As filed with the Securities and Exchange Commission on April 28, 2017
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2016
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 07336, Republic of Korea
(Address of principal executive offices)
WonJong Han
LG Twin Towers, 128 Yeoui-daero, Yeongdeungpo-gu, Seoul 07336, Republic of Korea
Telephone No.: +82-2-3777-1010
Facsimile No.: +82-2-3777-0785
(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
Common Stock, par value W5,000 per share
Name of each exchange on which registered
New York Stock Exchange
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 W5,000 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
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
Section 13 or 15 (d) of the Securities Exchange Act of 1934. ☐ Yes ☒ No
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
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
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if
the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards
Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐
International Financial Reporting Standards
as issued by the International Accounting
Standards Board ☒
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the
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
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
26
26
28
38
39
40
40
40
57
60
62
62
62
63
63
63
66
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)
66
68
68
69
69
69
70
71
71
73
74
74
74
75
79
79
79
79
79
79
84
84
87
92
92
92
92
92
95
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)
96
96
96
97
97
97
97
98
98
98
98
100
101
101
102
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,
2015 and 2016 and for each of the years ended in the three-year period ended December 31, 2016 included in this annual report.
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 “W” 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 “R$” are to the currency of
Brazil, and all references to “SG$” 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, 2016, which was W1,203.73 = 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, 2012, 2013, 2014, 2015
and 2016 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, 2015 and 2016 and for each of the years in the
three-year period ended December 31, 2016 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, 2015 and 2016 included in the Form 6-K furnished to the SEC on February 27, 2017 is a profit of W1,626 billion and
W1,311 billion, respectively. For further information, please see the Form 6-K furnished to the SEC on February 27, 2017, which is not
incorporated by reference to this annual report.
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 data
2012
2013
Year ended December 31,
2015
2014
2016
Revenue
Cost of sales
Gross profit
Selling expenses
Administrative expenses
Research and development expenses
Profit before income tax
Income tax expense
Profit for the year
Total comprehensive income for the
year
Basic earnings per share (Won, US$)
Diluted earnings per share (Won, US$)
W 29,430
(in billions of Won, except for per share data)
W 28,384
W 26,456
W 27,033
(26,425)
3,005
(814)
(494)
(785)
459
(222)
237
(23,525)
3,508
(732)
(518)
(1,096)
830
(411)
419
(22,667)
3,789
(747)
(520)
(1,164)
1,242
(325)
917
(24,070)
4,314
(878)
(593)
(1,218)
1,434
(411)
1,023
W 26,504
US$
(22,754)
3,750
(695)
(610)
(1,134)
1,316
(385)
931
97
W 652
W 652
397
W 1,191
W 1,191
843
W 2,527
W 2,527
1,003
W 2,701
W 2,701
953
W 2,534
W 2,534
US$
US$
3
2016 (1)
(in millions of US$, except
for per share data)
22,018
(18,903)
3,115
(577)
(507)
(942)
1,093
(320)
773
792
2.11
2.11
Consolidated statements of financial position data
Cash and cash equivalents
Deposits in banks
Trade accounts and notes receivable, net
Inventories
Total current assets
Property, plant and equipment, net
Total assets
Trade accounts and notes payable
Current financial liabilities
Other accounts payable
Total current liabilities
Non-current financial liabilities
Long-term advance received
Total liabilities
Share capital and share premium
Retained earnings
Total equity
Other financial data
Gross margin (2)
Net margin (3)
EBITDA (4)
Capital expenditures
Depreciation and amortization (5)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Dividends declared per share (Won, US$) (6)
As of December 31,
2012
2013
W 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
W 1,022
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
2014
(in billions of Won)
W 890
1,526
3,444
2,754
9,241
11,403
22,967
3,392
968
1,508
7,550
3,279
–
11,184
4,040
7,455
11,783
2015
2016
W 752
1,772
4,098
2,352
9,532
10,546
22,577
2,765
1,416
1,500
6,607
2,808
–
9,872
4,040
8,159
12,705
W 1,559
1,164
4,958
2,288
10,484
12,031
24,884
2,877
668
2,450
7,058
4,111
–
11,422
4,040
9,004
13,462
2016 (1)
(in millions of US$)
1,295
US$
967
4,119
1,901
8,710
9,995
20,672
2,390
555
2,035
5,863
3,415
–
9,489
3,356
7,480
11,184
2012
2013
Year ended December 31,
2015
2016
2014
(in billions of Won, except for percentages and per
share data)
14.3%
3.5%
13.0%
1.5%
15.2%
3.6%
10.2%
0.8%
W 5,087
3,972
4,469
4,570
(3,688)
(48)
—
W 4,784
3,473
3,834
3,585
(4,504)
(391)
—
W 4,795
2,983
3,492
2,865
(3,451)
405
W 500
W 4,880
2,365
3,376
2,727
(2,732)
(174)
W 500
2016 (1)
(in millions of US$, except
for percentages and per
share data)
14.1%
3.5%
W 4,410
3,736
3,022
3,641
(3,189)
308
W 500
US$
US$
14.1%
3.5%
3,664
3,104
2,511
3,025
(2,649)
256
0.42
(1) For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of W1,203.73 to US$1.00, the noon buying rate in effect on December 31, 2016
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) Gross margin represents gross profit divided by revenue.
(3) Net margin represents profit (loss) for the year divided by revenue.
(4) EBITDA is defined as profit (loss) for the year 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 year, 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 year to EBITDA is as follows:
4
Profit for the year
Interest income
Interest expense
Income tax expense
Depreciation
Amortization of intangible assets
EBITDA
W 237
(29)
188
222
4,196
273
W5,087
2012
2013
Year ended December 31,
2015
2016
2014
(in billions of Won)
W 917
W 419
W1,023
(39)
159
411
3,598
236
W4,784
(49)
110
325
3,222
270
W4,795
(57)
128
411
2,969
406
W4,880
W 931
(42)
115
385
2,643
378
W4,410
2016 (1)
(in millions of US$)
773
US$
(35)
96
320
2,196
314
3,664
US$
Includes amortization of intangible assets.
(5)
(6) Dividends declared per share represent cash dividends declared for the year divided by outstanding shares of common stock as of December 31.
Operating data
Number of panels sold by product category:
Televisions(1)
Notebook computers(2)
Desktop monitors(3)
Tablet computers
Mobile and other applications(4)
Total
2012
Year ended December 31,
2015
2014
2013
(in thousands)
2016
56,490
69,559
51,819
56,526
164,409
398,803
53,797
55,559
49,986
63,840
162,011
385,193
51,358
50,175
43,848
50,995
216,479
412,855
55,319
45,509
41,912
31,476
216,565
390,781
52,916
39,672
40,001
24,957
173,166
330,712
(1) For the year ended December 31, 2012, includes television sets manufactured and sold by our former joint venture company L&T Display Technology (Xiamen)
(2)
(3)
(4)
Limited, which was dissolved in August 2015.
Includes semi-finished products manufactured by our former joint venture company LUCOM Display Technology (Kunshan) Ltd. through June 2014 when we
disposed of our entire investment in such company.
Includes desktop monitors manufactured and sold by our joint venture company L&T Display Technology (Fujian) Limited.
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.
2012
2013
Year ended December 31,
2015
2016
2014
(in billions of Won)
Revenue by product category:
Televisions(1)
Notebook computers(2)
Desktop monitors(3)
Tablet computers
Mobile and other applications(4)
Total sales of goods
Royalties
Others
Revenue
2,819
5,256
3,575
3,537
3,667
5,039
3,714
3,371
W13,512 W11,795 W10,540 W10,854 W10,133
2,384
4,035
2,696
7,216
W29,303 W26,982 W26,416 W28,345 W26,464
17
23
W29,430 W27,033 W26,456 W28,384 W26,504
2,509
4,553
2,510
7,919
2,669
4,660
3,542
5,005
19
32
15
25
19
20
38
89
2016(5)
(in millions of US$)
US$
US$
US$
8,418
1,981
3,352
2,240
5,995
21,986
14
18
22,018
(1) For the year ended December 31, 2012, includes television sets manufactured and sold by our former joint venture company L&T Display Technology (Xiamen)
(2)
(3)
(4)
Limited, which was dissolved in August 2015.
Includes semi-finished products manufactured by our former joint venture company LUCOM Display Technology (Kunshan) Ltd. through June 2014 when we
disposed of our entire investment in such company.
Includes desktop monitors manufactured and sold by our joint venture company L&T Display Technology (Fujian) Limited.
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) For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of W1,203.73 to US$1.00, the noon buying rate in effect on December 31, 2016
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.
5
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, 2016, which was
W1,203.73 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 21, 2017, the noon
buying rate was W1,134.2 = 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,
At End of Period
2012
2013
2014
2015
2016
October
November
December
2017 (through April 21)
January
February
March
April (through April 21)
W
1,063.2
1,055.3
1,090.9
1,169.3
1,203.7
1,145.4
1,175.9
1,203.7
1,134.2
1,151.5
1,129.2
1,117.5
1,134.2
High
Average Rate (1)
(Korean Won per US$1.00)
1,126.2
W
1,094.7
1,052.3
1,131.0
1,160.5
1,128.2
1,162.7
1,183.1
1,147.0
1,179.1
1,140.5
1,133.9
1,134.7
W1,185.0
1,161.3
1,117.7
1,196.4
1,242.6
1,146.5
1,181.6
1,212.2
1,207.2
1,207.2
1,154.5
1,158.1
1,147.8
Low
W1,063.2
1,050.1
1,008.9
1,063.0
1,090.0
1,104.8
1,131.4
1,161.7
1,108.3
1,151.5
1,129.2
1,108.3
1,117.7
(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
From time to time, we have been affected by overcapacity in the industry relative to the general demand for display panels
which, together with uncertainties in the current global economic environment, has contributed to a general decline in the average
selling prices of a number of our display panel products. 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 1.4% from W707,388 in 2014 to W717,470
in 2015 but decreased by 10.1% to W645,222 (US$536) in 2016 as a surge in supply capacity in the industry contributed to downward
pricing pressure.
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 display panel products using older technologies, while also engaging in cost reduction
efforts.
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 product development and 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
display panels, which in turn led them to reduce or plan reductions of their production. For example, in 2013 compared to 2012,
demand for our products in terms of sales revenue and sales volume decreased 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 such economic downturns 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 display panel 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, Innolux, AU Optronics, Chunghwa Picture Tubes, HannStar Display, BOE, China Star Optolectronics
Technology, CEC Panda, Japan 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, consolidation within the industry in which we operate 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 result in vertical integration and operational efficiencies. For example, in August 2016,
Foxconn Technology Group, an integrated electronics contract manufacturer for end-brands, acquired a majority stake in our
competitor, Sharp. 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, 43-inch, 49-inch, 55-inch and 65-inch television
panels and utilize white RGB, or WRGB, technology for our organic light-emitting diode, or OLED, television panels. Other display
panel manufacturers produce competing large-sized television panels in slightly different dimensions and utilize competing display
panel technologies. 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 advantage with respect
to all these factors and, as a result, we may be unable to sustain our current market position.
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.
8
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
and efficiently manufacture new and differentiated products in anticipation of future demand. A failure or delay on our part to develop
and efficiently manufacture 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 or efficiently manufacture 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 and timely manner. Accordingly, we have focused our efforts on developing and marketing
differentiated specialty products, including our ultra-large and ultra-thin OLED television and public display panels, flexible OLED
smartphone and smartwatch panels, display panels utilizing ultra-high definition, or Ultra HD, technologies, and Advanced High-
Performance In-Place Switching, or AH-IPS, panels for tablet computers, mobile devices, notebook computers and desktop monitors.
We have also focused our efforts on cost reductions in the production process, in particular of panels with newer technologies, such as
OLED, in order to improve or maintain our profit margins while offering competitive prices to our customers.
We have developed differentiated sales and marketing strategies to promote our panels for differentiated specialty 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.
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 79% of our sales in 2014 and 82% in each of 2015 and 2016.
9
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 27.0%, 23.5% and 21.9% of our sales in 2014, 2015 and
2016, respectively.
Sales to LG International – sales to LG International Corp., our affiliated trading company, and its subsidiaries
amounted to 3.5%, 3.5% and 2.3% of our sales in 2014, 2015 and 2016, 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 79% of our sales in 2014 and 82% in each of 2015
and 2016. 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 display panels. 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 display 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, along with corresponding manufacturing
capabilities. For example, the expanding mobile display market for smart devices such as smartphones and smartwatches 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 thin-film transistor liquid crystal display, or 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 mass production of OLED products. We began production of
OLED panels for televisions on our E3 production lines in January 2013 and commenced mass production of OLED panels for
smartphones on our E2 production lines and OLED panels for televisions on our E4 production lines in December 2013 and December
2014, respectively.
With the addition of 77-inch OLED televisions to the line-up of available products in the first quarter of 2016, following the
prior launch of 55-inch and 65-inch OLED televisions, we are deploying greater resources into large-sized OLED panel fabrication
capabilities in order to maintain our competitive edge in the large-sized OLED television panel market. We are also deploying greater
resources into small- and medium-sized OLED panels for various applications in order to expand our market presence. 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 39.8%, 38.2% and 38.2% of our total revenue in 2014, 2015 and 2016, 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 10.1%, 8.8% and 9.0% of our total revenue in 2014, 2015 and 2016, respectively, those who
use our panels in their desktop monitors, which accounted for 17.6%, 16.0% and 15.2% of our total revenue in 2014, 2015 and 2016,
respectively, those who use our panels in their tablet computers, which accounted for 13.4%, 8.8% and 10.2% of our total revenue in
2014, 2015 and 2016, respectively, and those who use our panels in their mobile and other applications, which accounted for 18.9%,
27.9% and 27.2% of our total revenue in 2014, 2015 and 2016, respectively. Although the degree to which our total sales are dependent
on sales of television panels has decreased in recent 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 emergence of OLED technology as an alternative to panels with TFT-LCD technology may erode sales of our TFT-LCD panels,
which may have a material adverse effect on our financial condition and results of operations.
While our revenue and sales volume is predominantly derived from the sale of display panels with TFT-LCD technology,
new display technologies, such as OLED technology, are at various stages of development and production by us and other display panel
makers. OLED technology is widely seen in the display industry as a successor technology to TFT-LCD technology and is gaining
wider market acceptance for use in display panels for televisions, smartphones and tablet computers, and industrial and other
applications, including public displays, entertainment systems, automotive displays, portable navigation devices and medical diagnostic
equipment. We have recognized the importance and potential of OLED technology and have in recent years engaged in research and
development and invested in production facilities to develop and commercialize OLED panels for small-, medium- and large-sized
products. We began production of OLED panels for televisions on our E3 production lines in January 2013 and commenced mass
production of OLED panels for smartphones on our E2 production lines and OLED panels for televisions on our E4 production lines in
December 2013 and December 2014, respectively.
11
Our early efforts in developing and commercializing OLED technology were recognized by the Society for Information
Display, a display panel industry group, when we were awarded the Silver Award for Display Application of the Year for our circular
plastic OLED panels for smartphones and Silver Award for the Display of the Year for our 65-inch Ultra HD curved OLED panels for
televisions in June 2015. We were also awarded a Best of CES Award by the Consumer Electronics Association in January 2016 and a
Best in Show Award by the Society for Information Display in May 2016 for our 77-inch OLED television panels and a Best Product in
EISA Award by the European Imaging and Sound Association in September 2016 for our 65-inch OLED television panels. While we
aim to maintain our early competitive edge in the market for OLED panels, the market for OLED panels is in the early stages of
development and we expect competition will intensify.
As OLED panels continue to gain market acceptance as an alternative to TFT-LCD panels, if we are unable to continue to
develop and commercialize OLED technology in a commercially viable and timely manner to offset declining sales of our TFT-LCD
panels, or if customers prefer panels developed and manufactured by our competitors utilizing competing types of OLED technologies,
this would have a material adverse effect on our financial condition and results of operations. See also “—We operate in a highly
competitive environment and we may not be able to sustain our current market position.” above.
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, and the conversion of existing, production lines, and the construction of new production facilities. In
response to and in anticipation of growing demand in the China market, we commenced mass production at our GP fabrication facility,
our newest eighth-generation panel fabrication facility located in Guangzhou, China, in September 2014. In line with our goal of
establishing and maintaining an early competitive edge in the market for OLED panels, we began production of OLED panels for
televisions on our E3 production lines in January 2013 and commenced mass production of OLED panels for smartphones on our E2
production lines and OLED panels for televisions on our E4 production lines in December 2013 and December 2014, respectively. In
anticipation of growing demand for OLED panels, in July 2015 and July 2016, we announced plans for our new E5 and E6 production
lines, respectively. We expect to commence mass production of OLED panels on our new E5 production line in the third quarter of
2017 and on our new E6 production line in the second half of 2018, subject to market conditions and any changes in our investment
timetable. In addition, in November 2015, we announced plans for the construction of our P10 fabrication facility, a next-generation
fabrication facility, in Paju, Korea. We expect construction to be completed at the new Paju fabrication facility in the second quarter of
2018, subject to market conditions and any changes in our investment timetable. In February 2014, we commenced mass production of
low temperature polycrystalline silicon, or LTPS, based TFT backplanes at our LTPS production lines, AP3, which were converted
from a set of existing production lines in our P61 fabrication facility located in Gumi City that previously produced amorphous silicon,
or a-Si, based TFT backplanes. In July 2015, we entered into a memorandum of understanding with Gumi City and North Gyeongsang
Province for their administrative assistance in connection with our W1.05 trillion investment in our new E5 production line, as
mentioned above. In April 2016, we entered into a memorandum of understanding with the City of Haiphong in Vietnam for their
administrative assistance in connection with our planned W120 billion investment to build our new module assembly facility in
Haiphong. In April 2016, we also entered into another memorandum of understanding with Gumi City and North Gyeongsang Province
for their administrative assistance in connection with our additional W450 billion investment in connection with our sixth-generation
flexible OLED panel fabrication facilities as well as our new fifth-generation OLED light panel fabrication facility.
In 2016, our total capital expenditure on a cash out basis amounted to W3.7 trillion. We currently expect that, in 2017, our
total capital expenditures on a cash out basis will be higher than in 2016, primarily to fund the expansion of our panel production
capacities for large-sized and small- and medium-sized OLED panels and the construction of our P10 fabrication facility, a next-
generation fabrication facility, in Paju, Korea, while maintaining and making 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.
12
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, 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.
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 the building of new fabrication facilities and the expansion and conversion of existing fabrication facilities to meet the evolving and
anticipated demands of our customers. For example, we converted existing production lines and established our AP3 production lines
and commenced mass production of LTPS based displays for mobile devices in February 2014 and invested in additional production
lines and established our E4 production lines and commenced mass production of OLED panels for televisions in December 2014. See
“Item 4.D. Property, Plants and Equipment—Current Facilities.” With respect to our overseas facilities in recent years, we commenced
mass production at our module production plant at our GP fabrication facility in Guangzhou, China in September 2014. 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. We may also incur opportunity costs if we misjudge the anticipated demand for certain
display panel products and allocate our limited resources in increasing production capacity for such display panel products at the cost of
maintaining existing or increasing production capacity of other display panel products that turn out to be more popular. 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 display 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.
13
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.
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 countries which have suffered natural calamities such as earthquakes and tsunamis in the recent past, such as Japan and Taiwan. Any
occurrence 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.
14
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 display panels and the obsolescence of our existing display 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.
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, which has since been paid. 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 and LG Display paid the fine in full in April 2014. In May 2014, LG
Display filed an appeal with the European Court of Justice requesting annulment of the European Union General Court’s judgment and
further reduction of the fine imposed by the European Commission’s decision, and in April 2015 the European Court of Justice upheld
the decision of the European Union General Court.
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. In August 2014, the Japan Fair Trade Commission terminated its investigation without any finding of
violations or levying of fines. In August 2014, LG Display executed a settlement agreement with the Brazilian Administrative Council
for Economic Defense (CADE), for R$33.9 million, which resolved all administrative charges against LG Display provided that it
continues to cooperate with the ongoing investigation.
In December 2011, the Korea Fair Trade Commission imposed a fine of W31.4 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. In June 2014, the Supreme Court of Korea upheld the lower court’s decision.
15
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. LG
Display has since reached settlement with each of the attorneys general that had filed action.
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. (“Motorola”), 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 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 separate claims in the United States. 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. The cases were 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 July
2015, LG Display was dismissed from the Motorola case and as of April 27, 2017, LG Display has reached settlement with each of the
other plaintiffs mentioned above.
In December 2014, iiyama (UK) Limited and its affiliates (“iiyama”) filed claims in the High Court of Justice in the United
Kingdom against LG Display and other unrelated entities alleging damages arising from the European Commission’s finding on
December 8, 2010 that the Company engaged in anticompetitive activities in the LCD industry in violation of European competition
laws. In October 2015, we issued an application contesting the jurisdiction of the English courts to hear the claims of iiyama. A hearing
of such application took place in May 2016, and such application was dismissed by judgment in July 2016. We have been granted
permission to appeal the judgment to the Court of Appeal, and the appeal is due to be heard in December 2017.
In 2007, class action complaints were filed against LG Display and other TFT-LCD manufacturers in the Canadian provinces
of British Columbia, Ontario and Quebec. In November 2016, LG Display reached settlement with the provinces of British Columbia,
Ontario and Quebec.
In December 2013, a class action complaint was filed by Hatzlacha, a consumer organization, on behalf of Israeli consumers
in the Central District in Israel. In June 2015, LG Display and other defendants filed a motion to cancel leave to serve process, which
was denied in March 2016. In April 2016, LG Display and other defendants appealed this decision to the District Court for the Central
District. In December 2016, the District Court for the Central District granted the appeal, holding that the leave to serve the class action
on LG Display (and the other defendants) outside the jurisdiction of Israel is revoked. In January 2017, Hatzlacha filed a motion for
leave to appeal to the Supreme Court.
16
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. 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. As of December 31, 2016, we have not recognized any provisions with respect to any legal claims, based on our
management’s assessment of the likely outcomes. However, the actual outcomes may be different from those estimated as of
December 31, 2016 and may have an 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.
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 2016,
94.3% of our sales were denominated in U.S. dollars. During the same period, 85.2% of our purchases of raw materials and components
were denominated in U.S. dollars and 11.8% in Japanese Yen. In addition, 62.5% of our equipment purchases and construction costs
were denominated in Korean Won, 15.1% in U.S. dollars, 10.4% in Chinese Renminbi and 9.8% in Japanese Yen.
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, or that the impact of such fluctuations will not adversely affect the results of our operations.
17
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, China 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.
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.
18
In December 2013, Delaware Display Group LLC and Innovative Display Technologies LLC filed a patent infringement
action against LG Display and LG Display America in the U.S. District Court for the District of Delaware. In December 2015,
Delaware Display Group LLC and Innovative Display Technologies LLC filed a new patent infringement action against LG Display
and LG Display America in the U.S. District Court for the District of Delaware with respect to three patents that were dismissed without
prejudice from the aforementioned patent infringement action. Since May 3, 2016, the December 2015 action has remained stayed. In
August 2016, Innovative Display Technologies LLC filed a new patent infringement action against LG Display and LG Display
America in the U.S. District Court for the Eastern District of Texas with respect to two new patents. In April 2017, the parties filed a
stipulation of dismissal of the cases and amicably settled all claims asserted in these actions
In March 2014, Surpass Tech Innovation LLC filed a patent infringement action against LG Display and LG Display
America in the U.S. District Court for the District of Delaware. In April 2017, the case was terminated pursuant to a stipulation of
dismissal filed by the parties.
In November 2016, Vesper Technology Research LLC filed a patent infringement action against LG Display and LG Display
America in the U.S. District Court for the Eastern District of Texas. In March 2017, the case was terminated pursuant to a stipulation of
filed by the parties.
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.
19
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.
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. LG Electronics’ interests may at times conflict with ours 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, 2016, approximately 66.4% 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 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.
20
Due in part to the decision, we incurred additional labor costs in the form of a one-time increase in the base salaries of some
of our employees in 2014. While we have not received any claims from our current or former employees for additional payments under
the expanded scope of ordinary wages and anticipate that it is unlikely that any such claims would be brought or would result in
additional payments, if any such additional payments are incurred, they may have an adverse effect on our financial condition and
results of operation.
We are subject to strict safety and environmental regulations and we may be subject to fines or restrictions that could cause our
operations to be interrupted.
Our manufacturing processes involve hazardous materials and 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 enacted safety measures, engaged in employee
education on handling such materials and installed various types of safety and 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 our protocols will always be followed and safety or environmental related
claims will not be brought against us or that the local or national governments will not take steps toward adopting more stringent safety
or environmental standards. For example, in February 2015, we were issued a corrective order and assessed a fine of W276 million for
violating the Occupational Health and Safety Act in connection with an accidental exposure of nitrogen gas at one of our production
facilities in Paju, Korea in January 2015. Further, in connection with such incident, in January 2016, the Goyang Branch Court of the
Uijeongbu District Court imposed a fine of W10 million on us and a suspended sentence on five of our employees involved in the
incident, citing violations of the Occupational Health and Safety Act. The parties appealed the decision to the Uijeongbu District Court
and following the denial of their appeals, the parties decided not to further appeal the decision of the Goyang Branch Court.
Any failure on our part to comply with any present or future safety and 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, safety and
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.
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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,
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 27, 2017. 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
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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.
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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.
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 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 has fluctuated significantly. 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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declines in consumer confidence and a slowdown in consumer spending in the Korean or global economy;
adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange
rates (including fluctuation of the U.S. dollar, the Euro or the Japanese Yen exchange rates or revaluation of the
Chinese Renminbi and the overall impact of Brexit on the value of the Korean Won), interest rates, inflation rates or
stock markets;
continuing adverse conditions in the economies of countries and regions that are important export markets for Korea,
such as China, the United States, Europe and Japan, or in emerging market economies in Asia or elsewhere, as well as
increased uncertainty in the wake of Brexit;
increased sovereign default risk in select countries and the resulting adverse effects on the global financial markets;
a continuing rise in the level of household debt and increasing delinquencies and credit defaults by retail or small- and
medium-sized enterprise borrowers;
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•
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•
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•
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the continued growth 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), as well as a slowdown in the growth of China’s economy, which is Korea’s
most important export market;
the economic impact of any pending or future free trade agreements;
social and labor unrest;
further decreases in the market prices of Korean real estate;
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 Korean business groups, other 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;
increases in social expenditures to support an aging population in Korea or decreases in economic productivity due to
the declining population size in Korea;
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, such as the Middle East Respiratory
Syndrome outbreak in Korea in 2015;
natural or man-made disasters that have a significant adverse economic or other impact on Korea (such as the sinking
of the Sewol ferry in 2014, which significantly dampened consumer sentiment in Korea) or its major trading partners;
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;
hostilities or political or social tensions involving oil producing countries in the Middle East and North Africa and any
material disruption in the supply of oil or sudden increase in the price of oil;
political or social tensions involving Russia and any resulting adverse effects on the global supply of oil or the global
financial markets; and
an increase in the level of tensions or an outbreak of hostilities between North Korea and Korea or the United States.
Political and societal unrest surrounding the impeachment of President Park Geun-hye could adversely affect the Korean economy
and our business.
In November 2016, the Korean prosecutor’s office indicted a confidant of President Park Geun-hye who had allegedly used
her ties with the President to extort donations from Korean business groups for two non-profit foundations over which she is purported
to have substantial influence, as well as a number of current and former presidential aides, on charges of, among others, abuse of power,
coercion and leaking classified documents. On November 30, 2016, a special independent prosecutor was appointed to conduct an
investigation of the extent of the President’s involvement, and mass weekend rallies were held in Seoul and other cities both to protest
against, and to express support for, President Park.
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On December 9, 2016, the National Assembly voted in favor of impeaching President Park for a number of alleged
constitutional and criminal violations, including violation of the Constitution and abuse of power by allowing her confidant to exert
influence on state affairs and allowing senior presidential aides to aid in her extortion from companies. President Park was suspended
from power immediately, with the prime minister simultaneously taking over the role of acting President. On March 10, 2017, the
Constitutional Court unanimously upheld the parliamentary vote to impeach President Park, triggering her immediate dismissal. A
special election to elect a new President is scheduled to be held on May 9, 2017. In connection with its investigation of former President
Park, the special independent prosecutor also conducted related investigations of several large Korean business groups and members of
their senior management for bribery, embezzlement and other possible misconduct, which the Korean prosecutor’s office has continued
following the end of the special independent prosecutor’s term. There is no assurance that such events will not have a material adverse
effect on the Korean economy and on our business, financial condition and results of operations.
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 current and 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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From time to time, North Korea has conducted ballistic missile tests. In February 2016, North Korea launched a long-
range rocket in violation of its agreement with the United States as well as United Nations sanctions barring it from
conducting launches that use ballistic missile technology. Despite international condemnation, North Korea released a
statement that it intends to continue its rocket launch program and it conducted additional ballistic missile tests in June
2016, a submarine-launched ballistic missile test in August 2016 and intermediate-range ballistic missile tests in
February and March 2017. In February and March 2017, the United Nations Security Council issued unanimous
statements condemning North Korea and agreeing to continue to closely monitor the situation and to take further
significant measures.
North Korea renounced its obligations under the Nuclear Non Proliferation Treaty in January 2003 and conducted
three rounds of nuclear tests between October 2006 and February 2013, which increased tensions in the region and
elicited strong objections worldwide. In January 2016, North Korea conducted a fourth nuclear test, claiming that the
test involved its first hydrogen bomb, which claim has not been independently verified. In response to such test (as
well as North Korea’s long-range rocket launches in February and March 2016), the United Nations Security Council
unanimously passed a resolution in March 2016 condemning North Korea’s actions and significantly expanding the
scope of the sanctions applicable to North Korea, while the United States and the European Union also imposed
additional sanctions on North Korea. In September 2016, North Korea conducted a fifth nuclear test, claiming to have
successfully detonated a nuclear warhead that could be mounted on missiles, which claim has not been independently
verified.
In August 2015, two Korean soldiers were injured in a landmine explosion near the Korean demilitarized zone.
Claiming the landmines were set by North Koreans, the Korean army re-initiated its propaganda program toward
North Korea utilizing loudspeakers near the demilitarized zone. In retaliation, the North Korean army fired artillery
rounds on the loudspeakers, resulting in the highest level of military readiness for both Koreas.
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. Moreover, 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.
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North Korea’s economy also faces severe challenges, which may further aggravate social and political pressures within
North Korea. There can be no assurance that the level of tensions affecting 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.
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 TFT-LCD, OLED and other display panel technologies. 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 display business, which first started with TFT-LCD panels, 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 Goldstar Software Co.,
Ltd., a subsidiary of LG Electronics whose main business was the development and marketing of software, which changed its name to
LG Soft, Ltd. In January 1995. 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. in order to reflect the
expansion of our business scope and shift in business model, fully expressing our commitment to the future.
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We launched our OLED Business Unit in June 2008 in anticipation of future growth of the OLED business. The origin of 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 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 OLED Business Unit 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. We were the first in the world to commence mass production of
55-inch OLED television panels in 2013. In December 2014, we established a separate OLED Business Division to strengthen our
OLED business and solidify our competitive advantages. In December 2015, in order to achieve synergies and further strengthen our
OLED business, we acquired LG Chem’s OLED light business by way of assuming the inventory, intellectual property rights and
employees related to the OLED light business. In December 2016, partly in an effort to expand our OLED business across our display
panel applications (including small- and medium-sized products), we restructured our internal organization by product type, and
integrated the capabilities of our OLED business into the Television Business Division (which also encompasses the OLED light
business), the IT Business Division and the Mobile Business Division. Our principal executive offices are located at LG Twin Towers,
128 Yeoui-daero, Yeongdeungpo-gu, Seoul 07336 and our telephone number is +82-2-3777-1010.
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 September 2014, we commenced mass production at our GP
fabrication facility in Guangzhou, China, which is optimized to large-sized full high definition, or Full HD, and Ultra HD TFT-LCD
panels for televisions. 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 housed within a fabrication facility to manufacture display
panels based on newer technologies. For example, we established our AP3 production lines by converting a set of existing 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 February 2014.
We work closely with the local authorities where our fabrication facilities are located, and we have signed a number of
memoranda of understandings, the latest one having been signed in April 2016, with Gumi City and North Gyeongsang Province for
their administrative assistance in connection with our investment at our Gumi Display Cluster in our E5 flexible OLED panel
fabrication production line as well as our new fifth-generation OLED light panel fabrication facility.
With respect to our on-going expansion and conversion projects, we are currently constructing our P10 fabrication facility, a
next-generation fabrication facility, in Paju, Korea, which is expected to be completed in the second quarter of 2018. We are also in the
process of installing our new E5 production line on which we expect to commence mass production of flexible OLED panels in the
third quarter of 2017. In April 2016, we commenced construction on a new module assembly facility in Haiphong, Vietnam. In
addition, in July 2016, we announced plans to invest W2.0 trillion to install our new E6 production line at our P9 fabrication facility in
Paju, Korea. We expect to commence mass production of flexible OLED panels on our new E6 production line in the second half of
2018. Each of our on-going expansion projects are subject to market conditions and any changes in our investment timetable. See “Item
4.D. Property, Plants and Equipment—Capital Expenditures.”
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 January 2006,
we commenced operations at a new assembly facility in Paju, Korea. In February 2007, we commenced mass production at our module
production plant in Wroclaw, Poland. In December 2007, we commenced mass production at our module production plant in
Guangzhou, China.
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.”
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Item 4.B. Business Overview
Overview
We manufacture TFT-LCD and OLED technology-based display 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 Ultra HD television panels. We also manufacture display panels for industrial and
other applications, including entertainment systems, automotive displays, portable navigation devices and medical diagnostic
equipment. In 2016, we sold a total of 152.5 million display panels that are nine inches or larger. According to IHS Technology, we had
a global market share for display panels of nine inches or larger of approximately 30% based on sales revenue in 2016.
We currently operate fabrication facilities, which include separately designated sets of fabrication production lines housed in
certain facilities, located in our Display Clusters in Gumi and Paju, Korea and in Guangzhou, China. We also currently operate module
facilities located in China (Nanjing, Guangzhou and Yantai), Korea (Gumi and Paju) and Poland (Wroclaw). 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.”
Our sales were W26,456 billion in 2014, W28,384 billion in 2015 and W26,504 billion (US$22,018 million) in 2016.
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. 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 April 2014, we produced a 5.5-inch quad high definition (“Quad HD”) smartphone panel, which has four
times the resolution (538 pixels-per-inch) of a conventional HD panel. We are also planning to introduce a 5.7-inch Quad HD
smartphone panel, which has upgraded resolution (564 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 utilize different types of sub-pixel and backplane technologies in our OLED panels. Under the RGB sub-pixel structure,
a combination of red, green and blue sub-pixels without color filters or white sub-pixels are used to produce a range of colors. While
we, along with most of our competitors, utilize RGB sub-pixel technology for small- and medium-sized products, there are various
technical challenges in scaling RGB sub-pixel technology for large-sized products, such as television panels. For our OLED television
panels, we have overcome these challenges by opting to utilize our WRGB sub-pixel structure, whereby red, green and blue color filters
are placed over white OLED sub-pixels to produce a range of colors and began production of OLED television panels on our E3
production lines in January 2013 and mass production of OLED television panels on our E4 production lines in December 2014. As for
backplane technology, 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.
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 production lines with relatively little modification to mass produce large-sized OLED panels.
29
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. 3D television sets using our FPR 3D
television panel products were first introduced to the market in March 2011.
Products
products:
We manufacture display panels of various specifications that are integrated by our customers into principally the following
•
•
•
•
•
Televisions, which utilize large-sized display panels ranging from 18.5 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 utilize display panels ranging from 10.1 inches to 17.3 inches in size;
Desktop monitors, which utilize large-sized display panels ranging from 14 inches to 37.5 inches in size;
Tablet computers, which 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 desktop monitors through our joint
venture companies. See “—Joint Ventures.”
Televisions
Our television display panels range from 18.5 inches to 105 inches in size. We began mass production of television display
panels in 2001. Our sales of display panels for televisions were W10,540 billion, or 39.8% of our total revenue, in 2014,
W10,854 billion, or 38.2% of our total revenue, in 2015 and W10,133 billion (US$8,418 million), or 38.2% of our total revenue, in
2016 and constituted our largest product category in each of the past three years. In 2016, our principal products in this category in
terms of sales revenue consisted of 32-inch, 43-inch, 49-inch, 55-inch and 65-inch display panels.
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.
30
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 2016. Revenue from sales of our display panels for notebook
computers was W2,669 billion, or 10.1% of our total revenue, in 2014, W2,509 billion, or 8.8% of our total revenue, in 2015 and
W2,384 billion (US$1,981 million), or 9.0% of our total revenue, in 2016. In 2016, our principal products in terms of sales revenue in
this category were 13.3-inch, 14.0-inch, 15.4-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 14 inches to 37.5 inches in size in a variety of display resolutions and
formats. Revenue from sales of our display panels for desktop monitors was W4,660 billion, or 17.6% of our total revenue, in 2014,
W4,553 billion, or 16.0% of our total revenue, in 2015 and W4,035 billion (US$3,352 million), or 15.2% of our total revenue, in 2016
and constituted our third largest product category in each of the past three years.
In 2016, our principal products in terms of sales revenue in this category were 21.5-inch, 23-inch, 23.8-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 fourth largest product category in 2016. Revenue from sales of our display panels for tablet computers was W3,542 billion, or
13.4% of our total revenue, in 2014, W2,510 billion, or 8.8% of our total revenue, in 2015 and W2,696 billion (US$2,240 million), or
10.2% of our total revenue, in 2016.
After experiencing steady growth in consumer demand for tablet computers since they were first introduced, consumer
demand has generally plateaued in recent years. In 2016, 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. Display 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.
While this was our fastest growing category of products in terms of revenue growth in recent years, driven largely by an
increase in demand for increasingly larger-sized smartphone panels, consumer demand has plateaued in the past couple of years.
Revenue from sales of our display panels for mobile and other applications was W5,005 billion, or 18.9% of our total revenue, in 2014,
W7,919 billion, or 27.9% of our total revenue, in 2015 and W7,216 billion (US$5,995 million), or 27.2% of our total revenue, in 2016.
In 2016, sales of panels for smartphones continued to constitute a significant majority in terms of both sales revenue and sales volume
in the mobile and other applications category.
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 display panels for mobile and
other applications by assessing various business opportunities as they arise.
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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 79% of our sales in 2014 and 82% in each of 2015 and 2016. 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, including as a system integrator, amounted to 27.0%, 23.5% and 21.9% of our sales in 2014, 2015 and 2016,
respectively.
In addition to our top ten end-brand customers, we sell our display panels to a variety of other manufacturers of computers
and electronic products. Sales to these other manufacturers constituted approximately 21% of our sales in 2014 and 18% in 2015 and
2016, respectively.
The following table sets forth for the years indicated the geographic breakdown of our sales by the region where purchase
orders originate, 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:
2014
2015
Year ended December 31,
Sales
%
%
(in billions of Won and millions of US$, except for percentages)
Sales
Sales
2016
Sales(3)
Korea
China
Europe
Asia (excluding China)
Americas
Others (1)
Total (2)
W 2,608
15,774
2,997
2,415
2,026
636
W26,456
9.9% W 2,218
19,375
59.6
2,204
11.3
2,012
9.1
1,981
7.7
594
2.4
100.0% W28,384
7.8% W 1,825 US$ 1,516
15,259
68.3
18,368
1,752
7.8
2,109
1,436
7.1
1,729
1,706
7.0
2,053
349
2.0
420
100.0% W26,504 US$22,018
%
6.9%
69.3
8.0
6.5
7.7
1.6
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 W1,203.73 to US$1.00, the noon buying rate in effect on December 31, 2016
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.
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, 2016, our sales and marketing force employed a
total of 1,545 employees in regional offices in these countries and in our head office in Korea.
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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 2.3%
in 2016. See “Item 7.B. Related Party Transactions” for further discussion of these sales arrangements.
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
warranty 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.
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.
33
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 in Korea;
Innolux, AU Optronics, Chunghwa Picture Tubes and HannStar Display in Taiwan;
Japan Display, Sharp and Panasonic LCD in Japan; and
BOE, China Star Optoelectronics and CEC Panda in China.
According to IHS Technology, in 2016, Korean display panel manufacturers had a market share of 47% of the 9-inch or larger panel
market based on revenue, Taiwanese manufacturers had 29%, Chinese manufacturers had 19% and Japanese manufacturers had 5%.
Our market share of the 9-inch or larger panel market based on revenue was approximately 30%.
Components, Raw Materials and Suppliers
Components and raw materials accounted for 61.2% of our cost of sales in 2014, 65.5% in 2015 and 66.4% in 2016. 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.
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.
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.
34
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 display panels include 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, we have invested, and currently hold a 23.0% equity interest, in 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 2016, approximately 68.3% 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, we have invested, and currently hold a 17.0% equity interest, in AVATEC
Co., Ltd., a third party processor that etches glass substrates.
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.
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.
35
Our quality assurance team works to ensure effective and consistent application of our quality control procedures, which
include 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 property insurance coverage, including business interruption coverage, for our production facilities in
Gumi and Paju, Korea, for up to W2.7 trillion in the aggregate, and for our GP fabrication facility located in Guangzhou China for up to
RMB10.5 billion in the aggregate. 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, aviation product liability and world-wide cargo insurance. Our dormitories in Gumi and
Paju, Korea have fire insurance coverage for up to W506 billion in the aggregate. Our subsidiaries also have insurance coverage for
damage to office fixtures and equipment 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 Display device Industry Cooperation Committee, or WDICC, 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 P61
and P7, and we have voluntarily developed processes that utilize substitute gases with lower global warming potential than SF6 and
have applied such processes in P62, P8 and P9.
In the case of the European Union’s Restriction of Hazardous Substances (RoHS) Directive 2011/65/EU, with the adoption
of Directive (EU) 2015/863 in 2016, four additional substances (four phthalate substances) will be added to the six already restricted
substances and the additional restrictions are scheduled to come into effect on July 22, 2019. In order to address the latent risk elements
of the four phthalate substances scheduled to be restricted in 2019 and to establish a more stable management system, we implemented
in 2016 a preemptive response process with respect to such four phthalate substances. In implementing this process, we collaborated
with external agencies to ascertain regulatory trends and establish our response strategy, and we formulated and applied effective
management measures through the collaborative efforts of our development, procurement and quality teams. Beryllium (Be) was not
designated internationally as a mandatorily restricted substance but has continued to be the subject of discussion for restriction, and
certain of our customers have designated it as a restricted substance not to be used in products. Accordingly, we have completed
verification of the parts used in products for customers who have banned the use of beryllium. We have also conducted verification of
the parts used in products for all customers who are expected to implement a ban and we have established a beryllium verification
process for parts in development. Through such efforts, we have established a voluntary hazardous substance response process that can
be expanded to products for all customers, not only those who have requested a response. For the more efficient operation of our waste
water treatment equipment, we have also entered into an agreement with HiEntech, a wholly owned subsidiary of LG Electronics, for
the operation of our water treatment system.
36
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 P62 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 with respect to our 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. Our GP1 fabrication facility was the first plant in China to receive the
“Green Plant” designation under China’s Green China Policy. Our GP1 fabrication facility has also received ISO 14001 and OHSAS
18001 certifications. Furthermore, in recognition of our continued water conservation activities (reuse system investments, etc.) and
greenhouse gas emission reduction activities (process gas and energy reduction, etc.), we attained the highest level, Leadership A, and
received the grand prize award at the CDP Water Korea Best Awards in 2016 from the Carbon Disclosure Project, which was presided
over by the Carbon Disclosure Project Korea Committee. We also attained a Leadership A in the climate change information
technology sector and received a carbon management honors award.
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.
From time to time, 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 owns and operates our GP fabrication facility in
Guangzhou, China. See “Item 4.D. Property, Plants and Equipment— Current Facilities.” We acquired a 70.0% equity interest in LG
Display (China) and invested a total of approximately US$927 million over a period of two years from the date of incorporation of LG
Display (China). Each of GET Tech and Skyworth owns a 20.0% and 10.0% equity interest in LG Display (China), respectively.
We intend to continue to seek strategic acquisition and joint venture opportunities and conduct feasibility studies with
respect to establishing new manufacturing subsidiaries in strategic locations to deepen our market penetration, achieve economies of
scale, increase our customer base, expand our geographical reach and reduce costs.
37
Subsidiaries
The following table sets forth summary information for our subsidiaries as of December 31, 2016:
Subsidiary
LG Display Taiwan Co., Ltd.
LG Display America, Inc.
LG Display Japan Co., Ltd.
LG Display Germany GmbH
LG Display Nanjing Co., Ltd.
LG Display Shanghai Co., Ltd.
LG Display Poland Sp. zo.o.
LG Display Guangzhou Co., Ltd.
LG Display Shenzhen Co., Ltd.
LG Display Singapore Pte. Ltd.
LG Display Yantai Co., Ltd.
L&T Display Technology (Fujian) Ltd.
Nanumnuri Co., Ltd.
LG Display (China) Co., Ltd.
Unified Innovative Technology, LLC
Global OLED Technology LLC
LG Display Guangzhou Trading Co., Ltd.
LG Display Vietnam Haiphong Co., Ltd.
Suzhou Lehui Display Co., Ltd.
Main
Activities
Sales
Sales
Sales
Sales
Manufacturing
and sales
Sales
Manufacturing
and sales
Manufacturing
and sales
Sales
Sales
Manufacturing
and sales
Manufacturing
and sales
Workplace services
Manufacturing
and sales
Managing intellectual property
Managing intellectual property
Sales
Manufacturing
Manufacturing
and sales
Jurisdiction
of
Organization
Taiwan
U.S.A.
Japan
Date of
Organization
NT$
April 1999
September 1999 US$
October 1999
¥
Germany November 1999 €
China
July 2002
RMB
Total Equity
Investment
115,500,000
411,000,000
95,000,000
960,000
3,019,662,545
China
Poland
January 2003
RMB
September 2005 PLN
4,138,650
511,071,000
Percentage
of Our
Ownership
Interest
Percentage
of Our
Voting
Power
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
China
June 2006
RMB
1,654,693,079
100%
100%
China
Singapore
China
August 2007
January 2009
April 2010
RMB
SG$
RMB
3,775,250
1,400,000
1,007,720,600
100%
100%
100%
100%
100%
100%
China
January 2010
RMB
59,197,026
51%
51%
Korea
China
March 2012
Won
December 2012 RMB
800,000,000
5,712,207,054
U.S.A. March 2014
U.S.A.
China
9,000,000
US$
138,010,000
December 2009 US$
RMB
April 2015
1,223,960
VND 2,187,870,000,000
Vietnam May 2016
636,973,641
RMB
July 2016
China
100%
70%
100%
100%
100%
100%
100%
100%
70%
100%
100%
100%
100%
100%
N.B. See Note 1(b) of the notes to our financial statements for changes to our subsidiaries during the year ended December 31, 2016.
Item 4.C.
Organizational Structure
These matters are discussed under Item 4.B. where relevant.
38
Item 4.D.
Property, Plants and Equipment
Current Facilities
The following table sets forth the size, location and primary use of our fabrication facilities.
Fabrication Facility
P2
P3
P4
Generation(1)
3.5
4
5
Mass Production
Commencement
December 1997
April 2000
March 2002
Location
Gumi, Korea
Gumi, Korea
Gumi, Korea
Gross Floor Area
(in square meters)
71,149
71,149
93,277
P5
P61 (2)
P62
P7
P8 (3)
P9 (4)
GP (5)
Ochang (6)
5
6
6
7
8
8
8
2
May 2003
Gumi, Korea
August 2004
Gumi, Korea
April 2009
Gumi, Korea
January 2006
March 2009
June 2012
Paju, Korea
Paju, Korea
Paju, Korea
September 2014
January 2012
Guangzhou, China
Ochang, Korea
93,277
288,602
101,607
311,942
502,865
358,132
245,159
7,129
Primary Types of Panels Produced
Automotive
Mobile, Automotive
Mobile, Notebook Computer,
Desktop Monitor, Tablet
Computer, Automotive
Notebook Computer,
Desktop Monitor, Tablet
Computer
Mobile, Desktop Monitor,
Tablet Computer
Notebook Computer,
Desktop Monitor, Television
Television, Desktop Monitor
Television, Desktop Monitor
Desktop Monitor, Notebook
Computer, Tablet Computer
Television
OLED General Lighting,
Automotive
(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.
Substrate Sizes (in millimeters)
Gen 2
370 x 470
Gen 3
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
(2) Gross floor area of P61 fabrication facility includes gross floor area of AP3 production lines.
(3) Gross floor area of P8 fabrication facility includes gross floor area of AP2, E2 and E3 production lines.
(4) Gross floor area of P9 fabrication facility includes gross floor area of E4 production lines.
(5) Gross floor area of GP fabrication facility includes gross floor area of extended facility.
(6) Gross floor area of OLED light production facilities which we lease from LG Chem. We acquired the OLED light business from LG Chem in December 2015.
For input substrate size, initial design capacity and year-end input capacity as a result of ramp-up for each of our fabrication facilities,
please see “Item 5.A. Operating Results—Overview—Manufacturing Productivity and Costs.”
Housed within certain fabrication facilities, we also operate separately designated fabrication production lines. The following
table sets forth the location and primary use of our separately designated production lines.
Production Lines
AP2
AP3
E2
E3
E4
Generation (1)
4
6
4
8
8
Mass Production
Commencement
July 2010
February 2014
December 2013
January 2013
December 2014
Location
P8
P61
P8
P8
P9
Primary Types of Panels Produced
LTPS backplanes for mobile
LTPS backplanes for mobile
OLED mobile
OLED television
OLED television
(1) Based on internal reference to evolutions in facility design, material flows and input substrate sizes.
39
We also currently operate module assembly facilities located in China (Nanjing, Guangzhou and Yantai), Korea (Gumi and
Paju) and Poland (Wroclaw). 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
Capital Expenditures
Gross Floor Area
(in square meters)
68,717
301,779
150,760
226,758
106,929
139,095
81,256
Mass Production Commencement
Not applicable (opened in April 2012)
January 1995
May 2003
January 2006
February 2007
December 2007
May 2010
We are currently constructing our P10 fabrication facility, a next-generation fabrication facility, in Paju, Korea, which is
expected to be completed in the second quarter of 2018. We are also in the process of installing, at our Gumi Display Cluster, our new
E5 production line on which we expect to commence mass production of flexible OLED panels in the third quarter of 2017. In April
2016, we commenced construction on a new module assembly facility in Haiphong, Vietnam. In addition, in July 2016, we announced
plans to invest W2.0 trillion to install our new E6 production line at our P9 fabrication facility in Paju, Korea. We expect to commence
mass production of flexible OLED panels on our new E6 production line in the second half of 2018. Each of our expansion and
conversion projects is subject to market conditions and any changes in our investment timetable.
We currently expect that, in 2017, our total capital expenditures on a cash out basis will be higher than in 2016, primarily to
fund the expansion of our panel production capacities for large-sized and small- and medium-sized OLED panels and the construction
of our P10 fabrication facility, a next-generation fabrication facility, in Paju, Korea, while maintaining and making 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 display 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 demand, surges in production capacity by competitors and changes in technology. Over the past decade, the display
industry has grown significantly as a result of cost reductions and product improvements that stimulated demand for TFT-LCD and
OLED panels. With respect to the TFT-LCD industry, the industry grew from 586 million units in 2004 to 2,656 million units in 2016
and market revenue grew from US$49 billion to US$85 billion during the same period according to IHS Technology.
40
While TFT-LCD panels still predominantly constitute the display industry, the industry in recent years has witnessed the
introduction of display panels based on new technologies, such as OLED technology, that have begun to compete with TFT-LCD
panels. In particular, we and some of our competitors have already commenced mass 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 2016. These small-sized OLED panels compete with more advanced
TFT-LCD products such as our AH-IPS products. However, as of 2016, the OLED market was relatively small compared to the
TFT-LCD market. According to IHS Technology, 413 million OLED panel units that are less than nine inches were sold in 2016, with
market revenue of approximately US$14.2 billion in that same year. We believe, however, that the market may change rapidly as a
growing array of OLED panels for various applications are introduced to the market and advances in the related technology and
manufacturing processes enable mass production in a cost-efficient manner. In December 2014, we commenced mass production of
55-inch, 65-inch and 77-inch Ultra HD OLED television panels on our E4 production lines.
While the display industry has grown rapidly, it has also experienced business cycles with significant and rapid price
declines from time to time. Historically, display panel 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
display panels in some past periods.
According to IHS Technology, the display industry for panels that are nine inches or larger contracted in 2015 compared to
2014, with total market revenue decreasing from US$74 billion in 2014 to US$64 billion in 2015. The average selling price of those
panels decreased during the same period by 12% from approximately US$103 in 2014 to US$91 in 2015. In 2016, the display industry
for panels that are nine inches or larger further contracted, with total market revenue decreasing to US$56 billion. The average selling
price of those panels further decreased during the same period by 16% to approximately US$84 in 2016.
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. As part of our
strategy, we have been proceeding with the construction of new fabrication facilities and additional investments to upgrade and convert
existing facilities and production lines to produce differentiated specialty display panels based on newer technologies that command
higher premiums. For example, we started mass production at our AP3 production lines in February 2014, our GP fabrication facility in
Guangzhou, China in September 2014 and our E4 production lines in December of 2014. Construction of our P10 fabrication facility, a
next-generation fabrication facility, is currently under way in Paju, Korea and we expect construction to be completed in the second
quarter of 2018, subject to market conditions and any changes in our investment timetable. In addition, we are in the process of
installing, at our Gumi Display Cluster, our new E5 production line on which we expect to commence mass production of flexible
OLED panels in the third quarter of 2017, subject to market conditions and any changes in our investment timetable. In April 2016, we
commenced construction on a new module assembly facility in Haiphong, Vietnam. In April 2016, we also decided to invest in the
construction of a new OLED light panel fabrication facility in Gumi, Korea. In July 2016, we announced plans to invest W2.0 trillion to
install our new E6 production line at our P9 fabrication facility in Paju, Korea. We expect to commence mass production of flexible
OLED panels on our new E6 production line in the second half of 2018, subject to market conditions and any changes in our investment
timetable.
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 OLED panels, public display panels, display panels utilizing AH-IPS
technology for various tablet computers, smartphones, notebook computers, desktop monitors and other applications and flexible OLED
technology for smartphones and smartwatches. In particular, we are deploying greater resources into large-sized OLED television
panels in order to maintain our early competitive edge in such market, and into small- and medium-sized OLED panels for various
applications in order to expand our market presence.
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 time, 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:
Facility
P2
P3
P4
P5
P61(2)
P62
P7
P8(3)
P9
GP(4)
Ochang(5)
Primary Input
Substrates Size
(in millimeters)
Initial
Design Capacity
(in input substrates
per month)
590x670
680x880
1,000x1,200
1,100x1,250
1,500x1,850
1,500x1,850
1,950x2,250
2,200x2,500
730x920
2,200x2,500
2,200 x 2,500
370 x 470
Year-end Input Capacity(1)
2014
2016
2015
(in input substrates per month)
84,000
85,000
125,000
129,000
93,000
50,000
224,000
76,000
67,000
98,000
126,000
93,000
46,000
227,000
38,000
32,000
92,000
82,000
75,000
50,000
229,000
60,000
60,000
60,000
60,000
90,000
60,000
90,000
339,000
401,000
384,000
362,000
60,000
60,000
4,000
51,000
78,000
N/A
50,000
96,000
1,000
60,000
151,000
2,500
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)
(3)
(4)
(5) Year-end input capacity for 2015 represents the total input substrates after our acquisition of the OLED light business from LG Chem in December 2015.
Includes input capacity of AP3 production lines. We ceased production and closed P61 in July 2016.
Includes input capacity of AP2, E2, E3 and E4 production lines.
Includes input capacity of extended GP1 production line from 2016.
Our cash outflows for capital expenditures amounted to W2,983 billion in 2014, W2,365 billion in 2015 and W3,736 billion
(US$3,104 million) in 2016. Such capital expenditures relate mainly to continued investments in our GP fabrication facility and E3,
AP3 and E4 production lines in 2014, continued investments in our GP fabrication facility and E4 production line in 2015 and
continued investments in our GP fabrication facility, the construction of our P10 fabrication facility in Paju, Korea and investments in
our E5 production line in 2016. Capital expenditures were also incurred for the acquisition of new equipment during the same period.
Our depreciation expense as a percentage of revenue decreased from 12.2% in 2014 to 10.5% in 2015 and decreased to 10.0% in 2016.
The decrease in 2015 compared to 2014 was primarily due to the end of the estimated useful life of certain machinery and equipment
assets in the second expansion to our P8 fabrication facility and AP2 production lines. The decrease in 2016 compared to 2015 was
primarily due to the end of the estimated useful life of certain machinery and equipment assets in our P9 fabrication facility. We
currently expect that, in 2017, our total capital expenditures on a cash out basis will be higher than in 2016, primarily to fund the
expansion of our panel production capacities for large-sized and small- and medium-sized OLED panels and the construction of our P10
fabrication facility, a next-generation fabrication facility, in Paju, Korea, while maintaining and making 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 2016, we purchased approximately 68.3% 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, in commencing mass production
of large-sized OLED products, we have made modifications to certain of our existing TFT-LCD production lines to convert them into
OLED panel production 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 production lines.
Raw materials comprise the largest component of our costs. We monitor the prices at which we can procure raw materials
from suppliers and to the extent overseas suppliers are able to provide raw materials at competitive prices, we intend to diversify our
supplier base by 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.
As a result of the above factors, our cost of sales per square meter of net display area, which is derived by dividing total costs of sales
by total square meters of net display area shipped, remained relatively stable at W606,091 in 2014 and W608,415 in 2015 and decreased
by 9.0% to W553,935 (US$460) in 2016.
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 display panel 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 display panel product portfolio, the proportion of sales of our
55-inch and 65-inch television panels in our product mix increased between 2014 and 2016. In addition, with respect to our desktop
monitor products, we have expanded our product portfolio to offer panels with Full HD resolution ranging from 21.5 inches to 37.5
inches in a variety of screen aspect ratios, including 21:9 screen aspect ratio for ultra-widescreen monitors, in order to 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 utilizing AH-IPS technology with increasingly higher
resolution and other features, smartphone and smartwatch panels utilizing flexible OLED technology and large-sized television panels
utilizing our Ultra HD and OLED technologies.
43
The following table sets forth our revenue by product category for the years indicated and revenue in each product category
as a percentage of our total revenue:
Panels for:
Televisions
Notebook computers(1)
Desktop monitors(2)
Tablet computers
Mobile and other applications(3)
Sales of goods
Royalties and others
Revenue
2014
2015
Year ended December 31,
2016
Sales(4)
Sales
%
%
(in billions of Won and millions of US$, except for percentages)
Sales
Sales
W10,540
2,669
4,660
3,542
5,005
W26,416
40
39.8% W10,854
2,509
10.1
4,553
17.6
2,510
13.4
18.9
7,919
99.8% W28,345
39
0.2
38.2% W10,133 US$ 8,418
1,981
2,384
8.8
3,352
4,035
16.0
2,240
2,696
8.8
27.9
5,995
7,216
99.9% W26,464 US$21,986
32
40
0.1
%
38.2%
9.0
15.2
10.2
27.2
99.8%
0.2
W26,456
100.0% W28,384
100.0% W26,504 US$22,018
100.0%
(1)
(2)
(3)
Includes semi-finished products manufactured by our former joint venture company LUCOM Display Technology (Kunshan) Ltd. through June 2014 when we
disposed of our entire investment in such company.
Includes desktop monitors manufactured and sold by our joint venture company L&T Display Technology (Fujian) Limited.
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.
(4) For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of W1,203.73 to US$1.00, the noon buying rate in effect on December 31, 2016
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 years indicated and as a percentage of our total
panels sold:
Panels for
Televisions
Notebook computers (1)
Desktop monitors (2)
Tablet computers
Mobile and other applications (3)
Total
2014
Number of
Panels
51,358
50,175
43,848
50,995
216,479
412,855
Year ended December 31,
2015
2016
Number of
Panels
Number of
Panels
%
%
(in thousands, except for percentages)
12.4%
12.2
10.6
12.4
52.4
100.0%
14.2%
11.6
10.7
8.1
55.4
100.0%
55,319
45,509
41,912
31,476
216,565
390,781
52,916
39,672
40,001
24,957
173,166
330,712
%
16.0%
12.0
12.1
7.5
52.4
100.0%
(1)
(2)
(3)
Includes semi-finished products manufactured by our former joint venture company LUCOM Display Technology (Kunshan) Ltd. through June 2014 when we
disposed of our entire investment in such company.
Includes desktop monitors manufactured and sold by our joint venture company L&T Display Technology (Fujian) Limited.
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.
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 13.4% from W63,984 in 2014 to W72,534 in 2015 and further increased by 10.3% to W80,021
(US$66) in 2016. In 2015 compared to 2014, our average selling price increased primarily due to a significant increase in the proportion
of our larger-sized mobile and application panel units, which generally have higher selling prices compared to smaller-sized mobile and
application panel units, sold in our product mix during the same period, which was primarily attributable to an increase in demand for
increasingly larger-sized smartphone panels from our customers. In 2016 compared to 2015, our average selling price further increased
primarily due to a general increase in the selling prices of primarily small- and medium-sized higher-end products sold during the same
period, which was primarily attributable to an increase in demand for higher-end products from our customers.
The following table sets forth our average selling price per panel by markets for the years indicated:
Televisions
Notebook computers(1)
Desktop monitors(2)
Tablet computers
Mobile and other applications(3)
All panels
Average Selling Price(4)
Year ended December 31,
2014
W205,226
53,194
106,276
69,458
23,120
63,984
2015
W196,207
55,132
108,632
79,743
36,566
72,534
2016 (5)
W191,492
60,093
100,872
108,026
41,671
80,021
US$159
50
84
90
35
66
(1)
(2)
(3)
Includes semi-finished products manufactured by our former joint venture company LUCOM Display Technology (Kunshan) Ltd. through June 2014 when we
disposed of our entire investment in such company.
Includes desktop monitors manufactured and sold by our joint venture company L&T Display Technology (Fujian) Limited.
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.
(4) Average selling price for each market represents revenue per market divided by unit sales per market.
(5) For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of W1,203.73 to US$1.00, the noon buying rate in effect on December 31, 2016
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 1.4% from W707,388 per square meter of net display area in 2014 to W717,470 in
2015. In 2016, our average revenue per square meter of net display area shipped decreased by 10.1% to W645,222 (US$536).
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. For a further description of the significant accounting
policies and methods used in the preparation of our consolidated financial statements and new standards and amendments not yet
adopted, see Note 3 of the notes to our financial statements.
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 9.3% from W333 billion in 2014 to W364 billion in 2015 but decreased by 43.9% to W204 billion (US$170 million) in
2016. The increase in 2015 compared to 2014 was due in part to the increased levels of disused inventories resulting from higher quality
expectations for differentiated specialty panels with high-end specifications. The decrease in 2016 compared to 2015 was due to the
disposal in 2016 of inventories for which devaluations were reflected in the prior year. The amount of any such adjustment is
recognized as cost of sales in the period for which the assessment relates.
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 of 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.
In 2014 and 2016, increases in unrecognized deferred tax assets resulted in increases in our effective tax rates of 7.4% and 5.5%,
respectively, due to changes in estimates of future taxable income. As of December 31, 2014, 2015 and 2016, unused tax credit
carryforwards of W325 billion, W79 billion and W108 billion (US$90 million), respectively, were not recognized as deferred tax assets
because we did not believe that their realization would be probable. The decrease of W246 billion in unrecognized tax credit
carryforwards in 2015 compared to 2014 was due to an increase in projected future taxable income and the expiration of unrecognized
tax credit carryforwards. The increase of W29 billion in unrecognized tax credit carryforwards in 2016 compared to 2015 was due to
changes in estimates of future taxable income and the expected recovery of deferred tax assets. 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.
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 2014 to 2016. 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 W52 billion, W56 billion and W62 billion (US$52 million) as of December 31, 2014,
2015 and 2016, respectively. Warranty expenses decreased from W188 billion in 2014 to W147 billion in 2015 but increased to
W167 billion (US$138 million) in 2016. The decrease in 2015 compared to 2014 was largely due to the improvement of technologies
which enabled the reduction of defects in our products, while the increase in 2016 compared to 2015 was attributable primarily to
higher quality expectations for panel products.
46
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.
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 2014, we recognized impairment losses of W8.6 billion resulting primarily
from lowered estimates of economic benefits from certain property, plant and equipment assets. In 2015, we recognized impairment
losses of W3.3 billion. In 2016, we recognized impairment losses of W1.7 billion (US$1.5 million).
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 to settle the obligation, and a reliable estimate can be
made of the amount of the obligation. 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. We recognized
provisions for litigation and claims amounting to W148 billion, W61 billion and nil in the statements of financial position as of
December 31, 2014, 2015 and 2016, 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 years
indicated:
2014
Year ended December 31,
2016
%
(in billions of Won and in millions of US$, except for percentages)
2016(1)
2015
%
Revenue
Cost of sales
Gross profit
Selling expenses
Administrative expenses
Research and development expenses (2)
Other income
Other expenses
Finance income
Finance costs
Equity income on investments, net
Profit before income tax
Income tax expense
Profit for the year
W 26,456
100.0% W 28,384
100.0% W 26,504
US$ 22,018
(22,667)
3,789
(747)
(520)
(1,164)
1,072
(1,095)
105
(216)
18
1,242
(325)
917
85.7
14.3
2.8
2.0
4.4
4.1
4.1
0.4
0.8
0.1
4.7
1.2
3.5
(24,070)
4,314
(878)
(593)
(1,218)
1,274
(1,327)
159
(316)
19
1,434
(411)
1,023
84.8
15.2
3.1
2.1
4.3
4.5
4.7
0.6
1.1
0.1
5.1
1.4
3.6
(22,754)
3,750
(695)
(610)
(1,134)
1,592
(1,468)
140
(266)
7
1,316
(385)
931
(18,903)
3,115
(577)
(507)
(942)
1,323
(1,220)
116
(221)
6
1,093
(320)
773
%
100.0%
85.9
14.1
2.6
2.3
4.3
6.0
5.5
0.5
1.0
0.0
5.0
1.5
3.5
(1) For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of W1,203.73 to US$1.00, the noon buying rate in effect on December 31, 2016
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.
Comparison of 2016 to 2015
Revenue
Our revenue decreased by 6.6% from W28,384 billion in 2015 to W26,504 billion (US$22,018 million) in 2016. The
decrease in revenue resulted from decreases in revenue from sales of panels for televisions, for mobile and other applications, for
desktop monitors and for notebook computers, which were in turn mainly due to decreases in the number of panels sold for televisions
and for mobile and other applications, a decrease in the average selling price of panels for desktop monitors and a decrease in the
number of panels sold for notebook computers, offset in part by an increase in revenue derived from sales of panels for tablet
computers. In particular:
•
•
•
The number of units sold of our large-sized television panels, comprising 42-inch and larger panels, which category
includes three of our four top selling television panels in 2016 in terms of sales volume, namely 43-inch, 49-inch and
55-inch panels, increased by 7.2% from approximately 38.9 million panels in 2015 to approximately 41.7 million
panels in 2016. 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 during the same period, resulting in a decrease in revenue derived from those
panels. Furthermore, we experienced a decrease in revenue derived from our small- and medium-sized television
panels over the same period, which was due to decreases in both the sales volume and average selling price of those
panels, resulting in an overall decrease in revenue from television panels.
Demand for our 15.6-inch or smaller notebook computer panels, which category includes three of our top selling
notebook computer panels in terms of sales volume, namely 13.3-inch, 14-inch and 15.6-inch panels, fell in 2016
compared to 2015, resulting in a decrease in the number of those panels sold by 12.0% from approximately
44.0 million panels in 2015 to approximately 38.7 million panels in 2016. The decrease in the number of those panels
sold more than offset an increase in the average selling price of those panels during the same period, 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 four of our five top selling desktop monitor panels in terms of sales volume, namely 21.5-inch,
23-inch, 23.8-inch and 27-inch panels, increased by 1.9% from approximately 32.4 million panels in 2015 to
approximately 33.0 million panels in 2016. 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 during the same period, resulting in a decrease in
revenue derived from those panels. Furthermore, we experienced a decrease in revenue derived from our small- and
medium-sized desktop monitor panels over the same period, which was due to decreases in both the sales volume and
average selling price of those panels, resulting in an overall decrease in revenue from desktop monitor panels.
48
•
•
Demand for our tablet computer panels smaller than 10 inches fell in 2016 compared to 2015, leading to a decrease in
the number of those panels sold by 19.0% from approximately 30.6 million panels in 2015 to approximately
24.8 million panels in 2016. The decrease in the number of those panels sold was more than offset by a significant
increase in the average selling price of those panels during the same period, resulting in an increase in revenue derived
from those panels.
In our mobile and other applications category, we experienced a decrease in demand for larger smartphone panels in
2016 compared to 2015. For example, the number of units sold of panels in this category that are between 4.2 inches
and 6.1 inches, which category includes all of our larger smartphone panels and accounts for more than 80% of our
sales volume and amount in this category in 2016, decreased by 19.7% from approximately 180.0 million panels in
2015 to approximately 144.6 million panels in 2016. The decrease in the number of those panels sold more than offset
an increase in the average selling price of those panels during the same period, resulting in a decrease in revenue
derived from those panels.
Revenue attributable to sales of panels for televisions decreased by 6.6% from approximately W10,854 billion in 2015 to
approximately W10,133 billion (US$8,418 million) in 2016, resulting from decreases in both the number of units sold and average
selling price of panels in this category in 2016 compared to 2015. The total unit sales of panels for televisions decreased by 4.3% from
approximately 55.3 million panels in 2015 to approximately 52.9 million panels in 2016, and the average selling price of panels in this
category decreased by 2.4% from approximately W196,207 in 2015 to approximately W191,492 (US$159) in 2016. The decrease in
revenue attributable to sales of panels for televisions primarily reflected a decrease in the sales volume of our television panels that are
less than 42-inches in size. Notwithstanding the overall decrease in sales volume of our television panels, the sales volume of our
television panels that are 42-inches in size or larger increased over the same period, in particular panels incorporating differentiated
specialty features, highlighting a general migration in demand from our small-sized to large-sized television panels. The average selling
price of television panels also decreased over the same period, mainly due to an increase in the proportion of our television panels sold
in open cell form without backlight units, which generally have lower selling prices compared to television panels in module form with
backlight units, and increased downward pricing pressure resulting from capacity expansion and increased competition by our
competitors in 2016 compared to 2015.
Revenue attributable to sales of panels for notebook computers decreased by 5.0% from approximately W2,509 billion in
2015 to approximately W2,384 billion (US$1,981 million) in 2016, resulting from a decrease in the number of units sold in this
category in 2016 compared to 2015, partially offset by an increase in the average selling price of panels in this category in 2016
compared to 2015. The total unit sales of panels for notebook computers decreased by 12.7% from approximately 45.5 million panels in
2015 to approximately 39.7 million panels in 2016, whereas the average selling price of panels in this category increased by 9.0% from
approximately W55,132 in 2015 to approximately W60,093 (US$50) in 2016. The decrease in revenue attributable to sales of panels for
notebook computers primarily reflected a decline in consumer demand for notebook computers, which in turn resulted in a similar
decline in market demand for panels for notebook computers, partially offset by the increase in the average selling price of panels in
this category, which was attributable to an increase in the proportion of panels with differentiated specialty features that command
higher selling prices, such as touch screen and AH-IPS, in our product mix for panels for notebook computers.
Revenue attributable to sales of panels for desktop monitors decreased by 11.4% from approximately W4,553 billion in 2015
to approximately W4,035 billion (US$3,352 million) in 2016, resulting from decreases in both the average selling price and number of
units sold of panels in this category in 2016 compared to 2015. The average selling price of panels for desktop monitors decreased by
7.1% from approximately W108,632 in 2015 to approximately W100,872 (US$84) in 2016, and the total unit sales of panels in this
category decreased by 4.5% from approximately 41.9 million panels in 2015 to approximately 40.0 million panels in 2016. The
decrease in revenue attributable to sales of panels for desktop monitors primarily resulted from a general decrease in demand for
desktop monitors in light of increased competition among other consumer computer screen devices.
Revenue attributable to sales of panels for tablet computers increased by 7.4% from approximately W2,510 billion in 2015 to
approximately W2,696 billion (US$2,240 million) in 2016, resulting from an increase in the average selling price of panels for tablet
computers in 2016 compared to 2015, partially offset by a decrease in the number of units sold in this category in 2016 compared to
2015. The average selling price of panels for tablet computers increased by 35.5% from approximately W79,743 in 2015 to
approximately W108,026 (US$90) in 2016, whereas the total unit sales of panels in this category decreased by 20.6% from
approximately 31.5 million panels in 2015 to approximately 25.0 million panels in 2016. The increase in the average selling price of
panels in this category was attributable to an increase in the proportion of panels with differentiated specialty features that command
higher selling prices, such as AH-IPS, in our product mix for panels for tablet computers. The decrease in the sales volume of panels for
tablet computers was attributable to a maturing of the consumer market and plateauing of demand for tablet computers in general.
49
Revenue attributable to sales of panels for mobile and other applications decreased by 8.9% from approximately
W7,919 billion in 2015 to approximately W7,216 billion (US$5,995 million) in 2016, resulting from a decrease in the number of units
sold in this category in 2016 compared to 2015, partially offset by an increase in the average selling price of panels in this category in
2016 compared to 2015. The total unit sales of panels for mobile and other applications decreased by 20.0% from approximately
216.6 million in 2015 to approximately 173.2 million in 2016, whereas the average selling price of panels in this category increased by
14.0% from approximately W36,566 in 2015 to approximately W41,671 (US$35) in 2016. The decrease in the sales volume of panels
for mobile and other applications primarily resulted from a general decrease in consumer demand for smartwatch and larger smartphone
products, which in turn resulted in a similar decrease in market demand for panels for smartwatches and larger smartphones. The
increase in the average selling price of panels in this category was attributable to an increase in the proportion of panels with
differentiated specialty features and larger panels for automotive display and other applications in our product mix for panels in this
category.
In addition, our revenue attributable to royalty and others increased by 2.6% from approximately W39 billion in 2015 to
approximately W40 billion (US$33 million) in 2016. The increase was 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 warranty service
providers, from W20 billion in 2015 to W23 billion (US$19 million) in 2016, partially offset by a decrease in royalties from
W19 billion in 2015 to W17 billion (US$14 million) in 2016.
Cost of Sales
Cost of sales decreased by 5.5% from W24,070 billion in 2015 to W22,754 billion (US$18,903 million) in 2016. The
decrease in our cost of sales in 2016 compared to 2015 was attributable primarily to decreases in raw materials and component costs
related to selling fewer panel units overall in 2016 compared to 2015, which were offset in part by 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, a decrease
in depreciation costs, resulting mainly from the end of estimated useful life of certain machinery and equipment assets in our P9
fabrication facilities in 2016, contributed to the decrease in cost of sales in 2016 compared to 2015.
As a percentage of our total cost of sales, raw materials and component costs, labor costs and overhead costs increased from
65.5%, 9.6% and 11.9%, respectively, in 2015 to 66.4%, 10.1% and 12.5%, respectively, in 2016, while depreciation and amortization
costs decreased from 12.0% in 2015 to 11.3% in 2016.
As a percentage of revenue, cost of sales increased from 84.8% in 2015 to 85.9% in 2016. The increase in our cost of sales as
a percentage of revenue in 2016 compared to 2015 was attributable mainly to an increased share of high-end products in our product
mix during the same period.
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 9.0% from W608,415 per square meter of net display area in 2015 to W553,935 (US$460) in
2016. Cost of sales per panel sold, which is derived by dividing total cost of sales by total number of panels sold, increased by 11.7%
from W61,593 in 2015 to W68,803 (US$57) in 2016 due in part to increases in the proportion within each of our product categories of
larger panel units with differentiated specialty features, which generally have higher cost of sales per panel relative to other panel units
within each product category, sold in our product mix during the same period.
Gross Profit and Gross Margin
As a result of the cumulative effect of the reasons explained above, our gross profit decreased by 13.1% from W4,314 billion
in 2015 to W3,750 billion (US$3,115 million) in 2016, and our gross margin declined from 15.2% in 2015 to 14.1% in 2016. The
continued shift in our product mix toward higher-end products in 2016 resulted in increases in both the average selling price and cost of
sales per panel sold in 2016 compared to 2015, but the increase in cost of sales per panel sold outpaced the increase in average selling
price due in part to a general decrease in market demand and competitive pricing pressure.
Selling and Administrative Expenses
Selling and administrative expenses decreased by 11.4% from W1,471 billion in 2015 to W1,305 billion (US$1,083 million)
in 2016. As a percentage of revenue, our selling and administrative expenses decreased from 5.2% in 2015 to 4.9% in 2016. The
decrease in selling and administrative expenses in 2016 compared to 2015 was attributable primarily to a decrease in advertising
expense, resulting from a decrease in our marketing activities in 2016 after we had concluded a large-scale marketing effort in 2015 to
expand the market for OLED panels in North America and Europe.
50
Such decrease was offset in part by an increase in warranty expenses in 2016 compared to 2015 resulting primarily from
higher quality expectations for panel products.
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, 2016:
Salaries
Expenses related to defined benefit plan
Other employee benefits
Shipping costs
Fees and commissions
Depreciation
Taxes and dues
Advertising
Warranty expenses
Rent
Insurance
Travel
Training
Others
Total
Year ended December 31,
2016
2015
(in billions of Won)
W 268
27
88
200
191
119
31
266
147
24
11
24
16
59
W 1,471
W 275
31
90
191
193
129
30
68
167
26
12
23
14
56
W 1,305
Research and Development Expenses
Research and development expenses decreased by 6.9% from W1,218 billion in 2015 to W1,134 billion (US$942 million) in
2016. As a percentage of revenue, our research and development expenses remained stable at 4.3% in each of 2015 and 2016. The
decrease in research and development expenses in 2016 compared to 2015 was attributable to decreases in research and development
activities related to OLED and next generation technologies and products and in 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. In 2016, we recorded total net other income of W124 billion (US$103 million)
compared to total net other expense of W53 billion in 2015. The change was primarily due to a decrease in expenses related to legal
proceedings or claims and others from W128 billion in 2015 to W16 billion (US$13 million) in 2016, as well as an increase in net
foreign currency gain from W43 billion in 2015 to W123 billion (US$102 million) in 2016. See “Item 8.A.—Consolidated Statements
and Other Financial Information—Legal Proceedings” for a discussion of our legal proceedings and associated settlement payments,
and Note 25 of the notes to our financial statements.
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
19.1% from W157 billion in 2015 to W127 billion (US$106 million) in 2016.
51
Our finance income decreased by 11.9% from W159 billion in 2015 to W140 billion (US$116 million) in 2016, attributable
primarily to a decrease in interest income by 26.3% from W57 billion in 2015 to W42 billion (US$35 million) in 2016 and a decrease in
gain on disposal of investments in equity accounted investees by 52.2% from W23 billion in 2015 to W11 billion (US$9 million) in
2016. The decrease in interest income resulted primarily from a decrease in the average interest rates applicable to our financial assets,
as well as a decrease in our average amounts of financial assets outstanding, in 2016 compared to 2015. We recognized a gain on
disposal of investments in equity accounted investees in 2016 in connection with our disposal in July 2016 of a 51% equity interest in
Suzhou Raken Technology Co., Ltd. (“Suzhou Raken”) through an exchange of equity interests with AmTRAN Technology Co., Ltd by
which we concurrently acquired a 100% equity interest in Suzhou Lehui Display Co., Ltd., which was spun-off from Suzhou Raken,
and we recognized differences between book value and fair value of investments in Suzhou Raken. See Note 31 of the notes to our
financial statements.
Our finance costs decreased by 15.8% from W316 billion in 2015 to W266 billion (US$221 million) in 2016 mainly due to a
decrease in foreign currency loss by 15.4% from W156 billion in 2015 to W132 billion (US$110 million) in 2016 and a decrease in loss
on impairment of investments by 77.8% from W27 billion in 2015 to W6 billion (US$5 million) in 2016, as well as a decrease in
interest expense by 10.2% from W128 billion in 2015 to W115 billion (US$96 million) in 2016. The decrease in foreign currency loss
in 2016 compared to 2015 resulted primarily from a decrease in the range of fluctuation in value of the Korean Won relative to the U.S.
dollar on the applicable foreign currency remeasurement and transaction dates. We recorded an impairment loss in 2016 in connection
with a decrease in the carrying value of our investment in WooRee E&L Co., Ltd. The decrease in interest expense in 2016 compared to
2015 resulted primarily from a decrease in the average interest rates applicable to our financial liabilities during such period.
Income Tax Expense
Our income tax expense decreased by 6.3% from W411 billion in 2015 to W385 billion (US$320 million) in 2016, due to an
8.2% decrease in profit before income tax from W1,434 billion in 2015 to W1,316 billion (US$1,093 million) in 2016. Our effective tax
rate increased from 28.6% in 2015 to 29.2% in 2016 primarily due to an increase in unrecognized deferred tax assets (which accounted
for a 4.8% point increase in effective tax rate as compared to 2015) due to changes in estimates of future taxable income, the effect of
which was offset in part by an increase in tax credits largely due to an increase in capital expenditures eligible for tax credits (which
accounted for a 3.3% point decrease in effective tax rate as compared to 2015) during the same period. See Note 28 of the notes to our
financial statements. As of December 31, 2016, unused tax credit carryforwards of W108 billion (US$90 million) were not recognized
as deferred tax assets because we did not believe realization of such amounts would be probable. As of December 31, 2015, unused tax
credit carryforwards of W79 billion were not recognized.
Profit for the Year
As a result of the cumulative effect of the reasons explained above, our profit for the year decreased by 8.9% from
W1,023 billion in 2015 to W931 billion (US$773 million) in 2016.
Comparison of 2015 to 2014
Revenue
Our revenue increased by 7.3% from W26,456 billion in 2014 to W28,384 billion in 2015. The increase in revenue resulted
from increases in revenue from sales of panels for mobile and other applications and for televisions, which were in turn mainly due to
an increase in the average selling price of panels for mobile and other applications and an increase in the number of panels for
televisions sold, offset in part by a decrease in revenue derived from sales of panels for notebook computers, desktop monitors and
tablet computers. In particular:
• Demand for our large-sized television panels, comprising 42-inch and larger panels, which category includes four of our five
top selling television panels in 2015 in terms of sales volume, namely 42-inch, 43-inch, 49-inch and 55-inch panels, grew in
2015 compared to 2014, leading to an increase in the number of those panels sold by 11.1% from approximately 35.0 million
panels in 2014 to approximately 38.9 million panels in 2015. The increase in the number of our large-sized television panels
sold more than offset a decrease in the average selling price of those panels during the same period, resulting in an increase
in revenue derived from those panels.
52
• Demand for our 15.6-inch or smaller notebook computer panels, which category includes three of our top selling notebook
computer panels in 2015 in terms of sales volume, namely 13.3-inch, 14-inch and 15.6-inch panels, fell in 2015 compared to
2014, resulting in a decrease in the number of those panels sold by 7.9% from approximately 47.8 million panels in 2014 to
44.0 million panels in 2015. The decrease in the number of those panels sold more than offset an increase in the average
selling price of those panels during the same period, 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 four of our five top selling desktop monitor panels in terms of sales volume, namely 21.5-inch, 23-inch, 23.8-inch
and 27-inch panels, increased by 4.9% from approximately 30.9 million panels in 2014 to 32.4 million panels in 2015. The
increase in the number of those panels sold more than offset a slight decrease in the average selling price of those panels
during the same period, resulting in an increase in revenue derived from those panels. However, the increase in revenue
derived from our large-sized desktop monitor panels was more than offset by a decrease in revenue derived from our
small-sized desktop monitor panels over the same period, which was due to decreases in both the sales volume and average
selling price of those panels, resulting in an overall decrease in revenue from desktop monitor panels.
• Demand for our tablet computer panels smaller than 10 inches fell significantly in 2015 compared to 2014, leading to a
decrease in the number of those panels sold by 39.2% from 50.3 million panels in 2014 to 30.6 million panels in 2015. The
decrease in the number of those panels sold more than offset an increase in the average selling price of those panels during
the same period, resulting in a decrease in revenue derived from those panels.
•
In our mobile and other applications category, we experienced significant growth in demand for smartwatch panels and
continued growth in demand for larger smartphone panels in 2015 compared to 2014. For example, the number of units sold
of panels in this category that are under 2 inches, which category includes all of our smartwatch panels, increased more than
tenfold from approximately 1.0 million panels in 2014 to 13.0 million panels in 2015 and the number of units sold of panels
in this category that are between 4.2 inches and 6 inches, which category includes all of our larger smartphone panels and
accounts for more than 80% of our sales volume and amount in this category in 2015, increased by 22.4% from
approximately 145.9 million panels in 2014 to 178.5 million panels in 2015. The average selling price of those panels also
increased, together resulting in a significant increase in revenue derived from those panels.
Revenue attributable to sales of panels for televisions increased by 3.0% from approximately W10,540 billion in 2014 to
approximately W10,854 billion in 2015, resulting from an increase in the number of units sold in this category in 2015 compared to
2014, partially offset by a decrease in the average selling price of panels in this category in 2015 compared to 2014. The total unit sales
of panels for televisions increased by 7.6% from approximately 51.4 million panels in 2014 to approximately 55.3 million panels in
2015, whereas the average selling price of panels in this category decreased by 4.4% from approximately W205,226 in 2014 to
approximately W196,207 in 2015. The increase in revenue attributable to sales of panels for televisions primarily reflected an increase
in the sales volume of our television display panels that are more than 42-inch in size, in particular panels incorporating differentiated
specialty features, highlighting a general migration in demand from our small-sized to large-sized television panels. Such increase was
offset in part by the decrease in the average selling price of television panels over the same period, which was mainly due to an increase
in the proportion of our television display panels sold in open cell form without backlight units, which generally have lower selling
prices compared to television panels in module form with backlight units, and increased downward pricing pressure resulting from
capacity expansion and increased competition by our competitors in 2015 compared to 2014.
Revenue attributable to sales of panels for notebook computers decreased by 6.0% from approximately W2,669 billion in
2014 to approximately W2,509 billion in 2015, resulting from a decrease in the number of units sold in this category in 2015 compared
to 2014, partially offset by an increase in the average selling price of panels in this category in 2015 compared to 2014. The total unit
sales of panels for notebook computers decreased by 9.4% from approximately 50.2 million panels in 2014 to approximately
45.5 million panels in 2015, whereas the average selling price of panels in this category increased by 3.6% from approximately
W53,194 in 2014 to approximately W55,132 in 2015. The decrease in revenue attributable to sales of panels for notebook computers
primarily reflected a continued general shift in consumer demand for large smartphones as alternatives to notebook computers for
mobile computing applications, which in turn results in a similar shift in market demand for mobile panels over notebook computer
panels, partially offset by the increase in the average selling price of panels, which was attributable to an increase in the proportion of
panels with differentiated specialty features that command higher selling prices, such as touch screen and AH-IPS, in our product mix
for notebook computer panels.
53
Revenue attributable to sales of panels for desktop monitors decreased by 2.3% from approximately W4,660 billion in 2014
to approximately W4,553 billion in 2015, resulting from a decrease in the number of units sold in this category in 2015 compared to
2014, partially offset by an increase in the average selling price of panels in this category in 2015 compared to 2014. The total unit sales
of panels for desktop monitors decreased by 4.3% from approximately 43.8 million panels in 2014 to approximately 41.9 million panels
in 2015, whereas the average selling price of panels in this category increased by 2.2% from approximately W106,276 in 2014 to
approximately W108,632 in 2015. The decrease in revenue attributable to sales of panels for desktop monitors primarily resulted from a
general decrease in demand for desktop monitors in light of increased competition among other consumer computer screen devices,
partially offset by an increase in the average selling price of our desktop monitor panels, which was attributable to an increase in the
proportion of panels with differentiated specialty features that command higher selling prices, such as ultra-slim bezel borderless
designs and ultra-wide 21:9 screen aspect ratio, in our product mix for desktop panels.
Revenue attributable to sales of panels for tablet computers decreased by 29.1% from approximately W3,542 billion in 2014
to approximately W2,510 billion in 2015, resulting from a significant decrease in the number of units sold in this category in 2015
compared to 2014, partially offset by an increase in the average selling price of panels in this category in 2015 compared to 2014. The
total unit sales of panels for tablet computers decreased by 38.2% from approximately 51.0 million panels in 2014 to approximately
31.5 million panels in 2015, whereas the average selling price of panels in this category increased by 14.8% from approximately
W69,458 in 2014 to approximately W79,743 in 2015. The decrease in revenue attributable to sales of panels for tablet computers
reflected a maturing of the consumer market and plateauing of demand for tablet computers in general.
Revenue attributable to sales of panels for mobile and other applications increased significantly by 58.2% from
approximately W5,005 billion in 2014 to approximately W7,919 billion in 2015, resulting primarily from an increase in the average
selling price of panels in this category in 2015 compared to 2014, while the number of units sold in this category remained relatively
stable during the same period. The average selling price of panels for mobile and other applications increased by 58.2% from
approximately W23,120 in 2014 to approximately W36,566 in 2015, and the total unit sales of panels in this category increased slightly
from approximately 216.5 million in 2014 to approximately 216.6 million in 2015. The increase in the average selling price primarily
reflected a shift in our product mix toward smartwatch panels and larger smartphone panels that are equipped with newer technologies,
such as flexible OLED, Quad HD and in-TOUCH, and meet more advanced performance specifications, which tend to command a
higher price premium.
In addition, our revenue attributable to royalty and others decreased by 2.5% from W40 billion in 2014 to W39 billion in
2015. The decrease was due to a decrease 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 warranty service providers, from W25 billion in 2014 to W20 billion
in 2015, partially offset by an increase in royalties from W15 billion in 2014 to W19 billion in 2015.
Cost of Sales
Cost of sales increased by 6.2% from W22,667 billion in 2014 to W24,070 billion in 2015. The increase in our cost of sales
in 2015 compared to 2014 was attributable primarily to increases in raw materials and component costs due in part to the strengthening
of the U.S. Dollar, in which 86.7% of our raw materials and component part purchases were denominated in 2015, against the Korean
Won in 2015 compared to 2014, 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 overhead costs also contributed to the increase in
cost of sales in 2015 compared to 2014.
As a percentage of our total cost of sales, raw materials and component costs and overhead costs increased from 64.9% and
11.7%, respectively, in 2014 to 65.5% and 11.9%, respectively, in 2015, while depreciation and amortization costs and labor costs
decreased from 14.0% and 9.8%, respectively, in 2014 to 12.0% and 9.6%, respectively, in 2015.
As a percentage of revenue, cost of sales decreased from 85.7% in 2014 to 84.8% in 2015. The decrease in our cost of sales
as a percentage of revenue in 2015 compared to 2014 was attributable mainly to a decrease in depreciation and amortization costs,
resulting mainly from the end of estimated useful life of certain machinery and equipment assets in our AP2 production lines and the
second expansion to our P8 fabrication facilities in 2015.
54
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, remained relatively stable at W606,091 per square meter of net display area in 2014 and W608,415 in 2015.
Cost of sales per panel sold, which is derived by dividing total cost of sales by total number of panels sold, increased by 12.2% from
W54,903 in 2014 to W61,593 in 2015 due in part to increases in the proportion within each of our product categories of larger panel
units with differentiated specialty features, which generally have higher cost of sales per panel relative to other panel units within each
product category, sold in our product mix during the same period.
Gross Profit and Gross Margin
As a result of the cumulative effect of the reasons explained above, our gross profit increased by 13.9% from W3,789 billion
in 2014 to W4,314 billion in 2015, and our gross margin improved from 14.3% in 2014 to 15.2% in 2015. The continued shift in our
product mix toward higher-end products in 2015 resulted in increases in both the average selling price and cost of sales per panel sold in
2015 compared to 2014, 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.
Selling and Administrative Expenses
Selling and administrative expenses increased by 16.1% from W1,267 billion in 2014 to W1,471 billion in 2015. As a
percentage of revenue, our selling and administrative expenses increased from 4.8% in 2014 to 5.2% in 2015. The increase in selling
and administrative expenses in 2015 compared to 2014 was attributable primarily to increases in:
•
•
advertising expense, resulting from an increase in our marketing activities in 2015, primarily in North America and
Europe, in an effort to expand the market for OLED panels; and
depreciation expense, resulting primarily from an increase in capital expenditures for our OLED research and
development activities.
Such increases were offset in part by a decrease in warranty expenses in 2015 compared to 2014 resulting from a reduction
in certain defects in our products equipped with newer technologies during such period.
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, 2015:
Salaries
Expenses related to defined benefit plan
Other employee benefits
Shipping costs
Fees and commissions
Depreciation
Taxes and dues
Advertising
Warranty expenses
Rent
Insurance
Travel
Training
Others
Total
55
Year ended December 31,
2015
2014
(in billions of Won)
W 257
28
69
200
183
90
25
107
188
22
11
24
12
51
W 1,267
W 268
27
88
200
191
119
31
266
147
24
11
24
16
59
W 1,471
Research and Development Expenses
Research and development expenses increased by 4.6% from W1,164 billion in 2014 to W1,218 billion in 2015. As a
percentage of revenue, our research and development expenses decreased slightly from 4.4% in 2014 to 4.3% in 2015. The increase in
research and development expenses in 2015 compared to 2014 was attributable to increases in research and development activities
related to OLED and next-generation technologies and products and in 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 increased from W23 billion in 2014 to W53 billion in 2015, primarily due to a decrease in other miscellaneous income from
W66 billion in 2014 to W28 billion in 2015 as well as an increase in expenses related to legal proceedings or claims and others from
W109 billion in 2014 to W128 billion in 2015, offset in part by an increase in net foreign currency gain from W25 billion in 2014 to
W43 billion in 2015. Other miscellaneous income in 2014 included a non-recurring gain of W35 billion which was attributable to the
reimbursement of fines previously paid as a result of an appellate court’s decision to overturn a fine imposed by the Korea Fair Trade
Commission. See “Item 8.A.—Consolidated Statements and Other Financial Information—Legal Proceedings” for a discussion of our
legal proceedings and associated settlement payments, and Note 25 of the notes to our financial statements.
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 42.7%
from W111 billion in 2014 to W157 billion in 2015.
Our finance income increased by 51.4% from W105 billion in 2014 to W159 billion in 2015, attributable primarily to our
recording of a gain on disposal of investments in equity accounted investees of W23 billion in 2015 compared to no such gain in 2014
and an increase in foreign currency gain by 41.8% from W55 billion in 2014 to W78 billion in 2015. We recognized a gain on disposal
of investments in equity accounted investees in 2015 in connection with our acquisition in May 2015 of an additional 67% equity
interest in Global OLED Technology LLC (“Global OLED”), through which Global OLED became our consolidated subsidiary and we
recognized differences between book value and fair value of investments in Global OLED. The increase in foreign currency gain in
2015 compared to 2014 was due to an increase in the range of fluctuation in value of the Korean Won relative to the U.S. dollar over the
same period.
Our finance costs increased by 46.3% from W216 billion in 2014 to W316 billion in 2015 mainly due to an increase in
foreign currency loss by 83.5% from W85 billion in 2014 to W156 billion in 2015 and a loss on impairment of investments of
W27 billion in 2015, compared to no such loss in 2014, as well as an increase in interest expense by 16.4% from W110 billion in 2014
to W128 billion in 2015. The increase in foreign currency loss in 2015 compared to 2014 resulted primarily from an increase in the
range of fluctuation in value of the Korean Won relative to the U.S. dollar over the same period. We recognized an impairment loss in
2015 in connection with a decrease in the carrying value of our investment in Fuhu, Inc. The increase in interest expense in 2015
compared to 2014 resulted primarily from a decrease in capitalized interest on construction loans during such period.
Income Tax Expense
Our income tax expense increased by 26.5% from W325 billion in 2014 to W411 billion in 2015, primarily due to a 15.5%
increase in profit before income tax from W1,242 billion in 2014 to W1,434 billion in 2015. Our effective tax rate increased from
26.1% in 2014 to 28.6% in 2015 primarily due to our incurring more non-deductible expenses in 2015 compared to benefits in 2014
(which accounted for a 4.9% point increase in effective tax rate as compared to 2014) and a decrease in tax credits largely due to a
decrease in capital expenditures eligible for tax credits (which accounted for a 2.3% point increase in effective tax rate as compared to
2014) during the same period, the effect of which was offset in part by a decrease in unrecognized deferred tax assets (which accounted
for a 6.8% point decrease in effective tax rate as compared to 2014) during the same period. See Note 27 of the notes to our financial
statements. As of December 31, 2015, unused tax credit carryforwards of W79 billion were not recognized as deferred tax assets
because we did not believe realization of such amounts would be probable. As of December 31, 2014, unused tax credit carryforwards
of W325 billion were not recognized.
56
Profit for the Year
As a result of the cumulative effect of the reasons explained above, our profit for the year increased by 11.6% from
W917 billion in 2014 to W1,023 billion in 2015.
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
activities. We had cash and cash equivalents of W890 billion,W752 billion and W1,559 billion (US$1,295 million) as of December 31,
2014, 2015 and 2016, respectively. We also had short-term deposits in banks of W1,526 billion, W1,772 billion and W1,164 billion
(US$967 million), respectively, as of December 31, 2014, 2015 and 2016. 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, expansion or conversion of existing, fabrication
facilities and production lines 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 2017 to be primarily for capital expenditures and
repayment of maturing debt.
As of December 31, 2014, we had current assets of W9,241 billion and current liabilities of W7,550 billion, resulting in
working capital of W1,691 billion. As of December 31, 2015, we had current assets of W9,532 billion and current liabilities of
W6,607 billion, resulting in working capital of W2,925 billion. As of December 31, 2016, we had current assets of W10,484 billion
(US$8,710 million) and current liabilities of W7,058 billion (US$5,863 million), resulting in working capital of W3,426 billion
(US$2,847 million). The increase in working capital as of December 31, 2015 compared to December 31, 2014 was primarily
attributable to a W653 billion increase in trade accounts and notes receivable as of December 31, 2015 compared to December 31, 2014
mainly as a result of a W1,399 billion decrease during such period in trade accounts and notes receivable which were sold to financial
institutions but remained current and outstanding, and a W627 billion decrease in trade accounts and notes payable as of December 31,
2015 compared to December 31, 2014 mainly as a result of a decrease in purchases of raw materials and components in the fourth
quarter of 2015 compared to the fourth quarter of 2014 in anticipation of weakening demand for our products in early 2016. The
increase in working capital as of December 31, 2016 compared to December 31, 2015 was primarily attributable to an W860 billion
increase in trade accounts and notes receivable as of December 31, 2016 compared to December 31, 2015 mainly as a result of a
W291 billion (US$248 million) decrease during such period in trade accounts and notes receivable which were sold to financial
institutions but remained current and outstanding as well as an increase in sales during the fourth quarter of 2016 compared to the fourth
quarter of 2015, and a W748 billion decrease in current financial liabilities as of December 31, 2016 compared to December 31, 2015
mainly as a result of our repayment during 2016 of W1,416 billion of current portion of long-term debt outstanding as of December 31,
2015, offset in part by a W1,000 billion increase in other accounts payable as of December 31, 2016 compared to December 31, 2015
mainly as a result of our investments in our GP fabrication facility, the construction of our P10 fabrication facility in Paju, Korea and
investments in our E5 production line.
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. In 2016, we issued domestic debentures in the aggregate principal amount of W600 billion (US$498 million) and we
entered into a number of facility loan agreements, from which we have drawn down the full aggregate principal amount of W620 billion
(US$515 million), US$757 million (W915 billion) and RMB1,300 million (W225 billion) as of December 31, 2016 in long-term loans,
primarily to fund our capital expenditures and refinance our existing borrowings maturing in 2016. We have pledged property, plant and
equipment and other assets in the amount of RMB4,644 million (W805 billion) as security in connection with such facility loan
agreements.
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.
57
Our net cash provided by operating activities amounted to W2,865 billion in 2014, W2,727 billion in 2015 and
W3,641 billion (US$3,025 million) in 2016. The decrease in net cash provided by operating activities in 2015 compared to 2014 was
mainly due to (i) an increase of cash paid for purchases of components and raw materials resulting from an increase in sales, (ii) a
decrease in inventory and (iii) an increase in income taxes paid, which was attributable primarily to the use of tax loss carryforwards of
W111 billion in 2014 compared to no such tax loss carryforwards available in 2015. The increase in net cash provided by operating
activities in 2016 compared to 2015 was mainly due to (i) a decrease in cash paid for purchases of components and raw materials
resulting from an increase in accounts payable for such purchases and (ii) an increase in cash inflow from accounts receivable resulting
from a significant decrease of offset with advances received from customers.
The cyclical market conditions that are characteristic of our industry, as well as the regular ramp-up of our new fabrication
facilities and production lines and our cost reduction measures, contribute to the fluctuations in our inventory levels from period to
period. In 2015, steady consumption of our inventories in the fourth quarter of 2015 and changes to our product mix in anticipation of
weakening demand in the first half of 2016 contributed to a 14.6% decrease in our inventory levels from year-end 2014. In 2016, our
inventory levels decreased by 2.7% from year-end 2015.
Inventories consisted of the following for the dates indicated:
Finished goods
Work in process
Raw materials
Supplies
Total
2014
As of December 31,
2016
2015
2016(1)
(in billions of Won and millions of US$)
W1,201
746
426
381
W2,754
W 911
720
389
331
W2,351
W 931
686
355
316
W2,288
US$ 773
570
295
263
US$1,901
(1) For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of W1,203.73 to US$1.00, the noon buying rate in effect on December 31, 2016
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 W3,451 billion in 2014, W2,732 billion in 2015 and W3,189 billion
(US$2,649 million) in 2016. 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, expansion or conversion of existing, fabrication and module assembly facilities and acquisition of new
equipment. These cash outflows from capital expenditures amounted to W2,983 billion, W2,365 billion and W3,736 billion (US$3,104
million) in 2014, 2015 and 2016, 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.
We currently expect that, in 2017, our total capital expenditures on a cash out basis will be higher than in 2016, primarily to
fund the expansion of our panel production capacities for large-sized and small- and medium-sized OLED panels and the construction
of our P10 fabrication facility, a next-generation fabrication facility, in Paju, Korea, while maintaining and making 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.
Our net cash provided by financing activities amounted to W405 billion in 2014 and net cash used in financing activities
amounted to W174 billion in 2015. In 2016, net cash provided by financing activities amounted to W308 billion (US$256 million). The
net cash provided by financing activities in 2014 reflects primarily the net proceeds from short-term borrowings as well as capital
contributions from non-controlling interests. The net cash used in financing activities in 2015 reflects primarily the repayment of short-
term borrowings as well as the payment of dividends. The net cash provided by financing activities in 2016 reflects primarily the
increase in long-term borrowings.
58
At our shareholders meeting in 2014, we did not declare a cash dividend to our shareholders. On March 13, 2015, we
declared a cash dividend of W179 billion to our shareholders of record as of December 31, 2014 and distributed the cash dividend to
such shareholders on April 8, 2015. On March 11, 2016, we declared a cash dividend of W179 billion to our shareholders of record as
of December 31, 2015 and distributed the cash dividend to such shareholders on April 8, 2016. On March 23, 2017, we declared a cash
dividend of W179 billion to our shareholders of record as of December 31, 2016 and distributed the cash dividend to such shareholders
on April 13, 2017.
We had a total of W224 billion, nil and W113 billion (US$94 million) of short-term borrowings outstanding as of
December 31, 2014, 2015 and 2016, respectively. For further information regarding these short-term borrowings, please see Note 14 of
the notes to our financial statements.
As of December 31, 2016, we maintained accounts receivable negotiating facilities with several banks for up to an aggregate
amount of US$2,023 million. Our subsidiaries have also entered into various accounts receivable negotiating facilities. For further
information regarding these facilities, please see Note 18 of the notes to our financial statements.
As of December 31, 2016, we had outstanding long-term debt including current portion and discounts on debentures in the
amount of W4,670 billion (US$3,879 million), consisting of W1,885 billion of Korean Won denominated debentures, US$1,157 million
of U.S. dollar denominated long-term loans, RMB3,264 million of RMB denominated long-term loans, W200 billion of Korean Won
denominated commercial paper, and W623 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, 2016. For further information about our short- and long-term debt obligations as
of December 31, 2016, see Note 14 of the notes to our financial statements.
On December 19, 2016, we entered into an agreement to guarantee the payment obligations of our subsidiary LG Display
Vietnam Haiphong Co., Ltd. in the amount of US$100 million (W121 billion) under a credit facility LG Display Vietnam Haiphong
Co., Ltd. entered into with BNP Paribas, Singapore Branch and other lenders. Other than the foregoing, as of December 31, 2016, we
have not entered into any other financial guarantees or similar commitments to guarantee the payment obligations of our subsidiaries or
other third parties as of December 31, 2016.
Set forth below are the aggregate amounts, as of December 31, 2016, of our future contractual financing and licensing
obligations under our existing debt and other contractual arrangements:
Contractual Obligations
Short-Term Debt
Long-Term Debt, including current portion
Fixed License Payment
Long-Term Other Payables
Total
Estimates of interest payment based on contractual
interest rates effective as of December 31, 2016
Total
W 113,209
4,669,742
134,785
3,992
W4,912,728
Payments Due by Period
Less than
1 year
W113,209
554,943
41,472
—
W709,624
1-3 years
(in millions of Won)
W
—
3,447,511
93,313
3,992
W3,544,816
3-5 years
W —
527,288
—
—
W527,288
More than
5 years
W —
140,000
—
—
W140,000
W 268,750
W116,363
W 127,062
W 22,488
W 2,837
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 display products.
59
Expenses relating to our license fees and royalty payments under existing license agreements were W69 billion in 2014,
W88 billion in 2015 and W94 billion (US$78 million) in 2016, representing 4.0% of our research and development related expenditures
in 2014, 5.7% in 2015 and 6.6% in 2016. We expect to make additional license fee payments as we enter into new technology license
agreements from time to time with third parties.
Taxation
In 2016, the statutory corporate income tax rate applicable to us was 11.0% (including local income surtax) for the first
W200 million of our taxable income, 22.0% (including local income surtax) for our taxable income between W200 million and
W20 billion and 24.2% (including local income surtax) for our taxable income in excess of W20 billion.
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 up to 4% for our capital investments made
outside certain areas of Seoul on or before December 31, 2017 provided that there isn’t a decrease in the number of our employees
compared to the previous year.
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, 2016, we had available deferred tax assets related to these credits of W287 billion (US$239 million),
which may be utilized against future income tax liabilities through 2021. In addition, we also had unused tax credit carryforwards of
W108 billion (US$90 million) as of December 31, 2016 for which no deferred tax asset was recognized.
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 W1,788 billion in 2014, W1,547 billion in 2015 and W1,423 billion (US$1,182 million) in 2016, representing
6.8% of our revenue in 2014, 5.4% in 2015 and 5.4% in 2016.
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 2014, we unveiled a 98-inch Quad Ultra HD television panel, which has four times the resolution (7,680 x 4,320
pixels) of a conventional Ultra HD panel. We also developed an 18-inch transparent OLED panel (transparency level
of 30%) and an 18-inch flexible OLED panel with a radius of curvature of 30 mm. We successfully commercialized a
1.3-inch circular plastic OLED smartwatch panel for LG Electronics’ G Watch R smartwatch and a 5.5-inch Full HD
plastic OLED smartphone panel for LG Electronics’ G Flex 2 smartphone. In addition, we successfully commenced
mass production of display panels incorporating three state-of-the-art technologies: M+ pixel structure, Ultraviolet
Alignment and Advanced In-cell Touch, or in-TOUCH, technologies. M+ pixel structure technology improves
transmittance and reduces power consumption. Ultraviolet Alignment technology utilizes ultraviolet light to more
effectively align liquid crystals and improves contrast ratio and reproduction. In-TOUCH technology reduces the
thickness of a touch panel as touch technology is built into the panel cell as opposed to the existing on-cell method,
whereby a touch film is added on top of the panel.
60
•
•
In 2015, we developed the world’s first Ultra HD OLED television panels, including 65-inch and 77-inch panels that
feature High Dynamic Range functionality with perfect black and improved luminance. In addition, we unveiled a
55-inch “wallpaper” OLED television panel which was slim and light enough to attach to the wall simply by using
magnets or wires. We were able to achieve this width using an innovative production method whereby the electric
circuits are installed in a separate process. In the commercial space, we developed the world’s first 55-inch double-
sided OLED panel for commercial use, which shows different images on each side while achieving a width of only
5.3 mm, as well as a 139-inch Vertical Tiling OLED display that is made of eight 65-inch OLED panels connected
together in a double-sided S-curved pattern. We also successfully commenced mass production of in-TOUCH panels
for notebook computers. With respect to smartphones, we developed the world’s first 5.5-inch Quad HD in-TOUCH
panel and the world’s first 5.7-inch free-form Quad HD panel.
In 2016, we developed a wallpaper-thin 65-inch OLED television panel with a thickness of 2.57mm. In addition, we
unveiled a 65-inch Ultra HD OLED television panel with speakers integrated into the display, which we call “ Crystal
Sound OLED,” or “CSO,” and we developed a 65-inch ultra-slim OLED television panel that applies High Dynamic
Range technology to achieve 800 nit peak luminance and improved display quality. We also developed a 55-inch Full
HD transparent OLED television panel, with a transparency level of 40%. In the case of LCD panels, we developed
the world’s first 86-inch ultra-stretch format LCD television panel with a 58:9 screen aspect ratio. With respect to
monitors, we successfully developed the world’s first in-TOUCH monitor panel as well as the world’s largest, at the
time, 21:9 screen aspect ratio IPS curved monitor utilizing Ultra Wide Quad HD technology. With respect to
smartphones, we introduced our “Always-On Display” technology which enables the display of 24-hour information
such as date, day, time, and battery status even when the screen is off, and reduces unnecessary power waste. We also
unveiled the world’s first 12.3-inch transparent OLED display and 6.13-inch mirror display for Glass OLED. In
addition, we are developing Cluster and Center Information Display technology for plastic OLED applications in the
automotive market.
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, smartwatches, 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.
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. As of December 31,
2016, we employed over 4,600 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 2017 to 2036. 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.
61
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, China and the United States. 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.
Expenses relating to our license fees and royalty payments under existing license agreements were W69 billion in 2014,
W88 billion in 2015 and W94 billion (US$78 million) in 2016, representing 4.0%, 5.7% and 6.6% of our research and development
related expenditures in 2014, 2015 and 2016, respectively. We recognized royalty income in the amount of W17 billion in 2014,
W19 billion in 2015 and W14 billion (US$12 million) in 2016. The following are examples of license agreements we have entered into:
• We have a license agreement with each of 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.
• 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 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. 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 18 of the notes to our financial statements.
Item 5.F.
Tabular Disclosure of Contractual Obligations
Presented in Item 5.B. above.
62
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 07336, 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
Jin Jang
Date of Birth
November 28, 1954
Position
First Elected/
Appointed
Director March 2011
Term Expires
March 2020
Joon Park
October 30, 1954
Director March 2013
March 2019
Principal Occupation
Outside of LG Display
Chair Professor,
Department of
Information Display,
Kyung Hee University
Professor, School of
Law, Seoul National
University
Sung Sik Hwang
Kun Tai Han
July 24, 1956
Director
January 2015
March 2018 —
October 30, 1956
Director March 2016
March 2019
Chief Executive
Officer, Hans
Consulting
63
Our Non-Outside Directors
Our current non-outside directors are set out in the table below:
Name
Sang Beom Han
June 18, 1955
Date of Birth
Position
Sang Don Kim
October 20, 1962
First Elected/
Appointed
Term Expires
Principal Occupation
Outside of LG Display
March 2012 March 2018 —
March 2014 March 2019 —
Chairman of the Board,
Representative Director,
Vice Chairman and Chief
Executive Officer
Director, Senior Vice
President and Chief
Financial Officer
Hyun Hwoi Ha
December 18, 1956
Director
March 2017 March 2020
President, LG Corp.
Our Non-Director Executive Officers
Our current non-director executive officers are set out in the table below:
Name
Date of Birth
Position
First Elected/Appointed
Business Group/Unit
Sang Deog Yeo
December 3, 1955
Yu Seoung Yin
June 20, 1956
Soo Youle Cha
October 21, 1957
Yong Kee Hwang
January 8, 1958
Bang Soo Lee
November 19, 1958
Kyong Deuk Jeong
January 9, 1963
Sang Mun Shin
July 26, 1959
Hyung Seok Choi
October 27, 1999
President and Chief
Marketing Officer
Executive Vice President and
Head of China Operation
Group
Executive Vice President in
TV Business Unit
Executive Vice President and
Head of TV Business Unit
Executive Vice President and
Head of Business Support
Group
Executive Vice President and
Head of IT Business Unit
Executive Vice President and
Chief Production Officer
Executive Vice President and
Head of Mobile Business
Unit
January 2015
January 2009
—
—
January 2014
TV Business Unit
January 2014
TV Business Unit
January 2016
—
January 2016
IT Business Unit
January 2017
CPO
January 2017
Mobile Business Unit
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.
64
Sang Beom Han has served as chairman of the board of directors since March 2017, vice chairman since January 2016,
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.
Sang Don 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.
Hyun Hwoi Ha has served as director since March 2017. Mr. Ha is currently president of LG Corp. He also served as
president and head of the home entertainment business division of LG Electronics. Mr. Ha holds a bachelor’s degree in history from
Pusan National University and a master’s degree in business administration from Waseda University.
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.
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.
Sung Sik Hwang has served as outside director since January 2015. Mr. Hwang previously served as president of Samchully
Co., Ltd., vice-president of Kyobo Life Insurance Co., Ltd. and vice-president of Samil PricewaterhouseCoopers. Mr. Hwang holds
bachelor’s and master’s degrees in business administration from Seoul National University and a Ph.D. from Korea Advanced Institute
of Science and Technology.
Kun Tai Han has served as outside director since March 2016. Mr. Han is currently the chief executive officer of Hans
Consulting. Previously, Mr. Han served as the chief executive officer of Korea Leadership Center Co., Ltd. Mr. Han holds a bachelor’s
degree in textile engineering from Seoul National University, a master’s degree in business administration from the Helsinki School of
Economics and Business Administration and a Ph.D. in Polymer Engineering from the University of Akron.
Sang Deog Yeo has served as president since January 2015 and is our chief marketing officer. Mr. Yeo previously served as
head of our OLED Business Unit. 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.
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.
Soo Youle Cha has served as executive vice president since January 2014 and is in our TV Business Unit. Mr. Cha
previously served as head of our OLED Panel Group. Mr. Cha holds a bachelor’s degree in electronic engineering from Sogang
University.
Yong Kee Hwang has served as executive vice president since January 2014 and as head of our TV Business Unit since May
2012. Mr. Hwang previously served as chief technology officer. Mr. Hwang holds a bachelor’s degree in mechanical design engineering
from Pusan University.
Bang Soo Lee has served as executive vice president since January 2016 and as head of our Business Support Group since
January 2010. Mr. Lee previously served as head of our General Affairs & Public Relations Division. Mr. Lee holds a bachelor’s degree
in business administration from Hanyang University.
65
Kyong Deuk Jeong has served as executive vice president since January 2016 and as head of our IT Business Unit since
December 2015. Mr. Jeong previously served as head of our IT/Mobile Business Unit and as head of Panel Center. Mr. Jeong holds a
bachelor’s degree and a master’s degree in physics from Kyungpook National University.
Sang Mun Shin has served as executive vice president since January 2017 and as Chief Production Officer since December
2016. Mr. Shin previously served as head of our Production Technology Center and as head of our Module1 Center. Mr. Shin holds a
bachelor’s degree and master’s degree in electronics from Kyungpook National University.
Hyung Seok Choi has served as executive vice president since January 2017 and as head of our Mobile Business Unit since
December 2016. Mr. Choi previously served as head of our Advanced Panel Business Unit and as head of our TV Sales/Marketing
Group. Mr. Choi holds a bachelor’s degree in english literature from Korea University and a master’s degree in business administration
from Georgetown University
Item 6.B.
Compensation
The aggregate remuneration and benefits-in-kind we paid in 2016 to our executive officers and our directors was
W8.3 billion (US$6.9 million). This included W1,397 million (US$1.2 million) in salary and W769 million (US$0.6 million) in bonus
paid to Sang Beom Han, our chief executive officer, and W388 million (US$0.3 million) in salary and W163 million (US$0.1 million)
in bonus paid to Sang Don Kim, our chief financial officer. In addition, as of December 31, 2016, our accrued severance and retirement
benefits to those officers and directors amounted to W12.3 billion (US$10.2 million).
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 2016, we paid a premium of approximately US$1.5 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.
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
Under our articles of incorporation, our board of directors may establish other committees if they deem them necessary. Our
board of directors 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.
66
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: Sung Sik Hwang, Joon Park and Kun Tai Han. The chairman is Sung Sik Hwang.
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 for
the nomination of outside directors. As of December 31, 2016, our Outside Director Nomination Committee was comprised of two
outside directors, Joon Park and Sung Sik Hwang, and one non-outside director, 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 meetings as necessary for the nomination of outside directors.
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 Sang Don 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.
67
Item 6.D.
Employees
As of December 31, 2016, we had 49,094 employees, including 16,873 employees in our overseas subsidiaries. The
following table provides a breakdown of our employees by function as of December 31, 2014, 2015 and 2016:
Employees(1)
Production
Technical(2)
Sales & Marketing
Management & Administration
Total
(1)
(2)
Includes employees of our subsidiaries.
Includes research and development and engineering personnel.
As of December 31,
2015
38,663
8,007
1,527
1,008
49,205
2014
39,246
7,733
1,468
974
49,421
2016
38,502
8,039
1,545
1,008
49,094
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, 2016, approximately 66.4% 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, 2016, our recognized liabilities for defined benefit obligations
amounted to W143 billion (US$119 million). See Note 15 of the notes to our financial statements for a discussion on the method of
calculating our recognized liabilities for defined benefit obligations.
As of December 31, 2016, our employee stock ownership association owned approximately 0.0001% of our common stock.
Item 6.E.
Share Ownership
Common Stock
The persons who are currently our executive officers held, as a group, 55,581 shares of our common stock as of April 27,
2017, 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 do 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 .
68
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 by each person or entity
known to us as of April 27, 2017 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
35,762,452
Percentage
37.9%
10.0%
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 27, 2017. 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 20 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.
From time to time, we provide payment guarantees for the benefit of certain of our subsidiaries. For a discussion of such
payment guarantee obligations, please see “Item 5.B. Liquidity and Capital Resources.”
Transactions with Companies in the LG Group
Sales to LG Electronics
We sell 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 W5,809 billion (US$4,826 million), or 21.9% of our sales, in 2016.
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 W616 billion (US$512 million), or 2.3% of our sales, in 2016. 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.
69
Purchases from LG Electronics
We purchase equipment, 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 W1,141 billion (US$948 million), or 6.0% of our total purchases, in
2016.
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 W989 billion (US$822 million), or 5.2% of our total purchases, in 2016.
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 W1,327 billion (US$1,102 million), or 7.0% of our total purchases, in
2016.
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 W2,482 billion (US$2,062 million), or
13.0% of our total purchases, in 2016.
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, 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 27, 2017, 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.
70
Item 8.
FINANCIAL INFORMATION
Item 8.A.
Consolidated Statements and Other Financial Information
See “Item 18. Financial Statements” and pages F-1 through F-107.
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 December 2013, Delaware Display Group LLC and Innovative Display Technologies LLC filed a patent infringement
action against LG Display and LG Display America in the U.S. District Court for the District of Delaware. In December 2015,
Delaware Display Group LLC and Innovative Display Technologies LLC filed a new patent infringement action against LG Display
and LG Display America in the U.S. District Court for the District of Delaware with respect to three patents that were dismissed without
prejudice from the aforementioned patent infringement action. Since May 3, 2016, the December 2015 action has remained stayed. In
August 2016, Innovative Display Technologies LLC filed a new patent infringement action against LG Display and LG Display
America in the U.S. District Court for the Eastern District of Texas with respect to two new patents. In April 2017, the parties filed a
stipulation of dismissal of the cases and amicably settled all claims asserted in these actions.
In March 2014, Surpass Tech Innovation LLC filed a patent infringement action against LG Display and LG Display
America in the U.S. District Court for the District of Delaware. In April 2017, the case was terminated pursuant to a stipulation of
dismissal filed by the parties.
In November 2016, Vesper Technology Research LLC filed a patent infringement action against LG Display and LG Display
America in the U.S. District Court for the Eastern District of Texas. In March 2017, the case was terminated pursuant to a stipulation of
filed by the parties.
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.
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, which has since been paid. 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 and LG Display paid the fine in full in April 2014. In May 2014, LG
Display filed an appeal with the European Court of Justice requesting annulment of the European Union General Court’s judgment and
further reduction of the fine imposed by the European Commission’s decision, and in April 2015 the European Court of Justice upheld
the decision of the European Union General Court.
71
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. In August 2014, the Japan Fair Trade Commission terminated its investigation without any finding of
violations or levying of fines. In August 2014, LG Display executed a settlement agreement with the Brazilian Administrative Council
for Economic Defense (CADE), for R$33.9 million, which resolved all administrative charges against LG Display provided that it
continues to cooperate with the ongoing investigation.
In December 2011, the Korea Fair Trade Commission imposed a fine of W31.4 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. In June 2014, the Supreme Court of Korea upheld the lower court’s decision.
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. LG
Display has since reached settlement with each of the attorneys general that had filed action.
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, 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 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 separate claims in the United States. 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.
The cases were 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 July 2015, LG Display was dismissed from the Motorola
case and as of April 27, 2017, LG Display has reached settlement with each of the other plaintiffs mentioned above.
In December 2014, iiyama filed claims in the High Court of Justice in the United Kingdom against LG Display and other
unrelated entities alleging damages arising from the European Commission’s finding on December 8, 2010 that the Company engaged
in anticompetitive activities in the LCD industry in violation of European competition laws. In October 2015, we issued an application
contesting the jurisdiction of the English courts to hear the claims of iiyama. A hearing of such application took place in May 2016, and
such application was dismissed by judgment in July 2016. We have been granted permission to appeal the judgment to the Court of
Appeal, and the appeal is due to be heard in December 2017.
72
In 2007, class action complaints were filed against LG Display and other TFT-LCD manufacturers in the Canadian provinces
of British Columbia, Ontario and Quebec. In November 2016, LG Display reached settlement with the provinces of British Columbia,
Ontario and Quebec.
In December 2013, a class action complaint was filed by Hatzlacha, a consumer organization, on behalf of Israeli consumers
in the Central District in Israel. In June 2015, LG Display and other defendants filed a motion to cancel leave to serve process, which
was denied in March 2016. In April 2016, LG Display and other defendants appealed this decision to the District Court for the Central
District. In December 2016, the District Court for the Central District granted the appeal, holding that the leave to serve the class action
on LG Display (and the other defendants) outside the jurisdiction of Israel is revoked. In January 2017, Hatzlacha filed a motion for
leave to appeal to the Supreme Court.
In April 2014, Deyi Investment Limited (“Deyi”) 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. In May 2015, we submitted an application to set
aside service out of jurisdiction, which was approved by the court in October 2015. In November 2015, Deyi appealed the approval of
our application to the High Court of the Hong Kong Special Administrative Region Court of Appeal and that court dismissed Deyi’s
appeal. In August 2014, Shenzhenshi Shihang Trading Company 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 27, 2017, LG Display has
not received service of Shenzhenshi Shihang Trading Company Limited’s complaint.
In September 2016, a class action civil lawsuit was filed against us, LG Display America, Inc. and others in the U.S. District
Court for the Northern District of California, alleging participation in an agreement with other companies not to solicit one another’s
employees. In January 2017, LG Display filed a motion to dismiss and a motion for sanctions against the plaintiffs.
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. As of December 31, 2016, we have not recognized any provisions with respect to any legal claims, based on our management’s
assessment of the likely outcomes. However, the actual outcomes may be different from those estimated as of December 31, 2016 and
may have an 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.
At our annual general meeting of shareholders that was held on March 7, 2014 we did not declare a cash dividend to our
shareholders. On March 13, 2015, we declared a cash dividend of W500 per share of common stock, amounting to a total cash dividend
of W179 billion, to our shareholders of record as of December 31, 2014 and distributed the cash dividends to such shareholders on April
8, 2015. On March 11, 2016, we declared a cash dividend of W500 per share of common stock, amounting to a total cash dividend of
W179 billion, to our shareholders of record as of December 31, 2015 and distributed the cash dividends to such shareholders on April 8,
2016. On March 23, 2017, we declared a cash dividend of W500 per share of common stock, amounting to a total cash dividend of
W179 billion, to our shareholders of record as of December 31, 2016 and distributed the cash dividends to such shareholders on
April 13, 2017.
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.
73
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
and has a par value of W5,000 per share of common stock, has been listed on the Korea Exchange since July 23, 2004 under the
identifying code 034220. As of December 31, 2016, 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, 2016, 27,797,140 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
2012
2013
2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
October
November
December
2017
First Quarter
January
February
March
Second Quarter (through
April 27)
April (through April 27)
Closing Price Per
Common Stock
High
Low
36,200
33,050
26,950
31,800
35,700
35,850
36,900
32,350
25,550
25,900
26,950
27,400
32,150
32,000
29,950
28,750
32,000
32,500
32,500
31,050
30,450
31,400
31,400
20,050
22,300
23,100
26,700
31,900
29,600
30,650
25,000
20,800
20,600
20,950
23,600
26,650
26,200
27,300
26,200
27,800
27,300
30,250
27,300
27,700
29,800
29,800
Average Daily
Trading Volume
(in thousands of shares)
2,499
2,087
1,752
1,471
1,203
1,172
1,379
1,737
1,760
1,688
1,615
1,263
1,238
1,141
1,110
1,084
1,229
1,770
1,592
1,894
1,819
1,786
1,786
Closing Price Per ADS
High
Low
16.79
14.93
12.76
15.77
17.40
15.86
17.08
14.92
11.41
10.99
11.61
12.09
14.32
13.50
13.50
12.15
13.39
14.01
14.01
13.57
13.76
13.88
13.88
8.52
10.54
10.69
12.76
15.53
14.14
13.55
11.23
8.64
8.86
8.57
9.92
11.46
11.31
12.01
11.31
11.87
12.02
13.07
12.13
12.02
12.85
12.85
Average Daily
Trading Volume
(in thousands of DRs)
661
609
551
394
214
401
405
549
758
554
434
468
423
404
325
588
299
486
464
571
434
423
423
Source: Korea Exchange; New York Stock Exchange.
Item 9.B. Plan of Distribution
Not applicable.
74
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, 2016, the aggregate market value of equity securities listed on the Korea Exchange was W1,308 trillion.
The average daily trading volume of equity securities for 2016 was 377 million shares with an average transaction value of
W4,523 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. Under the aggregate value 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.
75
Movements in KOSPI for the periods indicated are set out in the following table:
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
2015
2016
2017 (through April 27)
Source: The Korea Exchange
Opening
264.82
532.04
919.61
908.59
679.75
624.23
697.41
879.32
1,013.57
888.85
653.79
385.49
587.57
1,059.04
520.95
724.95
635.17
821.26
893.71
1,389.27
1,435.26
1,853.45
1,132.87
1,696.14
2,070.08
1,826.37
2,031.10
1,967.19
1,926.44
1,918.76
2,026.16
High
525.11
922.56
1,007.77
928.82
763.10
691.48
874.10
1,138.75
1,016.77
986.84
792.29
579.86
1,028.07
1,059.04
704.50
937.61
822.16
936.06
1,379.37
1,464.70
2,064.85
1,888.88
1,723.17
2,052.97
2,228.96
2,049.28
2,059.58
2,082.61
2,173.41
2,068.72
2,209.46
Low
264.82
527.89
844.75
566.27
586.51
459.07
605.93
855.37
847.09
651.22
350.68
280.00
498.42
500.60
468.76
584.04
515.24
719.59
870.84
1,203.86
1,355.79
938.75
992.69
1,532.68
1,652.71
1,769.31
1,780.63
1,886.85
1,829.81
1,835.28
2,026.16
Closing
525.11
907.20
909.72
696.11
610.92
678.44
866.18
1,027.37
882.94
651.22
376.31
562.46
1,028.07
504.62
693.70
627.55
810.71
895.92
1,379.37
1,434.46
1,897.13
1,124.47
1,682.77
2,051.00
1,825.12
1,997.05
2,011.34
1,915.59
1,961.31
2,026.46
2,209.46
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 1,000
1,000 to 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
76
Rounded Down to Won
1
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:
Year
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
2015
2016
2017 (through April 27)
Market Capitalization on
the Last Day of Each Period
Average Daily Trading Volume, Value
Number of
Listed
Companies
342
355
389
502
626
669
686
688
693
699
721
760
776
748
725
704
689
683
684
683
702
731
745
763
770
766
791
784
777
773
770
779
770
(Billions
of Won)
6,570
11,994
26,172
64,544
95,477
79,020
73,118
84,712
112,665
151,217
141,151
117,370
70,989
137,799
349,504
188,042
255,850
258,681
355,363
412,588
655,075
704,588
951,918
576,928
887,935
1,141,885
1,041,999
1,154,294
1,185,974
1,192,253
1,242,832
1,308,440
1,432,679
(Millions
of US$)(1)
7,362
13,863
32,884
93,895
140,119
109,872
95,541
107,027
138,870
190,762
181,943
138,490
41,881
114,261
307,662
148,415
194,785
216,071
298,624
398,597
648,589
757,622
1,017,223
457,152
763,060
1,009,981
899,438
1,085,638
1,123,880
1,092,918
1,062,922
1,086,988
1,263,163
Thousands
of Shares
18,925
31,755
20,353
10,367
11,757
10,866
14,022
24,028
35,130
36,862
26,130
26,571
41,525
97,716
278,551
306,163
473,241
857,245
542,010
372,895
467,629
279,096
363,741
355,205
485,657
379,171
353,760
486,480
328,325
278,082
455,256
376,773
393,630
(Millions
of Won)
12,315
32,870
70,185
198,364
280,967
183,692
214,263
308,246
574,048
776,257
487,762
486,834
555,759
660,429
3,481,620
2,602,211
1,997,420
3,041,598
2,216,636
2,232,109
3,157,662
3,435,180
5,540,151
5,190,181
5,795,552
5,619,768
6,863,146
4,823,643
3,993,422
3,983,580
5,351,734
4,523,044
4,550,765
(Thousands
of US$)(1)
13,798
37,991
88,183
288,571
412,338
255,412
279,973
389,445
707,566
979,257
628,721
574,435
327,881
547,619
3,064,806
2,053,837
1,520,685
2,540,590
1,862,719
2,156,419
3,126,398
3,693,742
5,920,230
4,112,663
4,980,495
4,970,607
5,924,166
4,536,740
3,784,337
3,651,679
4,577,026
3,757,523
4,012,312
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 2017, which is converted at the noon buying rate as certified by the Federal Reserve Bank of New
York in effect on April 21, 2017 (the latest available noon buying rate prior to filing this annual report).
77
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.
Foreign Investors’ Access to the Korean Securities Market
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 KRX KOSPI Market. Remittance and repatriation of funds in connection with 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.
Foreign investors are permitted to invest in warrants representing the right to subscribe for shares of a company listed on the
KRX KOSPI Market or registered on 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.
Foreign investors are 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. Foreigners are permitted to invest in
certificates of deposit and repurchase agreements.
Currently, foreigners are permitted to invest in securities including shares of all Korean companies that are not listed on the
KRX KOSPI Market nor registered on the KRX KOSDAQ Market 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.
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.
78
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 W50 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.
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
W5,000 per share. We are authorized to issue preferred stock of up to 40,000,000 shares. As of December 31, 2016, 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.
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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.
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;
80
•
•
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 W2.5
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, 2016, approximately 0.0001% of our common stock was 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 use Maeil Business Newspaper and The Chosun Ilbo, published in Seoul, Korea, for such 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.
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.
81
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.
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.
82
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.
83
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 Financial
Investment Services and Capital Markets 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.
84
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;
subject to certain exceptions, 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;
85
•
•
•
•
•
•
shares acquired by way of direct investment and/or the disposal of such shares by the investor;
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.
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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.
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, unless otherwise stated in their articles of incorporation,
designated public corporations are subject to a 40% ceiling on the acquisition of shares by foreigners in the aggregate. 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.
87
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 beneficial owner of the dividends and 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.
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 Korean tax laws for capital gains recognized or to be recognized from disposition of ADSs, 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 the lower of (i) 11% (including local income surtax) of the gross realization proceeds and
(ii) 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, 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.
88
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.
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. 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.
89
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 60% of the
non-reported tax amount or 10% to 60% 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.
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 shares of common stock or ADSs. This summary applies to you only if you hold the shares of
common stock or 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 or financial institution;
a life insurance company;
a tax-exempt organization;
an entity treated as a partnership (and partners therein) or other pass-through entity for U.S. federal income tax
purposes;
a person that holds shares of common stock or ADSs that are a hedge or that are hedged against interest rate or
currency risks;
a person that holds shares of common stock or 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.
In addition, this summary does not discuss the application of the Medicare net investment income tax or the alternative
minimum tax. Please consult your own tax advisers concerning the consequences of purchasing, owning, and disposing of shares of
common stock or 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 a share of common stock or 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 share of common
stock or 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.
90
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 that you receive the dividend (or the date of the
depositary’s receipt of the dividend, in the case of ADSs), 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 (a “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 2016 taxable year. In addition, based on 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 2017 taxable year.
Distributions of additional shares in respect of shares of common stock or 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.
Sale or Other Disposition
For U.S. federal income tax purposes, gain or loss you realize on the sale or other disposition of shares of common stock or
ADSs will be treated as U.S. source capital gain or loss, and will be long-term capital gain or loss if the shares of common stock or
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 shares of common stock or ADSs, so long as you have owned the shares
of common stock or 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 a 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 short-term or 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.
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Specified Foreign Financial Assets
Certain U.S. holders that own “specified foreign financial assets” with an aggregate value in excess of US$50,000 are
generally required to file an information statement along with their tax returns, currently on Form 8938, with respect to such assets.
“Specified foreign financial assets” include any financial accounts held at a non-U.S. financial institution, as well as securities issued by
a non-U.S. issuer (which would include shares of common stock or ADSs) that are not held in accounts maintained by financial
institutions. Higher reporting thresholds apply to certain individuals living abroad and to certain married individuals. Regulations
extend this reporting requirement to certain entities that are treated as formed or availed of to hold direct or indirect interests in
specified foreign financial assets based on certain objective criteria. U.S. holders who fail to report the required information could be
subject to substantial penalties. Prospective investors should consult their own tax advisors concerning the application of these rules to
their investment in shares of common stock or ADSs, including the application of the rules to their particular circumstances.
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.
Holders that are not U.S. persons generally are not subject to information reporting or backup withholding. However, such a
holder may be required to provide a certification of its non-U.S. status in connection with payments received within the United States or
through a U.S. related financial intermediary.
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.
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.
92
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,
2016, we had outstanding long-term debt, including current portion, in the amount of W4,666 billion (US$3,876 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, 2016, W350 billion (US$291 million) of our Korean Won denominated
floating rate long-term borrowings were hedged against interest rate fluctuations using variable-to-fixed interest rate swap contracts that
expire in 2018 and 2019. In connection with such contracts, we recognized a loss on valuation of derivatives of W228 million (US$189
thousand) in 2016. The table below provides information about our interest rate swap contracts. The table presents notional amounts
used to calculate the contractual payments to be exchanged under such contracts.
2017
2018
Expected Maturity Dates
2019
2020
2021
Thereafter
Total
Fair Value at
December 31,
2016
Interest rate swaps
Variable to fixed (W)(1)
Average pay rate
Average receive rate
(in billions of Won, except for interest rate percentages)
—
1.6%
1.5%
W200.0
1.6%
1.5%
W150.0
— —
1.4% — —
1.6% — —
— W350.0 W 350.0
—
—
(1) Average pay rates and average receive rates are applicable to the total notional amounts outstanding until maturity.
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, 2016, we had US$1,157 million aggregate principal amount of U.S. dollar denominated long-term loans
and RMB3,264 million aggregate principal amount of RMB denominated long-term loans. The interest rates on these loans are set
based on three-month U.S. dollar LIBOR plus 0.55% to 2.00%, six-month U.S. dollar LIBOR plus 0.62% and 90% of the rate published
by the People’s Bank of China, as applicable. The table below provides information about our financial instruments that are sensitive to
changes in interest rates. The risk associated with fluctuating interest expense is principally limited to our U.S. dollar denominated and
RMB denominated term loans, and we do not believe that a near-term 10% change of the effective interest rate would have a significant
impact on our cash flows. We currently do not have any capital lease obligations.
93
2017
2018
Expected Maturity Dates
2019
Thereafter
(in billions of Won, except for interest rate percentages)
2021
2020
Fair Value at
December 31,
2016
Total
Long-term debt
obligations
Fixed rate (W)
W370.4
W504.8
W759.1
W107.8
W336.5
W 124.7
W2,203.4 W 2,229.8
Average interest rate
3.0%
2.8%
2.4%
Variable rate (W)
W 0.4
W200.0
W300.0
Average interest rate
1.8%
1.7%
2.1%
Variable rate (RMB)
W 0.2
W340.4
W224.9
Average interest rate
4.3%
4.3%
4.3%
Variable rate (US$)
W183.7
W470.9
W645.0
Average interest rate
2.1%
1.8%
2.3%
2.5%
—
—
—
—
72.5
1.9%
2.1%
—
—
—
—
24.2
1.9%
2.7%
—
—
—
—
—
—
W 500.4 W 500.4
W 565.5 W 565.5
W1,396.3 W 1,396.3
For a further discussion of our interest rate risk exposures, including a further sensitivity analysis on our interest rate risk
exposures, see Note 13 of the notes to our financial statements.
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, 2016, we had U.S. dollar
denominated sales-related trade accounts and notes receivable of US$3,558 million, which represented 86.7% of our trade accounts and
notes receivable, and U.S. dollar denominated sales-related trade accounts payable of US$1,204 million, which represented 48.4% of
our trade accounts payable.
As of December 31, 2016, we also had RMB denominated sales-related trade accounts and notes receivable of
RMB1,776 million, which represented 6.2% of our trade accounts and notes receivable, net, and Japanese Yen denominated sales-
related trade accounts and notes receivable of ¥10 million. In addition, we had RMB denominated sales-related trade accounts payable
of RMB2,567 million and Japanese Yen denominated sales-related trade accounts payable of ¥14,940 million, which represented 15.1%
and 5.3% of our trade accounts and notes payable, 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, 2016, we did not have any outstanding foreign
currency forward contracts.
Based on our overall foreign currency exposure as of December 31, 2016, 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 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.
94
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 79% of our sales in 2014
and 82% in each of 2015 and 2016. 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 2.3% of our sales in 2016, 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 to the notes to our financial statements.
According to the Korean Statistical Information Service, the rate of inflation in Korea was 1.3% in 2014, 0.7% in 2015 and
1.0% in 2016. Inflation has not had a material impact on our results of operations in recent years.
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
Fees
Up to US$0.05 per ADS issued
Up to US$0.05 per ADS canceled
Distribution of cash dividends or other cash distributions
Up to US$0.02 per ADS held
Distribution of ADSs pursuant to (i) stock dividends or other free
stock distributions or (ii) exercise of rights to purchase additional
ADSs
Up to US$0.02 per ADS held
Distribution of securities other than ADSs or rights to purchase
additional ADSs
Up to US$0.05 per ADS held
Other ADS services
Up to US$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.
95
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.
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 2016, we received the following payments, after deduction of applicable U.S. taxes, from the depositary:
Reimbursement of proxy process expenses (printing, postage and distribution)
Contributions towards our investor relations efforts (i.e. non-deal roadshows, investor conferences and IR
agency fees) and legal expenses incurred in connection with the preparation of our Form 20-F for the fiscal
year 2015
US$499,255.31
US$ 55,369.29
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, 2016. 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.
96
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
(2013) 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, 2016. The effectiveness of our internal
control over financial reporting as of December 31, 2016 has been audited by our 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 2016 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
Item 16.
[RESERVED]
Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Sung Sik Hwang 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 registered public accounting firm, 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, 2015 and 2016:
Audit fees
Tax fees
All other fees
Total fees
Year ended December 31,
2015
2016
(in millions of Won)
W 3,641
172
38
W 3,851
W 3,733
103
21
W 3,857
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.
Tax fees in the above table are fees billed by KPMG for tax compliance services and other tax advice.
97
All other fees for 2015 in the above table are the aggregate fees billed by KPMG for services related to information security
trends of global enterprises and the utilization of such trend information for benchmarking purposes and all other fees for 2016 in the
above table are the aggregate fees billed by KPMG for services related to our professional curriculm training for certain of our
employees.
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 2016, 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.
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
Director Independence
Listed companies must have a majority of independent directors.
Nomination/Corporate Governance Committee
Listed companies must have a nomination/corporate governance
committee composed entirely of independent directors. The
committee must have a charter that addresses the purpose,
responsibilities (including development of corporate governance
guidelines) and annual performance evaluation of the committee.
98
LG Display’s Corporate Governance Practice
The majority of our board of directors is independent (as
defined in accordance with the New York Stock Exchange’s
standards), as four out of seven directors are outside directors.
Although we have not established a separate
nomination/corporate governance committee, 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. The committee must have a charter
that addresses the purpose, responsibilities and annual performance
evaluation of the committee. The charter must be made available on
the company’s website. In addition, in accordance with the U.S.
Securities and Exchange Commission rules adopted pursuant to
Section 952 of the Dodd-Frank Act, the New York Stock Exchange
listing standards were amended to expand the factors relevant in
determining whether a committee member has a relationship with the
company that will materially affect that member’s duties to the
compensation committee.
Executive Session
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.
Non-management directors of listed companies must meet in
regularly scheduled executive sessions without management.
Independent directors should meet alone in an executive session at
least once a year.
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. All members
must be independent. The committee must have a charter addressing
the committee’s purpose, an annual performance evaluation of the
committee, and the duties and responsibilities of the committee. The
charter must be made available on the company’s website.
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
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.
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.
99
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.
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.
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.
We have adopted a 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.
Item 16H. MINE SAFETY DISCLOSURE
Not applicable.
100
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, 2015 and 2016
Consolidated statements of comprehensive income (loss) for the years ended December 31, 2014, 2015 and 2016
Consolidated statements of changes in equity for the years ended December 31, 2014, 2015 and 2016
Consolidated statements of cash flows for the years ended December 31, 2014, 2015 and 2016
Notes to consolidated financial statements
101
Page
F-2
F-4
F-6
F-8
F-10
F-14
Item 19.
EXHIBITS
Number
1.1*
2.1*
2.2*
2.3*
2.4*
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)
Form of Amendment No. 1 to Deposit Agreement (including Form of American Depositary Receipt) (incorporated by
reference to Exhibit (a)(i) to the Registration Statement (No. 333-147661) on Post Effective Amendment No. 1 to Form
F-6, filed on July 30, 2014)
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.
102
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, Vice Chairman and
Chief Executive Officer
/s/ SANG DON KIM
(Signature)
Name: Sang Don Kim
Title: Director, Senior Vice President and Chief
Financial Officer
Date: April 28, 2017
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Position
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Page
F-2
F-4
F-6
F-8
F-10
F-14
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, 2015 and 2016 and the related consolidated statements of comprehensive income, changes in equity and cash flows for
each of the years in the three-year period ended December 31, 2016. We also have audited LG Display Co., Ltd.’s internal control over
financial reporting as of December 31, 2016, based on criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013). 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, 2015 and 2016 and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 2016, 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, 2016, based on criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013).
/s/ KPMG Samjong Accounting Corp.
Seoul, Korea
April 26, 2017
F-3
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Financial Position
As of December 31, 2015 and 2016
(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
Deposits in banks
Investments in equity accounted 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
Note
December 31, 2015
December 31, 2016
6, 13
6, 13
7, 13, 18, 20
7, 13
8, 13
9
7
6, 13
10
8, 13
11, 21
12, 21
28
7
W
751,662
1,772,337
4,097,836
105,815
4,904
2,351,669
3,469
443,942
9,531,634
13
384,755
49,732
10,546,020
838,730
930,629
295,647
13,045,526
W 22,577,160
1,558,696
1,163,750
4,957,993
143,592
28,016
2,287,785
592
343,762
10,484,186
13
172,683
74,633
12,031,449
894,937
867,011
359,424
14,400,150
24,884,336
F-4
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Financial Position, Continued
As of December 31, 2015 and 2016
(In millions of won)
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
Defined benefit liabilities, net
Deferred tax liabilities
Other non-current liabilities
Total non-current liabilities
Total liabilities
Equity
Share capital
Share premium
Retained earnings
Reserves
Total equity attributable to owners of the Controlling Company
Non-controlling interests
Total equity
Total liabilities and equity
See accompanying notes to the consolidated financial statements.
F-5
Note
December 31, 2015
December 31, 2016
13, 20
13, 14
13
16
17
13, 14
16
15
28
17
19
19
W 2,764,694
1,416,112
1,499,722
633,113
91,726
109,897
51,127
40,321
6,606,712
2,808,204
11,817
353,798
34,663
57,010
3,265,492
9,872,204
1,789,079
2,251,113
8,158,526
(5,766)
12,192,952
512,004
12,704,956
W 22,577,160
2,877,326
667,909
2,449,517
639,629
257,082
55,972
61,818
48,966
7,058,219
4,111,333
8,155
142,987
32,108
69,146
4,363,729
11,421,948
1,789,079
2,251,113
9,004,283
(88,478)
12,955,997
506,391
13,462,388
24,884,336
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2014, 2015 and 2016
(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 in income of equity accounted investees, net
Profit before income tax
Income tax expense
Profit for the year
Other comprehensive income (loss)
Items that will never be reclassified to profit or loss
Remeasurements of net defined benefit liabilities
Other comprehensive income (loss) from associates and joint ventures
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
Other comprehensive income (loss) from associates and joint ventures
Related income tax
Other comprehensive income (loss) for the year, net of income tax
Total comprehensive income for the year
F-6
2014
Note
20, 21 W 26,455,529
9, 20
(22,667,134)
3,788,395
(746,686)
(520,160)
(1,164,294)
1,071,903
(1,095,071)
105,443
(215,536)
17,963
1,241,957
(324,553)
917,404
2015
28,383,884
(24,069,572)
4,314,312
(878,368)
(592,517)
(1,217,929)
1,273,901
(1,326,782)
158,829
(316,229)
18,765
1,433,982
(410,526)
1,023,456
2016
26,504,074
(22,754,270)
3,749,804
(694,914)
(610,479)
(1,133,972)
1,591,801
(1,467,831)
139,671
(266,186)
8,339
1,316,233
(384,725)
931,508
(147,822)
189
35,773
(111,860)
733
43,950
(7,322)
(119)
37,242
(74,618)
842,786
(110,257)
(607)
26,682
(84,182)
(288)
44,913
19,176
214
64,015
(20,167)
1,003,289
155,346
200
(37,594)
117,952
(77)
(90,503)
(5,416)
19
(95,977)
21,975
953,483
23
23
25
25
26
26
10
27
15, 27
15, 27
26, 27
26, 27
27
27
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income, Continued
For the years ended December 31, 2014, 2015 and 2016
(In millions of won, except earnings per share)
Profit attributable to:
Owners of the Controlling Company
Non-controlling interests
Profit for the year
Total comprehensive income attributable to:
Owners of the Controlling Company
Non-controlling interests
Total comprehensive income for the year
Earnings per share (In won)
Basic earnings per share
Diluted earnings per share
See accompanying notes to the consolidated financial statements.
F-7
Note
2014
2015
2016
904,268
13,136
W 917,404
966,553
56,903
1,023,456
906,713
24,795
931,508
820,239
22,547
W 842,786
940,448
62,841
1,003,289
941,953
11,530
953,483
29 W 2,527
29 W 2,527
2,701
2,701
2,534
2,534
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Changes in Equity
For the years ended December 31, 2014, 2015 and 2016
(In millions of won)
Balances at January 1, 2014
Total comprehensive income (loss) for the year
Profit for the year
Other comprehensive income (loss)
Transaction with owners, recognized directly in equity
Decrease of share interest in non-controlling interests
Capital contribution from non-controlling interests
Balances at December 31, 2014
Balances at January 1, 2015
Total comprehensive income (loss) for the year
Profit for the year
Other comprehensive income (loss)
Attributable to owners of the Controlling Company
Retained
premium earnings Reserves
6,662,655
2,251,113
Sub-total
(91,674) 10,611,173
Share
capital
W 1,789,079
Share
Non-controlling
interests
186,247
Total
equity
10,797,420
—
—
—
W
—
—
—
904,268
(111,860)
792,408
—
27,831
27,831
904,268
(84,029)
820,239
13,136
9,411
22,547
917,404
(74,618)
842,786
—
—
W 1,789,079
—
—
2,251,113
—
—
7,455,063
—
—
—
—
(63,843) 11,431,412
(2,955)
146,159
351,998
(2,955)
146,159
11,783,410
W 1,789,079
2,251,113
7,455,063
(63,843) 11,431,412
351,998
11,783,410
—
—
—
—
—
—
966,553
(84,182)
882,371
—
58,077
58,077
W
966,553
(26,105)
940,448
(178,908)
—
—
—
—
—
(5,766) 12,192,952
56,903
5,938
62,841
1,023,456
(20,167)
1,003,289
—
(5,743)
(178,908)
(5,743)
102,908
512,004
102,908
12,704,956
Transaction with owners, recognized directly in equity
Dividends to equity holders
Subsidiaries’ dividends distributed to non-controlling interests
Capital contribution from non-controlling interests
Balances at December 31, 2015
—
—
—
W 1,789,079
—
—
—
2,251,113
(178,908)
—
—
8,158,526
F-8
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Changes in Equity, Continued
For the years ended December 31, 2014, 2015 and 2016
Balances at January 1, 2016
Total comprehensive income (loss) for the year
Profit for the year
Other comprehensive income (loss)
Attributable to owners of the Controlling Company
Retained
premium earnings Reserves
8,158,526
2,251,113
Sub-total
(5,766) 12,192,952
Share
capital
W 1,789,079
Share
Non-controlling
interests
512,004
Total
equity
12,704,956
—
—
—
—
—
—
906,713
117,952
1,024,665
—
(82,712)
(82,712)
906,713
35,240
941,953
W
24,795
(13,265)
11,530
931,508
21,975
953,483
Transaction with owners, recognized directly in equity
Dividends to equity holders
Subsidiaries’ dividends distributed to non-controlling interests
Balances at December 31, 2016
—
—
W 1,789,079
—
—
2,251,113
(178,908)
—
9,004,283
See accompanying notes to the consolidated financial statements.
F-9
(178,908)
—
—
—
(88,478) 12,955,997
—
(17,143)
506,391
(178,908)
(17,143)
13,462,388
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2014, 2015 and 2016
(In millions of won)
Cash flows from operating activities:
Profit for the year
Adjustments for:
Income tax expense
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 accounted investees, net
Other income
Other expenses
F-10
Note
2014
2015
2016
W 917,404
1,023,456
931,508
27
11, 22
12, 22
15, 24
10
324,553
3,222,085
270,226
(63,626)
89,453
196,756
(8,989)
2,173
8,097
332,699
495
672
492
—
(55,655)
148,129
(17,963)
(14,508)
277,128
5,629,621
410,526
2,969,394
406,462
(73,057)
80,084
199,033
(18,179)
4,037
3,027
363,755
682
29
239
(80)
(81,572)
222,699
(18,765)
(12,454)
269,995
5,749,311
384,725
2,643,445
378,126
(250,508)
161,897
220,962
(14,637)
7,466
1,610
204,123
(19)
75
138
—
(58,748)
187,931
(8,339)
(15,546)
182,468
4,956,677
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
For the years ended December 31, 2014, 2015 and 2016
(In millions of won)
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 other non-current liabilities
Change in provisions
Change in defined benefit liabilities, net
Cash generated from operating activities
Income taxes paid
Interests received
Interests paid
Net cash provided by operating activities
F-11
Note
2014
(921,928)
(14,195)
(219,599)
(1,156,196)
(93,987)
390,046
(229,679)
245,373
(18,242)
18,248
(187,021)
(339,482)
3,102,959
(110,720)
39,452
(167,170)
W 2,864,521
2015
(1,061,400)
38,411
87,130
41,107
(78,859)
(670,565)
(459,730)
(66,071)
14,015
48,240
(143,228)
(279,672)
3,218,689
(414,007)
58,860
(136,965)
2,726,577
2016
(553,756)
62,981
126,616
(98,435)
(126,256)
(114,977)
66,930
(16,431)
17,272
21,641
(160,462)
(276,459)
3,905,341
(187,816)
48,911
(125,530)
3,640,906
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
For the years ended December 31, 2014, 2015 and 2016
(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 available-for-sale financial assets
Proceeds from disposal of available-for-sale financial assets
Acquisition of financial assets at fair value through profit or loss
Acquisition of investments in equity accounted investees
Proceeds from disposal of investments in equity accounted 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
Increase in long-term loans
Decrease in deposits
Increase in deposits
Net cash inflow from disposal of subsidiaries, net of cash transferred
Acquisition of businesses, net of cash acquired
Net cash used in investing activities
F-12
Note
2014
2015
2016
W
1,340
1,651,176
(1,884,533)
(3,607)
12,650
—
(324)
8,832
(2,982,549)
39,647
(353,298)
—
49,424
—
—
8
—
2,932
(1,522)
8,545
—
(3,451,279)
25,577
2,306,672
(2,544,114)
(4,550)
2,263
—
(30,647)
7,263
(2,364,988)
447,320
(294,638)
1,135
5,017
(35)
—
—
(16,516)
—
(1,595)
—
(270,093)
(2,731,929)
59,820
3,293,398
(2,684,810)
(859)
507
(1,500)
—
29,745
(3,735,948)
278,067
(405,167)
261
6,393
4,008
(2,132)
8,202
(32,498)
2,436
(9,105)
—
—
(3,189,182)
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
For the years ended December 31, 2014, 2015 and 2016
(In millions of won)
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
Subsidiaries’ dividends distributed to non-controlling interests
Capital contribution from non-controlling interests
Dividends paid
Net cash provided by (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-13
Note
2014
2015
2016
219,839
(14,747)
597,563
846,759
(503,618)
(887,296)
—
146,159
—
404,659
(182,099)
1,021,870
50,068
W 889,839
—
(223,626)
298,778
901,451
(324,570)
(744,788)
(5,743)
102,908
(178,908)
(174,498)
(179,850)
889,839
41,673
751,662
107,345
—
597,573
1,667,060
(347,693)
(1,520,287)
(17,143)
—
(178,908)
307,947
759,671
751,662
47,363
1,558,696
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
1.
Reporting Entity
(a) Description of the Controlling Company
LG Display Co., Ltd. (the “Controlling Company”) was incorporated in February 1985 and the Controlling Company is a
public corporation listed in the Korea Exchange since 2004. The main business of the Controlling Company and its
subsidiaries (the “Group”) is to manufacture and sell displays and its related products. As of December 31, 2016, the Group
is operating Thin Film Transistor Liquid Crystal Display (“TFT-LCD”) and Organic Light Emitting Diode (“OLED”) panel
manufacturing plants in Gumi, Paju and China and TFT-LCD and OLED module manufacturing plants in Gumi, Paju, China
and Poland. The Controlling Company is domiciled in the Republic of Korea with its address at 128 Yeouidae-ro,
Yeongdeungpo-gu, Seoul, the Republic of Korea. As of December 31, 2016, LG Electronics Inc., a major shareholder of the
Controlling Company, owns 37.9% (135,625,000 shares) of the Controlling Company’s common stock.
The Controlling Company’s common stock is listed on the Korea Exchange under the identifying code 034220. As of
December 31, 2016, 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, 2016, there are 27,797,140 ADSs
outstanding.
F-14
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
Date of
incorporation
September 24,
1999
October 12,
1999
November 5,
1999
April 12,
1999
July 15,
2002
Business
Sell Display
products
Sell Display
products
Sell Display
products
Sell Display
products
Manufacture
Display products
Capital
stocks
USD 411
JPY 95
EUR 1
NTD 116
CNY 3,020
CNY 4
PLN 511
100%
December 31
100%
December 31
January 16,
2003
Sell Display
products
September 6,
2005
Manufacture
Display products
100%
December 31
June 30,
2006
Manufacture
Display products
CNY 1,655
1.
Reporting Entity, Continued
(b) Consolidated Subsidiaries as of December 31, 2016
(In millions)
Subsidiaries
LG Display America,
Inc.
LG Display Japan Co.,
Ltd.
Location
San Jose, U.S.A.
Percentage
of
ownership
100%
Fiscal
year end
December 31
Tokyo, Japan
100%
December 31
LG Display Germany
GmbH
Ratingen,
Germany
100%
December 31
LG Display Taiwan Co.,
Ltd.
Taipei, Taiwan
100%
December 31
Nanjing, China
100%
December 31
Shanghai,
China
Wroclaw,
Poland
Guangzhou,
China
Shenzhen,
China
LG Display Nanjing
Co., Ltd. (*1)
LG Display Shanghai
Co., Ltd.
LG Display
Poland Sp. z o.o.
LG Display
Guangzhou Co., Ltd.
LG Display Shenzhen
Co., Ltd.
LG Display Singapore
Pte. Ltd.
L&T Display
Technology (Fujian)
Limited
LG Display Yantai Co.,
Ltd.
Nanumnuri Co., Ltd.
100%
December 31
Singapore
100%
December 31
Fujian, China
51%
December 31
Yantai, China
100%
December 31
100%
December 31
Gumi,
South
Korea
August 28,
2007
January 12,
2009
January 5,
2010
April 19,
2010
March 21,
2012
LG Display (China) Co.,
Ltd. (*2)
Guangzhou,
China
70%
December 31
December 10,
2012
Unified Innovative
Technology, LLC
Wilmington,
U.S.A.
100%
December 31
LG Display Guangzhou
Trading Co., Ltd.
Guangzhou,
China
100%
December 31
March 12,
2014
April 28,
2015
F-15
Sell Display
products
Sell Display
products
Manufacture and
sell LCD
module and
LCD monitor
sets
Manufacture
Display products
Janitorial
services
Manufacture and
sell Display
products
Manage
intellectual
property
Sell Display
products
CNY 4
USD 1.1
CNY 116
CNY 1,008
KRW 800
CNY 8,156
USD 9
CNY 1.2
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
1.
Reporting Entity, Continued
(b) Consolidated Subsidiaries as of December 31, 2016, Continued
Subsidiaries
Global OLED
Technology, LLC
LG Display Vietnam
Haiphong Co., Ltd. (*3)
Suzhou Lehui Display
Co., Ltd. (*4)
Location
Herndon, U.S.A.
Percentage
of
ownership
100%
Fiscal
year end
December 31
Haiphong,
Vietnam
Suzhou, China
100%
December 31
100%
December 31
Date of
incorporation
December 18,
2009
May 5,
2016
July 1,
2016
Business
Manage OLED
intellectual
property
Manufacture
Display products
Manufacture and
sell LCD
module and
LCD monitor
sets
Capital
stocks
USD 138
VND 2,187,870
CNY 637
(*1) In December 2016, the Controlling Company contributed W13,979 million in cash for the capital increase of LG Display Nanjing
Co., Ltd. (“LGDNJ”). There was no change in the Controlling Company’s ownership percentage in LGDNJ as a result of this
additional investment.
(*2) In October 2016, LG Display Guangzhou Co., Ltd. (“LGDGZ”) contributed W1,465 million in cash for the capital increase of LG
Display (China) Co., Ltd. (“LGDCA”). The Group’s ownership percentage in LGDCA increased from 70.00% to 70.03% as a
result.
(*3) In May 2016, the Controlling Company established LG Display Vietnam Haiphong Co., Ltd. to manufacture Display products. As
of December 31, 2016, the Controlling Company has a 100% equity interest of this subsidiary and its capital stock amounts to
W117,378 million.
(*4) In July 2016, Suzhou Raken Technology Co., Ltd., a joint venture of the Controlling Company and AmTRAN Technology Co.,
Ltd. (“AmTRAN”), split into Suzhou Raken Technology Co., Ltd. and Suzhou Lehui Display Co., Ltd. The Controlling Company
acquired 100% equity interest in Suzhou Lehui Display Co., Ltd. and AmTRAN acquired 100% equity interest in Suzhou Raken
Technology Co., Ltd., respectively, by exchanging equity interests (note 31).
As of December 31, 2016, LG Display U.S.A., Inc., a subsidiary of the Controlling Company, completed its voluntary liquidation.
W430,534 million, W531,304 million and W349,977 million, respectively, are attributable to the Controlling Company over the
distributed dividends from consolidated subsidiaries for the years ended December 31, 2014, 2015 and 2016.
F-16
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
1.
Reporting Entity, Continued
(c) Associates as of December 31, 2016
(In millions of won)
Associates
Location
Percentage
of
ownership
2015 2016
Fiscal
year end
Date of
incorporation
Business
Paju Electric Glass Co.,
Ltd.
Paju, South Korea 40% 40% December 31
New Optics Ltd.
Yangju,
South Korea
46% 46% December 31
INVENIA Co., Ltd. (LIG
INVENIA Co., Ltd.) (*1)
Seongnam, South
Korea
13% 13% December 31
WooRee E&L Co., Ltd.
(*1)(*2)
LB Gemini New Growth
Fund No. 16 (*3)
Ansan, South Korea 21% 14% December 31
Seoul, South Korea 31% 31% December 31
Can Yang Investments
Limited (*1)
Hong Kong
9% 9%
December 31
YAS Co., Ltd. (*1)(*4)
Paju, South Korea 19% 18% December 31
January
2005
August
2005
January
2001
June
2008
December
2009
January
2010
April
2002
Narenanotech Corporation
AVATEC Co., Ltd. (*1)
(*5)
Yongin,
South
Korea
Daegu,
South
Korea
23% 23% December 31
December
1995
16% 17% December 31
Arctic Sentinel, Inc. (Fuhu,
Inc.) (*1)
Los Angeles USA 10% 10%
March 31
August
2000
June
2008
Carrying
amount
W 52,750
40,045
2,450
8,627
8,647
5,580
9,883
23,717
20,984
—
Manufacture
electric glass 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
Develop and
manufacture
deposition
equipment for
OLEDs
Manufacture and
sell FPD
manufacturing
equipment
Process and sell
electric glass for
FPDs
Develop and
manufacture
tablet for kids
F-17
W 172,683
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
1.
Reporting Entity, Continued
(*1) Although the Controlling Company’s share interests in INVENIA Co, Ltd., WooRee E&L Co., Ltd., Can Yang Investments
Limited, YAS Co., Ltd., AVATEC Co., Ltd and Arctic Sentinel, Inc. 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 or the transactions between the
Controlling Company and the investees are significant. Accordingly, the investments in these investees have been accounted for
using the equity method.
(*2) In 2016, the Controlling Company’s ownership percentage in WooRee E&L Co., Ltd. (“WooRee E&L”) decreased from 21% to
14% as the Controlling Company did not participate in the capital increase of WooRee E&L. The Controlling Company
recognized an impairment loss of W6,137 million as finance cost for the difference between the carrying amount and the
recoverable amount of investment in WooRee E&L.
(*3) The Controlling Company is a member of limited partnership in the LB Gemini New Growth Fund No.16 (“the Fund”). In
February and June 2016, the Controlling Company received W2,820 million, W2,330 million, respectively, from the Fund as
capital distribution. There was no change 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 W30,000 million.
(*4) The Controlling Company’s ownership percentage in YAS Co., Ltd. decreased from 19% to 18% as the Controlling Company did
not participate in the capital increase of YAS Co., Ltd.
(*5) In 2016, AVATEC Co., Ltd. retired its treasury stock and the Controlling Company’s ownership percentage in AVATEC Co., Ltd.
increased from 16% to 17% as a result.
In 2016, the Controlling Company disposed of the entire investments in TLI Inc. and AVACO Co., Ltd. for W7,839 million
W16,756 million, respectively, and recognized W3,064 million W4,290 million, respectively, for the difference between the
disposal amount and the carrying amount as finance income.
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, 2017.
(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:
•
•
derivative instruments, financial assets at fair value through profit or loss and available-for-sale financial assets are
measured at fair value, and
net defined benefit liabilities 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.
F-18
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
2.
Basis of Presenting Financial Statements
(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))
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 (note 3.(j), 16 and 18)
Net realizable value of inventories (note 9)
Measurement of defined benefit obligations (note 15)
Deferred tax assets and liabilities (note 28)
3.
Summary of Significant Accounting Policies
The significant accounting policies followed by the Group in preparation of its consolidated financial statements are as follows:
(a) Consolidation
(i) Business combinations
The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The
consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any
goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss
immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities in
accordance with IAS 32 and IAS 39. The consideration transferred does not include amounts related to the settlement of pre-
existing relationships. Such amounts are generally recognized in profit or loss.
(ii) 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.
F-19
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
3.
Summary of Significant Accounting Policies, Continued
(a) Consolidation, Continued
(iii) 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.
(iv) 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.
(v) 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 joint ventures 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.
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.
(vi) 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.
F-20
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
3.
Summary of Significant Accounting Policies, Continued
(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 non-operating income (expense) in the consolidated statement of comprehensive income. Relevant
foreign currency differences are presented in gross amounts in the consolidated statement of comprehensive income.
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.
F-21
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
3.
Summary of Significant Accounting Policies, Continued
(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 (“FVTPL”), are recognized in the consolidated
statement of financial position when the Group becomes a party to the contractual provisions of the instrument.
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 FVTPL, loans and receivables and available-
for-sale financial assets.
Financial assets at fair value through profit or loss
A financial asset is classified at FVTPL 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 FVTPL 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 FVTPL are measured at fair value, and changes therein are
recognized in profit or loss.
F-22
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
3.
Summary of Significant Accounting Policies, Continued
(d) Financial Instruments, Continued
(i) Non-derivative financial assets, Continued
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.
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 FVTPL, 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.
F-23
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
3.
Summary of Significant Accounting Policies, Continued
(d) Financial Instruments, Continued
(ii) Non-derivative financial liabilities
The Group classifies financial liabilities into two categories, financial liabilities at FVTPL 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 FVTPL include financial liabilities held for trading or designated as such upon initial recognition at
FVTPL. After initial recognition, financial liabilities at FVTPL 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 FVTPL 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, 2016, 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
Incremental costs directly attributable to the issuance of common shares are recognized as a deduction from equity, net of tax
effects.
F-24
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
3.
Summary of Significant Accounting Policies, Continued
(d) Financial Instruments, Continued
(iv) Derivative financial instruments
Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and
changes therein are accounted for as described below.
Hedge accounting
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, the Group’s management formally designates and 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, both at
the inception of the hedge relationship as well as on an ongoing basis.
i) Fair value hedges
Change in the fair value of a derivative hedging instrument designated as a fair value hedge and the hedged item is
recognized in profit or loss, respectively. The gain or loss from remeasuring the hedging instrument at fair value and the gain
or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the
statement of comprehensive income. The Group discontinues fair value hedge accounting if it does not designate the
derivative hedging instrument and the hedged item as the hedge relationship between them anymore or if the hedging
instrument expires or is sold, terminated or exercised, or if the hedge no longer meets the criteria for hedge accounting. Any
adjustment arising from gain or loss on the hedged item attributable to the hedged risk is amortized to profit or loss from the
date the hedge accounting is discontinued.
ii) Cash flow hedges
When a derivative designated as a cash flow hedging instrument meets the criteria of cash flow hedge accounting, the
effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and the
ineffective portion of changes in the fair value of the derivative is recognized in profit or loss. The Group discontinues cash
flow hedge accounting if it does not designate the derivative hedging instrument and the hedged item as the hedge
relationship between them any more or if the hedging instruments expires or is sold, terminated or exercised, or if the hedge
no longer meets the criteria for hedge accounting. The cumulative gain or loss on the hedging instrument that has been
recognized in other comprehensive income is reclassified to profit or loss in the periods during which the forecasted
transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive
income is recognized immediately in profit or loss.
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 FVTPL.
Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.
F-25
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
3.
Summary of Significant Accounting Policies, Continued
(d) Financial Instruments, Continued
(iv) Derivative financial instruments, Continued
Other derivative financial instruments
Derivative financial instruments are measured at fair value and changes of them not designated as a hedging instrument or
not effective for hedging are recognized 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 non-operating income
or other non-operating 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
4
4, 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-26
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
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-27
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
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-28
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
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
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 FVTPL 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-29
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
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-30
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
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-31
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
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, and it is
probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made of
the amount of 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.
Provisions for claims, assessments, litigation, fines, and penalties and other sources are evaluated each reporting period by
management in consultation with legal counsel and adjusted when appropriate based on the status and development of each
matter.
(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-32
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
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-33
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
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 21 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 FVTPL, 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 FVTPL, 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-34
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
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 Per Share
The Group presents basic and diluted earnings 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 shares 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 shares outstanding, adjusted for the effects of all dilutive
potential common shares such as convertible bonds and others.
F-35
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
3.
Summary of Significant Accounting Policies, Continued
(q) Change in Accounting Policies
The Group has consistently applied the accounting policies to the consolidated financial statements for 2016 and 2015 except
for the new amendment effective for annual periods beginning on or after January 1, 2016 as mentioned below.
(i) IAS 1, Presentation of Financial Statements
The Group has adopted the amendment to IAS 1, Presentation of Financial Statements, since January 1, 2016. The
amendment clarifies that the disclosed line items can be omitted, added, or aggregated based on materiality. In addition, the
amendment clarifies that the share in the other comprehensive income of associates and joint ventures should be presented
separately in the financial statements based on whether they will or will not subsequently be reclassified to profit or loss.
Also, additional requirements for disclosures in the notes and others are provided.
The Group has adopted the amendment to IAS 1 and separated the share of other comprehensive income of associates and
joint ventures into the share of items that (i) will be reclassified subsequently to profit or loss or (ii) will not be reclassified
subsequently to profit or loss.
The Group retrospectively adopted this change in accounting policy and restated the comparative consolidated statements of
comprehensive income (loss) and changes in equity for the years ended December 31, 2014 and 2015.
(r) New Standards and Amendments Not Yet Adopted
The following new standards and amendments to existing standards have been published and are mandatory for the Group
for annual periods beginning after January 1, 2016, and the Group has not early adopted them.
(i) IFRS 9, Financial Instruments
The final version of IFRS 9, Financial Instruments, was issued on July 24, 2014 which will replace the IAS 39, Financial
Instruments: Recognition and Measurement, and is effective for annual periods beginning after January 1, 2018, with early
adoption permitted. The Group plans to adopt IFRS 9 initially on January 1, 2018.
Adoption of IFRS 9 will generally be applied retrospectively, except as described below.
•
•
Advantage of exemption allowing the Group not to restate comparative information for prior periods with respect to
classification, measurement and impairment changes. Differences in the carrying amounts of financial assets and
financial liabilities resulting from the adoption of IFRS 9 generally will be recognized in retained earnings and
reserves as at January 1, 2018.
Prospective application of new hedge accounting except for those specified in IFRS 9 for retrospective application
such as accounting for the time value of options and others.
Key features of IFRS 9 are a) new classification and measurement approach for financial assets that reflects the business
model in which assets are managed and their cash flow characteristics, b) impairment model based on changes in expected
credit losses, c) new approach to hedge qualification and methods for assessing hedge effectiveness; and d) extensive new
disclosures, in particular about hedge accounting, credit risk and expected credit losses.
F-36
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
3.
Summary of Significant Accounting Policies, Continued
(r) New Standards and Amendments Not Yet Adopted, Continued
Adoption of IFRS 9 necessitates the assessment on the potential impact on the Group’s consolidated financial statements
resulting from the application of new standards, revision of its accounting process and internal controls related to reporting
financial instruments. The quantitative impact of adopting IFRS 9 on the Group’s consolidated financial statements in 2018
is not known and cannot be reliably estimated because it will be dependent on the financial instruments that the Group holds
and economic conditions at that time as well as accounting elections and judgments that it will make in the future.
The Group plans to assess the impacts of adoption of IFRS 9 on its consolidated financial statements, the accounting system
and the internal controls in 2017. The Group plans to finalize assessing the financial impact of the adoption of IFRS 9 by
September 30, 2017 and disclose the results in its consolidated financial statements for the year ending December 31, 2017.
The potential general impact on its consolidated financial statements resulting from the application of new standards are as
follows:
Classification and measurement of financial assets
IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value through
other comprehensive income (“FVOCI”) and fair value through profit or loss (“FVTPL”), based on the business model in
which assets are managed and their cash flow characteristics. However, derivatives embedded in contracts where the host is a
financial assets in the scope of the standard are never bifurcated. Instead, the hybrid financial instrument as a whole is
assessed for classification.
Business model assessment
Hold to collect contractual cash flows
Hold to collect contractual cash flows and sell financial assets
Hold to sell financial assets and others
Contractual cash flow characteristics
Solely payments of
principal and interest
Amortized cost (*1)
FVOCI
FVTPL
Others
FVTPL (*2)
(*1) The Group may irrevocably designate a financial asset as measured at FVTPL using the fair value option at initial recognition if
doing so eliminates or significantly reduces accounting mismatch.
(*2) The Group may irrevocably designate an equity investment that is not held for trading as measured at FVOCI using the fair value
option.
The requirements to classify financial assets as amortized cost or FVOCI under IFRS 9 are more restrictive than those under
IAS 39. Accordingly, increase in proportion of financial assets classified as FVTPL may result in increase of volatility in
profit or loss of the Group. As of December 31, 2016, the Group recognized, under IAS 39, W7,917,073 million of loans and
receivable, W7,993 million of available-for-sale financial assets and W1,382 million of financial assets at fair value through
profit or loss.
A debt investment is measured at amortized cost if it meets both of the following conditions:
•
•
The asset is held within a business model whose objective is achieved by collecting contractual cash flows; and
The contractual terms of the financial asset give rise on specified dates to cash flow that are solely payments of
principal and interest on the principal amount outstanding.
F-37
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
3.
Summary of Significant Accounting Policies, Continued
(r) New Standards and Amendments Not Yet Adopted, Continued
As of December 31, 2016, the Group recognized, under IAS 39, W7,917,073 million of loans and receivables and W154
million of debt instruments classified as available-for-sale financial assets and measured at amortized cost.
A debt investment is measured at FVOCI if it meets both of the following conditions:
•
•
The asset is held within a business model whose objective is achieved by both collecting contractual cash flows and
selling financial assets; and
The contractual terms of the financial asset give rise on specified dates to cash flow that are solely payments of
principal and interest on the principal amount outstanding.
Equity investment that are not held for trading may be irrevocably designated as FVOCI on initial recognition and they are
not subsequently recycled to profit or loss. As of December 31, 2016, the Group recognized, under IAS 39, W7,839 million
of equity investment classified as available-for-sale financial assets.
A financial asset is measured at FVTPL, if:
•
•
•
The asset’s contractual cash flows do not represent solely payments of principal and interest on the principal amount
outstanding;
Debt instrument is held for trading; or
Equity instrument is not designated as FVOCI.
As of December 31, 2016, the Group recognized, under IAS 39, W1,382 million of debt instrument classified as FVTPL.
Classification and measurement of financial liabilities
Under IFRS 9, the amount of change in the fair value of liabilities designated as at FVTPL that is attributable to changes in
the credit risk of the liability is not presented in the item of profit or loss, but in OCI and they are not subsequently recycled
to profit or loss. However, if accounting mismatch is created or enlarged as a result of this accounting treatment, the amount
of change in the credit risk of the financial liabilities is also recognized as profit or loss.
Adoption of IFRS 9 may result in decrease of profit or loss in relation to evaluation of financial liabilities as some of change
in the fair value of financial liabilities designated as at FVTPL is presented in OCI.
Impairment: financial assets and contract assets
Impairment loss is recognized if there is any objective evidence that a financial asset or group of financial asset is impaired
according to ‘incurred loss model’ under IAS 39. However, IFRS 9 replaces the incurred loss model in IAS 39 with an
‘expected credit loss impairment model’ which applies to debt instruments measured at amortized cost or at fair value
through other comprehensive income, lease receivable, loan commitments and financial guarantee contracts.
Under IFRS 9, loss allowance is classified into three stages below in accordance with increase of credit risk after initial
recognition of financial assets and measured on the 12-month expected credit loss (“ECL”) or lifetime ECL basis. Under
IFRS 9, credit losses are recognized earlier than that under IAS 39.
F-38
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
3.
Summary of Significant Accounting Policies, Continued
(r) New Standards and Amendments Not Yet Adopted, Continued
Classification
Loss allowances
Stage 1
Stage 2
Stage 3
No significant increase in credit risk since initial
recognition
Significant increase in credit risk since initial
recognition
Objective evidence of credit risk impairment
12-month expected credit losses: the expected
credit losses that result from default events that
are possible within 12 months after the reporting
date.
Lifetime expected credit losses: the expected
credit losses that result from all possible default
events over the expected life of the financial
instrument.
Under IFRS 9, cumulative change in lifetime expected credit loss since initial recognition is recognized as a loss allowance
for financial asset, if it was credit-impaired at initial recognition. As of December 31, 2016, the Group recognized W2,604
million of loss allowances for W7,919,831 million of financial assets measured at amortized cost such as loans, receivables
and debt instrument classified available-for-sale financial asset.
Hedge accounting
IFRS 9 maintains mechanics of hedge accounting including fair value hedges, cash flow hedges and hedges of a net
investment in a foreign operation while replacing complex and regulation based requirements of hedge accounting in IAS 39
with principle based method for assessing hedge effectiveness by focusing on the risk management strategy of the Group.
IFRS 9 enlarges the risk management objectives and strategy and allows the Group to apply a more qualitative approach to
assessing hedge effectiveness by eliminating mandatory quantitative guidance (80-125 percent).
By complying with the hedging rules in IFRS 9, the Group can apply hedge accounting for transactions that do not meet the
hedging criteria under IAS 39 thereby reducing volatility in the profit or loss.
When initially applying IFRS 9, the Group may choose as its accounting policy to continue to apply hedge accounting
requirements under IAS 39 instead of the requirements in IFRS 9.
(ii) IFRS 15, Revenue from contracts with customers
IFRS 15, Revenue from contracts with customers, as amended, was published in April 2016 and is effective for annual
periods beginning on or after January 1, 2018, with early adoption permitted. IFRS 15 replaces existing revenue recognition
guidance, including IAS 18 Revenue, IAS 11, Construction Contracts, SIC 31, Revenue: Barter Transactions Involving
Advertising Services, IFRIC 13, Customer Loyalty Programmes, IFRIC 15, Agreements for the Construction of Real Estate
and IFRIC 18, Transfers of Assets from Customers. The Group plans to adopt IFRS 15 in its consolidated financial
statements for annual periods beginning on January 1, 2018, using the retrospective approach. As a result, the Group also
will apply retrospective approach for each comparative period presented in its consolidated financial statements in
accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors. The Group plans to use the
practical expedients for completed contracts. This means that completed contracts that began and ended in the same
comparative reporting period, as well as the contracts that are completed contracts at the beginning of the earliest period
presented (i.e. January 1, 2016), are not restated.
F-39
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
3.
Summary of Significant Accounting Policies, Continued
(r) New Standards and Amendments Not Yet Adopted, Continued
Revenue recognition criteria in IAS 18 are applied separately to each transaction including sale of goods, rendering of
services, interest, royalties, dividends and construction contracts. However, IFRS 15 establishes a single new revenue
recognition standard for contracts with customers and introduces a five-step model for determining whether, how much and
when revenue is recognized.
The steps in five-step model are as follows:
a) Identify the contract with a customer.
b) Identify the performance obligations in the contract.
c) Determine the transaction price.
d) Allocate the transaction price to the performance obligations in the contract.
e) Recognize revenue when (or as) the entity satisfies a performance obligation.
The Group plans to assess the impacts of adoption of IFRS 15 on its consolidated financial statements, and evaluating
changes in the accounting system and the internal controls in 2017. The Group plans to finalize assessing the financial
impact of the adoption of IFRS 15 by September 2017 and disclose the results in its consolidated financial statements for the
year ending December 31, 2017. The potential general impact on its consolidated financial statements resulting from the
application of the new standard is as follows:
Variable consideration
The consideration received from customers may be variable as the Group allows its customers to return their products, if any
fault, according to the contracts. The Group shall estimate an amount of variable consideration by using the expected value
or the most likely amount, depending on which method the entity expects to better predict the amount of consideration to
which it will be entitled and include in the transaction price some or all of an amount of variable consideration estimated
only to the extent that is highly probable that a significant reversal in the amount of cumulative revenue recognized will not
occur when return period expires. The Group shall recognize refund liability measured at the amount of consideration
received (or receivable) to which the Group does not expect to be entitled. Management believes that the adoption of the
amendment is expected to have no significant impact on the consolidated statement of financial position of the Group.
(iii) IAS 7, Statement of Cash Flows
The amendment to IAS 7, Statement of Cash Flows, is part of the disclosure initiative to improve presentation and disclosure
in financial statements and requires an entity to provide disclosures that enable users of financial statements to evaluate
changes in liabilities arising from financing activities including both changes due to cash flows and non-cash changes such as
changes from financing cash flows, changes arising from obtaining or losing control of subsidiaries or other businesses, the
effect of changes in foreign exchange rates and changes in fair value and other changes. On initial application of the
amendment, entities are not required to provide comparative information for preceding periods. These amendments are
effective for annual periods beginning on or after January 1, 2017, with early application permitted. Management plans to
include additional required disclosures in its consolidated financial statements for the year ending December 31, 2017 in
accordance with the amendment to IAS 7.
F-40
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
3.
Summary of Significant Accounting Policies, Continued
(r) New Standards and Amendments Not Yet Adopted, Continued
(iv) IAS 12, Income Taxes
The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which
it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide
guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may
include the recovery of some assets for more than their carrying amount.
Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change
in the opening equity of the earliest comparative period may be recognized in the opening retained earnings (or in another
component of equity, as appropriate), without allocating the change between opening retained earnings and other
components of equity. Entities applying this relief must disclose that fact. These amendments are effective for annual periods
beginning on or after January 1, 2017 with early application permitted. Management believes that the adoption of the
amendment is expected to have no significant impact on the consolidated statement of financial position of the Group.
(iv) IFRS 16, Leases
IFRS 16 introduces a single, on-balance lease sheet accounting model for lessees. A lessee recognizes a right-of-use asset
representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments.
There are optional exemptions for short-term leases and leases of low value items. IFRS 16 replaces existing lease guidance
including IAS 17, Leases, IFRIC 4, Determining whether an Arrangement contains a Lease, SIC-15, Operating Leases-
Incentives and SIC-27, Evaluating the Substance of Transactions Involving the Legal Form of a Lease.
The standard is effective for annual periods beginning on or after January 1, 2019 and early application is permitted if IFRS
15, Revenue from Contracts with Customers are applied at or before the date of initial application of IFRS 16. On transition
to IFRS 16, the Group can choose whether to apply the IFRS 16 definition of a lease to all its contracts or apply a practical
expedient and not reassess whether a contract is, or contains, a lease. As a lessee, the Group can either apply the standard
using a retrospective approach or modified retrospective approach with optional practical expedients. The Group has not
determined the transition method. The Group has not yet quantified the impact on its reported assets and liabilities of
adoption of IFRS 16. The quantitative effect will be depend on, inter alia, the transition method chosen, the extent to which
the Group uses the practical expedients and recognition exemptions, and any additional leases that the Group enters into. The
Group expects to disclose its transition approach and quantitative information in its consolidated financial statements for the
year ending December 31, 2018.
F-41
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
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 Financial Assets and Financial 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
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-42
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
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 believes that 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 or 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-43
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
5.
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, JPY, etc.
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 and USD.
In respect of other monetary assets and liabilities denominated in foreign currencies, the Group adopts policies to ensure 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.
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.
(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.
(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, 2015
W 9,872,204
12,704,956
2,523,999
4,224,231
December 31, 2016
11,421,948
13,462,388
2,722,446
4,778,770
78%
13%
85%
15%
(*1) Cash and deposits in banks consist of cash and cash equivalents and current deposit in banks.
(*2) Net borrowings to equity ratio is calculated by dividing total borrowings (including bonds) less cash and current deposits in banks
by total equity.
F-44
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
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 (*)
Non-current assets
Deposits in banks
Restricted cash (*)
December 31, 2015
December 31, 2016
W 751,662
W 1,701,837
70,500
W 1,772,337
13
W
W 2,524,012
1,558,696
1,091,364
72,386
1,163,750
13
2,722,459
(*) As of December 31, 2015, restricted cash includes mutual growth fund amounting to W70,500 million to aid LG Group’s second
and third-tier suppliers and others. As of December 31, 2016, restricted cash includes mutual growth fund amounting to W70,500
million to aid LG Group’s second and third-tier suppliers, pledge amounting to W1,886 million to enforce investment plans
according to the receipt of subsidies from Gumi city and Gyeongsangbuk-do and others.
F-45
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
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
(b) Other accounts receivable at the reporting date are as follows:
(In millions of won)
Current assets
Non-trade accounts receivable, net
Accrued income
December 31, 2015
W 3,008,123
1,089,713
W 4,097,836
December 31, 2016
3,916,171
1,041,822
4,957,993
December 31, 2015
December 31, 2016
W
89,792
16,023
W 105,815
134,161
9,431
143,592
Due from related parties included in other accounts receivable, as of December 31, 2015 and 2016 are W2,526 million and
W5,231 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
Non-current assets
Long-term prepaid expenses
Long-term advanced payment
December 31, 2015
December 31, 2016
W
11,465
59,962
372,515
W 443,942
W 293,847
1,800
W 295,647
9,297
74,657
259,808
343,762
358,424
1,000
359,424
F-46
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
8. Other Financial Assets
(a) Other financial assets at the reporting date are as follows:
(In millions of won)
Current assets
Available-for-sale financial assets
Deposits
Short-term loans
Non-current assets
Financial asset at fair value through profit or
loss
Available-for-sale financial assets
Deposits
Long-term loans
Long-term non-trade receivable
Derivatives
December 31, 2015
December 31, 2016
W
W
W
W
558
1,295
3,051
4,904
—
10,840
20,939
12,805
5,148
—
49,732
—
20,320
7,696
28,016
1,382
7,993
27,635
34,760
2,619
244
74,633
Other financial assets of related parties as of December 31, 2015 and 2016 are W2,683 million and W3,488 million,
respectively.
(b) Available-for-sale financial assets at the reporting date are as follows:
(In millions of won)
Current assets
Debt securities
Government bonds
Non-current assets
Debt securities
Government bonds
Equity securities
Intellectual Discovery, Ltd.
Kyulux, Inc.
Henghao Technology Co., Ltd.
ARCH Venture Fund Vill, L.P.
December 31, 2015
December 31, 2016
W
W
W
W
W
558
151
2,673
3,266
3,372
1,378
10,689
11,398
F-47
—
154
729
3,266
1,559
2,285
7,839
7,993
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
9.
Inventories
Inventories at the reporting date are as follows:
(In millions of won)
Finished goods
Work-in-process
Raw materials
Supplies
December 31, 2015
W
910,844
720,221
389,442
331,162
W 2,351,669
December 31, 2016
930,818
685,913
354,791
316,263
2,287,785
For the years ended December 31, 2014, 2015 and 2016, the amount of inventories recognized as cost of sales, inventory write-
downs and reversal and usage of inventory write-downs included in cost of sales are as follows:
(In millions of won)
Inventories recognized as cost of sales
Including: inventory write-downs
2014
W 22,667,134
332,699
2015
24,069,572
363,755
2016
22,754,270
204,123
There were no significant reversals of inventory write-downs recognized during 2014, 2015 and 2016.
F-48
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
10.
Investments in Equity Accounted Investees
(a)
Investments in equity accounted investees consist of the following:
(in millions of won)
Company
Suzhou Raken Technology Co., Ltd.(*1)
Paju Electric Glass Co., Ltd.
TLI Inc.
AVACO Co., Ltd.
New Optics Ltd.
INVENIA Co., Ltd. (Formerly, LIG INVENIA Co.,
Ltd.) (*2)
WooRee E&L Co. Ltd (*2)
LB Gemini New Growth Fund No.16
Can Yang Investments Limited
YAS Co., Ltd.
Narenanotech Corporation
AVATEC Co., Ltd.(*2)
Arctic Sentinel, Inc. (Formerly, Fuhu, Inc.)
Carrying value
December 31, 2015
W 145,731
58,852
5,351
12,758
48,491
1,827
25,021
24,268
7,384
10,607
24,661
19,804
—
W 384,755
December 31, 2016
—
52,750
—
—
40,045
2,450
8,627
8,647
5,580
9,883
23,717
20,984
—
172,683
(*1) In July 2016, Suzhou Raken Technology Co., Ltd., a joint venture of the Controlling Company and AmTRAN Technology Co.,
Ltd. (“AmTRAN”), split into Suzhou Raken Technology Co., Ltd. and Suzhou Lehui Display Co., Ltd. The Controlling Company
acquired 100% equity interest in Suzhou Lehui Display Co., Ltd. and recognized gain on disposal of its investments in the investee
at the time of acquisition (note 31).
(*2) Based on quoted market prices at December 31, 2016, the fair values of the investments in INVENIA Co., Ltd., WooRee E&L
Co., Ltd. and AVATEC Co., Ltd., which are listed companies on the Korea Securities Dealers Automated Quotations, are
W17,040 million, W10,064 million and W17,490 million, respectively.
Dividends received from equity accounted investees for the years ended December 31, 2014, 2015 and 2016 amounted to W1,058
million, W25,577 million and W59,820 million and, respectively.
F-49
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
10.
Investments in Equity Accounted Investees, Continued
(b) Summary of financial information of a significant joint venture as of December 31, 2015 and 2016 and for the years ended
December 31, 2014, 2015 and 2016 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
December 31, 2015
W 540,241
442,130
98,111
250,318
250,318
(*) Financial information as of December 31, 2016 is not disclosed as the Controlling Company does not hold interest in Suzhou
Raken Technology Co., Ltd. as a result of exchange of equity interests.
(In millions of won)
Revenue
Profit for the year
Other comprehensive income (loss)
Total comprehensive income
2014
W 1,177,261
5,452
4,321
9,773
2015
993,298
10,682
2,533
13,215
2016(*)
578,885
4,811
(4,641)
170
(*) Represents transactions occurred prior to exchange of equity interests.
(ii) Additional financial information
•
Suzhou Raken Technology Co., Ltd.
(In millions of won)
Cash and cash equivalents
December 31, 2015
44,376
W
(*) Financial information as of December 31, 2016 is not disclosed as the Controlling Company does not hold interest in Suzhou
Raken Technology Co., Ltd. as a result of exchange of equity interests.
(In millions of won)
Depreciation
Amortization
Interest income
Interest expense
Income tax expense
2014
W 9,611
531
4,043
17
2,704
2015
7,858
527
1,010
17
3,608
2016(*)
3,457
275
666
87
1,712
(*) Represents transactions occurred prior to exchange of equity interests.
F-50
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
10.
Investments in Equity Accounted Investees, Continued
(c) Reconciliation from financial information of a significant joint venture to its carrying value in the consolidated financial
statements as of December 31, 2015 is as follows:
(i) As of December 31, 2015
(In millions of won)
Company
Suzhou Raken Technology Co., Ltd.
Net asset
W 289,923
Ownership
interest
51%
Net asset
(applying
ownership
interest)
147,861
Intra-group
transaction
(2,130)
Book
value
145,731
(*) Financial information as of December 31, 2016 is not disclosed as the Controlling Company does not hold interest in Suzhou
Raken Technology Co., Ltd. as a result of exchange of equity interests.
(d) Summary of financial information as of December 31, 2015 and 2016 and for the years ended December 31, 2014, 2015 and
2016 of a major associate is as follows:
(i) Paju Electric Glass Co., Ltd.
(In millions of won)
Total assets
Current assets
Non-current assets
Total liabilities
Current liabilities
Non-current liabilities
(In millions of won)
Revenue
Profit for the year
Other comprehensive income (loss)
Total comprehensive income (loss)
December 31, 2015
W 239,231
193,110
46,121
90,494
86,298
4,196
December 31, 2016
225,086
182,656
42,430
91,364
87,116
4,248
2014
W 589,366
11,026
(14,709)
(3,684)
2015
491,329
14,729
(51)
14,678
2016
549,559
21,082
16,477
37,559
F-51
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
10.
Investments in Equity Accounted Investees, Continued
(e) Reconciliation from financial information of a major associate to their carrying value in the consolidated financial statements
as of December 31, 2015 and 2016 is as follows:
(i) As of December 31, 2015
(In millions of won)
Company
Paju Electric Glass Co., Ltd.
(ii) As of December 31, 2016
(In millions of won)
Company
Paju Electric Glass Co., Ltd.
Net asset
W 148,737
Ownership
interest
40%
Net asset
W 133,722
Ownership
interest
40%
F-52
Net asset
(applying
ownership
interest)
59,494
Net asset
(applying
ownership
interest)
53,489
Goodwill
—
Intra-group
transaction
(642)
Book
value
58,852
Goodwill
—
Intra-group
transaction
(739)
Book
value
52,750
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
10.
Investments in Equity Accounted Investees, Continued
(f) Book value of other joint venture and associates, in aggregate, as of December 31, 2015 and 2016 is as follows:
(i) As of December 31, 2015
(In millions of won)
Other joint venture
Other associates
(ii) As of December 31, 2016
(In millions of won)
Other associates
Net profit (loss) of joint ventures and associates
(applying ownership interest)
Book value
W
—
180,172
Profit (loss)
for the year
(991)
8,461
Other
comprehensive
income (loss)
3,948
13,349
Total
comprehensive
income (loss)
2,957
21,810
Net profit (loss) of joint ventures and associates
(applying ownership interest)
Profit (loss)
for the year
(2,983)
Other
comprehensive
income (loss)
Total
comprehensive
income (loss)
(14,197)
(17,180)
Book value
W 119,933
F-53
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
10.
Investments in Equity Accounted Investees, Continued
(g) Reconciliation from financial information of significant joint venture and associates to their carrying value in the
consolidated financial statements for the years ended December 31, 2015 and 2016 is as follows:
(In millions of won)
Company
Joint ventures
Associates
(In millions of won)
Company
Joint venture
Associates
January 1
Acquisition/
Disposal
Dividends
received
Equity income
(loss) on
investments
Other
comprehensive
income (loss)
Other
gain
(loss)
December 31
2015
Suzhou Raken
Technology Co., Ltd. W 138,912
28,733
Others
Paju Electric Glass
Co., Ltd.
Others
77,162
162,837
W 407,644
—
(31,690)
—
—
—
23,835
(7,855)
(24,058)
(1,519)
(25,577)
1,292
3,948
(20)
—
—
—
13,349
18,569
(26,791)
(26,791)
145,731
—
58,852
180,172
384,755
5,527
(991)
5,768
8,461
18,765
2016
January 1
Acquisition/
Disposal
Dividends
received
Equity income
(loss) on
investments
Other
comprehensive
income (loss)
Other
gain
(loss)
December 31
Suzhou Raken
Technology Co., Ltd. W 145,731
Paju Electric Glass
Co., Ltd.
Others
58,852
180,172
W 384,755
(121,204)
(29,902)
2,985
2,390
—
—
—
(28,034)
(149,238)
(21,030)
(8,888)
(59,820)
8,337
(2,983)
8,339
6,591
(14,197)
(5,216)
—
(6,137)
(6,137)
52,750
119,933
172,683
F-54
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
11. Property, Plant and Equipment, Net
Changes in property, plant and equipment for the year ended December 31, 2015 are as follows:
(In millions of won)
Acquisition cost as of January 1, 2015 W 434,601
Accumulated depreciation as of
Land
Buildings
and
structures
5,952,542
Machinery
and
equipment
35,359,577
Furniture
and
fixtures
833,458
Construction-
in-progress
(*1)
1,122,749
Others
236,323
Total
43,939,250
January 1, 2015
Accumulated impairment loss as of
—
(1,838,043) (29,782,076) (724,340)
—
(183,744) (32,528,203)
January 1, 2015
—
W 434,601
Book value as of January 1, 2015
Additions
—
Business combinations (*2)
—
Depreciation
—
Impairment loss
—
Disposals
(2,092)
Others (*3)
30,210
Effect of movements in exchange rates
68
—
Government grants received
Book value as of December 31, 2015 W 462,787
Acquisition cost as of December 31,
—
4,114,499
—
—
(278,225)
—
(5,651)
48,824
986
—
3,880,433
(8,167)
(1)
5,569,334
—
24,466
(2,618,820)
(3,027)
(437,515)
2,232,756
(11,673)
(5,017)
4,750,504
109,117
—
490
(56,353)
—
(913)
—
1,122,749
2,561,108
—
—
—
—
79,910
(2,415,227)
(688)
—
131,563
316
—
1,268,946
(13)
52,566
—
2,054
(15,996)
—
(9,992)
23,527
(372)
—
51,787
(8,181)
11,402,866
2,561,108
27,010
(2,969,394)
(3,027)
(456,163)
—
(11,363)
(5,017)
10,546,020
2015
W 462,787
5,998,384
36,450,747
794,894
1,268,946
216,044
45,191,802
Accumulated depreciation as of
December 31, 2015
Accumulated impairment loss as of
December 31, 2015
W
W
—
(2,117,951) (31.694.483) (663,331)
—
(164,257) (34,640,022)
—
—
(5,760)
—
—
—
(5,760)
(*1) As of December 31, 2015, construction-in-progress mainly relates to construction of manufacturing facilities.
(*2) Business combinations include property, plant and equipment related to OLED Lighting business and Global OLED Technology
LLC as the Controlling Company acquired OLED Lighting business from LG Chem Ltd. and made additional investment in
Global OLED Technology and its control was transferred.
(*3) Others are mainly amounts transferred from construction-in-progress.
F-55
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
11. Property, Plant and Equipment, Net, Continued
Changes in property, plant and equipment for the year ended December 31, 2016 are as follows:
(In millions of won)
Acquisition cost as of January 1, 2016
Accumulated depreciation as of January 1, 2016
Accumulated impairment loss as of January 1, 2016
Book value as of January 1, 2016
Additions
Business combinations (*2)
Depreciation
Impairment loss
Disposals
Others (*3)
Effect of movements in exchange rates
Government grants received
Book value as of December 31, 2016
Acquisition cost as of December 31, 2016
Accumulated depreciation as of December 31, 2016
Accumulated impairment loss as of December 31, 2016
Buildings
and
structures
5,998,384
(2,117,951)
—
3,880,433
—
16,023
(288,891)
(1,610)
(3,204)
313,404
(30,357)
(638)
3,885,160
6,284,778
Machinery
and
equipment
36,450,747
(31,694,483)
(5,760)
4,750,504
—
655
(2,283,482)
—
(284,855)
2,461,635
(118,060)
(3,869)
4,522,528
Furniture
and
fixtures
794,894
(663,331)
—
131,563
—
449
(57,130)
—
(1,746)
52,471
(1,349)
—
124,258
37,472,177
775,682
(2,397,967)
(32,947,359)
(651,424)
(1,651)
(2,290)
—
Construction-
in-progress
(*1)
1,268,946
—
—
1,268,946
4,562,263
—
—
—
—
(2,846,180)
(1,179)
(1,886)
2,981,964
2,981,964
—
—
W
Land
W 462,787
—
—
462,787
—
—
—
—
(1,303)
—
—
—
W 461,484
W 461,484
W
W
—
—
Others
216,044
(164,257)
—
51,787
—
663
(13,942)
—
(862)
18,670
(261)
—
56,055
Total
45,191,802
(34,640,022)
(5,760)
10,546,020
4,562,263
17,790
(2,643,445)
(1,610)
(291,970)
—
(151,206)
(6,393)
12,031,449
202,306
48,178,391
(146,251)
(36,143,001)
—
(3,941)
(*1) As of December 31, 2016, construction-in-progress mainly relates to construction of manufacturing facilities.
(*2) Business combinations include property, plant and equipment related to Suzhou Lehui Display Co., Ltd. as its control was transferred to the Controlling Company by
exchanging equity interests.
(*3) Others are mainly amounts transferred from construction-in-progress.
The capitalized borrowing costs and capitalization rate for the years ended December 31, 2014, 2015 and 2016 are as follows:
(In millions of won)
Capitalized borrowing costs
Capitalization rate
2014
W 35,771
2015
13,696
2016
16,909
4.23%
3.73%
2.91%
F-56
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
12.
Intangible Assets, Net
Changes in intangible assets for the year ended December 31, 2015 are as follows:
(In millions of won)
Intellectual
property
rights
Software
Member-
ships
Development
costs
Construction-
in-progress
(software)
Customer
relationships Technology
Good-
will
Others
(*3)
Total
Acquisition cost as of January 1,
2015
W 587,068
611,149
50,258
884,436
5,247
24,011
11,074
14,593
13,089
2,200,925
Accumulated amortization as of
January 1, 2015
(485,641) (463,853)
—
(630,812)
Accumulated impairment loss as
of January 1, 2015
Book value as of January 1,
—
—
(9,742)
—
2015
W 101,427
147,296
40,516
253,624
Additions-internally
developed
Additions-external
purchases
Business combinations (*1)
Amortization (*2)
Disposals
Impairment loss
Reversal of impairment
loss
Transfer from construction-
in-progress
Effect of movements in
exchange rates
Book value as of December 31,
—
—
—
227,067
28,504
197,454
(30,780)
—
—
—
144
(77,359)
(11)
—
1,930
—
—
(1,153)
(239)
—
—
—
75,401
4,333
12,161
80
—
85
—
—
(293,461)
—
—
—
—
—
—
—
5,247
—
73,098
—
—
—
—
—
(75,401)
42
(16,019)
(5,171)
—
(13,017) (1,614,513)
—
—
—
—
(9,742)
7,992
5,903
14,593
72
576,670
—
—
—
—
227,067
—
35,165
(3,712)
—
—
—
—
—
—
—
(1,104)
—
—
—
88,932
—
—
—
—
—
—
—
—
930
—
—
(46)
—
—
—
—
—
103,532
321,695
(406,462)
(1,164)
(239)
80
—
17,551
2015
W 300,938
157,632
41,219
187,230
2,986
39,445
4,799
104,455
26
838,730
Acquisition cost as of
December 31, 2015
Accumulated amortization as of
W 817,359
698,844
51,092
1,111,503
2,986
59,176
11,074
104,455
13,089
2,869,578
December 31, 2015
W (516,421) (541,212)
—
(924,273)
Accumulated impairment loss as
of December 31, 2015
W
—
—
(9,873)
—
—
—
(19,731)
(6,275)
—
(13,063) (2,020,975)
—
—
—
—
(9,873)
(*1) Business combinations include intangible assets related to OLED Lighting business and Global OLED Technology LLC as the Controlling Company acquired
OLED Lighting business from LG Chem Ltd. and made additional investment in Global OLED Technology and its control was transferred.
(*2) The Group has classified the amortization as manufacturing overhead costs, selling expenses, administrative expenses and research and development expenses.
(*3) Others mainly consist of rights to use electricity and gas supply facilities.
F-57
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
12.
Intangible Assets, Net, Continued
Changes in intangible assets for the year ended December 31, 2016 are as follows:
(In millions of won)
Intellectual
property
rights
Software
Member-
ships
Development
costs
Construction-
in-progress
(software)
Customer
relationships Technology
Good-
will
Others
(*3)
Total
Acquisition cost as of January 1,
2016
W 817,359
698,844
51,092
1,111,503
2,986
59,176
11,074
104,455
13,089
2,869,578
Accumulated amortization as of
January 1, 2016
(516,421) (541,212)
—
(924,273)
Accumulated impairment loss as
of January 1, 2016
Book value as of January 1,
—
—
(9,873)
—
—
—
(19,731)
(6,275)
—
(13,063) (2,020,975)
—
—
—
—
(9,873)
2016
W 300,938
157,632
41,219
187,230
2,986
39,445
4,799
104,455
26
838,730
Additions-internally
developed
Additions-external
purchases
Business combinations (*1)
Amortization (*2)
Disposals
Impairment loss
Transfer from construction-
in-progress
Effect of movements in
exchange rates
Book value as of December 31,
—
—
—
322,288
21,160
—
(41,088)
—
—
—
365
(75,786)
—
—
—
65,327
5,256
(1,766)
800
—
—
(336)
(138)
—
8
—
—
(253,178)
—
—
—
—
—
80,481
—
—
—
—
(65,327)
598
—
—
—
—
322,288
—
—
(6,947)
—
—
—
—
—
—
(1,107)
—
—
—
—
—
4,623
—
—
—
—
994
—
—
(20)
—
—
—
—
102,441
4,988
(378,126)
(336)
(138)
—
5,090
2016
W 286,266
145,772
41,553
256,340
18,738
32,498
3,692
110,072
6
894,937
Acquisition cost as of
December 31, 2016
Accumulated amortization as of
W 904,664
806,835
51,564
1,433,791
18,738
59,176
11,074
110,072
13,077
3,408,991
December 31, 2016
W (618,398) (661,063)
—
(1,177,451)
Accumulated impairment loss as
of December 31, 2016
W
—
—
(10,011)
—
—
—
(26,678)
(7,382)
—
(13,071) (2,504,043)
—
—
—
—
(10,011)
(*1) Business combinations include intangible assets related to Suzhou Lehui Display Co., Ltd. as its control was transferred to the Controlling Company by exchanging
equity interests.
(*2) The Group has classified the amortization as manufacturing overhead costs, selling expenses, administrative expenses and research and development expenses.
(*3) Others mainly consist of rights to use electricity and gas supply facilities.
F-58
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
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
Non-trade receivable, net
Accrued income
Available-for-sale financial assets
Financial assets at fair value through profit or loss
Deposits
Short-term loans
Long-term loans
Long-term non-trade receivable
Derivatives
December 31, 2015
751,662
W
1,772,350
4,097,836
89,792
16,023
709
—
22,234
3,051
12,805
5,148
—
W 6,771,610
December 31, 2016
1,558,696
1,163,763
4,957,993
134,161
9,431
154
1,382
47,954
7,696
34,760
2,619
244
7,918,853
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 primarily from the sales and investing activities. Trade accounts and notes receivables are
insured in order to manage credit risk and uninsured trade accounts and notes receivables are managed in accordance with
the Group’s management policy.
F-59
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
13. Financial Instruments, Continued
(ii) Impairment loss
The aging of trade accounts and note receivable, other accounts receivable and long-term non-trade receivable as of
December 31, 2015 and 2016 are as follows:
(In millions of won)
December 31, 2015
Not past due
Past due 1-15 days
Past due 16-30 days
Past due 31-60 days
Past due more than 60 days
Trade accounts
and notes
receivable
W 4,076,022
6,555
201
—
16,565
W 4,099,343
Book value
Other
accounts
receivable(*)
102,431
1,280
1,775
45
850
106,381
Long-term
non-trade
receivable
5,200
—
—
—
—
5,200
Impairment loss
Trade accounts
and notes
receivable
Other
accounts
receivable(*)
Long-term
non-trade
receivable
(1,339)
(2)
—
—
(166)
(1,507)
(535)
(13)
(12)
—
(6)
(566)
(52)
—
—
—
—
(52)
(*) Other accounts receivable includes non-trade receivable and accrued income.
F-60
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
13. Financial Instruments, Continued
(In millions of won)
December 31, 2016
Not past due
Past due 1-15 days
Past due 16-30 days
Past due 31-60 days
Past due more than 60 days
Trade accounts
and notes
receivable
W 4,958,591
386
417
65
22
W 4,959,481
Book value
Other
accounts
receivable(*)
140,893
2,298
309
640
545
144,685
Long-term
non-trade
receivable
2,643
—
—
—
—
2,643
Impairment loss
Trade accounts
and notes
receivable
Other
accounts
receivable(*)
Long-term
non-trade
receivable
(1,488)
—
—
—
—
(1,488)
(669)
(20)
—
(6)
(398
(1,093)
(23)
—
—
—
—
(23)
(*) Other accounts receivable includes non-trade receivable and accrued income.
F-61
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
13. Financial Instruments, Continued
The movement in the allowance for impairment in respect of trade accounts and notes receivable, other accounts receivable
and long-term non-trade receivable for the years ended December 31, 2014, 2015 and 2016 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
(In millions of won)
Balance at the beginning of the year
(Reversal of) Bad debt expense
Balance at the end of the year
(In millions of won)
Balance at the beginning of the year
(Reversal of) Bad debt expense
Balance at the end of the year
Trade accounts and notes receivable
2016
2015
1,507
825
682
1,507
(19)
1,488
Other accounts receivable
2015
2016
794
(228)
566
566
527
1,093
2014
W 330
495
W 825
2014
W 251
543
W 794
Long-term non-trade receivable
2015
2014
W 89
2016
79
(27)
52
52
(29)
23
(10)
W 79
F-62
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
13. Financial Instruments, Continued
(b) Liquidity Risk
The following are the contractual maturities of financial liabilities, including estimated interest payments, as of
December 31, 2016.
(In millions of won)
Contractual cash flows
Non-derivative financial liabilities
Secured bank loans
Unsecured bank loans
Unsecured bond issues
Trade accounts and notes payable
Other accounts payable
Long-term other accounts payable
Derivative financial liabilities
Derivatives
Carrying
amount
Total
6 months
or less
6-12
months
1-2years
2-5 years
More than
5 years
W 700,820
2,197,132
1,880,818
2,877,326
2,449,517
3,530
12,447
744,323
322,139
2,307,718
204,327
1,999,660
2,877,326
2,877,326
2,449,981 2,447,321
—
3,992
12,653
21,451
211,498
—
2,660
—
430,698
639,176
536,350
—
—
3,992
288,525
1,263,210
966,390
—
—
—
—
61,742
81,095
—
—
—
134
W 10,109,615 10,383,478 5,863,694
472
478
164
180
248,426 1,610,396
—
2,518,125
—
142,837
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly
different amounts.
F-63
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
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)
Cash and cash equivalents
Deposits in banks
Trade accounts and notes receivable
Non-trade receivable
Long-term non-trade receivable
Other assets denominated in foreign currencies
Trade accounts and notes payable
Other accounts payable
Debt
Net exposure
(In millions)
Cash and cash equivalents
Deposits in banks
Trade accounts and notes receivable
Non-trade receivable
Long-term non-trade receivable
Other assets denominated in foreign currencies
Trade accounts and notes payable
Other accounts payable
Debt
Net exposure
December 31, 2015
CNY
USD
578
—
2,935
20
4
1
JPY
1,005
—
12
2
—
254
(1,207)
(541)
(1,185)
605
(17,016)
(13,821)
—
(29,564)
866
TWD EUR
12 —
PLN
45
1,200 — — —
1,465 — — —
101
13 — —
— — — —
6 — —
(1,267) — — —
(7)
(1,352)
(1,964) — — —
34
(924)
(2)
(2)
24
27
(11)
USD
518
—
3,558
52
2
1
JPY
308
—
10
2,434
—
259
(1,204)
(397)
(1,251)
1,279
(14,940)
(9,836)
—
(21,765)
F-64
36
December 31, 2016
CNY
3,785
TWD EUR
1
PLN
77
500 — — —
1,776 — — —
199
2
12 —
— — — —
6 — —
210
(2,567) — — —
(7)
(3,264) — — —
74
(132)
(771)
(2)
(1)
47
(5)
VND
338,770
—
—
—
—
506
—
(665,869)
—
(326,593)
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
13. Financial Instruments, Continued
Significant exchange rates applied during the reporting periods are as follows:
(In won)
USD
JPY
CNY
TWD
EUR
PLN
BRL
VND
Average rate
Reporting date spot rate
2014
W 1052.70
9.96
170.83
34.73
1,398.37
334.20
448.16
0.0497
2015
1,131.30
9.35
179.47
35.64
1,256.17
300.22
344.70
0.0516
2016
December 31,
2015
1,159.83 W 1,172.00
9.72
178.48
35.51
1,280.53
300.79
295.90
0.0522
10.67
174.40
35.97
1,283.95
294.41
333.74
0.0518
December 31,
2016
1,208.50
10.37
173.26
37.41
1,267.60
287.62
371.31
0.0531
(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, 2015 and 2016, 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)
VND (5 percent weakening)
December 31, 2015
December 31, 2016
Equity
W 24,838
(11,340)
(8,582)
42
(214)
575
—
Profit or
loss
33,152
(9,486)
1,069
—
270
(208)
—
Equity
57,111
(8,972)
(3,410)
88
(40)
1,129
(867)
Profit or
loss
63,337
(7,237)
7,077
—
(79)
(167)
—
A stronger won against the above currencies as of December 31, 2015 and 2016 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-65
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
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, 2015
December 31, 2016
W 2,524,708
(2,289,336)
235,372
W
2,722,600
(2,203,378)
519,222
W (1,934,895)
(2,575,392)
(ii) Equity and profit or loss sensitivity analysis for variable rate instruments
For the years ended December 31, 2015 and 2016 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, 2015
Variable rate instruments (*)
December 31, 2016
Variable rate instruments (*)
Equity
Profit or loss
1%
increase
1%
decrease
1%
increase
1%
decrease
W (14,667)
14,667
(14,667)
14,667
W (16,868)
16,868
(16,868)
16,868
(*) Financial instruments subject to interest rate swap not qualified for hedging are excluded.
F-66
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
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
Financial asset at fair value through profit or loss
Derivatives
Assets carried at amortized cost
Cash and cash equivalents
Deposits in banks
Trade accounts and notes receivable
Non-trade receivable
Accrued income
Deposits
Short-term loans
Long-term loans
Long-term non-trade receivable
Liabilities carried at fair value
Derivatives
Liabilities carried at amortized cost
Secured bank loans
Unsecured bank loans
Unsecured bond issues
Trade accounts and notes payable
Other accounts payable
Long-term other accounts payable
December 31, 2015
December 31, 2016
Carrying
amounts
Fair
values
Carrying
amounts
Fair
values
W
709
—
—
W 751,662
1,772,350
4,097,836
89,792
16,023
22,234
3,051
12,805
5,148
W
85
W 698,192
1,239,914
2,286,125
2,764,694
1,499,722
8,402
709
—
—
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
85
154
1,382
244
1,558,696
1,163,763
4,957,993
134,161
9,431
47,954
7,696
34,760
2,619
154
1,382
244
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
472
472
698,192
1,239,969
2,337,835
(*)
1,499,963
9,005
700,820
2,197,132
1,880,818
2,877,326
2,449,517
3,530
700,820
2,200,522
1,903,863
(*)
2,449,938
3,891
(*) Excluded from disclosures as the carrying amount approximates fair value.
The basis for determining fair values is disclosed in note 4.
(ii) Financial Instruments measured at cost
Available-for-sale financial assets measured at cost as of December 31, 2015 and 2016 are as follows:
(In millions of won)
Intellectual Discovery Co., Ltd.
Kyulux, Inc.
Henghao Technology Co., Ltd.
ARCH Venture Fund Vill, L.P.
December 31, 2015
W
2,673
3,266
3,372
1,378
10,689
W
December 31, 2016
729
3,266
1,559
2,285
7,839
F-67
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
13. Financial Instruments, Continued
(e) Fair Values, Continued
(ii) Financial Instruments measured at cost, Continued
The movement in the available-for-sale financial assets measured at cost for the years ended December 31, 2015 and 2016 is
as follows:
(In millions of won)
December 31, 2015
Intellectual Discovery Co., Ltd.
Kyulux Inc.
Henghao Technology Co., Ltd.
ARCH Venture Fund Vill, L.P
January 1,
2015
W 2,673
—
3,372
118
W 6,163
Acquisition
—
3,266
—
792
4,058
Disposal
and others
—
—
—
—
—
Impairment
—
—
—
—
—
(In millions of won)
December 31, 2016
Intellectual Discovery Co., Ltd.
Kyulux Inc.
Henghao Technology Co., Ltd.
ARCH Venture Fund Vill, L.P
January 1,
2016
W 2,673
3,266
3,372
1,378
W 10,689
Acquisition
—
—
—
859
859
Disposal
and others
—
—
—
(48)
(48)
Impairment
(1,944)
—
(1,813)
—
(3,757)
Effect of
movements in
exchange rates
—
—
—
468
468
Effect of
movements in
exchange rates
—
—
—
96
96
December 31,
2015
2,673
3,266
3,372
1,378
10,689
December 31,
2016
729
3,266
1,559
2,285
7,839
Available-for-sale-financial assets consist of investments in equity securities and the fair value of some investments in equity
securities are measured at cost because the range of reasonable fair value measurements is significant and the probabilities of
the various estimates cannot be reasonably assessed since they do not have quoted prices in active markets for identical
instruments.
F-68
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
13. Financial Instruments, Continued
(e) Fair Values, Continued
(iii) Fair values of financial assets and liabilities
i) 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
ii) Financial instruments measured at fair value
Fair value hierarchy classifications of the financial instruments that are measured at fair value as of December 31, 2015 and
December 31, 2016 are as follows:
(In millions of won)
December 31, 2015
Assets
Available-for-sale financial assets
Liabilities
Derivatives
(In millions of won)
December 31, 2016
Assets
Available-for-sale financial assets
Financial asset at fair value through profit or loss
Derivatives
Liabilities
Derivatives
F-69
Level 1
Level 2
Level 3
Total
W 709
W —
—
—
—
709
85
85
Level 1
Level 2
Level 3
Total
W 154
—
—
W —
—
—
—
—
—
1,382
244
154
1,382
244
472
472
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
13. Financial Instruments, Continued
(e) Fair Values, Continued
iii) Financial instruments not measured at fair value but for which the fair value is disclosed
Fair value hierarchy classifications, valuation technique and inputs for fair value measurements of the financial instruments
not measured at fair value but for which the fair value is disclosed as of December 31, 2015 and December 31, 2016 are as
follows:
(In millions of won)
Classification
Liabilities
Secured bank loans
Unsecured bank loans
Unsecured bond issues
Other accounts payable
Long-term other accounts payable
(In millions of won)
Classification
Liabilities
Secured bank loans
Unsecured bank loans
Unsecured bond issues
Other accounts payable
Long-term other accounts payable
December 31, 2015
Level 1
Level 2
Level 3
Valuation
technique
Input
W — —
— —
— —
— —
— —
698,192 Discounted cash flow Discount rate
1,239,969 Discounted cash flow Discount rate
2,337,835 Discounted cash flow Discount rate
1,499,963 Discounted cash flow Discount rate
9,005 Discounted cash flow Discount rate
December 31, 2016
Level 1
Level 2
Level 3
Valuation
technique
Input
W — —
— —
— —
— —
— —
700,820 Discounted cash flow Discount rate
2,200,522 Discounted cash flow Discount rate
1,903,863 Discounted cash flow Discount rate
2,449,938 Discounted cash flow Discount rate
3,891 Discounted cash flow Discount rate
The interest rates applied for determination of the above fair value at the reporting date are as follows:
Debentures, loans and others
December 31, 2015
1.52~2.48%
December 31, 2016
1.48~2.68%
F-70
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
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
Derivatives (*)
December 31, 2015
December 31, 2016
W
—
1,416,112
W 1,416,112
W
202,992
1,323,454
1,281,673
85
W 2,808,204
113,209
554,700
667,909
821,922
1,777,877
1,511,062
472
4,111,333
(*) Represents interest rate swap contracts related to borrowings with variable interest rate.
(b) Short-term borrowings as of December 31, 2015 and 2016 are as follows:
(In millions of won and USD)
Lender
Standard Chartered Bank Korea Limited
Foreign currency equivalent
Annual interest rate
as of
December 31, 2016 (%)(*)
6ML + 0.62
December 31, 2015
W
—
—
December 31, 2016
113,209
94
USD
(*) ML represents Month LIBOR (London Inter-Bank Offered Rates).
F-71
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
14. Financial Liabilities, Continued
(c) Won denominated long-term borrowings at the reporting date are as follows:
(In millions of won)
Lender
Woori Bank
Shinhan Bank
Korea Development Bank and others
Less current portion of long-term
borrowings
Annual interest rate
as of
December 31, 2016 (%)
3-year Korean Treasury Bond
rate - 1.25, 2.75
CD rate (91days) + 0.30
3-year Industrial Financial
Debenture rate + 0.55,
5-year Industrial Financial
Debenture rate + 0.60,
CD rate (91days) + 0.64,
CD rate (91days) + 0.74
December 31,
2015
December 31,
2016
W 4,452
200,000
2,991
200,000
—
620,000
(1,460)
W 202,992
(1,069)
821,922
(d) Foreign currency denominated long-term borrowings at the reporting date are as follows:
(In millions of won, USD and CNY)
Lender
The Export-Import Bank of
Korea
Standard Chartered Bank
Korea Limited
China Construction Bank and
others
Foreign currency equivalent
Less current portion of long-
term borrowings
Annual interest rate
as of
December 31, 2016 (%)(*)
December 31,
2015
December 31,
2016
3ML+0.55~1.40
W
879,000
1,027,225
6ML+0.62
USD: 3ML+2.00
CNY: 4.28
—
854,654
1,185
1,964
USD
CNY
8,469
926,058
1,157
3,264
USD
CNY
(410,200)
W
W 1,323,454
(183,875)
1,777,877
(*) ML represents Month LIBOR (London Inter-Bank Offered Rates).
F-72
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
14. Financial Liabilities, Continued
(e) Details of bonds issued and outstanding at the reporting date are as follows:
(In millions of won)
Won denominated bonds (*)
Publicly issued bonds
Less discount on bonds
Less current portion
Maturity
April 2017~
May 2022
Annual interest rate
as of
December 31, 2016 (%)
December 31,
2015
December 31,
2016
1.73~3.73
W 2,290,000
(3,875)
(1,004,452)
W 1,281,673
1,885,000
(4,182)
(369,756)
1,511,062
(*) Principal of the won denominated bonds is to be repaid at maturity and interests are paid quarterly in arrears.
F-73
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
15. 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 or certain subsidiaries.
The defined benefit plans expose the Group to actuarial risks, such as the risk associated with expected periods of service, interest
rate risk, market (investment) risk, and others.
(a) Net defined benefit liabilities recognized 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, 2015
December 31, 2016
W 1,381,648
(1,027,850)
353,798
W
1,401,396
(1,258,409)
142,987
(b) Changes in the present value of the defined benefit obligations for the years ended December 31, 2015 and 2016 are as
follows:
(In millions of won)
Opening defined benefit obligations
Current service cost
Interest cost
Remeasurements (before tax)
Benefit payments
Transfers from (to) related parties
Others
Closing defined benefit obligations
2015
W 1,114,689
187,768
38,776
104,817
(66,755)
2,353
—
W 1,381,648
2016
1,381,648
210,682
39,420
(161,082)
(65,099)
(4,205)
32
1,401,396
Weighted average remaining maturity of defined benefit obligations as of December 31, 2015 and 2016 are 14.5 years and
14.3 years, respectively.
(c) Changes in fair value of plan assets for the years ended December 31, 2015 and 2016 are as follows:
(In millions of won)
Opening fair value of plan assets
Expected return on plan assets
Remeasurements (before tax)
Contributions by employer directly to plan assets
Benefit payments
Transfers from (to) related parties
Closing fair value of plan assets
F-74
2015
W 790,509
27,511
(5,440)
270,000
(54,809)
79
W 1,027,850
2016
1,027,850
29,140
(5,736)
265,000
(57,845)
—
1,258,409
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
15. Employee Benefits, Continued
(d) Plan assets at the reporting date are as follows:
(In millions of won)
Guaranteed deposits in banks
December 31, 2015
W 1,027,850
December 31, 2016
1,258,409
As of December 31, 2016, the Controlling Company maintains the plan assets with Mirae Asset Securities Co., Ltd., Shinhan
Bank and others.
The Group’s estimated additional contribution to the plan assets for the year ending December 31, 2017 is nil under the
assumption that the Controlling Company continues to maintain the plan assets at 80% of the amount payable and all the
employees of the Controlling Company would leave the Controlling Company on December 31, 2017.
(e) Expenses recognized in profit or loss for the years ended December 31, 2014, 2015 and 2016 are as follows:
(In millions of won)
Current service cost
Past service cost
Net interest cost
2014
W 159,239
21,990
15,527
W 196,756
2015
187,768
—
11,265
199,033
2016
210,682
—
10,280
220,962
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
2014
W 157,324
11,872
15,252
12,308
W 196,756
2015
159,348
11,567
14,809
13,309
199,033
2016
177,652
12,513
16,486
14,311
220,962
(f) Remeasurements of net defined benefit liabilities (assets) included in other comprehensive income (loss) for the years ended
December 31, 2014, 2015 and 2016 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-75
2014
W (85,860)
2015
(197,720)
2016
(281,902)
(24,399)
7,016
(126,717)
(3,722)
189
(147,633)
35,773
W (197,720)
15,567
(22,267)
(98,117)
(5,440)
(607)
(110,864)
26,682
(281,902)
70,258
(4,605)
95,429
(5,736)
200
155,546
(37,594)
(163,950)
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
15. 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
2014
5.1%
3.5%
2015
5.1%
2.9%
2016
4.7%
3.0%
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:
Teens
Twenties
Thirties
Forties
Fifties
Males
Females
Males
Females
Males
Females
Males
Females
Males
Females
December 31, 2015
December 31, 2016
0.01%
0.00%
0.01%
0.00%
0.01%
0.01%
0.03%
0.02%
0.05%
0.02%
0.01%
0.00%
0.01%
0.00%
0.01%
0.01%
0.03%
0.02%
0.05%
0.02%
(h) Reasonably possible changes to respective relevant actuarial assumptions would have affected the defined benefit obligations
by the amounts as of December 31, 2016 are as follows:
Discount rate for defined benefit obligations
Expected rate of salary increase
F-76
Defined benefit obligation
1% increase
W (174,724)
206,250
1% decrease
212,383
(173,543)
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
16. Provisions
Changes in provisions for the year ended December 31, 2015 are as follows:
(In millions of won)
Balance of January 1, 2015
Additions
Usage and reclassification
Balance at December 31, 2015
Current
Non-current
Litigations
and claims
W 148,303
110,181
(197,239)
W 61,245
W 61,245
W
—
Warranties
(*2)
51,964
146,829
(142,364)
56,429
47,860
8,569
Others
1,631
3,248
(839)
4,040
792
3,248
Total
201,898
260,258
(340,442)
121,714
109,897
11,817
Changes in provisions for the year ended December 31, 2016 are as follows:
(In millions of won)
Balance at January 1, 2016
Additions
Reversal
Usage and reclassification
Business combination (*3)
Balance at December 31, 2016
Current
Non-current
Litigations
and claims
(*1)
W 61,245
12,471
(14,887)
(58,829)
—
W —
W —
W —
Warranties
(*2)
56,429
166,322
(631)
(161,335)
677
62,462
54,307
8,155
Others
4,040
873
(3,248)
—
—
1,665
1,665
—
Total
121,714
180,666
(18,766)
(220,164)
677
64,127
55,972
8,155
(*1) The Controlling Company reached agreements on individual lawsuit and class actions in the United States and Canada,
respectively, in connection with alleged violation of the antitrust laws during the year ended December 31, 2016.
(*2) The provision for warranties covers defective products and is normally applicable for 18 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.
(*3) Business combination includes warranty liability related to Suzhou Lehui Display Co., Ltd. as its control was transferred to the
Controlling Company by exchanging equity interests.
F-77
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
17. 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
December 31, 2015
December 31, 2016
W
W
W
W
30,477
9,844
40,321
48,609
8,401
57,010
F-78
40,190
8,776
48,966
65,616
3,530
69,146
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
18. Contingent Liabilities and Commitments
(a) Legal Proceedings
Delaware Display Group LLC and Innovative Display Technologies LLC (“DDG” and “IDT”)
In December 2013, Delaware Display Group LLC and Innovative Display Technologies LLC filed a patent infringement
case (“First Case”) against the Controlling Company and LG Display America, Inc. in the United States District Court for
the District of Delaware and “DDG” and “IDT” filed a new patent infringement case against the Controlling Company and
LG Display America, Inc. over the three patents that were dismissed without prejudice from the First Case in December
2015. In May 2016, the case has been stayed by the United States District Court for the District of Delaware pending Inter
Partes Review. Additionally, in August 2016, Innovative Display Technologies LLC filed a new patent infringement case
against the Controlling Company and LG Display America, Inc. in the United States District Court for the Eastern District of
Texas with respect to two new patents. The Group does not have a present obligation for these matters and has not
recognized any provision at December 31, 2016. It is not possible to reasonably estimate an amount of potential loss, if any,
because the information plaintiffs have provided regarding damages are unreliable and may substantially change as litigation
proceeds or the plaintiffs have not provided any information regarding damages.
Surpass Tech Innovation LLC
In March 2014, Surpass Tech Innovation LLC filed a complaint in the United States District Court for the District of
Delaware against the Controlling Company and LG Display America, Inc. for alleged patent infringement. As of
December 31, 2016, the case which has been stayed by the United States District Court for the District of Delaware pending
Inter Partes Review (“IPR”) is still stayed although IPR has been completed. The Group does not have a present obligation
for this matter and has not recognized any provision at December 31, 2016. It is not possible to reasonably estimate an
amount of potential loss, if any, because the plaintiffs have not provided any information regarding damages.
Others
The Group is defending against various claims related to intellectual property and others in addition to pending proceedings
described above. The Group does not have a present obligation for these matters and has not recognized any provision at
December 31, 2016.
F-79
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
18. Contingent Liabilities and Commitments, Continued
(b) Commitments
Factoring and securitization of accounts receivable
The Controlling Company has agreements with KEB Hana Bank and several other banks for accounts receivable sales negotiating
facilities of up to an aggregate of USD 2,023 million (W2,445,376 million) in connection with the Controlling Company’s export
sales transactions with its subsidiaries. As of December 31, 2016, 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.
The Controlling Company and oversea subsidiaries entered into agreements with financial institutions for accounts receivables
sales negotiating facilities. The 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)
Classification
Controlling Company
Financial institutions
Maximum
Not yet due
Shinhan Bank
Sumitomo Mitsui Banking Corporation
Bank of Tokyo-Mitsubishi UFJ
Contractual
amount
KRW 90,000
20
USD
70
USD
USD
90
KRW 90,000
KRW
equivalent
90,000
24,170
84,595
198,765
Subsidiaries
LG Display Singapore Pte. Ltd.
LG Display Taiwan Co., Ltd.
LG Display Shanghai Co., Ltd.
LG Display Germany GmbH
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
LG Display Japan Co., Ltd.
USD
LG Display Guangzhou Trading Co., Ltd. Industrial and Commercial Bank of China USD
Standard Chartered Bank
BNP Paribas
Hongkong & Shanghai Banking Corp.
Taishin International Bank
Sumitomo Mitsui Banking Corporation
BNP Paribas
Citibank
BNP Paribas
Hongkong & Shanghai Banking Corp.
Sumitomo Mitsui Banking Corporation
Sumitomo Mitsui Banking Corporation
LG Display America, Inc.
362,550
300
99,097
82
181,275
150
386,270
320
120,850
100
151,063
125
193,360
160
129,310
107
725,100
600
302,125
250
108,765
90
77,344
64
USD 2,348 2,837,559
USD 2,438
KRW 90,000 3,036,324
F-80
Contractual
amount
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
KRW
equivalent
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
18. Contingent Liabilities and Commitments, Continued
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, 2016, the Controlling Company has agreements in relation to the opening of letters of credit up to USD
40 million (W48,340 million) with KEB Hana Bank, USD 80 million (W96,680 million) with Bank of China and USD 50 million
(W60,425 million) with Sumitomo Mitsui Banking Corporation.
Payment guarantees
The Controlling Company obtained payment guarantees amounting to USD 8.5 million (W10,272 million) from Shinhan bank for
value added tax payments in Poland and amounting to USD 75 million (W90,638 million) from Westchester Fire Insurance
Company for the settlement of a litigation.
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 JPY 700 million (W7,258 million), CNY 3,641 million (W630,840 million), USD
0.5 million (W604 million), EUR 2.5 million (W3,169 million) and PLN 0.2 million (W58 million), respectively, for their local
tax payments.
Credit facility
LG Display Japan Co., Ltd. and other subsidiaries have entered into short-term credit facility agreements of up to USD 23 million
(W27,796 million) and JPY 8,000 million (W82,945 million) in total, with Mizuho Corporate Bank and other various banks.
License agreements
As of December 31, 2016, in relation to its LCD business, the Group has technical license agreements with Hitachi Display, Ltd.
and others and has a trademark license agreement with LG Corp.
Pledged Assets
Regarding the secured bank loan amounting to USD 300 million (W360,572 million) and CNY 1,964 million (W340,248 million)
from China Construction Bank, as of December 31, 2016, the Group provided its property, plant and equipment and others with
carrying amount of W804,534 million as pledged assets.
F-81
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
19. Capital and Reserves
(a) Share capital
The Controlling Company is authorized to issue 500,000,000 shares of capital stock (par value W5,000), and as of
December 31, 2015 and December 31, 2016, the number of issued common shares is 357,815,700. There have been no
changes in the capital stock from January 1, 2014 to December 31, 2016.
(b) Reserves
Reserves consist mainly of the following:
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.
Translation reserve
The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of
foreign operations.
Other comprehensive income (loss) from associates and joint venture
The other comprehensive income (loss) from associates and joint venture comprises the amount related to change in equity
of investments in equity accounted investees.
Reserves as of December 31, 2015 and 2016 are as follows:
Net change in fair value of available-for-sale
financial assets
Foreign currency translation differences for
foreign operations
Other comprehensive income (loss) from
associates and joint venture (excluding
remeasurements)
December 31, 2015
December 31, 2016
W
58
18,196
(24,020)
(5,766)
W
F-82
—
(59,042)
(29,436)
(88,478)
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
19. Capital and Reserves, Continued.
The movement in reserves for the years ended December 31, 2014, 2015 and 2016 is as follows:
(In millions of won)
January 1, 2014
Change in reserves
December 31, 2014
January 1, 2015
Change in reserves
December 31, 2015
January 1, 2016
Change in reserves
December 31, 2016
(c) Dividends
Net change in fair
value of available-for-
sale financial assets
W
(271)
547
276
276
(218)
58
58
(58)
—
Foreign currency
translation differences
for foreign operations
Other comprehensive
income (loss) from
associates and joint
ventures (excluding
remeasurements)
(55,529)
34,606
(20,923)
(20,923)
39,119
18,196
18,196
(77,238)
(59,042)
(35,874)
(7,322)
(43,196)
(43,196)
19,176
(24,020)
(24,020)
(5,416)
(29,436)
Total
(91,674)
27,831
(63,843)
(63,843)
58,077
(5,766)
(5,766)
(82,712)
(88,478)
On March 16, 2017, the Controlling Company declared a cash dividend of W178,908 million (W500 won per share) to
shareholders of record as of December 31, 2016 and distributed the cash dividend to such shareholders on April 13, 2017.
F-83
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
20. Related Parties
(a) Related parties
Related parties for the year ended December 31, 2016 are as follows:
Classification
Associates(*)
Subsidiaries of Associates
Entity that has significant influence over the Controlling Company
Subsidiaries of the entity that has significant influence over the
Description
Paju Electric Glass Co., Ltd. and others
Shinbo Electric Co., Ltd. and others
LG Electronics Inc.
Subsidiaries of LG Electronics Inc.
Controlling Company
(*) Details of associates 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 Group for the years ended December 31, 2015 and 2016 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, 2015
December 31, 2016
ADP System Co., Ltd.
Shinbo Electric Co., Ltd.
AVATEC Electronics Yantai Co., Ltd.
New Optics USA, Inc.
—
—
Shinbo Electric Co., Ltd.
—
New Optics USA, Inc.
NEWOPTIX RS. SA DE CV
LG Electronics Inc.
LG Electronics Inc.
Hi 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
—
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 USA, Inc.
LG Electronics Wroclaw Sp. z o.o.
LG Electronics Reynosa, S.A. DE C.V.
LG Electronics Thailand Co., Ltd.
LG Electronics Taiwan Taipei Co., Ltd.
Co., Ltd.
—
LG Electronics Wroclaw Sp. z o.o.
LG Electronics Reynosa, S.A. DE C.V.
LG Electronics Thailand Co., Ltd.
LG Electronics Taiwan Taipei Co., Ltd.
F-84
20. Related Parties, Continued
Classification
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
December 31, 2015
LG Electronics Shenyang Inc.
LG Electronics RUS, LLC
LG Electronics Nanjing New Technology
December 31, 2016
LG Electronics Shenyang Inc.
LG Electronics RUS, LLC
LG Electronics Nanjing New Technology
Co., LTD.
Co., LTD.
LG Electronics Mlawa Sp. z o.o.
LG Electronics Mexicalli, S.A. DE C.V.
LG Electronics India Pvt. Ltd.
LG Electronics do Brasil Ltda.
LG Electronics Air-Conditioning (Shandong)
LG Electronics Mlawa Sp. z o.o.
LG Electronics Mexicalli, S.A. DE C.V.
LG Electronics India Pvt. Ltd.
LG Electronics do Brasil Ltda.
LG Electronics Air-Conditioning (Shandong)
Co., Ltd.
Co., Ltd.
LG Electronics Almaty Kazakhstan
LG Electronics S.A. (Pty) Ltd
LG Electronics (Kunshan) Computer Co.,
LG Electronics Almaty Kazakhstan
LG Electronics S.A. (Pty) Ltd.
—
Ltd.
LG Electronics Singapore PTE LTD.
Inspur LG Digital Mobile Communications
LG Electronics Singapore PTE LTD.
Inspur LG Digital Mobile Communications
Co., Ltd.
Co., Ltd.
Hi Logistics Europe B.V.
Hi Logistics (China) Co., Ltd.
LG Electronics Japan, Inc.
LG Electronics U.S.A., Inc.
LG Electronics Vietnam Haiphong Co., Ltd.
P.T. LG Electronics Indonesia
Hientech (Tianjin) Co., Ltd.
Hi M Solutek
LG Electronics Deutschland GmbH
—
—
—
—
—
LG Electronics Japan, Inc.
LG Electronics U.S.A., Inc.
LG Electronics Vietnam Haiphong Co., Ltd.
P.T. LG Electronics Indonesia
Hientech (Tianjin) Co., Ltd.
Hi M Solutek
LG Electronics Deutschland GmbH
LG Electronics Egypt S.A.E.
LG Innotek Yantai Co., Ltd.
LG Electronics Alabama Inc.
(b) Key management personnel compensation
Compensation costs of key management for the years ended December 31, 2014, 2015 and 2016 are as follows:
(In millions of won)
Short-term benefits
Expenses related to the defined benefit plan
2014
W 2,607
355
W 2,962
2015
2,940
378
3,318
2016
2,323
897
3,220
Key management refers to the registered directors who have significant control and responsibilities over the Controlling
Company’s operations and business.
F-85
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
20. Related Parties, Continued
(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, 2014, 2015 and 2016 are as
follows:
(In millions of won)
Joint ventures
2014
Purchase and others
Sales and
others
Dividend
income
Purchase of raw
material and
others
Acquisition of
property, plant
and equipment
Outsourcing
fees
Other costs
Suzhou Raken Technology Co., Ltd. W 190,780
—
Global OLED Technology LLC
W 190,780
Associates and their subsidiaries
New Optics Ltd.
INVENIA Co., Ltd. (LIG INVENIA
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.
W
579
—
—
41
—
—
—
—
103,091
—
—
—
—
W 103,711
—
—
—
—
—
—
—
265
—
—
613
—
180
—
—
—
1,058
F-86
—
—
—
56,412
413
76,047
1,520
143
—
600,655
—
686,100
519
21,344
1,810
734
1,445,697
—
—
—
—
101,830
—
101,830
—
2,045
2,045
11,057
2,015
16,647
—
202,915
—
—
—
—
—
8,873
—
4,418
21,614
254,467
—
—
—
92,353
—
—
—
106,311
—
—
—
—
209,721
722
2,753
3,754
360
4,951
3,097
—
55
1,403
315
497
460
20,382
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
Sales
and others
Dividend
income
Purchase of raw
material and others
Purchase and others
Acquisition of
property, plant and
equipment
Outsourcing
fees
Other costs
2014
W 2,157,472
—
60,002
267,212
—
73,255
20. 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
Nanjing Display Co.,
Ltd.
LG Electronics RUS,
LLC
LG Electronics do
Brasil Ltda.
LG Electronics
(Kunshan) Computer
Co., Ltd.
LG Innotek Co., Ltd.
LG Electronics
Vietnam Haiphong
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.
W 117,075
36,204
68,212
342,474
530,121
363,092
15,968
3,514
19,476
—
—
—
—
—
—
—
—
—
—
—
188,993
—
114,458
—
193,246
—
F-87
—
—
—
—
—
—
—
509,352
—
—
—
—
—
—
—
—
—
—
—
—
—
—
29,993
—
—
—
—
—
—
—
—
—
—
—
2
—
1,719
—
502
—
13,082
—
—
—
—
—
—
—
—
—
—
—
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
20. Related Parties, Continued
(In millions of won)
Sales
and others
Dividend
income
Purchase of raw
material and others
Acquisition of
property, plant and
equipment
Outsourcing
fees
Other costs
2014
Purchase and others
LG Electronics
Mlawa Sp. z o.o.
W 571,252
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
(In millions of won)
—
—
175,424
28,177
—
960,523
—
—
—
—
—
719,543
50
W 4,447,802
W 6,899,765
—
—
—
1,058
—
810
510,162
2,015,861
—
—
—
—
—
—
—
1,065
—
—
—
311,551
62
67,149
83,581
179,263
—
—
—
—
—
—
29,993
551,672
2015
Sales
and others
Dividend
income
Purchase of
raw material
and others
Acquisition of
property, plant
and equipment
Outsourcing
fees
Other costs
Purchase and others
Joint Venture
Suzhou Raken Technology Co., Ltd.
W 143,125
Associates and their subsidiaries
New Optics Ltd.
New Optics USA, Inc.
INVENIA Co., Ltd. (LIG INVENIA Co.,
W
Ltd.)
92
—
9
F-88
—
—
—
—
—
47,404
—
—
—
—
—
5,880
29,475
49
42,007
—
361
441
—
122
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
20. Related Parties, Continued
(In millions of won)
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.
LB Gemini New Growth Fund No. 16
Entity that has significant influence over the
Controlling Company
LG Electronics Inc.
Subsidiaries of the entity that has significant
influence over the Controlling Company
Sales
and others
W
—
—
—
—
—
284,255
3
8
—
9
—
W 284,376
Dividend
income
101
128
530
—
24,058
—
—
—
—
—
760
25,577
2015
Purchase and others
Purchase of
raw material
and others
84,732
1,826
278
—
425,314
473,484
634
4,581
2,465
810
—
1,041,577
Acquisition of
property, plant
and equipment
—
82,797
—
—
—
—
20,515
—
2,853
20,324
—
168,496
Outsourcing
fees
—
—
52,097
—
—
97,736
—
—
—
—
—
185,188
Other costs
929
6,223
1,599
761
2,772
83
643
227
629
974
—
15,403
W 1,694,039
—
39,791
255,046
—
133,536
LG Electronics India Pvt. Ltd.
LG Electronics Vietnam Haiphong Co., Ltd.
LG Electronics Thailand Co., Ltd.
LG Electronics Nanjing Display Co., Ltd.
W 156,428
95,626
12,902
182,302
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
131
—
188
2,200
F-89
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
20. Related Parties, Continued
(In millions of won)
2015
Purchase and others
LG Electronics RUS, LLC
LG Electronics do Brasil Ltda.
LG Electronics (Kunshan) Computer Co., Ltd.
LG Innotek Co., Ltd.
Qingdao LG Inspur Digital Communication Co.,
Sales
and others
W 198,897
298,679
9,282
5,647
Dividend
income
—
—
—
—
Purchase of
raw material
and others
—
—
—
299,033
Acquisition of
property, plant
and equipment
—
—
—
—
Ltd.
271,405
—
—
—
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 Wroclaw Sp. z o.o.
LG Hitachi Water Solutions Co., Ltd.
LG Electronics Reynosa, S.A. DE C.V.
Hi Entech Co., Ltd.
Hi Logistics Co., Ltd.
Hi Logistics (China) Co., Ltd.
Hientech (Tianjin) Co., Ltd.
LG Electronics U.S.A., Inc.
Others
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
25,577
286,420
160,842
448,468
109,844
13,050
523,623
—
1,020,471
—
34
—
—
5,305
12
W 3,799,237
W 5,920,777
F-90
—
—
—
—
—
—
—
—
—
—
—
—
—
2
299,035
1,380,403
—
—
—
—
—
—
40,436
—
—
—
—
—
—
—
40,436
463,978
Outsourcing
fees
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
185,188
Other costs
420
490
—
44,691
—
—
—
1,371
4
—
298
5,664
9
24,963
24,832
7,183
19,149
868
8,567
141,028
290,328
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
20. Related Parties, Continued
(In millions of won)
2016
Purchase and others
Sales
and others
Dividend
income
Purchase of
raw material
and others
Acquisition of
property, plant
and equipment
Outsourcing
fees
Other costs
Joint Venture
Suzhou Raken Technology Co., Ltd. (*1)
W 59,388
29,902
—
—
—
543
Associates and their subsidiaries
New Optics Ltd.
New Optics USA, Inc.
NEWOPTIX RS. SA DE CV
INVENIA Co., Ltd. (LIG INVENIA Co., Ltd.)
TLI Inc. (*2)
AVACO Co., Ltd. (*2)
AVATEC Co., Ltd.
Paju Electric Glass Co., Ltd.
Shinbo Electric Co., Ltd.
Narenanotech Corporation
WooRee E&L Co., Ltd.
YAS Co., Ltd.
LB Gemini New Growth Fund No. 16
—
—
—
—
101
128
265
21,030
—
—
—
—
8,394
29,918
W 2,469
—
33
54
—
—
—
—
204,637
17
—
44
—
W 207,254
F-91
50,372
—
—
1,429
57,429
703
—
453,463
355,607
513
—
2,076
—
921,592
—
—
—
48,398
—
31,299
—
—
—
24,821
—
80,836
—
185,354
7,569
509
—
—
—
—
70,196
—
2,449
—
—
—
—
80,723
255
—
—
261
2,238
1,373
1,027
3,674
1,097
909
32
1,758
—
12,624
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
20. 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 Haiphong Co.,
Ltd.
LG Electronics Nanjing New Technology
Co., Ltd.
LG Electronics RUS, LLC
LG Electronics do Brasil Ltda.
LG Innotek Co., Ltd.
Qingdao LG Inspur Digital
Communication Co., Ltd.
Inspur LG Digital Mobile
Communications Co., Ltd.
LG Electronics Mexicalli, S.A. DE C.V.
LG Electronics Mlawa Sp. z o.o.
LG Electronics Taiwan Taipei Co., Ltd.
Sales
and others
Dividend
income
Purchase of
raw material
and others
Acquisition of
property, plant
and equipment
Outsourcing
fees
Other costs
2016
Purchase and others
W 1,580,279
—
23,047
538,175
—
103,158
W 75,591
162,893
229,773
127,316
133,903
11,503
47,804
370,966
210,021
709,558
11,919
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
209,878
—
—
—
—
—
F-92
—
—
293
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
69
141
1,876
2,993
3,430
9,873
—
5
77
895
27
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
20. Related Parties, Continued
(In millions of won)
LG Electronics Wroclaw Sp. z o.o.
LG Hitachi Water Solutions Co., Ltd.
LG Electronics Reynosa, S.A. DE C.V.
LG Electronics Almaty Kazakhstan
LG Electronics Air-Conditioning (Shandong)
Co., Ltd.
Hi Entech Co., Ltd.
Hientech (Tianjin) Co., Ltd.
LG Electronics S.A. (Pty) Ltd
Others
Sales
and others
W 290,785
—
1,074,790
15,953
—
—
—
21,236
2,289
W 3,496,300
W 5,343,221
Dividend
income
—
—
—
—
—
—
—
—
—
—
59,820
2016
Purchase and others
Purchase of
raw material
and others
—
—
—
—
Acquisition of
property, plant
and equipment
—
167,987
—
—
—
—
—
—
—
209,878
1,154,517
4,994
—
28,587
—
—
201,861
925,390
Outsourcing
fees
—
—
—
—
—
—
—
—
—
—
80,723
Other costs
99
2,782
1,907
33
259
25,365
10,613
39
4,094
64,577
180,902
(*1) Represents transactions occurred prior to exchange of equity interests. Details of its transactions are described in note 1(b).
(*2) Represents transactions occurred prior to disposal of the entire investments in TLI Inc. and AVACO Co., Ltd.
F-93
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
20. Related Parties, Continued
(d) Trade accounts and notes receivable and payable as of December 31, 2015 and 2016 are as follows:
(In millions of won)
Joint Venture
Suzhou Raken Technology Co., Ltd.
Associates and their subsidiaries
New Optics Ltd.
New Optics USA, Inc.
INVENIA Co., Ltd. (LIG INVENIA
Co., Ltd.)
TLI Inc.
AVACO Co., Ltd.
AVATEC Co., Ltd.
Paju Electric Glass Co., Ltd.
Shinbo Electric Co., Ltd.
Narenanotech Corporation
ADP System Co., Ltd.
YAS Co., Ltd.
Entity that has significant influence over
the Controlling Company
LG Electronics Inc.
Trade accounts and notes receivable
and others
Trade accounts and notes payable
and others
December 31, 2015
December 31, 2016
December 31, 2015
December 31, 2016
W
W
W
14,657
—
—
956
—
—
—
—
73,549
283
—
956
75,744
—
1,000
—
833
—
—
—
—
85,011
300
—
833
87,977
182
8,584
5,313
6,349
15,232
20,064
5,493
68,066
71,231
2,242
615
5,248
208,437
—
8,616
—
6,515
—
—
5,190
71,685
64,693
2,826
—
3,531
163,056
W 407,498
357,577
118,073
160,309
F-94
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
20. Related Parties, Continued
(In millions of won)
Subsidiaries of the entity that has
significant influence over the Controlling
Company
LG Electronics India Pvt. Ltd.
LG Electronics do Brasil Ltda.
LG Electronics RUS, LLC
LG Innotek Co., Ltd.
Qingdao LG Inspur Digital
Communication Co., Ltd.
Inspur LG Digital Mobile
Communications Co., Ltd.
LG Electronics Mexicalli, S.A. DE C.V.
LG Electronics Mlawa Sp. z o.o.
LG Electronics Nanjing New Technology
Co., Ltd.
LG Electronics Taiwan Taipei Co., Ltd.
LG Electronics Reynosa, S.A. DE C.V.
LG Electronics Wroclaw Sp. z o.o.
LG Electronics Vietnam Haiphong Co.,
Ltd.
LG Electronics Almaty Kazakhstan
LG Electronics S.A. (Pty) Ltd
LG Electronics Air-Conditioning
(Shandong) Co., Ltd.
LG Hitachi Water Solutions Co., Ltd.
Hientech (Tianjin) Co., Ltd.
Hi Entech Co., Ltd.
Others
Trade accounts and notes receivable
and others
Trade accounts and notes payable
and others
December 31, 2015
December 31, 2016
December 31, 2015
December 31, 2016
W
12,736
5,835
43,342
311
30,038
107,450
14,626
69,879
25,195
847
120,940
126,898
20,296
1,532
1,406
—
—
—
—
15,692
W
597,023
W 1,094,922
F-95
4,651
14,299
47,686
1,070
7,007
72,963
11,959
222,480
51,794
3,510
93,873
27,907
35,121
4,200
5,941
—
—
—
—
526
604,987
1,050,541
—
—
—
76,240
—
—
—
—
87
—
—
4
—
—
—
2,244
13,811
966
3,695
484
97,531
424,223
—
27
—
50,919
—
5
13
27
78
—
259
17
7
—
3
1,304
108,119
3,746
4,080
1,638
170,242
493,607
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
20. Related Parties, Continued
(e) Details of significant cash transactions such as loans and collection of loans, which occurred in the normal course of business
with related parties for the nine-month period ended December 31, 2015 and 2016 are as follows:
(In millions of won)
Associates
INVENIA Co., Ltd. (LIG INVENIA Co., Ltd.)
Narenanotech Corporation
YAS Co., Ltd.
(*) Loans are presented based on nominal amounts.
(In millions of won)
Associates
New Optics Ltd.
INVENIA Co., Ltd. (LIG INVENIA Co., Ltd.)
Narenanotech Corporation
YAS Co., Ltd.
(*) Loans are presented based on nominal amounts.
F-96
January 1,
2015
W —
—
—
W —
Loans(*)
Increase
1,000
300
1,000
2,300
Decrease
—
—
—
—
December 31,
2015
1,000
300
1,000
2,300
January 1,
2016
W —
1,000
300
1,000
W 2,300
Loans(*)
Increase
1,000
—
—
—
1,000
Decrease
—
167
—
167
334
December 31,
2016
1,000
833
300
833
2,966
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
21. 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, 2014,
2015 and 2016.
(a) Revenue by geography
(In millions of won)
Region
Domestic
Foreign
China
Asia (excluding China)
United States
Europe (excluding Poland)
Poland
2014
W 2,608,344
2015
2,217,516
2016
1,825,191
15,773,847
3,050,652
2,025,978
1,527,003
1,469,705
23,847,185
W 26,455,529
19,375,401
2,605,753
1,981,021
1,064,122
1,140,071
26,166,368
28,383,884
18,367,767
2,148,676
2,053,317
983,672
1,125,451
24,678,883
26,504,074
Sales to Company A and Company B amount to W9,122,385 million and W5,808,630 million, respectively, for the year
ended December 31, 2016 (2014: W7,364,226 million and W7,152,079 million, 2015: W9,900,220 million and W6,682,226
million). The Group’s top 10 end-brand customers together accounted for 82% of sales for the year ended December 31,
2016 (2014: 79%, 2015: 82%).
(c) Non-current assets by geography
(In millions of won)
Region
Domestic
Foreign
China
Others
(c) Revenue by product and services
(In millions of won)
Product
Panels for:
Televisions
Desktop monitors
Tablet products
Notebook computers
Mobile and others
December 31, 2015
December 31, 2016
Property, plant and
equipment
W 7,719,079
Intangible
assets
607,402
Property, plant and
equipment
8,758,171
Intangible
assets
673,966
2,728,047
98,894
W 2,826,941
W 10,546,020
19,946
211,382
231,328
838,730
3,079,724
193,554
3,273,278
12,031,449
23,298
197,673
220,971
894,937
2014
2015
2016
W 10,539,917
4,660,151
3,541,607
2,668,806
5,045,048
W 26,455,529
10,853,598
4,553,138
2,509,911
2,508,878
7,958,359
28,383,884
10,132,520
4,035,195
2,695,808
2,383,532
7,257,019
26,504,074
F-97
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
22. The Nature of Expenses and Others
The classification of expenses by nature for the years ended December 31, 2014, 2015 and 2016 are as follows:
(In millions of won)
Changes in inventories
Purchases of raw materials, merchandise and others
Depreciation and amortization
Outsourcing fees
Labor cost
Supplies and others
Utility
Fees and commissions
Shipping costs
Advertising
Warranty expenses
Travel
Taxes and dues
Others
2014
W (820,857)
14,384,289
3,492,311
1,084,460
2,924,573
1,021,469
785,129
498,192
245,217
106,509
187,771
74,968
70,523
1,176,098
W 25,230,652
2015
402,429
14,705,757
3,375,856
1,011,084
3,104,043
1,062,820
836,600
580,235
231,830
265,755
146,829
71,457
76,640
1,036,131
26,907,466
2016
63,884
14,244,942
3,021,571
819,742
3,022,607
1,053,245
840,664
638,732
224,742
67,636
166,691
73,807
74,506
927,218
25,239,987
Total expenses consist of cost of sales, selling, administrative, research and development expenses and other non-operating
expenses, excluding foreign exchange differences.
F-98
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
23. Selling and Administrative Expenses
Details of selling and administrative expenses for the years ended December 31, 2014, 2015 and 2016 are as follows:
(In millions of won)
Salaries
Expenses related to defined benefit plans
Other employee benefits
Shipping costs
Fees and commissions
Depreciation
Taxes and dues
Advertising
Warranty expenses
Rent
Insurance
Travel
Training
Others
2014
W 256,869
27,618
68,826
199,853
182,548
90,180
25,370
106,509
187,771
22,048
11,518
23,772
12,572
51,392
W 1,266,846
2015
268,182
26,967
88,191
199,774
191,106
118,719
30,958
265,755
146,829
24,184
10,826
24,411
15,515
59,468
1,470,885
2016
276,824
28,999
89,717
191,442
192,786
129,225
30,523
67,636
166,691
25,840
11,561
23,343
14,464
56,342
1,305,393
24. Personnel Expenses
Details of personnel expenses for the years ended December 31, 2014, 2015 and 2016 are as follows:
(In millions of won)
Salaries and wages
Other employee benefits
Contributions to National Pension plan
Expenses related to defined benefit plan
2014
W 2,351,306
408,073
64,078
196,756
W 3,020,213
2015
2,487,767
450,651
66,191
199,033
3,184,642
2016
2,418,869
459,730
69,588
220,962
3,169,149
F-99
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
25. Other Income and Other Expenses
(a) Details of other income for the years ended December 31, 2014, 2015 and 2016 are as follows:
(In millions of won)
Foreign currency gain
Gain on disposal of property, plant and equipment
Reversal of impairment loss on intangible assets
Rental income
Others (*)
2014
W 988,366
8,989
—
6,549
67,999
W 1,071,903
2015
1,221,066
18,179
80
4,858
29,718
1,273,901
2016
1,543,909
14,637
—
5,152
28,103
1,591,801
(*) A gain amounting to W34,804 million as a result of the Controlling Company’s success in its appeal against the fining decision of
the Korea Fair Trade Commission is included in 2014.
(b) Details of other expenses for the years ended December 31, 2014, 2015 and 2016 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
F-100
2014
W
531
962,693
2,173
8,097
672
492
11,901
108,512
W 1,095,071
2015
—
1,177,634
4,037
3,027
29
239
14,114
127,702
1,326,782
2016
—
1,420,502
7,466
1,610
75
138
22,221
15,819
1,467,831
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
26. Finance Income and Finance Costs
(a) Finance income and costs recognized in profit or loss for the years ended December 31, 2014, 2015 and 2016 are as follows:
(In millions of won)
Finance income
Interest income
Dividend income
Foreign currency gain
Gain on disposal of available-for-sale financial assets
Gain on disposal of investment in a subsidiary
Gain on disposal or change in control of investments in equity accounted
investees
Gain on transaction of derivatives
Gain on valuation of derivatives
Finance costs
Interest expense
Foreign currency loss
Loss on valuation of Financial asset at fair value through profit or loss
Loss on impairment of available-for-sale financial assets
Loss on disposal of investment in a subsidiary
Loss on early redemption of debt
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
Loss on transaction of derivatives
Loss on valuation of derivatives
2014
2015
2016
W 49,105
282
55,000
780
276
—
—
—
W 105,443
W 109,776
84,649
—
—
4,157
6,986
9,812
156
—
—
—
W 215,536
57,080
—
77,879
—
—
23,268
602
—
158,829
127,598
155,728
—
—
—
—
4,909
481
26,791
722
—
316,229
42,079
—
81,554
—
—
11,367
4,427
244
139,671
114,519
132,320
118
3,757
—
—
2,886
5,643
6,137
334
472
266,186
(b) Finance income and costs recognized in other comprehensive income or loss for the years ended December 31, 2014, 2015
and 2016 are as follows:
(In millions of won)
Foreign currency translation differences for foreign operations
Net change in fair value of available-for-sale financial assets
Tax effect
Finance income (costs) recognized in other comprehensive income or loss
after tax
2014
W 43,951
733
(119)
2015
44,913
(288)
214
2016
(90,503)
(77)
19
W 44,565
44,839
(90,561)
F-101
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
27.
Income Taxes
(a) Details of income tax expense (benefit) recognized in profit for the year for the years ended December 31, 2014, 2015 and
2016 are as follows:
(In millions of won)
Current tax expense
Current year
Deferred tax expense (benefit)
Origination and reversal of temporary differences
Change in unrecognized deferred tax assets
Income tax expense
2014
2015
2016
W 288,280
277,264
361,237
(55,976)
92,249
36,273
W 324,553
123,458
9,804
133,262
410,526
(49,190)
72,678
23,488
384,725
(b)
Income taxes recognized directly in other comprehensive income for the years ended December 31, 2014, 2015 and 2016 are
as follows:
(In millions of won)
Net change in fair value of available-for-sale financial assets
Remeasurements of net defined benefit liabilities (assets)
Foreign currency translation differences for foreign operations
Change in equity of equity method investee
(In millions of won)
Net change in fair value of available-for-sale financial assets
Remeasurements of net defined benefit liabilities (assets)
Foreign currency translation differences for foreign operations
Change in equity of equity method investee
F-102
Before tax
W
733
(147,822)
43,950
(7,133)
W (110,272)
Before tax
W (288)
(110,257)
44,913
18,569
W (47,063)
2014
Tax benefit
(expense)
(186)
35,773
67
—
35,654
2015
Tax benefit
70
26,682
144
—
26,896
Net of tax
547
(112,049)
44,017
(7,133)
(74,618)
Net of tax
(218)
(83,575)
45,057
18,569
(20,167)
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
27.
Income Taxes, Continued
(In millions of won)
Net change in fair value of available-for-sale financial assets
Remeasurements of net defined benefit liabilities (assets)
Foreign currency translation differences for foreign operations
Change in equity of equity method investee
Before tax
W
(77)
155,346
(90,503)
(5,216)
2016
Tax benefit
19
(37,594)
—
—
W 59,550
(37,575)
Net of tax
(58)
117,752
(90,503)
(5,216)
21,975
(c) Reconciliation of the actual effective tax rate for the years ended December 31, 2014, 2015 and 2016 is as follows:
(In millions of won)
Profit before income taxes
Income tax using the
statutory tax rate of each
country
Non-deductible expenses
(non-taxable benefits)
Tax credits
Change in unrecognized
deferred tax assets
Others
Actual income tax expense
Actual effective tax rate
2014
W
1,241,957
2015
1,433,982
2016
1,316,233
32.96%
409,341
32.56%
466,848
33.49%
440,753
(2.22%)
(10.39%)
(27,537)
(129,026)
2.66%
(8.12%)
38,208
(116,439)
3.39%
(11.45%)
44,606
(150,663)
7.43%
(1.65%)
W
92,249
(20,474)
324,553
26.13%
F-103
0.68%
0.84%
5.52%
(1.72%)
9,804
12,105
410,526
28.63%
72,678
(22,649)
384,725
29.23%
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
28. Deferred Tax Assets and Liabilities
(a) Unrecognized deferred tax liabilities
As of December 31, 2015 and 2016, in relation to the temporary differences on investments in subsidiaries amounting to
W213,479 million and W149,616 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) 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, 2016, the Controlling Company recognized deferred tax assets of
W287,400 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, 2017
December 31, 2018
December 31, 2019
December 31, 2020
December 31, 2021
W
14,074
35,500
—
—
58,391
(c) Deferred tax assets and liabilities are attributable to the following:
(In millions of won)
Assets
Liabilities
Total
December, 31,
2015
December, 31,
2016
December, 31,
2015
December, 31,
2016
December, 31,
2015
December 31,
2016
Other accounts receivable, net
Inventories, net
Available-for-sale financial assets
Defined benefit liabilities, net
Investments in equity accounted investees
W
and subsidiaries
Accrued expenses
Property, plant and equipment
Intangible assets
Provisions
Gain or loss on foreign currency
translation, net
Others
Tax credit carryforwards
Deferred tax assets (liabilities)
—
46,449
—
58,962
9,121
122,002
271,252
817
14,152
11
25,253
385,017
W 933,036
(2,388)
—
(19)
—
—
—
—
(34,663)
—
—
—
—
(37,070)
(1,190)
—
—
—
—
—
—
(31,771)
—
—
—
—
(32,961)
(2,388)
46,449
(19)
58,962
9,121
122,002
271,252
(33,846)
14,152
11
25,253
385,017
895,966
(1,190)
35,771
—
10,817
34,777
122,998
338,860
(31,027)
15,051
11
21,435
287,400
834,903
—
35,771
—
10,817
34,777
122,998
338,860
744
15,051
11
21,435
287,400
867,864
F-104
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
28. Deferred Tax Assets and Liabilities, Continued
(d) Changes in deferred tax assets and liabilities for the years ended December 31, 2015 and 2016 are as follows:
(In millions of won)
Other accounts receivable, net
Inventories, net
Available-for-sale financial assets
Defined benefit liabilities, net
Investments in equity accounted
investees and subsidiaries
Accrued expenses
Property, plant and equipment
Intangible assets
Provisions
Gain or loss on foreign currency
translation, net
Others
Tax credit carryforwards
Deferred tax assets (liabilities)
January 1,
2015
W
(3,440)
46,377
(88)
112,213
29,839
177,163
236,848
1,423
12,710
Profit
or loss
Other
compre-
hensive
income
—
—
70
(79,933) 26,682
1,052
72
(1)
Business
combi-
nation
December 31,
2015
Other
compre-
hensive
income
—
—
19
Profit or
loss
1,198
(10,678)
—
(2,388)
46,449
(19)
58,962
(10,551) (37,594)
—
—
—
—
(20,718) —
(55,161) —
34,404
—
(1,339) —
—
1,442
—
—
—
(33,930)
—
9,121
122,002
271,252
(33,846)
14,152
25,656
996
67,608
2,819
899
—
—
—
—
—
168
25,944
397,105
W 1,036,262
(157) —
144
(835)
(12,088) —
(133,262) 26,896 (33,930)
—
—
—
11
25,253
385,017
895,966
—
(3,818)
(97,617)
(23,488) (37,575)
—
—
—
December 31,
2016
(1,190)
35,771
—
10,817
34,777
122,998
338,860
(31,027)
15,051
11
21,435
287,400
834,903
Statutory tax rate applicable to the Controlling Company to calculate tax base and deferred tax expense is 24.2% as of
December 31, 2016.
F-105
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
29. Earnings per Share
(a) Basic earnings per share for the years ended December 31, 2014, 2015 and 2016 are as follows:
(In won and No. of shares)
Profit attributable to owners of the Controlling Company
Weighted-average number of common stocks outstanding
Earnings per share
2014
W 904,267,992,399
357,815,700
2,527
W
2015
966,553,061,333
357,815,700
2,701
2016
906,714,278,688
357,815,700
2,534
For the years ended December 31, 2014, 2015 and 2016, there were no events or transactions that resulted in changes in the
number of common stocks used for calculating earnings per share.
(b) Diluted earnings per share for the years ended December 31, 2015 and 2016 are not calculated since there was no potential
common stock.
30. Supplemental Cash Flow Information
Supplemental cash flow information for the years ended December 31, 2014, 2015 and 2016 is as follows:
(In millions of won)
Non-cash investing and financing activities:
Changes in other accounts payable arising from the purchase of
2014
2015
2016
property, plant and equipment
W (149,989)
182,424
809,406
During the year ended December 31, 2016, the Controlling Company acquired Suzhou Lehui Display Co., Ltd. through the
exchange of equity interests (note 31).
F-106
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014, 2015 and 2016
31. Business Combinations
In July 2016, Suzhou Raken Technology Co., Ltd., a joint venture of the Controlling Company and AmTRAN Technology Co.,
Ltd. (“AmTRAN”), split into Suzhou Raken Technology Co., Ltd. which is engaged in manufacturing TV sets and Suzhou Lehui
Display Co., Ltd. which is engaged in manufacturing LCD monitor sets. The Controlling Company acquired 100% equity interest
in Suzhou Lehui Display Co., Ltd. and AmTRAN acquired 100% equity interest in Suzhou Raken Technology Co., Ltd.,
respectively, by exchanging equity interests.
The fair value of the consideration transferred, assets acquired and liabilities assumed are as follows:
(In millions of won)
Consideration transferred (*1)
Identifiable assets acquired and liabilities assumed:
Trade accounts and notes receivable
Inventories
Other current assets
Property, plant and equipment
Other non-current assets
Trade accounts and notes payable
Other current liabilities
Identifiable net assets
Goodwill (*2)
Amount
W 125,217
73,653
41,804
77,950
17,790
4,968
(89,493)
(6,078)
120,594
4,623
(*1) Consideration transferred represents the fair value of the Controlling Company’s interest in Suzhou Lehui Display
Co., Ltd., which was measured using Discounted Cash Flow method.
(*2) Goodwill amounting to W4,623 million arose from specialized knowledge and experience.
The Controlling Company recognized W4,013 million for the difference between the carrying amount and the fair value as
finance income in the consolidated statements of comprehensive income for the year ended December 31, 2016 regarding the
previously held 51% ownership in Suzhou Raken Technology Co., Ltd.
See note 1(c) for the financial information of Suzhou Lehui Display Co., Ltd. included in the consolidated financial
statements since acquisition. The revenue and profit or loss of the Group for the year ended December 31, 2016, as though
the acquisition date for the business combination occurred in July 2016 had been as of the beginning of the annual reporting
period, were not disclosed as they are not estimated reliably since the revenue and profit or loss of Suzhou Lehui Display
Co., Ltd. from the beginning of 2016 to acquisition date are not available and the costs to develop such information would be
excessive.
F-107
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 28, 2017
/s/ SANG BEOM HAN
Sang Beom Han
Representative Director, Vice Chairman and
Chief Executive Officer
Exhibit 12.2
I, Sang Don 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 28, 2017
/s/ SANG DON KIM
Sang Don 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, 2016 (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 28, 2017
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, Vice Chairman 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, 2016 (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 28, 2017
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 DON KIM
Sang Don Kim
Director, Senior Vice President and
Chief Financial Officer