional investment. Despite its 51% ownership, management concluded that the Controlling Company does not have
control of Suzhou Raken Technology Co., Ltd. because the Controlling Company and AmTRAN Technology Co., Ltd., which
has a 49% equity interest of the investee, jointly control the board of directors of the investee through equal voting powers.
Accordingly, investment in Suzhou Raken Technology Co., Ltd. was accounted for as an equity method investment.
￦
In November 2013, the Controlling Company collected
Technology Research and Development Ltd. which was liquidated and recognized
the collected amount and the carrying amount as finance cost. As of December 31, 2013, Guangzhou New Vision Technology
Research and Development Ltd. concluded the procedures of liquidation and on January 2, 2014, the registration of liquidation
was completed.
3,540 million from the investment in Guangzhou New Vision
671 million for the difference between
￦
F-14
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
1.
Reporting Entity, Continued
(c) Associates and Joint Ventures (Equity Method Investees) as of December 31, 2013, Continued
(*3) Although the Controlling Company’s share interests in TLI Inc., AVACO Co., Ltd., LIG ADP Co., Ltd., Can Yang
Investments Limited, YAS Co., Ltd., and AVATEC Co., Ltd. are below 20%, the Controlling Company is able to exercise
significant influence through its right to appoint a director to the board of directors of each investee and the transaction
between the Controlling Company and the investees is significant. Accordingly, the investments in these investees have been
accounted for using the equity method.
In 2013, the Controlling Company’s ownership in TLI Inc. was reduced from 12% to 10% due to the shares issued in relation
to the exercise of warrants.
In 2013, as the Controlling Company did not participate in New Optics Ltd.’s reduction in capital stock through a distribution
of cash, the Controlling Company’s ownership in New Optics Ltd. increased from 42% to 46%.
In 2013, as the Controlling Company did not participate in the capital increase of WooRee E&L Co., Ltd. when WooRee E&L
Co., Ltd. initially lists its shares in the Korea Securities Dealers Automated Quotations (“KOSDAQ”), the Controlling
Company’s ownership in WooRee E&L Co., Ltd. was reduced from 30% to 21%.
￦
(*7) The Controlling Company is a member of limited partnership in the LB Gemini New Growth Fund No.16 (“the Fund”). In
￦
(*4)
(*5)
(*6)
March and May 2013, the Controlling Company received
capital distribution and made additional cash investment totaling
December 2013. There were no changes in the Controlling Company’s ownership percentage in the Fund and the Controlling
Company is committed to making future investments of up to an aggregate of
In 2013, the Controlling Company’s ownership in AVATEC Co., Ltd. was reduced from 17% to 16% due to the shares issued
in relation to the exercise of stock options.
6,826 million in the Fund in June, September and
260 million, respectively, from the Fund as a
1,116 million and
30,000 million.
￦
￦
(*8)
(*9) The Controlling Company’s share of net assets of Glonix Co., Ltd. (“Glonix”) was reduced below zero and, accordingly, the
Controlling Company discontinued the recognition of its share of losses of the Glonix. In 2013, the Controlling Company’s
unrecognized share of losses of the Glonix amounts to
112 million. (An aggregate amount:
112 million)
￦
￦
￦
(*10) In 2013, the Controlling Company received
107 million in cash from the investment of Dynamic Solar Design Co., Ltd. and
38 million for the difference between the amount received and the carrying amount as finance income.
F-15
￦
recognized
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
2.
Basis of Presenting Financial Statements
(a) Statement of Compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRSs”) as issued by the International Accounting Standards Board.
The consolidated financial statements were authorized for issuance by the Board of Directors on January 23, 2014.
(b) Basis of Measurement
The consolidated financial statements have been prepared on the historical cost basis except for the following material
items in the consolidated statements of financial position:
•
•
available-for-sale financial assets are measured at fair value, and
liabilities for defined benefit plans are recognized as the present value of defined benefit obligations less the fair
value of plan assets
(c) Functional and Presentation Currency
The consolidated financial statements are presented in Korean won, which is the Controlling Company’s functional
currency. All amounts in Korean won are in millions unless otherwise stated.
(d) Use of Estimates and Judgments
The preparation of the consolidated financial statements in conformity with IFRSs requires management to make
judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized
in the period in which the estimates are revised and in any future periods affected.
Information about critical judgments in applying accounting policies that have the most significant effect on the amounts
recognized in the consolidated financial statements is included in the following notes:
•
•
Classification of financial instruments (note 3.(d))
Estimated useful lives of property, plant and equipment (note 3.(e))
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment
within the next 12 months is included in the following notes:
•
•
•
•
Recognition and measurement of provisions (notes 3.(j), 15 and 21)
Net realizable value of inventories (note 8)
Measurement of defined benefit obligations (note 18)
Deferred tax assets and liabilities (note 30)
F-16
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
3.
Summary of Significant Accounting Policies
The significant accounting policies followed by the Group in preparation of its consolidated financial statements are as follows.
Except for the changes explained in Note 3(q), the Group has consistently applied the following accounting policies to all
periods presented in these consolidated financial statements.
(a) Consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed, or has right to, variable
returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The
financial statements of subsidiaries are included in the consolidated financial statements from the date on which control
commences until the date on which control ceases.
(ii) Non-controlling interests
Non-controlling interests (“NCI”) are measured at their proportionate share of the acquiree’s identifiable net assets at the
acquisition date.
Changes in the Group’s interest in subsidiaries that do not result in a loss of control are accounted for as equity
transactions.
(iii) Loss of Control
If the Controlling Company loses control of subsidiaries, the Controlling Company derecognizes the assets and liabilities
of the former subsidiaries from the consolidated statement of financial position and recognizes the gain or loss associated
with the loss of control attributable to the former controlling interest. Meanwhile, the Controlling Company recognizes any
investment retained in the former subsidiaries at its fair value when control is lost.
(iv) Associates and joint ventures (equity method investees)
Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial
and operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has
rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.
Investments in associates and joint ventures are initially recognized at cost and subsequently accounted for using the equity
method of accounting. The carrying amount of investments in associates and joint ventures is increased or decreased to
recognize the Group’s share of the profits or losses and changes in the Group’s proportionate interest of the investee after
the date of acquisition. Distributions received from an investee reduce the carrying amount of the investment.
If an associate or jointly controlled entity uses accounting policies different from those of the Controlling Company for like
transactions and events in similar circumstances, appropriate adjustments are made to the consolidated financial statements.
As of and during the periods presented in the consolidated financial statements, no adjustments were made in applying the
equity method.
F-17
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
3.
Summary of Significant Accounting Policies, Continued
(a) Consolidation, Continued
(iv) Associates and joint ventures (equity method investees), Continued
When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest,
including any long-term investments, is reduced to nil, and the recognition of further losses is discontinued except to the
extent that the Group has an obligation or has made payments on behalf of the investee.
(v) Transactions eliminated on consolidation
Intra-group balances and transactions, including income and expenses and any unrealized income and expenses and
balance of trade accounts and notes receivable and payable arising from intra-group transactions, are eliminated.
Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the
extent of the Group’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but
only to the extent that there is no evidence of impairment.
(b) Foreign Currency Transactions and Translation
Transactions in foreign currencies are translated to the respective functional currencies of the Group at exchange rates at
the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the
functional currency at the exchange rate on the reporting date. Non-monetary assets and liabilities denominated in foreign
currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the
fair value was originally determined. Foreign currency differences arising on retranslation are recognized in profit or loss,
except for differences arising on available-for-sale equity instruments and a financial asset and liability designated as a
cash flow hedge, which are recognized in other comprehensive income. Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using the exchange rate at the date of the original transaction. Exchange
differences arising on the settlement of monetary items or on translating monetary items at rates different from those at
which they were translated on initial recognition are recognized in profit or loss in the period in which they arise. Foreign
currency differences arising from assets and liabilities in relation to the investing and financing activities including loans,
bonds and cash and cash equivalents are recognized in finance income (costs) in the consolidated statement of
comprehensive income and foreign currency differences arising from assets and liabilities in relation to activities other than
investing and financing activities are recognized in other income (expenses) in the consolidated statement of
comprehensive income. Relevant foreign currency differences are presented in gross amounts in the consolidated statement
of comprehensive income.
F-18
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
3.
Summary of Significant Accounting Policies, Continued
(b) Foreign Currency Transactions and Translation, Continued
If the presentation currency of the Group is different from a foreign operation’s functional currency, the financial position
and financial performance of the foreign operation are translated into the presentation currency using the following
methods. The assets and liabilities of foreign operations, whose functional currency is not the currency of a
hyperinflationary economy, including goodwill and fair value adjustments arising on acquisition, are translated to the
Group’s functional currency at exchange rates at the reporting date. The income and expenses of foreign operations are
translated to the Group’s functional currency at exchange rates at the dates of the transactions. Foreign currency differences
are recognized in other comprehensive income. However, if the operation is a non-wholly-owned subsidiary, then the
relevant proportionate share of the translation difference is allocated to the non-controlling interests. When a foreign
operation is disposed of in its entirety or partially such that control, significant influence or joint control is lost, the
cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the
gain or loss on disposal. If the Group disposes part of its interest in a subsidiary but retains control, then the relevant
proportion of the cumulative amount is reattributed to NCI. When the Group disposes of only part of an associate or joint
venture while retaining significant influence or joint control, the relevant proportion of the cumulative amount is
reclassified to profit or loss.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of
assets and liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign
operation. Thus, they are expressed in the functional currency of the foreign operation and translated at the at each
reporting date’s exchange rate.
(c)
Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted-
average method, and includes expenditures incurred in acquiring the inventories, production or conversion costs and other
costs incurred in bringing them to their existing location and condition. Net realizable value is the estimated selling price in
the ordinary course of business less the estimated costs of completion and the estimated selling expenses. In the case of
manufactured inventories and work-in-process, cost includes an appropriate share of production overheads based on the
actual capacity of production facilities. However, the normal capacity is used for the allocation of fixed production
overheads if the actual level of production is lower than the normal capacity.
(d) Financial Instruments
(i) Non-derivative financial assets
The Group initially recognizes loans and receivables and deposits on the date they are originated. All other non-derivative
financial assets, including financial assets at fair value through profit or loss, are recognized in the consolidated statement
of financial position when the Group becomes a party to the contractual provisions of the instrument.
F-19
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
3.
Summary of Significant Accounting Policies, Continued
(d) Financial Instruments, Continued
(i) Non-derivative financial assets, Continued
The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers
the rights to receive the contractual cash flows of the financial asset in a transaction in which substantially all the risks and
rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or
retained by the Group is recognized as a separate asset or liability. If a transfer does not result in derecognition because the
Group has retained substantially all the risks and rewards of ownership of the transferred asset, the Group continues to
recognize the transferred asset and recognizes a financial liability for the consideration received. In subsequent periods, the
Group recognizes any income on the transferred assets and any expense incurred on the financial liability.
Financial assets and liabilities are offset and the net amount presented in the consolidated statement of financial position
when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to
realize the asset and settle the liability simultaneously.
The Group has the following non-derivative financial assets: financial assets at fair value through profit or loss, loans and
receivables and available-for-sale financial assets.
Financial assets at fair value through profit or loss
A financial asset is classified at fair value through profit or loss if it is classified as held for trading or is designated as such
upon initial recognition. If a contract contains one or more embedded derivatives, the Group designates the entire hybrid
(combined) contract as a financial asset at fair value through profit or loss unless: the embedded derivative(s) does not
significantly modify the cash flows that otherwise would be required by the contract; or it is clear with little or no analysis
when a similar hybrid (combined) instrument is first considered that separation of the embedded derivative(s) is prohibited.
Upon initial recognition, attributable transaction costs are recognized in profit or loss as incurred. Financial assets at fair
value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.
Cash and cash equivalents
Cash and cash equivalents include all cash balances and short-term highly liquid investments with an original maturity of
three months or less that are readily convertible into known amounts of cash.
Deposits in banks
Deposits in banks are those with maturity of more than three months and less than one year and are held for cash
management purposes.
Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market.
When loans and receivables are recognized initially, the Group measures them at their fair value plus transaction costs that
are directly attributable to the acquisition or issue of the financial asset. Subsequent to initial recognition, loans and
receivables are measured at amortized cost using the effective interest method, less any impairment losses. Loans and
receivables comprise trade accounts and notes receivable and other accounts receivable.
F-20
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
3.
Summary of Significant Accounting Policies, Continued
(d) Financial Instruments, Continued
(i) Non-derivative financial assets, Continued
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or that are not
classified as financial assets at fair value through profit or loss, held-to-maturity financial assets or loans and receivables.
The Group’s investments in equity securities and certain debt securities are classified as available-for-sale financial assets.
Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and
foreign currency differences on available-for-sale equity instruments, are recognized in other comprehensive income and
presented within equity in the fair value reserve. When an investment in available-for-sale financial assets is derecognized,
the cumulative gain or loss in other comprehensive income is transferred to profit or loss.
Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot
be reliably measured and whose derivatives are linked to and must be settled by delivery of such unquoted equity
instruments are measured at cost.
(ii) Non-derivative financial liabilities
The Group classifies financial liabilities into two categories, financial liabilities at fair value through profit or loss and
other financial liabilities, in accordance with the substance of the contractual arrangement and the definitions of financial
liabilities, and recognizes them in the consolidated statement of financial position when the Group becomes a party to the
contractual provisions of the instrument.
Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such
upon initial recognition at fair value through profit or loss. After initial recognition, financial liabilities at fair value
through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial
recognition, transaction costs that are directly attributable to the issuance of financial liabilities are recognized in profit or
loss as incurred.
Non-derivative financial liabilities other than financial liabilities classified as fair value through profit or loss are classified
as other financial liabilities and measured initially at fair value minus transaction costs that are directly attributable to the
issuance of financial liabilities. Subsequent to initial recognition, these financial liabilities are measured at amortized cost
using the effective interest method. As of December 31, 2012, non-derivative financial liabilities comprise borrowings,
bonds and others.
The Group derecognizes a financial liability when its contractual obligations are discharged, cancelled or expired.
(iii) Share Capital
The Group only owns common stocks and they are classified as equity. Incremental costs directly attributable to the
issuance of common stocks are recognized as a deduction from equity, net of tax effects. Capital contributed in excess of
par value upon issuance of common stocks is classified as share premium within equity.
F-21
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
3.
Summary of Significant Accounting Policies, Continued
(d) Financial Instruments, Continued
(iv) Derivative financial instruments, including hedge accounting
Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value,
and changes therein are recognized in profit or loss except in the case where the derivatives are designated as cash flow
hedges and the hedge is determined to be an effective hedge.
If necessary, the Group designates derivatives as hedging items to hedge the risk of changes in the fair value of assets,
liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or
firm commitments (a cash flow hedge).
On initial designation of the hedge, management formally documents the relationship between the hedging instrument(s)
and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together
with the methods that will be used to assess the effectiveness of the hedging relationship. Management makes an
assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments
are expected to be “highly effective” in offsetting the changes in the fair value or cash flows of the respective hedged items
during the period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80-
125 percent. For a cash flow hedge of a forecasted transaction, the transaction should be highly probable to occur and
should present an exposure to variations in cash flows that could ultimately affect reported net income.
Cash flow hedges
When a derivative is designated as a hedge of the variability in cash flows attributable to a particular risk associated with a
recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion
of changes in the fair value of the derivative is recognized in other comprehensive income and presented in the hedging
reserve in equity. The amount recognized in other comprehensive income is removed and included in profit or loss in the
same period the hedged cash flows affect profit or loss under the same line item in the consolidated statement of
comprehensive income. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in
profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the
designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously
recognized in other comprehensive income and presented in the hedging reserve in equity remains there until the forecasted
transaction affects profit or loss. When the hedged item is a non-financial asset, the amount recognized in other
comprehensive income is transferred to the carrying amount of the asset when the asset is recognized. If the forecasted
transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in
profit or loss. In other cases the amount recognized in other comprehensive income is transferred to profit or loss in the
same period that the hedged item affects profit or loss.
F-22
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
3.
Summary of Significant Accounting Policies, Continued
(d) Financial Instruments, Continued
(iv) Derivative financial instruments, including hedge accounting, Continued
Embedded derivative
Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and
risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as
the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair
value through profit or loss. Changes in the fair value of separable embedded derivatives are recognized immediately in
profit or loss.
(e) Property, Plant and Equipment
(i) Recognition and measurement
Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment
losses. Cost includes an expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed
assets includes the cost of materials and direct labor, any costs directly attributable to bringing the assets to a working
condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are
located and borrowing costs on qualifying assets.
The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference
between the net disposal proceeds, if any, and the carrying amount of the item and recognized in other income or other
expenses.
(ii) Subsequent costs
Subsequent expenditure on an item of property, plant and equipment is recognized as part of its cost only if it is probable
that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured
reliably. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred.
(iii) Depreciation
Depreciation is recognized in profit or loss on a straight-line basis method, reflecting the pattern in which the asset’s future
economic benefits are expected to be consumed by the Group. The residual value of property, plant and equipment is zero.
Land is not depreciated.
Estimated useful lives of the assets are as follows:
Buildings and structures
Machinery
Furniture and fixtures
Equipment, tools and vehicles
Useful lives (years)
20, 40
4, 5
3~5
3~5, 12
Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate
and any changes are accounted for as changes in accounting estimates. There were no such changes for all periods
presented.
F-23
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
3.
Summary of Significant Accounting Policies, Continued
(f) Borrowing Costs
The Group capitalizes borrowing costs, which includes interests and exchange differences arising from foreign currency
borrowings to the extent that they are regarded as an adjustment to interest costs, directly attributable to the acquisition,
construction or production of a qualifying asset as part of the cost of that asset. A qualifying asset is an asset that
necessarily takes a substantial period of time to get ready for its intended use or sale. To the extent that the Group borrows
funds specifically for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs
eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment
income on the temporary investment of those borrowings. The Group immediately recognizes other borrowing costs as an
expense.
(g) Government Grants
In case there is reasonable assurance that the Group will comply with the conditions attached to a government grant, the
government grant is recognized as follows:
(i) Grants related to the purchase or construction of assets
A government grant related to the purchase or construction of assets is deducted in calculating the carrying amount of the
asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduced depreciation expense and
cash related to grant received is presented in investing activities in the statement of cash flows.
(ii) Grants for compensating the Group’s expenses incurred
A government grant that compensates the Group for expenses incurred is recognized in profit or loss as a deduction from
relevant expenses on a systematic basis in the periods in which the expenses are recognized.
(iii) Other government grants
A government grant that becomes receivable for the purpose of giving immediate financial support to the Group with no
compensation for expenses or losses already incurred or no future related costs is recognized as income of the period in
which it becomes receivable.
(h)
Intangible Assets
Intangible assets are initially measured at cost. Subsequently, intangible assets are measured at cost less accumulated
amortization and accumulated impairment losses.
(i) Goodwill
Goodwill arising from business combinations is recognized as the excess of the acquisition cost of investments in
subsidiaries, associates and joint ventures over the Group’s share of the net fair value of the identifiable assets acquired and
liabilities assumed. Any deficit is a bargain purchase that is recognized in profit or loss. Goodwill is measured at cost less
accumulated impairment losses.
F-24
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
3. Summary of Significant Accounting Policies, Continued
(h)
Intangible Assets, Continued
(ii) Research and development
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and
understanding, is recognized in profit or loss as incurred.
Development activities involve a plan or design of the production of new or substantially improved products and processes.
Development expenditure is capitalized only if the Group can demonstrate all of the following:
•
•
•
•
•
•
the technical feasibility of completing the intangible asset so that it will be available for use or sale,
its intention to complete the intangible asset and use or sell it,
its ability to use or sell the intangible asset,
how the intangible asset will generate probable future economic benefits. Among other things, the Group can
demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to
be used internally, the usefulness of the intangible asset,
the availability of adequate technical, financial and other resources to complete the development and to use or sell
the intangible asset, and
its ability to measure reliably the expenditure attributable to the intangible asset during its development.
The expenditure capitalized includes the cost of materials, direct labor, overhead costs that are directly attributable to
preparing the asset for its intended use, and borrowing costs on qualifying assets.
(iii) Other intangible assets
Other intangible assets include intellectual property rights, software, customer relationships, technology, memberships and
others.
(iv) Subsequent costs
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific
intangible asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and
brands, is recognized in profit or loss as incurred.
F-25
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
3.
Summary of Significant Accounting Policies, Continued
(h)
Intangible Assets, Continued
(v) Amortization
Amortization is calculated on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill,
from the date that they are available for use. The residual value of intangible assets is zero. However, as there are no
foreseeable limits to the periods over which condominium and golf club memberships are expected to be available for use,
these intangible assets are regarded as having indefinite useful lives and not amortized.
Intellectual property rights
Rights to use electricity, water and gas supply
facilities
Software
Customer relationships
Technology
Development costs
Condominium and golf club memberships
Estimated useful lives (years)
5, 10
10
4
7
10
(*)
Not amortized
(*) Capitalized development costs are amortized over the useful life considering the life cycle of the developed products.
Amortization of capitalized development costs is recognized in research and development expenses in the consolidated
statement of comprehensive income.
Amortization periods and the amortization methods for intangible assets with finite useful lives are reviewed at each
financial year-end. The useful lives of intangible assets that are not being amortized are reviewed each period to determine
whether events and circumstances continue to support indefinite useful life assessments for those assets. If appropriate, the
changes are accounted for as changes in accounting estimates.
(i)
Impairment
(i) Financial assets
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there
is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has
occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash
flows of that asset that can be estimated reliably.
Objective evidence that financial assets are impaired can include default or delinquency in interest or principal payments
by an issuer or a debtor, for economic reasons relating to the borrower’s financial difficulty, granting to the borrower a
concession that the Group would not otherwise consider, or the disappearance of an active market for that financial asset.
In addition, for an investment in an equity security, objective evidence of impairment includes significant financial
difficulty of the issuer and a significant or prolonged decline in its fair value below its cost.
F-26
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
3.
Summary of Significant Accounting Policies, Continued
(i)
Impairment, Continued
(i) Financial assets, Continued
Management considers evidence of impairment for loans and receivables at both a specific asset and collective level. All
individually significant loans and receivables are assessed for specific impairment. All individually significant receivables
found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet
identified. Loans and receivables that are not individually significant are collectively assessed for impairment by grouping
together receivables with similar risk characteristics.
In assessing collective impairment the Group uses historical trends of the probability of default, timing of recoveries and
the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are
such that the actual losses are likely to be greater or less than suggested by historical trends.
If there is objective evidence that an impairment loss has been incurred on financial assets carried at amortized cost, the
amount of the impairment loss is measured as the difference between its carrying amount and the present value of the
estimated future cash flows discounted at the asset’s original effective interest rate. Impairment losses are recognized in
profit or loss and reflected in an allowance account against loans and receivables.
The amount of the impairment loss on financial assets including equity securities carried at cost is measured as the
difference between the carrying amount and the present value of estimated future cash flows discounted at the current
market rate of return for a similar financial asset. Such impairment losses are not reversed.
When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income
the amount of the cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition
cost and current fair value, less any impairment loss on that financial asset previously recognized in profit or loss.
In a subsequent period, for the financial assets recorded at fair value, if the fair value increases and the increase can be
objectively related to an event occurring after the impairment loss was recognized, the previously recognized impairment
loss is reversed. The amount of the reversal in financial assets carried at amortized cost and a debt instrument classified as
available for sale is recognized in profit or loss. However, impairment loss recognized for an investment in an equity
instrument classified as available-for-sale is reversed through other comprehensive income.
F-27
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
3.
Summary of Significant Accounting Policies, Continued
(i)
Impairment, Continued
(ii) Non-financial assets
The carrying amounts of the Group’s non-financial assets, other than assets arising from employee benefits, inventories
and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If
any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, and intangible assets that have
indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, the
recoverable amount is estimated each year at the same time.
For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group
of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or
groups of assets (the “cash-generating unit”, or “CGU”). The recoverable amount of an asset or cash-generating unit is
determined as the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset. Fair value less costs to sell is based on the best information
available to reflect the amount that the Group could obtain from the disposal of the asset in an arm’s length transaction
between knowledgeable, willing parties, after deducting the costs of disposal.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount.
Impairment losses are recognized in profit or loss. Goodwill acquired in a business combination is allocated to CGUs that
are expected to benefit from the synergies of the combination. Impairment losses recognized in respect of a CGU are
allocated first to reduce the carrying amount of any goodwill allocated to the unit, and then to reduce the carrying amounts
of the other assets in the unit on a pro rata basis.
In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any
indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the
estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would have been determined, net of accumulated depreciation or
amortization, if no impairment loss had been recognized. An impairment loss in respect of goodwill is not reversed.
F-28
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
3.
Summary of Significant Accounting Policies, Continued
(j)
Provisions
A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
The risks and uncertainties that inevitably surround events and circumstances are taken into account in reaching the best
estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present
value of the expected future cash flows. The unwinding of the discount is recognized as finance cost.
Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no
longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the
provision is reversed.
The Group recognizes a liability for warranty obligations based on the estimated costs expected to be incurred under its
basic limited warranty. This warranty covers defective products and is normally applicable for eighteen months from the
date of purchase. These liabilities are accrued when product revenues are recognized. Factors that affect the Group’s
warranty liability include historical and anticipated rates of warranty claims on those repairs and cost per claim to satisfy
the Group’s warranty obligation. Warranty costs primarily include raw materials and labor costs. As these factors are
impacted by actual experience and future expectations, management periodically assesses the adequacy of its recorded
warranty liabilities and adjusts the amounts as necessary. Accrued warranty obligations are included in the current and non-
current provisions.
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources, are
recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be
reasonably estimated.
(k) Employee Benefits
(i) Short-term employee benefits
Short-term employee benefits that are due to be settled within twelve months after the end of the period in which the
employees render the related service are recognized in profit or loss on an undiscounted basis. The expected cost of profit-
sharing and bonus plans and others are recognized when the Group has a present legal or constructive obligation to make
payments as a result of past events and a reliable estimate of the obligation can be made.
(ii) Other long-term employee benefits
The Group’s net obligation in respect of long-term employee benefits other than pension plans is the amount of future
benefit that employees have earned in return for their service in the current and prior periods.
F-29
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
3.
Summary of Significant Accounting Policies, Continued
(k) Employee Benefits, Continued
(iii) Defined contribution plan
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a
separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to
defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the periods during
which services are rendered by employees.
(iv) Defined benefit plan
A defined benefit plan is a post-employment benefit plan other than defined contribution plans. The Group’s net obligation
in respect of its defined benefit plan is calculated by estimating the amount of future benefit that employees have earned in
return for their service in the current and prior periods; that benefit is discounted to determine its present value. The fair
value of any plan assets is deducted.
The calculation is performed annually by an independent actuary using the projected unit credit method. The discount rate
is the yield at the reporting date on high quality corporate bonds that have maturity dates approximating the terms of the
Group’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The
Group recognizes all actuarial gains and losses arising from defined benefit plans in retained earnings immediately.
The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by
applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-
net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the
period as a result of contributions and benefit payments. Consequently, the net interest on the net defined benefit liability
(asset) now comprises: interest cost on the defined benefit obligation, interest income on plan assets, and interest on the
effect on the asset ceiling.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past
service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group recognizes gains and
losses on the settlement of a defined benefit plan when the settlement occurs.
(l) Revenue
Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration
received or receivable, net of estimated returns, earned trade discounts, volume rebates and other cash incentives paid to
customers. Revenue is recognized when persuasive evidence exists that the significant risks and rewards of ownership have
been transferred to the buyer, generally on delivery and acceptance at the customers’ premises, recovery of the
consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing
management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that
discounts will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of
revenue when the sales are recognized. Sales taxes collected from customers and remitted to governmental authorities are
accounted for on a net basis and therefore are excluded from revenues in the consolidated statements of comprehensive
income.
F-30
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
3.
Summary of Significant Accounting Policies, Continued
(m) Operating Segments
An operating segment is a component of the Group that: 1) engages in business activities from which it may earn revenues
and incur expenses, including revenues and expenses that relate to transactions with other components of the group, 2)
whose operating results are reviewed regularly by the Group’s chief operating decision maker (“CODM”) in order to
allocate resources and assess its performance, and 3) for which discrete financial information is available. Management has
determined that the CODM of the Group is the Board of Directors. The CODM does not receive and therefore does not
review discrete financial information for any component of the Group. Consequently, no operating segment information is
included in these consolidated financial statements. Entity wide disclosures of geographic and product revenue information
are provided in note 24 to these consolidated financial statements.
(n) Finance Income and Finance Costs
Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend
income, gains on the disposal of available-for-sale financial assets, changes in the fair value of financial assets at fair value
through profit or loss, and gains on hedging instruments that are recognized in profit or loss. Interest income is recognized
as it accrues in profit or loss, using the effective interest method. Dividend income is recognized in profit or loss on the
date that the Group’s right to receive payment is established.
Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, changes in the fair value
of financial assets at fair value through profit or loss, impairment losses recognized on financial assets, and losses on
hedging instruments that are recognized in profit or loss. Borrowing costs directly attributable to the acquisition,
construction or production of a qualifying asset are capitalized as part of the cost of that asset.
(o)
Income Tax
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except
to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive
income.
(i) Current tax
Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or
substantively enacted at the reporting date and any adjustment to tax payable in respect of previous years. The taxable
profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary
differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable
or non-deductible items from the accounting profit.
F-31
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
3.
Summary of Significant Accounting Policies, Continued
(o)
Income Tax, Continued
(ii) Deferred tax
Deferred tax is recognized, using the liability method, in respect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets and
liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is
settled, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the
manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets
and liabilities. However, deferred tax is not recognized for taxable temporary differences arising on the initial recognition
of goodwill.
The Group recognizes a deferred tax liability for all taxable temporary differences associated with investments in
subsidiaries, associates, and interests in joint ventures, except to the extent that the Group is able to control the timing of
the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable
future. A deferred tax asset is recognized for all deductible temporary differences to the extent that it is probable that the
differences relating to investments in subsidiaries, associates and joint ventures will reverse in the foreseeable future and
taxable profit will be available against which the temporary difference can be utilized.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the
related tax benefit will be realized.
The Group offsets deferred tax assets and deferred tax liabilities if, and only if the Group has a legally enforceable right to
set off current tax assets against current tax liabilities and the deferred tax assets and the deferred tax liabilities relate to
income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which
intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities
simultaneously.
(p) Earnings (Loss) Per Share
The Group presents basic and diluted earnings (loss) per share (“EPS”) data for its common stocks. Basic EPS is calculated
by dividing the profit or loss attributable to ordinary shareholders of the Controlling Company by the weighted average
number of common stocks outstanding during the period. Diluted EPS is determined by adjusting the profit or loss
attributable to ordinary shareholders and the weighted average number of common stocks outstanding, adjusted for the
effects of all dilutive potential common stocks, which comprise convertible bonds.
F-32
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
3.
Summary of Significant Accounting Policies, Continued
(q) Adopted New and Amended Accounting Pronouncements
Except for the changes below, the Group has consistently applied the accounting policies set out in note 3 to all periods
presented in the consolidated financial statements of the Group.
New and amended accounting standards adopted for the year ended December 31, 2013 are as follows.
•
•
•
•
•
•
IFRS 10, Consolidated Financial Statements
IFRS 11, Joint Arrangements
IFRS 12, Disclosure of Interests in Other Entities
IFRS 13, Fair Value Measurement
IAS 19, Employee Benefits, and
Amendments to IAS 1, Presentation of Financial Statements
The nature and effects of the changes are explained below.
(i) Subsidiaries
In accordance with IFRS 10, Consolidated Financial Statements, the Group has changed its accounting policy for
determining whether it has control over investees. IFRS 10 introduces a new control model that focuses on whether the
Group has power over an investee, exposure or rights to variable returns from its involvement with the investee and ability
to use its power to affect those returns. In accordance with IFRS 10, the Group reassessed the control conclusion for its
investees at January 1, 2013 and there is no significant impact of applying the standard on the consolidated financial
statements.
(ii) Joint Arrangements
IFRS 11, Joint Arrangement, classifies joint arrangements into two types: joint operations and joint ventures. A joint
operation is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint operators) have
rights to the assets and obligations for the liabilities relating to the arrangement. A joint venture is a joint arrangement
whereby the parties that have joint control of the arrangement (i.e. joint venturers) have rights to the net assets of the
arrangement. The standard requires a joint operator to recognize and measure the assets and liabilities (and recognize the
related revenues and expenses) in relation to its interest in the arrangement in accordance with relevant IFRSs applicable to
the particular assets, liabilities, revenues and expenses. The standard requires a joint venturer to recognize an investment
and to account for that investment using the equity method. In accordance with IFRS 11, the Group reevaluated its
involvement in its joint arrangement at January 1, 2013 and there is no impact of applying the standard on the consolidated
financial statements.
F-33
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
3.
Summary of Significant Accounting Policies, Continued
(q) Adopted New and Amended Accounting Pronouncements, Continued
(iii) Disclosures of Interests in Other Entities
IFRS 12, Disclosures of Interests in Other Entities, brings together into a single standard all the disclosure requirements
about an entity’s interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. The
standard requires an entity to disclose information that enables users of financial statements to evaluate the nature of and
risks associated with its interests in other entities and the effects of those interests on its financial position, financial
performance and cash flows. The Group retrospectively applied the standard to the comparative consolidated financial
statements for the years ended December 31, 2011 and 2012 and the Group provides required disclosures in note 10.
(iv) Fair Value Measurement
IFRS 13, Fair Value Measurement, establishes a single framework for measuring fair value and making relevant
disclosures when such measurements are required or permitted by other IFRSs. It unifies the definition of fair value as the
price that would be received or paid when market participants sell an asset or transfer a liability in an orderly transaction at
the measurement date. As it replaces and expands the disclosure requirements about fair value measurements in other
IFRSs, including IFRS 7, the Group provides required disclosures in note 13.
(v) Post-employment defined benefit plans
As a result of the amendments to IAS 19, Employee Benefits, the Group has changed its accounting policy with respect to
the basis for determining the income or expense related to its post-employment defined benefit plans. Under the
amendment of IAS 19, the Group determines the net interest expense (income) on the net defined benefit liability (asset)
for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual
period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability
(asset) during the period as a result of contributions and benefit payments. Consequently, the net interest on the net defined
benefit liability (asset) now comprises: interest cost on the defined benefit obligation, interest income on plan assets, and
interest on the effect on the asset ceiling. Previously, the Group determined interest income on plan assets based on their
long-term rate of expected return. There is no significant impact of applying this amendment on the consolidated financial
statements.
(vi) Presentation of items of Other Comprehensive Income
As a result of the amendments to IAS 1, Presentation of Financial Statements, the Group has modified the presentation of
items of other comprehensive income (“OCI”) in its statement of comprehensive income into “items that will never be
reclassified to profit or loss” and “items that are or may be reclassified to profit or loss.” The comparative consolidated
statements of comprehensive income (loss) for the years ended December 31, 2011 and 2012 have been represented
accordingly.
F-34
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
3.
Summary of Significant Accounting Policies, Continued
(r) Recent Accounting Pronouncements, Not Yet Adopted
(i) Amendment to IAS 32, Financial Instruments: Presentation
The amendments improve application guidance of IAS 32, Financial Instruments: Presentation, to clarify criterion of
offsetting financial assets and financial liabilities. The amendments will be effective for annual periods beginning on or
after January 1, 2014, and have not been adopted early in preparing the consolidated financial statements.
(ii) Amendment to IFRS 9, Financial Instruments
The amendments introduce new requirements for the classification and measurement of financial assets. Under the
amendments to IFRS 9, Financial Instruments, financial assets are classified and measured based on the business model in
which they are held and characteristics of their contractual cash flows. The amendments introduce additional changes
relating to financial liabilities. The IASB currently has an active project to make limited amendments to the classification
and measurement requirements of IFRS 9 and add new requirements to address the impairment of financial assets and
hedge accounting. The amendments will be effective for annual periods beginning on or after January 1, 2015, and have
not been adopted early in preparing the consolidated financial statements.
Management believes that the adoption of the amendments is expected to have no significant impact on the consolidated
statement of financial position of the Group.
F-35
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
4. Determination of Fair Value
A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-
financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the
following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in
the notes specific to that asset or liability.
(a) Current Assets and Liabilities
The carrying amounts approximate fair value because of the short maturity of these instruments.
(b) Trade Receivables and Other Receivables
The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market
rate of interest at the reporting date. This fair value is determined for disclosure purposes. The carrying amounts of short-
term receivables approximate fair value.
(c) Investments in Equity and Debt Securities
The fair value of marketable available-for-sale financial assets is determined by reference to their quoted closing bid price
at the reporting date. The fair value of non-marketable securities is determined using valuation methods.
(d) Non-derivative Financial Liabilities
The fair value of financial liabilities at FVTPL is determined by reference to their quoted closing price at the reporting
date. Fair value, which is determined for disclosure purposes, except for the liabilities at FVTPL, is calculated based on the
present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date.
F-36
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
5.
Risk Management
(a) Financial Risk Management
The Group is exposed to credit risk, liquidity risk and market risks. The Group identifies and analyzes such risks, and
controls are implemented under a risk management system to monitor and manage these risks at below a threshold level.
(i) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the Group’s receivables from customers.
The Group’s exposure to credit risk of trade and other receivables is influenced mainly by the individual characteristics of
each customer. However, management considers the demographics of the Group’s customer base, including the default risk
of the country in which customers operate, do not have a significant influence on credit risk since the majority of the
customers are global electronic appliance manufacturers operating in global markets.
The Group establishes credit limits for each customer and each new customer is analyzed quantitatively and qualitatively
before determining whether to utilize third party guarantees, insurance or factoring as appropriate.
The Group does not establish allowances for receivables under insurance and receivables from customers with a high credit
rating. For the rest of the receivables, the Group establishes an allowance for impairment of trade and other receivables that
have been individually or collectively evaluated for impairment and estimated on the basis of historical loss experience for
assets.
(ii) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to
ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and
stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group has historically been able to satisfy its cash requirements from cash flows from operations and debt and equity
financing. To the extent that the Group does not generate sufficient cash flows from operations to meet its capital
requirements, the Group may rely on other financing activities, such as external long-term borrowings and offerings of debt
securities, equity-linked and other debt securities. In addition, the Group maintains a line of credit with various banks.
(iii) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will
affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is
to manage and control market risk exposures within acceptable parameters, while optimizing the return.
F-37
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
5.
Risk Management, Continued
(a) Financial Risk Management, Continued
Currency risk
The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than
the functional currency of the Group, Korean won (KRW). The currencies in which these transactions primarily are
denominated are USD, EUR and JPY.
Interest on borrowings is denominated in the currency of the borrowing. Generally, borrowings are denominated in
currencies that match the cash flows generated by the underlying operations of the Group, primarily KRW, USD and JPY.
In respect of other monetary assets and liabilities denominated in foreign currencies, the Group ensures that its net
exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address
short-term imbalances. In consideration of the currency fluctuation, the Group adopts policies to adjust factoring volumes
of foreign currency denominated receivables or utilizing usance as a means to settle payables for the purchase of
manufacturing facilities.
Interest rate risk
Interest rate risk arises principally from the Group’s debentures and borrowings. The Group establishes and applies its
policy to reduce uncertainty arising from fluctuations in the interest rate and to minimize finance cost and manages interest
rate risk by monitoring of trends of fluctuations in interest rate and establishing plan for countermeasures.
Equity price risk
The Group holds equity securities which are classified as available-for-sale financial assets. Equity securities are valued at
fair value and are exposed to the risk of price changes in the securities market. Management believes that equity price risk
does not have a significant impact on the Group’s financial position or results of operations since exposure to equity price
risk is limited.
F-38
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
5.
Risk Management, Continued
(b) Capital Management
Management’s policy is to maintain a capital base so as to maintain investor, creditor and market confidence and to sustain
future development of the business. Liabilities to equity ratio, net borrowings to equity ratio and other financial ratios are
used by management to achieve an optimal capital structure. Management also monitors the return on capital as well as the
level of dividends to ordinary shareholders. Equity, defined by IFRS, is identical to the definition of capital, managed by
management.
(In millions of won)
Total liabilities
Total equity
Cash and deposits in banks (*1)
Borrowings (including bonds)
Total liabilities to equity ratio
Net borrowings to equity ratio (*2)
￦
December 31, 2012
14,215,331
10,240,180
2,653,753
4,455,857
139%
18%
December 31, 2013
10,917,864
10,797,420
2,323,409
3,902,779
101%
15%
(*1) Cash and deposits in banks consists of cash and cash equivalents and deposit in banks.
(*2) Net borrowings to equity ratio is calculated by dividing total equity with borrowings (including bonds) less cash and deposits in
banks.
6.
Cash and Cash Equivalents and Deposits in Banks
Cash and cash equivalents and deposits in banks at the reporting date are as follows:
(In millions of won)
Current assets
Cash and cash equivalents
Demand deposits
Deposits in banks
Time deposits
Restricted cash (*)
December 31, 2012
December 31, 2013
￦
￦
￦
2,338,661
1,021,870
300,092
15,000
315,092
1,231,539
70,000
1,301,539
(*) Restricted cash relates to mutual growth fund to aid LG Group’s second and third-tier suppliers.
F-39
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
7.
Receivables and Other Current Assets
(a) Trade accounts and notes receivable at the reporting date are as follows:
(In millions of won)
Trade, net
Due from related parties
￦
December 31, 2012
2,586,228
748,113
3,334,341
￦
December 31, 2013
2,441,087
687,539
3,128,626
(b) Other accounts receivable at the reporting date are as follows:
(In millions of won)
Current assets
Non-trade accounts receivable, net
Accrued income
Short-term loans
December 31, 2012
￦
189,924
9,073
10
199,007
￦
December 31, 2013
79,055
10,482
8
89,545
￦
Due from related parties included in other accounts receivable, as of December 31, 2012 and 2013 are
￦
2,536 million and
5,005 million, respectively.
(c) Other assets at the reporting date are as follows:
(In millions of won)
Current assets
Advance payments
Prepaid expenses
Value added tax refundable
Others
Non-current assets
Long-term prepaid expenses
Others
December 31, 2012
￦
December 31, 2013
10,514
45,058
260,353
9,341
325,266
144,023
8,287
152,310
￦
￦
￦
10,854
50,234
187,337
3,557
251,982
213,682
3,500
217,182
F-40
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
8.
Inventories
Inventories at the reporting date are as follows:
(In millions of won)
Finished goods
Work-in-process
Raw materials
Supplies
￦
December 31, 2012
1,044,125
653,260
370,653
321,969
2,390,007
￦
December 31, 2013
733,987
605,718
261,947
331,589
1,933,241
For the years ended December 31, 2011, 2012 and 2013, the amount of the inventories recognized as cost of sales and inventory
write-downs included in cost of sales is as follows:
(In millions of won)
Inventories recognized as cost of sales
Including: inventory write-downs
￦
2011
2012
23,081,322
133,341
26,424,756
135,720
2013
23,524,851
211,363
There were no significant reversals of inventory write-downs recognized during 2011, 2012 and 2013.
9. Other Financial Assets
(a) Other financial assets at the reporting date are as follows:
(In millions of won)
Current assets
Deposits
Non-current assets
Guarantee deposits with banks
Available-for-sale financial assets
Deposits
Long-term other accounts receivable
December 31, 2012
￦
3,828
￦
￦
16
16,136
59,034
11,246
86,432
December 31, 2013
919
13
16,908
20,520
8,818
46,259
(b) Available-for-sale financial assets at the reporting date are as follows:
(In millions of won)
Non-current assets
Debt securities
Government bonds
Equity securities
Intellectual Discovery, Ltd.
Siliconworks Co., Ltd.
Other
December 31, 2012
December 31, 2013
￦
￦
￦
2,838
2,673
10,505
120
13,298
16,136
F-41
2,838
2,673
11,281
116
14,070
16,908
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
10.
Investments in Equity Accounted Investees
(a)
Investments in equity accounted investees accounted for under the equity method consist of the following:
(in millions of won)
Company
Suzhou Raken Technology Co., Ltd.
Guangzhou New Vision Technology
Research and Development Limited
Global OLED Technology LLC
Paju Electric Glass Co., Ltd.
TLI Inc. (*)
AVACO Co., Ltd. (*)
New Optics Ltd.
LIG ADP Co., Ltd.(*)
WooRee E&L Co. Ltd. (*)
Dynamic Solar Design Co., Ltd.
LB Gemini New Growth Fund No.16
Can Yang Investments Limited
YAS Co., Ltd.
Eralite Optoelectronics (Jiangsu) Co., Ltd.
Narenanotech Corporation
AVATEC Co., Ltd.(*)
Glonix Co., Ltd.
Carrying value
￦
December 31, 2012
128,751
December 31, 2013
134,508
3,596
36,164
82,855
6,961
10,964
25,064
1,730
23,549
69
13,680
13,856
9,409
3,449
26,448
14,685
928
402,158
￦
—
31,162
79,417
5,596
8,892
34,095
1,523
27,273
—
19,483
11,754
9,826
1,830
25,497
15,680
—
406,536
(*) Based on quoted market prices at December 31, 2013, the fair values of the investments in TLI Inc., AVACO Co., Ltd., LIG
ADP Co., Ltd., WooRee E&L Co. Ltd., and AVATEC Co., Ltd., which are listed companies on the Korea Exchange, are
￦
￦
￦
￦
￦
8,051 million,
9,644 million,
13,875 million,
25,840 million, and
23,797 million, respectively.
Dividends received from equity accounted investees for the years ended December 31, 2011, 2012 and 2013 amounted to
million,
14,276 million, respectively.
204 million and
￦
￦
￦
6,130
F-42
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
10.
Investments in Equity Accounted Investees, Continued
(b) Summary of financial information of significant joint venture as of December 31, 2012 and 2013 and for the years ended
December 31, 2011, 2012 and 2013 are as follows.
(i) Summary of financial information
•
Suzhou Raken Technology Co., Ltd.
(In millions of won)
Total assets
Current assets
Non-current assets
Total liabilities
Current liabilities
(In millions of won)
Revenue
Profit for the year
Other comprehensive income (loss)
Total comprehensive income (loss)
(ii) Additional financial information
•
Suzhou Raken Technology Co., Ltd.
￦
December 31, 2012
712,451
586,067
126,384
457,414
457,414
December 31, 2013
624,546
513,044
111,502
360,146
360,146
￦
2011
1,744,325
11,459
14,202
25,661
2012
1,967,587
11,503
(15,508)
(4,005)
2013
1,789,364
8,077
3,024
11,101
(In millions of won)
Cash and cash equivalents
Current financial liabilities
￦
December 31, 2012
73,510
64,821
December 31, 2013
28,165
—
(In millions of won)
Depreciation
Amortization
Interest income
Interest expense
Income tax expense
￦
2011
20,650
1,280
2,479
1,263
4,894
2012
15,997
1,305
3,473
812
3,785
2013
11,607
619
2,323
307
2,070
F-43
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
10.
Investments in Equity Accounted Investees, Continued
(c) Adjustments from financial information of significant joint ventures to book value of ownership interest as of
December 31, 2012 and 2013 are as follows:
(i) As of December 31, 2012
(In millions of won)
Company
Suzhou Raken Technology Co., Ltd.
(ii) As of December 31, 2013
(In millions of won)
Company
Suzhou Raken Technology Co., Ltd.
￦
Net asset
255,037
Ownership
interest
51%
Net asset
(applying
ownership
interest)
130,069
Intra-group
transaction
(1,318)
Book
value
128,751
￦
Net asset
264,400
Ownership
interest
51%
F-44
Net asset
(applying
ownership
interest)
134,844
Intra-group
transaction
(336)
Book
value
134,508
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
10.
Investments in Equity Accounted Investees, Continued
(d) Book value of individually non-significant joint ventures and associates in aggregate is as follows:
(i) As of December 31, 2011
(In millions of won)
Individually non-significant joint ventures
Individually non-significant associates
(ii) As of December 31, 2012
(In millions of won)
Individually non-significant joint ventures
Individually non-significant associates
(iii) As of December 31, 2013
(In millions of won)
Net profit (loss) of joint ventures and associates
(applying ownership interest)
Book value
￦
47,961
204,184
Profit (loss)
for the year
(4,013)
8,705
Other
comprehensive
income (loss)
840
4,450
Total
comprehensive
income (loss)
(3,173)
13,155
Net profit (loss) of joint ventures and associates
(applying ownership interest)
￦
Book value
39,760
233,647
Profit (loss)
for the year
(5,092)
44,211
Other
comprehensive loss
(3,109)
(10,766)
Total
comprehensive
income (loss)
(8,201)
33,445
Individually non-significant joint ventures
Individually non-significant associates
￦
Book value
31,162
240,866
F-45
Net profit (loss) of joint ventures and associates
(applying ownership interest)
Profit (loss)
for the year
(4,388)
22,952
Other
comprehensive loss
(554)
(20,773)
Total
comprehensive
income (loss)
(4,942)
2,179
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
10.
Investments in Equity Accounted Investees, Continued
(e) Changes in investments in equity accounted investees for the years ended December 31, 2012 and 2013 are as follows:
(In millions of won)
Company
Joint venture
Associates
(In millions of won)
Company
Joint venture
Associates
January 1
Acquisition/
Disposal
Dividends
received
2012
Equity income
(loss) on
investments
Other
comprehensive
income (loss)
Other
gain
(loss)
December 31
￦
133,000
Suzhou Raken
Technology Co.,
Ltd.
Individually non
significant joint
ventures
Individually non
significant associates 204,184
385,145
47,961
￦
—
—
3,660
(7,909) — 128,751
—
—
(5,092)
(3,109) —
39,760
2,661
2,661
(204)
(204)
44,211
42,779
(10,766) (6,439) 233,647
(21,784) (6,439) 402,158
January 1
Acquisition/
Disposal
Dividends
received
2013
Equity income
(loss) on
investments
Other
comprehensive
income (loss)
Other
gain December 31
￦
128,751
Suzhou Raken
Technology Co.,
Ltd.
Individually non
significant joint
ventures
Individually non
significant associates 233,647
402,158
39,760
￦
11,918
(12,804)
5,101
1,542 — 134,508
(3,656)
—
(4,388)
(554) —
31,162
5,381
13,643
(1,472)
(14,276)
22,952
23,665
(20,773) 1,131 240,866
(19,785) 1,131 406,536
F-46
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
11. Property, Plant and Equipment
Changes in property, plant and equipment for the year ended December 31, 2012 are as follows:
(In millions of won)
Acquisition cost as of January 1, 2012
Accumulated depreciation as of
January 1, 2012
Accumulated impairment loss as of
January 1, 2012
Book value as of January 1, 2012
Additions
Depreciation
Disposals
Others (*2)
Effect of movements in exchange rates
Subsidy received
Book value as of December 31, 2012
Acquisition cost as of December 31,
Buildings
and
structures
￦
Land
444,252 4,170,768
Machinery
and
equipment
28,028,986
Furniture
and
fixtures
720,716
Construction-
in-progress
(*1)
Others
Total
3,494,777 261,526 37,121,025
— (1,072,446) (20,589,295) (562,715)
— (196,131) (22,420,587)
—
—
—
(2,787)
—
444,252 3,098,322
—
(235,016)
(7,010)
(473) 1,420,649
(28,092)
—
(1,792)
—
440,992 4,247,061
￦
￦
￦
(138)
—
(229)
(3,222)
(3,589)
7,439,553 154,779 3,494,777 65,166 14,696,849
— 2,726,336
2,726,336
— (19,523) (4,196,487)
(56,650)
—
(2,402)
(56,173)
(3,962)
966,902 59,633 13,107,511
(3,641)
(5,251,832) 18,615
(984)
—
—
(3,873,305)
(42,127)
3,762,658
(22,684)
(2,170)
7,261,925
—
(68,643)
(1,085)
47,981
(2,034)
—
130,998
(2,379)
—
2012
440,992 5,546,497
31,490,302
755,948
966,902 256,806 39,457,447
Accumulated depreciation as of
December 31, 2012
Accumulated impairment loss as of
December 31, 2012
￦
￦
— (1,299,436) (24,228,377) (624,950)
— (197,173) (26,349,936)
—
—
—
—
—
—
—
(*1) As of December 31, 2012, construction-in-progress relates to construction of plants including their machinery.
(*2) Others are mainly amounts transferred from construction-in-progress.
F-47
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
11. Property, Plant and Equipment, Continued
Changes in property, plant and equipment for the year ended December 31, 2013 are as follows:
(In millions of won)
Acquisition cost as of January 1, 2013
Accumulated depreciation as of January 1, 2013
Accumulated impairment loss as of January 1, 2013
Book value as of January 1, 2013
Additions
Depreciation
Impairment loss
Disposals
Others (*2)
Effect of movements in exchange rates
Subsidy received
Book value as of December 31, 2013
Acquisition cost as of December 31, 2013
Accumulated depreciation as of December 31, 2013
Accumulated impairment loss as of December 31, 2013
Buildings
and
structures
5,546,497
(1,299,436)
—
4,247,061
Machinery
and
equipment
31,490,302
(24,228,377)
—
7,261,925
Furniture
and
fixtures
755,948
(624,950)
—
130,998
Land
￦
440,992
—
—
440,992
￦
—
—
—
—
—
(268,494) (3,244,953)
(839)
—
(3,579)
962
—
—
438,375
￦
￦
(8,521)
82,952
(535)
(1,744)
4,050,719
(18,873)
434,039
(7,744)
—
4,423,555
—
(65,210)
(1)
(478)
34,434
(85)
—
99,658
Construction-
in-progress
(*1)
Others
Total
2,390,259
966,902 256,806 39,457,447
— (197,173) (26,349,936)
—
—
—
966,902 59,633 13,107,511
— 2,390,259
— (19,815) (3,598,472)
(853)
(13)
—
(31,857)
(406)
—
—
(563,453) 11,066
1,375
(25)
(59,629)
—
2,745,587 50,440 11,808,334
9,764
(57,885)
438,375
￦
5,620,915
31,533,365
785,971
2,745,587 269,320 41,393,533
￦
—
(1,570,196)
(27,108,971)
(686,312)
— (218,867) (29,584,346)
—
—
(839)
(1)
—
(13)
(853)
(*1) As of December 31, 2013, construction-in-progress relates to construction of manufacturing facilities.
(*2) Others are mainly amounts transferred from construction-in-progress.
The capitalized borrowing costs and capitalization rate for the years ended December 31, 2011, 2012 and 2013 are as follows:
(In millions of won)
Capitalized borrowing costs
Capitalization rate
￦
2011
23,139
2012
24,612
3.65%
3.29%
2013
26,144
4.56%
F-48
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
12.
Intangible Assets
Changes in intangible assets for the year ended December 31, 2012 are as follows:
(In millions of won)
Acquisition cost as of January 1, 2012
Accumulated amortization as of
January 1, 2012
Accumulated impairment loss as of
January 1, 2012
Book value as of January 1, 2012
Additions-internally developed
Other additions
Amortization (*1)
Disposals
Impairment loss
Transfer from construction-in-
progress
Effect of movements in exchange
rates
Book value as of December 31, 2012
Acquisition cost as of December 31,
2012
Accumulated amortization as of
December 31, 2012
Accumulated impairment loss as of
December 31, 2012
Intellectual
property
rights
523,873
￦
Software
Member-
ships
Develop-
ment
costs (*3)
Construction-
in-progress
(software)
407,832 50,078
392,473
10,819
Customer
relation-
ships
24,011 11,074 23,912 13,090
Good-
will
(*3)
Tech-
nology
Others
(*2)
Total
1,457,162
(443,343)
(206,434)
—
(248,262)
—
(5,724)
(1,852) — (10,859)
(916,474)
￦
—
(1,039)
(4,535)
—
—
80,530 200,359 45,543 144,211
— 198,225
155
—
—
(3,393)
—
—
(110,958)
(610)
—
—
(143,079)
—
(27,300)
19,079
(13,413)
—
—
—
10,819
—
63,219
—
—
—
—
— — —
18,287 9,222 23,912 2,231
— — — —
—
(3,440)
—
—
— — —
(929)
(1,106) —
— —
(94)
— (9,319) —
(5,574)
535,114
198,225
82,453
(272,925)
(704)
(40,012)
—
70,777
—
—
(71,816)
—
— — —
(1,039)
￦
￦
￦
￦
—
(710)
—
(2,881)
86,196 158,858 42,305 169,176
—
2,222
—
— —
14,847 8,116 14,593 1,289
81
(3,510)
497,602
542,952
470,074 50,233
529,349
2,222
24,011 11,074 23,912 13,077
1,666,904
(456,756)
(311,216)
—
(332,873)
—
(9,164)
(2,958) — (11,788) (1,124,755)
—
—
(7,928)
(27,300)
—
—
— (9,319) —
(44,547)
(*1) The Group has classified the amortization as manufacturing overhead costs, selling expenses, administrative expenses and research and development expenses.
(*2) Others mainly consist of rights to use of electricity and gas supply facilities.
(*3) During 2012, the Group recognized impairment loss for the difference between the carrying amount and the recoverable amount (determined based on value in
use) of goodwill and in-process research and development because the economic benefit from these assets are estimated to be less than previously expected.
F-49
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
12.
Intangible Assets, Continued
Changes in intangible assets for the year ended December 31, 2013 are as follows:
(In millions of won)
Acquisition cost as of January 1, 2013
Accumulated amortization as of
January 1, 2013
Accumulated impairment loss as of
January 1, 2013
Book value as of January 1, 2013
Additions-internally developed
Other additions
Amortization (*1)
Disposals
Impairment loss (reversal)
Transfer from construction-in-
progress
Effect of movements in exchange
rates
Book value as of December 31, 2013
Acquisition cost as of December 31,
2013
Accumulated amortization as of
December 31, 2013
Accumulated impairment loss as of
December 31, 2013
Intellectual
property
rights
542,952
￦
Software
470,074
Member-
ships
50,233
Develop-
ment
costs
529,349
Construction-
in-progress
(software)
2,222
Customer
relation-
ships
24,011 11,074 23,912 13,077
Tech-
nology
Others
(*2)
Good-
will
Total
1,666,904
(456,756)
(311,216)
—
(332,873)
—
(9,164)
(2,958) — (11,788)
(1,124,755)
￦
￦
￦
￦
￦
—
—
86,196 158,858
—
—
(87,164)
—
(35)
—
22,996
(15,214)
(285)
—
(27,300)
(7,928)
42,305 169,176
— 123,271
—
1,248
—
(1,215)
(1,330)
(128,350)
(854)
—
—
2,222
—
62,709
—
—
—
—
— (9,319) —
14,847 8,116 14,593 1,289
— — — —
3
— — —
(1,107) —
(784)
— — —
— — —
(3,427)
—
—
(44,547)
497,602
123,271
86,956
(236,046)
(2,354)
(1,365)
—
54,227
—
—
(54,227)
—
— — —
—
—
93,693
121
126,007
—
41,008
—
163,243
—
10,704
—
11,420
— — —
508
7,009 14,593
121
468,185
561,400
524,759
50,258
617,355
10,704
24,011 11,074 14,593 13,089
1,827,243
(467,707)
(398,752)
—
(454,112)
—
(12,591)
(4,065) — (12,581)
(1,349,808)
—
—
(9,250)
—
—
—
— — —
(9,250)
(*1) The Group has classified the amortization as manufacturing overhead costs, selling expenses, administrative expenses and research and development expenses.
(*2) Others mainly consist of rights to use of electricity and gas supply facilities.
F-50
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
13. Financial Instruments
(a) Credit Risk
(i) Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at
the reporting date is as follows:
(In millions of won)
Cash and cash equivalents
Deposits in banks
Trade accounts and notes receivable, net
Other accounts receivable, net
Available-for-sale financial assets
Other non-current financial assets
Deposits
￦
December 31, 2012
2,338,661
315,092
3,334,341
199,007
2,838
11,262
62,862
6,264,063
￦
December 31, 2013
1,021,870
1,301,539
3,128,626
89,545
2,838
8,831
21,439
5,574,688
The maximum exposure to credit risk for trade accounts and notes receivable at the reporting date by geographic region
was as follows:
(In millions of won)
Domestic
Euro-zone countries
Japan
United States
China
Taiwan
Others
￦
December 31, 2012
205,454
415,664
79,564
1,392,303
881,018
166,839
193,499
3,334,341
￦
December 31, 2013
264,703
302,920
111,397
1,048,005
784,597
438,929
178,075
3,128,626
F-51
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
13. Financial Instruments, Continued
(ii) Impairment loss
The aging of trade accounts and notes receivable at the reporting date was as follows:
(In millions of won)
Not past due
Past due 1-15 days
Past due 16-30 days
Past due 31-60 days
Past due more than 60 days
December 31, 2012
December 31, 2013
Book
value
￦
3,298,888
18,307
12,152
2,829
3,184
3,335,360
￦
Impairment
loss
(1,007)
(5)
(2)
(3)
(2)
(1,019)
Book
value
3,091,184
30,005
7,504
82
181
3,128,956
Impairment
loss
(317)
(8)
(1)
(1)
(3)
(330)
The movement in the allowance for impairment in respect of receivables for the years ended December 31, 2011, 2012 and
2013 is as follows:
(In millions of won)
Balance at the beginning of the year
(Reversal of) Bad debt expense
Balance at the end of the year
￦
2011
￦
532
131
663
2012
663
356
1,019
2013
1,019
(689)
330
There were no receivables written-off for the years ended December 31, 2011, 2012 and 2013.
F-52
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
13. Financial Instruments, Continued
(b) Liquidity Risk
(i) The following are the contractual maturities of financial liabilities, including estimated interest payments, as of
December 31, 2013.
(In millions of won)
Carrying
amount
Total
6 months
or less
Contractual cash flows
6-12
months 1-2 years
2-5 years
More than
5 years
Non-derivative financial liabilities
￦
Secured bank loan
Unsecured bank loans
Unsecured bond issues
Trade accounts and notes payables
Other accounts payable
Other non-current liabilities
￦
—
26,383
26,666
1,241,981 1,328,471
2,634,415 2,879,462
2,999,522 2,999,522 2,999,522
1,374,664 1,374,664 1,372,004
—
26,666
—
62,990 215,284 307,146 741,754
356,430 389,800 686,574 1,446,658
—
—
5,262
8,286,844 8,619,370 4,817,612 607,744 999,043 2,193,674
—
—
5,323
—
2,660
—
10,585
9,879
—
—
1,297
—
—
—
—
1,297
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly
different amounts.
F-53
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
13. Financial Instruments, Continued
(c) Currency Risk
(i) Exposure to currency risk
The Group’s exposure to foreign currency risk based on notional amounts at the reporting date is as follows:
(In millions)
December 31, 2012
Cash and cash equivalents
Trade accounts and notes receivable
Other accounts receivable
Available-for-sale financial assets
Other assets denominated in foreign currencies
Trade accounts payable
Other accounts payable
Debt
Bonds
Net exposure
USD
1,466
2,656
66
—
1
(2,234)
(109)
(898)
(349)
599
SGD
536
340 —
CNY TWD EUR
PLN
JPY
2 61 2 —
7,540
1,223 — 95 37 —
433
1 — —
95
3 — — —
— —
1
178
(1,847) (463) (67) — —
(31,162)
(8) (38) (8) —
(12,948)
(5) — —
—
— — — — — —
1
(486) (455) 47 31
(725)
(33) —
20 11 — —
(35,864)
(In millions)
December 31, 2013
Cash and cash equivalents
Deposits in banks
Trade accounts and notes receivable
Other accounts receivable
Long-term other accounts receivable
Available-for-sale financial assets
Other assets denominated in foreign currencies
Trade accounts payable
Other accounts payable
Debt
Net exposure
F-54
USD
1,391
PLN SGD
JPY
1,961
710
—
2,463
5
8
—
1
CNY TWD EUR
1,108 20 20 38 —
— — — 20 — —
6,410
6 19 17 —
160 — 2 — —
—
— — — — — —
3 — — —
— —
1
8 — —
20
170
(1,858) (11) (15) — —
(1,858) (30,834)
(1,528) (12) (34) (8) —
(4,404)
(31) — — — —
—
1
(738) 14 12 47
(26,697)
(191)
(715)
423
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
13. Financial Instruments, Continued
Significant exchange rates applied during the reporting periods are as follows:
(In won)
USD
JPY
CNY
TWD
EUR
PLN
SGD
Average rate
Reporting date spot rate
￦
2012
2013
13.19
171.45
37.71
2011
1,108.12 1,126.88 1,094.79
11.23
178.06
36.89
1,541.88 1,448.63 1,453.39
346.39
346.41
875.08
901.71
14.13
178.59
38.11
375.28
881.17
December 31,
￦
2012
1,071.10
12.48
171.88
36.90
1,416.26
348.21
875.48
December 31,
2013
1,055.30
10.05
174.09
35.32
1,456.26
351.11
832.75
(ii) Sensitivity analysis
A weaker won, as indicated below, against the following currencies which comprise the Group’s assets or liabilities
denominated in a foreign currency as of December 31, 2013 and 2012, would have increased (decreased) equity and profit
or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Group
considers to be reasonably possible as of the end of the reporting period. The analysis assumes that all other variables, in
particular interest rates, would remain constant. The changes in equity and profit or loss would have been as follows:
(In millions of won)
USD (5 percent weakening)
JPY (5 percent weakening)
CNY (5 percent weakening)
TWD (5 percent weakening)
EUR (5 percent weakening)
PLN (5 percent weakening)
SGD (5 percent weakening)
December 31, 2012
December 31, 2013
￦
Equity
21,637
(17,921)
(4,176)
(838)
2,491
537
16
Profit or
loss
32,664
(13,935)
—
(5)
2,629
8
—
Equity
15,198
(11,007)
(6,267)
28
250
669
31
Profit or
loss
22,224
(7,526)
(515)
(4)
1,877
494
—
A stronger won against the above currencies as of December 31, 2012 and 2013 would have had the equal but opposite
effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.
F-55
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
13. Financial Instruments, Continued
(d)
Interest Rate Risk
(i) Profile
The interest rate profile of the Group’s interest-bearing financial instruments at the reporting date is as follows:
(In millions of won)
Fixed rate instruments
Financial assets
Financial liabilities
Variable rate instruments
Financial liabilities
December 31, 2012
￦
2,656,591
(3,077,467)
(420,876)
￦
￦
December 31, 2013
2,326,247
(3,156,590)
(830,343)
(1,378,390)
(746,189)
(ii) Equity and profit or loss sensitivity analysis for variable rate instruments
For the years ended December 31, 2012 and 2013 a change of 100 basis points in interest rates at the reporting date would
have increased (decreased) equity and profit or loss by the amounts shown below for the respective following years. This
analysis assumes that all other variables, in particular foreign currency rates, remain constant.
(In millions of won)
December 31, 2012
Variable rate instruments
December 31, 2013
Variable rate instruments
Equity
Profit or loss
1%
increase
1%
decrease
1%
increase
1%
decrease
￦
￦
(10,448)
10,448
(10,448)
10,448
(5,656)
5,656
(5,656)
5,656
F-56
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
13. Financial Instruments, Continued
(e) Fair Values
(i) Fair values versus carrying amounts
The fair values of financial assets and liabilities, together with the carrying amounts shown in the consolidated statement of
financial position, are as follows:
(In millions of won)
Assets carried at fair value
Available-for-sale financial assets
Assets carried at amortized cost
Cash and cash equivalents
Deposits in banks
Trade accounts and notes receivable
Other accounts receivable
Other non-current financial assets
Deposits
Liabilities carried at amortized cost
Secured bank loans
Unsecured bank loans
Unsecured bond issues
Trade accounts and notes payable
Other accounts payable
Other non-current liabilities
December 31, 2012
December 31, 2013
Carrying
amounts
Fair
values
Carrying
amounts
Fair
values
13,463
13,463
14,235
14,235
2,338,661
315,092
3,334,341
199,007
11,262
62,862
6,261,225
2,338,661 1,021,870 1,021,870
315,092 1,301,539 1,301,539
3,334,341 3,128,626 3,128,626
89,545
8,831
21,439
6,261,225 5,571,850 5,571,850
199,007
11,262
62,862
89,545
8,831
21,439
￦
￦
￦
26,383
53,555
53,555
1,783,698
2,618,604
4,147,036
2,641,958
30
26,383
1,823,514 1,241,981 1,266,521
2,677,038 2,634,415 2,689,697
4,147,036 2,999,522 2,999,522
2,641,901 1,374,664 1,374,719
9,959
30
11,244,881 11,343,074 8,286,844 8,366,801
9,879
￦
The basis for determining fair values is disclosed in note 4.
F-57
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
13. Financial Instruments, Continued
(ii) Interest rates used for determining fair value
The significant interest rates applied for determination of the above fair value at the reporting date are as follows:
Debentures, loans and borrowings
December 31, 2012
December 31, 2013
3.69%
2.99%
(iii) Fair value hierarchy
The table below analyzes financial instruments carried at fair value based on the input variables used in the valuation
method to measure fair value of assets and liabilities. The different levels have been defined as follows:
•
•
•
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly
Level 3: inputs for the asset or liability that are not based on observable market data
Financial instruments carried at fair value as of December 31, 2012 and 2013 are as follows:
(In millions of won)
December 31, 2012
Assets:
Level 1
Level 2
Level 3
Total
￦
Available-for-sale financial assets
13,463
—
—
13,463
(In millions of won)
December 31, 2013
Assets:
Level 1
Level 2
Level 3
Total
￦
Available-for-sale financial assets
14,235
—
—
14,235
F-58
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
14. Financial Liabilities
(a) Financial liabilities at the reporting date are as follows:
(In millions of won)
Current
Short-term borrowings
Current portion of long-term debt
Non-current
Won denominated borrowings
Foreign currency denominated borrowings
Bonds
December 31, 2012
￦
December 31, 2013
￦
￦
￦
35,739
979,533
1,015,272
807,005
589,105
2,044,475
3,440,585
21,090
886,852
907,942
503,968
495,991
1,994,878
2,994,837
(b) Short-term borrowings at the reporting date are as follows:
(In millions of won, USD and CNY)
Lender
Bank of China and others
Woori Bank
Foreign currency
equivalent
Annual interest rate
as of
December 31, 2013 (%)
1.24~6.56
3.00
F-59
￦
December 31, 2012
35,739
—
USD
CNY
￦
28
31
35,739
December 31, 2013
21,000
90
USD
CNY
15
31
21,090
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
14. Financial Liabilities, Continued
(c) Local currency long-term debt at the reporting date is as follows:
(In millions of won)
Lender
Shinhan Bank and others
Korea Development Bank and others
Less current portion of long-term debt
Annual interest rate
as of
December 31, 2013 (%)
3-year Korean Treasury Bond
rate less 1.25, 2.75
4.51~4.96
December 31,
2012
December 31,
2013
￦
￦
16,629
845,072
(54,696)
807,005
11,932
496,632
(4,596)
503,968
(d) Foreign currency long-term debt at the reporting date is as follows:
(In millions of won, USD, CNY and EUR)
Lender
The Export-Import Bank of
Korea
Kookmin Bank and others
China Communication Bank and
others
Foreign currency equivalent
Less current portion of long-term
debt
Annual interest rate
as of
December 31, 2013 (%)(*)
—
3ML+0.90~1.90,
6ML+1.78
—
(*) ML represents Month LIBOR (London Inter-Bank Offered Rates).
F-60
December 31,
2012
￦
December 31,
2013
26,777
—
905,080
738,710
7,956
870
2
5
USD
CNY
EUR
￦
(350,708)
589,105
USD
—
700
—
—
(242,719)
495,991
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
14. Financial Liabilities, Continued
(e) Details of bonds issued and outstanding at the reporting date are as follows:
(In millions of won and USD)
Won denominated
bonds (*)
Publicly issued bonds
Less discount on bonds
Less current portion
Bonds denominated in
currencies other
than won
Floating-rate bonds
Foreign currency
equivalent
Less discount on bonds
Less current portion
Maturity
April 2014~
November
2018
Annual interest rate
as of
December 31, 2013 (%)
December 31,
2012
December 31,
2013
2.90~5.89
￦
￦
2,250,000
(5,579)
(199,946)
2,044,475
2,640,000
(5,585)
(639,537)
1,994,878
—
—
374,885
—
USD
￦
￦
350
(702)
(374,183)
—
2,044,475
—
—
—
—
1,994,878
(*) Principal of the won denominated bonds is to be repaid at maturity and interests are paid quarterly in arrears.
F-61
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
15. Provisions
Changes in provisions for the year ended December 31, 2012 are as follows:
(In millions of won)
Balance of January 1, 2012
Additions
Usage
Balance at December 31, 2012
There of non-current
Litigations
and claims
(*1)
222,703
445,421
(467,535)
200,589
—
￦
Warranties
(*2)
61,657
78,526
(84,799)
55,384
6,515
Others
443
1,083
—
1,526
—
Total
284,803
525,030
(552,334)
257,499
6,515
Changes in provisions for the year ended December 31, 2013 are as follows:
(In millions of won)
Balance of January 1, 2013
Additions
Usage and reclassification
Balance at December 31, 2013
There of current
There of non-current
Litigations
and claims
￦
(*1)
200,589
234,944
(278,976)
156,557
156,557
—
￦
￦
￦
Warranties
(*2)
55,384
98,981
(107,029)
47,336
42,331
5,005
Others
1,526
317
—
1,843
1,843
—
Total
257,499
334,242
(386,005)
205,736
200,731
5,005
(*1) The Group expects that the provision for litigation and claims will be utilized in the next year.
(*2) The provision for warranties covers defective products and is normally applicable for eighteen months from the date of
purchase. The warranty liability is calculated by using historical and anticipated rates of warranty claims, and costs per claim to
satisfy the Group’s warranty obligation.
F-62
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
16. The Nature of Expenses and Others
The classification of expenses by nature for the years ended December 31, 2011, 2012 and 2013 are as follows:
(In millions of won)
Changes in inventories
Purchases of raw materials, merchandise and others
Depreciation and amortization
Labor cost
Supplies and others
Outsourcing fees
Shipping costs
Utility
Fees and commissions
After-sale service expenses
Advertising
Taxes and dues
Travel
Others
(*)
￦
￦
2011
(102,154)
15,714,809
3,651,446
2,192,328
1,027,734
138,638
313,658
576,085
424,545
72,350
136,062
66,775
61,813
944,938
25,219,027
2012
(72,637)
17,845,211
4,469,412
2,500,323
883,155
345,362
428,762
675,851
443,998
106,391
104,114
65,068
52,686
1,173,008
29,020,704
2013
456,766
14,293,048
3,834,518
2,618,910
1,025,938
736,744
271,570
730,174
465,902
116,766
144,847
75,983
59,946
1,303,143
26,134,255
(*) Total expenses consist of cost of sales, selling, administrative, research and development expenses and other expenses,
excluding foreign exchange differences.
For the year ended December 31, 2013, other income and other expenses contained exchange differences amounting to
￦
￦
987,868 million, respectively (for the year ended December 31, 2011:
1,068,646 million and
1,220,143 million, respectively; for the year ended December 31, 2012:
1,190,793 million and
￦
1,095,280 million,
1,228,847 million and
￦
￦
￦
respectively) (note 26).
The expenses for the years ended December 31, 2011 and 2012 were reclassified to conform to the classification for the year
ended December 31, 2013.
F-63
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
17. Selling and Administrative Expenses
Details of selling and administrative expenses for the years ended December 31, 2011, 2012 and 2013 are as follows:
(In millions of won)
Salaries
Expenses related to defined benefit plan
Other employee benefits
Shipping costs
Fees and commissions
Depreciation
Taxes and dues
Advertising
After-sale service
Rent
Insurance
Travel
Training
Others
￦
￦
2011
204,491
18,456
63,314
262,247
173,918
59,182
31,987
136,062
72,350
28,262
8,846
26,014
17,949
54,852
1,157,930
2012
224,019
20,282
56,967
349,691
190,207
112,890
28,444
104,114
106,391
25,829
11,197
20,518
12,856
44,031
1,307,436
2013
232,362
22,037
70,254
215,017
197,237
96,115
33,998
144,847
116,766
23,299
11,887
22,564
12,080
51,358
1,249,821
F-64
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
18. Employee Benefits
The Controlling Company and certain subsidiaries’ defined benefit plans provide a lump-sum payment to an employee based on
final salary rates and length of service at the time the employee leaves the Controlling Company.
The defined benefit plans expose the Group actuarial risks, such as the risk associated with expected periods of service, interest
rate risk, market (investment) risk, and others with the defined benefit plan.
(a) Recognized liabilities for defined benefit obligations at the reporting date are as follows:
(In millions of won)
Present value of partially funded defined benefit
obligations
Fair value of plan assets
December 31, 2012
￦
￦
672,370
(491,730)
180,640
December 31, 2013
807,738
(488,651)
319,087
(b) Changes in the present value of the defined benefit obligations for the years ended December 31, 2012 and 2013 are as
follows:
(In millions of won)
Opening defined benefit obligations
Current service cost
Interest cost
Remeasurements (before tax)
Benefit payments
Transfers from related parties
Closing defined benefit obligations
￦
￦
2012
486,981
130,160
22,909
75,921
(40,913)
(2,598)
672,370
2013
672,370
149,979
26,019
(1,373)
(41,264)
2,007
807,738
Weighted average duration of defined benefit obligations as of December 31, 2012 and 2013 are 13.8 years and 13.4 years,
respectively.
(c) Changes in fair value of plan assets for the years ended December 31, 2012 and 2013 are as follows:
(In millions of won)
Opening fair value of plan assets
Interest income
Remeasurements (before tax)
Contributions by employer directly to plan assets
Benefit payments
Closing fair value of plan assets
F-65
￦
￦
2012
340,253
14,190
199
160,000
(22,912)
491,730
2013
491,730
16,545
6
15,000
(34,630)
488,651
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
18. Employee Benefits, Continued
(d) Plan assets at the reporting date are as follows:
(In millions of won)
Guaranteed deposits in banks
￦
December 31, 2012
491,730
December 31, 2013
488,651
As of December 31, 2013, the Controlling Company maintains the plan assets with Mirae Asset Securities Co., Ltd.,
Shinhan Bank, etc.
￦
The Controlling Company’s estimated contribution to the plan assets for the year ending December 31, 2014 is
111,829
under the assumption that the Controlling Company continues to maintain the plan assets at 70% of the amount payable if
all the employees of the Controlling Company would leave the Controlling Company on December 31, 2014.
(e) Expenses recognized in profit or loss for the years ended December 31, 2011, 2012 and 2013 are as follows:
(In millions of won)
Current service cost
Net interest cost
￦
￦
2011
107,338
6,632
113,970
2012
130,160
8,719
138,879
2013
149,979
9,474
159,453
Expenses are recognized in the following line items in the consolidated statements of comprehensive income:
(In millions of won)
Cost of sales
Selling expenses
Administrative expenses
Research and development expenses
￦
￦
2011
87,044
8,333
10,123
8,470
113,970
2012
108,801
10,087
10,195
9,796
138,879
2013
126,716
10,478
11,559
10,700
159,453
(f) Remeasurements of defined benefit liability (asset) included in other comprehensive income for the years ended
December 31, 2011, 2012 and 2013 are as follows:
(In millions of won)
Balance at January 1
Remeasurements
Actuarial profit or loss arising from:
Experience adjustment
Demographic assumptions
Financial assumptions
Return on plan assets
Share of associates regarding remeasurements
Income tax
Balance at December 31
F-66
￦
2011
(11,277)
2012
(28,950)
2013
(86,524)
8,640
—
(33,624)
1,256
(4)
(23,732)
6,059
(28,950)
￦
(34,372)
(19,939)
(21,610)
199
(177)
(75,899)
18,325
(86,524)
(33,447)
(3,791)
38,611
6
(381)
998
(334)
(85,860)
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
18. Employee Benefits, Continued
(g) Principal actuarial assumptions at the reporting date (expressed as weighted averages) are as follows:
Expected rate of salary increase
Discount rate for defined benefit obligations
2011
5.6%
4.9%
2012
5.1%
4.0%
2013
5.1%
4.4%
Assumptions regarding future mortality are based on published statistics and mortality tables. The current mortality
underlying the values of the liabilities in the defined benefit plans are as follows:
Twenties
Thirties
Forties
Fifties
December 31, 2012
December 31, 2013
Males
Females
Males
Females
Males
Females
Males
Females
0.01%
0.00%
0.02%
0.01%
0.04%
0.02%
0.08%
0.04%
0.01%
0.00%
0.01%
0.01%
0.03%
0.01%
0.06%
0.03%
(h) Reasonably possible changes to respective relevant actuarial assumptions would have affected the defined benefit
obligations by the amounts as of December 31, 2013 are as follows:
Discount rate for defined benefit obligations
Expected rate of salary increase
F-67
Defined benefit obligation
￦
1% increase
(93,695)
111,877
1% decrease
113,664
(94,103)
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
19. Other Liabilities
Other liabilities at the reporting date are as follows:
(In millions of won)
Current liabilities
Withholdings
Unearned revenues
Non-current liabilities
Long-term accrued expenses
Long-term other accounts payable
Long-term unearned revenues
December 31, 2012
￦
December 31, 2013
￦
￦
￦
22,929
4,732
27,661
319,499
30
12,226
331,755
26,865
4,732
31,597
335,447
39,559
7,494
382,500
F-68
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
20. Commitments
Factoring and securitization of accounts receivable
The Controlling Company has agreements with Korea Development Bank and several other banks for accounts receivable sales
negotiating facilities of up to an aggregate of USD 1,713 million (
million) in connection with the Controlling Company’s export sales transactions with its subsidiaries. As of December 31, 2013,
no short-term borrowings were outstanding in connection with these agreements. In connection with all of the contracts in this
paragraph, the Controlling Company has sold its accounts receivable with recourse.
1,808,235 million) and JPY 5,000 million (
50,233
￦
￦
The Controlling Company and oversea subsidiaries entered into agreements with financial institutions for accounts receivables
sales negotiating facilities. Respective maximum amount of accounts receivables sales and the amount of sold accounts
receivables before maturity by contract are as follows:
(In millions of USD and KRW)
Controlling Company
Subsidiaries
LG Display Singapore Pte. Ltd.
LG Display Taiwan Co., Ltd.
LG Display Shanghai Co., Ltd.
LG Display Shenzhen Co., Ltd.
Financial institutions
Maximum
Not yet due
Shinhan Bank
Standard Chartered Bank
KRW
USD
100,000
73
100,000
77,037
—
—
Contractual
amount
KRW
equivalent Amount
KRW
equivalent
—
—
Standard Chartered Bank
Citibank
Taishin International Bank
BNP Paribas
Chinatrust Commercial Bank
Citibank
Standard Chartered Bank
Sumitomo Mitsui Banking
Corporation
BNP Paribas
Hongkong & Shanghai Banking
Corp.
Standard Chartered Bank
Bank of China Ltd.
Bank of China Ltd.
Bank of Communications Co. Ltd.
Standard Chartered Bank
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
1,006 1,061,632 USD
250
100
65
160
222
280
—
263,825 USD 184 193,895
—
105,530
65 68,588
—
—
77 81,216
30 31,901
69 73,071
168,848 USD
234,277 USD
295,484 USD
68,595
100
130
105,530 USD
137,189 USD
20 20,808
76 79,820
200
50
Not applicable
Not applicable
Not applicable
Not applicable
211,060 USD
52,765
USD
USD
55 58,335
—
—
27 28,565
—
—
—
—
23 24,461
F-69
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
20. Commitments, Continued
Factoring and securitization of accounts receivable, Continued
(In millions of USD and KRW)
Financial institutions
Maximum
Not yet due
LG Display Germany GmbH
LG Display America, Inc.
Citibank
Commerzbank AG, etc.
USD
307
Not applicable
323,977 USD 130
USD 24
Contractual
amount
KRW
equivalent
Amount
KRW
equivalent
137,256
24,968
Australia and New Zealand
Banking Group Limited
Standard Chartered Bank
Citibank
Sumitomo Mitsui Banking
USD
USD
USD
80
50
200
84,424
52,765
—
—
211,060 USD 200
—
—
210,836
Corporation
USD
180
189,954 USD 64
67,190
LG Display Japan Co., Ltd.
Sumitomo Mitsui Banking
Corporation
90
USD
USD 3,470
USD 3,543
KRW100,000
94,977 USD
4
3,661,892 USD1,048
USD1,048
—
3,838,929
4,255
1,105,165
1,105,165
In connection with all of the contracts in the above table, the Controlling Company has sold its accounts receivable without
recourse.
Letters of credit
￦
As of December 31, 2013, the Controlling Company has agreements in relation to the opening of letters of credit up to USD
15 million (
JPY 1,000 million (
60 million (
and USD 30 million (
15,830 million) with Korea Exchange Bank, USD 15 million (
10,047 million) with Woori Bank, USD 100 million (
￦
15,830 million) with China Construction Bank,
105,330 million) with Bank of China, USD
63,318 million) with Sumitomo Mitsui Banking Corporation, USD 30 million (
31,659 million) with Shinhan Bank.
31,659 million) with Hana Bank
￦
￦
￦
￦
￦
Payment guarantees
8,970 million) and EUR 215 million
313,096 million) from Royal Bank of Scotland and other various banks for a number of occasions including value added tax
The Controlling Company obtained payment guarantees amounting to USD 8.5 million (
￦
(
payments in Poland.
LG Display Japan Co., Ltd. and other subsidiaries are provided with payment guarantees from the Bank of Tokyo-Mitsubishi
UFJ and other various banks amounting to USD 7 million (
880 million (
local tax payments.
7,033 million), CNY
70 million), respectively, for their
153,199 million), TWD 10 million (
353 million) and PLN 0.2 million (
7,387 million), JPY 700 million (
￦
￦
￦
￦
￦
F-70
￦
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
20. Commitments, Continued
Credit facility agreements
￦
LG Display Japan Co., Ltd. and other subsidiaries have entered into short-term credit facility agreements of up to USD
60 million (
banks.
80,373 million) in total, with Mizuho Corporate Bank and other various
63,318 million) and JPY 8,000 million (
￦
License agreements
As of December 31, 2013, in relation to its TFT-LCD business, the Group has technical license agreements with Hitachi
Display, Ltd. and others and has a trademark license agreement with LG Corp.
Long-term supply agreement
In connection with long-term supply agreements, as of December 31, 2013, the Controlling Company’s balance of advances
received from a customer amount to USD 980 million (
1,478,118 million))
in aggregate. The advances received will be offset against outstanding accounts receivable balances after a given period of time,
as well as those arising from the supply of products thereafter. The Controlling Company received a payment guarantee
amounting to USD 200 million (
211,060 million) from the Industrial Bank of Korea relating to advances received.
1,034,194 million) (2012: USD 1,380 million (
￦
￦
￦
Pledged Assets
￦
Regarding the secured bank loan amounting to USD 25 million (
Controlling Company provided part of its OLED machinery as pledged assets.
26,383 million) from the Export-Import Bank of Korea, the
21. Legal Proceedings
(a) Patent infringements
Industrial Technology Research Institute of Taiwan
In 2012, the United States International Trade Commission (“USITC”) granted a motion by Industrial Technology
Research Institute of Taiwan (“ITRI”) to add the Controlling Company and LG Display America, Inc. as additional
respondents in an investigation under Section 337 of the United States Tariff Act (In the Matter of Certain Devices for
Improving Uniformity Used in a Backlight Module and Components Thereof and Products Containing the Same,
Investigation No. 337-TA-805). ITRI is seeking an exclusion order which prohibits the importation of televisions and
monitors incorporating the Controlling Company’s products into the United States for alleged patent infringement. On
October 22, 2012, USITC issued a Notice of Initial Determination finding that the Controlling Company and LG Display
America, Inc. did not infringe the asserted patent of ITRI. On May 17, 2013, USITC issued a final determination finding
that the patent was invalid and the Controlling Company and LG Display America, Inc. had not infringed ITRI’s patents.
Meanwhile, on June 28, 2013, ITRI appealed the USITC’s decision to the United States Court of Appeals for the Federal
Circuit (“CAFC”). The Controlling Company does not have a present obligation for this matter and has not recognized any
provision at December 31, 2013. It is not possible to reasonably estimate an amount of potential loss, if any, because the
USITC is not statutorily authorized to award damages in Section 337 investigations and the Controlling Company and LG
Display America, Inc. do not anticipate any assessment of damages by the USITC regardless of the final outcome of the
investigation.
F-71
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
21. Legal Proceedings, Continued
Delaware Display Group LLC and Innovative Display Technologies LLC
In December 2013, Delaware Display Group LLC and Innovative Display Technologies LLC filed a patent infringement
case against the Controlling Company in the United States District Court for the District of Delaware. The Controlling
Company does not have a present obligation for this matter and has not recognized any provision at December 31, 2013. It
is not possible to reasonably estimate an amount of potential loss, if any, because the plaintiffs have not provided any
information regarding damages.
(b) Contract Termination
Request for arbitration of Arkema France and its subsidiary
In October 2012, Arkema France (“Arkema”) and its subsidiary filed a request for arbitration in the International Court of
Arbitration of the International Chamber of Commerce regarding termination of a contract with the Controlling Company.
In April 2014, the Controlling Company reached a settlement with Arkema. The timing and amount of outflows are
uncertain and the outcome depends upon the ICC arbitration proceedings.
(c) Anti-trust investigation and litigation
In January 2010, the Controlling Company received notice of the antitrust investigation by the Secretariat of Economic
Law of Brazil. To date, the investigation by the Secretariat of Economic Law of Brazil is ongoing. The timing and amount
of outflows are uncertain and the outcome depends upon the investigation proceedings.
In August 2011, the Korea Fair Trade Commission (the “KFTC”) issued an Examination Report finding that the
Controlling Company engaged in anti-competitive activities in violation of Korean fair trade laws and a hearing was held
in October 2011. In December 2011, the KFTC imposed a fine on the Controlling Company and certain of its subsidiaries
of approximately
an appeal of the decision with the Seoul High Court in December 2011. In February 2014, the Seoul High Court annulled
the fining decision of the KFTC. In March 2014, the KFTC filed an appeal to the Supreme Court. Any future recovery of
the previously paid fine will be recognized when it is virtually certain.
31,378 million which the Controlling Company paid in February 2012. The Controlling Company filed
￦
Certain individual plaintiffs filed complaints in various state or federal courts in the United States alleging violation of the
respective antitrust laws and related laws by various LCD panel manufacturers. To date the Controlling Company is
defending against nineteen Direct Action Plaintiffs including Motorola Mobility, Inc., Electrograph Technologies Corp.
and its affiliates, TracFone Wireless Inc., Costco Wholesale Corp., Office Depot, Inc., Interbond Corp. of America
(BrandsMart), P.C. Richard & Son Long Island Corp., MARTA Cooperative of America, Inc., ABC Appliance (ABC
Warehouse), Schultze Agency Services, LLC (Tweeter), AASI Creditor Liquidating Trust for All American Semiconductor
Inc., Tech Data Corp. and its affiliate, CompuCom Systems, Inc., NECO Alliance LLC, Proview Technology, Inc. and its
affiliates, Acer America Corp. and its affiliates, and the attorneys general of Illinois, Washington and Oregon. The timing
and amounts of outflows are uncertain and the outcomes depend upon the various court proceedings.
In Canada, the Ontario Superior Court of Justice certified the class action complaints filed by the direct and indirect
purchasers in May 2011. The Controlling Company is pursuing an appeal of the decision as well as defending the on-going
class actions in Quebec and British Columbia. The timing and amount of outflows are uncertain and the outcome depends
upon the court proceedings.
F-72
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
21. Legal Proceedings, Continued
While the Group continues its vigorous defense of the various pending proceedings described above management’s
assessment of the facts and circumstances could change based upon new information, intervening events and the final
outcome of the cases. Consequently, the actual results could be materially different from management’s current estimates.
22. Capital and Reserves
(a) Share capital
The Controlling Company is authorized to issue 500,000,000 shares of capital stock (par value
December 31, 2012 and December 31, 2013, the number of issued common shares is 357,815,700. There have been no
changes in the capital stock from January 1, 2011 to December 31, 2013.
5,000), and as of
￦
(b) Reserves
Reserves consist mainly of the following:
Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of
foreign operations.
Fair value reserve
The fair value reserve comprises the cumulative net change in the fair value of available-for-sale financial assets until the
investments are derecognized or impaired.
F-73
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
23. Related Parties
(a) Related parties
Related parties for the year ended December 31, 2013 are as follows:
Classification
Associates and joint ventures(*)
Subsidiaries of Associates
Entity that has significant influence over the Controlling Company LG Electronics Inc.
Subsidiaries of the entity that has significant influence over the
Suzhou Raken Technology Co., Ltd. and others
ADP System Co., Ltd. and others
Description
Subsidiaries of LG Electronics Inc.
Controlling Company
(*) Details of associates and joint ventures are described in note 1 and 10.
Related parties other than associates and joint ventures that have transactions such as sales or balance of trade accounts and
notes receivable and payable with the Controlling Company for the years ended December 31, 2012 and 2013 are as
follows:
Classification
Subsidiaries of associates
Entity that has significant influence
over the Controlling Company
Subsidiaries of the entity that has
significant influence over the
Controlling Company
December 31, 2012
December 31, 2013
ADP System Co., Ltd.
Shinbo Electric Co., Ltd.
AVATEC Electronics Yantai Co., Ltd.
ADP System Co., Ltd.
Shinbo Electric Co., Ltd.
AVATEC Electronics Yantai Co., Ltd.
LG Electronics Inc.
LG Electronics Inc.
Hi Business Logistics Co., Ltd.
Hi Entech Co., Ltd.
LG Hitachi Water Solutions Co., Ltd.
LG Innotek Co., Ltd.
Hanuri Co., Ltd.
Qingdao LG Inspur Digital Communication
Co., Ltd.
LG Innotek Poland Sp. z o.o.
LG Innotek (Guangzhou) Co., Ltd.
LG Electronics Wroclaw Sp. z o.o.
LG Electronics Vietnam Co., Ltd.
LG Electronics Reynosa, S.A. DE C.V.
LG Electronics Thailand Co., Ltd.
LG Electronics Taiwan Taipei Co., Ltd.
Hi Business Logistics Co., Ltd.
Hiplaza Co., Ltd.
Hi Entech Co., Ltd.
LG Hitachi Water Solutions Co., Ltd.
LG Innotek Co., Ltd.
Hanuri Co., Ltd.
Qingdao LG Inspur Digital Communication
Co., Ltd.
LG Innotek Poland Sp. z o.o.
LG Innotek (Guangzhou) Co., Ltd.
LG Electronics Wroclaw Sp. z o.o.
LG Electronics Vietnam Co., Ltd.
LG Electronics Reynosa, S.A. DE C.V.
LG Electronics Thailand Co., Ltd.
F-74
23. Related Parties, Continued
Classification
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
December 31, 2012
LG Electronics Shenyang Inc.
LG Electronics RUS, LLC
LG Electronics Nanjing Display Co., Ltd.
LG Electronics Mlawa Sp. z o.o.
LG Electronics Mexicali, S.A. DE C.V.
LG Electronics India Pvt. Ltd.
LG Electronics do Brasil Ltda.
LG Electronics (Hangzhou) Co., Ltd.
Inspur LG Digital Mobile
Communications Co., Ltd.
Hi Logistics Europe B.V.
Hi Logistics (China) Co., Ltd.
F-75
December 31, 2013
LG Electronics Taiwan Taipei Co., Ltd.
LG Electronics Shenyang Inc.
LG Electronics RUS, LLC
LG Electronics Nanjing Display Co., Ltd.
LG Electronics Mlawa Sp. z o.o.
LG Electronics Mexicali, S.A. DE C.V.
LG Electronics India Pvt. Ltd.
LG Electronics do Brasil Ltda.
LG Electronics Air-Conditioning (Shandong)
Co., Ltd.
LG Electronics (Kunshan) Computer Co.,
Ltd.
LG Electronics (Hangzhou) Co., Ltd.
Inspur LG Digital Mobile Communications
Co., Ltd.
Hi Logistics Europe B.V.
Hi Logistics (China) Co., Ltd.
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
23. Related Parties, Continued
(b) Key management personnel compensation
Compensation costs of key management for the years ended December 31, 2011, 2012 and 2013 are as follows:
(In millions of won)
Short-term benefits
Expenses related to the defined benefit plan
￦
￦
2011
1,529
396
1,925
2012
1,567
173
1,740
2013
2,591
1,139
3,730
Key management refers to the registered directors who have significant control and responsibilities over the Controlling
Company’s operations and business.
(c) Significant transactions such as sales of goods and purchases of raw material and outsourcing service and others, which
occurred in the normal course of business with related parties for the years ended December 31, 2011, 2012 and 2013 are
as follows:
(In millions of won)
Sales
and others
Purchase of raw
material and others
2011
Acquisition of
property, plant and
equipment
Other costs
Joint Venture
Suzhou Raken Technology
￦
Co., Ltd.
755,643
—
1,174
—
F-76
23. Related Parties, Continued
(In millions of won)
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
Sales
and others
Purchase of raw
material and others
Acquisition of
property, plant and
equipment
2011
￦
￦
￦
￦
Associates and its subsidiaries
New Optics LTD.
LIG ADP Co., Ltd.
TLI Inc.
AVACO Co., Ltd.
Paju Electric Glass Co., Ltd.
LB Gemini New Growth Fund No. 16
SINPU (Guangzhou) Electronic Ltd.
Entity that has significant influence over
the Controlling Company
LG Electronics Inc.
Subsidiaries of the entity that has
significant influence over the Controlling
Company
LG Electronics India Pvt. Ltd.
LG Electronics Mexicali, S.A. DE C.V.
LG Electronics Wroclaw Sp. z o.o.
LG Electronics Mlawa Sp. z o.o.
LG Electronics Vietnam Co., Ltd.
LG Electronics Thailand Co., Ltd.
LG Electronics Nanjing Display Co., Ltd.
LG Electronics RUS, LLC
29
300
242
336
4,401
850
—
6,158
210,397
1,305
39,068
1,072
958,229
—
272,429
1,482,500
—
87,182
—
211,573
—
—
—
298,755
Other costs
4,641
6,598
525
6,312
13,495
—
—
31,571
1,547,985
73,891
237,105
34,398
112,694
19,623
683,892
281,524
27,507
66,589
439,663
257,397
F-77
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
253
—
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
23. Related Parties, Continued
(In millions of won)
LG Electronics do Brasil Ltda.
LG Electronics Reynosa, S.A. DE C.V.
LG Electronics Shenyang Inc.
LG Electronics Taiwan Taipei Co., Ltd.
Hi Business Logistics Co., Ltd.
Hi Logistics Europe B.V.
LG Innotek Co., Ltd.
LG Innotek Poland Sp. z o.o.
Qingdao LG Inspur Digital
Communication Co., Ltd.
Inspur LG Digital Mobile
Communications Co., Ltd.
Others
2011
Purchase of raw
material and others
—
—
—
—
—
—
241,219
20,268
—
—
1,822
263,309
1,819,700
Sales
and others
320,157
883,377
87,542
44,868
41
—
4,709
—
22,872
￦
￦
24,045
—
3,276,500
5,586,286
F-78
Acquisition of
property, plant and
equipment
—
—
—
—
—
—
—
—
—
Other costs
22
—
—
—
20,509
14,105
9,295
5
—
—
—
—
537,034
—
3,376
47,565
113,534
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
23. Related Parties, Continued
(In millions of won)
2012
Sales
and others
Purchase of
raw material
and others
Acquisition of
property, plant
and equipment
Outsourcing
fees
Other costs
Joint Venture
Suzhou Raken Technology Co., Ltd.
Associates and its subsidiaries
New Optics LTD.
LIG ADP Co., Ltd.
TLI Inc.
AVACO Co., Ltd.
AVATEC Co., Ltd.
AVATEC Electronics Yantai Co., Ltd.
Paju Electric Glass Co., Ltd.
Shinbo Electric Co., Ltd.
Narenanotech Corporation
Glonix Co., Ltd.
ADP System Co., Ltd.
YAS Co., Ltd.
Entity that has significant influence over the
Controlling Company
LG Electronics Inc.
663,297
—
—
147,880
24
8
—
—
204
—
—
—
7,184
—
—
—
—
7,396
164,152
2,165
54,829
719
—
—
1,052,850
1,039,740
358
525
454
—
2,315,792
—
25,607
—
88,510
—
—
—
—
39,027
—
9
28
153,181
—
—
—
—
7,580
—
—
—
—
—
—
—
7,580
6,426
2,691
843
4,993
2,529
4,704
6,667
3
12,624
3,149
179
102
44,910
￦
￦
￦
￦
1,622,289
61,233
148,665
—
22,045
Subsidiaries of the entity that has significant
influence over the Controlling Company
LG Electronics India Pvt. Ltd.
￦
116,974
—
—
—
—
F-79
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
23. Related Parties, Continued
(In millions of won)
LG Electronics Vietnam Co., Ltd.
LG Electronics Thailand Co., Ltd.
LG Electronics Nanjing Display Co., Ltd.
LG Electronics RUS, LLC
LG Electronics do Brasil Ltda.
Hi Business Logistics Co., Ltd.
Hi Logistics Europe B.V.
LG Innotek Co., Ltd.
LG Innotek Poland Sp. z o.o.
LG Innotek (Guangzhou) Co., Ltd.
Qingdao LG Inspur Digital Communication Co., Ltd.
Inspur LG Digital Mobile Communications Co., Ltd.
LG Electronics Mexicali, S.A. DE C.V.
LG Electronics Mlawa Sp. z o.o.
LG Electronics Shenyang Inc.
LG Electronics Taiwan Taipei Co., Ltd.
LG Electronics Reynosa, S.A. DE C.V.
LG Electronics Wroclaw Sp. z o.o.
Others
Purchase of
raw material
and others
—
—
—
—
—
—
—
408,657
23,024
3,952
—
—
—
—
—
—
—
—
3,041
438,674
2,815,699
2012
Acquisition of
property, plant
and equipment
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
301,846
Sales
and others
36,738
86,944
250,656
467,962
371,006
41
—
10,205
—
44,043
4,536
14,036
264,672
476,056
177,477
45,899
1,345,205
889,672
—
4,602,122
6,895,104
￦
￦
F-80
Outsourcing
fees
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
155,460
Other costs
—
—
—
—
340
24,356
11,941
4,462
—
—
—
—
—
—
—
—
—
13
2,711
43,823
110,802
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
23. Related Parties, Continued
(In millions of won)
Joint Venture
Suzhou Raken Technology Co., Ltd.
Associates and their subsidiaries
New Optics LTD.
LIG ADP Co., Ltd.
TLI Inc.
AVACO Co., Ltd.
AVATEC Co., Ltd.
AVATEC Electronics Yantai Co., Ltd.
Paju Electric Glass Co., Ltd.
LB Gemini New Growth Fund No. 16
Shinbo Electric Co., Ltd.
Narenanotech Corporation
Glonix Co., Ltd
ADP System Co., Ltd.
YAS Co., Ltd.
Entity that has significant influence over the
Controlling Company
LG Electronics Inc.
Sales
and others
Purchase of
raw material
and others
Acquisition of
property, plant
and equipment
Outsourcing
fees
Other costs
2013
493,701
—
—
166,571
2
—
—
—
—
292
—
—
880
11,931
300
—
—
—
13,403
76,929
666
58,881
665
23
—
734,714
—
730,010
328
5,209
924
1,941
1,610,290
—
8,743
—
45,067
—
—
—
—
—
2,061
—
1,524
82,483
139,878
2,470
—
—
—
61,738
—
—
—
—
—
—
—
—
64,208
6,315
3,102
1,473
4,762
3,897
265
4,713
—
64,081
412
115
692
855
90,682
￦
￦
￦
￦
1,971,781
39,237
208,531
—
38,450
Subsidiaries of the entity that has significant
influence over the Controlling Company
￦
LG Electronics India Pvt. Ltd.
LG Electronics Vietnam Co., Ltd.
LG Electronics Thailand Co., Ltd.
108,084
42,366
69,674
F-81
—
—
—
—
—
—
—
—
—
77
—
—
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
23. Related Parties, Continued
(In millions of won)
LG Electronics Nanjing Display Co., Ltd.
LG Electronics RUS, LLC
LG Electronics do Brasil Ltda.
Hi Business Logistics Co., Ltd.
Hi Logistics Europe B.V.
LG Innotek Co., Ltd.
LG Innotek Poland Sp. z o.o.
LG Innotek (Guangzhou) Co., Ltd.
LG Hitachi Water Solutions Co., Ltd.
Qingdao LG Inspur Digital Communication Co., Ltd.
Inspur LG Digital Mobile Communications Co., Ltd.
LG Electronics Mexicali, S.A. DE C.V.
LG Electronics Mlawa Sp. z o.o.
LG Electronics Shenyang Inc.
LG Electronics Taiwan Taipei Co., Ltd.
LG Electronics Reynosa, S.A. DE C.V.
LG Electronics Wroclaw Sp. z o.o.
Others
Sales
and others
Purchase of
raw material
and others
437,771
632,009
308,432
41
—
6,139
—
—
—
32,585
59,715
289,670
365,054
156,577
34,139
795,326
872,763
132
4,210,477
6,689,362
￦
￦
—
—
—
—
—
448,794
6,442
5,937
—
—
—
—
—
—
—
—
—
2,229
463,402
2,112,929
2013
Acquisition of
property, plant
and equipment
—
—
—
—
—
—
—
—
29,344
—
—
—
—
—
—
—
—
—
29,344
377,753
Outsourcing
fees
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
230,779
Other costs
—
—
—
30,611
5,488
5,109
161
151
406
—
—
—
—
—
—
300
104
3,703
46,110
175,244
As a result of the amendment of IFRS 10, related parties’ consolidated statements of financial position as at January 1, 2012 and
as of December 31, 2012 and related parties’ consolidated statements of comprehensive income for the years ended
December 31, 2011 and 2012 are restated. Accordingly, relevant related parties’ transaction amounts and accounts balances for
the years ended December 31, 2011 and 2012 are represented.
F-82
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
23. Related Parties, Continued
(d) Trade accounts and notes receivable and payable as of December 31, 2012 and 2013 are as follows:
(In millions of won)
Joint Venture
Suzhou Raken Technology Co.,
Ltd.
Associates
New Optics LTD.
LIG ADP Co., Ltd.
TLI Inc.
AVACO Co., Ltd.
AVATEC Co., Ltd.
AVATEC Electronics Yantai
Co., Ltd.
Paju Electric Glass Co., Ltd.
Shinbo Electric Co., Ltd.
Narenanotech Corporation
Glonix Co., Ltd.
ADP System Co., Ltd.
YAS Co., Ltd.
Trade accounts and notes receivable
and others
Trade accounts and notes payable
and others
December 31, 2012
December 31, 2013
December 31, 2012
December 31, 2013
92,870
66,855
168,620
104,119
￦
￦
—
—
—
—
—
—
—
521
—
—
—
—
521
F-83
—
—
—
—
—
—
—
4,562
—
—
—
—
4,562
26,807
29,714
4,036
83,756
5,523
484
168,845
246,289
43,022
503
585
863
610,427
8,998
1,649
10,418
15,390
10,041
1,122
108,379
165,823
1,766
1,987
1,410
17,156
344,139
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
23. Related Parties, Continued
(In millions of won)
Entity that has significant influence
over the Controlling Company
LG Electronics Inc.
Subsidiaries of the entity that has
significant influence over the
Controlling Company
LG Electronics India Pvt. Ltd.
LG Electronics Vietnam Co., Ltd.
LG Electronics Thailand Co., Ltd.
LG Electronics RUS, LLC
LG Innotek Co., Ltd.
Qingdao LG Inspur Digital
Communication Co., Ltd.
Inspur LG Digital Mobile
Communications Co., Ltd.
LG Electronics Mexicali, S.A. DE
C.V.
LG Electronics Mlawa Sp. z o.o.
LG Electronics Nanjing Display
Co., Ltd.
LG Electronics Shenyang Inc.
LG Electronics Taiwan Taipei Co.,
Ltd
LG Electronics Reynosa, S.A. DE
C.V.
LG Electronics Wroclaw Sp. z o.o.
Others
Trade accounts and notes receivable
and others
Trade accounts and notes payable
and others
December 31, 2012
December 31, 2013
December 31, 2012
December 31, 2013
￦
￦
￦
￦
190,663
278,165
63,645
74,085
4,181
9,413
13,342
77,503
563
530
2,156
38,434
98,452
71,679
53,653
7,287
56,493
29,695
3,214
466,595
750,649
7,414
8,827
10,141
91,018
3
24,671
15,824
1,649
55,908
79,978
25,578
3,334
5,027
11,736
1,854
342,962
692,544
—
—
—
—
111,851
—
—
—
—
—
—
—
25
—
12,463
124,339
967,031
—
—
—
—
84,727
—
—
—
—
216
—
—
—
—
7,584
92,527
614,870
As a result of the amendment of IFRS 10, related parties’ consolidated statements of financial position as at January 1, 2012 and
as of December 31, 2012 are restated. Accordingly, relevant related parties’ transaction amounts and accounts balances for the
year ended December 31, 2012 are represented.
F-84
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
24. Geographic and Other Information
The following is a summary of sales by region based on the location of the customers for the years ended December 31, 2011,
2012 and 2013.
(a) Revenue by geography
(In millions of won)
Region
Domestic
Foreign
China
Asia (excluding China)
United States
Europe
￦
2011
1,963,501
2012
2,149,646
2013
2,691,826
14,292,700
2,291,916
2,216,695
3,526,477
22,327,788
24,291,289
￦
16,766,696
2,900,738
3,209,225
4,403,363
27,280,022
29,429,668
15,229,822
3,039,652
2,446,128
3,625,607
24,341,209
27,033,035
Sales to Company A and Company B constituted 26% and 23% of total revenue, respectively, for the year ended
December 31, 2013 (2011: 20% and 17%, 2012: 23% and 22%). The Group’s top ten end-brand customers together
accounted for 76% of sales for the year ended December 31, 2013 (2011: 71%, 2012: 71%).
(b) Non-current assets by geography
(In millions of won)
Region
Domestic
Foreign
China
Others
Sub total
Total
(In millions of won)
Region
Domestic
Foreign
China
Others
Sub total
Total
December 31, 2012
Property, plant and
￦
equipment
12,002,578
￦
￦
939,929
165,004
1,104,933
13,107,511
Intangible
assets
488,678
7,499
1,425
8,924
497,602
December 31, 2013
Property, plant and
￦
equipment
10,293,502
￦
￦
1,367,276
147,556
1,514,832
11,808,334
Intangible
assets
461,635
5,440
1,110
6,550
468,185
F-85
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
24. Geographic and Other Information, Continued
(c) Revenue by product and services
(In millions of won)
Product
Panels for:
TFT-LCD televisions
Desktop monitors
Tablet products
Notebook computers
Mobile and others
2011
2012
2013
￦
￦
11,579,129
4,975,379
2,224,495
3,246,002
2,266,284
24,291,289
13,511,535
5,039,066
3,713,950
3,667,192
3,497,925
29,429,668
11,779,116
5,255,564
3,574,812
2,818,572
3,604,971
27,033,035
25. Revenue
Details of revenue for the years ended December 31, 2011, 2012 and 2013 are as follows:
(In millions of won)
Sales of goods
Royalties
Others
￦
2011
24,214,709
60,594
15,986
24,291,289
￦
2012
29,302,389
37,783
89,496
29,429,668
2013
26,982,085
19,405
31,545
27,033,035
F-86
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
26. Other Income and Other Expenses
(a) Details of other income for the years ended December 31, 2011, 2012 and 2013 are as follows:
(In millions of won)
Rental income
Foreign currency gain
Gain on disposal of property, plant and equipment
Reversal of stock compensation cost
Reversal of impairment loss on intangible assets
Reversal of allowance for doubtful accounts
Commission earned
Others
￦
2011
6,325
1,190,793
740
469
—
—
8,630
16,588
1,223,545
￦
2012
7,253
1,228,847
5,925
3
—
521
3,867
14,529
1,260,945
2013
10,373
1,068,646
9,620
—
296
1,090
3,589
15,818
1,109,432
(b) Details of other expenses for the years ended December 31, 2011, 2012 and 2013 are as follows:
(In millions of won)
Other bad debt expense
Foreign currency loss
Loss on disposal of property, plant and equipment
Impairment loss on property, plant and equipment
Loss on disposal of intangible assets
Impairment loss on intangible assets
Donations
Expenses related to legal proceedings or claims and others
￦
2011
2012
2013
849
1,220,143
862
3,589
1,588
5,574
16,564
151,322
1,400,491
￦
9
1,095,280
3,728
—
704
40,012
15,350
458,957
1,614,040
—
987,868
1,639
853
452
1,661
16,514
259,601
1,268,588
27. Personnel Expenses
Details of personnel expenses for the years ended December 31, 2011, 2012 and 2013 are as follows:
(In millions of won)
Salaries and wages
Other employee benefits
Contributions to National Pension plan
Expenses related to defined benefit plan
Stock compensation cost
￦
2011
1,719,035
383,197
54,118
113,970
(469)
2,269,851
￦
2012
2,006,603
397,122
59,332
138,879
(3)
2,601,933
2013
2,084,579
410,253
61,788
159,453
—
2,716,073
F-87
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
28. Finance Income and Finance Costs
(a) Finance income and costs recognized in profit or loss for the years ended December 31, 2011, 2012 and 2013 are as
follows:
(In millions of won)
Finance income
Interest income
Dividend income
Foreign currency gain
Gain on disposal of investments in equity accounted investees
Gain on valuation of financial assets at fair value through profit or
loss
Finance costs
Interest expense
Foreign currency loss
Loss on disposal of available-for-sale securities
Loss on impairment of available-for-sale securities
Loss on disposal of financial assets at fair value through profit or
loss
Loss on redemption of debentures
Loss on early redemption of debt
Loss on valuation of financial liabilities at fair value through profit
or loss
Loss on sale of trade accounts and notes receivable
Loss on disposal of investments in equity accounted investees
Loss on impairment of investments in equity accounted investees
2011
2012
2013
￦
58,430
131
148,144
551
28,859
482
260,265
3,566
39,441
306
141,975
3,289
￦
10
207,266
—
293,172
—
185,011
￦
144,927
180,395
354
—
187,589
193,483
5,272
6,392
158,818
198,980
—
—
774
—
—
—
1,524
—
—
—
2,179
1,935
20,359
321
14,244
363,309
￦
—
32,431
—
10,005
436,696
—
19,463
2,411
—
381,851
(b) Finance income and costs recognized in other comprehensive income or loss for the years ended December 31, 2011, 2012 and
2013 are as follows:
(In millions of won)
Foreign currency translation differences for foreign operations
Net change in unrealized fair value of available-for-sale financial
assets
Tax effect
Finance costs recognized in other comprehensive income after tax
￦
2011
47,443
2012
(86,320)
2013
(22,100)
￦
2,700
(1,101)
49,042
4,764
(1,043)
(82,599)
826
(225)
(21,499)
F-88
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
29.
Income Taxes
(a) Details of income tax expense (benefit) for the years ended December 31, 2011, 2012 and 2013 are as follows:
(In millions of won)
Current tax expense
Current year
Adjustment for prior years
Deferred tax expense (benefit)
Origination and reversal of temporary differences
Change in unrecognized deferred tax assets
Income tax expense (benefit)
2011
2012
2013
￦
57,530
—
57,530
75,946
—
75,946
122,150
31,809
153,959
(538,784)
188,190
(350,594)
(293,064)
￦
(51,335)
197,569
146,234
222,180
42,004
215,369
257,373
411,332
(b)
Income taxes recognized directly in other comprehensive income for the years ended December 31, 2011, 2012 and 2013
are as follows:
(In millions of won)
Net change in fair value of available-for-sale financial assets
Remeasurements of defined benefit liability
Exchange differences on translating foreign operations
Share of loss from sale of treasury stocks by associates
(In millions of won)
Net change in fair value of available-for-sale financial assets
Remeasurements of defined benefit liability
Exchange differences on translating foreign operations
Share of loss from sale of treasury stock by associates
F-89
￦
Before tax
2,700
(23,732)
47,443
(214)
26,197
￦
2011
Tax benefit
(expense)
(996)
6,059
(105)
—
4,958
Net of
tax
1,704
(17,673)
47,338
(214)
31,155
Before tax
￦
4,764
(75,899)
(86,320)
(48)
(157,503)
￦
2012
Tax benefit
(expense)
(974)
18,325
(69)
—
17,282
Net of tax
3,790
(57,574)
(86,389)
(48)
(140,221)
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
29.
Income Taxes, Continued
(In millions of won)
Net change in fair value of available-for-sale financial assets
Remeasurements of defined benefit liability
Exchange differences on translating foreign operations
Share of loss from sale of treasury stock by associates
￦
Before tax
826
998
(22,100)
(802)
(21,078)
￦
2013
Tax benefit
(expense)
(188)
(334)
(37)
—
(559)
Net of tax
638
664
(22,137)
(802)
(21,637)
(c) Reconciliation of the actual effective tax rate for the years ended December 31, 2011, 2012 and 2013 is as follows:
(In millions of won)
Profit (loss) for the period
Income tax expense (benefit)
Profit (loss) excluding income tax
Income tax (benefit) using the Controlling
Company’s domestic tax rate
Effect of tax rates in foreign jurisdictions
Non-deductible expenses
Tax credits
Change in unrecognized deferred tax assets
Adjustment for prior years
Change in tax rates
Others
Actual income tax expense (benefit)
Actual effective tax rate
￦
2011
2012
(787,895)
(293,064)
(1,080,959)
(261,592)
3,259
23,560
(248,331)
188,190
—
(7,689)
9,539
(293,064)
27.11%
24.20%
3.53%
5.43%
(26.85%)
43.09%
—
0.35%
(1.28%)
24.20%
(0.30%)
(2.18%)
22.97%
(17.41%)
—
0.71%
(0.88%)
￦
236,345
222,180
458,525
110,963
16,171
24,882
(123,126)
197,569
—
1,593
(5,872)
222,180
48.46%
2013
418,973
411,332
830,305
24.20% 200,934
6,858
0.83%
15,517
1.87%
(6.05%)
(50,214)
25.94% 215,369
16,877
2.03%
—
—
5,991
0.72%
411,332
49.54%
F-90
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
30. Deferred Tax Assets and Liabilities
(a) Unrecognized deferred tax liabilities
As of December 31, 2012 and 2013, in relation to the temporary differences on investments in subsidiaries amounting to
￦
￦
165,434 million and
148,224 million, the Controlling Company did not recognize deferred tax liabilities since the
Controlling Company is able to control the timing of the reversal of the temporary difference and it is probable that the
temporary differences will not reverse in the foreseeable future.
(b) Unrecognized deferred tax assets
￦
As of December 31, 2012 and 2013, the tax basis of the Controlling Company’s investment in one subsidiary is greater
than its financial statement carrying amount, which gave rise to deductible temporary differences amounting to
428,524 million, respectively. The Controlling Company did not recognize deferred tax assets for these
million and
temporary differences because the possibility for these differences to reverse, through events such as disposing of the
related investments in the foreseeable future, is less than probable.
￦
431,471
(c) Unused tax credit carryforwards for which no deferred tax asset is recognized
￦
Realization of deferred tax assets related to tax credit carryforwards is dependent on whether sufficient taxable income will
be generated prior to their expiration. As of December 31, 2013, the Controlling Company recognized deferred tax assets
of
538,289 million, in relation to tax credit carryforwards, to the extent that management believes the realization is
probable. The amount of unused tax credit carryforwards for which no deferred tax asset is recognized and their expiration
dates are as follows:
(In millions of won)
Tax credit carryforwards
December 31
￦
2014
304,717
2015
165,006
2016
59,076
F-91
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
30. Deferred Tax Assets and Liabilities, Continued
(d) Deferred tax assets and liabilities are attributable to the following:
(In millions of won)
Assets
Liabilities
Total
Other accounts receivable, net
Inventories, net
Available-for-sale financial assets
Defined benefit obligation
Investments in equity accounted investees
Accrued expenses
Property, plant and equipment
Intangible assets
Provisions
Gain or loss on foreign currency translation, net
Others
Tax losses carryforwards
Tax credit carryforwards
Deferred tax assets (liabilities)
December,
31, 2012
￦
December,
31, 2013
—
18,866
98
72,709
2,972
83,571
189,422
—
11,460
282
13,473
110,550
538,289
1,298,054 1,041,692
—
10,075
285
38,573
7,619
81,802
171,881
2,488
12,979
5,340
34,344
233,139
699,529
December,
31, 2012
(2,063)
—
—
—
—
—
—
—
—
(958)
(220)
—
—
(3,241)
December,
December,
31, 2013
(2,476)
—
—
—
—
—
—
(1,207)
—
(957)
(171)
—
—
(4,811)
31, 2012
(2,063)
10,075
285
38,573
7,619
81,802
171,881
2,488
12,979
4,382
34,124
233,139
699,529
1,294,813
December,
31, 2013
(2,476)
18,866
98
72,709
2,972
83,571
189,422
(1,207)
11,460
(675)
13,302
110,550
538,289
1,036,881
￦
F-92
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
30. Deferred Tax Assets and Liabilities, Continued
(e) Changes in deferred tax assets and liabilities for the years ended December 31, 2012 and 2013 are as follows:
(In millions of won)
Other accounts receivable, net
Inventories, net
Available-for-sale financial assets
Defined benefit obligation
Investments in equity accounted investees
Accrued expenses
Property, plant and equipment
Intangible assets
Provisions
Gain or loss on foreign currency
translation, net
Debentures
Others
Tax losses carryforwards
Tax credit carryforwards
Deferred tax assets (liabilities)
January
1, 2012
￦
Profit
or loss
Other
compre-
hensive
income
December
31, 2012
Profit
or loss
(3,738)
15,915
1,259
21,877
4,307
72,965
133,720
1,105
11,618
1,675
(5,840)
—
—
—
(974)
(1,629) 18,325
—
3,312
—
8,837
—
38,161
—
1,383
—
1,361
(2,063)
10,075
285
38,573
7,619
81,802
171,881
2,488
12,979
(413)
8,791
1
34,470
(4,647)
1,769
17,541
(3,695)
(1,519)
Other
compre-
hensive
income
—
—
(188)
(334)
—
—
—
—
—
December
31, 2013
(2,476)
18,866
98
72,709
2,972
83,571
189,422
(1,207)
11,460
(17,697)
6,059
18,259
329,068
829,048
1,423,765
22,079
4,382
—
—
—
(6,059)
34,124
(69)
15,934
233,139
—
(95,929)
(129,519)
699,529
—
(146,234) 17,282 1,294,813
(5,057)
—
(20,785)
(122,589)
(161,240)
(257,373)
—
—
(37)
—
—
(559)
(675)
—
13,302
110,550
538,289
1,036,881
￦
(f) Non-adjusting events after the reporting period
￦
On January 1, 2014, the Tax Reduction and Exemption Control Act in Korea was amended so that the minimum tax rate
applied to taxable income in excess of
17%. As of December 31, 2013, the Controlling Company applied 16% as the minimum tax rate when measuring the
amount of tax credit related deferred tax assets for which it is probable that the related tax benefit will be realized. If the
Controlling Company applied the 17% of minimum tax rate, deferred tax assets related to tax credit carryforwards would
have decreased by
100 billion for the Controlling Company after 2014 was revised from 16% to
55,245 million
￦
On January 1, 2014, certain municipal corporate income tax rules were amended and effective on the same date that
resulted in excluding tax credits from the basis of determining municipal corporate income tax. Accordingly, starting for
the annual periods from 2014, the Controlling Company will have larger municipal corporate income tax due to the impact
from the income tax credits. If the amended municipal corporate income tax rules were applied at the end of 2013, deferred
tax assets related to tax credit carryforwards would have decreased by
48,827 million.
￦
F-93
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2011, 2012 and 2013
31. Earnings (Loss) per Share
(a) Basic earnings (loss) per share for the years ended December 31, 2011, 2012 and 2013 are as follows:
(In won and No. of shares)
Profit (loss) attributable to owners of the Controlling Company
Weighted-average number of common stock outstanding
Earnings (loss) per share
￦
￦
2011
2012
2013
(771,222,702,492)
357,815,700
(2,155)
233,204,398,428 426,118,222,180
357,815,700
1,191
357,815,700
652
There were no events or transactions that resulted in changes in the number of common stocks used for calculating
earnings per share from January 1, 2011 to December 31, 2013.
(b) Diluted earnings per share are not calculated since there was no potential common stock for the years ended December 31,
2012 and 2013. In addition, there is no effect of dilutive potential common stocks due to the Controlling Company’s net
loss for the year ended December 31, 2011.
32. Supplemental Cash Flow Information
Supplemental cash flow information for the years ended December 31, 2011, 2012 and 2013 is as follows:
(In millions of won)
Non-cash investing and financing activities:
Changes in other accounts payable arising from the
￦
purchase of property, plant and equipment
1,177,809
(1,270,755)
(1,108,944)
2011
2012
2013
F-94
Exhibit 12.1
I, Sang Beom Han, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of LG Display Co., Ltd.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods
presented in this report;
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred
during the period covered by the annual report that has materially affected, or is reasonably likely to materially
affect, the company’s internal control over financial reporting; and
5.
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the company’s internal control over financial reporting.
Date: April 30, 2014
/s/ SANG BEOM HAN
Sang Beom Han
Representative Director, President and
Chief Executive Officer
Exhibit 12.2
I, Sangdon Kim, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of LG Display Co., Ltd.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods
presented in this report;
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred
during the period covered by the annual report that has materially affected, or is reasonably likely to materially
affect, the company’s internal control over financial reporting; and
5.
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the company’s internal control over financial reporting.
Date: April 30, 2014
/s/ SANGDON KIM
Sangdon Kim
Director, Senior Vice President and
Chief Financial Officer
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Exhibit 13.1
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of section 1350, chapter 63 of title 18, United
States Code), the undersigned officer of LG Display Co., Ltd., a corporation organized under the laws of the Republic of Korea (the
“Company”), does hereby certify, to such officer’s knowledge, that:
The annual report on Form 20-F for the year ended December 31, 2013 (the “Form 20-F”) fully complies with the requirements
of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Form 20-F fairly presents, in
all material respects, the financial condition and results of operation of the Company.
Date: April 30, 2014
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to LG
Display Co., Ltd. and will be retained by LG Display Co., Ltd. and furnished to the Securities and Exchange Commission or its staff
upon request.
/s/ SANG BEOM HAN
Sang Beom Han
Representative Director, President and
Chief Executive Officer
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Exhibit 13.2
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of section 1350, chapter 63 of title 18, United
States Code), the undersigned officer of LG Display Co., Ltd., a corporation organized under the laws of the Republic of Korea (the
“Company”), does hereby certify, to such officer’s knowledge, that:
The annual report on Form 20-F for the year ended December 31, 2013 (the “Form 20-F”) fully complies with the requirements
of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Form 20-F fairly presents, in
all material respects, the financial condition and results of operation of the Company.
Date: April 30, 2014
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to LG
Display Co., Ltd. and will be retained by LG Display Co., Ltd. and furnished to the Securities and Exchange Commission or its staff
upon request.
/s/ SANGDON KIM
Sangdon Kim
Director, Senior Vice President and
Chief Financial Officer