LG Display Co., Ltd.
Annual Report 2018

Plain-text annual report

As filed with the Securities and Exchange Commission on April 30, 2019 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, 2018 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) Su Yeon Suh 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 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 every Interactive Data File required to be submitted 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 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 5 6 6 23 23 25 36 36 37 37 37 52 56 58 58 58 58 58 58 62 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) 62 64 64 65 65 65 66 66 66 68 68 68 68 68 68 68 68 68 68 69 73 73 77 81 81 81 81 82 84 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) 85 85 85 86 86 86 86 87 87 87 87 89 90 90 91 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, 2017 and 2018 and for each of the years ended in the three-year period ended December 31, 2018 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$” are to the currency of Brazil, all references to “SG$” are to the currency of Singapore, and all references to “VND” are to the currency of Vietnam. 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, 2018, which was W1,112.85 = 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. Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE PART I 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, 2014, 2015, 2016, 2017 and 2018 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, 2017 and 2018 and for each of the years in the three-year period ended December 31, 2018 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, 2017 and 2018 included in the Form 6-K furnished to the SEC on February 28, 2019 is a profit of W2,462 billion and W93 billion, respectively. For further information, please see the Form 6-K furnished to the SEC on February 28, 2019, 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 (loss) data 2014 2015 2016 2017 2018 Year ended December 31, Revenue Cost of sales Gross profit Selling expenses Administrative expenses Research and development expenses Profit (loss) before income tax Income tax expense Profit (loss) for the year Total comprehensive income (loss) for the year Basic earnings (loss) per share (Won, US$) Diluted earnings (loss) per share W 26,456 (22,667) 3,789 (747) (520) (1,164) 1,242 (325) 917 (in billions of Won, except for per share data) W 27,790 W 26,504 W 28,384 W 24,337 US$ (24,070) 4,314 (878) (593) (1,218) 1,434 (411) 1,023 (22,754) 3,750 (695) (610) (1,134) 1,316 (385) 931 (22,425) 5,366 (994) (696) (1,213) 2,333 (396) 1,937 (21,251) 3,085 (834) (938) (1,221) (91) (88) (179) 843 1,003 953 1,700 (195) W 2,527 W 2,701 W 2,534 W 5,038 W (579) US$ (Won, US$) W 2,527 W 2,701 W 2,534 W 5,038 W (579) US$ 3 2018 (1) (in millions of US$, except for per share data) 21,869 (19,096) 2,772 (749) (843) (1,097) (82) (79) (161) (175) (0.52) (0.52) Consolidated statements of financial position data Cash and cash equivalents Deposits in banks Trade accounts and notes receivable, net Inventories Total current assets Property, plant and equipment, net Total assets Trade accounts and notes payable Current financial liabilities Other accounts payable Total current liabilities Non-current financial liabilities Long-term advance received Total liabilities Share capital and share premium Retained earnings Total equity Other financial data Gross margin (2) Net margin (3) EBITDA (4) Capital expenditures Depreciation and amortization (5) Net cash provided by operating activities Net cash used in investing activities Net cash provided by (used in) financing activities Dividends declared per share (Won, US$)(6) As of December 31, 2014 2015 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 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 2016 (in billions of Won) 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 2017 2018 W 2,603 758 4,325 2,350 10,474 16,202 29,160 2,875 1,453 3,170 8,979 4,150 830 14,718 4,040 10,622 14,982 W 2,365 78 2,829 2,691 8,800 21,600 33,176 3,087 1,554 3,567 9,954 7,031 1,114 18,289 4,040 10,240 14,886 2018 (1) (in millions of US$) 2,125 US$ 70 2,542 2,418 7,908 19,410 29,812 2,774 1,396 3,205 8,945 6,318 1,001 16,434 3,630 9,202 13,376 2014 2015 2016 2017 2018 Year ended December 31, (in billions of Won, except for percentages and per share data) 14.1% 3.5% 15.2% 3.6% 19.3% 7.0% 14.3% 3.5% 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 W 4,410 3,736 3,022 3,641 (3,189) 308 W 500 W 5,579 6,592 3,215 6,764 (6,481) 862 W 500 2018 (1) (in millions of US$, except for percentages and per share data) US$ 12.7% (0.7)% W 3,476 7,942 3,555 4,484 (7,675) 2,953 — 12.7% (0.7)% 3,124 7,137 3,195 4,029 (6,897) 2,654 — (1) For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of W1,112.85 to US$1.00, the noon buying rate in effect on December 31, 2018 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, 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 (loss) for the year Interest income Interest expense Income tax expense Depreciation Amortization of intangible assets EBITDA W 917 (49) 110 325 3,222 270 W4,795 2014 2015 Year ended December 31, 2017 2018 2016 (in billions of Won) W 931 W1,023 W1,937 (57) 128 411 2,969 406 W4,880 (42) 115 385 2,643 378 W4,410 (60) 91 396 2,792 423 W5,579 W (179) (69) 81 88 3,124 431 W3,476 US$ 2018 (1) (in millions of US$) US$ (161) (62) 73 79 2,807 387 3,124 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 Notebook computers(1) Desktop monitors(2) Tablet computers Mobile and other applications(3) Total 2014 Year ended December 31, 2016 2017 2015 (in thousands) 2018 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 52,108 26,999 37,000 26,255 146,162 288,524 51,966 30,471 36,693 25,015 105,142 249,287 (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. Revenue by product category: Televisions Notebook computers(1) Desktop monitors(2) Tablet computers Mobile and other applications(3) Total sales of goods Royalties Others Revenue 2014 2015 2016 (in billions of Won) 2017 2018 2018(4) (in millions of US$) Year ended December 31, W 10,540 2,669 4,660 3,542 5,005 W 26,416 15 25 W 26,456 W 10,854 2,509 4,553 2,510 7,919 W 28,345 19 20 W 28,384 W 10,133 2,384 4,035 2,696 7,216 W 26,464 17 23 W 26,504 W11,718 2,244 4,393 2,370 7,020 W27,745 20 25 W27,790 W 9,727 2,837 4,040 1,991 5,699 W 24,294 18 25 W 24,337 US$ US$ US$ 8,741 2,549 3,630 1,789 5,121 21,830 16 23 21,868 (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 W1,112.85 to US$1.00, the noon buying rate in effect on December 31, 2018 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. Item 3.B. Capitalization and Indebtedness Not applicable. 5 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 The display panel industry is subject to cyclical fluctuations, including recurring periods of capacity increases, that may adversely affect our results of operations. Most of the global supply of display panels is currently manufactured based on thin-film transistor liquid crystal display, or TFT-LCD, technology. Display panel manufacturers are vulnerable to cyclical market conditions. Intense competition and expectations of growth in demand across the display panel industry may cause 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. From time to time, we have been affected by overcapacity in the display panel industry relative to the general demand for such 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 3.5% from W645,222 in 2016 to W667,726 in 2017, which primarily reflected an increase in the proportion of higher margin products utilizing more advanced technologies in our overall product mix, coupled with the effects of a temporary surge in market demand for large-sized panels in the first half of 2017, but decreased by 13.6% to W576,817 (US$518) in 2018, which was largely driven by an increase in the supply capacity of global TFT-LCD panel manufacturers that applied 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, including products that utilize organic light- emitting diode, or OLED, technology, 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 (such as OLED technology) 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 multi-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. 6 A global economic downturn may result in reduced demand for our products and adversely affect our profitability. 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. Global economic downturns in the past have 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. The overall prospects for the global economy remain uncertain. 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. 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, BOE, China Star Optoelectronics Technology, CEC Panda, HKC, JDI and Sharp. 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 ours. Any price erosion resulting from strong global competition or additional industry capacity may materially adversely affect our financial condition and results of operations. 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. 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. 7 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, newly established industry standards, 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. 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, such as OLED display panels for televisions and public displays including “Wallpaper” OLED panels, “Crystal Sound OLED” sound integrated panels and rollable OLED display panels. We also strive to deliver differentiated values to meet our consumers’ demand for various display panels including (i) panels utilizing ultra-high definition, or Ultra HD, technology with oxide backplanes, (ii) Advanced High-Performance In-Plane Switching, or AH-IPS, panels for tablet computers, mobile devices, notebook computers, desktop monitors, and (iii) plastic OLED display panels for smartphones and other wearable devices. 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. 8 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 18 months from the date of purchase by our customers. 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 its affiliates, and any significant decrease in their order levels or material deterioration in their financial condition 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 a substantial majority of our sales in each of 2016, 2017 and 2018. 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 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. Furthermore, 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, LG International Corp., 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. 9 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, in addition to introducing television display panels utilizing OLED technology, we have also developed OLED panels with embedded sound systems that function as speakers while maintaining a slim design. Furthermore, we began production of plastic OLED panels for mobile and other applications on our E5 production line in August 2017. With the addition of “8K” 88-inch OLED televisions to the line-up of available products in the first half of 2019, following the prior launch of 55-inch, 65-inch and 77-inch OLED televisions, we are deploying greater resources into OLED panel fabrication capabilities in order to maintain our competitive edge in the OLED television panel market. We are also deploying significant resources into plastic OLED panels for mobile and other 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 38.2%, 42.2% and 40.0% of our total revenue in 2016, 2017 and 2018, 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 9.0%, 8.1% and 11.7% of our total revenue in 2016, 2017 and 2018, respectively, those who use our panels in their desktop monitors, which accounted for 15.2%, 15.8% and 16.6% of our total revenue in 2016, 2017 and 2018, respectively, those who use our panels in their tablet computers, which accounted for 10.2%, 8.5% and 8.2% of our total revenue in 2016, 2017 and 2018, respectively, and those who use our panels in their mobile and other applications, which accounted for 27.2%, 25.3% and 23.4% of our total revenue in 2016, 2017 and 2018, respectively. Although the degree to which our total sales are dependent on sales of television panels has fluctuated 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 have been producing OLED panels for televisions on our E3 and E4 production lines since 2013 and 2014, respectively, and OLED panels for smartphones on our E2 production lines since 2013. We also began production of plastic OLED panels on our E5 production line in August 2017 and are in the process of constructing our new E6 production lines for plastic OLED panels, in each case for mobile and other applications. 10 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 a Best in Show Award in May 2016 for our 77-inch OLED television panels. We were also awarded a Best of Consumer Electronics Show Award by the Consumer Electronics Association in January 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. In May 2017 and May 2018, we were awarded the Display of the Year Award by the Society for Information Display for our 65-inch Wallpaper OLED television panels and our Ultra HD Crystal Sound OLED technology, respectively. In January 2019, we won multiple awards for our 65-inch rollable OLED television panels at the 2019 Consumer Electronics Show. While we strive to maintain our early competitive edge in the market for OLED panels, the market for OLED panels is still relatively small compared to the market for TFT-LCD panels, and we expect competition will intensify in the future. In addition, the speed at which we achieve cost reduction for our OLED technology-based new products or at which significant demand for such products develops may be slower than our current expectations. 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 anticipate that we will continue to incur significant capital expenditures for the construction of new production facilities and the maintenance and enhancement of existing production facilities, particularly in connection with our continued investments in OLED technology. Our significant recent and pending capital expenditures include the following: • • • • In response to and in anticipation of growing demand in the China market, in July 2017, we announced our plan to establish a joint venture with the government of Guangzhou to construct a new large-sized OLED production line, which was established under the name of LG Display High-Tech (China) Co., Ltd., in July 2018. We currently hold a 69% ownership interest in the joint venture and the government of Guangzhou holds the remaining 31% ownership interest. We plan to invest approximately W5.0 trillion in capital expenditures for the joint venture, which is expected to commence production within 2019, subject to market conditions and any changes in our investment timetable. 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 have commenced mass production of plastic OLED panels on our E5 production line beginning in August 2017 and are in the process of constructing our new E6 production line for plastic OLED panels with a target to commence mass production during 2019, subject to market conditions and any changes in our investment timetable. In July 2017, we announced plans to make investments in an aggregate amount of up to W7.8 trillion in new large-size OLED and plastic production lines in Paju, Korea. We are in the process of developing and assessing the specifics of such planned investments, including the timing. In April 2016, we entered into a memorandum of understanding with the City of Haiphong in Vietnam for their administrative assistance with building our new module assembly facility in Haiphong, which commenced production in July 2017. 11 In 2018, our total capital expenditure on a cash out basis amounted to W7.9 trillion. We currently expect that, in 2019, our total capital expenditures on a cash out basis will be at a similar level to 2018, primarily to fund our previously announced investments related to facilities for OLED panels. 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 carry out our current and future operational plans, and we may decide not to expand the capacity of certain of our facilities or construct new production facilities as scheduled or at all. Our ability to obtain additional financing will depend upon a number of factors outside our control, including general economic, financial, competitive, regulatory and other considerations. In the past, 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 established our E5 production line and commenced mass production of plastic OLED panels for mobile and other applications in August 2017. See “Item 4.D. Property, Plants and Equipment—Current Facilities.” With respect to our overseas facilities in recent years, we commenced mass production of large-sized panels at our GP fabrication facility in Guangzhou, China in September 2014. In response to and in anticipation of growing demand in the China market, in July 2018, we established and acquired a 69% ownership interest in, a joint venture with the government of Guangzhou to construct a next generation large-sized OLED production line in Guangzhou, China. Production at the joint venture is expected to commence during 2019, and we plan to invest approximately W5.0 trillion in the joint venture. 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. 12 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, particularly for productions involving new technologies, such as OLED. We aim to maintain high capacity utilization rates so that we can allocate these fixed costs over a greater number of panels produced and realize a higher gross margin. However, due to any number of reasons, including fluctuating demand for our products or overcapacity in the display industry, we may need to reduce production, resulting in lower-than-optimal capacity utilization rates. As such, we cannot provide assurance that we will be able to sustain our capacity utilization rates in the future nor can we provide assurance that we will not reduce our utilization rates in the future as market and industry conditions change. Limited availability of raw materials, components and manufacturing equipment could materially and adversely affect our business, results of operations or financial condition. Our production operations depend on obtaining adequate supplies of quality raw materials and components on a timely basis. As a result, it is important for us to control our raw material and component costs and reduce the effects of fluctuations in price and availability. In general, we source most of our raw materials as well as key components, such as glass substrates, driver integrated circuits and polarizers 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 several weeks 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. 13 Advance purchase orders from our customers 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 advance rolling forecasts of their product requirements. However, firm orders are not placed until negotiations on purchase prices are subsequently finalized a few weeks prior to delivery. As a result, firm orders may be less than anticipated based on these prior 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 an inventory level estimated for several weeks, it may be difficult for us to adjust production costs or to allocate production capacity in a timely manner to compensate for any such volatility in order volumes. Our inability to respond quickly to changes in overall demand for display products as well as changes in product mix and specifications may result in lost revenue, which would adversely affect our results of operations. We may experience losses on inventories. Frequent new product introductions in the computer and consumer electronics industries can result in a decline in the average selling prices of our 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 an inventory level estimated for several weeks. Although adjustments are regularly made based on market conditions, we typically deliver our goods to the customers within several weeks 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. Between November 2008 and June 2014, each of such investigations and subsequent legal proceedings brought by the relevant competition authorities was settled or resolved, and we have paid fines of US$400 million pursuant to our November 2008 settlement agreement with the U.S. Department of Justice, €210 million pursuant to a December 2010 decision by the European Commission and R$33.9 million pursuant to an August 2014 settlement agreement with the Secretariat of Economic Law of Brazil. After the commencement of the U.S. Department of Justice investigation, various class action complaints and separate claims by direct and indirect purchasers of our products were filed against us and other TFT-LCD panel manufacturers in the United States and Canada, alleging violation of respective antitrust and related laws. In addition, from 2010 to 2012, 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 us, alleging similar antitrust violations. In June 2018, the attorney general of the Commonwealth of Puerto Rico filed a complaint against us and other TFT-LCD panel manufacturers alleging unjust enrichment in connection with the aforementioned U.S. Department of Justice investigation. Since then, we have reached settlements with each of the plaintiff classes and separate plaintiffs, as well as with the aforementioned state attorneys general, with the exception of the attorney general of the Commonwealth of Puerto Rico, which settlements were duly approved by the applicable courts and, in the case of the state attorneys general actions, by their respective state governments. As of April 24, 2019, we have not been served with the complaint from the attorney general of the Commonwealth of Puerto Rico. A number of claims alleging damages were filed against LG Display and other entities in the United Kingdom as follow-on claims from the above-described European Commission’s decision in December 2010, comprising claims by iiyama (UK) Limited and its affiliates (“iiyama”) in December 2014, and Argos Limited and others (“Argos”), Granville Technology Group and others (“Granville”) and Ingram Micro and others (“Ingram”), each in December 2016. As of April 24, 2019, we are vigorously defending ourselves against claims by Granville and iiyama. Ingram discontinued its claims against LG Display in June 2017, and we have reached a settlement with Argos in November 2018. 14 In December 2013, a class action complaint was filed by Hatzlacha, a consumer organization, on behalf of Israeli consumers against LG Display and other defendants in the Central District in Israel. In July 2017, the Supreme Court of Israel ruled in favor of the defendants to affirm the District Court’s decision to revoke the leave to serve the class action on the defendants outside the jurisdiction of Israel. In August 2017, Hatzlacha filed a number of motions to uphold service in the Central District in Israel under different legal grounds, which are currently being contested by the defendants. 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. We recognize provisions with respect to those legal claims in which our management has concluded that there is a present or constructive obligation arising from a past event, it is more likely than not that an outflow of resources will result to settle the obligation, and a reliable estimate can be made of the amount of the obligation. As of December 31, 2018, 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, 2018 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. We may be adversely affected by changes in LIBOR reporting practices or the method in which LIBOR is determined. Certain financings extended to us are made at variable rates that use London Interbank Offered Rate (“LIBOR”) as a benchmark for establishing the applicable interest rates. As of December 31, 2018, US$2,262 million (W2,518 billion) of our outstanding long-term borrowings (including current portions thereof) were indexed to LIBOR. In an announcement on July 27, 2017, the Financial Conduct Authority of the United Kingdom (“FCA”), which is the competent authority for the regulation of benchmarks in the UK, advocated a transition away from reliance on LIBOR to alternative reference rates and stated that it would no longer persuade or compel banks to submit rates for the calculation of the LIBOR rates after 2021 (the “FCA Announcement”). The FCA Announcement formed part of ongoing global efforts to reform LIBOR and other major interest rate benchmarks. Some of these reforms are already effective, while others are still to be implemented or formulated. At this time, the nature and overall timeframe of the transition away from LIBOR is uncertain and no consensus exists as to what rate or rates may become accepted alternatives to LIBOR. Any changes announced by the FCA, ICE Benchmark Administration Limited as the independent administrator of LIBOR or any other successor governance or oversight body, or future changes adopted by such body, in the method pursuant to which LIBOR or any other “benchmark” rates are determined as a result of international, national or other proposals for reform or other initiatives or investigations, or any further uncertainty in relation to the timing and manner of implementation of such changes, could have a material adverse effect on our financing costs. In particular, to the extent LIBOR is discontinued or is no longer quoted, the interest rates on our borrowings indexed to LIBOR will be determined using various alternative methods. Any of such alternative methods may result in interest payment obligations that are higher than, or that do not otherwise correlate over time with, the payments that would have been made on such borrowings if LIBOR were available in its current form. 15 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. The largest proportion of our expenditures on capital equipment are denominated in Korean Won and U.S. dollars. Accordingly, fluctuations in exchange rates, in particular between the U.S. dollar and the Korean Won as well as between the Japanese Yen and the Korean Won, affect our pre-tax income, and in recent years, the value of the Won relative to the U.S. dollar and Japanese Yen has fluctuated widely. 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. 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, 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. 16 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. 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. 17 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. If our cybersecurity is breached, we may incur significant legal and financial exposure, damage to our reputation and a loss of confidence of our customers. Our business involves the storage and transmission of confidential information relating to us as well as our customers and suppliers, and any breach in our cybersecurity could expose us to a risk of loss, the improper use or disclosure of such information, ensuing potential liability or litigation, any of which could harm our reputation and adversely affect our business. Although there has been no material instance where an unauthorized party was able to obtain access to our data or our customers’ data, there can be no assurance that we will not be vulnerable to cyber-attacks in the future. Our cybersecurity measures may also fail due to employee error, malfeasance or otherwise. Instituting appropriate access controls and safeguards across our information technology infrastructure is challenging. Furthermore, outside parties may attempt to fraudulently induce employees to disclose sensitive information in order to gain access to our data or our customers’ data or accounts or may otherwise obtain access to such data or accounts. Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. If an actual or perceived breach of our cybersecurity occurs or the market perception of the effectiveness of our cybersecurity measures is adversely affected, we may incur significant legal and financial exposure, including legal claims and regulatory fines and penalties, damage to our reputation and a loss of confidence of our customers, which could have an adverse effect on our business, financial condition and results of operations. 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, 2018, more than half of our employees based in Korea 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. 18 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. 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. Since 2016, we and certain of our employees have received aggregate fines of approximately W35.0 million and are currently undergoing proceedings relating to fines of W6.0 million in connection with violations of safety and environmental regulations under the Industrial Safety and Health Act, the Waste Management Act and the Air Quality Management Act. 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. 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: • • 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, 19 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 24, 2019. The number of shares issued or sold in any subsequent offering by us or our major shareholders, subject to government authorization, raises the limit on the number of shares that may be deposited into the ADR facility, except to the extent such deposit is prohibited by applicable laws or violates our articles of incorporation, or we decide with the ADR depositary to limit the number of shares of common stock so offered that would be eligible for deposit under the deposit agreement in order to maintain liquidity for the shares in Korea as may be requested by the relevant Korean authorities. We might not consent to the deposit of any additional shares of common stock. As a result, if a holder surrenders ADSs and withdraws common stock, it may not be able to deposit the common stock again to obtain ADSs. Holders of ADSs will not have preemptive rights in some circumstances. The Korean Commercial Code of 1962, as amended, and our articles of incorporation require us, with some exceptions, to offer shareholders the right to subscribe for new shares of our common stock in proportion to their existing shareholding ratio whenever new shares are issued, except under certain circumstances as provided in our articles of incorporation. Accordingly, if we issue new shares to non-shareholders based on such exception, a holder of our ADSs may experience dilution in its holdings. Furthermore, if we offer any right to subscribe for additional shares of our common stock or any rights of any other nature to existing shareholders subject to their preemptive rights, the depositary, after consultation with us, may make the rights available to holders of our ADSs or use reasonable efforts to dispose of the rights on behalf of such holders and make the net proceeds available to such holders. The depositary, however, is not required to make available to holders any rights to purchase any additional shares of our common stock unless it deems that doing so is lawful and feasible and • • a registration statement filed by us under the U.S. Securities Act of 1933, as amended, is in effect with respect to those shares; or the offering and sale of those shares is exempt from or is not subject to the registration requirements of the Securities Act. We are under no obligation to file any registration statement with the SEC or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, a holder of our ADSs may be unable to participate in our rights offerings and may experience dilution in its holdings. If a registration statement is required for a holder of our ADSs to exercise preemptive rights but is not filed by us or is not declared effective, the holder will not be able to exercise its preemptive rights for additional ADSs and it will suffer dilution of its equity interest in us. If the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or feasible, it will allow the rights to lapse, in which case the holder will receive no value for these rights. Holders of ADSs will not be able to exercise dissent and appraisal rights unless they have withdrawn the underlying shares of our common stock and become our direct shareholders. In some limited circumstances, including the transfer of the whole or any significant part of our business and our merger or consolidation with another company, dissenting shareholders have the right to require us to purchase their shares under Korean law. However, a holder of our ADSs will not be able to exercise such dissent and appraisal rights if the depositary refuses to do so on their behalf. Our deposit agreement does not require the depositary to take any action in respect of exercising dissent and appraisal rights. In such a situation, holders of our ADSs must initiate the withdrawal of the underlying common stock from the ADS facility (and incur charges relating to that withdrawal) by the day immediately following the date of public disclosure of our board of directors’ resolution of a merger or other events triggering appraisal rights and become our direct shareholder prior to the record date of the shareholders’ meeting at which the relevant transaction is to be approved, in order to exercise dissent and appraisal rights. 20 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. We are incorporated in Korea, and a substantial portion of our operations and assets are located in Korea. As a result, we are subject to political, economic, legal and regulatory risks specific to Korea. The economic indicators in Korea in recent years have shown mixed signs, and future growth of the Korean economy is subject to many factors beyond our control, including developments in the global economy. 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 also fluctuated significantly and, as a result of changing global and Korean economic conditions, there has been volatility in the stock prices of Korean companies in recent years. Future declines in the Korea Composite Stock Price Index (the “KOSPI”) and large amounts of sales of Korean securities by foreign investors and subsequent repatriation of the proceeds of such sales may 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 include: • • • • • • • • declines in consumer confidence and a slowdown in consumer spending; 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 (such as the controversy between Korea and China regarding the deployment of a Terminal High Altitude Area Defense system in Korea by the United States in March 2017 and the ensuing economic and other retaliatory measures by China against Korea during the remainder of 2017); 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 uncertainties related to Brexit; adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the U.S. dollar, Euro or Japanese Yen exchange rates or revaluation of the Chinese Renminbi), interest rates, inflation rates or stock markets; increased sovereign default risk in select countries and the resulting adverse effects on the global financial markets; a deterioration in the financial condition or performance of small- and medium-sized enterprises and other companies in Korea due to the Korean government’s policies to increase minimum wages and limit working hours of employees; investigations of large Korean business groups and their senior management for possible misconduct; a continuing rise in the level of household debt and increasing delinquencies and credit defaults by retail and small- and medium-sized enterprise borrowers in Korea; 21 • • • • • • • • • • • • • • • • social and labor unrest; decreases in the market prices of Korean real estate; the economic impact of any pending or future free trade agreements or of any changes to existing free trade agreements; a decrease in tax revenue or a substantial increase in the Korean government’s expenditures for fiscal stimulus measures, unemployment compensation and other economic and social programs that would lead to an increased 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 concerning 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 or its major trading partners; 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 global supply of oil or sudden increase in the price of oil; increased reliance on exports to service foreign currency debts, which could cause friction with Korea’s trading partners; 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 manufacturing bases from Korea to China); 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. Escalations in tensions with North Korea could have an adverse effect on us and the market value of our common stock and ADSs. 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, there have been heightened security concerns in recent years stemming from North Korea’s nuclear weapon and ballistic missile programs as well as its hostile military actions against Korea. Some of the significant incidents in recent years include the following: • North Korea renounced its obligations under the Nuclear Non-Proliferation Treaty in January 2003 and conducted six rounds of nuclear tests since October 2006, including claimed detonations of hydrogen bombs, which are more powerful than plutonium bombs, and warheads that can be mounted on ballistic missiles. Over the years, North Korea has also conducted a series of ballistic missile tests, including missiles launched from submarines and intercontinental ballistic missiles that it claims can reach the United States mainland. In response, the Korean government has repeatedly condemned the provocations and flagrant violations of relevant United Nations Security Council resolutions. In February 2016, the Korean government also closed the inter-Korea Gaesong Industrial Complex in response to North Korea’s fourth nuclear test in January 2016. Internationally, the United Nations Security Council has passed a series of resolutions condemning North Korea’s actions and significantly expanding the scope of sanctions applicable to North Korea, most recently in December 2017 in response to North Korea’s intercontinental ballistic missile test in November 2017. Over the years, the United States and the European Union have also expanded their sanctions applicable to North Korea. 22 • 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. North Korea’s economy also faces severe challenges, which may further aggravate social and political pressures within North Korea. Although bilateral summit meetings were held between the two Koreas in April, May and September 2018 and between the United States and North Korea in June 2018 and February 2019, there can be no assurance that the level of tensions affecting the Korean peninsula will not escalate in the future. Any increase in tensions, which may occur, for example, if North Korea experiences a leadership crisis, high-level contacts between Korea or the United States and North Korea break down or further military hostilities occur, could have a material adverse effect on the Korean economy and on our business, financial condition and results of 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 Software, Ltd. in January 1995 and subsequently to LG Soft, Ltd. in January 1997. 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. 23 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. 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 mobile products and other applications), we restructured our internal organization by product type, and integrated the capabilities of our OLED business into the Television Business Division, 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. Our website address is http://www.lgdisplay.com. 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 plastic OLED panel fabrication production line as well as our new fifth-generation OLED light panel fabrication facility. We began production of plastic OLED panels for mobile and other applications on our E5 production line in August 2017. As part of our ongoing expansion plans, we are in the process of constructing several manufacturing facilities for OLED panels, including our E6 production lines for plastic OLED panels, and we have commenced mass production of plastic OLED panels on our E5 production line beginning in August 2017. In response to and in anticipation of growing demand in the China market, in July 2017, we announced our plan to establish a joint venture with the government of Guangzhou to construct a next generation large-sized OLED production line, which was established under the name of LG Display High-Tech (China) Co., Ltd., in July 2018. We currently hold a 69% ownership interest in the joint venture and the government of Guangzhou holds the remaining 31% ownership interest. We plan to invest approximately W5.0 trillion in the joint venture, which is expected to commence production during 2019. 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.” 24 With respect to our assembly facilities, from 1995 to early 2003, we have assembled all panels in our Gumi assembly facility adjacent to our P1 facility. Since 2003, in order to better serve the needs of our global customers, we commenced operations at various assembly facilities in Korea, Poland, China and, most recently, Vietnam. For more information on our module assembly facilities, see “Item 4.D. Property, Plants and Equipment—Current Facilities.” 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.” The U.S. Securities and Exchange Commission, or the SEC, maintains a website (http://www.sec.gov), which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. 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 2018, we sold a total of 148.3 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 28.5% based on sales revenue in 2018. 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 operate module assembly facilities in Korea and abroad. 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. We engage in direct sales (including through our overseas subsidiaries), as well as indirect sales through our affiliated trading company, LG International and its subsidiaries, to end-brand customers and their system integrators. For a description of our sales arrangements with LG International, see “Item 7.B. Related Party Transactions.” Our sales were W26,504 billion in 2016, W27,790 billion in 2017 and W24,337 billion (US$21,868 million) in 2018. 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. 25 The process for manufacturing a TFT-LCD panel consists of four steps: • • • • 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. 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 an 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. 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. 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. In February 2017, we also introduced a 5.7-inch Quad HD smartphone panel with an upgraded resolution of 564 pixels-per-inch. In 2018, we developed a 5.8-inch Ultra HD smartphone panel featuring high luminance, low power consumption and high dynamic range (“HDR”) support, as well as the world’s first 34-inch 1900R-curved and four-sided borderless Wide Quad HD monitor. 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. 26 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 2013 and mass production of OLED television panels on our E4 production lines in 2014. Mass production of our plastic OLED panels for mobile and other applications began on our E5 production line in August 2017. 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 is 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. LTPS 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. 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 21.5 inches to 105 inches in size, including “8K” 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 11.6 inches to 17.3 inches in size; Desktop monitors, which utilize large-sized display panels ranging from 15.6 inches to 49 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. 27 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. For mobile panels, particularly smartphones, an emphasis is placed on brightness and power efficiency. 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 21.5 inches to 105 inches in size. We began mass production of television display panels in 2001. Our sales of display panels for televisions were W10,133 billion, or 38.2% of our total revenue, in 2016, W11,718 billion, or 42.2% of our total revenue, in 2017 and W9,727 billion (US$8,741 million), or 40.0% of our total revenue, in 2018 and constituted our largest product category in each of the past three years. In 2018, our principal products in this category in terms of sales revenue consisted of 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. Notebook Computers Our display panels for notebook computers range from 11.6 inches to 17.3 inches in size in a variety of display formats. Revenue from sales of our display panels for notebook computers was W2,384 billion, or 9.0% of our total revenue, in 2016, W2,244 billion, or 8.1% of our total revenue, in 2017 and W2,837 billion (US$2,549 million), or 11.7% of our total revenue, in 2018. In 2018, our principal products in terms of sales revenue in this category were 13.3-inch and 15.4-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. However, there has been an increase in demand for high resolution notebook displays, which has helped the competitiveness of our AH-IPS technology-based display panels. Desktop Monitors Our desktop monitor display panels range from 15.6 inches to 49 inches in size in a variety of display resolutions and formats. Revenue from sales of our display panels for desktop monitors was W4,035 billion, or 15.2% of our total revenue, in 2016, W4,393 billion, or 15.8% of our total revenue, in 2017 and W4,040 billion (US$3,630 million), or 16.6% of our total revenue, in 2018 and constituted our third largest product category in each of the past three years. In 2018, our principal products in terms of sales revenue in this category were 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. Revenue from sales of our display panels for tablet computers was W2,696 billion, or 10.2% of our total revenue, in 2016, W2,370 billion, or 8.5% of our total revenue, in 2017, and W1,991 billion (US$1,789 million), or 8.2% of our total revenue, in 2018. 28 After experiencing steady growth in consumer demand for tablet computers since they were first introduced, consumer demand has generally plateaued in recent years. In 2018, our principal products in terms of sales revenue in this category were 9.7-inch and 12.9-inch display panels. 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. 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, the market for smartphones recorded a negative growth for the first time in 2018, according to data published by Counterpoint. Revenue from sales of our display panels for mobile and other applications was W7,216 billion, or 27.2% of our total revenue, in 2016, W7,020 billion, or 25.3% of our total revenue, in 2017 and W5,699 billion (US$5,121 million), or 23.4% of our total revenue, in 2018. In 2018, 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. 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 a significant majority of our sales in each of 2016, 2017 and 2018. 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 approximately 22%, 23% and 21% of our sales in 2016, 2017 and 2018 respectively. In addition to our top ten end-brand customers, we sell a portion of our display panels to a variety of other manufacturers of computers and electronic products. 29 The following table sets forth for the years indicated the geographic breakdown of our sales based on the location of our customers. The figures below reflect orders from our end-brand customers, their system integrators and our affiliated trading company, LG International, and its subsidiaries: 2016 2017 Year ended December 31, Sales % % (in billions of Won and millions of US$, except for percentages) Sales Sales 2018 Sales (3) Korea China Asia (excluding China) (1) United States (2) Europe (excluding Poland) Poland Total (3) W 1,825 18,368 2,149 2,053 984 1,125 W26,504 6.9% W 1,996 18,091 69.3 2,383 8.1 2,725 7.7 1,433 3.7 1,162 4.2 100.0% W27,790 7.2% W 1,589 US$ 1,428 13,697 65.1 15,243 2,229 8.6 2,481 2,213 9.8 2,463 1,344 5.2 1,496 956 4.2 1,064 100.0% W24,337 US$21,868 % 6.5% 62.6 10.2 10.1 6.1 4.4 100.0% Includes Oceania, Africa and the Middle East. Includes other countries in North and South America. (1) (2) (3) For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of W1,112.85 to US$1.00, the noon buying rate in effect on December 31, 2018 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. 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. We engage in direct sales (including through our overseas subsidiaries), as well as indirect sales through our affiliated trading company, LG International and its subsidiaries, to end-brand customers and their system integrators. 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 2.9% in 2018. 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 a few weeks 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 advance rolling 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 a few weeks 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 committed 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. 30 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. 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. Competition The display panel industry is highly competitive. Due to the capital intensive nature of the display panel industry and the high production volumes required to achieve economies of scale, the international market for display devices is characterized by significant barriers to entry, but the competition among the relatively small number of major producers is intense. In the case of TFT-LCD panel manufacturers, currently almost all of them are located in Asia, and we compete principally with manufacturers from Korea, Taiwan, China and Japan. The principal elements of competition for customers in the display panel market include: • • • • • • product portfolio range and availability; product specifications and performance; price; capacity allocation and reliability; customer service, including product design support; and logistics support and proximity of regional stocking facilities. Our principal competitors are: • • • • Samsung Display in Korea; Innolux and AU Optronics in Taiwan; JDI and Sharp in Japan; and BOE, China Star Optoelectronics, CEC Panda and HKC in China. According to IHS Technology, in 2018, Korean display panel manufacturers had a market share of 40.2% of the 9-inch or larger panel market based on revenue, Taiwanese manufacturers had 26.4%, Chinese manufacturers had 27.1% and Japanese manufacturers had 6.3%. Our market share of the 9-inch or larger panel market based on revenue was approximately 28.5%. Components, Raw Materials and Suppliers Components and raw materials accounted for approximately 66%, 65% and 63% of our sales in 2016, 2017 and 2018 respectively. The key components and raw materials of our display products include glass substrates, driver integrated circuits and polarizers 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. 31 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. 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. 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. 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 Korean vendors. As a result of such efforts, most of our equipment for our facilities in Korea in 2018 was purchased from Korean vendors on an invoiced basis. 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. 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. 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. 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/IATF 16949 certifications. The ISO/IATF certification process involves subjecting our manufacturing processes and quality management systems to reviews and observation for various fixed periods. ISO/IATF 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. 32 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 RMB 12.2 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 approximately W0.5 trillion 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. 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. 33 We have been certified by the Korean Ministry of Environment as a “Green Company”, with respect to our environmental record for our P1 facility 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 in both 2016 and 2017. In 2017, in recognition of efficient control, management and operating systems implemented in our manufacturing facilities, we received the top-level certification, Level 1, under the Factory Energy Management System evaluation presided by the Korea Energy Agency. Furthermore, in November 2017, we received the highest commendation, the Presidential Award, in the Korean Energy Efficiency Awards presided by the Korean Ministry of Industry, Trade and Energy in recognition of our energy management practices and energy saving measures, and we also obtained a certificate of excellence in the Energy Management System Evaluation from the same ministry. In May 2018, we received the Clean Energy Ministerial Insight Award, presented at the Clean Energy Ministerial Meetings, and also received certification for our energy business management (Energy Champion) presided by the Ministry of Trade, Industry and Technology and the Korea Energy Agency in November 2018. Additionally, in 2018, we became the first display panel company to receive the “Green Technology Certification” from the Korean Ministry of Science and ICT for improving the light efficiency technology of OLED to promote energy savings. 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. In addition, in July 2018, we established and acquired a 69% ownership interest in, a joint venture with the government of Guangzhou to construct a next generation large-sized OLED production line in Guangzhou, China. Production at the joint venture is expected to commence during 2019, and we plan to invest approximately W5.0 trillion in the joint venture. 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. 34 Subsidiaries The following table sets forth summary information for our subsidiaries as of December 31, 2018: 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. LG Display Fund I LLC LG Display High-Tech (China) Co., Ltd Money Market Trust Main Activities Sales Sales Sales Sales Manufacturing Sales Manufacturing Manufacturing Sales Sales Manufacturing Manufacturing and sales Workplace services Manufacturing and sales Managing intellectual property Managing intellectual property Sales Manufacturing Manufacturing and sales Investing in new emerging companies Manufacturing Money market trust Jurisdiction of Organization Taiwan U.S.A. Japan Germany China China Poland China China Singapore China China Date of Organization April 1999 September 1999 October 1999 November 1999 July 2002 January 2003 September 2005 June 2006 August 2007 January 2009 April 2010 January 2010 Total Equity Investment NT$ US$ ¥ € RMB RMB PLN RMB RMB SG$ RMB RMB 115,500,000 411,000,000 95,000,000 960,000 3,019,662,545 4,138,650 511,071,000 1,654,693,079 3,775,250 1,400,000 1,007,720,600 59,197,026 Korea March 2012 W 800,000,000 China December 2012 RMB 5,763,206,733 U.S.A. March 2014 US$ 9,000,000 Percentage of Our Ownership Interest Percentage of Our Voting Power 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 51% 100% 70% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 51% 100% 70% 100% U.S.A. December 2009 US$ 138,010,000 100% 100% China Vietnam April 2015 May 2016 China July 2016 RMB VND US$ RMB 1,223,960 2,187,870,000,000 200,000,000 636,973,641 U.S.A. July 2018 US$ 2,000,000 China July 2018 RMB 4,504,600,000 Korea Not applicable W 24,501,000,000 100% 100% 100% 100% 69% 100% 100% 100% 100% 100% 69% — N.B. See Note 1(b) of the notes to our financial statements for changes to our subsidiaries during the year ended December 31, 2018. 35 Item 4.C. Organizational Structure These matters are discussed under Item 4.B. where relevant. 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 (2) P3 (3) P4 (4) 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 (5) P61 (6) P62 P7 P8 (7) P9 (8) GP (9) Ochang (10) E5 5 6 6 7 8 8 8 2 6 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 August 2017 Gumi, Korea 93,277 288,602 101,607 312,048 542,795 455,439 245,159 7,129 10,579 Primary Types of Panels Produced Automotive Mobile, Automotive Mobile, Notebook Computer, Desktop Monitor, Tablet Computer, Automotive Mobile, Notebook Computer, Automotive, Industrial Mobile, Desktop Monitor, Tablet Computer, Automotive Notebook Computer, Desktop Monitor, Television Television, Desktop Monitor Television, Desktop Monitor Desktop Monitor, Notebook Computer, Tablet Computer Television OLED General Lighting, Automotive Mobile and other applications (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) We ceased production and closed P2 fabrication facility in June 2017. (3) We ceased production and closed P3 fabrication facility in February 2018. (4) We ceased production and closed P4 fabrication facility in October 2017. (5) Gross floor area of P5 fabrication facility includes gross floor area of OLED light production lines. (6) Gross floor area of P61 fabrication facility includes gross floor area of AP3 production line. We ceased production and closed P61 in June 2016 except for AP3 production line. (7) Gross floor area of P8 fabrication facility includes gross floor area of AP2, E2 and E3 production lines. (8) Gross floor area of P9 fabrication facility includes gross floor area of E4 production lines and is based on the area for which regulatory use approval has been granted. (9) Gross floor area of GP fabrication facility includes gross floor area of extended facility. (10) We ceased production and closed our Ochang fabrication facility in January 2018. 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. 36 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 and others LTPS backplanes for mobile and others OLED mobile OLED television OLED television (1) Based on internal reference to evolutions in facility design, material flows and input substrate sizes. We also operate module assembly facilities in China (Nanjing, Guangzhou and Yantai), Korea (Gumi and Paju), Poland (Wroclaw) and Vietnam (Haiphong). 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 Haiphong assembly facility Capital Expenditures Gross Floor Area (in square meters) Mass Production Commencement 71,696 Not applicable (opened in April 2012) January 1995 301,779 150,760 May 2003 January 2006 226,758 106,929 February 2007 139,095 December 2007 81,256 May 2010 July 2017 347,100 As part of our ongoing expansion plans, we are in the process of constructing several manufacturing facilities for OLED panels, including our E6 production lines for plastic OLED panels, and we have commenced mass production of plastic OLED panels on our E5 production line beginning in August 2017. In July 2017, we announced plans to make investments in an aggregate amount of up to W7.8 trillion in new large-size OLED and plastic production lines in Paju, Korea. We are in the process of developing and assessing the specifics of such planned investments, including the timing. In response to and in anticipation of growing demand in the China market, in July 2017, we announced our plan to establish a joint venture with the government of Guangzhou to construct a next generation large-sized OLED production line, which was established under the name of LG Display High-Tech (China) Co., Ltd., in July 2018. We currently hold a 69% ownership interest in the joint venture and the government of Guangzhou holds the remaining 31% ownership interest. We plan to invest approximately W5.0 trillion in the joint venture, which is expected to commence production during 2019. We currently expect that, in 2019, our total capital expenditures on a cash out basis will be at a similar level to 2018, primarily to fund our previously announced investments related to facilities for OLED panels. 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. 37 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 2,701 million units in 2018 and market revenue grew from US$49 billion to US$89 billion during the same period according to IHS Technology. While TFT-LCD panels are still predominant in the display industry, the industry in recent years has witnessed the introduction of alternative display panels based on new technologies, such as OLED 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 93% of industry revenue from global sales of OLED panels in 2018. However, as of 2018, the OLED market was relatively small compared to the TFT-LCD market. We believe, however, that the market may change rapidly as a growing array of OLED panels for various applications and sizes are introduced to the market and advances in the related technology and manufacturing processes enable mass production in a cost-efficient manner. In 2014, we commenced mass production of 55-inch, 65-inch and 77-inch Ultra HD OLED television panels earlier than our competitors on our E4 production lines. In August 2017, we began production of plastic OLED panels for mobile and other applications on our E5 production line. 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 to 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 2018 compared to 2017, with total market revenue decreasing from US$67 billion in 2017 to US$63 billion in 2018. The average selling price of those panels decreased during the same period by approximately 16% from approximately US$96 in 2017 to US$81 in 2018. 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. See “Item 4.D. Property, Plants and Equipment—Capital Expenditures.” 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 significant resources to the development and production of specialized OLED panels for television and public displays (such as our “Wallpaper” OLED panels, “Crystal Sound OLED” sound integrated panels, and rollable OLED display panels), display panels utilizing AH-IPS technology for various tablet computers, smartphones, notebook computers, desktop monitors and other applications and plastic 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 plastic 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. 38 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(2) P3(3) P4(4) P5 P61(5) P62 P7 P8(6) P9(7) GP Ochang(8) E5(9) Primary Input Substrates Size (in millimeters) Initial Design Capacity (in input substrates per month) Year-end Input Capacity(1) 2016 2018 2017 (in input substrates per month) 38,000 32,000 92,000 82,000 75,000 50,000 229,000 42,000 37,000 27,000 69,000 36,000 49,000 230,000 N/A N/A N/A 76,000 36,000 45,000 230,000 60,000 60,000 60,000 60,000 90,000 60,000 90,000 339,000 362,000 359,000 315,000 60,000 60,000 4,000 16,265 60,000 151,000 2,500 N/A 68,000 211,000 3,000 6,289 82,000 213,000 N/A 8,943 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 1,500x925 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) We ceased production and closed P2 fabrication facility in June 2017. (3) We ceased production and closed P3 fabrication facility in February 2018. (4) We ceased production and closed P4 fabrication facility in October 2017. (5) (6) (7) (8) We ceased production and closed our Ochang fabrication facility in January 2018. (9) Commenced operation in August 2017. Includes input capacity of AP3 production line. We otherwise ceased production and closed P61 in June 2016 except for our AP3 production line. Includes input capacity of AP2, E2 and E3production lines. Includes input capacity of E4 production line. Our cash outflows for capital expenditures amounted to W3,736 billion in 2016, W6,592 billion in 2017 and W7,942 billion (US$7,137 million) in 2018. Such capital expenditures relate mainly to continued investments in Guangzhou, China, (including the construction of our next generation large-sized OLED production line in a joint venture with the government of Guangzhou) and investments in our E5 and E6 production lines in each of these years. Capital expenditures were also incurred for the acquisition of new equipment during the same period. Our depreciation expense as a percentage of revenue remained stable at 10.0% in each of 2016 and 2017 and increased to 12.8% in 2018. Such increase in 2018 compared to 2017 was a result of an increase in our depreciation expense, which in turn was mainly attributable to an increase in our property, plant and equipment, while our revenue decreased over the same period of time. We currently expect that, in 2019, our total capital expenditures on a cash out basis will be at a similar level to 2018, primarily to fund our previously announced investments related to facilities for OLED panels. This amount is subject to periodic assessment, and we cannot provide any assurance that this amount may not change materially after assessment. Since our 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. We also fabricate certain components internally, such as color filters, which are one of the industry’s higher-cost components. 39 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 have diversified 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. The size of our operations has also expanded considerably in recent years, 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, decreased by 2.7% from 2016 to 2017 and further decreased by 6.5% in 2018. 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, desktop and smartphone 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, 65-inch, 75-inch and 86-inch television panels in our product mix increased between 2016 and 2018. 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 49 inches in a variety of screen aspect ratios, including 21:9 screen aspect ratio for ultra- widescreen monitors, and additional features such as borderless bezels and curved displays, in order to capture the market for large-size desktop monitors. In early 2019, as part of our efforts to further broaden the range of sizes of our desktop monitor products, we showcased sample larger-sized monitors, including our 55-inch OLED desktop monitor, through collaboration with our strategic customers. We have also increased our production capacity of mobile panels for large-screen smartphones, which constitutes a part of our mobile and other applications segment, with specialty features and newer technologies, including full screen displays, flexible displays and Ultra HD technology utilizing WRGB sub-pixel structure. 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 plastic OLED technology and large-sized television panels utilizing our Ultra HD and OLED technologies. 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 Desktop monitors(1) Tablet computers Mobile and other applications(2) Sales of goods Royalties and others Revenue 2016 2017 Year ended December 31, 2018 Sales(3) Sales % % (in billions of Won and millions of US$, except for percentages) Sales Sales W 10,133 2,384 4,035 2,696 7,216 W 26,464 40 38.2% W11,718 2,244 9.0 4,393 15.2 2,370 10.2 27.2 7,020 99.8% W27,745 45 0.2 42.2% W 9,727 US$ 8,741 2,549 2,837 8.1 3,630 4,040 15.8 1,789 1,991 8.5 25.3 5,121 5,699 99.8% W24,294 US$ 21,830 38 43 0.2 % 40.0% 11.7 16.6 8.2 23.4 99.8% 0.2 W 26,504 100.0% W27,790 100.0% W24,337 US$ 21,868 100.0% (1) (2) 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. 40 (3) For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of W1,112.85 to US$1.00, the noon buying rate in effect on December 31, 2018 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 Desktop monitors (1) Tablet computers Mobile and other applications (2) Total 2016 Number of Panels 52,916 39,672 40,001 24,957 173,166 330,712 Year ended December 31, 2017 2018 Number of Panels Number of Panels % % (in thousands, except for percentages) 16.0% 12.0 12.1 7.5 52.4 100.0% 18.1% 9.4 12.8 9.1 50.7 100.0% 52,108 26,999 37,000 26,255 146,162 288,524 51,966 30,471 36,693 25,015 105,142 249,287 % 20.8% 12.2 14.7 10.0 42.2 100.0% (1) (2) 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. 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 20.2% from W80,021 in 2016 to W96,162 in 2017 and further increased by 1.3% to W97,454 (US$88) in 2018. In 2017 compared to 2016, our average selling price increased primarily due to an increase in the average selling price for large-sized panels, which was mainly attributable to a continued increase in demand for higher-end products from our customers. In 2018 compared to 2017, our average selling price further increased primarily due to an increase in the average selling price of panels for notebook computers and mobile and other applications, which in turn was mainly attributable to an increase in demand for higher-end products with more advanced technologies and differentiated features from our customers in these product categories. The following table sets forth our average selling price per panel by markets for the years indicated: Televisions Notebook computers Desktop monitors(1) Tablet computers Mobile and other applications(2) All panels Average Selling Price(3) Year ended December 31, 2016 W191,492 60,093 100,872 108,026 41,671 80,021 2017 W224,879 83,114 118,730 90,269 48,029 96,162 2018(4) W187,180 93,105 110,103 79,592 54,203 97,454 US$168 84 99 72 49 88 (1) (2) 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. (3) Average selling price for each market represents revenue per market divided by unit sales per market. (4) For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of W1,112.85 to US$1.00, the noon buying rate in effect on December 31, 2018 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. 41 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 3.5% from W645,222 in 2016 to W667,726 in 2017. In 2018, our average revenue per square meter of net display area shipped decreased by 13.6% to W576,817 (US$518). 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. 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 remained relatively constant at W204 billion as of December 31, 2016 and at W206 billion as of December 31, 2017, but increased to W313 billion (US$281 million) in 2018. The increase as of December 31, 2018 compared to December 31, 2017 was due primarily to an increase in our inventory level. The amount of any such adjustment is recognized as cost of sales in the period for which the assessment relates. In 2018, we reclassified mask and mold, which had previously been classified as inventories, as part of our property, plant and equipment, due to our expectation that such materials will be used for a period exceeding one year. As a result of such change, the amount of our inventories as of January 1, 2018 decreased by W111 billion (US$100 million) while property, plant and equipment increased by the same amount. See “—Long-Lived Assets: Useful Lives, Valuation and Impairment.” 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 2016, we did not recognize W73 billion of deferred tax assets comprising tax credit carryforwards as it was no longer probable that such deferred tax assets would be utilized due to changes in estimates of future taxable income. In 2017, we reversed W12 billion of such previously unrecognized tax credit carryforwards as it became probable that sufficient taxable profit would be available in light of improved market conditions. In 2018, we did not recognize W65 billion (US$58 million) of deferred tax assets comprising tax credit carryforwards as it was no longer probable that such deferred tax assets would be utilized due to changes in estimates of future taxable income. See Note 23 of the notes to our financial statements. 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. 42 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 18 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 2016 to 2018. 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 W62 billion, W102 billion and W122 billion (US$110 million) as of December 31, 2016, 2017 and 2018, respectively. Warranty expenses increased from W167 billion in 2016 to W251 billion in 2017, but decreased to W235 billion (US$211 million) in 2018. The increase in 2017 compared to 2016 was attributable primarily to higher quality expectations for panel products. The decrease from 2017 to 2018 was due primarily to a decrease in our sales revenue. 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. We recognized impairment losses of W1.6 billion in 2016, nil in 2017 and W43.6 billion (US$39.5 million) in 2018. In 2018, we reclassified mask and mold, which had previously been classified as inventories, as part of our property, plant and equipment, due to our expectation that such materials will be used for a period exceeding one year. Accordingly, we changed our estimate of the useful lives of mask and mold to two years. As a result of such change, the amount of our property, plant and equipment as of January 1, 2018 increased by W111 billion. Such change also had the effect of decreasing our depreciation expense by W110 billion in 2018. See Note 3(g) of the notes to our financial statements. 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. 43 Recent Accounting Changes For a discussion of new standards, interpretations and amendments to existing standards that have been published, see Note 3 of the notes to our financial statements. IFRS No. 9 “Financial Instruments” IFRS No. 9 “Financial Instruments” regulates requirements for measurement and recognition of financial assets, financial liabilities and certain contracts in relation to non-financial items. It replaces the existing guidance in IAS No. 39 “Financial Instruments: Recognition and Measurement.” We initially applied IFRS No. 9 “Financial Instruments” for the year beginning on January 1, 2018. The standard was applied retrospectively with some exemptions allowing an entity to avoid restating the comparative information for prior periods in relation to classification and measurement (including impairment) changes. We have applied such exemptions. While certain categories of our financial assets were reclassified in accordance with applicable categories under IFRS No. 9 with no changes to their carrying amounts, there was no effect resulting from the initial application of IFRS No. 9 on the balance of our retained earnings as of the date of such initial application. IFRS No. 15 “Revenue from Contracts with Customers” IFRS No. 15 “Revenue from Contracts with Customers” provides a comprehensive framework for determining the timing, measurement and recognition of revenue. It replaces existing revenue recognition guidance, including IAS No. 18 “Revenue,” IAS No. 11 “Construction Contracts,” SIC No. 31 “Revenue-Barter transactions involving advertising services,” IFRIC No. 13 “Customer Loyalty Programs,” IFRIC No. 15 “Agreements for the construction of real estate,” and IFRIC No. 18 “Transfers of assets from customers.” We initially applied IFRS No. 15 “Revenue from Contracts with Customers” for the year beginning on January 1, 2018 by recognizing the cumulative impact of applying the revenue standard as of January 1, 2018 on the opening balance of our retained earnings as of January 1, 2018, the period of initial application. IFRS 15 requires us to recognize certain refund liabilities and the resulting rights to recover returned goods. As a result, our provisions, which constitute a part of our current liabilities, and other current assets, each increased by W10 billion as of January 1, 2018 and by W7 billion as of December 31, 2018. There was no impact on the opening balance of our retained earnings as of January 1, 2018. There was also no significant impact on our consolidated statements of comprehensive income and our cash flows for the year ended December 31, 2018. 44 IFRS No. 16 “Leases” IFRS No. 16 “Leases,” which provides a single, on-balance sheet lease accounting model for lessees, will replace IAS No. 17 “Leases”, IFRIC No. 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.” It is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted. As a lessee, we intend to adopt IFRS No. 16 from January 1, 2019, applying the modified retrospective approach, which will allow us to recognize the cumulative impact of applying IFRS No. 16 as an adjustment to the opening balance of our retained earnings as of January 1, 2019 with no comparative information for prior periods. We do not expect there to be a significant impact on our consolidated statements of financial position and comprehensive income as of and for the year ended December 31, 2019 from our adoption of IFRS No. 16. Operating Results The following presents our consolidated results of operation information and as a percentage of our revenue for the years indicated: Revenue Cost of sales Gross profit Selling expenses Administrative expenses Research and development expenses Other income Other expenses Finance income Finance costs Equity income on investments, net Profit (loss) before income tax Income tax expense Profit (loss) for the year 2016 Year ended December 31, 2018 % (in billions of Won and in millions of US$, except for percentages) 2018(1) 2017 % W 26,504 100.0% W 27,790 100.0% W 24,337 US$ 21,869 (22,754) 3,750 (695) (610) (1,134) 1,592 (1,468) 140 (266) 7 1,316 (385) 931 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 (22,425) 5,366 (994) (696) (1,213) 1,082 (1,230) 279 (269) 10 2,333 (396) 1,937 80.7 19.3 3.6 2.5 4.4 3.9 4.4 1.0 1.0 0.0 8.4 1.4 7.0 (21,251) 3,085 (834) (938) (1,221) 1,004 (1,115) 254 (327) 1 (91) (88) (179) (19,096) 2,772 (749) (843) (1,097) 902 (1,002) 228 (294) 1 (82) (79) (161) % 100.0% 87.3 12.7 3.4 3.9 5.0 4.1 4.6 1.0 1.3 0.0 0.4 0.4 0.7 (1) For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of W1,112.85 to US$1.00, the noon buying rate in effect on December 31, 2018 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 2018 to 2017 Revenue Our revenue decreased by 12.4% from W27,790 billion in 2017 to W24,337 billion (US$21,869 million) in 2018. The decrease in revenue resulted from decreases in revenue derived from sales of panels for televisions, for mobile and other applications, for tablet computers and for desktop monitors, which were in turn mainly due to decreases in the average selling price of panels for televisions, for tablet computers and for desktop monitors and a decrease in the number of panels sold for mobile and other applications, offset in part by an increase in revenue derived from sales of panels for notebook computers. Revenue attributable to sales of panels for televisions decreased by 17.0% from W11,718 billion in 2017 to W9,727 billion (US$8,741 million) in 2018, resulting from a decrease in the average selling price of panels in this category, accompanied by a small decrease in the number of units sold of panels in this category in 2018 compared to 2017. The average selling price of panels for televisions decreased by 16.8% from W224,879 in 2017 to W187,180 (US$168) in 2018, and the total unit sales of panels in this category slightly decreased by 0.2% from 52.1 million panels in 2017 to 52.0 million panels in 2018. The decrease in the average selling price of television panels was mainly due to increased downward pricing pressure resulting from capacity expansion by and increased competition from our competitors, mainly in China, in 2018 compared to 2017, which was partially offset by an increase in the proportion of OLED television panels, which generally command higher prices than TFT-LCD television panels, in our product mix. The decrease in the sales volume of panels for television panels reflected a decrease in the sales volume of our TFT-LCD television panels, primarily reflecting a shift in our strategic focus to increase the proportion of larger-size TFT-LCD panels and higher- value OLED panels while decreasing the proportion of smaller-size TFT-LCD panels in our product mix. 45 Revenue attributable to sales of panels for notebook computers increased by 26.4% from W2,244 billion in 2017 to W2,837 billion (US$2,549 million) in 2018, resulting from increases in both the number of units sold and average selling price of panels in this category in 2018 compared to 2017. The total unit sales of panels for notebook computers increased by 13.0% from 27.0 million panels in 2017 to 30.5 million panels in 2018, and the average selling price of panels in this category increased by 12.0% from W83,114 in 2017 to W93,105 (US$84) in 2018. The increase in the sales volume of panels for notebook computers primarily reflected growth in demand for notebook computers with high performance features, including high resolution and AH-IPS. The increase in the average selling price of our notebook computer panels was mainly attributable to the continued increase in the proportion of panels with differentiated specialty features that command higher selling prices, such as high resolution and AH-IPS, in our product mix for panels for notebook computers. Revenue attributable to sales of panels for desktop monitors decreased by 8.0% from W4,393 billion in 2017 to W4,040 billion (US$3,630 million) in 2018, resulting from a decrease in the average selling price of panels in this category, accompanied by a small decrease in the number of units sold of panels in this category in 2018 compared to 2017. The average selling price of panels for desktop monitors decreased by 7.3% from W118,730 in 2017 to W110,103 (US$99) in 2018, and the total unit sales of panels in this category decreased slightly by 0.8% from 37.0 million panels in 2017 to 36.7 million panels in 2018. The decrease in the average selling price of desktop monitor panels was primarily attributable to downward pricing pressures in the TFT-LCD panel market. The slight decrease in the sales volume of panels for desktop monitors primarily resulted from our strategic decision to reduce the production of certain models with lower profitability. Revenue attributable to sales of panels for tablet computers decreased by 16.0% from W2,370 billion in 2017 to W1,991 billion (US$1,789 million) in 2018, resulting from a decrease in the average selling price of panels in this category as well as a decrease in the number of units sold of panels in this category in 2018 compared to 2017. The average selling price of panels for tablet computers decreased by 11.8% from W90,269 in 2017 to W79,592 (US$72) in 2018, and the total unit sales of panels in this category decreased by 4.9% from 26.3 million panels in 2017 to 25.0 million panels in 2018. The decreases in the average selling price and the sales volume of tablet computer panels both mainly reflected the continued 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 decreased by 18.8% from W7,020 billion in 2017 to W5,699 billion (US$5,121 million) in 2018, resulting from a significant decrease in the number of units sold of panels in this category in 2018 compared to 2017, partially offset by an increase in the average selling price of panels in this category in 2018 compared to 2017. The total unit sales of panels in this category decreased significantly by 28.1% from 146.2 million in 2017 to 105.1 million in 2018, whereas the average selling price of panels in this category increased by 13.0% from W48,029 in 2017 to W54,203 (US$49) in 2018. The decrease in the sales volume of panels for mobile and other applications primarily resulted from a decrease in demand for TFT-LCD products and our corresponding shift in strategy to focus on higher-end OLED products and more efficient manufacturing processes and reduce the production output of lower-end TFT-LCD products. The increase in the average selling price of panels in this category was attributable to the further increase in the proportion of panels with differentiated specialty features and larger panels, as well as an increase in the proportion of higher margin OLED panels for mobile and wearable devices, in our product mix for panels in this category. In addition, our revenue attributable to royalty and others decreased by 4.4% from W45 billion in 2017 to W43 billion (US$39 million) in 2018. The decrease was due to a decrease in royalties from W20 billion in 2017 to W18 billion (US$16 million) in 2018, while 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, remained relatively stable at W25 billion (US$23 million) in both 2017 and 2018. Cost of Sales Cost of sales decreased by 5.2% from W22,425 billion in 2017 to W21,251 billion (US$19,096 million) in 2018. The decrease in our cost of sales in 2018 compared to 2017 was attributable primarily to decreases in raw materials and component costs mainly related to selling fewer panel units overall in 2018 compared to 2017, partially offset 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, change in inventories due in part to the weakening of the U.S. Dollar, in which 85.6% of our raw materials and component part purchases were denominated in 2018, against the Korean Won in 2018 as a whole, compared to 2017 as a whole, contributed to the decrease in cost of sales in 2018 compared to 2017. 46 As a percentage of our total cost of sales, raw materials and component costs and labor costs decreased from 64.6% and 10.9%, respectively, in 2017 to 62.9% and 10.7%, respectively, in 2018, while overhead costs and depreciation and amortization costs increased from 12.1% and 13.7%, respectively, in 2017 to 13.6% and 14.2%, respectively, in 2018. As a percentage of revenue, cost of sales increased from 80.7% in 2017 to 87.3% in 2018, as the proportion of our cost of sales accounted for by fixed costs such as depreciation and overhead, increased while our sales volume and revenue decreased. 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 6.5% from W538,806 in 2017 to W503,691 (US$453) in 2018. Cost of sales per panel sold, which is derived by dividing total cost of sales by total number of panels sold, increased by 9.7% from W77,723 in 2017 to W85,247 (US$77) in 2018 due in part to increases in the proportion within each of our product categories of panel units with differentiated specialty features and newer technologies, such as OLED panels, 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 42.5% from W5,366 billion in 2017 to W3,085 billion (US$2,772 million) in 2018, and our gross margin decreased from 19.3% in 2017 to 12.7% in 2018. The continued shift in our product mix toward higher-end products in 2018 resulted in increases in both the average selling price and cost of sales per panel sold in 2018 compared to 2017, but the increase in cost of sales per panel sold outpaced the increase in average selling price mainly due to an increase in the production capacity of the industry that applied downward pricing pressure. Selling and Administrative Expenses Selling and administrative expenses increased by 4.8% from W1,691 billion in 2017 to W1,772 billion (US$1,591 million) in 2018. As a percentage of revenue, our selling and administrative expenses increased from 6.1% in 2017 to 7.3% in 2018. The increase in selling and administrative expenses in 2018 compared to 2017 was attributable primarily to increases in: • • salaries, which resulted mainly from a one-time retirement allowance incurred in connection with our voluntary retirement program implemented in 2018 in order to optimize our workforce; and depreciation expenses, which was primarily due to the recognition in 2018 of depreciation expenses relating to certain of our idle manufacturing facilities that previously constituted part of our cost of sales as part of our selling and administrative expenses, as well as increases in our other non-manufacturing property, plant and equipment. The effects of such increases were partially offset by a significant decrease in our advertising expenses, as the level of our marketing activities were generally reduced in 2018 compared to 2017, as we had engaged in enhanced marketing activities to promote our OLED display panels in 2017. 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, 2018: 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 47 Year ended December 31, 2018 2017 (in billions of Won) W 327 27 95 215 197 139 46 236 251 27 12 28 16 73 W 1,691 W 501 31 90 200 221 175 66 112 235 27 12 25 13 64 W 1,772 Research and Development Expenses Research and development expenses increased slightly by 0.7% from W1,213 billion in 2017 to W1,221 billion (US$1,097 million) in 2018. As a percentage of revenue, our research and development expenses increased from 4.4% in 2017 to 5.0% in 2018. The increase in research and development expenses in 2018 compared to 2017 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 impairment loss on property, plant and equipment. Our total net other expense decreased by 24.8% from W149 billion in 2017 to W112 billion (US$101 million) in 2018. Such decrease was primarily due to a significant decrease in net foreign currency loss from W220 billion in 2017 to W60 billion (US$54 million) in 2018, reflecting the strengthening of the U.S. Dollar against the Korean Won in 2018 compared to the weakening of the same in 2017, offset in part by a net loss on disposal of property, plant and equipment of W8 billion (US$7 million) in 2018 compared to a net gain on disposal of property, plant and equipment of W81 billion in 2017, which was due mainly to the effects of the one-time gain we recognized from the sale of equipment following the closure of our P4 manufacturing facility in 2017, compared to no such significant disposal of property, plant and equipment in 2018. 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. We recorded total net finance cost of W73 billion (US$66 million) in 2018 compared to total net finance income of W10 billion in 2017. Our finance income decreased by 9.0% from W279 billion in 2017 to W254 billion (US$228 million) in 2018, attributable primarily to a decrease in foreign currency gain by 23.7% from W211 billion in 2017 to W161 billion (US$145 million) in 2018, which was partially offset by an increase in interest income by 15.0% from W60 billion in 2017 to W69 billion (US$62 million) in 2018. The decrease in foreign currency gain in 2018 compared to 2017 was due to a decrease in the range of fluctuation in value of the Korean Won relative to the U.S. dollar over the same period. The increase in interest income resulted primarily from an increase in our average amounts of interest-earning financial assets outstanding as well as the applicable interest rates on such financial assets in 2018 compared to 2017. Our finance costs increased by 21.6% from W269 billion in 2017 to W327 billion (US$294 million) in 2018 mainly due to an increase in foreign currency loss by 44.9% from W127 billion in 2017 to W184 billion (US$165 million) in 2018, partially offset by a significant decrease in loss on disposal of investments in equity accounted investees from W42 billion in 2017 to W1 billion (US$1 million) in 2018. The increase in foreign currency loss was primarily due to an increase in the balance of our borrowings denominated in foreign currency, which are exposed to foreign exchange fluctuations. The decrease in loss on disposal of investments in equity accounted investees in 2018 compared to 2017 was primarily due to the one-time losses we recognized in connection with the sale of our 46% equity interest in New Optics Co., Ltd. and our 23% equity interest in Narenanotech Corporation, each in 2017, compared to no losses of similar significance in 2018. 48 Income Tax Expense Our income tax expense decreased by 77.8% from W396 billion in 2017 to W88 billion (US$79 million) in 2018, primarily due to our recording of a loss before income tax of W91 billion (US$82 million) in 2018 compared to a profit before income tax of W2,333 billion in 2017. Our income tax expense using the statutory tax rate of each country in which we pay income tax decreased by 94.5% from W666 billion in 2017 to W31 billion (US$28 million) in 2018. Our actual income tax expense was reduced by tax credits of W248 billion in 2017 and W107 billion (US$96 million) in 2018. Our effective tax rate was not calculated in 2018 due to the loss before income tax we recorded in such year, whereas our effective tax rate was 17.0% in 2017. See Note 23 of the notes to our financial statements. Profit (loss) for the Year As a result of the cumulative effect of the reasons explained above, we recorded a profit for the year of W1,937 billion in 2017 but recorded a loss for the year of W179 billion (US$161 million) in 2018. Our profit for the year as a percentage of revenue was 7.0% in 2017 and our loss for the year as a percentage of revenue was (0.7)% in 2018. Comparison of 2017 to 2016 Revenue Our revenue increased by 4.9% from W26,504 billion in 2016 to W27,790 billion in 2017. The increase in revenue resulted from increases in revenue derived from sales of panels for televisions and for desktop monitors, which were in turn due to an increase in their average selling prices, offset in part by a decrease in revenue derived from sales of panels for notebook computers, tablet computers and mobile and other applications. Revenue attributable to sales of panels for televisions increased by 15.6% from approximately W10,133 billion in 2016 to approximately W11,718 billion in 2017, resulting from an increase in the average selling price of panels in this category in 2017 compared to 2016, partially offset by a small decrease in the number of units sold in this category during the same period. The average selling price of panels for televisions increased by 17.4% from approximately W191,492 in 2016 to approximately W224,879 in 2017, whereas the total unit sales of panels in this category decreased by 1.5% from approximately 52.9 million panels in 2016 to approximately 52.1 million panels in 2017. The increase in the average selling price of television panels was mainly due to a shift in our product mix toward larger television panels and panels that are equipped with newer technologies, such as OLED and Ultra HD, which tend to command a higher price premium. The decrease in the number of television panels sold 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 42-inch or larger television panels 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. Revenue attributable to sales of panels for notebook computers decreased by 5.9% from approximately W2,384 billion in 2016 to approximately W2,244 billion in 2017, resulting from a decrease in the number of units sold in this category in 2017 compared to 2016, partially offset by an increase in the average selling price of panels in this category in 2017 compared to 2016. The total unit sales of panels for notebook computers decreased by 32.0% from approximately 39.7 million panels in 2016 to approximately 27.0 million panels in 2017, whereas the average selling price of panels in this category increased by 38.3% from approximately W60,093 in 2016 to approximately W83,114 in 2017. 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. The effect of such decrease was partially offset by the increase in the average selling price of panels in this category, which was attributable to the continued 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 increased by 8.9% from approximately W4,035 billion in 2016 to approximately W4,393 billion in 2017, resulting from an increase in the average selling price of panels in this category in 2017 compared to 2016, partially offset by a decrease in the number of units sold in this category in 2017 compared to 2016. The average selling price of panels for desktop monitors increased by 17.7% from approximately W100,872 in 2016 to approximately W118,730 in 2017, whereas the total unit sales of panels for desktop monitors decreased by 7.5% from approximately 40.0 million panels in 2016 to approximately 37.0 million panels in 2017. The increase in the average selling price of our desktop monitor panels primarily resulted from an increase in the proportion of larger panels with differentiated specialty features, such as ultra-slim bezel borderless designs and Full HD resolution, that command higher selling prices in our product mix for desktop panels. The effect of such increase was partially offset by the decrease in sales volume of desktop panels mainly due to the continued decrease in demand for desktop monitors generally in light of increased competition among other consumer computer screen. 49 Revenue attributable to sales of panels for tablet computers decreased by 12.1% from approximately W2,696 billion in 2016 to approximately W2,370 billion in 2017, resulting from a decrease in the average selling price of panels in this category in 2017 compared to 2016, partially offset by an increase in the number of units sold of panels in this category in 2017 compared to 2016. The average selling price of panels for tablet computers decreased by 16.4% from approximately W108,026 in 2016 to approximately W90,269 in 2017, whereas the total unit sales of panels in this category increased by 5.2% from approximately 25.0 million panels in 2016 to approximately 26.3 million panels in 2017. The decrease in the average selling price of panels in this category was mainly due to increased downward pricing pressure resulting from capacity expansion and increased competition by our competitors coupled with inventory adjustments by our customers, particularly in respect of panels smaller than 10 inches. The increase in the sales volume of panels for tablet computers was attributable to a significant increase in the sales volume of 10-inch or larger panels from 0.1 million panels in 2016 to 3.6 million panels in 2017, which in turn was primarily due to an increase in consumer demand for, and the introduction of new models of, larger tablet computers in the market. Revenue attributable to sales of panels for mobile and other applications decreased by 2.7% from approximately W7,216 billion in 2016 to approximately W7,020 billion in 2017, resulting from a decrease in the number of units sold in this category in 2017 compared to 2016, partially offset by an increase in the average selling price of panels in this category in 2017 compared to 2016. The total unit sales of panels for mobile and other applications decreased by 15.6% from approximately 173.2 million in 2016 to 146.2 million in 2017, whereas the average selling price of panels in this category increased by 15.3% from approximately W41,671 in 2016 to approximately W48,029 in 2017. The decrease in the sales volume of panels for mobile and other applications primarily resulted from our shift in strategy to focus on higher-end products and more efficient manufacturing processes and reduce the production output of lower-end products. The increase in the average selling price of panels in this category was attributable to the further increase in the proportion of panels with differentiated specialty features and larger panels in our product mix for panels in this category. In addition, our revenue attributable to royalty and others increased by 12.5% from approximately W40 billion in 2016 to approximately W45 billion in 2017. The increase was due to an increase in royalties from W17 billion in 2016 to W20 billion in 2017, as well as 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 W23 billion in 2016 to W25 billion in 2017. Cost of Sales Cost of sales decreased by 1.4% from W22,754 billion in 2016 to W22,425 billion in 2017. The decrease in our cost of sales in 2017 compared to 2016 was attributable primarily to decreases in raw materials and component costs mainly related to selling fewer panel units overall in 2017 compared to 2016, partially offset 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, change in inventories due in part to the weakening of the U.S. Dollar, in which 85.6% of our raw materials and component part purchases were denominated in 2017, against the Korean Won in 2017 compared to 2016 contributed to the decrease in cost of sales in 2017 compared to 2016. As a percentage of our total cost of sales, raw materials and component costs decreased from 66.4% in 2016 to 64.6% in 2017, while labor costs, overhead costs and depreciation and amortization costs increased from 10.1%, 11.3% and 12.5%, respectively, in 2016 to 10.9%, 12.1% and 13.7%, respectively, in 2017. As a percentage of revenue, cost of sales decreased from 85.9% in 2016 to 80.7% in 2017. The decrease in our cost of sales as a percentage of revenue in 2017 compared to 2016 was attributable mainly to the continued increase in the proportion of high margin products with differentiated specialty features, which tend to command higher premiums, in our product mix during the same period. 50 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 2.7% from W553,935 in 2016 to W538,806 in 2017. Cost of sales per panel sold, which is derived by dividing total cost of sales by total number of panels sold, increased by 13.0% from W68,803 in 2016 to W77,723 in 2017 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 43.1% from W3,750 billion in 2016 to W5,366 billion in 2017, and our gross margin increased from 14.1% in 2016 to 19.3% in 2017. The continued shift in our product mix toward higher-end products in 2017 resulted in increases in both the average selling price and cost of sales per panel sold in 2017 compared to 2016, but the increase in the average selling price per panel sold outpaced the increase in cost of sales per panel sold, because the higher-end products in our product mix tend to command higher premiums. 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 29.6% from W1,305 billion in 2016 to W1,691 billion in 2017. As a percentage of revenue, our selling and administrative expenses increased from 4.9% in 2016 to 6.1% in 2017. The increase in selling and administrative expenses in 2017 compared to 2016 was attributable primarily to increases in: • • advertising expenses, resulting from an increase in our marketing activities in 2017, primarily in North America, in an effort to further expand the market for OLED panels; and warranty expenses, resulting 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, 2017: 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, 2017 2016 (in billions of Won) W 277 29 90 191 193 129 31 68 167 26 12 23 14 56 W 1,305 W 327 27 95 215 197 139 46 236 251 27 12 28 16 73 W 1,691 Research and Development Expenses Research and development expenses increased by 7.0% from W1,134 billion in 2016 to W1,213 billion in 2017. As a percentage of revenue, our research and development expenses increased slightly from 4.3% in 2016 to 4.4% in 2017. The increase in research and development expenses in 2017 compared to 2016 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. 51 Other Income (Expense), Net Other income includes primarily foreign currency gains from operating activities and gain on disposal of property, plant and equipment, and other expenses include primarily foreign currency losses from operating activities and loss on disposal of property, plant and equipment. In 2017, we recorded total net other expense of W149 billion compared to total net other income of W124 billion in 2016. The change was primarily due to a net foreign currency gain of W123 billion in 2016 compared to a net foreign currency loss of W220 billion in 2017, reflecting the weakening of the U.S. Dollar against the Korean Won in 2017 compared to 2016, offset in part by a more than ten-fold increase in net gain on disposal of property, plant and equipment from W7 billion in 2016 to W81 billion in 2017, which was due mainly to the gain we recognized from the sale of equipment following the closure of our P4 manufacturing facility. See Note 21 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. We recorded total net finance income of W10 billion in 2017 compared to total net finance cost of W127 billion in 2016. Our finance income increased by 99.3% from W140 billion in 2016 to W279 billion in 2017, attributable primarily to an increase in foreign currency gain by 157.3% from W82 billion in 2016 to W211 billion in 2017 and an increase in interest income by 42.9% from W42 billion in 2016 to W60 billion in 2017. The increase in foreign currency gain in 2017 compared to 2016 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. The increase in interest income resulted primarily from an increase in our average amounts of interest-earning financial assets outstanding as well as the applicable interest rates on such financial assets in 2017 compared to 2016. Our finance costs increased slightly by 1.1% from W266 billion in 2016 to W269 billion in 2017 mainly due to a seven-fold increase in loss on disposal of investments in equity accounted investees from W6 billion in 2016 to W42 billion in 2017, partially offset by a decrease in interest expense by 20.9% from W115 billion in 2016 to W91 billion in 2017. The increase in loss on disposal of investments in equity accounted investees in 2017 compared to 2016 was primarily due to the losses we recognized in connection with the sale of our 46% equity interest in New Optics Co., Ltd. and our 23% equity interest in Narenanotech Corporation, each in 2017. The decrease in interest expense in 2017 compared to 2016 resulted primarily from an increase in the proportion of interest payments relating to our facility loans, which interest payments may be capitalized and recognized as part of our construction-in-progress assets. Income Tax Expense Our income tax expense increased by 2.9% from W385 billion in 2016 to W396 billion in 2017, primarily due to a 77.3% increase in profit before income tax from W1,316 billion in 2016 to W2,333 billion in 2017. Our effective tax rate decreased from 29.2% in 2016 to 17.0% in 2017 primarily due to a decrease in unrecognized deferred tax assets (which accounted for a 6.0% point decrease in effective tax rate as compared to 2016), which reflected changes in estimates of our future taxable income, and a decrease in income tax rate using the statutory tax rate of each country in which we pay income tax (which accounted for a 5.0% point decrease in effective tax rate as compared to 2016), which was primarily attributable to a decrease in the proportion of profit before income tax from our consolidated subsidiaries in the United States, Japan and Germany, which have relatively high statutory income tax rates. In addition, a change in the applicable tax rate used in estimating our deferred tax expense accounted for a 3.1% point decrease in effective tax rate as compared to 2016. See Note 23 of the notes to our financial statements. Profit for the Year As a result of the cumulative effect of the reasons explained above, our profit for the year increased significantly by 107.8% from W931 billion in 2016 to W1,937 billion in 2017. 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 W1,559 billion, W2,603 billion and W2,365 billion (US$2,125 million) as of December 31, 2016, 2017 and 2018, respectively. We also had short-term deposits in banks of W1,164 billion, W758 billion and W78 billion (US$70 million), respectively, as of December 31, 2016, 2017 and 2018. 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 2019 to be primarily for capital expenditures and repayment of maturing debt. 52 As of December 31, 2016, we had current assets of W10,484 billion and current liabilities of W7,058 billion, resulting in working capital of W3,426 billion. As of December 31, 2017, we had current assets of W10,474 billion and current liabilities of W8,979 billion, resulting in working capital of W1,495 billion. As of December 31, 2018, we had current assets of W8,800 billion (US$7,908 million) and current liabilities of W9,954 billion (US$8,945 million), resulting in a working capital deficit of W1,154 billion (US$1,037 million). The decrease in working capital as of December 31, 2017 compared to December 31, 2016 was primarily attributable to a W785 billion increase in current financial liabilities mainly due to the increase in our current portion of long-term debt outstanding as of December 31, 2017 compared to December 31, 2016, as well as a W720 billion increase in other accounts payable mainly as a result of construction costs incurred in connection with our ongoing investments in a next generation large-size OLED production line and a next generation plastic OLED production line in Paju, Korea. The working capital deficit as of December 31, 2018, compared to a working capital surplus as of December 31, 2017, was primarily attributable to a W1,496 billion decrease in net trade accounts and notes receivable, which was mainly caused by decreases in our revenue and sales of trade accounts and notes receivable in 2018, as well as a W680 billion decrease in our deposits in banks mainly as a result of general reduction in our cash levels in 2018 compared to 2017 and a W640 billion increase in advances received mainly as a result of payments we received in 2018 pursuant to long-term supply agreements entered into with certain of our customers. 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. Although we had a working capital deficit as of December 31, 2018, we believe that we have sufficient sources of working capital, including in the form of debt, for our present requirements. In 2018, we issued domestic debentures in the aggregate principal amount of W500 billion (US$449 million) and foreign currency denominated bonds in the aggregate principal amount of US$300 million (W334 billion), and we entered into a number of facility loan agreements, from which we have drawn down the full aggregate principal amount of W1,950 billion (US$1,752 million), US$1,185 million (W1,319 billion) and RMB3,900 million (W635 billion) as of December 31, 2018 in long-term loans, primarily to fund our capital expenditures and refinance our existing borrowings maturing in 2019. We have pledged property, plant and equipment and other assets in the amount of RMB899 million (W146 billion) as security in connection with our 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 borrowings and securities offerings, including the issuance of equity, equity-linked and other debt securities. Our net cash provided by operating activities amounted to W3,641 billion in 2016, W6,764 billion in 2017 and W4,484 billion (US$4,029 million) in 2018. The increase in net cash provided by operating activities in 2017 compared to 2016 was mainly due to (i) an increase in cash collected from our customers as a result of an increase in our sales in 2017 compared to 2016, (ii) an increase in cash inflow from trade accounts and notes receivable primarily resulting from the effects of the timing of trade accounts receivable collections prior to the year-end and appreciation of the Korean Won against the U.S. dollar at the end of 2017 compared to the end of 2016, and (iii) long-term advances received in 2017 pursuant to long-term supply agreements compared to no such advances received in 2016. The decrease in net cash provided by operating activities in 2018 compared to 2017 was mainly due to (i) a decrease in cash collected from our customers, primarily as a result of a decrease in our sales revenue, (ii) an increase in other current assets, mainly due to an increase in value added taxes refundable and (iii) an increase in inventory mainly due to an increase in the proportion of more expensive, higher value-added products in our inventory, in each case in 2018 compared to 2017. The decrease in net cash provided by our operating activities in 2018 compared to 2017 was offset in part by our sales of certain of our trade accounts and notes receivable to financial institutions in 2018 compared to no such sales in 2017. 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 2017, our inventory levels increased by 2.8% from year-end 2016. In 2018, our inventory levels further increased by 14.5% from year-end 2017. 53 Inventories consisted of the following for the dates indicated: Finished goods Work in process Raw materials Supplies Total 2016 As of December 31, 2018 2017 2018(1) (in billions of Won and millions of US$) W 931 686 355 316 W2,288 W 966 749 345 291 W2,351 W1,084 856 555 196 W2,691 US$ 974 769 499 176 US$2,418 (1) For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of W1,112.85 to US$1.00, the noon buying rate in effect on December 31, 2018 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 W3,189 billion in 2016, W6,481 billion in 2017 and W7,675 billion (US$6,897 million) in 2018. 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 W3,736 billion, W6,592 billion and W7,942 billion (US$7,137 million) in 2016, 2017 and 2018, 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 and bond issuances. We currently expect that, in 2019, our total capital expenditures on a cash out basis will be at a similar level to 2018, primarily to fund our previously announced investments related to facilities for OLED panels. 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 W308 billion in 2016, W862 billion in 2017 and W2,953 billion (US$2,654 million) in 2018. The net cash provided by financing activities in 2016 reflects primarily the increase in long-term borrowings compared to 2015. The net cash provided by financing activities in 2017 reflects primarily the net proceeds from long-term borrowings as well as a decrease in repayment of current portion of long-term borrowings and bonds compared to 2016. The net cash provided by financing activities in 2018 reflects primarily an increase in net proceeds from long-term borrowings and debentures compared to 2017, partially offset by an increase in our repayment of current portion of long-term borrowings and bonds compared to 2017. At our annual general meeting of shareholders held 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. On March 15, 2018, we declared a cash dividend of W179 billion to our shareholders of record as of December 31, 2017 and distributed the cash dividend to such shareholders on April 12, 2018. At our shareholders meeting on March 15, 2019, we did not declare any cash dividend to our shareholders. We had a total of W113 billion, nil and nil of short-term borrowings outstanding as of December 31, 2016, 2017 and 2018, respectively. For further information regarding our financial liabilities, please see Note 11 of the notes to our financial statements. As of December 31, 2018, we maintained accounts receivable sales negotiating facilities with several banks for up to an aggregate amount of US$1,670 million at the parent company level in connection with our export sales transaction with our subsidiaries. In addition, we and our subsidiaries have also entered into various other accounts receivable sales negotiating facilities in Korean Won and foreign currencies for up to aggregate amounts of W220 billion and US$2,481 million, respectively. For further information regarding these facilities, please see Note 14 of the notes to our financial statements. 54 As of December 31, 2018, we had outstanding long-term debt including current portion in the amount of W8,572 billion (US$7,703 million), consisting of W2,010 billion of Korean Won denominated debentures, US$300 million of U.S. dollar denominated debentures, US$2,262 million of U.S. dollar denominated long-term loans, RMB5,198 million of RMB denominated long-term loans and W2,851 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, 2018. For further information about our short- and long-term debt obligations as of December 31, 2018, see Note 11 of the notes to our financial statements. As of December 31, 2018, we have entered into six agreements to guarantee the payment obligations in the aggregate amount of US$1.2 billion of our subsidiary LG Display Vietnam Haiphong Co., Ltd. (“LGD Vietnam”) under credit facilities with various financial institutions, including BNP Paribas, Sumitomo Mitsui Banking Corporation, Standard Chartered Bank, Citibank and Export-Import Bank of Korea, among other lenders. Set forth below are the aggregate amounts, as of December 31, 2018, of our future contractual financing and licensing obligations under our existing debt and other contractual arrangements: Contractual Obligations Long-Term Debt, including current portion Fixed License Payment Long-Term Other Payables Total Payments Due by Period Less than 1 year W1,554 29 2 W1,585 1-3 years (in billions of Won) W3,659 62 3 W3,724 3-5 years W2,743 — — W2,743 More than 5 years W 616 — — W 616 Total W8,572 91 5 W8,668 Estimates of interest payment based on contractual interest rates effective as of December 31, 2018 W 822 W 257 W 394 W 124 W 47 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. Expenses relating to our license fees and royalty payments under existing license agreements were W94 billion in 2016, W107 billion in 2017 and W117 billion (US$105 million) in 2018, representing 6.6% of our research and development related expenditures in 2016, 5.6% in 2017 and 5.7% in 2018. 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 2018, 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, 24.2% (including local income surtax) for our taxable income between W20 billion and W300 billion, and 27.5% (including local income surtax) for our taxable income in excess of W300 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, 2018, provided that the number of our employees does not decrease 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, 2018, we had recognized deferred tax assets related to these credits of W308 billion (US$277 million), which may be utilized against future income tax liabilities through 2023. In addition, we also had unused tax credit carryforwards of W180 billion (US$162 million) as of December 31, 2018 for which no deferred tax asset was recognized. 55 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. 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 2016, we developed a Wallpaper 65-inch OLED television panel with a thickness of 2.57mm. In addition, we unveiled a 65-inch Crystal Sound Ultra HD OLED television panel with speakers integrated into the display, and we developed a 65-inch ultra-slim OLED television panel that applies HDR 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 TFT-LCD panels, we introduced an 86-inch ultra-stretch format LCD television panel with a 58:9 screen aspect ratio. With respect to monitors, we successfully introduced an in-TOUCH monitor panel as well as a 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 a 12.3-inch transparent OLED display and 6.13-inch mirror display for Glass OLED. In 2017, we unveiled a 77-inch flexible and transparent Ultra HD OLED display panel with a transparency level of 40% and a radius curvature of 80mm. In addition, we introduced an 88-inch ultra-stretch TFT-LCD panel for commercial use. For monitors, we produced a 31.5 inch TFT-LCD panel with “8K” resolution. With respect to smartphones, we released a 5.7-inch Quad HD-plus full vision TFT-LCD display and a 6-inch Quad HD plastic OLED panel for smartphone products. With respect to automotive displays, we successfully developed and commenced production of in-TOUCH TFT-LCD panels. In 2018, we developed and introduced a 65-inch rollable OLED TV and ultra-large 88-inch 8K OLED TV. For TFT- LCD monitors, we introduced a four-sided borderless curved monitor with a 1900R curvature radius. With respect to TFT-LCD smartphones, we developed our first 5.8-inch Ultra HD Mobile product by applying WRGB sub-pixel structure to achieve high luminance, low power consumption and HDR support. We also developed a full-screen TFT- LCD panel for smartphones with a camera notch concept. In addition, we released a TFT-LCD video-wall product with very thin bezels. For automotive displays, we introduced a 12.3-inch FHD glassless 3D TFT-LCD product. 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 smartphones, public displays and automotive displays. In order to maintain our position as one of the industry’s technology leaders, we believe it is important not only to increase direct spending on research and development, but also to manage our research and development capability effectively in order to successfully implement our long-term strategy. In connection with our efforts to enhance our research and development capability with respect to next-generation display technologies, we opened the R&D Center in Paju, Korea in April 2012. In addition, we have further expanded our research and development resources by allocating some of our research and development personnel to the newly-opened LG Science Park, which is located in western Seoul and commenced its operations in December 2017. LG Science Park accommodates researchers from various LG Group-affiliated companies with expertise in a broad range of disciplines, including electronics, chemistry, nanotechnology, display, fabrication, life sciences and new materials, to focus on developing and testing innovative new technologies. 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 April 2016, we entered into an agreement with Pohang University of Science and Technology, or POSTECH, to establish the LGD-POSTECH Cooperation Center within the university’s Research Institute of Electrical Circuit, Algorithm and 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, 2018, we employed over 4,900 engineers, researchers, designers, technicians and support personnel in connection with our research and development activities. 56 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, Taiwan, India and Vietnam. These patents will expire at various dates upon the expiration of their respective terms ranging from 2019 to 2037. 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. 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 and various other countries in which we sold our products. 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 W94 billion in 2016, W107 billion in 2017 and W117 billion (US$105 million) in 2018, representing 6.6%, 5.6% and 5.7% of our research and development related expenditures in 2016, 2017 and 2018, respectively. We recognized royalty income in the amount of W17 billion in 2016, W20 billion in 2017 and W18 billion (US$16 million) in 2018. 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. 57 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 14 of the notes to our financial statements. Item 5.F. Tabular Disclosure of Contractual Obligations Presented in Item 5.B. above. Item 5.G. Safe Harbor See “Forward-Looking Statements.” Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Item 6.A. Directors and Senior Management Board of Directors Our board of directors has the ultimate responsibility for the management of our business affairs. Our articles of incorporation provide for a board consisting of between five and seven directors, more than half of whom must be outside directors. Our shareholders elect all directors at a general meeting of shareholders. Under the Korean Commercial Code, a representative director of a company established in Korea is authorized to represent and act on behalf of such company and has the power to bind such company. Sang Beom Han is currently our sole representative director. The term of office for our directors shall not exceed the closing of the annual general meeting of shareholders convened in respect of the last fiscal year within three years after they take office. Our board must meet at least once every quarter, and may meet as often as the chairman of the board of directors or the person designated by the regulation of the board of directors deem necessary or advisable. The tables below set forth information regarding our current directors and executive officers. The business address of all of the directors and executive officers is LG Twin Towers, 128 Yeoui-daero, Yeongdeungpo-gu, Seoul 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. 58 Name Date of Birth Position First Elected/ Appointed Term Expires Principal Occupation Outside of LG Display Sung Sik Hwang July 24, 1956 Director January 2015 March 2021 Kun Tai Han October 30, 1956 Director March 2016 March 2022 Byoung Ho Lee July 6, 1964 Director March 2018 March 2021 Chang-Yang Lee September 20, 1962 Director March 2019 March 2022 Professor, Business Administration, Gachon University Chief Executive Officer, Hans Consulting Professor, Electrical and Computer Engineering, Seoul National University Professor, Economics and Public Policy, Korea Advanced Institute of Science and Technology Our Non-Outside Directors Our current non-outside directors are set out in the table below: Name Date of Birth Position Sang Beom Han June 18, 1955 Donghee Suh February 28, 1964 Youngsoo Kwon February 6, 1957 Representative Director, Vice Chairman and Chief Executive Officer Chief Financial Officer, Director Chairman of the Board, Director Our Non-Director Executive Officers Our current non-director executive officers are set out in the table below: First Elected/ Appointed Term Expires Principal Occupation Outside of LG Display March 2012 March 2021 — March 2019 March 2020 — March 2019 March 2022 Representative Director and Vice Chairman, LG Corp. Name Position Responsibility and Division Age Hyung Seok Choi Executive Vice President Head of IT Business Unit Sang Mun Shin Executive Vice President Chief Production Officer In Byeong Kang Executive Vice President Chief Technology Officer Yong Min Ha Executive Vice President Head of Mobile Development Group 1 Myoung Kyu Kim Executive Vice President Head of Mobile Business Unit Jae Hoon Yang Executive Vice President Head of Business Support Group Chang Ho Oh Executive Vice President Head of TV Business Unit Youngkwon Song Senior Vice President Head of Strategy/Marketing Group Kyung Ho Lee Chief Research Fellow Affiliated organization of Chief Technology Officer Yeong Giu Hong Senior Vice President Head of Auditing & Management Consulting Division Chul Gu Lee Senior Vice President Head of LG Display High-Tech (China) Co., Ltd. Sang Hoon Lee Senior Vice President Head of TV Sales/Marketing Group Byeong Koo Kim Senior Vice President Head of Mobile Development Group 2 Joo Hong Lee Senior Vice President Head of TV Development Group 59 57 59 55 52 56 55 53 56 57 56 58 58 51 53 Jung Sik Shin Kang Yeol Oh Tae Seung Kim Sang Eon Jeon Yung Keun Choi Won Ho Cho Myungchul Jun Jeong Hwan Kim Duck Yong Kim Jong Woo Kim Soo Young Yoon Byung Dae Lim Hyun Chul Choi Sunghyun Kim Yoong Ki Min Young Sang Byun Jong Sun Park Chang Dong Kim Yong Jun Choi Geon Tae Kim Hwan Myeong Kim J. Kenneth Oh Jeonghwan (Jay) Yoon Hyeon Woo Lee Han Seop Kim Sang Ki Kwak Min Su Park Sung Pill Yang Min Kim Sang Ho Song Young Seok Choi Bum Sik Kim Hee Yeon Kim Kwang Hee Cho Calvin Lee Woo Sup Shin Jeom Jae Kim Jang Sig Kim Seung Min Lim Wan Seop Kim Jong Sang Baek Je Bong Kim Jin Kyu Lee Jeong Ki Park Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Chief Research Fellow Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Head of Automotive Business Head of Mobile Sales/Marketing Group Head of pOC Technology Division Head of Quality Management Center Head of Purchasing Group Head of Mobile Manufacture Center Head of Panel Performance Division Head of IT Sales/Marketing Group Head of TV Planning & Management Division Head of TV Manufacture Center 1 Head of LGD Laboratory Head of Global Legal Affairs Division Head of OC Research/Development Division Head of Finance & Risk Management Division Head of IT America Division 2 Head of TV Manufacture2 Center Head of Commercial Business Division Head of PO Panel Performance Division Head of Corporate Planning & Control Division PO Panel Performance Division Head of Production Technology Center Head of Intellectual Property Division Affiliated organization of Automotive Business TV Business Unit Head of OLED TV Product Development Division 1 Head of IT Customer/Quality Division Head of LG Display Guangzhou Co., Ltd. Head of Mobile Quality Division Head of Module Center Head of HR Group Head of Product Technology Division Head of OLED Panel Performance Division Head of IR Division Head of Automotive Planning & Management Division Head of TV Europe and Asia Division Head of OLED Process Integration Division Head of LCD TV Panel Development Division Head of Corporate Strategy Division Head of Corporate Business Management Division Head of Mobile Planning & Management Division Head of Advanced Quality Development Division Head of Outsourcing Division Head of Process Innovation Group Head of IT Development Group 60 56 54 54 58 57 55 58 57 57 53 53 50 51 51 54 53 53 56 54 54 55 51 54 51 53 53 53 55 55 50 51 55 49 53 53 49 50 56 52 53 52 53 49 50 Seong Hee Kim Jae Hong Park Ju Il Kim Kwang Jin Kim Andy Kim Kyu Young Ko Soon Kwang Hong Young Jun Son Yong Bum Kim Sang Gul Lee Young Jin Kim Seung Mo Ahn Ki Yung Kim Jong Seong Kim Chang Han Kim Keuk Sang Kwon Kwon Shik Park Hyun Joo Kim Pil Yong Kim Hyo Dae Bae Chang Wook Han Dong Eun Lee Yeon Ho Hur Hae Cheol Lee Kyung Soo Park Chang Sub Choi Yoo Seok Park Chang Hoon Choi Soon Bum Shin Jin Nam Park Doo Jong Jin Bu Yeol Lee Chang Mog Jo Ki Joon Jin Seong Hoon Choi Yu Taek Huh Jin Gu Jeung Chae Woo Choi Sang Yoon Park Hong Sung Song Eun Kuk Kyung Young Dall Park Yong In Park Seung Jun Han Hoon Jeong Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Chief Research Fellow Chief Research Fellow Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Vice President Head of OLED TFT Division Head of Mobile Product Development Division 2 Head of TV Quality Division TV Business Unit Head of Global Operation Group TV Business Unit Head of Mobile Product Development Division 1 Head of PR & Public Affairs Division Head of Mobile Product Planning Division Device Process Research Division Head of Paju Module Factory TV Business Unit Head of IT Planning & Management Division Head of pOT2 Factory Head of TV Marketing Division Head of Mobile Product Development Division 5 Head of Device Process Research Division Head of HRD Division Head of Legal & Compliance Division LGD Laboratory Affiliated organization of Chief Technology Officer Head of China Business Management Division Head of FA Technology Division Head of Paju Business Supporting Division Head of IT Asia Division Head of TV Japan Division Head of LG Display (China) Co., Ltd. Head of LTPS Factory Head of PO Module Technology Division Head of Purchasing Division 2 Purchasing Group Head of R&D Strategy Division Head of E5 Factory Head of Mobile Marketing Division Head of SCM PI Division Head of Safety & Health Division Head of Gumi Panel Factory Head of TV Product Planning Division Head of IT Product Development Division 2 TV Business Unit Head of Accounting Division Head of HRM Division Head of Mobile Panel Development Division 2 Head of Mechanism Optics Research Division Head of IT Panel Development Division 61 50 50 52 50 52 52 48 52 50 51 54 50 51 51 50 48 49 51 48 54 54 51 52 52 51 52 48 49 52 47 51 47 53 51 50 49 49 49 50 51 49 48 49 50 46 Myung Su Suk Jong Seo Yoon Teddy Hwang Seung Ho Kwon Tae Rim Lee In Hyuk Song Tae Shick Kim Seong Hoon Chun Vice President Vice President Vice President Vice President Vice President Vice President Chief Research Fellow Vice President Item 6.B. Compensation Head of LG Display Vietnam Haiphong Co., Ltd. Head of IT Product Planning Division Head of Mobile Panel Development Division 1 Head of OLED Cell Division TV Development Group Head of Convergence Technology Research Division OC Research/Development Division Strategy/Marketing Group 48 48 44 48 44 41 50 48 The aggregate remuneration and benefits-in-kind we paid in 2018 to our directors was W3.8 billion (US$3.4 million). This included W1,492 million (US$1.3 million) in salary and W1,320 million (US$1.2 million) in bonus paid to Sang Beom Han, our chief executive officer, and W441 million (US$0.4 million) in salary and W222 million (US$0.2 million) in bonus paid to Sang Don Kim, our former chief financial officer. The aggregate remuneration and benefits-in-kind we paid in 2018 to our non-director executive officers was W53 billion (US$45 million). The compensation of the five individuals who received the highest compensation among those who received total annual compensation exceeding W500 million in 2018 was as follows: Name Sang Beom Han Yong Kee Hwang(2) In Byeong Kang Sang Deok Yeo(3) Byung Chul Ahn Position Chief Executive Officer President Vice President Advisor Outside Advisor Composition of Total Compensation Salary W1,492 1,021 518 596 303 Bonus(1) Retirement Benefits (in millions of Won) W1,320 316 273 438 213 — — — 3,121 902 Total Compensation W 2,812 1,337 791 4,155 1,418 (1) Based on our performance in 2017. (2) Mr. Hwang retired from his position as of March 31, 2019. (3) Mr. Yeo and Mr. Ahn are former officers who retired from their respective positions in the company as of March 31, 2018. 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 2018, we paid a premium of approximately US$1.3 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. 62 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. 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, Kun Tai Han and Chang-Yang Lee. 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. Our Outside Director Nomination Committee is currently comprised of two outside directors, Byoung Ho Lee and Kun Tai Han, and one non-outside director, Youngsoo Kwon. 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 is comprised of two non-outside directors, Sang Beom Han and Donghee Suh. 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. 63 Item 6.D. Employees As of December 31, 2018, we had 58,947 employees, including 29,236 employees in our overseas subsidiaries. The following table provides a breakdown of our employees by function as of December 31, 2016, 2017 and 2018: Employees(1) Production Technical(2) Sales & Marketing Management & Administration Total As of December 31, 2017 42,895 8,459 1,545 992 53,891 2016 38,502 8,039 1,545 1,008 49,094 2018 47,873 8,431 1,610 1,033 58,947 (1) (2) Includes employees of our subsidiaries. Includes research and development and engineering personnel. To recruit promising engineering students at leading Korean universities, we work with these universities on research projects where these students can gain exposure to our research and development efforts. We also provide on-the-job training for our new employees and develop training programs to identify and promote new leaders. As of December 31, 2018, more than half of our employees based in Korea 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, 2018, our recognized liabilities for defined benefit obligations amounted to W45 billion (US$41 million), including amounts relating to employees of our foreign subsidiaries. See Note 12 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, 2018, our employee stock ownership association owned approximately 0.0008% of our common stock. Item 6.E. Share Ownership Common Stock The persons who are currently our executive officers held, as a group, 48,355 shares of our common stock as of April 24, 2019, 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. 64 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 24, 2019 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 24,515,566 Percentage 37.9% 6.9% 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 24, 2019. 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 8 and 28 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 system 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 W5,171 billion (US$4,647 million), or 21.2% of our sales, in 2018. 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 W716 billion (US$643 million), or 2.9% of our sales, in 2018. 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. 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 W1,933 billion (US$1,737 million), or 8.4% of our total purchases, in 2018. 65 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 W300 billion (US$270 million), or 1.3% of our total purchases, in 2018. 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 W1,234 billion (US$1,109 million), or 5.3% of our total purchases, in 2018. 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 W3,328 billion (US$2,991 million), or 14.4% of our total purchases, in 2018. 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 24, 2019, 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. Item 8. FINANCIAL INFORMATION Item 8.A. Consolidated Statements and Other Financial Information See “Item 18. Financial Statements” and pages F-1 through F-111. 66 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. 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. Between November 2008 and June 2014, each of such investigations and subsequent legal proceedings brought by the relevant competition authorities was settled or resolved, and we have paid fines of US$400 million pursuant to our November 2008 settlement agreement with the U.S. Department of Justice, €210 million pursuant to a December 2010 decision by the European Commission and R$33.9 million pursuant to an August 2014 settlement agreement with the Secretariat of Economic Law of Brazil. After the commencement of the U.S. Department of Justice investigation, various class action complaints and separate claims by direct and indirect purchasers of our products were filed against us and other TFT-LCD panel manufacturers in the United States and Canada, alleging violation of respective antitrust and related laws. In addition, from 2010 to 2012, 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 us, alleging similar antitrust violations. In June 2018, the attorney general of the Commonwealth of Puerto Rico filed a complaint against us and other TFT-LCD panel manufacturers alleging unjust enrichment in connection with the aforementioned U.S. Department of Justice investigation. Since then, we have reached settlements with each of the plaintiff classes and separate plaintiffs, as well as with the aforementioned state attorneys general, with the exception of the attorney general of the Commonwealth of Puerto Rico, which settlements were duly approved by the applicable courts and, in the case of the state attorneys general actions, by their respective state governments. As of April 24, 2019, we have not been served with the complaint from the attorney general of the Commonwealth of Puerto Rico. A number of claims alleging damages were filed against LG Display and other entities in the United Kingdom as follow-on claims from the above-described European Commission’s decision in December 2010, comprising claims by iiyama (UK) Limited and its affiliates (“iiyama”) in December 2014, and Argos Limited and others (“Argos”), Granville Technology Group and others (“Granville”) and Ingram Micro and others (“Ingram”), each in December 2016. As of April 24, 2019, we are vigorously defending ourselves against claims by Granville and iiyama. Ingram discontinued its claims against LG Display in June 2017, and we have reached a settlement with Argos in November 2018. In December 2013, a class action complaint was filed by Hatzlacha, a consumer organization, on behalf of Israeli consumers against LG Display and other defendants in the Central District in Israel. In July 2017, the Supreme Court of Israel ruled in favor of the defendants to affirm the District Court’s decision to revoke the leave to serve the class action on the defendants outside the jurisdiction of Israel. In August 2017, Hatzlacha filed a number of motions to uphold service in the Central District in Israel under different legal grounds, which are currently being contested by the defendants. In each of the foregoing matters that are ongoing, we are continually evaluating the merits of the respective claims and vigorously defending ourselves. Irrespective of the validity or the successful assertion of the claims described above, we may incur significant costs with respect to litigating or settling any or all of the asserted claims. While we continue to vigorously defend the various proceedings described above, it is possible that one or more proceedings may result in cash outflow to settle or resolve these claims. We recognize provisions with respect to those legal claims in which our management has concluded that there is a present or constructive obligation arising from a past event, it is more likely than not that an outflow of resources will result to settle the obligation, and a reliable estimate can be made of the amount of the obligation. As of December 31, 2018, 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, 2018 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. 67 At our annual general meeting of shareholders that was held 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. On March 15, 2018, 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, 2017 and distributed the cash dividends to such shareholders on April 12, 2018. At our shareholders meeting on March 15, 2019, we did not declare any cash dividend to our shareholders. Item 8.B. Significant Changes Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report. Item 9. THE OFFER AND LISTING Item 9.A. Offer and Listing Details. Principal Trading Market 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, 2018, 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 ticker symbol “LPL” since July 22, 2004. One ADS represents one-half of one share of common stock. As of December 31, 2018, 20,890,926 ADSs were outstanding. Item 9.B. Plan of Distribution Not applicable. Item 9.C. Markets See “Item 9.A. Offering and Listing Details.” 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. 68 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 2019, 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, 2018, 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. Our articles of incorporation reflect the adoption of the electronic securities system to be launched in September 2019, pursuant to the Act on Electronic Registration of Stocks, Bonds, Etc. (the “Electronic Registration Act”). Accordingly, following the launch of such system, in lieu of issuing share certificates or certificates of preemptive rights, we plan to electronically register the shares that would otherwise be indicated on certificates of preemptive rights on an electronic registry of an electronic registration institution. Dividends We distribute dividends to our shareholders in proportion to the number of shares owned by each shareholder. The shares represented by the ADSs have the same dividend rights as other outstanding shares. Holders of preferred shares are entitled to receive dividends in priority to the holders of common stock. The amount of dividends for preferred shares is determined by our board of directors within a range of 1% to 10% of par value at the time the shares are issued, provided that if the dividend amount on the shares of common stock exceeds that on the preferred shares, holders of preferred shares will also participate in the distribution of the excess dividend amount in the same proportion as holders of common stock. If the amount available for dividends is less than the aggregate amount of such minimum dividend, the holders of preferred shares will be entitled to receive the accumulated unpaid dividends in priority to the holders of common stock from the dividends payable in respect of the next fiscal year. We declare dividends annually at the annual general meeting of shareholders which is held within three months after the end of the fiscal year. We pay the annual dividend shortly after the annual general meeting to the shareholders of record as of the end of the preceding fiscal year. We may distribute the annual dividend in cash or in shares. However, a dividend of shares must be distributed at par value. If the market price of the shares is less than their par value, dividends in shares may not exceed one-half of the annual dividend. We have no obligation to pay any annual dividend unclaimed for five years from the payment date. Under the Korean Commercial Code, we may pay an annual dividend only out of the excess of our net assets, on a non-consolidated basis, over the sum of (1) our stated capital and (2) the total amount of our capital surplus reserve and legal reserve accumulated up to the end of the relevant dividend period. We may not pay an annual dividend unless we have set aside a legal reserve in an amount equal to at least 10% of the cash portion of the annual dividend or unless we have accumulated a legal reserve of not less than one-half of our stated capital. We may not use legal reserves to pay cash dividends but may transfer amounts from legal reserves to capital stock or use legal reserves to reduce an accumulated deficit. Also, we may pay an interim dividend in accordance with a resolution of the board of directors to our shareholders who are registered in the shareholders’ register as of July 1 of the relevant fiscal year, and such an interim dividend shall be made in cash. 69 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; 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. In addition, pursuant to the Electronic Registration Act, in lieu of issuing bond or warrant certificates, we plan to electronically register the bonds and warrant rights that would otherwise be indicated on warrant certificates on an electronic registry of an electronic registration institution beginning in September 2019. 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, 2018, approximately 0.0008% 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. 70 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 provide notice through our website. If we cannot give such notice on our website due to technical difficulties or other unavoidable circumstances, we must provide such notice in Maeil Business Newspaper and The Chosun Ilbo, both daily newspapers of general circulation published in Seoul. 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 held in our head office, our Paju Display Cluster or any other place as designated by our board of directors. Directors Under the Korean Commercial Code and our articles of incorporation, any director wishing to enter into a transaction with us or our subsidiaries in his or her capacity is required to obtain prior approval from the board of directors, and any director with an interest in the transaction may not vote at the meeting of the board of directors to approve the transaction. Voting Rights Holders of our common stock are entitled to one vote for each share of common stock, except that voting rights may not be exercised with respect to shares of common stock held by us or by a corporate shareholder in which we own, directly or indirectly, more than 10% of its voting stock. The Korean Commercial Code permits cumulative voting, under which voting method each shareholder would have multiple voting rights corresponding to the number of directors to be appointed in the voting and may exercise all voting rights cumulatively to elect one director. However, our articles of incorporation prohibit cumulative voting. According to our current articles of incorporation, our shareholders may adopt resolutions at a general meeting by an affirmative majority vote of the voting shares present or represented at the meeting, where the affirmative votes also represent at least one-fourth of our total voting shares then issued and outstanding. However, under the Korean Commercial Code and our articles of incorporation, the following matters, among others, require approval by the holders of at least two-thirds of the shares present or represented at a meeting, where the affirmative votes also represent at least one-third of our total voting shares then issued and outstanding: • • • • • • • amending our articles of incorporation; removing a director; effecting any dissolution, merger or consolidation of us; transferring the whole or any significant part of our business; effecting our acquisition of all of the business of any other company; effecting our acquisition of a part of the business of any other company that has a material effect on our business; or issuing any new shares at a price lower than their par value. In general, holders of preferred shares are not entitled to vote on any resolution or receive notice of any general meeting of shareholders. However, in the case of amendments to our articles of incorporation, any merger or consolidation involving us, capital reductions or in certain other cases in which the rights or interests of the preferred shares are affected, approval of the holders of preferred shares is required. We may obtain such approval by a resolution of holders of at least two-thirds of the preferred shares present or represented at a class meeting of the holders of preferred shares, where the affirmative votes also represent at least one-third of our total issued and outstanding preferred shares. In addition, if we are unable to pay dividends on preferred shares as provided in our articles of incorporation, the holders of preferred shares will become enfranchised and will be entitled to exercise voting rights until those dividends are paid. The holders of enfranchised preferred shares have the same rights as holders of common stock to request, receive notice of, attend and vote at a general meeting of shareholders. Shareholders may exercise their voting rights by proxy. 71 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. 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. However, the Electronic Registration Act requires listed securities to be automatically converted into electronic securities as of the business day immediately preceding the effective date of the Electronic Registration Act. The Electronic Registration Act also provides that, with respect to the transfer of electronically registered shares, the effect of transfer will occur upon the completion of the electronic registration of such transfer, and therefore, no entry of change will be required. 72 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. 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. 73 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. 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. 74 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; 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. 75 Upon a foreign investor’s purchase of shares through the KRX KOSPI Market or the KRX KOSDAQ Market, no separate report by the investor is required because the investment registration card system is designed to control and oversee foreign investment through a computer system. However, a foreign investor’s acquisition or sale of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market (as discussed above) must be reported by the foreign investor or his standing proxy to the governor of the Financial Supervisory Service at the time of each such acquisition or sale; provided, however, that a foreign investor must ensure that any acquisition or sale by it of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market in the case of trades in connection with a tender offer, odd-lot trading of shares or trades of a class of shares for which the aggregate foreign ownership limit has been reached or exceeded, is reported to the governor of the Financial Supervisory Service by the financial investment company engaged to facilitate such transaction. A foreign investor may appoint a standing proxy from among the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment license and internationally recognized custodians which will act as a standing proxy to exercise shareholders’ rights or perform any matters related to the foregoing activities if the foreign investor does not perform these activities itself. Generally, a foreign investor may not permit any person, other than its standing proxy, to exercise rights relating to its shares or perform any tasks related thereto on its behalf. However, a foreign investor may be exempted from complying with these standing proxy rules with the approval of the governor of the Financial Supervisory Service in cases deemed inevitable by reason of conflict between the laws of Korea and the home country of the foreign investor. Certificates evidencing shares of Korean companies must be kept in custody with an eligible custodian in Korea. Only the Korea Securities Depository, foreign exchange banks (including domestic branches of foreign banks), financial investment companies with a dealing, brokerage or collective investment license and internationally recognized custodians are eligible to act as a custodian of shares for a non-resident or foreign investor; provided, however, that a foreign investor may have the certificate evidencing shares released from such custody when it is necessary to exercise its rights to such shares or to inspect and confirm the presence of the certificate(s) of such shares. A foreign investor must ensure that its custodian deposits its shares with the Korea Securities Depository. However, a foreign investor may be exempted from complying with this deposit requirement with the approval of the governor of the Financial Supervisory Service in circumstances where compliance with that requirement is made impracticable, including cases where compliance would contravene the laws of the home country of such foreign investor. 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. 76 Financial investment companies with a securities dealing, brokerage or collective investment license are allowed to open foreign currency accounts with foreign exchange banks exclusively for accommodating foreign investors’ stock investments in Korea. Through these accounts, such financial investment companies may enter into foreign exchange transactions on a limited basis, such as conversion of foreign currency funds and Korean Won funds, either as a counterparty to or on behalf of foreign investors, without the investors having to open their own accounts with foreign exchange banks. Item 10.E. Taxation The following summary is based upon the tax laws of the United States and the Republic of Korea as in effect on the date of this annual report, and is subject to any change in U.S. or Korean law that may come into effect after such date. Investors in the shares of common stock or ADSs are advised to consult their own tax advisers as to the United States, Korean or other tax consequences of the purchase, ownership and disposition of such securities, including the effect of any national, state or local tax laws. Korean Taxation The following summary of Korean tax considerations applies to you so long as you are not: • • • a resident of Korea; a corporation having its head office, principal place of business or place of effective management in Korea (i.e., a Korean corporation); or engaged in a trade or business in Korea through a permanent establishment or a fixed base to which the relevant income is attributable or with which the relevant income is effectively connected. Taxation of Dividends on Shares of Common Stock or ADSs We will deduct Korean withholding tax from dividends (whether in cash or in shares) paid to you at a rate of 22% (including local income surtax). If you are a 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. 77 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. 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. 78 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. 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 9.125% 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 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 our stock (by vote or by value). 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. 79 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. 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 2018 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 2019 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, unless you have the right to receive cash or property, in which case you will be treated as if you received cash equal to the fair market value of the distribution. 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. 80 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. 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) establishes that it 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. 81 Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Overview Market risk is the risk of loss related to adverse changes in market prices, including interest rates and foreign exchange rates, of financial instruments. We are exposed to various financial market risks in our ordinary course of business transactions, primarily from changes in interest rates and foreign exchange rates, and we utilize financial derivatives to mitigate these risks. We also used various derivative instruments, principally forward contracts with maturities of one year or less, to manage our exposure associated with net asset and liability positions and cash flows denominated in foreign currencies. We have used, and intend to continue to use, these financial derivatives only for hedging purposes and not for speculative purposes. Our primary market risk exposures relate to interest rate movements on floating rate borrowings and exchange rate movements on foreign currency denominated accounts receivable, as well as foreign currency denominated future cash flows from sales, mostly denominated in U.S. dollars and foreign currency denominated accounts payable for purchases of raw materials and supplies, primarily denominated in U.S. dollars and Japanese Yen. The fair value of our financial instruments has been determined as the price, as of the applicable measurement date, that we would receive when selling an asset or that we would pay when transferring a liability, in an orderly transaction between market participants. Fair value is based on quoted market prices where available. For a further discussion of our market risk and fair value of our financial assets and liabilities, see Note 26 of 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, 2018, we had outstanding long-term debt, including current portion, in the amount of W8,572 billion (US$7,703 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, 2018, we did not have any outstanding interest rate swap contracts. 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, 2018, we had US$2,262 million aggregate principal amount of U.S. dollar denominated long-term loans and RMB5,198 million aggregate principal amount of RMB denominated long-term loans. The interest rates on these loans are set based on three-month U.S. dollar LIBOR plus 0.75% to 2.00% and 90% to 105% of the rate published by the People’s Bank of China, as applicable. The table below provides information about our financial instruments that are sensitive to changes in interest rates. The risk associated with fluctuating interest expense is principally limited to our U.S. dollar denominated and RMB denominated term loans, and we do not believe that a near-term 10% change of the effective interest rate would have a significant impact on our cash flows. 2019 2020 2021 Thereafter (in billions of Won, except for interest rate percentages) 2022 2023 Expected Maturity Dates Fair Value at December 31, 2018 Total Long-term debt obligations Fixed rate (W) W 560.7 W1,048.0 W 1,237.6 W 645.1 W 865.1 W 354.8 W 4,711.3 W 4,790.3 Average interest rate 2.45% Variable rate (W) W 150.0 Average interest rate 2.54% Variable rate (RMB) W 211.3 Average interest rate Fixed rate (US$) Average interest rate 4.28% — — 2.82% — — 2.64% 2.43% — — — — — W 105.8 W 105.8 W 423.2 W 846.0 W 846.0 — — — — W 335.4 — 5.15% — W 335.4 W 351.4 — 3.38% — W 150.0 W 150.0 — 5.15% — W — — — 3.06% — — 3.88% 5.15% Variable rate (US$) W 632.3 W 157.4 W 338.8 W 695.7 W 444.1 W 260.9 W 2,529.2 W 2,529.2 Average interest rate 3.91% 3.61% 3.67% 3.98% 3.83% 3.93% 82 For a further discussion of our interest rate risk exposures, including a further sensitivity analysis on our interest rate risk exposures, see Notes 11 and 26 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, 2018, we had U.S. dollar denominated sales-related trade accounts and notes receivable of US$2,175 million, which represented approximately 86% of our trade accounts and notes receivable, and U.S. dollar denominated sales-related trade accounts payable of US$863 million, which represented approximately 31% of our trade accounts payable. As of December 31, 2018, we also had RMB denominated sales-related trade accounts and notes receivable of RMB1,098 million, which represented approximately 6% of our trade accounts and notes receivable, net, and Japanese Yen denominated sales-related trade accounts and notes receivable of ¥7 million. In addition, we had RMB denominated sales-related trade accounts payable of RMB2,862 million and Japanese Yen denominated sales-related trade accounts payable of ¥12,501 million, which represented approximately 15% and 4% of our trade accounts and notes payable, net, respectively. From time to time, we hedge against the effect of exchange rate fluctuations of the U.S. dollar against the Korean Won on our U.S. dollar debt exposure using cross-currency swap contracts. As of December 31, 2018, US$780 million of our US$1,155 million aggregate principal amount of U.S dollar denominated floating rate long-term borrowings were hedged against foreign exchange rate and interest rate fluctuations through cross-currency swap contracts. Cross Currency Interest Rate Swap Contracts: Contracts to sell Korean (Won)/buy US$: Aggregate contract amount Average contractual exchange rate Change in fair value US$ 780 million (Won) 1,127.44/US$ (12.7) billion (Won) 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, 2018, we did not have any outstanding foreign currency forward contracts. Based on our overall foreign currency exposure as of December 31, 2018, 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 26 of the notes to our financial statements. Other Risks We are exposed to credit risk in the event of non-performance by the counterparties under our foreign currency forward contracts at maturity. In order to minimize this risk, we limit the transaction amount with any one party and continually monitor the credit quality of the counterparties to these financial instruments. We do not anticipate any material losses from these contracts, and we believe the risk of non-performance by the counterparties under these contracts is remote. A substantial portion of our sales is attributable to a limited number of our end-brand customers. Our top ten end-brand customers, including our largest shareholder as an end-brand customer, together accounted for a substantial majority of our sales in each of 2016, 2017 and 2018. 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 2.9% of our sales in 2018, 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. 83 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 26 of the notes to our financial statements. According to the Korean Statistical Information Service, the rate of inflation in Korea was 1.0% in 2016, 1.9% in 2017 and 1.5% in 2018. 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. 84 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 2018, 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 2017 US$ 56,607.25 US$750,029.45 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, 2018. 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. 85 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, 2018. The effectiveness of our internal control over financial reporting as of December 31, 2018 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 2018 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, 2017 and 2018: Audit fees Tax fees All other fees Total fees Year ended December 31, 2017 2018 (in millions of Won) W 3,064 98 31 W 3,193 W 3,956 96 50 W 4,102 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. All other fees for 2017 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 2018 in the above table are the aggregate fees billed by KPMG for services related to the issuance of an assurance report in connection with our issuance of foreign currency-denominated bonds. 86 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 2018, 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 LG Display’s Corporate Governance Practice 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. 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. 87 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. Under Korean law, we are not required to establish a compensation committee. Accordingly, we do not currently have a compensation committee, and our board of directors is directly responsible for matters relating to salaries and incentive compensation for our directors and executive officers. Executive Session 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. 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. The Korean Commercial Code and our articles of incorporation provide that any and all terms and conditions for the issuance of new shares of the company shall be determined by a resolution of the board of directors. The company may allot new shares by a resolution of the board of directors to persons other than its shareholders when certain requirements are satisfied, including where new shares are issued by way of general public offering, and are issued to corporations, institutional investors, domestic and foreign financial institutions and others to further a management objective such as strengthening the company’s financials (provided, however, that such allotment of new shares to persons other than shareholders may only be made up to 20% of the total number of issued and outstanding shares of the company). Shareholder Approval of Equity Offerings Listed companies must allow its shareholders to exercise their voting rights with respect to equity offerings that do not qualify as public offerings for cash, and offerings of equity of related parties. 88 Corporate Governance Guidelines Listed companies must adopt and disclose corporate governance guidelines. 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. 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. 89 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, 2017 and 2018 Consolidated statements of comprehensive income for the years ended December 31, 2016, 2017 and 2018 Consolidated statements of changes in equity for the years ended December 31, 2016, 2017 and 2018 Consolidated statements of cash flows for the years ended December 31, 2016, 2017 and 2018 Notes to the consolidated financial statements 90 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* Amended and Restated Articles of Incorporation (translation in English) Description 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 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema 101.CAL XBRL Taxonomy Extension Calculation Linkbase 101.DEF XBRL Taxonomy Extension Definition Linkbase 101.LAB XBRL Taxonomy Extension Label Linkbase 101.PRE XBRL Taxonomy Extension Presentation Linkbase * ** 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. 91 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/ DONGHEE SUH (Signature) Name: Donghee Suh Title: Senior Vice President and Chief Financial Officer Date: April 30, 2019 92 INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Consolidated Statements of Financial Position Consolidated Statements of Comprehensive Income (Loss) 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.: Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated statements of financial position of LG Display Co., Ltd. and subsidiaries (“the Group”) as of December 31, 2017 and 2018, and the related consolidated statements of comprehensive income (loss), changes in equity and cash flows for each of the years in the three-year period ended December 31, 2018, and the related notes (collectively, “consolidated financial statements”). We also have audited the Group’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Group as of December 31, 2017 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Basis for Opinions The Group’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 the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Group’s consolidated financial statements and an opinion on the Group’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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. F-2 Definition and Limitations of Internal Control over Financial Reporting 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. /s/ KPMG Samjong Accounting Corp. We have served as the Group’s auditor since 2008. Seoul, Korea April 26, 2019 F-3 LG DISPLAY CO., LTD. AND SUBSIDIARIES Consolidated Statements of Financial Position As of December 31, 2017 and 2018 (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 Non-current assets held for sale Other current assets Total current assets Deposits in banks Investments in equity accounted investees Other non-current accounts receivable, net 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, 2017 December 31, 2018 4, 26 4, 26 5, 15, 26 28 5, 26 6, 26 7 30 5 4, 26 8 5, 26 6, 26 9, 17 10, 17 24 5 W 2,602,560 758,078 4,325,120 164,827 27,252 2,350,084 3,854 — 241,928 10,473,703 11 122,507 8,738 59,836 16,201,960 912,821 985,352 394,759 18,685,984 W 29,159,687 2,365,022 78,400 2,829,163 169,313 46,301 2,691,203 4,516 70,161 546,048 8,800,127 11 113,989 11,448 144,214 21,600,130 987,642 1,136,166 381,983 24,375,583 33,175,710 F-4 LG DISPLAY CO., LTD. AND SUBSIDIARIES Consolidated Statements of Financial Position, Continued As of December 31, 2017 and 2018 (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 Long-term advances received 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 equity holders of the Controlling Company Non-controlling interests Total equity Total liabilities and equity See accompanying notes to the consolidated financial statements. F-5 Note 26, 28 11, 26 26 13 15 14 11, 26 13 12 15 24 14 16 16 December 31, 2017 December 31, 2018 W 2,875,090 1,452,926 3,169,937 812,615 321,978 76,016 194,129 75,991 8,978,682 4,150,192 28,312 95,447 830,335 24,646 70,563 5,199,495 14,178,177 1,789,079 2,251,113 10,621,571 (288,280) 14,373,483 608,027 14,981,510 W 29,159,687 3,087,461 1,553,907 3,566,629 633,346 105,900 98,254 834,010 74,976 9,954,483 7,030,628 32,764 45,360 1,114,316 15,087 96,826 8,334,981 18,289,464 1,789,079 2,251,113 10,239,965 (300,968) 13,979,189 907,057 14,886,246 33,175,710 Consolidated Statements of Comprehensive Income (Loss) For the years ended December 31, 2016, 2017 and 2018 (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 (loss) before income tax Income tax expense Profit (loss) 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 F-6 Note 17, 28 W 26,504,074 2016 7, 18, 28 19 19 21 21 22 22 8 23 (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 2017 27,790,216 (22,424,661) 5,365,555 (994,483) (696,022) (1,213,432) 1,081,746 (1,230,455) 279,019 (268,856) 9,560 2,332,632 (395,580) 1,937,052 2018 24,336,571 (21,251,305) 3,085,266 (834,062) (938,214) (1,221,198) 1,004,137 (1,115,233) 254,131 (326,893) 700 (91,366) (88,077) (179,443) 12, 23 12, 23 155,346 200 (37,594) 117,952 (16,260) 441 9,259 (6,560) 5,690 20 (1,169) 4,541 Consolidated Statements of Comprehensive Income (Loss), Continued For the years ended December 31, 2016, 2017 and 2018 (In millions of won, except earnings per share) 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 (loss) for the year Profit (loss) attributable to: Owners of the Controlling Company Non-controlling interests Profit (loss) for the year Total comprehensive income (loss) attributable to: Owners of the Controlling Company Non-controlling interests Total comprehensive income (loss) for the year Earnings (loss) per share (In won) Basic earnings (loss) per share Diluted earnings (loss) per share See accompanying notes to the consolidated financial statements. F-7 Note 2016 2017 2018 22, 23 23 (77) (90,503) (5,416) 19 — (231,738) — (19,987) 905 — 37 — (95,977) 21,975 W 953,483 (230,833) (237,393) 1,699,659 (19,950) (15,409) (194,852) 906,713 24,795 W 931,508 1,802,756 134,296 1,937,052 (207,239) 27,796 (179,443) 941,953 11,530 W 953,483 1,596,394 103,265 1,699,659 (215,386) 20,534 (194,852) 25 W 2,534 25 W 2,534 5,038 5,038 (579) (579) LG DISPLAY CO., LTD. AND SUBSIDIARIES Consolidated Statements of Changes in Equity For the years ended December 31, 2016, 2017 and 2018 (In millions of won) Balances at January 1, 2016 Total comprehensive income (loss) for the year Profit for the year Other comprehensive income (loss) Transaction with owners, recognized directly in equity Dividends to equity holders Capital contribution from non-controlling interests Balances at December 31, 2016 Balances at January 1, 2017 Total comprehensive income (loss) for the year Profit for the year Other comprehensive loss 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, 2017 Attributable to owners of the Controlling Company Retained premium earnings Reserves Share capital Share W 1,789,079 2,251,113 8,158,526 Sub-total (5,766) 12,192,952 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 — — — — W 1,789,079 2,251,113 (178,908) — 9,004,283 (178,908) — — — (88,478) 12,955,997 — (17,143) 506,391 (178,908) (17,143) 13,462,388 W 1,789,079 2,251,113 9,004,283 (88,478) 12,955,997 506,391 13,462,388 — — — — — — 1,802,756 — (6,560) (199,802) (199,802) 1,796,196 1,802,756 (206,362) 1,596,394 W 134,296 (31,031) 103,265 1,937,052 (237,393) 1,699,659 — — — — — — — — W 1,789,079 2,251,113 10,621,571 — — (288,280) 14,373,483 (178,908) (178,908) — — — — (5,929) 4,300 608,027 (178,908) (5,929) 4,300 14,981,510 F-8 LG DISPLAY CO., LTD. AND SUBSIDIARIES Consolidated Statements of Changes in Equity, Continued For the years ended December 31, 2016, 2017 and 2018 (In millions of won) Balances at January 1, 2018 Total comprehensive income (loss) for the year Profit (loss) for the year Other comprehensive income (loss) 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, 2018 Attributable to owners of the Controlling Company Retained premium earnings Share capital Share W 1,789,079 2,251,113 10,621,571 Sub-total Reserves (288,280) 14,373,483 Non-controlling interests 608,027 Total equity 14,981,510 — — — — — — (207,239) 4,541 (202,698) — (12,688) (12,688) (207,239) (8,147) (215,386) W 27,796 (7,262) 20,534 (179,443) (15,409) (194,852) — — — — — — — — W 1,789,079 2,251,113 10,239,965 — — (300,968) 13,979,189 (178,908) (178,908) — — — — (53,107) 331,603 907,057 (178,908) (53,107) 331,603 14,886,246 See accompanying notes to the consolidated financial statements. F-9 LG DISPLAY CO., LTD. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the years ended December 31, 2016, 2017 and 2018 (In millions of won) Cash flows from operating activities: Profit (loss) 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 (Reversal of) bad debt expense Gain on disposal of intangible assets Loss on disposal of intangible assets Impairment loss on intangible assets Reversal of impairment loss on intangible assets Warranty expenses Finance income Finance costs Equity in income of equity method accounted investees, net Other income Other expenses F-10 Note 2016 2017 2018 W 931,508 1,937,052 (179,443) 23 9,18 10,18 12,20 8 384,725 2,643,445 378,126 (250,508) 161,897 220,962 (14,637) 7,466 1,610 204,123 (19) — 75 138 — 166,691 (58,748) 187,931 (8,339) (15,546) 15,777 4,956,677 395,580 2,791,883 422,693 (187,558) 174,919 198,241 (101,227) 20,030 — 206,127 144 (308) 30 1,809 (35) 251,131 (202,591) 142,591 (9,560) (16,812) 1,870 6,026,009 88,077 3,123,659 430,906 (84,643) 138,452 179,880 (6,620) 15,048 43,601 313,180 (1,155) (239) — 82 (348) 234,928 (101,313) 173,975 (700) (3,310) 593 4,364,610 LG DISPLAY CO., LTD. AND SUBSIDIARIES Consolidated Statements of Cash Flows, Continued For the years ended December 31, 2016, 2017 and 2018 (In millions of won) Changes in Trade accounts and notes receivable Other accounts receivable Inventories Other current assets Other non-current assets Trade accounts and notes payable Other accounts payable Accrued expenses Provisions Other current liabilities Defined benefit liabilities, net Long-term advances received Other non-current liabilities Cash generated from operating activities Income taxes paid Interests received Interests paid Net cash provided by operating activities F-11 Note 2016 2017 2018 W (553,756) 484,448 62,981 (98,435) 126,616 (126,256) (114,977) 66,930 (16,431) (160,462) 17,272 (276,459) — 21,641 3,905,341 (187,816) 48,911 (125,530) W 3,640,906 (3,004) (262,106) 180,844 (119,002) 113,590 106,930 181,509 (210,973) (585) (261,966) 1,020,470 5,974 7,262,138 (416,794) 55,340 (136,483) 6,764,201 1,306,118 (56,870) (763,081) (249,968) (61,164) 267,358 (111,053) (194,394) (217,984) 78,849 (224,335) 948,276 24,510 5,110,872 (486,549) 71,819 (212,019) 4,484,123 LG DISPLAY CO., LTD. AND SUBSIDIARIES Consolidated Statements of Cash Flows, Continued For the years ended December 31, 2016, 2017 and 2018 (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 financial assets at fair value through profit or loss Proceeds from disposal of financial assets at fair value through other comprehensive income Acquisition of available-for-sale financial assets Proceeds from disposal of available-for-sale financial assets 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 Receipt 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 Proceeds from disposal of emission rights Net cash used in investing activities F-12 Note 2016 2017 2018 W 59,820 3,293,398 (2,684,810) (1,500) — (859) 507 — 29,745 (3,735,948) 278,067 (405,167) 261 6,393 4,008 (2,132) 8,202 (32,498) 2,436 (9,105) — 8,639 2,206,148 (1,803,718) — — (273) 917 (20,309) 13,128 (6,592,435) 160,252 (454,448) 1,674 1,859 2,592 — 1,118 (13,930) 4,272 (2,648) 6,090 W (3,189,182) (6,481,072) 5,272 1,454,561 (775,239) (431) 6 — — (14,732) 4,527 (7,942,210) 142,088 (480,607) 960 1,210 2,026 (7,700) 15,968 (36,580) 4,136 (58,794) 10,200 (7,675,339) LG DISPLAY CO., LTD. AND SUBSIDIARIES Consolidated Statements of Cash Flows, Continued For the years ended December 31, 2016, 2017 and 2018 (In millions of won) Cash flows from financing activities: Proceeds from short-term borrowings Repayments of short-term borrowings Proceeds from issuance of bonds Proceeds from long-term borrowings Repayments of long-term borrowings Repayments of current portion of long-term borrowings and bonds Capital contribution from non-controlling interests Subsidiaries’ dividends distributed to non-controlling interests Dividends paid Net cash provided by 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 27 2016 2017 2018 W 107,345 — 597,573 1,667,060 (347,693) (1,520,287) — (17,143) (178,908) 307,947 759,671 751,662 47,363 W 1,558,696 — (105,864) 497,959 1,195,415 — (544,731) 4,300 (5,929) (178,908) 862,242 1,145,371 1,558,696 (101,507) 2,602,560 552,164 (552,884) 828,169 3,882,958 — (1,859,098) 331,603 (51,085) (178,908) 2,952,919 (238,297) 2,602,560 759 2,365,022 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 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, 2018, 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, Poland and Vietnam. 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, 2018, 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, 2018, 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, 2018, there are 20,890,926 ADSs outstanding. F-14 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 1. Reporting Entity, Continued (b) Consolidated Subsidiaries as of December 31, 2018 (In millions) Subsidiaries LG Display America, Inc. LG Display Germany GmbH LG Display Japan Co., Ltd. LG Display Taiwan Co., Ltd. LG Display Nanjing Co., Ltd. LG Display Shanghai Co., Ltd. Percentage of ownership 100% Fiscal year end December 31 100% December 31 Location San Jose, U.S.A. Eschborn, Germany Tokyo, Japan 100% December 31 Taipei, Taiwan 100% December 31 Nanjing, China 100% December 31 Date of incorporation September 24, 1999 November 5, 1999 October 12, 1999 April 12, 1999 July 15, 2002 Shanghai, China 100% December 31 January 16, 2003 Business Sell Display products Sell Display products Sell Display products Sell Display products Manufacture Display products Sell Display products Capital stocks USD 411 EUR 1 JPY 95 NTD 116 CNY 3,020 CNY 4 PLN 511 LG Display Poland Sp. z o.o. Wroclaw, Poland LG Display Guangzhou Co., Ltd. Guangzhou, China 100% December 31 September 6, 2005 Manufacture Display products 100% December 31 June 30, 2006 Manufacture Display products CNY 1,655 LG Display Shenzhen Co., Ltd. LG Display Singapore Pte. Ltd. L&T Display Technology (Fujian) Limited Shenzhen, China 100% December 31 August 28, 2007 Singapore 100% December 31 January 12, 2009 Sell Display products Sell Display products CNY 4 USD 1.1 51% December 31 January 5, 2010 Manufacture and CNY 116 Fujian, China LG Display Yantai Co., Ltd. Yantai, China Nanumnuri Co., Ltd. Gumi, South Korea LG Display (China) Co., Ltd. Guangzhou, China 100% December 31 100% December 31 70% December 31 Unified Innovative Technology, LLC Wilmington, U.S.A. 100% December 31 LG Display Guangzhou Trading Co., Ltd. Guangzhou, China 100% December 31 F-15 sell LCD module and LCD monitor sets Manufacture Display products Janitorial services April 19, 2010 March 21, 2012 December 10, 2012 Manufacture and sell Display products March 12, 2014 April 28, 2015 Manage intellectual property Sell Display products CNY 1,008 KRW 800 CNY 8,232 USD 9 CNY 1.2 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 1. Reporting Entity, Continued (b) Consolidated Subsidiaries as of December 31, 2018, Continued (In millions) Subsidiaries Location Percentage of ownership Fiscal year end Date of incorporation Business Capital stocks Global OLED Technology, LLC Herndon, U.S.A. 100% December 31 December 18, 2009 LG Display Vietnam Haiphong Co., Ltd.(*1) Haiphong Vietnam 100% December 31 Suzhou Lehui Display Co., Ltd. Suzhou, China 100% December 31 LG DISPLAY FUND I LLC(*2) Wilmington, U.S.A. 100% December 31 May 5, 2016 July 1, 2016 May 1, 2018 July 11, 2018 Manage OLED intellectual property Manufacture Display products Manufacture and sell LCD module and LCD monitor sets Invest in venture business and obtain technologies Manufacture Display products Money market trust USD 138 USD 300 CNY 637 USD 2 CNY 6,517 KRW 24,501 LG Display High-Tech (China) Co., Ltd.(*3) Guangzhou, China Money Market Trust(*4) Seoul, South Korea 69% December 31 100% December 31 — (*1) For the year ended December 31, 2018, the Controlling Company contributed W212,600 million in cash for the capital increase of LG Display Vietnam Haiphong Co., Ltd. (“LGDVN”). (*2) For the year ended December 31, 2018, the Controlling Company established LG DISPLAY FUND I LLC in Wilmington, U.S.A. to invest in venture business and the Controlling Company has a 100% equity interest of this subsidiary. (*3) For the year ended December 31, 2018, the Controlling Company established LG Display High-Tech (China) Co., Ltd. in Guangzhou China to manufacture Display products and the Group has a 69% equity interest of this subsidiary. (*4) For the year ended December 31, 2018, the Controlling Company acquired and disposed interests in Money Market Trust (“MMT”) and the MMT amount as of December 31, 2018 is W24,501 million. W349,977 million, W603,493 million and W90,281 million, respectively, are attributable to the Controlling Company over the distributed dividends from consolidated subsidiaries for the years ended December 31, 2016, 2017 and 2018. F-16 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 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 29, 2019. (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 financial instruments at fair value, financial assets at fair value through profit or loss (“FVTPL”) and financial asset at fair value through other comprehensive income (“FVOCI”), 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. (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: • Financial instruments (note 3(f)) 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(l) and13) Measurement of defined benefit obligations (note 12) Deferred tax assets (note 24) F-17 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies The significant accounting policies followed by the Group in the preparation of its consolidated financial statements are as follows: (a) Changes in Accounting Policies The Group has initially adopted IFRS 9, Financial Instruments, IFRS 15, Revenue from Contracts with Customers, and IFRIC 22, Foreign Currency Transactions and Advance Consideration, from January 1, 2018. The Group has consistently applied the accounting policies to the consolidated financial statements for 2018 and 2017 except for the new amendments effective for annual period beginning January 1, 2018 as mentioned below. (i) IFRS 9, Financial Instruments IFRS 9 set out requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standards replaces IAS 39, Financial Instruments: Recognition and Measurement. The Group has initially adopted IFRS 9, Financial Instruments, from January 1, 2018, and the Group has used an exemption not to restate the consolidated financial statements for prior years with respects to transition requirements. The followings describe the nature and impact on the significant changes in accounting policies from the adoption of IFRS 9. There is no impact on the opening balance of retained earnings at January 1, 2018 resulting from the initial adoption of IFRS 9. Classification and measurement of financial assets and financial liabilities IFRS 9 contains three principal classification categories for financial assets measured at: amortized cost, FVOCI and FVTPL. The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. IFRS 9 eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for sale. IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities. The adoption IFRS 9 has not had a significant effect on the Group’s accounting policies related to financial liabilities and derivative financial instruments. The following table below explains the original measurement categories under IAS 39 and the changes in measurement categories under IFRS 9 for each class of the Group’s financial assets as at January 1, 2018. F-18 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (a) Changes in Accounting Policies, Continued (In millions of won) Financial assets Cash and cash equivalents Deposits Trade receivables Other receivables Debt instrument Equity instrument Convertible bonds Derivatives Others Total financial assets Classification under IAS 39 Classification under IFRS 9 Carrying amount under IAS 39 Carrying amount under IFRS 9 Difference Loans and receivables Loans and receivables Loans and receivables Loans and receivables Available-for-sale Available-for-sale Designated as at FVTPL Designated as at FVTPL Loans and receivables Amortized cost W 2,602,560 2,602,560 Amortized cost 758,089 758,089 Amortized cost 4,325,120 4,325,120 Amortized cost FVOCI-debt instrument Mandatorily at FVTPL Mandatorily at FVTPL Mandatorily at FVTPL Amortized cost 173,565 173,565 162 4,980 1,552 842 162 4,980 1,552 842 79,552 W 7,946,422 79,552 7,946,422 — — — — — — — — — — As of January 1, 2018, there was no financial liabilities measured at FVTPL. Impairment of financial assets IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ (ECL) model. The new impairment model applies to financial assets measured at amortized cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under IFRS 9, credit losses are recognized earlier than under IAS 39. As a result of applying the new impairment model under IFRS 9, as of January 1, 2018, there is no additional allowance for impairments recognized as compared with the impairment model under IAS 39. Hedge Accounting When initially applying IFRS 9, the Group has elected as its accounting policy to continue to apply hedge accounting requirements under IAS 39 and as a result, there is no impact of applying IFRS 9 on the consolidated financial statements as at January 1, 2018. F-19 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (a) Changes in Accounting Policies, Continued (ii) IFRS 15, Revenue from Contracts with Customers IFRS 15, Revenue from contracts with customers, establishes a comprehensive framework for determining whether, how much and when revenue is recognized. 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 has initially adopted IFRS 15, Revenue from contracts with customers, from January 1, 2018. The Group has adopted IFRS 15 using the cumulative effect method with the effect of initially applying this standard recognized at the date of initial application, January 1, 2018. As a result of this change, the refund liability and a new asset for the right to recover returned goods increased by W9,789 million, respectively, as of January 1, 2018. There is no impact on the opening balance of retained earnings at January 1, 2018. (Note 5(d), 13) The effect of the application of IFRS 15 on the Group’s consolidated statement of financial position as of December 31, 2018 is as follows. There is no significant impact on the consolidated statement of comprehensive income and the cash flows for the year ended December 31, 2018. (In millions of won) Categories Current Assets Other current assets Current Liabilities Provisions As reported Adjustments Amounts without adoption of IFRS 15 W 546,048 W 98,254 (7,489) (7,489) 538,559 90,765 (iii) IFRIC 22, Foreign Currency Transactions and Advance Consideration According to the new interpretation, IFRIC 22, Foreign Currency Transactions and Advance Consideration, the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the entity shall determine a date of the transaction for each payment or receipt of advance consideration. There is no significant impact on the consolidated financial statements of the Group. F-20 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (b) 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 IFRS 9. 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. (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. F-21 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (b) Consolidation, Continued (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-22 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (c) Foreign Currency Transaction 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 an investment in equity securities designated as at FVOCI 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 borrowings, 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. (d) 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. F-23 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (e) 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. (f) Financial Instruments (i) Non-derivative financial assets Recognition and initial measurement Trade receivables and debt securities issued are initially recognized when they are originated. All other financial assets or liabilities are recognized in statement of financial position when, and only when, the Group becomes a party to the contractual provisions of the instrument. A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price. Classification and subsequent measurement i) Financial assets: Policy applicable from January 1, 2018 On initial recognition, a financial asset is classified as measured at: amortized cost; FVOCI – debt investment; FVOCI – equity investments; or FVTPL. Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model. A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated at FVTPL: • • it is held within a business model whose objective is to hold assets to collect contractual cash flows; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: • • it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. F-24 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (f) Financial Instruments, Continued On initial recognition of an equity investments that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in OCI. This election is made on an investment-by-investment basis. All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. At initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. ii) Financial assets: business model: Policy applicable from January 1, 2018 The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes: • • • • • the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realizing cash flows through the sale of the assets; how the performance of the portfolio is evaluated and reported to the Group’s management; the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; how managers of the business are compensated – e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity. Transfers of financial asset to third parties in transaction that do not qualify for derecognition are not considered sale for this purpose. A financial assets that are held for trading or are managed and whose performance is evaluated on a fair value basis are measured at FVTPL. iii) Financial assets: Assessment whether contractual cash flows are solely payments of principal and interest: Policy applicable from January 1, 2018 For the purpose of this assessment, “principal” is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and cost (e.g. liquidity risk and administrative costs), as well as profit margin. F-25 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (f) Financial Instruments, Continued In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers. • • • • contingent events that would change the amount or timing of cash flows: terms that may adjust the contractual coupon rate, including variable-rate features; prepayment and extension features; and terms that limit the Group’s claim to cash flows from specified assets (e.g. non-recourse features) A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest or the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract. Additionally, for a financial asset acquired at a discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable additional compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition. iv) Financial assets: Subsequent measurement and gains and losses: Policy applicable from January 1, 2018 Financial assets at FVTPL These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss. Financial assets at amortized cost Debt investments at FVOCI These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss. These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss. F-26 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (f) Financial Instruments, Continued v) Financial assets: Policy applicable before January 1, 2018 The Group has classified financial assets into one of the following categories • • • loans and receivables available-for-sale at FVTPL vi) Financial assets: subsequent measurement, gains and losses: Policy applicable before January 1, 2018 Financial assets at FVTPL Measured at fair value and changes therein, including any interest or dividend income, were recognized in profit or loss. Loans and receivables Measured at amortized cost using the effective interest method. Available-for-sale financial assets Measured at fair value and changes therein, other than impairment losses, interest income and foreign currency differences on debt instruments, were recognized in OCI and accumulated in the fair value reserves. When these assets were derecognized, the gain or loss accumulated in equity was classified to profit or loss. F-27 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (f) Financial Instruments, Continued Derecognition The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, 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, or it transfers or does not retain substantially all the risks and rewards of ownership of a transferred asset, and does not retain control of the transferred asset. If the Group has retained substantially all the risks and rewards of ownership of the transferred asset, the Group continue to recognize the transferred asset. Offset 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. F-28 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (f) 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, 2018, non-derivative financial liabilities comprise borrowings, bonds and others. The Group derecognizes a financial liability when its contractual obligations are discharged, cancelled or expired. (iii) Share capital The Group only issued common stocks and they are classified as equity. Incremental costs directly attributable to the issuance of common stocks are recognized as a deduction from equity, net of tax effects. Capital contributed in excess of par value upon issuance of common stocks is classified as share premium within equity. (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. F-29 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (f) Financial Instruments, Continued 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 anymore 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 host contract is not a financial asset and certain criteria are met. 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. F-30 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (g) 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, 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 2, 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. F-31 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (g) Property, Plant and Equipment, Continued During the year ended December 31, 2018, the Group changed estimated useful lives of the mask and mold which had previously been classified as inventories. Based on the review of the accumulated historical usage information that became available, it is expected that the mask and mold will be used for the period exceeding one year. Accordingly, the Group changed useful lives of Mask and Mold to two years accounted for the change in accounting estimate and reclassified the mask and mold to property, plant and equipment from inventories. As a result of such change, the Group reclassified inventories amounting to W111,456 million at the beginning of January 1, 2018 to property, plant, and equipment. The impact on the depreciation expense of the property, plant and equipment at the beginning of January 1, 2018 and newly acquired property, plant and equipment during the year ended December 31, 2018 are as follows: (In millions of won) Description Increase (decrease) in depreciation expense (h) Borrowing Costs 2018 W(110,373) 2019 58,364 2020 52,009 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. F-32 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (i) 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. (j) 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-33 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (j) 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-34 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (j) 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. (k) Impairment (i) Financial assets Financial instruments and contract assets: Policy applicable from January 1, 2018 The Group recognizes loss allowance for financial assets measured at amortized cost and debt investments at FVOCI at the ‘expected credit loss’ (ECL). The Group recognizes a loss allowance for the life-time expected credit losses except for following, which are measured at 12-month ECLs: • • debt securities that are determined to have low credit risk at the reporting date; and other debt securities and bank securities for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both qualitative and quantitative information and analysis, based on the Group’s historical experience and informed credit assessment including forward-looking information. F-35 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (k) Impairment, Continued Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. 12-month ECLs are the portion of the ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months). The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk. Estimation of expected credit losses: Policy applicable from January 1, 2018 Expected credit losses are a probability-weighted estimate of credit losses (i.e. the present value of all cash shortfalls) over the expected life of the financial instrument. Credit losses are measured using the present value of a cash shortfall (the difference between the contractual cash flows and the expected contractual cash flows). The expected credit losses are discounted using effective interest rate of the financial assets. Credit-impaired financial assets: Policy applicable from January 1, 2018 At each reporting period-end, the Group assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes the following observable data: • • • • significant financial difficulty of the issuer or the borrower; the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise; it is probable that the borrower will enter bankruptcy or other financial reorganization; or the disappearance of an active market for a security because of financial difficulties; Presentation of loss allowance for ECL in the statement of financial position: Policy applicable from January 1, 2018 Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is charged to profit or loss and is recognized in OCI. F-36 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (k) Impairment, Continued Write-off: Policy applicable from January 1, 2018 The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations for recovering a financial asset in its entirety or a portion thereof. The Group assess whether there are reasonable expectations of recovering the contractual cash flows from customers and individually assess the timing and amount of write-off. The Group expects no significant recovery from the amount written-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due. Non-derivative financial assets: Policy applicable before January 1, 2018 Financial assets not classified as at FVTPL were assessed at each reporting date to determine whether there was objective evidence of impairment. Objective evidence that financial assets were impaired included: • • • • • • default or delinquency by a debtor; restructuring of an amount due to the Group on terms that the Group would not consider otherwise indications that a debtor or issuer would enter bankruptcy adverse changes in the payment status of borrowers or issuers; the disappearance of an active market for a security because of financial difficulties observable data indicating that there was measurable decrease in the expected cash flows from a group of financial assets. F-37 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (k) Impairment, Continued For an investment in an equity instrument, objective evidence of impairment include a significant or prolonged decline in its fair value below its cost. The Group considered evidence of impairment for these assets at both collective level and individual asset. All individual significant assets were individually assessed for impairment. Those found not to be impaired were then collectively assessed for any impairment that had been incurred but not yet individually identified. Assets that were not individually significant were collectively assessed for impairment. Collective assessment was carried out by grouping together assets with similar risk characteristics. Financial assets at amortized cost In assessing collective impairment, the Group used historical information on the timing of recoveries and the amount of loss incurred and made an adjustment if current economic and credit conditions were such that the actual losses were likely to be greater or lesser than suggested by historical trends. An impairment loss was calculated as the difference between an asset’s carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses were recognized in profit or loss and reflected in an allowance account. For financial assets such as equity instruments which the carrying amount would be the cost, the impairment loss is the difference between the carrying value and the present value of estimated future cash receipts of a similar financial instruments discounted at current market rate. The impairment loss is recognized as profit and losses and would be not reversed as profit and losses. For the financial assets classified as available-for-sale which its decrease in the fair value has been recognized as other comprehensive income, the loss which has been recognized as other comprehensive income would be reclassified from other comprehensive income to profit and losses less the amount already recognized as profit and losses. If the fair value of an impaired available-for-sale debt security subsequently increased and the increase was related objectively to an event occurring after the impairment loss was recognized, then the impairment loss was reversed through profit or loss. Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available-for-sale were not reversed through profit or loss. Available-for-sale financial assets (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. F-38 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (k) Impairment, Continued 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. (l) Provisions A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. The risks and uncertainties that inevitably surround events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows. The unwinding of the discount is recognized as finance cost. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed. F-39 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (l) Provisions, Continued The Group recognizes a liability for warranty obligations based on the estimated costs expected to be incurred under its basic limited warranty. This warranty covers defective products and is normally applicable for eighteen months from the date of purchase. These liabilities are accrued when product revenues are recognized. Factors that affect the Group’s warranty liability include historical and anticipated rates of warranty claims on those repairs and cost per claim to satisfy the Group’s warranty obligation. Warranty costs primarily include raw materials and labor costs. As these factors are impacted by actual experience and future expectations, management periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Accrued warranty obligations are included in the current and non-current provisions. Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources, are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. (m) Non-current Assets Held for Sale Non-current assets, or disposal groups comprising assets and liabilities, are classified as held-for-sale if it is highly probable that they will be recovered primarily from sale rather than through continuing use. In order to be classified as held for sale, the asset (or disposal group) is available for immediate sale in its present condition and its sale is highly probable. The assets (or disposal groups) that are classified as non-current assets held for sale are measured at the lower of their carrying amount and fair value less costs to sell on initial classification. The Group recognizes an impairment loss for any subsequent decrease in fair value of the asset (or disposal group) for which an impairment loss was recognized on initial classification as held-for-sale and a gain for any subsequent increase in fair value in profit or losses, up to the cumulative impairment loss previously recognized. The Group does not depreciate a non-current asset while it is classified as held for sale or while it is part of a disposal group classified as held for sale. (n) 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-40 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (n) 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. (v) Termination benefits The Group recognizes expense for termination benefits at the earlier of the date when the entity can no longer withdraw the offer of those benefits and when the entity recognizes costs for a restructuring that is within the scope of IAS 37 and involves the payment of termination benefits. If the termination benefits are not expected to be settled wholly before twelve months after the end of the annual reporting period, the Group measures the termination benefit with present value of future cash payments. F-41 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (o) Revenue from contracts with customers 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. The Group has initially applied IFRS 15 from January 1, 2018 and recognized revenue according to the 5 stage revenue recognition model (①Identifying the contract (cid:74)② Identifying performance obligation (cid:74)③ Determining transaction price (cid:74)④ Allocating the transaction price to performance obligation (cid:74)⑤ Recognition of revenue at performance of obligation). The Group generates revenue primarily from sales of display panels to customer. Product revenue is recognized when the customer obtains control over the products, which typically occurs upon shipment or delivery depending on the terms of the contracts with the customers. The Group includes return option in the sales contract of display panels to its customers thus the consideration received from the customer is subject to change. The Group has recognized the expected return amount of gross revenue as warranty provision until previous financial year. After applying the IFRS 15 “Revenue from contracts with customers”, the Group estimates an amount of variable consideration by using the expected value method which the Group expects to better predict the amount of consideration. The Group includes in the transaction price some or all of an amount of variable consideration estimated only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The Group recognizes a refund liability and an asset for its right to recover products from customers if the Group receives consideration from a customer and expects to refund some or all of that consideration to the customer. 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. (p) 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 17 to these consolidated financial statements. (q) Finance Income and Finance Costs Finance income comprises interest income on funds invested (including debt instruments measured at FVOCI), dividend income, gains on the disposal of debt instruments measured at FVOCI, 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, gain and losses from financial assets measured 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. F-42 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (r) 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. (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. (s) Earnings Per Share The Controlling Company 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 stocks outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of common stocks outstanding, adjusted for the effects of all dilutive potential common stocks such as convertible bonds and others. F-43 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (t) 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, 2018, and the Group has not early adopted them. (i) IFRS 16, Leases IFRS 16, Leases, issued on January 13, 2016 is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted. IFRS 16 replaces existing leases 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. IFRS 16, Leases introduces a single, on-balance sheet lease 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 recognition exemptions for short-term leases and leases of low value items. Lessor accounting remains similar to the current standard – i.e lessors continue to classify leases as finance or operating leases. Previously, the Group recognized operating lease expense on a straight-line basis over the term of the lease. The nature of expenses related to those leases will now change because the Group will recognize a depreciation charge for right-of-use assets and interest expense on lease liabilities. No significant impact is expected for the Group’s finance lease. A lessee may apply the IFRS 16 to its leases either: • • Retrospectively to each prior reporting period presented Retrospectively with the cumulative effect of initially applying the Standard recognized at the date of initial application F-44 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 3. Summary of Significant Accounting Policies, Continued (t) New Standards and Amendments Not Yet Adopted, Continued A lessee shall apply the election consistently to all of its lease in which it is a lessee. The Group will apply IFRS 16 initially on January 1, 2019, using the modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognized as an adjustment to the opening balance of retained earnings at January 1, 2019, with no restatement of comparative information. A lessee may use various practical expedients when applying IRFS 16 retrospectively to leases previously classified as operating leases applying IAS 17. Based on the Group’s assessment on the impact of the adoption, the right-of-use assets and lease liabilities increase as of January 1, 2019 and the overall impact on its consolidated financial statements are not significant as it accounts less than 1% of the Group’s total assets. (ii) Other standards The following amended standards and interpretations are not expected to have a significant impact on the Group’s financial statements. • • • • • IFRIC 23, Uncertainty over Tax Treatments IFRS 9, Prepayment Features with Negative Compensation (Amendments to IFRS 9) IAS 28, Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) IAS 19, Plan Amendment, Curtailment or Settlement (Amendments to IAS 19) Amendments to References to Conceptual Framework in IFRS Standards. F-45 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 4. Cash and Cash Equivalents and Deposits in Banks Cash and cash equivalents and deposits in banks as of December 31, 2017 and December 31, 2018 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, 2017 December 31, 2018 W 2,602,560 2,365,022 W W 685,238 72,840 758,078 4,318 74,082 78,400 11 W W 3,360,649 11 2,443,433 (*) Restricted cash includes mutual growth fund to aid LG Group’s second and third-tier suppliers, pledge to enforce investment plans according to the receipt of subsidies from Gumi city and Gyeongsangbuk- do and others. 5. Receivables and Other Assets (a) Trade accounts and notes receivable as of December 31, 2017 and December 31, 2018 are as follows: (In millions of won) Trade, net Due from related parties December 31, 2017 W 3,275,902 1,049,218 W 4,325,120 December 31, 2018 2,305,368 523,795 2,829,163 (b) Other accounts receivable as of December 31, 2017 and December 31, 2018 are as follows: (In millions of won) Current assets Non-trade receivable, net Accrued income Non-current assets Long-term non-trade receivable December 31, 2017 December 31, 2018 W 150,554 14,273 164,827 W 8,738 173,565 W 159,238 10,075 169,313 11,448 180,761 Due from related parties included in other accounts receivable, as of December 31, 2017 and 2018 are W10,821 million and W39,092 million, respectively. F-46 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 5. Receivables and Other Assets, Continued (c) The aging of trade accounts and notes receivable, and other accounts receivable as of December 31, 2017 and December 31, 2018 are as follows: (In millions of won) Not past due Past due 1-15 days Past due 16-30 days Past due 31-60 days Past due more than 60 days (In millions of won) Not past due Past due 1-15 days Past due 16-30 days Past due 31-60 days Past due more than 60 days December 31, 2017 Book value Impairment loss Trade accounts and notes receivable W 4,323,465 2,652 631 — 4 W 4,326,752 Other accounts receivable 173,493 488 65 208 622 174,876 Trade accounts and notes receivable Other accounts receivable (1,631) (1) — — — (1,632) (905) (3) (1) (2) (400) (1,311) December 31, 2018 Book value Impairment loss Trade accounts and notes receivable W 2,807,598 21,558 454 30 — W 2,829,640 Other accounts receivable 177,689 3,148 441 96 668 182,042 Trade accounts and notes receivable Other accounts receivable (473) (4) — — — (477) (816) (26) (4) (1) (434) (1,281) The movement in the allowance for impairment in respect of trade accounts and notes receivable and other accounts receivable for the years ended December 31, 2016, 2017 and 2018 are 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 Trade accounts and notes receivable 2018 2016 W 1,507 1,632 (1,155) 477 2017 1,488 144 1,632 W 1,488 (19) Other accounts receivable 2016 W 618 498 W 1,116 2017 1,116 195 1,311 2018 1,311 (30) 1,281 F-47 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 5. Receivables and Other Assets, Continued (d) Other assets as of December 31, 2017 and December 31, 2018 are as follows: (In millions of won) Current assets Advance payments Prepaid expenses Value added tax refundable Emission rights Right to recover returned goods(*) Non-current assets Long-term prepaid expenses December 31, 2017 December 31, 2018 W W W 7,973 83,626 148,351 1,978 — 241,928 394,759 13,259 89,110 436,190 — 7,489 546,048 381,983 (*) As a result from the initial application of IFRS 15, the Group recognized an asset for right to recover goods returned by the customer. F-48 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 6. Other Financial Assets (a) Other financial assets as of December 31, 2017 are as follows: (In millions of won) Current assets Available-for-sale financial assets Debt instrument Government bonds Deposits Short-term loans Non-current assets Financial asset at fair value through profit or loss Available-for-sale financial assets Debt instrument Government bonds Equity instrument Intellectual Discovery, Ltd. Kyulux, Inc. ARCH Venture Fund Vill, LP. Deposits Long-term loans Derivatives(*) December 31, 2017 W W W W W W W W 6 10,480 16,766 27,252 1,552 156 729 1,968 2,283 4,980 19,898 32,408 842 59,836 (*) Represents interest rate swap contracts related to borrowings with variable interest rate. F-49 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 6. Other Financial Assets, Continued (b) Other financial assets as of December 31, 2018 are as follows: (In millions of won) Current assets Financial asset at fair value through profit or loss Derivatives(*) Financial asset at fair value through other comprehensive December 31, 2018 W 13,059 income Debt instrument Government bonds Financial asset carried at amortized cost Deposits Short-term loans Non-current assets Financial asset at fair value through profit or loss Equity instrument Intellectual Discovery, Ltd. Kyulux, Inc. Fineeva Co., Ltd. ARCH Venture Fund Vill, L.P. Convertible bonds Financial asset at fair value through other comprehensive income Debt instrument Government bonds Financial asset carried at amortized cost Deposits Long-term loans W W W W W W W W W 106 17,020 16,116 46,301 4,598 2,460 286 6,337 13,681 1,327 55 74,103 55,048 144,214 (*) Represents exchange rate swap contracts related to foreign currency denominated borrowings and bonds. Other financial assets of related parties as of December 31, 2017 and 2018 are W2,750 million and W2,000 million, respectively. F-50 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 7. Inventories Inventories at the reporting date are as follows: (In millions of won) Finished goods Work-in-process Raw materials Supplies December 31, 2017 W 965,643 748,592 344,997 290,852 W 2,350,084 December 31, 2018 1,084,297 856,388 554,720 195,798 2,691,203 For the years ended December 31, 2016, 2017 and 2018, the amount of inventories recognized as cost of sales and 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 2016 W 22,754,270 204,123 2017 22,424,661 206,127 2018 21,251,305 313,180 There were no significant reversals of inventory write-downs recognized during 2016, 2017 and 2018. F-51 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 8. Investments in Equity Accounted Investees (a) Associates at the reporting date are as follows: (In millions of won) Associates Paju Electric Glass Co., Ltd. Location Paju, South Korea Fiscal year end December 31 Date of incorporation January 2005 INVENIA Co., Ltd. Seongnam, South Korea December 31 January 2001 WooRee E&L Co., Ltd.(*1) Ansan, South Korea December 31 June 2008 LB Gemini New Growth Fund No. 16(*2) Seoul, South Korea December 31 December 2009 YAS Co., Ltd. Paju, South Korea December 31 April 2002 AVATEC Co., Ltd. Daegu, South Korea December 31 August 2000 Arctic Sentinel, Inc. Los Angeles, U.S.A. March 31 June 2008 Business Manufacture electric glass for FPDs 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 and manufacture deposition equipment for OLEDs Process and sell electric glass for FPDs Develop and manufacture tablet for kids F-52 2017 2018 Percentage of ownership Carrying amount Percentage of ownership Carrying amount 40% W 46,511 40% W 47,823 13 14 31 2,887 7,270 13 14 4,166 4,746 5,910 — — 15 15,888 15 16,308 17 23,732 17 23,441 10 — 10 — LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 8. Investments in Equity Accounted Investees, Continued (In millions of won) Associates CYNORA GmbH(*3) Location Bruchsal, Germany Fiscal year end December 31 Date of incorporation March 2003 Material Science Co., Ltd.(*4) Seoul, South Korea December 31 January 2014 Nanosys Inc. (*5) Milpitas, U.S.A. December 31 July 2001 2017 2018 Percentage of ownership 14% Carrying amount W 20,309 Percentage of ownership Carrying amount 14% W 8,668 — — 10 3,346 — — 4 5,491 Business Develop organic emitting materials for displays and lighting devices Develop, manufacture, and sell materials for display Develop, manufacture, and sell materials for display Although the Controlling Company’s share interests in INVENIA Co., Ltd., WooRee E&L Co., Ltd., YAS Co., Ltd., AVATEC Co., Ltd., Arctic Sentinel, Inc., Cynora GmbH, Material Science Co., Ltd. and Nanosys Inc. are below 20% as of December 31, 2018, the Controlling Company is able to exercise significant influence through its right to appoint a director to the board of directors of each investee. Accordingly, the investments in these investees have been accounted for using the equity method. W 122,507 W 113,989 F-53 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 8. Investments in Equity Accounted Investees, Continued (*1) The Controlling Company recognized a reversal of impairment loss of W802 million as finance income for the difference between the carrying amount and the recoverable amount of investments in WooRee E&L Co., Ltd. (*2) In 2018, the LB Gemini New Growth Fund No.16 (“the Fund”) which the Controlling Company was a member of a limited partnership, was approved to be dissolve at the general meeting and completed liquidation. In 2018, the Controlling Company received W1,545 million in cash from the Fund and recognized W385 million for the difference between the amount received and the carrying amount as finance cost. (*3) In 2018, the Controlling Company determined investments in CYNORA GmbH irrecoverable and accordingly recognized an impairment loss of W11,641 million as finance cost for the difference between the carrying amount and the recoverable amount of investments in CYNORA GmbH. (*4) In March 2018, the Controlling Company invested W4,000 million and acquired 10,767 shares of common stock with voting rights in Material Science Co., Ltd. In 2018, the Controlling Company assessed that the recoverability of the investment is uncertain. Accordingly, the Controlling Company recognized an impairment loss of W671 million as finance cost for the difference between the carrying amount and the recoverable amount of investments in Material Science Co., Ltd. (*5) In May 2018, the Controlling Company invested W10,732 million and acquired 5,699,954 shares of preferred stock with voting rights in Nanosys Inc. In 2018, the Controlling Company recognized an impairment loss of W5,085 million as finance cost for the difference between the carrying amount and the recoverable amount of investments in Nanosys Inc. As of December 31, 2018, the market value for the Controlling Company’s investments in INVENIA Co., Ltd., WooRee E&L Co., Ltd., YAS Co., Ltd., and AVATEC Co., Ltd., all of which are listed in KOSDAQ, are W8,850 million, W4,746 million, W31,200 million and W14,151 million, respectively. Dividends received from equity method investees for the years ended December 31, 2016, 2017 and 2018 amounted to W59,820 million, W8,639 million and W5,272 million, respectively. F-54 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 8. Investments in Equity Accounted Investees, Continued (b) Summary of financial information of the significant associate as of December 31, 2017 and 2018 and for the years ended December 31, 2016, 2017 and 2018 are 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 December 31, 2017 W 193,584 146,702 46,882 77,174 71,973 5,201 December 31, 2018 194,021 128,788 65,233 72,686 66,797 5,889 2016 W549,559 21,082 16,477 37,559 2017 408,846 12,327 (9,366) 2,961 2018 384,144 12,744 2,612 15,356 (c) Reconciliation from financial information of the significant associate to its carrying value in the consolidated financial statements as of December 31, 2017 and 2018 is as follows: (i) As of December 31, 2017 (In millions of won) Company Paju Electric Glass Co., Ltd. (ii) As of December 31, 2018 (In millions of won) Company Paju Electric Glass Co., Ltd. Net asset W 116,410 Ownership interest 40% Net asset W 121,335 Ownership interest 40% F-55 Net asset (applying ownership interest) 46,564 Net asset (applying ownership interest) 48,534 Goodwill — Intra-group transaction (53) Book value 46,511 Goodwill — Intra-group transaction (711) Book value 47,823 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 8. Investments in Equity Accounted Investees, Continued (d) Book value of other associates, in aggregate, as of December 31, 2017 and 2018 is as follows: (i) As of December 31, 2017 (In millions of won) Other associates (ii) As of December 31, 2018 (In millions of won) Other associates Book value W 75,996 Book value W 66,166 F-56 Net profit of associates (applying ownership interest) Other comprehensive income Total comprehensive income Profit for the year 3,943 5,093 9,036 Net profit (loss) of associates (applying ownership interest) Other comprehensive income (loss) Total comprehensive income (loss) Profit (loss) for the year (3,739) (988) (4,727) LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 8. Investments in Equity Accounted Investees, Continued (e) Changes in investments in associates accounted for using the equity method for the years ended December 31, 2017 and 2018 are as follows: (In millions of won) Company Associates (In millions of won) Company Associates Paju Electric Glass Co., Ltd. Others January 1 Acquisition/ Disposal Dividends received Equity income on investments Other comprehensive income (loss) Other gain (loss) December 31 2017 W 52,750 119,933 W 172,683 — (48,209) (48,209) (8,109) (530) (8,639) 5,617 3,943 9,560 (3,747) 5,093 1,346 — (4,234) (4,234) 46,511 75,996 122,507 January 1 Acquisition/ Disposal Dividends received Equity income (loss) on investments Other comprehensive income (loss) Other gain (loss) December 31 2018 Paju Electric Glass Co., Ltd. W 46,511 75,996 Others W 122,507 — 12,592 12,592 (4,172) (1,100) (5,272) 4,439 (3,739) 700 1,045 (988) 57 — (16,595) (16,595) 47,823 66,166 113,989 F-57 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 9. Property, Plant and Equipment (a) Changes in property, plant and equipment for the year ended December 31, 2017 are as follows: (In millions of won) Acquisition cost as of January 1, 2017 W 461,484 Accumulated depreciation as of Land Buildings and structures 6,284,778 Machinery and equipment 37,472,177 Furniture and fixtures 775,682 Construction- in-progress (*1) 2,981,964 Others 202,306 Total 48,178,391 — (2,397,967) (32,947,359) (651,424) — (146,251) (36,143,001) January 1, 2017 Accumulated impairment loss as of January 1, 2017 — W 461,484 — — (1,042) Book value as of January 1, 2017 Additions Depreciation Disposals 69 Others(*2) — Effect of movements in exchange rates Government grants received — Book value as of December 31, 2017 W 460,511 Acquisition cost as of December 31, (1,651) (2,290) 3,885,160 — (295,045) (7,206) 339,640 (63,222) (548) 4,522,528 — (2,416,202) (75,275) 3,825,155 (140,306) (3,150) 3,858,779 5,712,750 — 124,258 — (66,963) (52) 87,186 (3,087) — 141,342 — 2,981,964 7,272,476 — — (4,270,210) (14,213) 1,839 5,971,856 — 56,055 — (13,673) (3,133) 18,160 (687) — 56,722 (3,941) 12,031,449 7,272,476 (2,791,883) (86,708) — (221,515) (1,859) 16,201,960 2017 W 460,511 6,539,506 38,901,158 772,824 5,971,856 205,475 52,851,330 Accumulated depreciation as of December 31, 2017 Accumulated impairment loss as of December 31, 2017 W W — (2,678,970) (33,186,118) (631,482) — (148,753) (36,645,323) — (1,757) (2,290) — — — (4,047) (*1) As of December 31, 2017, construction-in-progress mainly relates to construction of manufacturing facilities. (*2) Others are mainly amounts transferred from construction-in-progress. F-58 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 9. Property, Plant and Equipment, Continued (b) Changes in property, plant and equipment for the year ended December 31, 2018 are as follows: (In millions of won) Acquisition cost as of January 1, 2018 W 460,511 Accumulated depreciation as of Land Buildings and structures 6,539,506 Machinery and equipment 38,901,158 Furniture and fixtures 772,824 Construction- in-progress (*1) 5,971,856 Others 205,475 Total 52,851,330 January 1, 2018 Accumulated impairment loss as of January 1, 2018 Book value as of January 1, 2018 Additions Depreciation Disposals Impairment loss Others(*2) Effect of movements in exchange rates Government grants received Reclassification to assets — (2,678,970) (33,186,118) (631,482) — (148,753) (36,645,323) — W 460,511 — — (15) — 1,332 (1,757) (2,290) 3,858,779 — (318,311) (161) — 55,430 5,712,750 — (2,568,335) (112,752) (25,711) 1,959,645 — 141,342 — (67,274) (311) — 68,177 — 56,722 — — 5,971,856 8,605,551 — — (17,890) (169,739) (2,971) — (2,357,412) 380,278 (4,047) 16,201,960 8,605,551 (3,123,659) (116,210) (43,601) 107,450 — — 9,809 — 14,520 (1,029) 359 — 15,010 (181) 312 — 40,010 (1,210) held-for-sale — Book value as of December 31, 2018 W 461,828 Acquisition cost as of December 31, (69,758) (1) (37) 3,535,788 4,979,087 142,256 — 12,216,934 (365) (70,161) 264,237 21,600,130 2018 W 461,828 6,528,939 39,825,070 834,628 12,234,824 633,220 60,518,509 Accumulated depreciation as of December 31, 2018 Accumulated impairment loss as of December 31, 2018 W W — (2,991,445) (34,817,982) (692,372) — (368,893) (38,870,782) — (1,706) (28,001) — (17,890) — (47,597) (*1) As of December 31, 2018, construction-in-progress mainly relates to construction of manufacturing facilities. (*2) Others are mainly amounts transferred from construction-in-progress. (c) Capitalized borrowing costs and capitalization rate for the years ended December 31, 2016, 2017 and 2018 are as follows: (In millions of won) Capitalized borrowing costs Capitalization rate 2016 W 16,909 2017 47,686 2018 146,607 2.91% 1.92% 2.80% F-59 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 10. Intangible Assets (a) Changes in intangible assets for the year ended December 31, 2017 are as follows: (In millions of won) Acquisition cost as of January 1, 2017 Accumulated amortization as Intellectual property rights Software Member- ships Development costs Construction- in-progress (software) Customer relationships Technology Good-will(*2) Others (*3) Total W 904,664 806,835 51,564 1,433,791 18,738 59,176 11,074 110,072 13,077 3,408,991 of January 1, 2017 (618,398) (661,063) — (1,177,451) Accumulated impairment loss as of January 1, 2017 Book value as of January 1, — — (10,011) — — — (26,678) (7,382) — (13,071) (2,504,043) — — — — (10,011) 2017 W 286,266 145,772 41,553 256,340 18,738 32,498 3,692 110,072 6 894,937 Additions - internally developed Additions - external purchases Amortization(*1) Disposals Impairment loss Reversal of impairment loss Transfer from construction-in-progress Effect of movements in exchange rates Book value as of December 31, — — — 336,207 — — — 22,746 (42,195) (4) — — — (78,939) — — — — 98,989 4,819 — (1,392) (1,809) 35 — (19,847) (4,332) (6) — (295,787) — — — — — 108,761 — — — — (98,989) 2,423 — (4,659) — — — (1,108) — — — — — — — — — — — — — — (3,218) (3,806) — 336,207 — (5) — — 136,326 (422,693) (1,396) (1,809) — — — 35 (3,218) (25,568) 2017 W 246,966 161,490 43,200 296,760 30,933 27,839 2,584 103,048 1 912,821 Acquisition cost as of December 31, 2017 Accumulated amortization as W 895,721 898,278 54,985 1,769,998 30,933 59,176 11,074 103,048 13,077 3,836,290 of December 31, 2017 W (648,755) (736,788) — (1,473,238) Accumulated impairment loss as of December 31, 2017 W — — (11,785) — — — (31,337) (8,490) — (13,076) (2,911,684) — — — — (11,785) F-60 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 10. Intangible Assets, Continued (*1) The Group has classified the amortization as manufacturing overhead costs, selling expenses, administrative expenses and research and development expenses. (*2) As of December 31, 2017, the book value of goodwill decreased by W3,218 million as the Group completed the fair value measurement of land use right, acquired from business combination during the year ended December 31, 2016. (*3) Others mainly consist of rights to use electricity and gas supply facilities. F-61 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 10. Intangible Assets, Continued (b) Changes in intangible assets for the year ended December 31, 2018 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 (*2) Total Acquisition cost as of January 1, 2018 W 895,721 898,278 54,985 1,769,998 30,933 59,176 11,074 103,048 13,077 3,836,290 Accumulated amortization as of January 1, 2018 (648,755) (736,788) — (1,473,238) Accumulated impairment loss as of January 1, 2018 Book value as of January 1, — — (11,785) — — — (31,337) (8,490) — (13,076) (2,911,684) — — — — (11,785) 2018 W 246,966 161,490 43,200 296,760 30,933 27,839 2,584 103,048 1 912,821 Additions - internally developed Additions - external purchases Amortization(*1) Disposals Impairment loss Reversal of impairment loss Transfer from construction-in-progress Effect of movements in exchange rates Book value as of December 31, — — — 372,835 — — — 24,596 (43,437) — — — — (80,159) — — — — 95,028 1,896 1,240 2,844 — (721) (82) 348 449 1 — (302,685) — — — — — 100,820 — — — — (95,028) 238 — (3,517) — — — — — — (1,107) — — — — — — — — — — — — 1,263 — 372,835 — (1) — — — — — 128,260 (430,906) (721) (82) 348 449 4,638 2018 W 230,021 177,599 46,039 366,910 36,963 24,322 1,477 104,311 — 987,642 Acquisition cost as of December 31, 2018 Accumulated amortization as of W 926,969 992,139 57,560 2,142,832 36,963 59,176 11,075 104,311 13,077 4,344,102 December 31, 2018 W (696,948) (814,540) — (1,775,922) Accumulated impairment loss as of December 31, 2018 W — — (11,521) — — — (34,854) (9,598) — (13,077) (3,344,939) — — — — (11,521) (*1) The Group has classified the amortization as manufacturing overhead costs, selling expenses, administrative expenses and research and development expenses. (*2) Others mainly consist of rights to use electricity and gas supply facilities. F-62 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 10. Intangible Assets, Continued (c) Development of new projects are divided into research activities and development activities. Expenditures on research activities are recognized in profit or loss and qualifying development expenditures are capitalized, respectively. (d) Development costs as of December 31, 2017 and 2018 are as follows: (i) As of December 31, 2017 (In millions of won and in years) Classification Development completed Development in process (ii) As of December 31, 2018 (In millions of won and in years) Classification Development completed Development in process Product Product Mobile TV Notebook Others Sub-Total Mobile TV Notebook Others Sub-Total Total Mobile TV Notebook Others Sub-Total Mobile TV Notebook Others Sub-Total Total F-63 Remaining Useful life 0.6 0.6 0.5 0.4 — — — — Remaining Useful life 0.5 0.5 0.6 0.5 — — — — Book Value W 79,372 36,038 14,311 12,444 W 142,165 W 117,222 30,670 2,356 4,347 W 154,595 W 296,760 Book Value W 108,467 28,001 4,458 9,475 W 150,401 W 144,679 55,580 9,639 6,611 W 216,509 W 366,910 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 11. Financial Liabilities (a) Financial liabilities at the reporting date are as follows: (In millions of won) Current Current portion of long-term borrowings and bonds Non-current Won denominated borrowings Foreign currency denominated borrowings Bonds Derivatives(*) December 31, 2017 December 31, 2018 W 1,452,926 W 1,452,926 W 1,251,258 1,392,931 1,506,003 — W 4,150,192 1,553,907 1,553,907 2,700,608 2,531,663 1,772,599 25,758 7,030,628 (*) Represents exchange rate swap contracts related to foreign currency denominated borrowings and bonds. (b) 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, 2018 (%) 3-year Korean Treasury Bond rate – 2.75 — CD rate (91days) + 0.64, 2.43~3.25 F-64 December 31, 2017 December 31, 2018 W 1,922 200,000 1,259 — 1,250,000 2,850,000 (200,664) W 1,251,258 (150,651) 2,700,608 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 11. Financial Liabilities, Continued (c) Foreign currency denominated long-term borrowings at the reporting date are as follows: (In millions of won and USD, CNY) Lender The Export-Import Bank of Korea China Construction Bank and others Foreign currency equivalent Less current portion of long- term borrowings Annual interest rate as of December 31, 2018 (%)(*) 3ML+0.75~1.70 USD: 3ML+0.80~2.00 CNY: PBOC*(0.90~1.05) December 31, 2017 December 31, 2018 W 755,337 955,975 1,385,097 1,500 3,263 USD CNY W (747,503) W 1,392,931 2,419,286 2,262 5,198 USD CNY (843,598) 2,531,663 (*) ML represents Month LIBOR (London Inter-Bank Offered Rates) and PBOC represents People’s Bank of China. (d) Details of bonds issued and outstanding at the reporting date are as follows: (In millions of won) Won denominated bonds(*1) Publicly issued bonds Privately issued bonds Less discount on bonds Less current portion Foreign currency denominated bond(*2) Publicly issued bond Foreign currency equivalent Less discount on bonds Maturity April 2019 ~ February 2023 May 2025 ~ May 2033 Annual interest rate as of December 31, 2018 (%) December 31, 2017 December 31, 2018 1.80~3.45 W 2,015,000 1,900,000 3.25~4.25 — (4,238) (504,759) W 1,506,003 110,000 (3,949) (559,658) 1,446,393 November 2021 3.88 W — 335,430 — — W — W 1,506,003 USD 300 (9,224) 326,206 1,772,599 (*1) Principal of the won denominated bonds is to be repaid at maturity and interests are paid quarterly. (*2) Principal of the foreign currency denominated bond is to be repaid at maturity and interests are paid semi-annually. F-65 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 12. 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, 2017 December 31, 2018 W 1,562,424 (1,466,977) W 95,447 1,595,423 (1,550,063) 45,360 (b) Changes in the present value of the defined benefit obligations for the years ended December 31, 2017 and 2018 are as follows: (In millions of won) Opening defined benefit obligations Current service cost Past service cost Interest cost Remeasurements (before tax) Benefit payments Transfers from (to) related parties Curtailment of plans Others Closing defined benefit obligations 2017 W 1,401,396 195,850 — 40,844 (114) (76,011) 534 — (75) W 1,562,424 2018 1,562,424 204,668 (25,749) 49,145 (27,885) (88,562) (4,217) (74,459) 58 1,595,423 Weighted average remaining maturity of defined benefit obligations as of December 31, 2017 and 2018 are 14.0 years and 14.4 years, respectively. (c) Changes in fair value of plan assets for the years ended December 31, 2017 and 2018 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 Curtailment of plans Closing fair value of plan assets F-66 2017 W 1,258,409 38,453 (16,374) 250,998 (64,509) — W 1,466,977 2018 1,466,977 48,184 (22,195) 212,224 (80,690) (74,437) 1,550,063 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 12. Employee Benefits, Continued (d) Plan assets at the reporting date are as follows: (In millions of won) Guaranteed deposits in banks December 31, 2017 W 1,466,977 December 31, 2018 1,550,063 As of December 31, 2018, the Controlling Company maintains the plan assets with Mirae Asset Securities Co., Ltd., KB Insurance Co., Ltd. and others. The Group’s estimated additional contribution to the plan assets for the year ending December 31, 2019 is W63,688 million. (e) Expenses recognized in profit or loss for the years ended December 31, 2016, 2017 and 2018 are as follows: (In millions of won) Current service cost Past service cost Net interest cost 2016 W 210,682 — 10,280 W 220,962 2017 195,850 — 2,391 198,241 2018 204,668 (25,749) 961 179,880 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 2016 W 177,652 12,513 16,486 14,311 W 220,962 2017 158,418 11,114 16,287 12,422 198,241 2018 134,879 11,045 19,472 14,484 179,880 (f) Remeasurements of net defined benefit liabilities (assets) included in other comprehensive income (loss) for the years ended December 31, 2016, 2017 and 2018 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-67 2016 W (281,902) 2017 (163,950) 2018 (170,510) 70,258 (4,605) 95,429 (5,736) 200 155,546 (37,594) W (163,950) (48,890) (7,702) 56,706 (16,374) 441 (15,819) 9,259 (170,510) 56,225 (15,379) (12,961) (22,195) 20 5,710 (1,169) (165,969) LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 12. 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 2017 4.7% 3.2% 2018 4.3% 2.8% 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, 2017 December 31, 2018 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 following amounts as of December 31, 2018: (In millions of won) Discount rate for defined benefit obligations Expected rate of salary increase Defined benefit obligation 1% increase W (199,750) 236,002 1% decrease 241,608 (199,363) F-68 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 13. Provisions Changes in provisions for the year ended December 31, 2017 are as follows: (In millions of won) Balance of January 1, 2017 Additions Usage and reclassification Balance at December 31, 2017 Current Non-current Litigation and claims W — 43 — W 43 W 43 W — Warranties(*) 62,462 251,131 (211,143) 102,450 74,138 28,312 Others 1,665 170 — 1,835 1,835 — Total 64,127 251,344 (211,143) 104,328 76,016 28,312 Changes in provisions for the year ended December 31, 2018 are as follows: (In millions of won) Balance at January 1, 2018 Adjustment from adoption of IFRS 15 Additions (reversals) Usage Balance at December 31, 2018 Current Non-current Litigations and claims W 43 — — (43) W — W — W — Warranties(*) 102,450 — 234,928 (215,290) 122,088 89,324 32,764 Others 1,835 9,789 (2,694) — 8,930 8,930 — Total 104,328 9,789 232,234 (215,333) 131,018 98,254 32,764 (*) 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. F-69 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 14. Other Liabilities Other liabilities at the reporting date are as follows: (In millions of won) Current liabilities Withholdings Unearned revenues Security deposits Non-current liabilities Long-term accrued expenses Long-term other accounts payable Long-term unearned revenue Security deposits December 31, 2017 December 31, 2018 W W W W 63,766 12,225 — 75,991 70,561 2 — — 70,563 F-70 30,970 43,841 165 74,976 80,817 3,103 2,116 10,790 96,826 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 15. Contingent Liabilities and Commitments (a) Legal Proceedings Anti-trust litigations Argos Limited and affiliated companies (“Argos”) filed a Notice of Claim against the Controlling Company and LG Display Taiwan Co., Ltd. in the High Court of Justice in London alleging infringement of Treaty on the Functioning of the European Union and Agreement on the European Economic Area. The Controlling Company and LG Display Taiwan Co., Ltd. reached a settlement with Argos in November 2018. Others The Group is defending against various claims 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, 2018. F-71 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 15. Contingent Liabilities and Commitments, Continued (b) Commitments Factoring and securitization of accounts receivable The Controlling Company has agreements with Korea Development Bank and several other banks for accounts receivable sales negotiating facilities of up to an aggregate of USD1,670 million (W1,867,227 million) in connection with the Controlling Company’s export sales transactions with its subsidiaries. As of December 31, 2018, no short-term borrowings were outstanding in connection with these agreements. In connection with all of the contracts mentioned above, 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 KRW USD Shinhan Bank Sumitomo Mitsui Banking Corporation USD Bank of Tokyo-Mitsubishi UFJ BNP Paribas ING Bank Contractual amount 90,000 25 20 KRW 130,000 40 USD 200 USD 150 USD USD 435 KRW 220,000 KRW equivalent 90,000 27,953 22,362 130,000 44,724 223,620 167,715 706,374 Contractual amount — USD 12 — KRW 36,089 40 USD 12 USD 31 USD USD 95 KRW 36,089 KRW equivalent — 13,286 — 36,089 44,516 13,630 35,554 143,075 Subsidiaries LG Display Singapore Pte. Ltd. Standard Chartered Bank USD 300 335,430 USD 209 233,364 LG Display Taiwan Co., Ltd. BNP Paribas Australia and New Zealand Banking USD LG Display Germany GmbH Citibank LG Display America, Inc. LG Display Japan Co., Ltd. LG Display Guangzhou Trading Co., Ltd. Group Ltd Taishin International Bank USD USD USD USD BNP Paribas USD Hongkong & Shanghai Banking Corp. Standard Chartered Bank USD Sumitomo Mitsui Banking Corporation USD Sumitomo Mitsui Banking Corporation USD Industrial and Commercial Bank of 52 70 289 160 75 400 600 80 20 58,141 USD 9 10,063 78,267 323,131 178,896 83,858 447,240 670,860 89,448 22,362 USD USD USD USD USD USD 52 86 — 75 230 515 67 — 58,142 96,157 — 83,767 257,164 575,823 74,915 — China — 2,046 USD USD 2,481 KRD 220,000 — 2,287,633 2,994,007 — USD 1,243 USD 1,338 KRW 36,089 — 1,389,395 1,532,470 F-72 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 15. Contingent Liabilities and Commitments, Continued (b) 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, 2018, the Controlling Company has agreements in relation to the opening of letters of credit up to USD 30 million (W33,543 million) with KEB Hana Bank, USD 80 million (W89,448 million) with Bank of China and USD 50 million (W55,905 million) with Sumitomo Mitsui Banking Corporation. Payment guarantees The Controlling Company obtained payment guarantees amounting to USD 1,538 million (W1,719,079 million) from KEB Hana Bank and others for advance received related to the long-term supply agreements. The Controlling Company also obtained payment guarantees amounting to USD 306 million (W341,929 million) from Korea Development Bank for foreign currency denominated bonds and USD 8.5 million (W9,504 million) from Shinhan Bank for value added tax payments in Poland. LG Display (China) Co., Ltd. and other subsidiaries are provided with payment guarantees from the China Construction Bank and other various banks amounting to CNY1,711 million (W278,401 million), JPY 900 million (W9,119 million), EUR 2.5 million (W3,198 million), VND 40,498 million (W1,952 million), USD 0.5 million (W559 million), PLN 0.1 million (W30 million) and, respectively, for their local tax payments and utility payments. License agreements As of December 31, 2018, 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. Long-term supply agreement As of December 31, 2018, in connection with long-term supply agreements with customers, the Controlling Company recognized USD 1,475 million (W1,649,198 million) in advances received. The advances received will be offset against outstanding accounts receivable balances after a given period of time, as well as those arising from the supply of products thereafter. The Controlling Company received payment guarantees amounting to USD 1,538 million (W1,719,079 million) from KEB Hana Bank and other various banks relating to advance received. Pledged Assets Regarding the secured bank loan amounting to USD 240 million (W268,093 million) from China Construction Bank, as of December 31, 2018, the Group provided its property, plant and equipment and others with carrying amount of W146,262 million as pledged assets. F-73 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 16. 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, 2017 and December 31, 2018, the number of issued common shares is 357,815,700. There have been no changes in the capital stock from January 1, 2016 to December 31, 2018. (b) Reserves Reserves consist mainly of the following: Translation reserve The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations. Other comprehensive income (loss) from associates The other comprehensive income (loss) from associates comprises the amount related to change in equity of investments in equity accounted investees. Reserves at the reporting date are as follows: (In millions of won) Foreign currency translation differences for foreign operations W (259,749) (272,474) December 31, 2017 December 31, 2018 Other comprehensive loss from associates (excluding remeasurements of net defined benefit liabilities) F-74 (28,531) (288,280) W (28,494) (300,968) LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 16. Capital and Reserves, Continued (b) Reserves, Continued The movement in reserves for the years ended December 31, 2016, 2017 and 2018 are as follows: (In millions of won) January 1, 2016 Change in reserves December 31, 2016 January 1, 2017 Change in reserves December 31, 2017 January 1, 2018 Change in reserves December 31, 2018 Net change in fair value of available-for- sale financial assets 58 W (58) — — — — — — — F-75 Foreign currency translation differences for foreign operations 18,196 (77,238) (59,042) (59,042) (200,707) (259,749) (259,749) (12,725) (272,474) Other comprehensive income (loss) from associates (excluding remeasurements) (24,020) (5,416) (29,436) (29,436) 905 (28,531) (28,531) 37 (28,494) Total (5,766) (82,712) (88,478) (88,478) (199,802) (288,280) (288,280) (12,688) (300,968) LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 17. 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, 2016, 2017 and 2018. (a) Revenue by geography (In millions of won) Region Domestic Foreign China Asia (excluding China) United States Europe (excluding Poland) Poland 2016 W 1,825,191 2017 1,996,183 2018 1,589,452 18,367,767 2,148,676 2,053,317 983,672 1,125,451 24,678,883 W 26,504,074 18,090,974 2,383,390 2,724,714 1,433,126 1,161,829 25,794,033 27,790,216 15,242,533 2,481,112 2,462,918 1,496,138 1,064,418 22,747,119 24,336,571 Sales to Company A and Company B amount to W7,262,255 million and W5,171,354 million, respectively, for the year ended December 31, 2018 (2016: W9,122,385 million and W5,808,630 million, 2017: W9,027,165 million and W6,511,961 million). The Group’s top ten end-brand customers together accounted for 77% of sales for the year ended December 31, 2018 (2016: 82%, 2017: 81%). (b) Non-current assets by geography (In millions of won) Region Domestic Foreign China Others December 31, 2017 December 31, 2018 Property, plant and equipment W 12,487,111 2,929,739 785,110 W 3,714,849 W 16,201,960 F-76 Intangible assets 731,373 17,244 164,204 181,448 912,821 Property, plant and equipment 14,984,688 5,049,216 1,566,226 6,615,442 21,600,130 Intangible assets 816,808 12,332 158,502 170,834 987,642 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 17. Geographic and Other Information, Continued (c) Revenue by product and services (In millions of won) Product Panels for: Televisions Desktop monitors Tablet products Notebook computers Mobile and others 2016 2017 2018 W 10,132,520 4,035,195 2,695,808 2,383,532 7,257,019 W 26,504,074 11,717,982 4,393,482 2,369,634 2,244,088 7,065,030 27,790,216 9,727,260 4,040,025 1,990,766 2,836,888 5,741,632 24,336,571 18. The Nature of Expenses and Others The classification of expenses by nature for the years ended December 31, 2016, 2017 and 2018 are as follows: (In millions of won) Changes in inventories Purchases of raw materials, merchandise and others Depreciation and amortization Outsourcing fees Labor costs Supplies and others Utility Fees and commissions Shipping costs Advertising Warranty expenses Travel Taxes and dues Others 2016 W 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 W 25,239,987 2017 (62,299) 2018 (341,120) 13,548,848 3,214,576 771,697 3,258,427 1,239,915 865,347 692,125 249,820 236,440 251,131 92,976 91,806 919,051 25,369,860 12,863,812 3,554,565 825,393 3,222,110 1,010,352 899,075 722,134 240,288 112,400 234,928 104,009 123,210 757,673 24,328,829 Total expenses consist of cost of sales, selling, administrative, research and development expenses and other non-operating expenses, excluding foreign exchange differences. F-77 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 19. Selling and Administrative Expenses Details of selling and administrative expenses for the years ended December 31, 2016, 2017, and 2018 are as follows: (In millions of won) Salaries(*1) Expenses related to defined benefit plans(*2) Other employee benefits Shipping costs Fees and commissions Depreciation Taxes and dues Advertising Warranty expenses Rent Insurance Travel Training Others 2016 W 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 W 1,305,393 2017 327,288 27,401 94,740 214,866 197,070 138,711 46,317 236,440 251,131 26,711 12,459 27,879 16,311 73,181 1,690,505 2018 500,610 30,724 90,348 200,434 221,050 174,575 65,621 112,400 234,928 26,691 11,584 24,659 13,309 65,343 1,772,276 (*1) The expense related to retirement allowance for the year ended December 31, 2018 is W184,941 million. (*2) The expense related to the define contribution plan for the year ended December 31, 2018 is W111 million. 20. Personnel Expenses Details of personnel expenses for the years ended December 31, 2016, 2017 and 2018 are as follows: (In millions of won) Salaries and wages Other employee benefits Contributions to National Pension plan Expenses related to defined benefit plan and defined contribution plan(*) 2016 W 2,418,869 459,730 69,588 2017 2,704,217 483,704 73,061 2018 2,720,014 500,169 75,668 220,962 W 3,169,149 198,241 3,459,223 180,737 3,476,588 (*) The expense related to the define contribution plan for the year ended December 31, 2018 is W857 million. F-78 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 21. Other Income and Other Expenses (a) Details of other income for the years ended December 31, 2016, 2017 and 2018 are as follows: (In millions of won) Foreign currency gain Gain on disposal of property, plant and equipment Gain on disposal of intangible assets Reversal of impairment loss on intangible assets Rental income Others 2016 W 1,543,909 14,637 — — 5,152 28,103 W 1,591,801 2017 969,425 101,227 308 35 2,212 8,539 1,081,746 2018 970,306 6,620 239 348 3,584 23,040 1,004,037 (b) Details of other expenses for the years ended December 31, 2016, 2017 and 2018 are as follows: (In millions of won) Foreign currency loss Other bad debt expenses 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-79 2016 W 1,420,502 — 7,466 1,610 75 138 22,221 15,819 W 1,467,831 2017 1,189,193 1,798 20,030 — 30 1,809 17,152 443 1,230,455 2018 1,030,084 4 15,048 43,601 — 82 7,698 18,716 1,115,233 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 22. Finance Income and Finance Costs (a) Finance income and costs recognized in profit or loss for the years ended December 31, 2016, 2017 and 2018 are as follows: (In millions of won) Finance income Interest income Foreign currency gain Gain on disposal of investments in equity accounted investees Reversal of impairment loss of investments in equity accounted investees Gain on transaction of derivatives Gain on valuation of derivatives Gain on disposal of available-for-sale financial assets Gain on valuation of financial asset at fair value through profit or loss Finance costs Interest expense Foreign currency loss Loss on disposal of investments in equity accounted investees Loss on impairment of investments in equity accounted investees Loss on impairment of available-for-sale financial assets Loss on valuation of financial asset at fair value through profit or loss Loss on sale of trade accounts and notes receivable Loss on transaction of derivatives Loss on valuation of derivatives Others 2016 2017 2018 W 42,079 81,554 11,367 — 4,427 244 — — W 139,671 W 113,285 132,320 5,643 6,137 3,757 118 2,886 334 472 1,234 W 266,186 60,106 210,890 3,669 — 3,106 1,070 8 170 279,019 90,538 126,642 42,112 4,234 1,948 — 784 514 — 2,084 268,856 69,020 160,989 — 802 2,075 13,059 — 8,186 254,131 80,517 184,309 595 17,397 — 225 13,361 49 26,600 3,840 326,893 F-80 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 22. Finance Income and Finance Costs, Continued (b) Finance income and costs recognized in other comprehensive income or loss for the years ended December 31, 2016, 2017 and 2018 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 2016 W(90,503) (77) 19 2017 (231,738) — — 2018 (19,987) — — (loss) after tax W(90,561) (231,738) (19,987) 23. Income Taxes (a) Details of income tax expense (benefit) for the years ended December 31, 2016, 2017 and 2018 are as follows: (In millions of won) Current tax expense Current year Adjustment for prior years Deferred tax expense (benefit) Origination and reversal of temporary differences Change in unrecognized deferred tax assets Income tax expense F-81 2016 2017 2018 361,237 — W 361,237 512,123 — 512,123 167,394 82,225 249,619 (49,190) 72,678 23,488 W 384,725 (104,835) (11,708) (116,543) 395,580 (226,360) 64,818 (161,542) 88,077 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 23. Income Taxes, Continued (b) Income taxes recognized directly in other comprehensive income or loss for the years ended December 31, 2016, 2017, and 2018 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 (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-82 Before tax W (77) 155,346 (90,503) (5,216) W 59,550 Before tax W — (16,260) (231,738) 1,346 W (246,652) Before tax W — 5,690 (19,987) 57 W (14,240) 2016 Tax benefit (expense) 19 (37,594) — — (37,575) 2017 Tax benefit — 9,259 — — 9,259 2018 Tax expense — (1,169) — — (1,169) Net of tax (58) 117,752 (90,503) (5,216) 21,975 Net of tax — (7,001) (231,738) 1,346 (237,393) Net of tax — 4,521 (19,987) 57 (15,409) LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 23. Income Taxes, Continued (c) Reconciliation of the actual effective tax rate for the years ended December 31, 2016, 2017, and 2018 is as follows: (In millions of won) Profit (loss) before income 2016 2017 2018 taxes W 1,316,233 2,332,632 (91,366) Income tax using the statutory tax rate of each country Non-deductible expenses Tax credits Change in unrecognized deferred tax assets Adjustment for prior years Effect on change in tax rate (Note 24(d)) Others Actual income tax expense Actual effective tax rate 33.49% 3.39% (11.45%) 440,753 44,606 (150,663) 28.54% 2.72% (10.64%) 665,733 63,416 (248,191) (33.60%) (40.07%) 117.27% 30,695 36,608 (107,146) 5.52% — 72,678 — (0.50%) — (11,708) — (70.94%) (90.00%) 64,818 82,225 — (1.72%) W — (22,649) 384,725 29.23% (3.10%) (0.06%) 15.68% 5.25% (72,376) (1,294) 395,580 16.96% (14,326) (4,797) 88,077 (*) (*) Actual effective tax rate are not calculated due to loss before income tax. 24. Deferred Tax Assets and Liabilities (a) Unrecognized deferred tax liabilities As of December 31, 2017 and 2018, in relation to the temporary differences on investments in subsidiaries amounting to W103,946 million and W85,368 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 which are primarily related to Korea is dependent on whether sufficient taxable income will be generated prior to their expiration. As of December 31, 2018, the Controlling Company recognized deferred tax assets of W308,393 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, 2019 December 31, 2020 December 31, 2021 December 31, 2022 W29,770 — 58,391 91,862 F-83 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 24. Deferred Tax Assets and Liabilities, Continued (c) Deferred tax assets and liabilities are attributable to the following: (In millions of won) Assets Liabilities Total December, 31, 2017 December, 31, 2018 December, 31, 2017 December, 31, 2018 December, 31, 2017 December, 31, 2018 Other accounts receivable, net Inventories, net Defined benefit liabilities, net Unrealized gain or loss and others Accrued expenses Property, plant and equipment Intangible assets Provisions Gain or loss on foreign currency translation, net Others Tax loss carryforwards Tax credit carryforwards Deferred tax assets (liabilities) W — 34,550 2,375 29,061 183,903 409,928 3,457 27,018 13 27,562 — 268,926 W 986,793 — 60,606 — 13,404 126,072 445,721 3,468 32,468 13 20,850 134,845 308,393 1,145,840 F-84 (1,441) — — — — — (24,646) — — — — — (26,087) (1,013) — — — — (1,495) (14,588) — — (7,665) — — (24,761) (1,441) 34,550 2,375 29,061 183,903 409,928 (21,189) 27,018 13 27,562 — 268,926 960,706 (1,013) 60,606 — 13,404 126,072 444,226 (11,120) 32,468 13 13,185 134,845 308,393 1,121,079 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 24. Deferred Tax Assets and Liabilities, Continued (d) Changes in deferred tax assets and liabilities for the years ended December 31, 2017 and 2018 are as follows: (In millions of won) Other accounts receivable, net Inventories, net Defined benefit liabilities, net Subsidiaries and associates Accrued expenses Property, plant and equipment Intangible assets Provisions Gain or loss on foreign currency translation, net Others Tax loss carryforwards Tax credit carryforwards Deferred tax assets (liabilities) January 1, 2017 W (1,190) 35,771 10,817 34,777 122,998 338,860 (31,027) 15,051 11 21,435 — 287,400 W 834,903 Profit or loss (251) (1,221) (17,701) (5,716) 60,905 71,068 9,838 11,967 2 6,127 — (18,474) 116,544 Other compre- hensive income (loss) — — 9,259 — — — — — — — — — 9,259 December 31, 2017 (1,441) 34,550 2,375 29,061 183,903 409,928 (21,189) 27,018 13 27,562 — 268,926 960,706 Other compre- hensive income — — (1,169) — — — — — — — — — (1,169) Profit or loss 428 26,056 (1,206) (15,657) (57,831) 34,298 10,069 5,450 — (14,377) 134,845 39,467 161,542 December 31, 2018 (1,013) 60,606 — 13,404 126,072 444,226 (11,120) 32,468 13 13,185 134,845 308,393 1,121,079 Statutory tax rate applicable to the Controlling Company is 24.2% for the year ended December 31, 2017. During the year ended December 31, 2017, certain amendments to corporate income tax rules in Korea were enacted and effective on January 1, 2018 that resulted in application of 27.5% for taxable income in excess of W300,000 million. Deferred taxes as of December 31, 2017 and December 31, 2018 have been measured using the applicable tax rates from the amendment. F-85 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 25. Earnings (Loss) Per Share Attributable to Owners of the Controlling Company (a) Basic earnings (loss) per share for the years ended December 31, 2016, 2017 and 2018 are as follows: (In won and No. of shares) Profit (loss) attributable to owners of the Controlling Company W 906,714,278,688 357,815,700 Weighted-average number of common stocks outstanding 2,534 Earnings (loss) per share W 2016 2017 1,802,756,119,275 357,815,700 5,038 2018 (207,239,484,774) 357,815,700 (579) For the years ended December 31, 2016, 2017 and 2018, there were no events or transactions that resulted in changes in the number of common stocks used for calculating earnings (loss) per share. (b) Diluted earnings (loss) per share for the years ended December 31, 2016, 2017 and 2018 are not calculated since there was no potential common stock. 26. 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. (a) 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. (i) 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 Controlling Company, Korean won (KRW). The currencies in which these transactions primarily are denominated are USD, CNY, 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, USD and CNY. 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. The Group entered into a currency swap contract to hedge currency risk with respect to foreign currency borrowings and bonds. F-86 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 26. Financial Risk Management, Continued (i) Currency Risk, Continued i) Exposure to currency risk The Group’s exposure to foreign currency risk based on notional amounts at the reporting date is as follows: (In millions) December 31, 2017 Cash and cash equivalents Deposits in banks Trade accounts and notes receivable Non-trade receivable Other assets denominated in foreign currencies Trade accounts and notes payable Other accounts payable Borrowings Net exposure (In millions) Cash and cash equivalents Trade accounts and notes receivable Non-trade receivable Other assets denominated in foreign currencies Trade accounts and notes payable Other accounts payable Borrowings Aggregate notional amounts in financial position Currency swap contracts Net exposure USD 1,228 — 3,316 62 1 JPY 152 — 11 1,340 206 (1,345) (285) (1,500) 1,477 (14,898) (14,653) — (27,842) USD 790 2,175 21 33 (863) (928) (2,571) (1,343) 780 (563) JPY 83 7 852 220 (12,501) (20,326) — (31,665) — (31,665) F-87 16 CNY 6,940 TWD EUR 3 PLN 165 750 — — — 1,453 — — — 2 9 — 7 — — (2,843) — — — (11) (2,403) (3,263) — — — 161 1,366 136 596 (8) 14 4 (4) December 31, 2018 TWD EUR 8 121 PLN CNY 5,515 206 1,098 — — — 4 — 3 201 11,157 23 12 108 (2,862) — — — (4,762) (6) (5,198) — — — 225 5,149 — — — — 225 5,149 226 226 (3) 21 21 (4) VND 342,063 — — 13,405 1,882 (102,398) (2,138,370) — (1,883,418) VND 2,070,889 — 23,182 2,782 (355,390) (1,585,130) — 156,333 — 156,333 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 26. Financial Risk Management, Continued (i) Currency Risk, Continued i) Exposure to currency risk, Continued Average exchange rates applied during the reporting periods are as follows: (In won) USD JPY CNY TWD EUR PLN VND Average rate Reporting date spot rate 2016 W 1,159.83 10.67 174.40 35.97 1,283.95 294.41 0.0518 2017 1,131.08 10.09 167.52 37.16 1,277.01 299.98 0.0498 2018 1,100.21 9.96 166.41 36.51 1,298.53 304.87 0.0478 December 31, 2017 1,071.40 9.49 163.65 35.92 1,279.25 306.07 0.0472 December 31, 2018 1,118.10 10.13 162.76 36.58 1,279.16 297.33 0.0482 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, 2017 and 2018, 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, 2017 December 31, 2018 Equity W 50,040 (10,294) 13,212 23 16 2,515 (4,445) Profit or loss 91,238 (9,141) (6,396) 1 594 (120) — Equity (46,136) (12,060) 41,779 413 1,197 3,451 273 Profit or loss 38,725 (10,497) 318 1 390 (236) 273 A stronger won against the above currencies as of December 31, 2017 and 2018 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-88 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 26. Financial Risk Management, Continued (ii) 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, 2017 December 31, 2018 W 3,360,800 (2,962,671) 398,129 W 2,443,583 (5,033,515) (2,589,932) W (2,640,447) (3,525,262) ii) Equity and profit or loss sensitivity analysis for variable rate instruments For the years ended December 31, 2017 and 2018 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, 2017 Variable rate instruments(*) December 31, 2018 Variable rate instruments(*) Equity Profit or loss 1%p increase 1%p decrease 1%p increase 1%p decrease W(17,362) 17,362 (17,362) 17,362 W(25,558) 25,558 (25,558) 25,558 (*) Financial instruments subject to interest rate swap not qualified for hedging are excluded. (iii) 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. F-89 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 26. Financial Risk Management, Continued (iii) Credit risk, Continued In relation to the impairment of financial assets, the Group recognizes expected credit loss and its changes at each reporting date subsequent to initial recognition of financial asset according to an expected credit loss impairment model. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk as of December 31, 2017 and 2018 are as follows: i) As of December 31, 2017 (In millions of won) Cash and cash equivalents Deposits in banks Trade accounts and notes receivable Non-trade receivable 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 F-90 December 31, 2017 W 2,602,560 758,089 4,325,120 150,554 14,273 162 1,552 30,378 16,766 32,408 8,738 842 W 7,941,442 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 26. Financial Risk Management, Continued ii) As of December 31, 2018 (In millions of won) Financial 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 Financial assets at fair value through profit or loss Convertible bonds Derivatives Financial assets at fair value through other comprehensive income Debt instrument December 31, 2018 W 2,365,022 78,411 2,829,163 159,238 10,075 91,123 16,116 55,048 11,448 W 5,615,644 W W 1,327 13,059 14,386 W 161 W 5,630,191 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-91 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 26. Financial Risk Management, Continued (c) 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. The following are the contractual maturities of financial liabilities, including estimated interest payments, as of December 31, 2018. (In millions of won) Non-derivative financial liabilities Secured bank borrowings Unsecured bank borrowings Unsecured bond issues Trade accounts and notes payable Other accounts payable Long-term other accounts payable Security deposits Derivative financial liabilities Derivatives Carrying amount Total 6 months or less 6-12 months 1-2 years 2-5 years Contractual cash flows W 268,093 5,958,427 2,332,257 3,087,461 3,566,629 3,103 10,955 268,190 6,588,502 2,537,553 3,087,461 3,566,629 3,103 10,955 268,190 565,832 291,738 3,087,461 3,565,599 — — — 356,688 328,400 — 1,030 — 165 — 973,297 456,990 — — 2,077 10,790 — 4,169,682 1,320,248 — — 1,026 — W 25,758 W15,252,683 16,027,253 (35,140) (6,742) (6,728) (12,517) (9,153) 7,772,078 679,555 1,430,637 5,481,803 More than 5 years — 523,003 140,177 — — — — — 663,180 It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts. F-92 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 26. Financial Risk Management, Continued (d) 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, 2017 W 14,178,177 14,981,510 3,360,638 5,603,118 December 31, 2018 18,289,464 14,886,246 2,443,422 8,558,777 95% 15% 123% 41% (*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-93 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 26. Financial Risk Management, Continued (e) Determination of fair value (i) Measurement 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. i) Current assets and liabilities The carrying amounts approximate fair value because of the short maturity of these instruments. ii) 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. iii) Investments in equity and debt securities The fair value of marketable financial assets at fair value through profit or loss and at fair value through other comprehensive income is determined by reference to their quoted closing bid price at the reporting date. The fair value of non-marketable instruments is determined using valuation methods. iv) 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-94 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 26. Financial Risk Management, Continued (e) Determination of fair value, Continued (ii) Fair values versus carrying amounts The fair values of financial assets and liabilities, together with the carrying amounts shown in the consolidated statements of financial position as of December 31, 2017 and 2018 are as follows: i) As of December 31, 2017 (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 amortized cost Secured bank borrowings Unsecured bank borrowings Unsecured bond issues Trade accounts and notes payable Other accounts payable Long-term other accounts payable (*) Excluded from disclosures as the carrying amount approximates fair value. F-95 December 31, 2017 Carrying amounts Fair values W 162 1,552 842 W2,602,560 758,089 4,325,120 150,554 14,273 30,378 16,766 32,408 8,738 W 642,172 2,950,184 2,010,762 2,875,090 3,169,937 2 162 1,552 842 (*) (*) (*) (*) (*) (*) (*) (*) (*) 642,172 2,955,399 2,016,086 (*) 3,170,147 (*) LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 26. Financial Risk Management, Continued (e) Determination of fair value, Continued ii) As of December 31, 2018 (In millions of won) Financial 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 Financial assets at fair value through profit or loss Equity instrument Convertible bonds Derivatives Financial assets at fair value through other comprehensive income Debt instrument Financial liabilities at fair value through profit or loss Derivatives Financial liabilities carried at amortized cost Secured bank borrowings Unsecured bank borrowings Unsecured bond issues Trade accounts and notes payable Other accounts payable Long-term other accounts payable Security deposits December 31, 2018 Carrying amounts Fair values W2,365,022 78,411 2,829,163 159,238 10,075 91,123 16,116 55,048 11,448 W 13,681 1,327 13,059 (*) (*) (*) (*) (*) (*) (*) (*) (*) 13,681 1,327 13,059 W 161 161 W 25,758 25,758 W 268,093 5,958,427 2,332,257 3,087,461 3,566,629 3,103 10,955 268,093 6,013,903 2,384,987 (*) (*) (*) (*) (*) Excluded from disclosures as the carrying amount approximates fair value. F-96 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 26. Financial Risk Management, Continued (e) Determination of fair value, 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, 2017 and 2018 are as follows: (In millions of won) December 31, 2017 Available-for-sale financial assets Financial assets at fair value through profit or loss Derivatives (In millions of won) December 31, 2018 Financial assets at fair value through profit or loss Equity instrument Convertible bonds Derivatives Financial asset at fair value through other comprehensive income Debt instrument Financial liabilities at fair value through profit or loss Derivatives F-97 Level 1 Level 2 Level 3 Total W 162 — — — — — — 1,552 842 162 1,552 842 Level 1 Level 2 Level 3 Total W— — — W161 — — — — 13,681 1,327 13,059 13,681 1,327 13,059 — 161 W— — 25,758 25,758 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 26. Financial Risk Management, Continued (e) Determination of fair value, 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, 2017 and December 31, 2018 are as follows: (In millions of won) Classification Liabilities Secured bank borrowings Unsecured bank borrowings Unsecured bond issues Other accounts payable (In millions of won) Classification Liabilities Secured bank borrowings Unsecured bank borrowings Unsecured bond issues December 31, 2017 Level 1 Level 2 Level 3 Valuation technique Input W — — — — — — — — 642,172 Discounted cash flow Discount rate 2,955,399 Discounted cash flow Discount rate 2,016,086 Discounted cash flow Discount rate 3,170,147 Discounted cash flow Discount rate December 31, 2018 Level 1 Level 2 Level 3 Valuation technique Input W — — — — — — 268,093 Discounted cash flow Discount rate 6,013,903 Discounted cash flow Discount rate 2,384,987 Discounted cash flow Discount rate The interest rates applied for determination of the above fair value at the reporting date are as follows: Borrowings, bonds and others December 31, 2017 1.57~2.92% December 31, 2018 2.09~3.37% F-98 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 27. Changes in liabilities arising from financing activities Changesin liabilities arising from financing activities for the year ended December 31, 2018 are as follows: (In millions of won) Short-term borrowings Current portion of long-term borrowings and bonds Long-term borrowings Bonds January 1, 2018 W — 1,452,926 2,644,189 1,506,003 W 5,603,118 Cash flows from financing activities (720) Reclassification — Non-cash transactions Exchange rate effect 720 Effective interest adjustment (1,859,098) 3,882,958 828,169 2,851,309 1,904,888 (1,345,520) (559,368) 54,659 50,644 (4,172) — 101,851 F-99 December 31, 2018 — 1,553,907 5,232,271 1,772,599 8,558,777 — 532 — 1,967 2,499 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 28. Related Parties and Others (a) Related parties Related parties for the periods presented are as follows: Classification Description Associates(*) Entity that has significant influence over the Controlling Company Subsidiaries of the entity that has significant influence over the Paju Electric Glass Co., Ltd. and others LG Electronics Inc. Subsidiaries of LG Electronics Inc. Controlling Company (*) Details of associates are described in note 8. F-100 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 28. Related Parties and Others, Continued (b) 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, 2016, 2017 and 2018 are as follows: (In millions of won) Joint Venture 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 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. 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 W 2,469 — 33 54 — — — — 204,637 17 — 44 — W207,254 — — — — 101 128 265 21,030 — — — — 8,394 29,918 F-101 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, 2016, 2017 and 2018 28. Related Parties and Others, 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 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 W1,580,279 — 23,047 538,175 — 103,158 LG Electronics India Pvt. Ltd. LG Electronics Vietnam Haiphong Co., Ltd. LG Electronics Nanjing New Technology W 75,591 162,893 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. 229,773 127,316 133,903 11,503 47,804 370,966 210,021 709,558 11,919 — — — — — — — — — — — — — — — — 209,878 — — — — — F-102 — — 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, 2016, 2017 and 2018 28. Related Parties and Others, 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. (*2) Represent transactions occurred prior to disposal of the entire investments. F-103 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 28. Related Parties and Others, Continued (In millions of won) Associates and their subsidiaries New Optics Ltd.(*) INVENIA Co., Ltd. AVATEC Co., Ltd. Paju Electric Glass Co., Ltd. Shinbo Electric Co., Ltd.(*) Narenanotech Corporation(*) WooRee E&L Co., Ltd. YAS Co., Ltd. Entity that has significant influence over the Controlling Company LG Electronics Inc. Subsidiaries of the entity that has significant influence over the Controlling Company 2017 Purchase and others Sales and others Dividend income Purchase of raw material and others Acquisition of property, plant and equipment Outsourcing fees Other costs W 1 — — — 15,812 — — — W 15,813 — — 530 8,109 — — — — 8,639 — 1,862 — 380,815 — 279 — 6,347 389,303 — 66,548 — — — 21,727 — 69,243 157,518 4 — 90,785 — — — — — 90,789 6 2,259 720 4,225 21 244 175 2,474 10,124 W1,689,381 — 47,898 906,427 — 109,865 LG Electronics India Pvt. Ltd. LG Electronics Vietnam Haiphong Co., Ltd. W 71,597 205,934 — — — — — 8,892 — — 163 198 F-104 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 28. Related Parties and Others, Continued (In millions of won) 2017 Purchase and others Sales and others Dividend income Purchase of raw material and others Acquisition of property, plant and equipment Outsourcing fees Other costs 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., W 300,785 103,479 228,821 14,836 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. 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. HiEntech Co., Ltd. Hientech (Tianjin) Co., Ltd. LG Electronics S.A. (Pty) Ltd. Others 77,787 230,832 319,772 847,565 13,693 — 1,287,340 14,079 — — — 14,155 857 W 3,731,532 W 5,436,726 — — — — — — — — — — — — — — — — — — 8,639 — — — 199,896 — — — — — — — — 255 — — — 3 200,154 637,355 245 — — — — — — — — 318,978 — — 3,744 6,991 21,838 — 14 360,702 1,424,647 — — — — — — — — — — — — 379 963 430 5,692 — — 186 985 164 1,532 1,926 53 — — — — — — 90,789 2,621 34,432 11,822 25 7,264 68,835 188,824 (*) Represents transactions occurred prior to disposal of the entire investments. F-105 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 28. Related Parties and Others, Continued (In millions of won) Associates and their subsidiaries INVENIA Co., Ltd. AVATEC Co., Ltd. Paju Electric Glass Co., Ltd. WooRee E&L 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 2018 Purchase and others Sales and others Dividend income Purchase of raw material and others Acquisition of property, plant and equipment Outsourcing fees Other costs — — — — — 1,112 W 1,112 30 530 4,172 — — 540 5,272 1,608 — 364,183 58 5,281 — 371,130 58,111 — — — 143,192 — 201,303 — 71,403 — — — — 71,403 896 905 4,411 144 3,391 — 9,747 W1,215,153 — 36,522 1,041,563 — 127,775 LG Electronics India Pvt. Ltd. LG Electronics Vietnam Haiphong Co., Ltd. W 71,798 173,051 — — — — — 4,541 — — 103 166 F-106 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 28. Related Parties and Others, Continued (In millions of won) 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. 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. HiEntech Co., Ltd. Hientech (Tianjin) Co., Ltd. LG Electronics S.A. (Pty) Ltd. LG Electronics Egypt S.A.E. Others 2018 Purchase and others Sales and others Dividend income Purchase of raw material and others Acquisition of property, plant and equipment Outsourcing fees Other costs — — — — — — — — — — — — — — — — — — — 5,272 W 223,524 106,631 192,775 29,267 37,738 131,970 187,844 740,784 12,746 9,100 1,030,414 3,759 — — — 7,244 25,491 5,195 W2,989,331 W4,205,596 F-107 — — — 147,453 — — — — — — — — 330 — — — — 28 147,811 555,463 424 — — — — — — — — 304,365 — — 26,871 22,378 92,900 — — 15 451,494 1,694,360 — — — — — — — — — — — — — — — — — — — 71,403 1,528 2,673 350 39,136 — 1 210 631 330 8,980 2,021 42 7,264 29,215 23,880 20 16 11,480 128,046 265,568 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 28. Related Parties and Others, Continued (c) Trade accounts and notes receivable and payable as of December 31, 2017and 2018 are as follows: (In millions of won) Associates INVENIA Co., Ltd. AVATEC Co., Ltd. Paju Electric Glass Co., Ltd. WooRee E&L Co., Ltd. YAS Co., Ltd. Entity that has significant influence over the Controlling Company LG Electronics Inc. Subsidiaries of the entity that has significant influence over the Controlling Company LG Electronics 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. Trade accounts and notes receivable and others Trade accounts and notes payable and others December 31, 2017 December 31, 2018 December 31, 2017 December 31, 2018 2,375 — — — 375 2,750 W 2,000 — — — — 2,000 18,662 2,949 60,141 61 6,474 88,287 30,179 4,382 60,566 7 6,145 101,279 W 550,335 247,679 257,071 430,677 W 19,091 25,102 407 13,061 55,278 F-108 15,608 22,570 2,885 3,530 13,172 10 80 62,675 — — 62 90 47,382 — — LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 28. Related Parties and Others, Continued (In millions of won) LG Electronics Mexicali, S.A. DE C.V. LG Electronics Mlawa Sp. z o.o. LG Electronics Nanjing New Technology Co., Ltd. LG Electronics Reynosa, S.A. DE C.V. LG Electronics Vietnam Haiphong Co., Ltd. LG Hitachi Water Solutions Co., Ltd. Hientech (Tianjin) Co., Ltd. HiEntech Co., Ltd. LG Electronics India Pvt. Ltd. LG Electronics Egypt S.A.E. LG Electronics Air-Conditioning (Shandong) Co., Ltd. Others Trade accounts and notes receivable and others Trade accounts and notes payable and others December 31, 2017 W 29,440 136,874 December 31, 2018 15,305 70,236 December 31, 2017 — 25 December 31, 2018 — 33 46,373 137,413 36,017 — — — 3,030 — — 7,618 W 509,704 W 1,062,789 F-109 43,463 69,189 25,544 9,100 — — 9,047 10,296 — 5,263 315,208 564,887 699 82 3,917 154,864 5,600 6,679 — 1 — 1,714 236,346 581,704 139 134 — 50,425 16,345 16,816 29 — 17,654 1,246 150,355 682,311 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 28. Related Parties and Others, Continued (d) 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 years ended December 31, 2017 and 2018 are as follows: (In millions of won) Associates New Optics Ltd.(*2) INVENIA Co., Ltd. Narenanotech Corporation(*2) YAS Co., Ltd. Loans(*1) January 1, 2017 W 1,000 833 300 833 W 2,966 Increase — 2,000 — — 2,000 Decrease 125 458 75 458 1,116 December 31, 2017 875 2,375 225 375 3,850 (*1) Loans are presented based on nominal amounts. (*2) Excluded from related parties due to disposal of equity investments during the year ended December 31, 2017. (In millions of won) Associates INVENIA Co., Ltd. YAS Co., Ltd. Loans(*) January 1, 2018 W 2,375 375 W 2,750 Increase — — — Decrease 375 375 750 December 31, 2018 2,000 — 2,000 (*) Loans are presented based on nominal amounts. F-110 LG DISPLAY CO., LTD. AND SUBSIDIARIES Notes to the Consolidated Financial Statements For the years ended December 31, 2016, 2017 and 2018 28. Related Parties and Others, Continued (e) Key management personnel compensation Compensation costs of key management for the years ended December 31, 2016, 2017 and 2018 are as follows: (In millions of won) Short-term benefits Expenses related to the defined benefit plan 2016 W2,323 897 W3,220 2017 3,724 488 4,212 2018 2,622 794 3,416 Key management refers to the registered directors who have significant control and responsibilities over the Controlling Company’s operations and business. 29. Supplemental Cash Flow Information Supplemental cash flow information for the years ended December 31, 2016, 2017 and 2018 is as follows: (In millions of won) Non-cash investing and financing activities: Changes in other accounts payable arising from the purchase of 2016 2017 2018 property, plant and equipment W809,406 632,355 516,734 30. Non-current Assets Held for Sale The Group plans to dispose a part of tangible assets of LG Display Poland Sp. z o.o. based on the management’s approval and began effort to sell the disposal group. The Group expects to complete the sale within the first half of 2019. (1) impairment loss of disposal group Fair value less costs to sell of disposal group is expected to exceed the carrying amount and no impairment loss is recognized to the non-current assets held for sale. (2) assets of disposal group Non-current assets as held for sale at the reporting date is as follows: (In millions of won) Property, plant and equipment December 31, 2018 70,161 W F-111 ARTICLES OF INCORPORATION OF LG DISPLAY CO., LTD. Exhibit 1.1 Amended on August 11, 2000 Amended on March 21, 2001 Amended on March 19, 2004 Amended on May 4, 2004 Amended on June 23, 2004 Amended on March 23, 2005 Amended on February 28, 2007 Amended on February 29, 2008 Amended on March 13, 2009 Amended on March 12, 2010 Amended on March 11, 2011 Amended on March 8, 2013 Amended on March 15, 2019 CHAPTER I. GENERAL PROVISIONS Article 1. (Trade Name) The name of the company shall be “EL-GI DISPLAY CHUSIK HOESA” (hereinafter referred to as the “Company”), which shall be written in English as “LG Display Co., Ltd.” Article 2. (Objectives) The objectives of the Company shall be as follows: (1) research, development, manufacturing, sales and marketing of displays and other related products utilizing the technologies, including, without limitation, thin-film transistor liquid crystal display (“TFT-LCD”), low-temperature poly-silicon liquid crystal display (“LTPS-LCD”) and organic light emitting display (“OLED”) technologies; (2) (3) (4) (5) research, development, manufacturing, sales and marketing of products utilizing solar energy; research, development, manufacturing, sales and marketing of certain components and equipments required for the development and manufacturing of the products and technologies described in the foregoing Paragraphs; real estate transaction and lease business; and any business and/or investment ancillary or incidental to the foregoing business. Article 3. (Location) The Company shall have its principal office in Seoul, Korea, and may establish branch offices, sub-branch offices, and other offices and factories at places necessary by a resolution of the Board of Directors. Article 4. (Duration of Company) The Company will continuously exist unless it is dissolved by a resolution of a General Meeting of Shareholders. Article 5. (Method of Public Notice) Public notice by the Company shall be given on the Company’s website (http://www.lgdisplay.com). However, if public notice cannot be given on the Company’s website due to technical difficulties or other unavoidable circumstances, it shall be published in “Maeil Business Newspaper” and “The Chosun Ilbo”, both daily newspapers of general circulation published in Seoul. CHAPTER II. SHARES Article 6. (Total Number of Authorized Shares) The total number of shares authorized to be issued by the Company shall be 500,000,000 shares. 2 Article 7. (Face Value) The face value per share to be issued by the Company is 5,000 Won. Article 8. (Electronic Registration of Shares and Rights that would otherwise be Indicated on Certificates of Preemptive Rights) In lieu of issuing share certificates or certificates of preemptive rights, the Company shall electronically register the shares and rights that would otherwise be indicated on certificates of preemptive rights on an electronic registry of an electronic registration institution. Article 9. (Classes of Shares) All shares to be issued by the Company shall be common shares in non-bearer form and preferred shares in non-bearer form. Article 9-2. (Number and Characteristics of Preferred Shares) (1) Preferred shares to be issued by the Company shall be non-voting and the number thereof shall be 40,000,000. (2) The dividend on a preferred share shall be not less than one percent (1%) per annum but not more than ten percent (10%) per annum of the par value of the share as determined by the Board of Directors at the time of issuance. (3) In case the dividend ratio of the common shares exceeds that of the preferred shares, the additional dividend on preferred shares shall be declared by participating in distribution of dividend at same ratio of dividend on common shares with respect to such excess, at the time of distribution of dividend on common shares. (4) If dividends on preferred shares for a fiscal year are not paid as prescribed above, such unpaid and accumulated amount shall be preferentially paid to the holders of preferred shares at the time of distribution of dividends for the following fiscal year. 3 (5) Preferred shares may be issued, by a resolution of the Board of Directors at the time of issuance, as convertible to common shares (“convertible preferred shares”). The conversion price shall be determined by the Board of Directors at the time of issuance, and shall not be lower than the par value of the shares nor higher than the issue price of the convertible preferred shares. If a conversion period or a duration of the convertible preferred shares (upon expiration of which convertible preferred shares are automatically converted) is to be set, such period or duration shall be determined by the Board of Directors at the time of issuance, and shall end within one (1) to ten (10) years from the issuance of the convertible preferred shares. With respect to the dividends on the shares issued upon conversion of the convertible preferred shares, the provisions of Article 11 and Article 43-2, Paragraph (4) shall apply mutatis mutandis. (6) Preferred shares may be issued, by a resolution of the Board of Directors at the time of issuance, as redeemable within certain period of time with earnings (“redeemable preferred shares”). The redemption period shall be determined by the Board of Directors at the time of issuance and shall end within one (1) to ten (10) years from the issuance of the redeemable preferred shares. The Board of Directors shall determine the redemption price and the method of redemption, the source of which shall be earnings. (7) Preferred shares may be issued, by a resolution of the Board of Directors at the time of issuance, with any or all of the features set forth above in Paragraphs (5) and (6). (8) (9) If the resolution not to pay the prescribed dividends on preferred shares is adopted at a General Meeting of Shareholders, the preferred shares shall have voting rights, starting with the first General Meeting of Shareholders following the General Meeting of Shareholders at which the resolution not to pay dividends on preferred shares was adopted, until the end of a General Meeting of Shareholders at which a resolution to pay dividends for such preferred shares is adopted. In case the Company issues new shares by rights issue or bonus issue, then the new shares issued with respect to the preferred shares shall be common shares in the case of rights issues and shall be the shares of the same class in the case of bonus issues. Article 10. (Preemptive Rights) (1) The Company may issue additional shares with the resolution of the Board of Directors setting forth the detailed terms of the issue within the authorized share capital. 4 (2) The Company’s shareholders shall have preemptive rights to subscribe to new shares in proportion to their respective shareholding ratios; provided that the names and addresses of such shareholders shall be registered in the Register of Shareholders as of the date designated by the Company in the public notice made two (2) weeks prior thereto. (3) Notwithstanding Paragraph (2) above, the Company may allocate new shares to persons other than existing shareholders of the Company by a resolution of the Board of Directors in any of the following cases, provided that the aggregate number of shares issued pursuant to items 1 through 7 below shall not exceed 20% of the total number of issued and outstanding shares: 1. 2. 3. 4. 5. 6. 7. 8. Where the Company invites or cause underwriters to invite subscriptions for new shares; Where the Company issues new shares through a method of general public offering under Article 165-6 of the Financial Investment Services and Capital Market Act (the “Capital Market Act”); Where the Company allocates new shares to any member of its Employee Stockownership Association pursuant to Article 165-7 of the Capital Market Act or pursuant to the Employee Welfare Basic Act; Where the Company issues new shares by exercise of stock options under Article 340-2 of the Commercial Code; Where the Company issues new shares for the issuance of a depositary receipt (DR) under Article 165-16 of the Capital Market Act; Where the Company issues new shares to corporations, institutional investors or domestic or overseas financial institutions, etc. for the achievement of the company’s operational objectives, such as improvement of financial structure, etc.; or Where the Company issues new shares for the purpose of drawing foreign investment, when it deems necessary for its management; or Where the Company issues new shares through a public offering or cause underwriters to underwrite the new shares and/or DR for the purpose of initial listing on the Korea Exchange and/or the New York Stock Exchange. (4) If shares are not subscribed for as the result of a shareholder waiving or losing his/her pre-emptive right, or if fractional shares result from the allocation of new shares, such shares shall be disposed of in accordance with a resolution of the Board of Directors. (5) The recipient of the new shares shall become a shareholder of the Company the succeeding day of the payment date. 5 Article 10-2 (Stock Options) (1) The Company may grant stock options to its officers and employees (including the officers and employees of its affiliated company as defined in Article 542-3, Paragraph (1) of the Commercial Code; the same shall apply hereinafter) by a special resolution of the General Meeting of Shareholders pursuant to Article 340-2 of the Commercial Code, to the extent of not more than 15% of the total number of issued and outstanding shares; provided, however, that the Company may grant stock options to its officers and employees by a resolution of the Board of Directors to the extent of not more than 1% of the total number of issued and outstanding shares in accordance with the relevant laws and regulations. In this case, the shareholders or the Board of Directors may resolve to grant performance-linked stock options, linked with the Company’s performance or market index. (2) The officers and employees, who have contributed, or have the capacity to contribute, to the establishment, management, overseas sales or technical improvement of the Company, may be granted stock options; provided, however, that those who are prohibited from being granted stock options under the applicable law and regulation may not be granted stock options. (3) The shares to be issued by the Company to its officers or employees by the exercise of their stock options (which shall refer to the shares being the basis for calculation in case the Company pays the difference, either in cash or shares, between the exercise price of stock options and the market price) shall be common shares in non-bearer form. (4) The terms and conditions, including features, exercise price, etc., of stock options shall be determined by a special resolution of the General Meeting of Shareholders or a resolution of the Board of Directors, pursuant to the applicable law and these Articles of Incorporation. The matters that are not set out to be decided by a resolution of the General Meeting of Shareholders or the Board of Directors under the applicable law or these Articles of Incorporation may be determined by the Board of Directors or a committee designated by the Board of Directors. (5) Stock options may be exercised after at least 3 years, but not more than the number of years set by the relevant resolution of the General Meeting of Shareholders or the Board of Directors within 7 years, have elapsed from the date of the relevant resolution of the General Meeting of Shareholders or the Board of Directors. Any person with a stock option may exercise such stock option only if he/she has served the Company for at least two (2) years from the date of the relevant resolution of the General Meeting of Shareholders or the Board of Directors, unless otherwise specified in the relevant law. 6 (6) With respect to distribution of dividends for shares issued upon the exercise of stock options, Article 11 and Article 43-2, Paragraph (4) shall apply mutatis mutandis. (7) The Company may cancel the grant of stock options by a resolution of the Board of Directors in any of the following cases: 1. 2. 3. 4. Where an officer/employee of the Company voluntarily retires or resigns from his/her office after being granted stock options; Where an officer/employee of the Company incurs substantial damages to the Company due to his/her willful misconduct or negligence; Where the Company cannot respond to the exercise of an officer/employee’s stock options due to the Company’s liquidation or dissolution; or Where any cause for cancellation set forth in the stock option agreement occurs. Article 11. (Record Date for Dividends on New Shares) In case the Company issues new shares through rights issues, bonus issues or stock dividends, the new shares shall be deemed to have been issued at the end of the fiscal year immediately prior to the fiscal year during which the new shares are issued for purposes of distribution of annual dividends for such new shares. Article 12. (Suspension of Alteration of Register of Shareholders and Record Date) (1) The Company shall suspend entry of any alterations into its register of shareholders with respect to shareholders’ rights from January 1 to January 15 of each year. (2) The Company shall allow the shareholders who are registered in its register of shareholders as of December 31 of each year, to exercise their rights at an ordinary General Meeting of Shareholders held concerning the relevant fiscal year. 7 (3) When convening an extraordinary General Meeting of Shareholders or in any other necessary cases, in order to determine the person who shall exercise the right as shareholder, the Company may suspend entry of any alteration in the register of shareholders for a period not exceeding three (3) months as determined by a resolution of the Board of Directors or it may deem any shareholder whose name appears in the register of shareholders on a specified date, as determined by a resolution of the Board of Directors, to be the shareholder who shall be entitled to exercise such rights. The Company should give public notice thereof two weeks in advance. Article 13. (Transfer Agent) (1) The Company shall retain a transfer agent for shares. (2) The transfer agent, the location where its services are rendered and the scope of a transfer agent’s duties shall be determined by a resolution of the Board of Directors of the Company and shall be publicly notified. (3) The Company shall keep the shareholders registry, or a duplicate thereof, at a location where a transfer agent renders its services. In addition, the Company shall cause the transfer agent to handle activities such as the electronic registration of shares, management of the shareholders registry and other related businesses. (4) Those activities of a transfer agent set forth in Paragraph (3) above shall be performed in accordance with the Regulations for Securities Agency Business of the Transfer Agent. Article 14. [Deleted] Article 15. [Deleted] 8 Article 15-2. (Issuance of Convertible Bonds) CHAPTER II-2. BONDS (1) The Company may issue convertible bonds to persons other than its shareholders by a resolution of the Board of Directors in any of the following cases, to the extent that the aggregate par value amount of the convertible bonds (plus any previously issued and outstanding convertible bonds and bonds with warrants) does not exceed two trillion five hundred billion Won (2.5 trillion Won): 1. 2. 3. 4. Where the Company issues convertible bonds through a general public offering; Where the Company issues convertible bonds for the purpose of drawing foreign investment, when it deems necessary for its management; Where the Company issues convertible bonds to a domestic or overseas financial institution for an urgent need for funds; or Where the Company issues convertible bonds in foreign countries in accordance with Article 165-16 of the Capital Market Act. (2) The convertible bonds referred to in Paragraph (1) above may be issued by the Board of Directors with partial conversion rights under which the right of the bondholders to demand conversion may be limited to a certain percentage of the total amount of convertible bonds. (3) The classes of shares to be issued upon conversion shall be common shares. The conversion price shall not be lower than the par value of the Company’s shares as determined by the Board of Directors at the time of issuance of the relevant convertible bonds. (4) The period during which conversion may be requested shall be from the date one (1) month after the date of issuance of the relevant convertible bonds to the date one day prior to the redemption date of the bonds; provided, that the Board of Directors may, by its resolution, adjust the exercise period for convertible bonds within the above period. (5) With respect to the dividends on the shares to be issued upon conversion, Article 11 and Article 43-2, Paragraph (4) shall apply mutatis mutandis. Article 15-3. (Issuance of Bonds with Warrants) (1) The Company may issue bonds with warrant to persons other than its shareholders by a resolution of the Board of Directors in any of the following cases, to the extent that the aggregate par value amount of the bonds with warrant (plus any previously issued and outstanding convertible bonds and bonds with warrants) does not exceed two trillion five hundred billion Won (2.5 trillion Won): 9 1. 2. 3. 4. Where the Company issues bonds with warrant through a general public offering; Where the Company issues bonds with warrant for the purpose of drawing foreign investment, when it deems necessary for its management; Where the Company issues bonds with warrant to a domestic or overseas financial institution for an urgent need for funds; or Where the Company issues bonds with warrant in foreign countries in accordance with Article 165-16 of the Capital Market Act. (2) The aggregate price of new shares which may be subscribed for by the holders of warrants shall be determined by the Board of Directors, but shall not exceed the aggregate par value of the bonds with warrants. (3) The classes of shares to be issued upon exercise of warrant shall be common shares. The exercise price shall not be lower than the par value of the Company’s shares as determined by the Board of Directors at the time of issuance of the relevant bonds with warrant. (4) The period during which warrant may be exercised shall be from the date one (1) month after the date of issuance of the relevant bonds with warrant to the date one day prior to the redemption date of the bonds; provided, that the Board of Directors may, by its resolution, adjust the exercise period for bonds with warrant within the above period. (5) With respect to the dividends on the shares to be issued upon exercise of warrant, Article 11 and Article 43-2, Paragraph (4) shall apply mutatis mutandis. Article 15-4. (Electronic Registration of Bonds and Warrant Rights that would otherwise be Indicated on Certificates) In lieu of issuing bond or warrant certificates, the Company shall electronically register the bonds and warrant rights that would otherwise be indicated on certificates on an electronic registry of an electronic registration institution. Article 15-5. (Provisions Applicable to Bond Issuance) Article 13 shall apply mutatis mutandis to issuance of bonds. 10 Article 16. (Time for convening of General Meetings of Shareholders) CHAPTER III. GENERAL MEETINGS OF SHAREHOLDERS (1) General Meetings of the Shareholders of the Company shall be of two kinds: ordinary and extraordinary. (2) Ordinary General Meetings of Shareholders shall be held within three (3) months after the end of each fiscal year and Extraordinary General Meetings of Shareholders may be convened whenever deemed necessary. Article 17. (Convening of General Meetings of Shareholders) (1) Unless otherwise provided for in the relevant laws and regulations, a General Meeting of Shareholders shall be convened by the Company’s Representative Director pursuant to a resolution of the Board of Directors. On the occurrence of a vacancy or absence of the Representative Director, Article 29, Paragraph (3) hereof shall apply, mutatis mutandis. (2) A General Meeting of Shareholders may be held at the head office of the Company, Paju plant or at any other place as designated by the Board of Directors. (3) A notice for convening a General Meeting of Shareholders, which sets forth the time, date, place and agenda of the meeting, shall be sent to each shareholder, either in a written or an electronic form, at least two (2) weeks prior to the date of the meeting. (4) A notice to shareholders holding not more than one percent of the total number of issued and outstanding shares with voting rights may be replaced by public notices made two weeks prior to the General Meeting of Shareholders, either made at least twice in the “Maeil Business Newspaper” and “The Chosun Ilbo”, both published in Seoul, or in the electronic disclosure system operated by the Financial Supervisory Service or the Korea Exchange. The public notice of a meeting shall include a statement that the General Meeting of Shareholders will be held and the venue, date and the agenda of such meeting. 11 Article 18. (Chairman of Meeting) The Representative Director or a Director designated by the Representative Director shall serve as Chairman of the General Meeting of Shareholders. On the occurrence of a vacancy or absence of the Representative Director, Article 29, Paragraph (3) hereof shall apply, mutatis mutandis. Article 18-2. (Maintenance of Order by the Chairman) (1) The chairman of a General Meeting of Shareholders may order persons who intentionally speak or behave obstructively or who disturb the proceedings of the meeting to stop a speech or to leave the place of the meeting. (2) The chairman of a General Meeting of Shareholders may restrict the time and number of speeches of a shareholder as deemed necessary for the purpose of efficient progress in the proceeding of the meeting. Article 19. (Method of Resolution) Except as otherwise provided in the applicable laws and the Articles of Incorporation of the Company, all resolutions of a General Meeting of Shareholders shall be adopted by the affirmative votes of the majority of shareholders present at the meeting; provided that, such votes shall represent at least one fourth (1/4) of total number of issued and outstanding shares of the Company. Article 20. (Exercise of Voting Rights) (1) Each share shall have one (1) voting right. (2) A shareholder may exercise his/her vote through a proxy. In this case, the proxy holder shall file with the Company document evidencing authority to act as a proxy no later than the beginning of the General Meeting of Shareholders. (3) The Company shall not adopt the cumulative voting system provided under Article 382-2 of the Commercial Code. 12 Article 21. (Restrictions on the Exercise of Voting Rights by Cross Ownership) If the Company, its parent company and subsidiaries, or any of its subsidiaries hold shares exceeding one-tenth (1/10) of the total number of issued shares of another company, such other company may not exercise any voting rights with respect to the shares of the Company which it holds. Article 22. (Split Exercise of Votes) (1) A shareholder, holding two (2) or more votes, who wishes to split his/her votes, shall notify the Company to that effect and the reasons thereof by writing no later than the third day preceding the date set for the General Meeting of Shareholders. (2) The Company may refuse to allow the shareholder to split his/her votes unless the shareholder acquired the shares in trust or otherwise holds the shares for and on behalf of some other person. Article 23. (Minutes of the Meeting) The substance of the course of the proceedings of the General Meeting of Shareholders and the results thereof shall be recorded in the minutes and shall be kept at the head office and branches of the Company, after being affixed with the names and seal impressions or signatures of the chairman of the General Meeting of Shareholders as well as the Directors present. Article 24. [Deleted] Article 25. (General Authority) CHAPTER IV. DIRECTORS AND BOARD OF DIRECTORS Except as otherwise required by mandatory provisions of Korean law, the responsibility for the management, direction and control of the Company will be vested in the Board of Directors of the Company. Article 26. (Number of Directors) The Company shall have at least five (5) and up to seven (7) Directors, more than half of whom must be outside1 Directors. 1 The term “Outside Director” used throughout the AOI has the meaning given by the Capital Market Act of Korea. The qualifications required of an “independent director” by the NYSE listing codes do not have to be set forth in word in the AOI, as long as a person(s) with such qualifications sits on the board. 13 Article 27. (Election of Directors) (1) Directors shall be elected at a General Meeting of Shareholders of the Company. (2) A resolution for the election of Directors shall be adopted by the affirmative votes of the majority of the shareholders present; provided, that, such votes shall represent at least one-fourths (1/4) of the total number of issued and outstanding shares. Article 27-2. (Nomination of Candidates for Outside Directors) (1) The Company’s Outside Director Nomination Committee shall recommend candidates for outside Directors, from those who are qualified under the Korean Commercial Code (“KCC”) and other applicable provisions. (2) Any details concerning the nomination of candidates for outside Directors and deliberation on requirements of such candidates shall be determined by the Company’s Outside Director Nomination Committee. Article 28. (Terms of Directors) Starting from the appointment, the term of office of Directors shall not exceed the close of the ordinary General Meeting of Shareholders that is convened for the period for the settlement of accounts for the third (3rd) year from the appointment. Article 29. (Appointment of Representative Director and Duties) (1) The Representative Director of the Company shall be appointed by a resolution of the Board of Directors’ meeting and the Representative Director shall represent the Company and manage all matters of the Company. (2) If two (2) or more Representative Directors are appointed, each shall represent the Company. 14 (3) On the occurrence of a vacancy or absence of the Representative Director, the person authorized in such order of priority as determined by the Regulations of the Board of Directors or the person separately determined by the Board of Directors shall perform his/her duties. Article 30. (Meetings of the Board of Directors) (1) Meetings of the Board of Directors shall be convened by the Chairman of the Board of Directors or the person designated by the Regulation of the Board of Directors. (2) Meetings of the Board of Directors shall be convened no less frequently than on a quarterly basis. The persons entitled to convene a Meeting of the Board of Directors shall decide the meeting date and send a notice thereof to the Directors in writing, through electronic communication or orally at least twelve(12) hours prior to such meeting; provided that, when the consent of all the Directors has been obtained, a meeting of the Board of Directors may be held anytime without conforming to these procedures. (3) Meetings of the Board of Directors may be conducted in the English language and shall be translated into the Korean language by an interpreter, if necessary. (4) The Chairman of the Board of Directors shall be elected by the Board of Directors. (5) Meetings of the Board of Directors shall be held in Korea, unless otherwise determined by the Board of Directors. Article 31. (Resolutions of the Board of Directors) (1) The quorum for the Meeting of the Board of Directors of the Company shall require the presence of the majority of Directors in office. (2) Resolutions of a meeting of the Board of Directors shall be adopted by the affirmative votes of a majority of the Directors present. (3) The Board of Directors may allow all or part of the Directors in office to exercise his/her and/or their voting rights by telecommunication means through which they may transmit and receive voices at the same time without attending a meeting of the Board of Directors in person. In such case, the concerned Director(s) shall be deemed as having attended the meeting of the Board of Directors in person. 15 (4) Each member of the Board of Directors shall have one (1) voting right; provided, however, that any person who has special interests concerning a resolution of the Board of Directors may not exercise his/her voting right. Article 32. (Filling of Vacancy) (1) Any vacancy in the office of Director shall be filled by resolution of a General Meeting of Shareholders; provided, however, that if the number of Directors required by Article 26 hereof is met and there is no difficulty in the administration of business, the vacancy may be left un-filled. (2) In case where the number of outside Directors required by Article 26 hereof is not met for reasons of resignation, death, etc., the vacancy should be filled at the first General Meeting of Shareholders to be convened after occurrence of such reason. Article 33. (Minutes of the Board of Directors’ Meeting) (1) The proceedings of a Board of Directors’ meeting shall be recorded in the minutes. (2) The minutes shall set forth the agenda, the course of the proceedings and the results thereof, the opposing person(s) and the reasons for such opposition, and the chairman and all Directors present shall affix their names and seals or signatures to the minutes. The minutes shall be kept in the head office of the Company. Article 34. (Committees) (1) The Company shall establish following committees within the Board of Directors. 1. 2. 3. Audit Committee Outside Director Nomination Committee Other committees as deemed necessary by the Board of Directors 16 (2) Details on composition, power and operation of each committee shall be determined by a resolution of the Board of Directors. (3) Articles 30 (2), 31 and 33 shall apply mutatis mutandis in respect of the foregoing committees. Article 35. (Remuneration and Severance Pay of Directors) (1) The total amount of remuneration for the Directors shall be determined by a resolution of the General Meeting of Shareholders. (2) The severance pay for the Directors shall be made in accordance with the Regulations of Severance Payment to Directors as separately determined by a resolution of the General Meeting of Shareholders. Article 36. [Deleted] Article 36-2. (Composition of Audit Committee) CHAPTER IV-II. AUDIT COMMITTEE (1) The Company shall have an Audit Committee in lieu of the statutory auditors in accordance with Article 34 hereof. (2) The Audit Committee shall consist of three (3) outside Directors. (3) When the shareholders appoint a member of the Audit Committee at a General Meeting of Shareholders, any shareholder who holds more than 3% of the total number of voting shares issued by the Company shall not exercise the voting rights of the shares in excess thereof. (4) The Audit Committee shall appoint, by its resolution, a person to represent the committee. Article 36-3. (Duties of Audit Committee) (1) The Audit Committee shall examine the accounts and businesses of the Company. 17 (2) The Audit Committee may request the Board of Directors to convene an extraordinary General Meeting of Shareholders by submitting documents stating the agenda and reasons for such convocation. (3) The Audit Committee may request the Company’s subsidiary to report the details of the operation, if deemed necessary for performance of its duties. In such a case, if the subsidiary fails to immediately report the details or if it is necessary to confirm the contents of the report, the Audit Committee may investigate the subsidiary’s business operation and financial status. (4) The Audit Committee shall dispose any matters delegated by the Board of Directors, as provided in the Audit Committee Charter resolved by the Board of Directors, other than those set forth in Paragraphs (1) through (3) above. Article 36-4. (Auditor’s Records) The Audit Committee shall prepare an auditor’s record with respect to auditing and shall record the substance and results of the audit in the auditors’ record, on which the names and seals or signatures of the members of the Audit Committee who have performed such audit shall be affixed. Article 37. (Fiscal Year) CHAPTER V. ACCOUNTING The fiscal year of the Company shall commence on January 1 of each year and end on December 31 (of the same year). Article 38. [Deleted] Article 39. [Deleted] Article 40. [Deleted] 18 Article 41. (Preparation and Maintenance of Financial Statements and Business Report) (1) The Representative Director shall prepare the following documents, supplementary documents thereto and the business report, and submit such documents to the Audit Committee for audit six (6) weeks prior to the day set for the ordinary General Meeting of Shareholders. The Representative Director, or if the Company has Joint Representative Directors, the Chief Executive Officer and Joint Representative Director, shall submit the following documents and the business report to the ordinary General Meeting of Shareholders for approval: 1. 2. 3. Balance sheet; Profit and loss statement; and Other documents prescribed by the Enforcement Decree of the KCC that present the Company’s financial position and business performance. (2) If the Company is required to prepare consolidated financial statements under the Enforcement Decree of the KCC, the documents under Paragraph (1) above shall include those prepared on a consolidated basis, respectively. (3) The Audit Committee shall submit the auditors’ report to all Directors one (1) week prior to the day set for the ordinary General Meeting of Shareholders. (4) The Representative Director shall keep on file, from one (1) week before the day set for the ordinary General Meeting of Shareholders, the documents described in Paragraph (1) above and supplementary documents together with the business report and the auditors’ report at the head office of the Company for five (5) years and certified copies of all of such documents at the branches of the Company for three (3) years. (5) The Representative Director shall give public notice of the balance sheet and the external auditor’s opinion immediately after the documents referred to in Paragraph (1) above have been approved at the General Meeting of Shareholders. 19 Article 41-2. (Appointment of External Auditor) The Company shall appoint an external auditor pursuant to the Act on External Audit of Stock Companies, Etc. and shall report such fact at the first ordinary General Meeting of Shareholders to be convened after the appointment or shall otherwise notify or publicly announce such fact to the shareholders as prescribed in the Enforcement Decree of the Act on External Audit of Stock Companies, Etc. Article 42 (Appropriation of Earnings) The Company shall dispose of the unappropriated retained earnings as of the end of each fiscal year as follows: 1. Legal reserve; 2. Other statutory reserves; 3. Dividends; 4. Discretionary reserve; and 5. Other appropriation of retained earnings. Article 42-2. (Redemption of Shares) (1) The Company may redeem the shares of the Company within the limit of profit to be paid to its shareholders as dividends by a resolution of the Board of Directors. (2) In the case of the redemption of shares under the provision in Paragraph (1) above, the Board of Directors shall determine the following matters: 1. 2. 3. Class and total number of shares subject to redemption; Total value of shares to be acquired for redemption; and Period during which the shares will be acquired. In any case, the period shall end before the date of the first ordinary General Meeting of Shareholders after the relevant resolution of the Board of Directors. (3) In the case where the Company acquires treasury shares for redemption under the provision in Paragraph (1) above, the acquisition shall be subject to the following standards: 1. The Company shall follow the methods under the Article 165-2, Paragraph (2) of the Capital Market Act. If the acquisition is made in accordance with the method under Item 1 of the same provision, the acquisition period and the method thereof shall meet the standards set forth in the Presidential Decree under the Capital Market Act; 20 2. The amount of the acquisition for redemption shall not be more than the amount determined by the Presidential Decree under the Capital Market Act within the limit of distributable income under Article 462, Paragraph (1) of the Commercial Code at the end of the relevant fiscal year. (4) In the case where the Company redeemed its shares in accordance with the provision in Paragraph (1) above, the Company shall report the matters set forth in Paragraph (2) above and the purpose of the redemption at the first ordinary General Meeting of Shareholders after the relevant resolution of the Board of Directors. Article 43. (Dividends) (1) Dividends may be paid in either cash or shares. (2) In case dividends are distributed in shares, if the Company has issued several classes of shares, such distribution may be made through shares of different classes by a resolution of a General Meeting of Shareholders. (3) Dividends in Paragraph (1) above shall be paid to the shareholders or pledgees registered in the shareholders registry of the Company as of the end of each fiscal year. Article 43-2. (Interim Dividends) (1) The Company may pay interim dividends in accordance with Article 462-3 of the Commercial Code to its shareholders who are registered in the shareholder’s registry as of 00:00 a.m. on July 1 of the relevant fiscal year. Such interim dividends shall be made in cash. (2) The interim dividends mentioned in Paragraph (1) above shall be decided by a resolution of the Board of Directors, which resolution shall be made within forty-five (45) days from the date mentioned in Paragraph (1) above. (3) The maximum amount to be paid as interim dividends shall be calculated by deducting the following amounts from the net asset amounts recorded in the balance sheet of the fiscal year immediately prior to the fiscal year concerned: 1. Paid in capital of the company for the fiscal year immediately prior to the fiscal year concerned; 21 2. 3. 4. 5. The aggregate amount of capital reserves and legal reserves which had been accumulated up until the fiscal year immediately prior to the fiscal year concerned; The amount which was resolved to be distributed as dividends at an ordinary General Meeting of Shareholders of the fiscal year immediately prior to the fiscal year concerned; Voluntary reserves which had been accumulated for specific purposes in accordance with the relevant provisions of the Articles of Incorporation or by resolution of the General Meetings of Shareholders until the fiscal year immediately prior to the fiscal year concerned; Aggregate earned surplus reserves to be accumulated for the fiscal year concerned as a result of the interim dividends; and (4) If the Company has issued new shares (including those shares issued by way of conversion of reserves into capital stock, stock dividends, request of conversion of convertible bonds or exercise of warrants) prior to the date set forth in Paragraph (1) above, but after the commencement date of the fiscal year concerned, the new shares shall be deemed to have been issued at the end of the fiscal year immediately prior to the fiscal year concerned for the purpose of interim dividends. (5) When distributing interim dividends, the same dividend ratio as that of the common shares of the Company shall be applied to the preferred shares. Article 44. (Prescription Period for Claim for Payment of Dividends) (1) The right to dividends shall be extinguished by prescription if the right is not exercised for five (5) years. (2) After the expiration of the prescription period set forth in Paragraph (1), unclaimed dividends shall revert to the Company. 1. These Articles of Incorporation shall be effective from June 23, 2004, except for the Article 17, Paragraph (4), Article 41, Paragraph (2), Article 42-2, Article 43-2 which shall be effective upon the shares of the Company being listed on the Korea Exchange. ADDENDA 22 2. Notwithstanding Addudum 1. above, the Company shall satisfy the requirements under latter part of Article 26, Article 34 and Chapter IV-II of these amended Articles of Incorporation by the close of the first Annual (Ordinary) General Meeting of Shareholders to be convened after the amendment of these Articles of Incorporation. Until the composition of the Audit Committee under these amended Articles of Incorporation, the Company shall have at least one (1) statutory auditor and the current statutory auditor(s) of the Company shall have the same duty and rights as the statutory auditor(s) pursuant to the Commercial Code and the Articles of Incorporation prior to the amendment. 3. The outside Directors to be elected until the close of the first Annual (Ordinary) General Meeting of Shareholders to be convened after the amendment of these Articles of Incorporation, shall be deemed to have been nominated by the Outside Director Nomination and Corporate Governance Committee pursuant to Article 27-2; provided, however, that the outside Directors shall be nominated by the Outside Director Nomination and Corporate Governance Committee once such Committee has been composed of even before the close of such General Meeting of Shareholders. These Articles of Incorporation shall be effective from March 23, 2005. ADDENDA (as of March 23, 2005) These Articles of Incorporation shall be effective from February 28, 2007. ADDENDA (as of February 28, 2007) These Articles of Incorporation shall be effective from March 3, 2008. ADDENDA (as of February 29, 2008) These Articles of Incorporation shall be effective from March 13, 2009. ADDENDA (as of March 13, 2009) 23 These Articles of Incorporation shall be effective from March 12, 2010. ADDENDA (as of March 12, 2010) These Articles of Incorporation shall be effective from March 11, 2011. ADDENDA (as of March 11, 2011) These Articles of Incorporation shall be effective from March 8, 2013. ADDENDA (as of March 8, 2013) These Articles of Incorporation shall be effective from March 15, 2019, except for the amended provisions of Article 8, Article 13, Article 14, Article 15-4 and Article 15-5, which shall be effective from the date the Act on Electronic Registration of Stocks, Bonds, Etc. takes effect. ADDENDA (as of March 15, 2019) 24 Exhibit 12.1 I, Sang Beom Han, certify that: 1. 2. 3. 4. I have reviewed this annual report on Form 20-F of LG Display Co., Ltd.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. Date: April 30, 2019 /s/ SANG BEOM HAN Sang Beom Han Representative Director, Vice Chairman and Chief Executive Officer Exhibit 12.2 I, Donghee Suh, certify that: 1. 2. 3. 4. I have reviewed this annual report on Form 20-F of LG Display Co., Ltd.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and 5. The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. Date: April 30, 2019 /s/ DONGHEE SUH Donghee Suh 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, 2018 (the “Form 20-F”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operation of the Company. Date: April 30, 2019 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 Exhibit 13.2 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) 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, 2018 (the “Form 20-F”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operation of the Company. Date: April 30, 2019 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/ DONGHEE SUH Donghee Suh Senior Vice President and Chief Financial Officer 

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