As filed with the Securities and Exchange Commission on April 29, 2021
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, 2020
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)
Won Jung Ryu
LG Twin Towers, 128 Yeoui-daero, Yeongdeungpo-gu, Seoul 07336, Republic of Korea
Telephone No.: +82-2-3777-1010
Facsimile No.: +82-2-3777-0793
(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
Trading
Symbol
LPL
LPL
* Not for trading, but only in connection with the registration of the American Depositary Shares.
Name of each exchange
on which registered
New York Stock Exchange
New York Stock Exchange*
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
Non-accelerated filer
☒
☐
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 whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm
that prepared or issued its audit report. ☒ Yes ☐ No
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
4
5
6
6
6
6
8
8
8
27
27
29
39
39
41
41
41
55
58
60
60
61
61
61
61
64
Item 6.C. Board Practices
Item 6.D. Employees
Item 6.E. Share Ownership
Item 7.
Major Shareholders and Related Party Transactions
Item 7.A. Major Shareholders
Item 7.B. Related Party Transactions
Item 7.C. Interests of Experts and Counsel
Item 8.
Financial Information
Item 8.A. Consolidated Statements and Other Financial Information
Item 8.B. Significant Changes
Item 9.
The Offer and Listing
Item 9.A. Offer and Listing Details
Item 9.B. Plan of Distribution
Item 9.C. Markets
Item 9.D. Selling Shareholders
Item 9.E. Dilution
Item 9.F. Expenses of the Issue
Item 10.
Additional Information
Item 10.A. Share Capital
Item 10.B. Memorandum and Articles of Association
Item 10.C. Material Contracts
Item 10.D. Exchange Controls
Item 10.E. Taxation
Item 10.F. Dividends and Paying Agents
Item 10.G. Statements by Experts
Item 10.H. Documents on Display
Item 10.I. Subsidiary Information
Item 11.
Quantitative and Qualitative Disclosures about Market Risk
Item 12.
Description of Securities Other than Equity Securities
(ii)
65
66
67
67
67
68
69
69
69
71
71
71
71
71
71
71
71
71
71
71
76
76
80
84
84
84
84
85
87
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)
89
89
89
89
89
90
90
90
90
90
90
92
93
93
94
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, 2019 and 2020 and for each of the years ended in the
three-year period ended December 31, 2020 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$” are to the currency of the United States, all references to “Japanese Yen,” “Yen” or “¥” are to the currency of Japan, all references to “CNY”
or “Chinese Yuan” are to the currency of the People’s Republic of China, all references to “NT$” 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 “R$” are to the currency of Brazil, 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, 2020, which was
W1,086.11 = US$1.00.
4
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, health epidemics, 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.
5
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, 2016, 2017, 2018, 2019 and 2020 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, 2019 and 2020 and for each of the years in the three-year period ended December 31, 2020 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, 2019 and 2020 included in the Form 6-K furnished to the SEC on March 4, 2021 is a loss of
W1,359 billion and a loss of W29 billion, respectively. For further information, please see the Form 6-K furnished to the SEC on March 4, 2021, 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
2016
2017
Year ended December 31,
2019 (1)
2018
2020
(in billions of Won, except for per share data)
2020 (2)
(in millions of US$, except
for per share data)
Revenue
Cost of sales
Gross profit
Selling expenses
Administrative expenses
Research and development expenses
Profit (loss) before income tax
Income tax (expense) benefit
Profit (loss) for the year
Total comprehensive income (loss) for the year
Basic earnings (loss) per share (Won, US$)
Diluted earnings (loss) per share (Won, US$)
W 26,504 W 27,790 W 24,337 W 23,476 W 24,230 US$
(22,754)
3,750
(695)
(610)
(1,134)
1,316
(385)
931
953
(22,425)
5,366
(994)
(696)
(1,213)
2,333
(396)
1,937
1,700
(21,251)
3,085
(834)
(938)
(1,221)
(91)
(88)
(179)
(195)
W 2,534 W 5,038 W (579) W (7,908) W (250) US$
W 2,534 W 5,038 W (579) W (7,908) W (250) US$
(21,588)
2,643
(818)
(755)
(1,099)
(595)
524
(71)
88
(21,607)
1,868
(1,058)
(948)
(1,222)
(3,344)
472
(2,872)
(2,668)
6
22,309
(19,877)
2,433
(753)
(695)
(1,012)
(548)
482
(65)
81
(0.2)
(0.2)
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
As of December 31,
2016
2017
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
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
2018
(in billions of Won)
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
2019 (1)
2020
W 3,336
79
3,154
2,051
10,248
22,088
35,575
2,618
1,977
4,397
10,985
11,613
321
23,086
4,040
7,503
12,488
W 4,218
79
3,518
2,171
11,099
20,147
35,072
3,779
3,195
2,782
11,007
11,125
—
22,335
4,040
7,524
12,737
2020 (2)
(in millions of US$)
3,884
US$
73
3,239
1,999
10,219
18,550
32,291
3,479
2,942
2,561
10,134
10,243
—
20,564
3,720
6,927
11,727
2016
2017
Year ended December 31,
2019 (1)
2018
2020
(in billions of Won, except for percentages and per share data)
14.1%
3.5%
Gross margin (3)
Net margin (4)
EBITDA (5)
W 4,410
3,736
Capital expenditures
Depreciation and amortization (6)
3,022
3,641
Net cash provided by operating activities
(3,189)
Net cash used in investing activities
Net cash provided by financing activities
308
Dividends declared per share (Won, US$)(7) W 500
19.3%
7.0%
12.7%
(0.7)%
8.0%
(12.2)%
10.9%
(0.3)%
W 5,579
6,592
3,215
6,764
(6,481)
862
W 500
W 3,476
7,942
3,555
4,484
(7,675)
2,953
—
W 471
6,927
3,695
2,707
(6,755)
4,988
—
W 3,840
2,604
4,135
2,287
(2,319)
932
—
2020 (2)
(in millions of US$, except
for percentages and per
share data)
US$
10.9%
(0.3)%
3,536
2,398
3,807
2,106
(2,135)
858
—
(1)
(2)
(3)
(4)
(5)
We have adopted IFRS No. 16 “Leases” from January 1, 2019 using the modified retrospective approach, under which the cumulative effect of initial application is recognized in our
retained earnings at January 1, 2019. Accordingly, the comparative information presented for 2016, 2017 and 2018 has not been restated. See Note 3(a) of the notes to our consolidated
financial statements.
For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of W1,086.11 to US$1.00, the noon buying rate in effect on December 31, 2020 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.
Gross margin represents gross profit divided by revenue.
Net margin represents profit (loss) for the year divided by revenue.
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, because our
significant capital assets are in different stages of depreciation, 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- or five-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:
7
2016
2017
2018
(in billions of Won)
2019
2020
2020 (2)
(in millions of US$)
Year ended December 31,
Profit (loss) for the year
Interest income
Interest expense
Income tax expense (benefit)
Depreciation and amortization
EBITDA
W 931
(42)
115
385
3,021
W 4,410
W 1,937
(60)
91
396
3,215
W 5,579
(69)
81
88
3,555
W 3,476
W (179) W (2,872) W (71) US$
(53)
173
(472)
(70)
370
(524)
4,135
W 3,840
US$
3,695
W 471
(6)
(7)
Includes amortization of intangible assets.
Dividends declared per share represent cash dividends declared for the year divided by outstanding shares of common stock as of December 31.
(65)
(64)
341
(482)
3,807
3,536
2020
2016
2017
Year ended December 31,
2018
(in thousands)
2019
52,916
104,630
173,166
330,712
52,108
90,254
146,162
288,524
51,966
92,179
105,142
249,287
44,833
86,957
99,569
231,359
27,712
97,727
102,884
228,323
Operating data
Number of panels sold by product category:
Televisions
IT Products(1)
Mobile and other applications(2)
Total
(1)
(2)
Comprises notebook computers, desktop monitors and tablet computers.
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.
2016
2017
2018
(in billions of Won)
2019
2020
2020(3)
(in millions of US$)
Year ended December 31,
Revenue by product category:
Televisions
IT Products(1)
Mobile and other applications(2)
Total sales of goods
Royalties
Others
Revenue
9,007
7,020
9,115
7,216
W 10,133 W 11,718 W 9,727 W 7,998 W 6,706
10,121
7,359
W 26,464 W 27,745 W 24,294 W 23,435 W 24,186
14
30
W 26,504 W 27,790 W 24,337 W 23,476 W 24,230
8,868
5,699
9,063
6,374
17
23
20
25
18
25
14
27
US$
US$
US$
6,174
9,319
6,776
22,268
13
28
22,309
(1)
(2)
(3)
Comprises notebook computers, desktop monitors and tablet computers.
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.
For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of W1,086.11 to US$1.00, the noon buying rate in effect on December 31, 2020 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.
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.
8
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. 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. 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.
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 5.9% from W576,817 in 2018 to W610,716 in 2019, which primarily reflected a depreciation of the Korean Won against the U.S.
dollar during 2019 as well as our ongoing efforts to increase in our product mix the proportion of higher-priced OLED panels in light of the continued
overcapacity in the global TFT-LCD market and further capital investments by other suppliers, particularly from China, and in response to an increase
in market demand for OLED products. Our average revenue per square meter of net display area further increased by 29.5% to W790,874 (US$728) in
2020, which primarily reflected our ongoing efforts to continue increasing in our product mix the proportion of higher-priced OLED panels and
differentiated TFT-LCD panels as well as a stronger global demand for both OLED and TFT-LCD panel products reflecting increased levels of working
remotely, online schooling and social distancing in light of the ongoing global pandemic of a new strain of coronavirus referred to as “COVID-19,” an
infectious disease caused by severe acute respiratory syndrome coronavirus 2 that is known to have been first transmitted to humans in November 2019
and has spread globally.
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 cannot provide any assurance that an increase in demand, which has 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.
9
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 IT products (which term is used by us to collectively refer to notebook computers,
desktop monitors and tablet computers), televisions 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, especially in light of the ongoing global pandemic of COVID-19, which has had
and is likely to continue to have a negative effect on the global economy. See “—Risks Relating to Our Company—Earthquakes, tsunamis, floods,
severe health epidemics (including the ongoing global COVID-19 pandemic and any possible recurrence of other types of widespread infectious
diseases) and other natural calamities could materially adversely affect our business, results of operations or financial condition.” 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 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, any significant disruptions in our supply chain and global economic conditions in general. For example, as part of our continued
efforts to increase the proportion of higher-margin OLED panels in our product mix, we have been reducing the production level of less profitable types
of TFT-LCD panels in recent years. In particular, in 2020, we significantly reduced the production level of TFT-LCD television display panels by
substantially ceasing the production of most types of such panels in Korea, in light of continued overcapacity in the market and our increased focus on
producing OLED panels and higher margin TFT-LCD panels for IT products. 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 Asia, particularly in China. Our main competitors in the industry include leading display manufacturers in
China, Korea, Taiwan, and Japan. See “Item 4.B. Business Overview—Competition.”
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.
10
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 IT products, televisions and mobile and other applications, 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 commercial displays including “Cinematic Sound OLED” sound integrated panels, rollable OLED display panels and transparent 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 TFT backplanes, (ii) Advanced High-Performance In-Plane Switching, or AH-IPS, panels for IT
products and televisions, and (iii) plastic OLED display panels for smartphones, automotive products and 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.
11
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 more advanced and newer technology, such as our OLED technology, 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 valid for a period of time mutually agreed
between us and the relevant customer from the date of purchase by such customer. 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/or 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 2018, 2019 and 2020.
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.
12
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 have made, and will likely be required to continue to make,
significant expenditures to develop or acquire new process and product technologies, along with corresponding manufacturing capabilities. For example,
we commenced mass production of large-sized OLED panels at our CO fabrication facility, located in Guangzhou, China, in July 2020. Furthermore, we
began production of plastic OLED panels for mobile and other applications on our E5 production line (which has since been integrated into our AP3
fabrication facility to be collectively referred to as “AP3”) and E6 production line (which has since been integrated into our AP4 fabrication facility to
be collectively referred to as “AP4”) in August 2017 and July 2019, respectively.
With the addition of 48-inch and 83-inch OLED televisions to the line-up of available products in 2020, following the prior launch of 55-inch,
65-inch, 77-inch and 88-inch OLED televisions, we are continuing to deploy 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 (especially automotive products) 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 IT products, televisions 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 IT products, televisions 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 IT products, which accounted for 36.4%, 38.6% and 41.8% of our total revenue in 2018, 2019 and 2020,
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 televisions, which accounted for 40.0%, 34.1% and 27.7% of our total revenue in 2018, 2019 and 2020, respectively, and those who use our panels
in their mobile and other applications, which accounted for 23.4%, 27.1 and 30.4% of our total revenue in 2018, 2019 and 2020, respectively. As each of
these product segments significantly contributes to our total sales, we will continue to be dependent on continuing demand from each of the IT products
industry, the television 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.
Earthquakes, tsunamis, floods, severe health epidemics (including the ongoing global COVID-19 pandemic and any possible recurrence of other
types of widespread infectious diseases) and other natural calamities could materially adversely affect our business, results of operations or
financial condition.
If earthquakes, tsunamis, floods, severe health epidemics 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 certain of our manufacturing facilities, are located in countries which have
historically suffered natural calamities from time to time, such as China, Japan, Taiwan and Vietnam, as well as Korea. Any occurrence of such natural
calamities in 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 China, the United States, Europe, Korea and Japan, may
cause disruptions in their businesses, which in turn could adversely impact their demand for our products.
In particular, COVID-19 has materially and adversely affected the global economy and caused significant volatility in the global financial markets
since the first quarter of 2020 as well as minor disruptions in our business operations in 2020, including temporary suspension of operations at certain of
our manufacturing facilities. See “—If we cannot maintain high capacity utilization rates, our profitability will be adversely affected.” The World Health
Organization declared the COVID-19 as a pandemic in March 2020.
13
While we believe that the overall impact of COVID-19 on our business and results of operations to date has generally been mixed, as the ensuing
increase in demand for certain types of our products, including IT products, due to increased levels of working remotely, online schooling and social
distancing, helped offset the negative effects of such pandemic, including those listed below, risks associated with a prolonged outbreak of COVID-19
or other types of widespread infectious diseases include:
•
•
•
•
•
•
•
•
•
an increase in unemployment among, and/or decrease in disposable income of, consumers who purchase the products manufactured by our
end-brand customers and a decline in overall consumer confidence and spending levels, which in turn may decrease demand for our
products;
disruption in the normal operations of the businesses of our customers, which in turn may decrease demand for our products;
disruption in the supply of raw materials, components and equipment from our vendors;
disruption in the delivery of our products to our customers;
disruption in the normal operations of our business resulting from contraction of COVID-19 by our employees, which may necessitate our
employees to be quarantined and/or our manufacturing facilities or offices to be temporarily shut down;
disruption resulting from the necessity for social distancing, including implementation of temporary adjustment of work arrangements
requiring employees to work remotely and restriction on overseas and domestic business travel, which may lead to a reduction in labor
productivity;
fluctuations of the Won against major foreign currencies (see “—Our results of operations are subject to exchange rate fluctuations”);
unstable global and Korean financial markets, which may adversely affect our ability to meet our funding needs on a timely and cost-
effective basis; and
decreases in the fair value of our investments in companies that may be adversely affected by the pandemic.
It is not possible to predict the duration or full magnitude of harm from COVID-19. In the event that COVID-19 or other types of widespread
infectious diseases cannot be effectively and timely contained, our business, financial condition and results of operations may be materially adversely
affected.
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 have historically been predominantly derived from the sale of display panels with TFT-LCD technology,
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 IT products, televisions and mobile and other applications, including commercial displays, entertainment systems, automotive
displays, portable navigation devices and medical diagnostic equipment, and the proportion of our sales derived from our panel products utilizing OLED
technology have been increasing in recent years. 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 at our OP1 fabrication facility since 2013, and OLED panels for
smartphones at our AP2 fabrication facility since 2013. We also began production of plastic OLED panels at our AP3 and AP4 fabrication facilities in
August 2017 and July 2019, respectively, in each case for mobile and other applications. More recently, we commenced mass production of large-sized
OLED panels at our CO fabrication facility, located in Guangzhou, China, in July 2020.
Our early efforts in developing and commercializing OLED technology were recognized by the Society for Information Display, a display panel
industry group, when we were awarded the Display of the Year Award for our Ultra HD Cinematic Sound OLED technology in May 2018. In addition,
our 65-inch rollable OLED television panels received multiple awards at the 2019 Consumer Electronics Show in January 2019 as well as the
Presidential Award at the 2019 Korea Tech Show. In November 2020, our OLED television panels received an “Eco Product” certification from SGS
S.A., a Switzerland-based global inspection and verification company, and in December 2020, our 88-inch “8K” OLED television panels received the
Prime Minister’s Award at the 2020 Korea Tech 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.
14
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 technologies to OLED technology, 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 fabrication facility to manufacture next generation large-sized OLED panels, which
was established under the name of LG Display High-Tech (China) Co., Ltd., in July 2018. We currently hold a 70% ownership interest in
the joint venture and the government of Guangzhou holds the remaining 30% ownership interest. We have invested approximately W6
trillion in capital expenditures for the joint venture and commenced mass production of large-sized OLED panels at such fabrication
facility in July 2020.
In July 2017, we announced plans to make investments in an aggregate amount of up to W7.8 trillion in new large-sized and plastic OLED
production lines in Paju, Korea. In July 2019, we announced plans to make additional investments of W3.0 trillion in the previously
announced new large-sized OLED production lines. We are in the process of developing and assessing the specifics of such planned
investments, including the timing.
In 2020, our total cash outflows for capital expenditure amounted to W2.6 trillion. We currently expect that, in 2021, our total cash outflows for
capital expenditure will be higher compared to 2020 and will be used primarily to continue to fund our previously announced investments related to
facilities for OLED panels. Such expected capital expenditures are subject to periodic assessment, and we cannot provide any assurance that such
expected capital expenditures 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 (including those in
relation to the ongoing global COVID-19 pandemic), 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.
15
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 (which has since been integrated into and combined with our AP3 fabrication facility) and AP4
fabrication facility and commenced mass production of plastic OLED panels for mobile and other applications in August 2017 and July 2019,
respectively. 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 TFT-LCD panels at our CA 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 majority ownership interest in, a joint venture with the
government of Guangzhou to construct our new CO fabrication facility to manufacture next generation large-sized OLED panels in Guangzhou, China.
We have invested approximately W6 trillion in capital expenditures for the joint venture and commenced mass production of large-sized OLED panels
at the CO fabrication facility in July 2020. See also “—We will have significant capital requirements in connection with our business strategy and if
capital resources are not available we may not be able to implement our strategy and future plans.” above.
Sustained growth in the scope and complexity of our operations may strain our managerial, financial, manufacturing and other resources. We may
experience manufacturing difficulties in starting new production lines, upgrading existing facilities or building new plants as a result of cost overruns,
construction delays or shortages of, or quality problems with, materials, labor or equipment, any of which could result in a loss of future revenue. We
may also incur opportunity costs if we misjudge the anticipated demand for certain display panel products and allocate our limited resources in
increasing production capacity for such display panel products at the cost of maintaining existing or increasing production capacity of other display
panel products that turn out to be more popular. In addition, failure to keep up with our competitors in future investments in next-generation panel
fabrication facilities or in the upgrading of manufacturing capacity of existing facilities would impair our ability to effectively compete within the
display panel industry. Failure to obtain intended economic benefits from expansion projects could adversely affect our business, financial condition and
results of operations.
If we cannot maintain high capacity utilization rates, our profitability will be adversely affected.
The production of display panels entails high fixed costs resulting from considerable expenditures for the construction of complex fabrication and
assembly facilities and the purchase of costly equipment, 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, overcapacity in the display industry or a significant disruption
in the supply chain of raw materials, equipment and labor, we may need to reduce or delay the production of our products, resulting in lower-than-
optimal capacity utilization rates. For example, the high degree of uncertainty regarding global economic prospects resulting from the global COVID-19
pandemic may adversely impact global demand for our products. In addition, as a result of the pandemic, we have experienced minor temporary
suspensions in production at certain of our manufacturing facilities during 2020, and we may experience further disruptions in our production or supply
chain in the future if the pandemic continues for a prolonged period of time. See “—Earthquakes, tsunamis, floods, severe health epidemics (including
the ongoing global COVID-19 pandemic and any possible recurrence of other types of widespread infectious diseases) and other natural calamities
could materially adversely affect our business, results of operations or financial condition.” 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.
16
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, our dependence on a limited number of suppliers or temporary disruptions in the supply chain thereof due to factors outside of
our control (such as the ongoing global COVID-19 pandemic or natural calamities). 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.
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 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.
17
Unfavorable outcomes in investigations and proceedings against us and other TFT-LCD panel producers for possible anti-competitive activities may
have a direct and indirect material impact on our operations.
Since 2006, we and certain other TFT-LCD panel producers have been subject to an investigation by the U.S. Department of Justice, various and
separate claims brought by direct and indirect purchasers, and a number of legal proceedings brought by attorneys general of various states in the United
States, with respect to possible anti-competitive activities in the TFT-LCD industry. We have since settled and resolved the investigation and various
subsequent legal proceedings, with the exception of the attorney general of the Commonwealth of Puerto Rico. The 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 26, 2021, we have not been
served with the complaint from the attorney general of the Commonwealth of Puerto Rico.
We have also been subject to investigations outside of the United States, including by the European Commission, with respect to the same subject
matter. We have since settled, resolved, and/or paid fines for such actual investigations brought by the relevant competition authorities. Following the
European Commission’s decision, various follow-on claims were initiated in the United Kingdom by various claimants alleging damages as a result of
violation of European competition laws. We have since reached settlements with each of the claimants, with the exception of a follow-on damages claim
filed by Granville Technology Group and others (“Granville”) in the U.K. in December 2016. As of April 26, 2021, we are vigorously defending
ourselves against claims by Granville.
In addition, 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. As of April 26, 2021, we have not been served with the complaint from Hatzlacha.
See “Item 8.A. Consolidated Statements and Other Financial Information—Legal Proceedings—Antitrust and Others” for a more detailed
description of these matters as well as other material legal proceedings that we are involved in.
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 ongoing proceedings that we are involved in, 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,
2020, we did not recognize 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, 2020 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.
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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, 2020, W395 billion (US$363 million) of our outstanding short-term borrowings, W2,979 billion
(US$2,742 million) of our outstanding long-term borrowings (including current portions thereof) and W109 billion (US$100 million) of our outstanding
bonds were indexed to LIBOR.
In March 2021, the Financial Conduct Authority of the United Kingdom (“FCA”), which has regulatory authority with respect to LIBOR,
announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative (i) after December 31, 2021 in
the case of all sterling, euro, Swiss franc and Japanese yen settings and the one-week and two-month U.S. dollar settings and (ii) after June 30, 2023 in
the case of the remaining U.S. dollar settings. While the ICE Benchmark Administration, the administrator of LIBOR, may publish certain LIBOR
settings on the basis of a synthetic methodology for “tough legacy” contracts, there is no guarantee that such rates will be determined and published after
the announced deadlines nor confirmed to be representative by the FCA.
Currently, it is not possible to predict future developments with respect to LIBOR or their timing or impact. Any such developments, including as
a result of international, national or other initiatives for reform or the adoption of successor or alternative benchmark reference rates in the international
debt capital markets, 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 short-term and long-term borrowings and bonds 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.
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,
between the Korean Won and the Chinese Yuan 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, while our purchases of raw materials are denominated mainly in U.S. dollars
and, to a much lesser extent, Japanese Yen and Chinese Yuan. The largest proportion of our expenditures on capital equipment are denominated in
Korean Won and U.S. dollars and, to a lesser extent, Chinese Yuan and Japanese Yen. Accordingly, fluctuations in exchange rates, in particular between
the U.S. dollar and the Korean Won, between the Chinese Yuan 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, Chinese Yuan 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 Chinese Yuan or
Japanese Yen increases the Korean Won cost of our Chinese Yuan- or Japanese Yen-denominated purchases of equipment, raw materials or
components, as applicable, and, to the extent we have any debt denominated in Chinese Yuan or 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
Chinese Yuan or 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.
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Furthermore, pending patent applications or patents already issued to us or our licensors may become subject to dispute, and any dispute could be
resolved against us. For example, we may become involved in re-examination, reissue or interference proceedings and the result of these proceedings
could be the invalidation or substantial narrowing of our patent claims. We also could be subject to court proceedings that could find our patents invalid
or unenforceable or could substantially narrow the scope of our patent claims. In addition, depending on the jurisdiction, statutory differences in
patentable subject matter may limit the protection we can obtain on some of our inventions.
Failure to protect our intellectual property rights could impair our competitiveness and harm our business and future prospects.
We believe that developing new products and technologies that can be differentiated from those of our competitors is critical to the success of our
business. We take active measures to obtain international protection of our intellectual property by obtaining patents and undertaking monitoring
activities in our major markets. However, we cannot assure you that the measures we are taking will effectively deter competitors from improper use of
our proprietary technologies. Our competitors may misappropriate our intellectual property, disputes as to ownership of intellectual property may arise
and our intellectual property may otherwise become known or independently developed by our competitors.
Any failure to protect our intellectual property could impair our competitiveness and harm our business and future prospects.
Our rapid introduction of new technologies and products may increase the likelihood that third parties will assert claims that our products infringe
upon their proprietary rights.
The rapid technological changes that characterize our industry require that we quickly implement new processes and components with respect to
our products. Often with respect to recently developed processes and components, a degree of uncertainty exists as to who may rightfully claim
ownership rights in such processes and components. Uncertainty of this type increases the risk that claims alleging that such components or processes
infringe upon third party rights may be brought against us. Although we take and will continue to take steps to ensure that our new products do not
infringe upon third party rights, if our products or manufacturing processes are found to infringe upon third party rights, we may be subject to significant
liabilities and be required to change our manufacturing processes or be prohibited from manufacturing certain products, which could have a material
adverse effect on our operations and financial condition.
We may be required to defend against charges of infringement of patent or other proprietary rights of third parties. Although patent and other
intellectual property disputes in our industry have often been settled through licensing or similar arrangements, such defense could require us to incur
substantial expense and to divert significant resources of our technical and management personnel, and could result in our loss of rights to develop or
make certain products or require us to pay monetary damages or royalties to license proprietary rights from third parties. Furthermore, we cannot be
certain that the necessary licenses would be available to us on acceptable terms, if at all. Accordingly, an adverse determination in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling certain of our products. Any such
litigation, whether successful or unsuccessful, could result in substantial costs to us and diversions of our resources, either of which could adversely
affect our business.
We were a defendant in four patent infringement lawsuits (two in the United States, one in Germany and one in China) filed against us by Solas
OLED Ltd. between April 2019 and September 2020. In December 2020, we entered into a settlement and license agreement with the plaintiff with
respect to each of the four cases, and the plaintiff subsequently withdrew its claim in each of these cases between January and March 2021.
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.”
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If we are unable to renew our technology licensing arrangements on acceptable terms, we may lose the legal protection to use certain of the
processes we employ to manufacture our products and be prohibited from using those processes, which may prevent us from manufacturing and selling
certain of our products, including our key products. In addition, we could be at a disadvantage if our competitors obtain licenses for protected
technologies on more favorable terms than we do.
In the future, we may also need to obtain additional patent licenses for new or existing technologies. We cannot provide assurance that these
license agreements can be obtained or renewed on acceptable terms or at all, and if not, our business and operating results could be adversely affected.
We rely upon trade secrets and other unpatented proprietary know-how to maintain our competitive position in the display panel industry and any
loss of our rights to, or unauthorized disclosure of, our trade secrets or other unpatented proprietary know-how could negatively affect our business.
We also rely upon trade secrets, unpatented proprietary know-how and information, as well as continuing technological innovation in our
business. The information we rely upon includes price forecasts, core technology and key customer information. We enter into confidentiality
agreements with each of our employees and consultants upon the commencement of an employment or consulting relationship. These agreements
generally provide that all inventions, ideas, discoveries, improvements and copyrightable material made or conceived by the individual arising out of the
employment or consulting relationship and all confidential information developed or made known to the individual during the term of the relationship is
our exclusive property. We cannot provide assurance that these types of agreements will be fully enforceable, or that they will not be breached. We also
cannot be certain that we will have adequate remedies for any such breach. The disclosure of our trade secrets or other know-how as a result of such a
breach could adversely affect our business. Also, our competitors may come to know about or determine our trade secrets and other proprietary
information through a variety of methods. Disputes may arise concerning the ownership of intellectual property or the applicability or enforceability of
our confidentiality agreements, and there can be no assurance that any such disputes would be resolved in our favor. Furthermore, others may acquire or
independently develop similar technology, or if patents are not issued with respect to technologies arising from our research, we may not be able to
maintain information pertinent to such research as proprietary technology or trade secrets and that could have an adverse effect on our competitive
position within the display panel industry.
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.
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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, 2020, 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.
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 and penalties against us, suspension of production or a cessation of operations. Since 2018, we and certain of our employees have
received and paid aggregate fines and penalties of approximately W53 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. We have also implemented certain
measures to facilitate future compliance with such regulations. In addition, government authorities are currently investigating an incident in January
2021 involving a leakage of tetramethylammonium hydroxide chemicals, which occurred during refurbishment of equipment at one of our production
facilities in Paju, Korea, causing casualties to several of the workers performing such task. We are cooperating with the government authorities on such
investigation and are implementing various measures to further enhance our safety management standards. Furthermore, 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.
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Risks Relating to our American Depositary Shares, or ADSs, or our Common Stock
Future sales of shares of our common stock or convertible securities 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 other securities that may be converted into shares of our
common stock or the availability of such shares or securities 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 or other securities that
may be converted into 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 1% of our common stock, or 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 largest 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,
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 26, 2021. 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.
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Holders of ADSs will not have preemptive rights in some circumstances.
The Korean Commercial Code, as amended, and our articles of incorporation require us, with some exceptions, to offer shareholders the right to
subscribe for new shares of our common stock in proportion to their existing shareholding ratio whenever new shares are issued, except under certain
circumstances as provided in our articles of incorporation. Accordingly, if we issue new shares to non-shareholders based on such exception, a holder of
our ADSs may experience dilution in its holdings. Furthermore, if we offer any right to subscribe for additional shares of our common stock or any
rights of any other nature to existing shareholders subject to their preemptive rights, the depositary, after consultation with us, may make the rights
available to holders of our ADSs or use reasonable efforts to dispose of the rights on behalf of such holders and make the net proceeds available to such
holders. The depositary, however, is not required to make available to holders any rights to purchase any additional shares of our common stock unless
it deems that doing so is lawful and feasible and
•
•
a registration statement filed by us under the U.S. Securities Act of 1933, as amended, is in effect with respect to those shares; or
the offering and sale of those shares is exempt from or is not subject to the registration requirements of the Securities Act.
We are under no obligation to file any registration statement with the SEC or to endeavor to cause such a registration statement to be declared
effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, a holder of our ADSs may
be unable to participate in our rights offerings and may experience dilution in its holdings. If a registration statement is required for a holder of our
ADSs to exercise preemptive rights but is not filed by us or is not declared effective, the holder will not be able to exercise its preemptive rights for
additional ADSs and it will suffer dilution of its equity interest in us. If the depositary is unable to sell rights that are not exercised or not distributed or
if the sale is not lawful or feasible, it will allow the rights to lapse, in which case the holder will receive no value for these rights.
Holders of ADSs will not be able to exercise dissent and appraisal rights unless they have withdrawn the underlying shares of our common stock
and become our direct shareholders.
In some limited circumstances, including the transfer of the whole or any significant part of our business and our merger or consolidation with
another company, dissenting shareholders have the right to require us to purchase their shares under Korean law. However, a holder of our ADSs will
not be able to exercise such dissent and appraisal rights if the depositary refuses to do so on their behalf. Our deposit agreement does not require the
depositary to take any action in respect of exercising dissent and appraisal rights. In such a situation, holders of our ADSs must initiate the withdrawal
of the underlying common stock from the ADS facility (and incur charges relating to that withdrawal) by the day immediately following the date of
public disclosure of our board of directors’ resolution of a merger or other events triggering appraisal rights and become our direct shareholder prior to
the record date of the shareholders’ meeting at which the relevant transaction is to be approved, in order to exercise dissent and appraisal rights.
Dividend payments and the amount you may realize upon a sale of our common stock or ADSs that you hold will be affected by fluctuations in the
exchange rate between the U.S. dollar and the Korean Won.
Cash dividends, if any, in respect of the shares represented by our ADSs will be paid to the depositary in Korean Won and then converted by the
depositary into U.S. dollars, subject to certain conditions. Accordingly, fluctuations in the exchange rate between the Korean Won and the U.S. dollar
will affect, among other things, the amounts a holder will receive from the depositary in respect of dividends, the U.S. dollar value of the proceeds that a
holder would receive upon sale in Korea of the shares of our common stock obtained upon surrender of ADSs and the secondary market price of ADSs.
Such fluctuations will also affect the U.S. dollar value of dividends and sales proceeds received by holders of our common stock.
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.
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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;
the occurrence of severe health epidemics in Korea and other parts of the world (such as the ongoing global outbreak of COVID-19, which
has been characterized as a pandemic by The World Health Organization);
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 ongoing trade disputes with Japan);
adverse conditions or developments 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, including as a result of deteriorating
economic and trade relations between the United States and China and increased uncertainties resulting from the United Kingdom’s exit
from the European Union;
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 Yuan), 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;
social and labor unrest;
volatility 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 revenues or a substantial increase in the Korean government’s expenditures for fiscal stimulus measures, unemployment
compensation and other economic and social programs, including in connection with the Korean government’s ongoing efforts to provide
emergency relief payments to households and emergency loans to businesses in light of economic difficulties caused by COVID-19, which
may lead to an increased government budget deficit as well as an increase in the government’s debt level;
25
•
•
•
•
•
•
•
•
•
•
•
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;
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 (including a potential escalation of hostilities
between the U.S. and Iran) and Northern 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 and warheads that can be mounted on ballistic missiles. Over
the years, North Korea has continued to conduct missile tests, including ballistic 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.
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.
26
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, February 2019 and June 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 IT products (comprising notebook computers, desktop monitors and tablet computers), televisions and various
other applications, including mobile devices and automotive displays.
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.
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.
27
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 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. In
order to secure and maintain competitiveness of our overall business and facilitate its sustainable growth, we are continuing to engage in various
activities to accelerate the transition of the focus of our overall business to OLEDs and restructure our TFT-LCD business. 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. 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.
As part of our ongoing expansion plans, we have constructed several manufacturing facilities for OLED panels in Korea in recent years, including
our E5 production line (which has since been integrated into and combined with our AP3 fabrication facility) and AP4 fabrication facility for plastic
OLED panels for mobile and other applications, which commenced mass production in August 2017 and July 2019, respectively. Furthermore, 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 our new CO fabrication facility to manufacture next generation large-sized OLED panels, which was established
under the name of LG Display High-Tech (China) Co., Ltd., in July 2018. We currently hold a 70% ownership interest in the joint venture and the
government of Guangzhou holds the remaining 30% ownership interest. We have invested approximately W6 trillion in capital expenditures for the joint
venture, and we commenced mass production of large-sized OLED panels at the CO fabrication facility in July 2020. Each of our on-going expansion
projects are generally subject to market conditions and any changes in our investment timetable. See “Item 4.D. Property, Plants and
Equipment—Capital Expenditures.”
With respect to our assembly facilities, from 1995 to early 2003, we assembled all panels in our Gumi assembly facility adjacent to our P1 facility.
Since 2003, in order to better serve the needs of our global customers, we have commenced operations at various assembly facilities in Korea and
several other countries. 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.
28
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 IT
products (comprising notebook computers, desktop monitors and tablet computers), televisions and mobile devices, including smartphones, and we are
one of the world’s leading suppliers of large-sized OLED 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 2020, we sold a total of
132.8 million display panels that are nine inches or larger. According to OMDIA, we had a global market share for display panels of nine inches or
larger of approximately 23% based on sales revenue in 2020.
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 IT products,
televisions 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 W24,337 billion in 2018, W23,476 billion in 2019 and W24,230 billion (US$22,309 million) in 2020.
Technology Description
TFT-LCD Technology
A TFT-LCD panel consists of two thin glass substrates and polarizer films between which a layer of liquid crystals is deposited and behind which
a light source called a backlight unit is mounted. The frontplane glass substrate is fitted with a color filter, while the backplane glass substrate, also
called a TFT array, has many thin film transistors, or TFT, formed on its surface. The liquid crystals are normally aligned to allow the polarized light
from the backlight unit to pass through the two glass panels. When voltage is applied to the transistors on the TFT array, the liquid crystals change their
alignment and alter the amount of light that passes through them. Meanwhile, the color filter on the frontplane glass substrate gives each pixel its own
color. The combination of these pixels in different colors and levels of brightness forms the image on the panel.
The process for manufacturing a TFT-LCD panel consists of four steps:
•
•
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;
29
•
•
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 panels for certain
types of IT products, smartphones and other mobile display products.
OLED Technology
An OLED panel consists of a thin film of organic material encased between anode and cathode electrodes. When a current is applied, light is
emitted directly from the organic material. Because a separate backlight is not needed, OLED panels can be lighter and thinner compared to TFT-LCD
panels, which require a separate backlight. In addition, images projected on OLED panels have higher contrast ratios and more realistic color
reproduction compared to images projected on TFT-LCD panels.
We utilize different types of sub-pixel and backplane technologies in our OLED panels. Under the RGB sub-pixel structure, a combination of red,
green and blue sub-pixels without color filters or white sub-pixels are used to produce a range of colors. While we, along with most of our competitors,
utilize RGB sub-pixel technology for small- and medium-sized products, there are various technical challenges in scaling RGB sub-pixel technology for
large-sized products, such as television panels. For our OLED television panels, we have overcome these challenges by opting to utilize our WRGB
sub-pixel structure, whereby red, green and blue color filters are placed over white OLED sub-pixels to produce a range of colors and began production
of OLED television panels at our OP1 fabrication facility in 2013. Mass production of our plastic OLED panels for mobile and other applications began
at our AP3 and AP4 fabrication facilities in August 2017 and July 2019, respectively. More recently, we commenced mass production of large-sized
OLED panels at our CO fabrication facility, located in Guangzhou, China, in July 2020. 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 low-temperature polycrystalline
silicon (“LTPS”), or low-temperature polycrystalline oxide (“LTPO”), 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.
30
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 and LTPO
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.
For our wearable devices, we also use LTPO backplane technology, which combines elements of both LTPS and oxide TFT technologies to
produce backplanes with greater energy savings than LTPS backplanes.
Products
We manufacture display panels of various specifications that are integrated by our customers into principally the following products:
•
•
•
IT products, which comprise notebook computers (utilizing display panels ranging from 11.6 inches to 17.3 inches in size), desktop
monitors (utilizing display panels ranging from 15.6 inches to 86 inches in size) and tablet computers (utilizing display panels ranging
from 7.85 inches to 12.9 inches in size);
Televisions, which utilize large-sized display panels ranging from 21.5 inches to 98 inches in size, including “8K” Ultra HD television
panels, which have four times the number of pixels compared to conventional HD television panels; 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, such as entertainment systems, automotive displays, portable navigation devices and medical
diagnostic equipment.
Unless otherwise specified, when we refer to panels in this annual report, we mean assembled cells with added components, such as driver
integrated circuits and backlight units.
We design and manufacture our panels to meet the various size and performance specifications of our customers, including specifications relating
to thinness, weight, resolution, color quality, power consumption, response times and viewing angles. The specifications vary from product to product.
For television panels, a premium is placed on faster response times, wider viewing angles, higher resolution and greater color fidelity. Notebook
computer panels require an emphasis on thinness, light weight and power efficiency, while desktop monitor panels demand a greater focus on
brightness, color brilliance, faster response times 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.”
31
IT Products
Our panels for IT products comprise display panels for notebook computers (ranging from 11.6 inches to 17.3 inches in size), desktop monitors
(ranging from 15.6 inches to 86 inches in size) and tablet computers (display panels ranging from 7.85 inches to 12.9 inches in size). Revenue from sales
of our IT product panels was W8,868 billion, or 36.4% of our total revenue, in 2018, W9,063 billion, or 38.6% of our total revenue, in 2019 and
W10,121 billion (US$9,319 million), or 41.8% of our total revenue, in 2020. In 2020, our principal products in terms of sales revenue in this category
included panels of various sizes ranging from 13.3 inches and 15.6 inches for notebook computers, 21.5 inches to 34 inches for desktop monitors and
7.85 inches to 12.9 inches for tablet computers.
While consumer demand for IT products had generally declined or plateaued in recent years due in part from competition from substitute products
such as larger-sized smartphones and, in the case of notebook computers, tablet computers with adequate computing functionality, increased levels of
working remotely, online schooling and social distancing mainly resulting from the ongoing global pandemic of the COVID-19 have contributed to a
significant increase in global demand for IT products in 2020. In addition, there has been an increase in demand in recent years for products with higher
specifications such as desktop monitors with increased color brilliance and faster response times, as specialized market segments such as gaming
monitors continue to grow, and notebook computers with higher resolution displays.
Televisions
Our television display panels range from 21.5 inches to 98 inches in size. We began mass production of television display panels in 2001. Our
sales of display panels for televisions were W9,727 billion, or 40.0% of our total revenue, in 2018, W7,998 billion, or 34.1% of our total revenue, in
2019 and W6,706 billion (US$6,174 million), or 27.7% of our total revenue, in 2020. In 2020, our principal products in this category in terms of sales
revenue consisted of 55-inch and 65-inch display panels. Our sales of television display panels, which had historically been our largest product category
by revenue in prior years, have declined in recent years, as we have reduced, and continue to reduce, our production level of TFT-LCD panels (which
have historically comprised a substantial majority of our television display panels) in light of the increase in downward pricing pressure primarily
resulting from capacity expansion by, and increased competition from, our global competitors, particularly from China. In light of the foregoing market
conditions in the TFT-LCD television panel market, we have also increased the proportion of OLED television panels in our product mix and the
production capacity for such panels in recent years. More recently, consumer demand for both TFT-LCD and OLED television generally became more
robust in 2020 since the outbreak of the ongoing global COVID-19 pandemic in light of increased levels of social distancing.
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 will continue to be well positioned to meet their requirements with our strengths in technology,
manufacturing scale and efficiency as well as the breadth of our product portfolio.
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 automotive displays, entertainment systems, portable
navigation devices and medical diagnostic equipment. Display panels that are nine inches and smaller are referred to as small- and medium-sized panels.
The market for smartphones generally plateaued in 2019 compared to 2018 and, mainly due to the effects of COVID-19 on market demand,
recorded negative growth in 2020 compared to 2019, according to data published by Strategy Analytics Inc. Revenue from sales of our display panels
for mobile and other applications was W5,699 billion, or 23.4% of our total revenue, in 2018, W6,374 billion, or 27.1% of our total revenue, in 2019
and W7,359 billion (US$6,776 million), or 30.4% of our total revenue, in 2020. In 2020, sales of panels for smartphones constituted a majority in terms
of both sales revenue and sales volume in the mobile and other applications category. In recent years, we have increased the proportion of OLED panels
(including plastic OLED panels) for mobile and other applications that command relatively higher prices in our product mix.
Some of the panels we produce for industrial products, such as medical diagnostic equipment and automotive products, are highly specialized
niche products manufactured and designed 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.
32
Sales and Marketing
Customer Profile
Our display panels are included primarily in IT products, televisions 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 2018, 2019 and 2020. 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 21%, 19% and 17% of our sales in 2018, 2019 and 2020 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.
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:
2018
Sales
Year ended December 31,
2019
%
(in billions of Won and millions of US$, except for percentages)
Sales
Sales
%
2020
Sales (3)
Korea
China
Asia (excluding China) (1)
United States (2)
Europe (excluding Poland)
Poland
Total (3)
W 1,589
15,243
2,481
2,463
1,496
1,065
W24,337
6.5% W 1,265
15,433
2,405
1,940
1,476
957
100.0% W23,476
62.6
10.2
10.1
6.1
4.5
5.4% W 906 US$
834
15,355
16,677
2,114
2,296
1,897
2,061
1,119
1,215
990
1,075
100.0% W24,230 US$22,309
65.7
10.2
8.3
6.3
4.1
%
3.8%
68.8
9.5
8.5
5.0
4.4
100.0%
(1)
(2)
(3)
Includes Oceania, Africa and the Middle East.
Includes other countries in North and South America.
For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of W1,086.11 to US$1.00, the noon buying rate in effect on December 31, 2020 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.
33
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
1.6% in 2020. 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.
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.
34
Our principal competitors are:
•
•
•
•
Samsung Display in Korea;
Innolux, AU Optronics and Hannstar in Taiwan;
Japan Display, Sharp and Panasonic in Japan; and
BOE, China Star Optoelectronics Technology, CEC Panda and HKC in China.
According to According to OMDIA, in 2020, Korean display panel manufacturers had a market share of 30% of the 9-inch or larger panel market
based on revenue, Chinese manufacturers had 40%, Taiwanese manufacturers had 26% and Japanese manufacturers had 4%. Our market share of the
9-inch or larger panel market based on revenue was approximately 23%.
Components, Raw Materials and Suppliers
Components and raw materials accounted for approximately 63%, 63% and 61% of our sales in 2018, 2019 and 2020 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 in which
we own a 40% equity interest, 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 several months prior to the scheduled delivery. We purchase our
components and raw materials based on forecasts from our end-brand customers as well as our own assessments of our end-brand customers’ needs.
In order to reduce our component and raw material costs and our dependence on any one supplier, we generally develop compatible components
and raw materials and purchase our components and raw materials from more than one source. However, we source certain key components and raw
materials from a limited group of suppliers in order to ensure timely supply and consistent quality. Also, in order to facilitate implementation of our cost
reduction strategies, we continually review for potential cost savings in sourcing our components and raw materials from suppliers based in Korea and
those based abroad, including competitiveness of the prices offered by such suppliers and any potential for reduction in logistics and transportation
costs. We perform periodic evaluations of our component and raw material suppliers based on a number of factors, including the quality and price of the
components, delivery and response time, the quality of the services and the financial health of the suppliers. We reassess our supplier pool accordingly.
We maintain a strategic relationship with many of our material suppliers, and from time to time, we make equity investments in our material
suppliers as part of our efforts to secure a stable supply of key components and raw materials.
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.
35
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 2020 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.
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 panel fabrication facilities located in Guangzhou, China for up to CNY 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 W0.4 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.
36
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 display industry organization focusing on
environmental issues, we have voluntarily agreed to reduce emission of greenhouse gases, such as nitrogen trifluoride, or NF3, sulfur hexafluoride, or
SF6, and carbon tetrafluoride, or CF4, 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 installed SF6 and CF4 abatement systems, and developed and applied processes that utilize substitute gases with
lower global warming potential than SF6, in each of our facilities in Gumi and Paju, Korea.
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) were added to the six already restricted substances, which additional
restrictions became effective as of July 22, 2019. In order to address the latent risk elements of the four phthalate substances that became 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
Techcross Environmental Services Inc. 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.
We have been certified by the Korean Ministry of Environment as a “Green Company”, with respect to our environmental record for a portion of
our manufacturing facilities 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 each of our fabrication facilities and module assembly plants in Gumi and Paju,
Korea. Our module production plants in Nanjing, Yantai and Guangzhou, China and our CA fabrication facility in Guangzhou, China have also received
ISO 14001 and ISO 45001 certifications. Our GP1 plant (within our CA fabrication facility) was the first plant in China to receive the “Green Plant”
designation under China’s Green China Policy, and our CA fabrication facility and Nanjing module production plant have also received ISO 14001 and
ISO 50001 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
three consecutive years since 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.
37
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 CA 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, LG Display High-Tech (China) Co., Ltd., to construct our new CO fabrication facility to manufacture next
generation large-sized OLED panels in Guangzhou, China. We currently own a 70% equity interest in LG Display High-Tech (China) and have invested
approximately W6 trillion in capital expenditures for the joint venture, and we commenced mass production of large-sized OLED panels at the CO
fabrication facility in July 2020.
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.
38
Subsidiaries
The following table sets forth summary information for our subsidiaries as of December 31, 2020:
Main
Activities
Sales
Sales
Sales
Sales
Manufacturing
Sales
Manufacturing
Sales
Sales
Manufacturing
Manufacturing
and sales
Workplace
services
Manufacturing
and sales
Managing
intellectual
property
Managing
intellectual
property
Sales
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 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
Jurisdiction
of
Organization
Taiwan
U.S.A.
Japan
Germany
China
China
China
China
Singapore
China
China
Korea
China
Date
of
Organization
Capital Stock (in
millions of the
applicable currency)
116
NT$
April 1999
411
September 1999 US$
95
October 1999
November 1999
1
3,020
July 2002
4
January 2003
1,655
June 2006
4
August 2007
January 2009
1
1,008
April 2010
¥
€
CNY
CNY
CNY
CNY
US$
CNY
January 2010
CNY
March 2012
W
116
800
Percentage of
Our
Ownership
Interest
Percentage
of Our
Voting
Power
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
51%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
51%
100%
100%
December 2012
CNY
8,232
70%
70%
U.S.A.
March 2014
US$
U.S.A.
China
China
Manufacturing Vietnam
Manufacturing
and sales
Investing in
new emerging
companies
Manufacturing
and sales
U.S.A.
China
December 2009
April 2015
May 2016
July 2016
US$
CNY
US$
CNY
July 2018
US$
9
138
1
600
637
12
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
July 2018
CNY
15,600
70%
70%
N.B. See Note 1(b) of the notes to our financial statements for changes to our subsidiaries during the year ended December 31, 2020.
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 current fabrication facilities.
39
Fabrication Facility
Korea
P5 (2)
P62
AP3 (3)
P7
P8 (4)
AP2 (5)
OP1 (6)
P9 (7)
AP4 (8)
Overseas
CA (9)
CO
Generation
(1)
Mass Production
Commencement
Location
Gross Floor Area
(in square meters)
Primary Types of Panels Produced
5
6
6
7
8
4
8
8
6
8
8
May 2003
April 2009
February 2014
January 2006
March 2009
Gumi, Korea
Gumi, Korea
Gumi, Korea
Paju, Korea
Paju, Korea
July 2010
Paju, Korea
January 2013
Paju, Korea
June 2012
Paju, Korea
July 2019
Paju, Korea
September 2014 Guangzhou, China
Guangzhou, China
July 2020
93,227
101,617
288,634
310,890
538,052
See P8
above
See P8
above
485,534
See P9
above
244,592
426,139
TFT-LCD for notebook computer, mobile and other
applications
TFT-LCD for notebook computer and desktop monitor
Plastic OLED for mobile and other applications
TFT-LCD for television
TFT-LCD for television and desktop monitor
Plastic OLED for mobile and other applications
OLED for television
TFT-LCD for desktop monitor, notebook computer,
tablet computer
Plastic OLED for mobile and other applications
TFT-LCD for television
OLED for television
(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 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)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Gross floor area of P5 fabrication facility includes gross floor area of OLED light production lines.
Includes the production line formerly referred to as E5, which began mass production in August 2017.
Gross floor area of P8 fabrication facility includes the gross floor area of AP2 and OP1 fabrication facilities, which are located in the same complex.
Includes the production line formerly referred to as E2. The gross floor area of this fabrication facility is included within the P8 fabrication facility.
Includes the production lines formerly referred to as E3 and E4. The gross floor area of this fabrication facility is included within the P8 fabrication facility.
Gross floor area of P9 fabrication facility includes the gross floor area of AP4 fabrication facility, which is located in the same complex.
Includes the production line formerly referred to as E6. The gross floor area of this fabrication facility is included within the P9 fabrication facility.
Gross floor area of CA fabrication facility includes the gross floor area of GP1, GP2 and extended facilities.
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.”
We also operate module assembly facilities in China (Nanjing, Guangzhou and Yantai), Korea (Gumi and Paju) 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
Guangzhou assembly facility
Yantai assembly facility
Haiphong assembly facility
Gross Floor Area
(in square meters)
71,696
301,779
159,448
225,093
158,817
45,170
358,787
Mass Production Commencement
Not applicable (opened in April 2012)
January 1995
May 2003
January 2006
December 2007
May 2010
July 2017
40
Capital Expenditures
As part of our ongoing expansion plans, we have commenced mass production of plastic OLED panels at our AP3 and AP4 fabrication facilities
beginning in August 2017 and July 2019, respectively. In July 2017, we announced plans to make investments in an aggregate amount of up to W7.8
trillion in new large-sized OLED and plastic OLED fabrication facilities in Paju, Korea, and in July 2019, we further announced plans to make
additional investments of W3.0 trillion in the previously announced new large-sized OLED production lines. 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 2018, we established and acquired a majority ownership interest in, a joint venture with the government of Guangzhou to construct our new CO
fabrication facility to manufacture next generation large-sized OLED panels in Guangzhou, China. We currently hold a 70% ownership interest in the
joint venture and the government of Guangzhou holds the remaining 30% ownership interest. We have invested approximately W6 trillion in capital
expenditures for the joint venture and commenced mass production of large-sized OLED panels at the CO fabrication facility in July 2020.
We currently expect that, in 2021, our total cash outflows for capital expenditures will be higher compared to 2020 and will be used primarily to
continue to fund our previously announced investments related to facilities for OLED panels. Such expected capital expenditures are subject to periodic
assessment, and we cannot provide any assurance that such expected capital expenditures may not change materially after assessment. We may
undertake further expansion projects in the future with respect to our existing facilities as our overall business strategy may require.
Item 4A.
UNRESOLVED STAFF COMMENTS
We do not have any unresolved comments from the SEC staff regarding our periodic reports under the Exchange Act.
Item 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Item 5.A.
Operating Results
Overview
Our results of operations are affected principally by overall market conditions, our manufacturing productivity and costs, and our product mix.
Market Conditions
The display industry in which we operate is affected by market conditions that are often outside the control of individual manufacturers. Our
results of operations might fluctuate significantly from period to period due to market factors, such as seasonal variations in demand, global economic
conditions, external factors that impact the supply chain, 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 527 million units in 2009 to 2,610 million units in 2020 and market revenue grew
from US$64 billion to US$93 billion during the same period according to OMDIA.
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 already engage in 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
approximately 86% of industry revenue from global sales of OLED panels in 2020. However, as of 2020, 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 at our OP1 fabrication facility. In August 2017 and July 2019, we commenced mass production of plastic OLED panels for mobile and
other applications at our AP3 and AP4 fabrication facilities, respectively. In addition, we commenced mass production of large-sized OLED panels at
our CO fabrication facility, located in Guangzhou, China, in July 2020.
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 OMDIA, the display industry for panels that are nine inches or larger expanded in 2020 compared to 2019, with total market revenue
increasing from US$56 billion in 2019 to US$69 billion in 2020. The average selling price of those panels increased during the same period by
approximately 8% from approximately US$73 in 2019 to US$79 in 2020.
41
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 OLED technology 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 “Cinematic Sound OLED” sound integrated panels, rollable
OLED display panels and transparent OLED display panels), display panels utilizing Ultra HD and AH-IPS technology for various IT products and
televisions and plastic OLED technology for smartphones, automotive products and wearable devices. 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.
The overall prospects for the global economy and, in turn, the market conditions for the display panel industry, remain uncertain, especially in
light of the ongoing global COVID-19 pandemic, which may continue to have a negative effect on the global economy and cause significant volatility in
the global financial markets. See “Item 3.D. Risk Factors—Risks Relating to Our Industry—A global economic downturn may result in reduced demand
for our products and adversely affect our profitability” and “Item 3.D. Risk Factors—Risks Relating to Our Company—Earthquakes, tsunamis, floods,
severe health epidemics (including the ongoing global COVID-19 pandemic and any possible recurrence of other types of widespread infectious
diseases) and other natural calamities could materially adversely affect our business, results of operations or financial condition.” While we believe that
the overall impact of COVID-19 on our business and results of operations to date has generally been mixed, as the ensuing increase in demand for
certain types of our products, particularly IT products (partly due to increased levels of working remotely, online schooling and social distancing) helped
offset the negative effects of such pandemic (including minor temporary disruptions in our production and supply chains and a temporary decrease in
demand for the products of our end-brand customers partly resulting from disruptions and/or suspensions in retail activities in major global markets
during parts of 2020), the continued high degree of uncertainty regarding global economic prospects resulting from the global COVID-19 pandemic may
adversely impact future global demand for our products. 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.
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
AP2
AP3
AP4 (2)
OP1
P5
P62
P7
P8
P9
CA
CO (3)
Primary Input
Substrates Size
(in millimeters)
730 x 920
1,500 x 925
1,500 x 925
2,200 x 2,500
1,100 x 1,250
1,500 x 1,850
1,950 x 2,250
1,950 x 2,500
2,200 x 2,500
2,200 x 2,500
2,200 x 2,500
42
Year-end Input Capacity (1)
2018
2020
2019
(in thousands of input
substrates per month)
13
9
N/A
73
76
45
229
236
82
213
N/A
7
7
11
81
72
46
223
217
83
216
N/A
11
24
31
86
44
46
142
100
82
216
56
N/A = Not applicable.
(1)
(2)
(3)
Year-end input capacity is the total input substrates for the month that had the highest monthly input substrates during the fiscal year.
Commenced operation in July 2019.
Commenced operation in July 2020.
Our cash outflows for capital expenditures amounted to W7,942 billion in 2018, W6,927 billion in 2019 and W2,604 billion in (US$2,398
million) in 2020. Such capital expenditures relate mainly to investments in Guangzhou, China (primarily the construction of the CO fabrication facility
for the production of large-sized OLED display panels in a joint venture with the government of Guangzhou) and investments in our AP4 fabrication
facility for the production of plastic OLED display panels 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 increased from 12.8% in 2018 to 13.9% in 2019 and to 15.4%
in 2020. Such increase in 2020 compared to 2019 was a result of a relatively larger increase in our depreciation expense, which in turn was mainly
attributable to the commencement of depreciation of our AP4 fabrication facility in 2019 and our CO fabrication facility in 2020, compared to the
increase in revenue. We currently expect that, in 2021, our total capital expenditures on a cash out basis will be higher compared to 2020 and will be
used primarily to continue to fund our previously announced investments related to facilities for OLED panels. Such expected capital expenditures are
subject to periodic assessment, and we cannot provide any assurance that such expected capital expenditures 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 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. The size of our
operations has also expanded considerably in recent years, enabling us to benefit from economies of scale.
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.
As a result of the above factors, we have historically been able to reduce 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. However, our cost of sales per square meter of net display area increased
by 11.6% in 2019 compared to 2018, mainly due to the depreciation of the Korean Won against the U.S. dollar during 2019 as well as an increase in our
product mix of the proportion of OLED panels, which are generally more costly to manufacture than TFT-LCD panels, in light of the continued
overcapacity in the global TFT-LCD market and further capital investments by other suppliers, particularly from China, as well as in response to an
increase in market demand for OLED products. Our cost of sales per square meter of net display area further increased by 25.4% in 2020 compared to
2019, primarily due to our continued efforts to increase the proportion of OLED panels and reduce the proportion of lower value TFT-LCD display
panels.
43
Our cost reduction efforts in recent years also include our decision to substantially reduce the production of TFT-LCD television panels in Korea
in 2020 and the implementation of voluntary retirement programs in 2018 and 2019.
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 and a shift toward differentiated specialty products based on newer technologies,
including OLED technology, especially in the display panel markets for Ultra HD televisions, ultra-thin notebooks, tablet computers and mobile and
other applications. In response to such market trends, we have increased our production capacity and sales of OLED panels and have also developed and
commercialized 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 television panels that are 65 inches or larger in our product mix increased between 2018 and 2020. In addition,
with respect to our IT products, we have expanded our product portfolio to offer desktop panels with Full HD resolution primarily 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, panels for tablet computers utilizing AH-IPS technology with
increasingly higher resolution and other features, panels for smartphones, automotive products and wearable devices utilizing plastic OLED technology
and panels for large-sized television utilizing our Ultra HD and OLED technologies.
As part of our continued efforts to increase the proportion of higher-margin OLED panels in our product mix, we have been reducing the
production level of less profitable types of TFT-LCD panels in recent years. In particular, in 2020, we significantly reduced the production level of
TFT-LCD television display panels by substantially ceasing the production of most types of such panels in Korea, in light of continued overcapacity in
the market and our increased focus on producing OLED panels and higher margin TFT-LCD panels for IT products.
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
IT Products (1)
Mobile and other applications (2)
Sales of goods
Royalties and others
Revenue
2018
Sales
W 9,727
8,868
5,699
W24,294
43
W24,337
Year ended December 31,
2019
2020
Sales (3)
%
Sales
Sales
%
(in billions of Won and millions of US$, except for percentages)
40.0% W 7,998
9,063
36.4
23.4
6,374
99.8% W23,435
41
100.0% W23,476
34.1% W 6,706 US$ 6,174
9,319
10,121
38.6
27.1
6,775
7,359
99.8% W24,186 US$22,268
41
44
0.2
100.0% W24,230 US$22,309
0.2
%
27.7%
41.8
30.4
99.8%
0.2
100.0%
(1)
(2)
(3)
Comprises notebook computers, desktop monitors and tablet computers.
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.
For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of W1,086.11 to US$1.00, the noon buying rate in effect on December 31, 2020 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.
44
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
IT Products (1)
Mobile and other applications (2)
Total
2018
Number of
Panels
51,966
92,179
105,142
249,287
Year ended December 31,
2019
2020
Number of
Panels
Number of
Panels
%
%
(in thousands, except for percentages)
20.8%
37.0
42.2
100.0%
19.4%
37.6
43.0
100.0%
44,833
86,957
99,569
231,359
27,712
97,727
102,884
228,323
%
12.1%
42.8
45.1
100.0%
(1)
(2)
Comprises notebook computers, desktop monitors and tablet computers.
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 3.9% from W97,454 in 2018 to W101,293 in 2019 and
further increased by 4.6% to W105,928 (US$98) in 2020. In 2019 compared to 2018, our average selling price increased primarily due to an increase in
the average selling price for certain IT products, in particular tablet computers, and mobile and other applications, which in turn was mainly attributable
to increases in the proportion of tablet display panels that feature directly bonded protective cover glass and the proportion of plastic OLED panels for
mobile and other applications, which generally have higher selling prices, in our product mix. In 2020 compared to 2019, our average selling price
further increased due to an increase in the average selling price for televisions and mobile and other applications, which in turn was mainly attributable
to an increase in the proportion of OLED television panels and plastic OLED panels for mobile and other applications, which generally have higher
selling prices, in our product mix.
The following table sets forth our average selling price per panel by markets for the years indicated:
Televisions
IT Products (1)
Mobile and other applications (2)
All panels
Average Selling Price (3)
Year ended December 31,
2018
W187,180
96,204
54,203
97,454
2019
W178,395
104,224
64,016
101,293
2020 (4)
W241,989
103,563
71,537
105,928
US$223
95
66
98
(1)
(2)
(3)
(4)
Comprises notebook computers, desktop monitors and tablet computers.
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 price for each market represents revenue per market divided by unit sales per market.
For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of W1,086.11 to US$1.00, the noon buying rate in effect on December 31, 2020 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.
45
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 5.9% from W576,817 in 2018 to W610,716 in 2019. In 2020, our average revenue per square meter of net display area shipped
increased by 29.5% to W790,874 (US$728).
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 increased from W313 billion in 2018 to W473 billion in 2019 but decreased to W214 billion (US$197
million) in 2020. The decrease in 2020 compared to 2019 was due primarily to a general decrease in the inventory level of TFT-LCD display panels in
2020 compared to 2019. The amount of any such adjustment is recognized as cost of sales in the period for which the assessment relates.
Income Taxes
We have significant deferred income tax assets that may be used to reduce future income taxes. 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 in years we record a positive net profit. 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 2018 and 2019, we did not
recognize W65 billion and W333 billion, respectively, 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 2020, we reversed W267 billion (US$246 million) of such
previously unrecognized tax credit carryforwards, which was mainly attributable to an amendment in Korean tax laws to extend the tax credit
carryforward period for deferred tax assets from five years to ten years. See Notes 22 and 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 years we record a
positive net profit. 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.
46
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 valid for a period of time mutually agreed between us and the relevant customer from the date
of purchase by such customer. These liabilities are accrued when product revenue is 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 2018 to 2020. 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
W122 billion, W230 billion and W272 billion (US$250 million) as of December 31, 2018, 2019 and 2020, respectively. Warranty expenses significantly
increased from W235 billion in 2018 to W419 billion in 2019, but decreased to W309 billion (US$285 million) in 2020. The increase from 2018 to 2019
was due primarily to higher quality expectations for display panel products and the increase in the proportion of OLED panels, which generally have
higher selling prices and require more sophisticated manufacturing technology than TFT-LCD panels, in our product mix. The decrease from 2019 to
2020 was due primarily to an improvement in the stability of our manufacturing processes for OLED display panels.
Long-Lived Assets: Useful Lives, Valuation and Impairment
Property, plant and equipment are recorded at cost less accumulated depreciation and impairment 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. All of our new machinery is currently 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, if it is not possible to estimate the recoverable amount of an individual asset, cash-
generating units (which represents the smallest group of assets that includes the asset and generates cash inflows that are largely independent of the cash
inflows from other assets of the group of assets) at each reporting date to determine whether there is any indication of impairment. Cash-generating units
are determined through business interdependencies related to production facilities as we monitor our operations and make decisions about continuing or
disposing of any assets or operations. If any indication of impairment 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 recoverable amount. 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. Revenue and operating expenditures for the forecast period, growth
rates for the subsequent years and the discount rate are used to estimate the value in use for impairment assessment, which assumptions generally have a
significant effect on our impairment assessment. 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 net impairment losses on property, plant and equipment of
W44 billion in 2018, W1,550 billion in 2019 and W38 billion (US$35 million) in 2020. With respect to intangible assets, we recognized net reversal of
impairment loss of W0.3 billion in 2018 and net impairment loss of W248 billion and W78 billion (US$72 million) in 2019 and 2020, respectively. Such
significant increases in impairment losses in 2019 were primarily attributable to a decrease in the estimated recoverable amount of our property, plant
and equipment and intangible assets relating to our “Display (AD PO)” business (which refers to our business relating to the production of certain of the
plastic OLED panels) and, to a much smaller extent, OLED light business, each of which has been determined as a separate cash generating unit, in light
of the prevailing and anticipated future market conditions for these businesses and the determination of our plan to discontinue our production of OLED
light products. Specifically, the business outlook for plastic OLED smartphones was more positive in 2018, when we were continuing to make capital
investments on such business, than in 2019, as we began to experience a stagnant high-end smartphone market as well as a slowdown in smartphone
replacement cycles while the level of our mass production of plastic OLED panels significantly increased during such year. We have accounted for such
factors, among others, in recognizing our impairment loss for 2019. See Notes 9 and 10 of the notes to our financial statements for further discussion of
our assessment of impairment with respect to our plastic OLED and OLED light businesses.
47
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.
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. 16 “Leases”
IFRS No. 16 “Leases,” which provides a single, on-balance sheet lease accounting model for lessees, replaces 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.” Under IFRS No. 16, a lessee recognizes a right-of-use asset representing its right to use the
underlying asset and a lease liability representing the present value of its obligation to make future lease payments. We initially adopted IFRS No. 16
from January 1, 2019, applying the modified retrospective approach, which allows 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 without retrospectively adjusting the comparative information for prior
periods.
IFRS No. 16 requires us, as a lessee, to recognize right-of-use assets and lease liabilities related to substantially all of our lease arrangements
except for certain short-term and low-value items. As a result, we recognized right-of-use assets (as part of our property, plant and equipment) of
W142 billion, W113 billion and W111 billion (US$102 million) and lease liabilities (as part of our financial liabilities) of W115 billion, W89 billion and
W83 billion (US$76 million), in each case as of January 1, 2019, December 31, 2019 and December 31, 2020, respectively. In 2019 and 2020, we also
recognized depreciation expenses of W51 billion and W54 billion (US$50 million), respectively, relating to our right-of-use assets and interest expenses
of W4 billion and W4 billion (US$4 million), respectively, relating to our lease liabilities.
For a further discussion of our leases and accounting policies relating thereto, see Notes 3(l) and 26 of the notes to our financial statements.
Operating Results
The following presents our consolidated results of operation information and as a percentage of our revenue for the years indicated:
Revenue
Cost of sales
Gross profit
Selling expenses
Administrative expenses
Research and development expenses
Other income
Other expenses
Finance income
Finance costs
Equity income on investments, net
Profit (loss) before income tax
Income tax benefit (expense)
Profit (loss) for the year
2018%
W 24,337
(21,251)
3,085
(834)
(938)
(1,221)
1,004
(1,115)
254
(327)
1
(91)
(88)
(179)
Year ended December 31,
2019
%
2020
2020 (1)
%
US$ 22,309
(in billions of Won and in millions of US$, except for percentages)
100.0% W 23,476
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)
100.0% W 24,230
92.0
8.0
4.5
4.0
5.2
5.4
13.2
1.2
1.9
0.1
(14.2)
(2.0)
(12.2)
(21,588)
2,643
(818)
(755)
(1,099)
1,785
(1,999)
439
(803)
13
(595)
524
(71)
(21,607)
1,868
(1,058)
(948)
(1,222)
1,267
(3,098)
277
(443)
12
(3,344)
472
(2,872)
(19,877)
2,433
(753)
(695)
(1,012)
1,643
(1,841)
404
(739)
12
(548)
482
(65)
100.0%
89.1
10.9
3.4
3.1
4.5
7.4
8.3
1.8
3.3
0.1
(2.5)
2.2
(0.3)
(1)
For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of W1,086.11 to US$1.00, the noon buying rate in effect on December 31, 2020 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.
48
Comparison of 2020 to 2019
Revenue
Our revenue increased by 3.2% from W23,476 billion in 2019 to W24,230 billion (US$22,309 million) in 2020. The increase in revenue resulted
from increases in revenue derived from sales of panels for IT products and mobile and other applications, which were in turn mainly due to increases in
the number of panels sold for IT products and the average selling price of mobile and other applications, offset in part by a decrease in revenue derived
from sales of panels for televisions.
Revenue attributable to sales of panels for IT products increased by 11.7% from W9,063 billion in 2019 to W10,121 billion (US$9,319 million) in
2020, resulting from an increase in the number of units sold of panels in this category in 2020 compared to 2019, partially offset by a slight decrease in
the average selling price of panels in this category in 2020 compared to 2019. The total unit sales of panels for IT products increased by 12.4% from
87.0 million panels in 2019 to 97.7 million panels in 2020, whereas the average selling price of panels in this category decreased by 0.6% from
W104,224 in 2019 to W103,563 (US$95) in 2020. The increase in the sales volume of panels for IT products primarily reflected stronger global demand
for such products due mainly to increased levels of working remotely, online schooling and social distancing in light of the global COVID-19 pandemic.
Revenue attributable to sales of panels for televisions decreased by 16.2% from W7,998 billion in 2019 to W6,706 billion (US$6,174 million) in
2020, resulting from a significant decrease in the number of units sold of panels in this category in 2020 compared to 2019, partially offset by a
significant increase in the average selling price of panels in this category in 2020 compared to 2019. The total unit sales of panels for televisions
decreased by 38.2% from 44.8 million panels in 2019 to 27.7 million panels in 2020, whereas the average selling price of panels in this category
increased by 35.6% from W178,395 in 2019 to W241,989 (US$223) in 2020. 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 our continued strategic focus to increase the proportion of higher-
value OLED television panels while decreasing the proportion of TFT-LCD television panels in our product mix, including our decision to cease the
production of most types of TFT-LCD television panels in Korea in 2020. The increase in the average selling price of television panels was mainly due
to an increase in the proportion of OLED television panels, which generally command higher selling prices than TFT-LCD television panels, in our
product mix.
Revenue attributable to sales of panels for mobile and other applications increased by 15.5% from W6,374 billion in 2019 to W7,359 billion
(US$6,776 million) in 2020, resulting from an increase in the average selling price of panels in this category in 2020 compared to 2019, accompanied by
an increase in the number of units sold of panels in this category in 2020 compared to 2019. The average selling price of panels for mobile and other
applications increased by 11.7% from W64,016 in 2019 to W71,537 (US$66) in 2020, and the total unit sales of panels in this category increased by
3.3% from 99.6 million in 2019 to 102.9 million in 2020. The increase in the average selling price of panels for mobile and other applications 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 smartphones, automotive products and wearable devices, in our product mix for panels in this category.
The increase in the sales volume of panels in this category primarily resulted from an increase in market demand for the newly introduced smartphones
of our end-brand customers.
In addition, our revenue attributable to royalty and others increased by 7.3% from W41 billion in 2019 to W44 billion (US$41 million) in 2020.
The increase was due to a 11.1% increase in other revenue, consisting primarily of sales of sample products and certain raw materials and components,
from W27 billion in 2019 to W30 billion (US$28 million) in 2020, while royalties remained constant at W14 billion (US$13 million) in each of 2019
and 2020.
Cost of Sales
Cost of sales slightly decreased by 0.1% from W21,607 billion in 2019 to W21,588 billion (US$19,877 million) in 2020. The decrease in our cost
of sales in 2020 compared to 2019 was attributable primarily to a decrease in cost of raw materials and components, which was due principally to a
decrease in total square meters of net display area we produced, partially offset by an increase in the proportion of products with differentiated specialty
features and newer technologies that require higher-cost raw materials and components in our production mix. The effect of such decrease in cost of raw
materials and components was largely offset by an increase in depreciation and amortization, which mainly reflected the commencement of depreciation
of our AP4 fabrication facility in 2019 and our CO fabrication facility in 2020.
49
As a percentage of our total cost of sales, raw materials and component costs, labor costs, overhead costs, depreciation and amortization costs and
change in inventory costs constituted 62.8%, 9.8%, 13.4%, 13.5% and 0.5%, respectively, in 2019 and 60.5%, 10.0%, 13.4%, 15.7% and 0.4%,
respectively, in 2020.
As a percentage of revenue, cost of sales decreased from 92.0% in 2019 to 89.1% in 2020. The decrease in our cost of sales as a percentage of
revenue in 2020 compared to 2019 was attributable mainly to a shift in our business focus and product mix to increase the proportion of higher value-
added products with higher margins.
Cost of sales per square meter of net display area, which is derived by dividing total cost of sales by total square meters of net display area
shipped, increased by 25.4% from W562,112 in 2019 to W704,620 (US$649) in 2020. Such increase was due mainly 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 (including
plastic OLED panels for mobile and other applications), which generally have higher cost of sales per panel relative to other panel units within each
product category, in our product mix during the same period. Cost of sales per panel sold, which is derived by dividing total cost of sales by total
number of panels sold, increased by 1.2% from W93,392 in 2019 to W94,548 (US$87) in 2020. Such increase was also due mainly to increases in the
proportion within each of our product categories of panel units with differentiated specialty features and newer technologies in our product mix during
the same period, the effect of which was partially offset by an increase in the proportion of smaller-sized panels (including mobile and other applications
and certain IT products) that generally have lower cost of sales per panel and a corresponding decrease in the proportion of larger-sized television panels
that generally have higher cost of sales per panel in our production mix.
Gross Profit and Gross Margin
As a result of the cumulative effect of the reasons explained above, our gross profit increased by 41.5% from W1,868 billion in 2019 to
W2,643 billion (US$2,433 million) in 2020, and our gross margin increased from 8.0% in 2019 to 10.9% in 2020. The continued shift in our product
mix toward higher-end products in 2020 resulted in increases in both the average selling price and cost of sales per panel sold in 2020 compared to
2019, but the increase in average selling price outpaced the increase in cost of sales per panel sold mainly due to an increase in the proportion of higher
margin products with differentiated technologies (such as OLED) in our product mix, as well as stronger global demand for consumer electronics
products in light of the increased levels of working remotely, home schooling and social distancing caused by the COVID-19 pandemic.
Selling and Administrative Expenses
Selling and administrative expenses decreased by 21.6% from W2,006 billion in 2019 to W1,573 billion (US$1,448 million) in 2020. As a
percentage of revenue, our selling and administrative expenses decreased from 8.5% in 2019 to 6.5% in 2020. The decrease in selling and administrative
expenses in 2020 compared to 2019 was attributable primarily to decreases in:
•
•
•
Salaries, as temporary increases in salaries in 2019 and 2018 due to the retirement allowance incurred in connection with the
implementation of voluntary retirement programs for our employees during such years was not repeated in 2020;
warranty expenses, resulting mainly from an improvement in the stability of our manufacturing processes for OLED display panels; and
advertising expenses, resulting primarily from decrease in the level of our higher-cost offline marketing activities and a corresponding
increase in the level of our online marketing activities in 2020 compared to 2019.
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, 2020:
50
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,
2020
2019
(in billions of Won)
W 515
29
78
163
220
226
50
193
419
3
11
24
12
64
W 2,006
W 294
26
68
148
222
215
83
114
309
2
13
8
8
62
W 1,573
Research and Development Expenses
Research and development expenses decreased by 10.1% from W1,222 billion to W1,099 billion (US$1,012 million) in 2020. As a percentage of
revenue, our research and development expenses decreased from 5.2% in 2019 to 4.5% in 2020. The research and development expenses in 2020 were
incurred mainly in relation to research and development activities related to OLED and next generation technologies and products.
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, impairment loss on property, plant and equipment and impairment loss on intangible assets. Our total net other expense
decreased significantly from W1,830 billion in 2019 to W215 billion (US$198 million) in 2020. Such decrease was primarily due to a significant
decrease in net impairment loss on property, plant and equipment from W1,550 billion in 2019 to W38 billion (US$35 million) in 2020. In addition, our
net impairment loss on intangible assets decreased significantly from W248 billion in 2019 to W78 billion (US$72 million) in 2020. Such significant
decreases in impairment losses in 2020 were primarily attributable to the one-time effect of the impairment losses incurred in 2019 with respect to the
estimated recoverable amount of our property, plant and equipment and intangible assets relating to the Display (AD PO) cash generating unit and, to a
much smaller extent, OLED lights cash generating unit in light of the prevailing and anticipated future market conditions at such time and the
determination of our plan to discontinue our production of OLED light products. See “—Critical Accounting Policies—Long-Lived Assets; Useful
Lives, Valuation and Impairment.”
Finance Income (Costs), Net
Our total net finance costs increased by 118.5% from W167 billion in 2019 to W364 billion (US$335 million) in 2020. Such increase was mainly
attributable to:
•
•
a 113.9% increase in interest expense from W173 billion in 2019 to W370 billion (US$341 million) in 2020, which was mainly due to an
increase in the average amount of our long-term borrowings outstanding as well as a decrease in capitalized interest in 2020 compared to
2019; and
net loss on valuation of derivatives of W187 billion in 2020 compared to net gain on valuation of derivatives of W42 billion in 2019, as
the U.S. dollar generally depreciated against the Korean Won during the second half of 2020 and significantly fluctuated over these
periods as a whole. Against such fluctuations, we also recognized net foreign currency gain of W142 billion in 2020 compared to net
foreign currency loss of W19 billion in 2019, as well as net gains on transaction of derivatives of W22 billion in 2019 and W24 billion in
2020.
51
Income Tax Expense (Benefit)
Our income tax benefit increased by 11.0% from W472 billion in 2019 to W524 billion (US$482 million) in 2020, resulting from a decrease in
current tax expense, which was partially offset by a decrease in deferred tax benefit in 2020 compared to 2019. Our current tax expense decreased by
60.8% from W158 billion in 2019 to W62 billion (US$57 million) in 2020, whereas our deferred tax benefit decreased by 7.0% from W630 billion in
2019 to W586 billion (US$540 million) in 2020, as we continued to record a loss before income tax of W595 billion (US$548 million) in 2020
compared to a loss before income tax of W3,344 billion in 2019 and reversed W267 billion (US$246 million) of previously unrecognized tax credit
carryforwards mainly as a result of an amendment in Korean tax laws to extend the tax credit carryforward period for deferred tax assets from five years
to ten years. Our effective tax rates were not calculated in 2019 and 2020 due to the loss before income tax we recorded in such years. See Note 23 of
the notes to our financial statements.
Loss for the Year
As a result of the cumulative effect of the reasons explained above, our loss for the year decreased significantly from W2,872 billion in 2019 to
W71 billion (US$65 million) in 2020. Our loss for the year as a percentage of revenue was (12.2)% in 2019 and (0.3)% in 2020.
Comparison of 2019 to 2018
Revenue
Our revenue decreased by 3.5% from W24,337 billion in 2018 to W23,476 billion in 2019. The decrease in revenue resulted from a decrease in
revenue derived from sales of panels for televisions, which was in turn mainly due to decreases in the number of panels sold for televisions, offset in
part by an increase in revenue derived from sales of panels for mobile and other applications and IT products.
Revenue attributable to sales of panels for televisions decreased by 17.8% from W9,727 billion in 2018 to W7,998 billion in 2019, resulting from
a decrease in the number of units sold of panels in this category in 2019 compared to 2018, accompanied by a decrease in the average selling price of
panels in this category in 2019 compared to 2018. The total unit sales of panels for televisions decreased by 13.8% from 52.0 million panels in 2018 to
44.8 million panels in 2019, and the average selling price of panels in this category decreased by 4.7% from W187,180 in 2018 to W178,395 in 2019.
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 our continued strategic focus to increase the proportion of higher-value OLED television panels while decreasing the proportion of TFT-LCD
television panels in our product mix. The decrease in the average selling price of television panels was mainly due to a continued increase in downward
pricing pressure resulting from capacity expansion by and increased competition from our competitors, mainly in China, in 2019 compared to 2018,
which was partially offset by the depreciation of the Korean Won against the U.S. dollar during 2019, as well as an increase in the proportion of OLED
television panels, which generally command higher selling prices than TFT-LCD television panels, in our product mix.
Revenue attributable to sales of panels for IT products increased by 2.2% from W8,868 billion in 2018 to W9,063 billion in 2019, resulting from
an increase in the average selling price of panels in this category in 2019 compared to 2018, partially offset by a decrease in the number of units sold of
panels in this category in 2019 compared to 2018. The average selling price of panels for IT products increased by 8.3% from W96,204 in 2018 to
W104,224 in 2019, whereas the total unit sales of panels in this category decreased by 5.6% from 92.2 million panels in 2018 to 87.0 million panels in
2019. The increase in the average selling price of our panels for IT products was mainly attributable to the depreciation of the Korean Won against the
U.S. dollar during 2019 as well as the continued increase in the proportion of panels with differentiated specialty features that command higher selling
prices, such as tablet display panels that feature directly bonded protective cover glass and high resolution and AH-IPS display panels for notebook
computers, in our product mix for panels for IT products. The decrease in the sales volume of panels for IT products primarily reflected increased
competition from our competitors leading to our strategic decision to decrease the production of certain models of lower profitability as well as a
decrease in market demand for desktop monitors of end-brand customers.
52
Revenue attributable to sales of panels for mobile and other applications increased by 11.8% from W5,699 billion in 2018 to W6,374 billion in
2019, resulting from a significant increase in the average selling price of panels in this category in 2019 compared to 2018, partially offset by a decrease
in the number of units sold of panels in this category in 2019 compared to 2018. The average selling price of panels for mobile and other applications
increased by 18.1% from W54,203 in 2018 to W64,016 in 2019, whereas the total unit sales of panels in this category decreased by 5.2% from
105.1 million in 2018 to 99.6 million in 2019. The increase in the average selling price of panels for mobile and other applications was attributable to
the depreciation of the Korean Won against the U.S. dollar during 2019, 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 smartphones, automotive products and wearable
devices, in our product mix for panels in this category. The decrease in the sales volume of panels in this category 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 reduce the production output of
lower-end TFT-LCD products.
In addition, our revenue attributable to royalty and others decreased by 7.0% from W43 billion in 2018 to W41 billion in 2019. The decrease was
due to a decrease in royalties from W18 billion in 2018 to W14 billion in 2019, while other revenue, consisting primarily of sales of sample products
and certain raw materials and components, increased by 8.0% from W25 billion in 2018 to W27 billion in 2019.
Cost of Sales
Cost of sales increased by 1.7% from W21,251 billion in 2018 to W21,607 billion in 2019. The increase in our cost of sales in 2019 compared to
2018 was attributable primarily to a change in the value of our inventories due in part to the strengthening of the U.S. Dollar, in which 86.1% of our raw
materials and component part purchases were denominated in 2019, against the Korean Won in 2019 as a whole, compared to 2018 as a whole. In
addition, an increase in raw materials and component costs mainly relating to the increased share of high-end products in our product mix, contributed to
the increase in costs on a per unit basis during the same period.
As a percentage of our total cost of sales, raw materials and component costs, labor costs, overhead costs, depreciation and amortization costs and
change in inventory costs constituted 62.9%, 10.7%, 14.2%, 13.6% and (1.4)%, respectively, in 2018 and 62.8%, 9.8%, 13.4%, 13.5% and 0.5%,
respectively, in 2019.
As a percentage of revenue, cost of sales increased from 87.3% in 2018 to 92.0% in 2019. The increase in our cost of sales as a percentage of
revenue in 2019 compared to 2018 was attributable mainly to the continued increase in downward pricing pressure in the global display panel industry,
particularly in relation to TFT-LCD panels.
Cost of sales per square meter of net display area, which is derived by dividing total cost of sales by total square meters of net display area
shipped, increased by 11.6% from W503,631 in 2018 to W562,112 in 2019. Cost of sales per panel sold, which is derived by dividing total cost of sales
by total number of panels sold, increased by 9.6% from W85,247 in 2018 to W93,392 in 2019 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 (including plastic OLED
panels for mobile and other applications), 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 39.4% from W3,085 billion in 2018 to
W1,868 billion in 2019, and our gross margin decreased from 12.7% in 2018 to 8.0% in 2019. The continued shift in our product mix toward higher-end
products in 2019 resulted in increases in both the average selling price and cost of sales per panel sold in 2019 compared to 2018, but the increase in
cost of sales per panel sold outpaced the increase in average selling price mainly due to a continued increase in the production capacity of the industry
that applied downward pricing pressure.
Selling and Administrative Expenses
Selling and administrative expenses increased by 13.2% from W1,772 billion in 2018 to W2,006 billion in 2019. As a percentage of revenue, our
selling and administrative expenses increased from 7.3% in 2018 to 8.5% in 2019. The increase in selling and administrative expenses in 2019 compared
to 2018 was attributable primarily to increases in:
•
warranty expenses, resulting mainly from higher quality expectations for our OLED panel products;
53
•
•
advertising expenses, resulting primarily from an increase in our marketing activities in 2019 related to the promotion of our OLED
panel products; and
depreciation expenses, resulting mainly from an increase in, as well as the effects of our adoption of IFRS 16 with respect to, our
leased non-manufacturing assets, which was partially offset by a corresponding decrease in rent expense with respect to such assets.
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, 2019:
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,
2019
2018
(in billions of Won)
W 501
31
90
200
221
175
66
112
235
27
12
25
13
64
W 1,772
W 515
29
78
163
220
226
50
193
419
3
11
24
12
64
W 2,006
Research and Development Expenses
Research and development expenses remained relatively constant at W1,222 billion in 2019 compared to W1,221 billion in 2018. As a percentage
of revenue, our research and development expenses increased from 5.0% in 2018 to 5.2% in 2019. The research and development expenses in 2019 were
incurred mainly in relation to research and development activities related to OLED and next generation technologies and products.
Other Income (Expense), Net
Other income includes primarily foreign currency gains from operating activities, and other expenses include primarily impairment loss on
property, plant and equipment and foreign currency losses from operating activities. Our total net other expense increased significantly from
W112 billion in 2018 to W1,830 billion in 2019. Such increase was primarily due to a significant increase in net impairment loss on property, plant and
equipment from W44 billion in 2018 to W1,550 billion in 2019. In addition, we incurred net impairment loss on intangible assets of W248 billion in
2019 compared to a net reversal of impairment loss on intangible assets of W0.3 billion in 2018. Such significant increases in impairment losses in 2019
were primarily attributable to a decrease in the estimated recoverable amount of our property, plant and equipment and intangible assets relating to the
Display (AD PO) cash generating unit and, to a much smaller extent, OLED lights cash generating unit in light of the prevailing and anticipated future
market conditions and the determination of our plan to discontinue our production of OLED light products. See “—Critical Accounting Policies—Long-
Lived Assets; Useful Lives, Valuation and Impairment.”
Finance Income (Costs), Net
Our total net finance costs increased by 128.8% from W73 billion in 2018 to W167 billion in 2019. Such increase was mainly attributable to:
•
a 113.6% increase in interest expense from W81 billion in 2018 to W173 billion in 2019, which was mainly due to an increase in the
average amount of interest-bearing financial liabilities outstanding as well as a decrease in capitalized interest in 2019 compared to
2018; and
54
•
loss on valuation of financial liabilities at fair value through profit or loss of W56 billion in 2019 compared to no such loss in 2018,
which primarily reflected the increase in the fair value of our outstanding U.S. dollar-denominated convertible bonds, which were
issued in August 2019 and are accounted for as financial liabilities at fair value through profit or loss.
We recognized net foreign currency losses of W23 billion in 2018 and W19 billion in 2019, as the Won generally depreciated against the U.S.
dollar over these periods. Against such fluctuations, we recognized a net gain on valuation of derivatives of W42 billion in 2019 compared to a net loss
on valuation of derivatives of W14 billion in 2018, as well as net gains on transaction of derivatives of W2 billion in 2018 and W22 billion in 2019.
Income Tax Expense (Benefit)
We recognized an income tax benefit of W472 billion in 2019 compared to an income tax expense of W88 billion in 2018, resulting from a
decrease in current tax expense and an increase in deferred tax benefit in 2019 compared to 2018. Our current tax expense decreased by 36.8% from
W250 billion in 2018 to W158 billion in 2019, and our deferred tax benefit increased significantly from W162 billion in 2018 to W630 billion in 2019,
primarily due to a significant increase in our loss before income tax from W91 billion in 2018 to W3,344 billion in 2019. Our effective tax rates were
not calculated in 2018 and 2019 due to the loss before income tax we recorded in such years. See Note 23 of the notes to our financial statements.
Loss for the Year
As a result of the cumulative effect of the reasons explained above, our loss for the year increased significantly from W179 billion in 2018 to
W2,872 billion in 2019. Our loss for the year as a percentage of revenue was (0.7)% in 2018 and (12.2)% in 2019.
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 W2,365 billion, W3,336 billion and W4,218 billion (US$3,884 million) as of December 31, 2018, 2019 and 2020, respectively. We
also had short-term deposits in banks of W78 billion, W79 billion and W79 billion (US$73 million), respectively, as of December 31, 2018, 2019 and
2020. 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 2021 to be primarily for capital expenditures and repayment of
maturing debt.
As of December 31, 2018, we had current assets of W8,800 billion and current liabilities of W9,954 billion, resulting in a working capital deficit
of W1,154 billion. As of December 31, 2019, we had current assets of W10,248 billion and current liabilities of W10,985 billion, resulting in a working
capital deficit of W737 billion. As of December 31, 2020, we had current assets of W11,099 billion (US$10,219 million) and current liabilities of
W11,007 billion (US$10,134 million), resulting in a working capital surplus of W92 billion (US$85 million). The decrease in working capital deficit as
of December 31, 2019 compared to December 31, 2018 was primarily attributable to a W971 billion increase in cash and cash equivalents in response to
an increase in uncertainty in the financial markets and our business environment, as well as a W469 billion decrease in trade accounts and notes payable
mainly as a result of the effects of the timing of the settlement of trade accounts and notes payable prior to the year-end and a W325 billion increase in
net trade accounts and notes receivable, which was mainly caused by a decrease in sales of trade accounts and notes receivable in 2019 and the effects of
the depreciation of the Korean Won against the U.S. dollar as of the end of 2019 compared to the end of 2018. The working capital surplus as of
December 31, 2020, compared to a working capital deficit as of December 31, 2019, was primarily attributable to a W1,615 billion decrease in other
accounts payable, which mainly reflected a decrease in the outstanding balance of enterprise procurement cards (a type of corporate credit card used for
paying for utilities and certain other goods and services) at December 31, 2020 compared to December 31, 2019 as a result of our accounts payable
management activities during 2020, and a W882 billion increase in cash and cash equivalents mainly as a result of general increase in our cash levels in
light of corresponding increases in our revenue and profitability as well as our response to increased uncertainties in the financial markets and our
business environment, the effects of which were partially offset by a W1,218 billion increase in our current financial liabilities, which mainly reflected
an increase in the current portion of long-term liabilities payable as of the end of 2020 compared to the end of 2019, and a W1,161 billion increase in
our trade accounts and notes payable mainly as a result of extensions to applicable payment terms with certain outside vendors.
55
Our management constantly monitors our working capital, and we have historically been able to satisfy our cash requirements from cash flows
from operations and debt financing. We believe that we have sufficient sources of working capital, including in the form of debt financing, for our
present requirements. In 2020, we issued domestic bonds in the aggregate principal amount of W50 billion (US$46 million), and we entered into a
number of short-term and long-term facility loan agreements, from which we have drawn down the full aggregate principal amount of US$363 million
(W394 billion) as of December 31, 2020 in short-term loans and W580 billion (US$534 million), US$145 million (W157 billion) and
CNY9,305 million (W1,554 billion) in long-term loans, in each case as of December 31, 2020, primarily to fund our capital expenditures and refinance
our existing borrowings maturing in 2021.
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 various 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 W4,484 billion in 2018, W2,707 billion in 2019 and W2,287 billion (US$2,106 million)
in 2020. The decrease in net cash provided by our operating activities in 2019 compared to 2018 was mainly due to (i) a decrease in cash collected from
our customers, primarily as a result of a decrease in our sales revenue, (ii) a decrease in cash inflow from trade accounts and notes receivable primarily
resulting from a decrease in sales of trade accounts and notes receivable and (iii) a decrease in long-term advances received pursuant to long-term
supply agreements, in each case in 2019 compared to 2018. The decrease in net cash provided by operating activities in 2020 compared to 2019 was
mainly due to changes in our working capital, including a decrease in other accounts payable primarily reflecting a decrease in the outstanding balance
of enterprise procurement cards (a type of corporate credit card used for paying for utilities and certain other goods and services) at December 31, 2020
compared to December 31, 2019 as a result of our accounts payable management activities during 2020, and, to a lesser extent, an increase in inventory
mainly due to an increase in the proportion of more expensive, higher value-added products in our inventory in 2020 compared to 2019.
The cyclical market conditions that are characteristic of our industry, as well as the regular ramp-up of our new fabrication facilities and
production lines and our cost reduction measures, contribute to the fluctuations in our inventory levels from period to period. In 2019, our inventory
levels decreased by 23.8% from year-end 2018. In 2020, our inventory levels increased by 5.9% from year-end 2019.
Inventories consisted of the following for the dates indicated:
Finished goods
Work in process
Raw materials
Supplies
Total
2018
W1,084
856
555
196
W2,691
As of December 31,
2020
2019
(in billions of Won and millions of US$)
W 730
757
406
159
W2,051
W 785
733
491
161
W2,171
2020(1)
US$ 723
675
452
148
US$1,999
(1)
For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of W1,086.11 to US$1.00, the noon buying rate in effect on December 31, 2020 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 W7,675 billion in 2018, W6,755 billion in 2019 and W2,319 billion (US$2,135 million) in
2020. 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
W7,942 billion, W6,927 billion and W2,604 billion (US$2,398 million) in 2018, 2019 and 2020, 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.
56
We currently expect that, in 2021, our total capital expenditures on a cash out basis will be higher compared to 2020 and will be used primarily to
continue 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 W2,953 billion in 2018, W4,988 billion in 2019 and W932 billion (US$858 million) in
2020. The increase in net cash provided by financing activities in 2019 reflects primarily an increase in net proceeds from short-term borrowings in
2019 compared to 2018, as well as an increase in net proceeds from issuance of convertible bonds and long-term borrowings in 2019 compared to 2018,
partially offset by an increase in our repayment of short-term borrowings in 2019 compared to 2018. The decrease in net cash provided by financing
activities in 2020 reflects primarily decreases in net proceeds from long-term borrowings and issuance of bonds, as well as an increase in our repayment
of short-term borrowings, in 2020 compared to 2019, partially offset by an increase in proceeds from short-term borrowings in 2020 compared to 2019.
At our annual general meeting of shareholders held 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 annual general meetings of shareholders on
March 15, 2019, March 20, 2020 and March 23, 2021, we did not declare any cash dividend to our shareholders.
We had a total of nil, W697 billion and W395 billion (US$363 million) of short-term borrowings outstanding as of December 31, 2018, 2019 and
2020, respectively. For further information regarding our financial liabilities, please see Note 11 of the notes to our financial statements.
As of December 31, 2020, we maintained accounts receivable sales negotiating facilities with several banks for up to an aggregate amount of
US$1,115 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
W107 billion and US$2,272 million, respectively. For further information regarding these facilities, please see Note 14 of the notes to our financial
statements.
As of December 31, 2020, we had outstanding long-term debt including current portion in the amount of W13,679 billion (US$12,594 million)
and prior to deducting discounts on bonds, consisting of W1,480 billion of Korean Won denominated bonds, US$400 million of U.S. dollar
denominated bonds, US$2,742 million of U.S. dollar denominated long-term loans, CNY27,825 million of CNY denominated long-term loans,
W3,273 billion of Korean Won denominated long-term loans and US$792 million of outstanding U.S. dollar denominated convertible bonds (as
measured by their fair value as of such date), which are accounted for as financial liabilities at fair value through profit or loss. Such convertible bonds,
which were issued on August 22, 2019 at an aggregated principal value of US$687.8 billion and will mature on August 22, 2024, may be converted into
shares of our common stock during the period between August 23, 2020 and August 12, 2024 at the conversion price of W19,845 per share, subject to
adjustment in the case of certain dilutive events. The terms of such convertible bonds also include provisions for early redemption at our option or the
bondholders’ option. For further information on our outstanding convertible bonds as of December 31, 2020, see Note 11(f) of the notes to our financial
statements.
The terms of some of our long-term debt contain provisions that would trigger a requirement for early repayment. 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, 2020. For
further information about our short- and long-term debt obligations as of December 31, 2020, see Note 11 of the notes to our financial statements.
As of December 31, 2020, we have entered into eight agreements to guarantee the payment obligations in the aggregate amount of US$1.2 billion
of our subsidiary LG Display Vietnam Haiphong Co., Ltd. under credit facilities and payables facilities with various financial institutions, including
BNP Paribas, Sumitomo Mitsui Banking Corporation, Standard Chartered Bank, Citibank, Export-Import Bank of Korea and Bank of Australia and
New Zealand, among other lenders.
Set forth below are the aggregate amounts, as of December 31, 2020, of our future contractual financing and licensing obligations under our
existing debt and other contractual arrangements:
57
Contractual Obligations
Unsecured bank borrowings
Secured bank borrowings
Unsecured bond issues
Trade accounts and notes payable
Other accounts payable
Other accounts payable (enterprise procurement cards)(1)
Long-term other accounts payable
Securities deposits received
Lease Liabilities
Derivatives
Total
Total
W 8,486
3,715
2,787
3,779
1,704
1,078
0
13
90
153
W21,806
Payments Due by Period
Less than
1 year
W 1,907
709
879
3,779
1,704
1,078
—
1
39
49
W10,146
1-3 years
(in billions of Won)
W5,299
1,333
1,688
—
—
—
0
12
37
80
W8,449
3-5 years
W1,218
1,280
128
—
—
—
—
—
5
24
W2,655
More than
5 years
—
W 456
92
—
—
—
—
—
9
—
W 557
(1)
Represents the amount of utility expenses and other expenses paid using the enterprise procurement cards. For further information, please see Note 26 of the notes to our financial
statements.
In addition to the above, we 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 W117 billion in 2018, W122 billion in 2019
and W136 billion (US$125 million) in 2020, representing 6.7%, 6.9% and 7.8% of our research and development related expenditures in 2018, 2019 and
2020, respectively, in each case based on our current method of recognizing our research and development related expenditures, which was revised in
2019. 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 2020, 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 productivity enhancement and technology. For example, in 2020,
under the Restriction of Special Taxation Act, we were entitled to a tax credit of 2% of our capital investments in facilities for enhancing productivity
through process improvement, automation and advanced technology. Under the same law, we are also entitled to a tax credit on a percentage of our
research and development expenses incurred for procuring certain “new growth engine and source technologies,” which include OLED display
technology. The applicable amount of such tax credit is calculated by multiplying the applicable research and development expenses by the sum of (x)
20% and (y) three times the proportion of such research and development expenses as a percentage of revenue.
Tax credits not utilized in the fiscal year during which the relevant investment was made may be carried forward over the next ten years. As of
December 31, 2020, we had recognized deferred tax assets related to these credits of W392 billion (US$361 million), which may be utilized against
future income tax liabilities through 2030. In addition, we also had unused tax credit carryforwards of W231 billion (US$213 million) as of
December 31, 2020 for which no deferred tax asset was recognized.
Item 5.C.
Research and Development, Patents and Licenses, etc.
Research and Development
The display panel industry is subject to rapid technological changes. We believe that effective research and development is essential to
maintaining our position as one of the industry’s leading technology innovators.
58
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 2018, we developed and introduced display panels for 65-inch rollable OLED TV and ultra-large 88-inch 8K OLED TV products,
which was the world’s largest product of such type. 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.
In 2019, we commenced mass production of display panels for 88-inch 8K OLED TV products. We also produced 55-inch FHD
transparent commercial OLED display panels and 55-inch UHD OLED gaming monitor display panels. In addition, we developed OLED
panels for automotive products with a 7.2-inch control pad, 14.2-inch cluster and 16.9-inch infotainment screen. For TFT-LCD
commercial products, we produced a 50-inch Ultra HD in-TOUCH panel (equipped with touch sensors inside the LCD cells for a thinner
and lighter design), which is the first in-TOUCH panel that is 50-inches or larger.
In 2020, we commenced mass production of the first OLED products at our new CO fabrication facility in Guangzhou, China, including
48-inch and 77-inch UHD display panels. In addition, we developed the world’s first “2K” zone mini-LED and ultra-slim UHD desktop
monitor 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, commercial 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, 2020, we employed more than 4,500 engineers,
researchers, designers, technicians and support personnel in connection with our research and development activities.
While we primarily rely on our own capacity for the development of new technologies in the display panel design and manufacturing process, we
rely on third parties for certain key technologies to enhance our technology leadership, as further described in “—Intellectual Property” below.
Intellectual Property
Overview
Our business has benefited from our patent portfolio, which includes patents for display technologies, manufacturing processes, products and
applications related to the production of TFT-LCD and OLED panels. We hold a large number of patents in Korea and in other countries, including in
the United States, China, Japan, Germany, France, Great Britain, Taiwan, India and Vietnam. These patents will expire at various dates upon the
expiration of their respective terms ranging from 2021 to 2040. 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.
59
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 W117 billion in 2018, W122 billion in 2019
and W136 billion (US$125 million) in 2020, representing 6.7%, 6.9% and 7.8% of our research and development related expenditures in 2018, 2019 and
2020, respectively, in each case based on our current method of recognizing our research and development related expenditures, which was revised in
2019. We recognized royalty income in the amount of W18 billion in 2018, W14 billion in 2019 and W14 billion (US$13 million) in 2020. 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 have a cross-license agreement with each of Hitachi, HannStar and Hydis for a non-exclusive license under certain patents relating to
display technologies.
We have separate cross-license agreements with each of NEC and AU Optronics in connection with the settlement of certain patent
infringement lawsuits. Under the agreements, each party grants the other party a license under certain patents relating to TFT-LCD
technologies.
We are licensed to use certain patents for our TFT-LCD products pursuant to a cross-license agreement between Philips Electronics and
Toshiba Corporation.
In addition to the above, we have also entered into license or cross-license agreements with other third parties in the course of our business
operations in connection with certain patents, which such third parties own or control.
As well as licensing key technologies from third parties, we aim to benefit from our own patents and other intellectual property rights by granting
licenses to third parties from time to time in return for royalty payments. We have also entered into certain patent purchase and license agreements with
third parties, where we receive a portion of the license payments.
Item 5.D.
Trend Information
These matters are discussed under Item 5.A. and Item 5.B. above where relevant.
Item 5.E.
Off-Balance Sheet Arrangements
For a discussion of our off-balance sheet arrangements, please see “— Factoring and securitization of accounts receivable”, “— Letters of credit”
and “— Payment guarantees” in Note 14 of the notes to our financial statements.
60
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. Hoyoung Jeong is currently our sole representative director.
The term of office for our directors shall not exceed the closing of the annual general meeting of shareholders convened in respect of the last fiscal
year within three years after they take office. Our board must meet at least once every quarter, and may meet as often as the chairman of the board of
directors or the person designated by the regulation of the board of directors deem necessary or advisable.
The tables below set forth information regarding our current directors and executive officers. The business address of all of the directors and
executive officers is LG Twin Towers, 128 Yeoui-daero, Yeongdeungpo-gu, Seoul 07336, Korea.
Our Outside Directors
Our current outside directors are set out in the table below. Each of our outside directors meets the applicable independence standards set forth
under the rules of the Korean Commercial Code and also meets the applicable independence criteria set forth under Rule 10A-3 of the Exchange Act.
Name
Kun Tai Han
Date of Birth
October 30, 1956
Byoung Ho Lee
July 6, 1964
Position
Director
Director
First Elected/
Appointed
March 2016
March 2018
Term Expires
March 2022
March 2024
Chang-Yang Lee
September 20,
1962
Director
March 2019
March 2022
Doocheol Moon
November 5, 1967 Director
March 2021
March 2024
Principal Occupation Outside of
LG Display
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
Professor, School of Business, Yonsei
University
61
Our Non-Outside Directors
Our current non-outside directors are set out in the table below:
Name
Hoyoung Jeong
Date of Birth
Position
First Elected/
Appointed
November 2, 1961 President, Chief Executive
March 2020
Term Expires
March 2023
Donghee Suh
February 28, 1964
Officer, Representative Director
Senior Vice President, Chief
Financial Officer, Director
March 2019
March 2023
Youngsoo Kwon
February 6, 1957
Chairman of the Board, Director March 2019
March 2022
Principal Occupation
Outside of LG Display
—
—
Representative Director and
Vice Chairman, LG Corp.
Our Non-Director Executive Officers
Our current non-director executive officers are set out in the table below:
Name
Hyung Seok Choi
Sang Mun Shin
Yong Min Ha
Position
Responsibility and Division
Executive Vice President
Head of IT Business Unit
Age
60
Executive Vice President
Chief Safety Environment Officer
Executive Vice President
Head of Mobile Product Development Group
Myoung Kyu Kim
Executive Vice President
Head of Mobile Business Unit
Jae Hoon Yang
Chang Ho Oh
Executive Vice President
Head of Business Support Group
Executive Vice President
Head of TV Business Unit
Youngkwon Song
Senior Vice President
Head of TV Business Strategy Group
Byeong Koo Kim
Senior Vice President
Head of Auto Sales Group
Joo Hong Lee
Kang Yeol Oh
Tae Seung Kim
Won Ho Cho
Jong Woo Kim
Senior Vice President
Senior Vice President
Senior Vice President
Senior Vice President
Senior Vice President
Head of Quality Management Center
Head of Mobile Sales Group
Head of PO Technology Division
Head of Mobile Manufacture Center
Chief Production Officer
Soo Young Yoon
Senior Vice President
Chief Technology Officer
Hyun Chul Choi
Senior Vice President
Head of Mobile Panel Development Group
Sunghyun Kim
Yoong Ki Min
Senior Vice President
Senior Vice President
Head of Finance & Risk Management Division
Head of IT Sales/Marketing Group
Young Sang Byun
Senior Vice President
Head of IT Manufacture Center
Jong Sun Park
J. Kenneth Oh
Han Seop Kim
Bum Soon Kim
Sang Ho Song
Jeong Ki Park
Senior Vice President
Senior Vice President
Senior Vice President
Senior Vice President
Senior Vice President
Senior Vice President
Head of Commercial Business Division
Head of Intellectual Property Division
Head of TV Development Group
Head of Legal/Compliance Department
Head of HR Group
Head of IT Development Group
Young Seok Choi
Senior Vice President
Head of Production Technology Center
Hyeon Woo Lee
Hee Yeon Kim
Jin Kyu Lee
Senior Vice President
Senior Vice President
Senior Vice President
Head of TV Operation Innovation Group
Head of Corporate Strategy Group
Head of Process Innovation Group
62
62
55
59
58
56
59
54
56
57
57
58
56
56
54
54
57
56
56
54
56
54
53
53
54
54
52
52
Woo Sup Shin
Jeom Jae Kim
Seung Min Lim
Je Bong Kim
Seong Hee Kim
Jae Hong Park
Kwang Jin Kim
Andy Kim
Kyu Young Ko
Soon Kwang Hong
Sang Gul Lee
Ki Yung Kim
Jong Seong Kim
Chang Han Kim
Keuk Sang Kwon
Kwon Shik Park
Hyo Dae Bae
Dong Eun Lee
Hae Cheol Lee
Kyung Soo Park
Chang Sub Choi
Yoo Seok Park
Chang Hoon Choi
Dong Hoon Lee
Jin Nam Park
Doo Jong Jin
Bu Yeol Lee
Chang Mog Jo
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
Myung Su Suk
Jong Seo Yoon
Teddy Hwang
Seung Ho Kwon
Tae Rim Lee
Vice President
Vice President
Vice President
Vice President
Vice President
Vice President
Vice President
Vice President
Vice President
Vice President
Head of TV Process Integration Division
Head of Foundation Technology Laboratory
Head of Corporate Planning Division
Head of Mobile Planning & Management Division
Head of Global Environment Safety Center
Head of Mobile Product Development Division 2
Head of TV Sales/Marketing Group
Head of IT SCM Division
Head of TV Marketing Division
Head of Mobile Product Development Division 1
Chief Research Fellow
Leader of Future Mobile Device Task Force
Vice President
Vice President
Vice President
Vice President
Vice President
Head of IT Planning & Management Division
Head of Mobile2 Factory
Head of TV Strategy Division
Head of Auto Product Development Division 1
Head of Device Process Research Division
Chief Research Fellow
Leader of S-Top Task Force
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 China Business Management Division
Head of Global Business Support Division
Head of IT Division 3
Head of TV Division 2
Head of LG Display (China) Co., Ltd
Leader of Production Technology Center
Head of Auditing & Management Consulting Division
Head of Purchasing Group
Leader of Module Strategy Task Force
Head of R&D Strategy Division
Head of Equipment Technology Division
Head of LGDCA Factory
Leader of D2C Business Driving Task Force
Head of IT Product Development Division 2
Head of OLED TV Product Development Division 1
Head of Accounting Division
Head of HRM Division
Leader of IT OLED Panel Development Project
Head of Convergence Technology Research Division
Head of IT Panel Development Division
Head of LG Display Vietnam Haiphong Co., Ltd
Head of IT Product Planning Division
Head of Mobile Panel Development Division
Head of TV Cell Division
Leader of OLED TV Performance Improvement Task Force
63
52
53
55
56
53
53
53
55
55
51
54
54
54
53
51
52
57
54
55
54
55
51
52
50
50
54
50
56
52
52
53
54
52
51
52
53
49
51
51
47
51
47
In Hyuk Song
Tae Shick Kim
Seong Hoon Chun
Sung Chun Kang
Joon Young Yang
Tae Hyung Lim
Kyung Joon Kwon
Jae Young Kwon
Sung Joon Bae
Hae Won Lee
Won Gyun Youn
Ki Young Kim
Ji Ho Baek
Seung Do Kim
Heung Soo Kim
You Jin Song
In Kwan Choi
Jong Suk Jeon
Sang Hyun Ahn
Won Seok Kang
Whan Woo Park
Byung Seung Lee
Hoon Choi
Vice President
Head of POLED Panel Research Division
Chief Research Fellow
Leader of OLED TV Devices Development Task Force
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 Business Development Division
Head of IT Factory 2
Head of OLED Panel Research Division
Head of IT Division 1
Head of Mobile Driving Technology Division
Head of IT Strategy/Marketing Division
Head of OLED TV Panel Development Division
Head of Production Technology Division
Head of IT Product Development Division 1
Head of Mobile Customer/Quality Division
Head of OC Research/Development Division
Head of Nanjing Factory
Head of Mobile Panel Process Development Divison
Head of Labor Management Division
Head of Mobile Module Technology Division
Head of IT Division 2
Head of Auto Sales Division
Head of TV Product Planning Division
Head of Mobile Division 1
Head of SCM PI Division
Head of Product Technology Division
44
54
51
53
52
53
47
52
51
51
50
50
50
50
51
51
51
47
51
50
49
45
50
Item 6.B.
Compensation
The aggregate remuneration and benefits-in-kind we paid in 2020 to our directors was W2.2 billion (US$1.9 million). This included
W1,098 million (US$1 million) in salary paid to Hoyoung Jeong, our chief executive officer, and W431 million (US$0.4 million) in salary paid to
Donghee Suh, our chief financial officer, in each case for the period during which each such person served on our board of directors in 2020.
The aggregate remuneration and benefits-in-kind we paid in 2020 to our non-director executive officers was W32.4 billion (US$29.8 million).
The compensation of the five individuals who received the highest compensation among those who received total annual compensation exceeding
W500 million in 2020 was as follows:
Composition of Total
Compensation
Name
Sang Beom Han (2)
Kyung Ho Lee (2)
Ho Young Jeong
Chul Gu Lee (2)
Sang Hoon Lee (2)
Position
Advisor
Advisory Officer
Chief Executive Officer
Advisory Officer
Advisory Officer
Salary
W 728
W 226
W1,317(3)
W 246
W 226
Bonus(1)
Total
Compensation
Retirement
Benefits
(in millions of Won)
— W 4,466 W 5,194
— W 1,304 W 1,530
—
— W 1,317
— W 1,043 W 1,289
— W 895 W 1,121
(1)
(2)
(3)
Based on our performance in 2019.
Former officer who retired from his position as of March 31, 2020.
Includes W1,098 million (US$1 million) in salary paid for the period during which Mr. Jeong served on our board of directors in 2020.
64
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 2020, we paid a premium of approximately
US$1.2 million in respect of this insurance policy.
Item 6.C.
Board Practices
See “Item 6.A. Directors and Senior Management” above for information concerning the terms of office and contractual employment
arrangements with our directors and executive officers.
Committees of the Board of Directors
We currently have five committees that serve under our board of directors:
•
•
•
•
•
Audit Committee;
Outside Director Nomination Committee;
Management Committee;
Related Party Transaction Committee; and
ESG 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: Kun Tai Han, Chang-Yang Lee and Doocheol Moon. The chairman is Doocheol Moon. 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
65
•
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, Byung Ho Lee and Doocheol Moon, 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, Hoyoung Jeong and Donghee Suh. The chairman is Hoyoung Jeong. 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.
Related Party Transaction Committee
The Related Party Transaction Committee, which was newly created in April 2021, is comprised of three outside directors, Kun Tai Han, Byung
Ho Lee and Chang-Yang Lee, and our chief financial officer and non-outside director, Donghee Suh. The committee reviews related party and other
internal transactions to ensure compliance with the Monopoly Regulation and Fair Trade Act and makes recommendations to our board of directors.
The committee holds regular meetings at least once each half-year, and more frequently as needed.
ESG Committee
The ESG Committee, which was newly created in April 2021, is comprised of four outside directors, Kun Tai Han, Chang-Yang Lee, Byung Ho
Lee and Doocheol Moon, and our chief executive officer and non-outside director, Hoyoung Jeong. The committee is responsible for reviewing and
establishing policies and strategies relating to the environment and safety, social responsibility, customer value, shareholder value and corporate
governance, and making recommendations to our board of directors.
The committee holds regular meetings at least once each half-year, and more frequently as needed.
Item 6.D.
Employees
As of December 31, 2020, we had 63,360 employees, including 37,378 employees in our overseas subsidiaries. The following table provides a
breakdown of our employees by function as of December 31, 2018, 2019 and 2020:
Employees(1)
Production
Technical(2)
Sales & Marketing
Management & Administration
Total
66
As of December 31,
2019
49,575
8,198
1,615
1,041
60,429
2018
49,541
8,431
1,610
1,033
60,615
2020
53,336
7,541
1,432
1,051
63,360
(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, 2020, 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, 2020, the fair value of our defined benefit obligations amounted to W1,398 billion (US$1,287 million), while the fair
value of our benefit plan assets amounted to W1,621 billion (US$1,492 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, 2020, our employee stock ownership association owned approximately 0.00001% of our common stock.
Item 6.E.
Share Ownership
Common Stock
The persons who are currently our executive officers held, as a group, 63,644 shares of our common stock as of April 26, 2021, 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.
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
26, 2021 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
22,671,167
Percentage
37.9%
6.3%
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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 26, 2021. 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
W4,230 billion (US$3,895 million), or 17.5% of our sales, in 2020.
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 W377 billion (US$347 million), or 1.6% of our sales, in 2020. 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 transportation, warehousing
and other related logistics services, from LG Electronics and its subsidiaries. Our purchases from LG Electronics and its subsidiaries amounted to
W516 billion (US$475 million), or 2.9% of our total purchases, in 2020.
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.
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Our purchases, including purchases of materials, supplies and services, from LG International and its subsidiaries, amounted to W95 billion
(US$87 million), or 0.5% of our total purchases, in 2020.
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 W861 billion (US$793 million), or 4.8% of our total purchases, in 2020.
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 W1,607 billion (US$1,480 million), or 8.9% of our total purchases, in 2020.
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 26, 2021, 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-117.
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.
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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 violations
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 26, 2021, 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, including by claimants iiyama (UK) Limited and its affiliates (“iiyama”), filed in
December 2014, and Granville, filed in December 2016. We have reached a settlement with iiyama in August 2019. As of April 26, 2021, we are
vigorously defending ourselves against claims by Granville.
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. As of April 26, 2021, we have not been served with the complaint from Hatzlacha.
We were a defendant in four patent infringement lawsuits (two in the United States, one in Germany and one in China) filed against us by Solas
OLED Ltd. between April 2019 and September 2020. In December 2020, we entered into a settlement and license agreement with the plaintiff with
respect to each of the four cases, and the plaintiff subsequently withdrew its claim in each of these cases between January and March 2021.
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 ongoing proceedings that we are involved in, 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,
2020, we did not recognize 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, 2020 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.
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At our annual general meeting of shareholders that was held 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 annual general meetings of shareholders on March 15, 2019, March 20, 2020 and March 23, 2021, 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,
2020, 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, 2020, 23,525,460 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.
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.
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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, 2020, 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 that 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 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.
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.
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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, since
September 2019, pursuant to the Electronic Registration Act, in lieu of issuing bond or warrant certificates, we electronically register the bonds and
warrant rights that would otherwise be indicated on warrant certificates on an electronic registry of an electronic registration institution.
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, 2020,
approximately 0.00001% of our common stock was held by our employee stock ownership association.
General Meeting of Shareholders
We hold the annual general meeting of shareholders within three months after the end of each fiscal year. Subject to a board resolution or court
approval, we may hold an extraordinary general meeting of shareholders:
•
•
•
•
as necessary;
at the request of holders of an aggregate of 3% or more of our outstanding shares;
at the request of shareholders holding an aggregate of 1.5% or more of our outstanding shares for at least six consecutive months; or
at the request of our audit committee.
Holders of preferred shares may request a general meeting of shareholders only after the preferred shares become entitled to vote or are
enfranchised, as described under “—Voting Rights” below.
We must give shareholders written notice setting out the date, place and agenda of the meeting at least two weeks before the date of the general
meeting of shareholders. However, for holders of less than 1% of the total number of issued and outstanding voting shares, we may provide such notice
by public notice, either to be made at least twice in Maeil Business Newspaper and The Chosun Ilbo, both daily newspapers of general circulation
published in Seoul, or through the electronic disclosure system operated by the Financial Supervisory Service of Korea or the Korea Exchange.
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.
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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.
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.
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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.
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.”
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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.
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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
influence corporate management of the issuer, to implement active shareholder engagement without an intent to influence corporate management or to
exercise voting and other rights that are irrespective of the shareholding ratio) 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, if the purpose of
shareholding is to implement active shareholder engagement without an intent to influence corporate management, within ten days from the date of the
change, or if the purpose is to exercise voting and other rights that are irrespective of the shareholding ratio, 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.
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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.
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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.
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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 certain 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 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.
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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 (and the BO applications collected from each beneficial owner, if such beneficial owner is
applying for tax exemption) to the withholding agent prior to the payment date of such Korean source income. Effective from January 1, 2020, an OIV
that was not established for the purpose of unjustifiably reducing income tax liabilities in Korea and bears tax liabilities in the country of its residence is
deemed to be a beneficial owner of Korean source income for income tax purposes. The benefits under a tax treaty between Korea and the country of
such OIV’s residence will apply with respect to the relevant income paid to such OIV, subject to certain application requirements as prescribed by the
Corporate Income Tax or Individual Income Tax Law. 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.
81
Inheritance Tax and Gift Tax
If you die while holding an ADS or donate an ADS, it is unclear whether, for Korean inheritance and gift tax purposes, you will be treated as the
owner of the shares of common stock underlying the ADSs. If the tax authority interprets depositary receipts as the underlying share certificates, you
may be treated as the owner of the shares of common stock and your heir or the donee (or in certain circumstances, you as the donor) will be subject to
Korean inheritance or gift tax presently at the rate of 10% to 50% based on the value of the ADSs or shares of common stock and the identity of the
individual against whom the tax is assessed.
If you die while holding a share of common stock or donate a share of common stock, your heir or donee (or in certain circumstances, you as the
donor) will be subject to Korean inheritance or gift tax at the same rate as indicated above.
At present, Korea has not entered into any tax treaty relating to inheritance or gift taxes.
Securities Transaction Tax
If you transfer shares of common stock on the Korea Exchange in 2021 or 2022, you will be subject to securities transaction tax at the rate of
0.08% (which tax is expected to be eliminated beginning January 1, 2023) 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 0.43% if the transfer is made in 2021 or 2022 (which rate is expected to be reduced to
0.35% beginning January 1, 2023) 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 in Korea, 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).
82
This summary is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations promulgated
thereunder, published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis.
In addition, this summary does not discuss the application of the Medicare net investment income tax or the alternative minimum tax. Please
consult your own tax advisers concerning the consequences of purchasing, owning, and disposing of shares of common stock or ADSs in your particular
circumstances, including the possible application of state, local, non-U.S. or other tax laws.
For purposes of this summary, you are a “U.S. holder” if you are a beneficial owner of a share of common stock or an ADS and you are:
•
•
•
a citizen or resident of the United States;
a U.S. domestic corporation; or
otherwise subject to U.S. federal income tax on a net income basis with respect to income from the share of common stock or ADS.
In general, if you are the beneficial owner of ADSs, you will be treated as the beneficial owner of the common stock represented by those ADSs
for U.S. federal income tax purposes, and no gain or loss will be recognized if you exchange an ADS for the common stock represented by that ADS.
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 2020 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 2021 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.
83
Foreign Tax Credit Considerations
You should consult your own tax advisers to determine whether you are subject to any special rules that limit your ability to make effective use of
foreign tax credits, including the possible adverse impact of failing to take advantage of benefits under the income tax treaty between the United States
and Korea. If no such rules apply, you may claim a credit against your U.S. federal income tax liability for Korean taxes withheld from cash dividends
on the shares of common stock or ADSs, so long as you have owned the shares of common stock or ADSs (and not entered into specified kinds of
hedging transactions) for at least a 16-day period that includes the ex-dividend date. Instead of claiming a credit, you may, at your election, deduct such
Korean taxes in computing your taxable income, subject to generally applicable limitations under U.S. tax law. Foreign tax credits will not be allowed
for withholding taxes imposed in respect of certain short-term or hedged positions in securities and may not be allowed in respect of arrangements in
which a U.S. holder’s expected economic profit is insubstantial.
Any Korean securities transaction tax or agriculture and fishery special surtax that you pay will not be creditable for foreign tax credit purposes.
The calculation of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of deductions involve the
application of complex rules that depend on a U.S. holder’s particular circumstances. You should consult your own tax advisers regarding the
creditability or deductibility of such taxes.
Specified Foreign Financial Assets
Certain U.S. holders that own “specified foreign financial assets” with an aggregate value in excess of US$50,000 on the last day of the taxable
year or US$75,000 at any time during the taxable year 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.
84
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, to a lesser
extent, Chinese Yuan 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 25 of the notes to our financial statements.
Interest Rate Risks
Our exposure to interest rate risks relates primarily to our short-term and 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, 2020, we had
outstanding short-term and long-term debt, including current portion and prior to deducting discounts on bonds, in the aggregate amount of
W14,074 billion (US$12,958 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, 2020, W170 billion (US$157 million) of our Korean Won denominated floating rate long-term borrowings
were hedged against interest rate fluctuations using variable-to-fixed interest rate swap contracts that expire in 2023 and 2025. In connection with such
contracts, we recognized a loss on valuation of derivatives of W2 billion (US$2 million) in 2020. The table below provides information about our
interest rate swap contracts. The table presents notional amounts used to calculate the contractual payments to be exchanged under such contracts.
Expected Maturity Dates
2021
2022
2023
Total
(in billions of Won, except for interest rate percentages)
Thereafter
2024
2025
Fair Value at
December 31,
2020
Interest rate swaps
Variable to fixed (W) (1)
Average pay rate
Average receive rate
— — W50.0
— —
— —
2.4% —
2.0% —
— W120.0
3.0%
3.0%
— W170.0 W 170.0
—
—
(1)
Average pay rates and average receive rates are applicable to the total notional amounts outstanding until maturity.
We may be exposed to interest rate risks on additional debt financing that we may periodically undertake to fund capital expenditures required for
our capacity expansion. Upward fluctuations in interest rates increase the cost of new debt. The interest rate that we will be able to obtain in a new debt
financing will depend on market conditions at that time and may differ from the rates we have secured on our current debt.
85
As of December 31, 2020, we had US$363 million aggregate principal amount of U.S. dollar denominated short-term loans, US$2,742 million
aggregate principal amount of U.S. dollar denominated long-term loans, CNY27,825 million aggregate principal amount of CNY denominated long-
term loans and W3,273 billion aggregate principal amount of Korean Won denominated long-term loans. The interest rates for our U.S. dollar
denominated loans are set based on three-month U.S. dollar LIBOR plus 0.65% to 2.40%, six-month U.S. dollar LIBOR plus 1.25% to 1.35% or twelve-
month U.S. dollar LIBOR plus 0.98%. The interest rates for our CNY denominated loans are set based on the twelve-month loan prime rate published
by the People’s Bank of China (“LPR”) plus -0.15% to 0.50%, the five-year LPR plus 0.44% or a fixed rate of 4.70%. The interest rates for our Korean
Won denominated loans are set based on the 91-day certificate of deposit rate plus 1.00% to 1.60% or a fixed rate of 2.21% to 3.40%. The table below
provides information about our financial instruments that are sensitive to changes in interest rates. The risk associated with fluctuating interest expense
is principally limited to variable interest term loans, and we do not believe that a near-term 10% change of the effective interest rate would have a
significant impact on our cash flows.
Debt obligations
Fixed rate (W)
Average interest rate
Variable rate (W)
Average interest rate
Fixed rate (CNY)
Average interest rate
Variable rate (CNY)
Average interest rate
Fixed rate (US$)
Average interest rate
Variable rate (US$)
Average interest rate
2021
2022
2023
Thereafter
(in billions of Won, except for interest rate percentages)
2024
2025
Expected Maturity Dates
Fair Value at
December 31,
2020
Total
W1,237.6 W1,341.5 W1,241.5 W216.0 W176.0
W 70.0 W4,282.6 W4,323.1
3.1%
2.9%
— W120.0
—
—
—
2.6%
W 100.0
3.0%
2.8%
— W 250.0
—
2.9%
W 0.3 W 0.3 W 82.5
2.2%
—
—
W 673.7 W 776.7 W1,554.4 W556.0 W556.0
4.7%
4.7%
2.4%
4.7%
5.0%
W 326.4
5.1%
—
—
W 765.7 W 995.5 W 777.2 W816.6 W131.8
4.4%
— W861.7
—
4.9%
—
—
1.5%
5.1%
3.9%
1.9%
1.5%
1.6%
1.8%
2.1%
4.2%
— W 470.0 W 470.0
—
— W 83.1 W 87.1
—
W445.8 W4,562.5 W4,562.5
5.1%
— W1,188.1 W1,187.7
—
— W3,487.1 W3,487.1
—
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 25 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 Yuan, the Japanese Yen and the Euro. As of December 31, 2020, we had U.S. dollar denominated sales-related trade accounts and
notes receivable, net of US$3,093 million, which represented approximately 96% of our trade accounts and notes receivable, and U.S. dollar
denominated sales-related trade accounts payable of US$1,948 million, which represented approximately 56% of our trade accounts payable, net.
As of December 31, 2020, we also had CNY denominated sales-related trade accounts and notes receivable of CNY585 million, which
represented approximately 3% of our trade accounts and notes receivable, net, and Japanese Yen denominated sales-related trade accounts and notes
receivable of ¥13 million. In addition, we had CNY denominated sales-related trade accounts payable of CNY2,037 million and Japanese Yen
denominated sales-related trade accounts payable of ¥9,831 million, which represented approximately 9% and 3% 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, 2020, US$2,225 million of our US$2,948 million aggregate principal amount of U.S
dollar denominated bonds and floating rate short-term and long-term borrowings were hedged against foreign exchange rate and interest rate
fluctuations through cross-currency swap contracts.
Cross Currency Interest Rate Swap Contracts:
Contracts to sell Korean (Won)/buy US$:
Aggregate contract amount
Average contractual exchange rate
Change in fair value
US$
(Won)
(Won)
2,225 million
1,143.49/US$
(185.4) billion
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, 2020, we did not have any outstanding foreign currency forward contracts.
86
Based on our overall foreign currency exposure as of December 31, 2020, 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 25 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 2018, 2019 and 2020. 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 1.6% of
our sales in 2020, 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.
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 25 of the notes to our financial statements.
According to the Korean Statistical Information Service, the rate of inflation in Korea was 1.5% in 2018, 0.4% in 2019 and 0.5% in 2020.
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:
Issuance of ADSs
Cancellation of ADSs
Services
Up to US$0.05 per ADS issued
Up to US$0.05 per ADS canceled
Fees
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
Other ADS services
Up to US$0.05 per ADS held
Up to US$0.02 per ADS held
87
As a holder of our ADSs, you are also responsible for paying certain fees and expenses incurred by the depositary and certain taxes and
governmental charges such as the following:
•
•
•
•
•
Fees for the transfer and registration of shares charged by the registrar and transfer agent for the shares in Korea (i.e., upon deposit and
withdrawal of shares).
Expenses incurred for converting foreign currency into U.S. dollars.
Expenses for cable, telex and fax transmissions and for delivery of securities.
Taxes and duties upon the transfer of securities (i.e., when shares are deposited or withdrawn from deposit).
Fees and expenses incurred in connection with the delivery or servicing of shares on deposit.
Depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary by the brokers (on behalf of their clients)
receiving the newly issued ADSs from the depositary and by the brokers (on behalf of their clients) delivering the ADSs to the depositary for
cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADS
holders and the depositary services fee are charged by the depositary to the holders of record of ADSs as of the applicable ADS record date.
The depositary fees payable for cash distributions are deducted from the cash being distributed. In the case of distributions other than cash (i.e.,
stock dividend, rights), the depositary charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of ADSs
registered in the name of the investor (whether certificated or uncertificated in direct registration), the depositary sends invoices to the applicable record
date ADS holders. In the case of ADSs held in brokerage and custodian accounts (via the Depository Trust Company, or DTC), the depositary collects
its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians
holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts
the amount of the fees paid to the depositary.
In the event of refusal to pay the depositary fees, the depositary may, under the terms of the deposit agreement, refuse the requested service until
payment is received or may set off the amount of the depositary fees from any distribution to be made to such holder of ADSs.
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 2020, we received the following payments, after deduction of applicable U.S. taxes, from the depositary:
Reimbursement of proxy process expenses (printing, postage and
distribution) (1)
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 2019 (1)
US$ —
US$ —
(1)
Under discussions with the depositary for the amount of applicable payment with respect to 2020.
88
Item 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
PART II
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, 2020. There are inherent
limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or
overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of
achieving their control objectives. Based upon our evaluation, our chief executive officer and chief financial officer concluded that our disclosure
controls and procedures were effective as of such date. Our disclosure controls and procedures are designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the Commission’s rules and forms, and that it is accumulated and communicated to our management, including our chief executive officer
and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in
Rules 13a-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute
assurance that a misstatement of our financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate. Under the supervision and with the participation of our management, including our chief executive officer and chief
financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal
Control – Integrated Framework (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, 2020. The effectiveness of our internal
control over financial reporting as of December 31, 2020 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 2020 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 Doocheol Moon qualifies as an “audit committee financial expert” and is independent within the
meaning of this Item 16A.
89
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, 2019 and 2020:
Audit fees
Audit-related fees
Tax fees
Total fees
Year ended December 31,
2020
2019
(in millions of Won)
W 4,264
132
98
W 4,494
W 4,369
—
98
W 4,467
Audit fees in the above table are the aggregate fees billed or expected to be billed by KPMG in connection with the audit of our annual financial
statements and the review of our interim financial statements.
Audit-related fees in the above table are fees billed by KPMG for assurance and related services that are reasonably related to the performance of
the audit or review of our financial statements and are not reported under “Audit fees.” In 2019, this category comprised fees billed for services which
are related to the issuance of comfort letters in connection with our issuance of convertible debt securities.
Tax fees in the above table are fees billed by KPMG for tax compliance services.
Audit Committee Pre-Approval Policies and Procedures
Under our Audit Committee’s pre-approval policies and procedures, all audit and non-audit services to be provided to us by our independent
auditors must be pre-approved by our Audit Committee on a case-by-case basis. Our Audit Committee does not pre-approve any audit or non-audit
services that are prohibited from being provided to us by an independent registered public accounting firm under the rules of the SEC and applicable
law. In 2020, 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.
90
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.
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.
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
Listed companies must allow its shareholders to exercise their voting rights
with respect to any material revision to the company’s equity compensation
plan.
91
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, which is composed of two outside directors and one
non-outside director, and an ESG Committee, which is composed of four
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.
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.
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.
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.
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.
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).
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.
92
Item 17.
FINANCIAL STATEMENTS
Not applicable.
Item 18.
FINANCIAL STATEMENTS
PART III
Report of Independent Registered Public Accounting Firm
Consolidated statements of financial position as of December 31, 2019 and 2020
Consolidated statements of comprehensive income (loss) for the years ended December 31, 2018, 2019 and 2020
Consolidated statements of changes in equity for the years ended December 31, 2018, 2019 and 2020
Consolidated statements of cash flows for the years ended December 31, 2018, 2019 and 2020
Notes to the consolidated financial statements
93
Page
F-2
F-5
F-7
F-9
F-11
F-15
Item 19.
EXHIBITS
Number
Description
1.1
2.1*
2.2*
2.3*
2.4*
2.5
2.6
8.1
12.1
12.2
13.1
13.2
Amended and Restated Articles of Incorporation (translation in English)
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)
Description of LG Display Co., Ltd.’s Capital Stock (see Item 10.B. Memorandum and Articles of Association)
Description of LG Display Co., Ltd.’s American Depositary Shares
List of subsidiaries of LG Display Co., Ltd. (see Note 1 of the notes to the consolidated financial statements of LG Display Co., Ltd.
included in this annual report)
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.
94
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/ HOYOUNG JEONG
(Signature)
Name: Hoyoung Jeong
Title: Representative Director, President and Chief
Executive Officer
/s/ DONGHEE SUH
(Signature)
Name: Donghee Suh
Title: Senior Vice President and Chief Financial Officer
Date: April 29, 2021
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
F-1
Page
F-2
F-5
F-7
F-9
F-11
F-15
To the Shareholders and Board of Directors
LG Display Co., Ltd.:
Report of Independent Registered Public Accounting Firm
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, 2019 and 2020, 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, 2020, and the related notes (collectively, the consolidated financial statements). We also have audited
the Group’s internal control over financial reporting as of December 31, 2020, 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, 2019 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020,
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, 2020 based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Change in Accounting Principle
As discussed in note 3 to the consolidated financial statements, the Group has changed its method of accounting for leases as of January 1, 2019 due to
the adoption of IFRS 16, Leases.
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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does
not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters
below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
(i) Impairment test for Display CGU
As discussed in notes 3(k), 9 and 10 to the consolidated financial statements, the Group tests goodwill for impairment on an annual basis. As of
December 31, 2020, non-financial assets which consist of property, plant and equipment and intangible assets amount to W21,167,139 million. A large
portion of the Group’s non-financial assets is related to the Display cash-generating unit (Display CGU) to which goodwill was allocated. The
recoverable amount used by the Group in impairment assessment of the Display CGU is value in use based on discounted cash flow model.
We identified impairment assessment for Display CGU as a critical audit matter. Estimation of key assumptions used in impairment assessment
involved significant measurement uncertainty and therefore involved a high degree challenging and complex auditor judgement. Specifically, revenue
and operating expenditures for the forecast period, growth rates for subsequent years (“terminal growth rate”), and discount rate used to estimate value
in use for impairment assessment of Display CGU were challenging to test as minor changes to those assumptions would have a significant effect on the
results of the Group’s impairment assessment of Display CGU.
F-3
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating
effectiveness of certain internal controls related to the Group’s non-financial assets impairment assessment process, including controls related to
development of revenue and operating expenditures forecasts, terminal growth rate and discount rate assumptions for Display CGU. We compared the
Group’s historical revenue and operating expenditures forecasts to actual results to assess the Group’s ability to accurately forecast. We evaluated the
revenue and operating expenditures forecasts used to determine the value in use by comparison with the financial budgets approved by the board of
directors. We performed sensitivity analysis over the terminal growth rate and discount rate assumptions used to estimate value in use for impairment
assessment of Display CGU to assess the impact of changes in those assumptions on the Group’s impairment assessment. We involved our valuation
professionals with specialized skills and knowledge who assisted us in the following:
–
–
testing discount rate by comparing them against independently developed rate using publicly available market data for comparable entities; and
testing revenue, operating expenditures forecasts and terminal growth rate by comparing them against analyst reports and industry reports.
(ii) Assessment of recognition of deferred tax assets
As discussed in notes 3(s) and 23 to the consolidated financial statements, the deferred tax assets arise primarily from the Group had
W2,264,147 million of deferred tax assets and W230,768 million of unrecognized tax credit carryforwards, as of December 31, 2020, primarily related
to Korea. The deferred tax assets are recognized to the extent that it is probable that future taxable income will be available against which the deductible
temporary differences, unused tax losses and unrecognized tax credit carryforwards can be utilized.
We identified the assessment of the recognition of deferred tax assets as a critical audit matter. It involves high degree of subjective auditor judgment in
assessing forecasted revenue, operating expenditures and subsidiaries’ dividend distribution which are the key assumptions in estimating future taxable
income within the periods before the unused tax losses and tax credit carryforwards expire and the feasibility of planned tax strategies.
The following are the primary procedures we performed to address the critical audit matter. We evaluated the design and tested the operating
effectiveness of certain internal control related to the Group’s deferred tax assets recognition process, including control related to the development of
assumptions in determining the future taxable income for each year. We analyzed the Group’s estimates of future taxable income, including analyzing
the Group’s forecasted revenue and operating expenditures by comparing them with the financial budgets approved by the board of directors and
historical performance. We compared the historical forecasts of taxable income to actual results to assess the Group’s ability to accurately forecast. We
also evaluated the development of assumptions in determining subsidiaries’ dividend distribution based on the history of subsidiaries’ dividend
distribution. We involved tax professionals with specialized skills and knowledge who assisted in assessing the feasibility of planned tax strategies when
recognizing deferred tax assets.
/s/ KPMG Samjong Accounting Corp.
We have served as the Group’s auditor since 2008.
Seoul, Korea
April 29, 2021
F-4
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Financial Position
As of December 31, 2019 and 2020
(In millions of won)
Assets
Cash and cash equivalents
Deposits in banks
Trade accounts and notes receivable, net
Other accounts receivable, net
Other current financial assets
Inventories
Prepaid income taxes
Other current assets
Total current assets
Deposits in banks
Investments in equity accounted investees
Other non-current accounts receivable, net
Other non-current financial assets
Property, plant and equipment, net
Intangible assets, net
Deferred tax assets
Defined benefit assets, net
Other non-current assets
Total non-current assets
Total assets
See accompanying notes to the consolidated financial statements.
F-5
Note
December 31, 2019
December 31, 2020
4, 25
4, 25
5, 14, 25, 28
5, 25
6, 25, 26
7
5
4, 25
8
5, 25
6, 25, 26
9, 16, 26
10, 16
23
12
W 3,336,003
78,757
3,154,080
474,048
70,945
2,051,155
114,143
969,184
10,248,315
11
109,611
9,072
111,510
22,087,645
873,448
1,727,122
127,252
280,577
25,326,248
W 35,574,563
4,218,099
78,652
3,517,512
144,480
52,403
2,170,656
114,202
803,466
11,099,470
11
114,551
—
68,231
20,147,051
1,020,088
2,273,677
224,997
123,447
23,972,053
35,071,523
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Financial Position, Continued
As of December 31, 2019 and 2020
(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 owners of the Controlling Company
Non-controlling interests
Total equity
Total liabilities and equity
See accompanying notes to the consolidated financial statements.
F-6
Note
December 31, 2019
December 31, 2020
25, 28
11, 25, 26
25
13
14
11, 25, 26
13
12
14
23
15
15
W 2,618,261
1,977,084
4,397,121
675,270
120,034
189,525
925,662
82,019
10,984,976
11,612,910
67,118
1,338
320,582
11,210
88,148
12,101,306
23,086,282
1,789,079
2,251,113
7,503,312
(203,021)
11,340,483
1,147,798
12,488,281
W 35,574,563
3,779,290
3,195,024
2,781,941
651,880
25,004
197,468
333,821
42,520
11,006,948
11,124,846
89,633
1,498
—
9,530
102,129
11,327,636
22,334,584
1,789,079
2,251,113
7,524,297
(163,446)
11,401,043
1,335,896
12,736,939
35,071,523
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
For the years ended December 31, 2018, 2019 and 2020
(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
Loss before income tax
Income tax expense (benefit)
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 from associates
Related income tax
See accompanying notes to the consolidated financial statements.
F-7
Note
16, 28 W 24,336,571
2018
7, 17, 28
18
18
20
20
21
21
8
22
(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)
2019
23,475,567
(21,607,240)
1,868,327
(1,057,753)
(947,978)
(1,221,978)
1,267,251
(3,097,743)
276,732
(443,247)
12,147
(3,344,242)
(472,164)
(2,872,078)
2020
24,230,124
(21,587,554)
2,642,570
(817,611)
(755,340)
(1,098,736)
1,784,646
(1,999,280)
438,786
(802,678)
12,545
(595,098)
(524,462)
(70,636)
12, 22
8
12, 22
5,690
20
(1,169)
4,541
128,640
238
(35,235)
93,643
148,436
39
(38,032)
110,443
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss), Continued
For the years ended December 31, 2018, 2019 and 2020
(In millions of won, except earnings per share)
Items that are or may be reclassified to profit or loss
Foreign currency translation differences for foreign operations
Other comprehensive income (loss) from associates
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
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
Loss per share (in won)
Basic and diluted loss per share
See accompanying notes to the consolidated financial statements.
F-8
Note
2018
2019
2020
21, 22 W (19,987)
8, 22
37
(19,950)
(15,409)
W(194,852)
106,690
3,925
110,615
204,258
(2,667,820)
48,181
(210)
47,971
158,414
87,778
(207,239)
27,796
W(179,443)
(2,829,705)
(42,373)
(2,872,078)
(215,386)
20,534
W(194,852)
(2,636,948)
(30,872)
(2,667,820)
(89,342)
18,706
(70,636)
59,730
28,048
87,778
24
W (579)
(7,908)
(250)
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Changes in Equity
For the years ended December 31, 2018, 2019 and 2020
(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 share holders
Subsidiaries’ dividends distributed to
non-controlling interests
Capital contribution from non-controlling
interests
Balances at December 31, 2018
Balances at January 1, 2019
Total comprehensive income (loss) for the year
Loss for the year
Other comprehensive income
Transaction with owners, recognized directly in
equity
Subsidiaries’ dividends distributed to
non-controlling interests
Capital contribution from non-controlling
Share
capital
W1,789,079
Attributable to owners of the Controlling Company
Retained
earnings
10,621,571
Share
premium
2,251,113
Reserves
(288,280) 14,373,483
Sub-total
Non-controlling
interests
608,027
Total
equity
14,981,510
W
—
—
—
—
—
—
—
—
—
—
(207,239)
4,541
(202,698)
—
(12,688)
(12,688)
(207,239)
(8,147)
(215,386)
27,796
(7,262)
20,534
(179,443)
(15,409)
(194,852)
(178,908)
—
—
—
(178,908)
—
(178,908)
—
(53,107)
(53,107)
—
W1,789,079
W1,789,079
—
2,251,113
2,251,113
—
10,239,965
10,239,965
—
—
(300,968) 13,979,189
(300,968) 13,979,189
331,603
907,057
907,057
331,603
14,886,246
14,886,246
—
—
—
W
—
—
—
(2,829,705)
93,643
(2,736,062)
—
99,114
99,114
(2,829,705)
192,757
(2,636,948)
(42,373)
11,501
(30,872)
(2,872,078)
204,258
(2,667,820)
—
—
—
—
—
(6,541)
(6,541)
interests
Balances at December 31, 2019
—
W1,789,079
—
2,251,113
(591)
(1,167)
(1,758)
7,503,312
(203,021) 11,340,483
278,154
1,147,798
276,396
12,488,281
F-9
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Changes in Equity, Continued
For the years ended December 31, 2018, 2019 and 2020
(In millions of won)
Balances at January 1, 2020
Total comprehensive income (loss) for the year
Profit (loss) for the year
Other comprehensive income
Transaction with owners, recognized directly in
equity
Subsidiaries’ dividends distributed to
non-controlling Interests
Capital contribution from non-controlling
Share
capital
W1,789,079
Attributable to owners of the Controlling Company
Retained
earnings
7,503,312
Share
premium
2,251,113
Reserves
(203,021) 11,340,483
Sub-total
Non-controlling
interests
1,147,798
Total
equity
12,488,281
—
—
—
W
—
—
—
(89,342)
110,443
21,101
—
38,629
38,629
(89,342)
149,072
59,730
18,706
9,342
28,048
(70,636)
158,414
87,778
—
—
—
—
—
(12,086)
(12,086)
interests
Balances at December 31, 2020
—
W1,789,079
—
2,251,113
(116)
7,524,297
946
830
(163,446) 11,401,043
172,136
1,335,896
172,966
12,736,939
See accompanying notes to the consolidated financial statements.
F-10
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 2018, 2019 and 2020
(In millions of won)
Cash flows from operating activities:
Loss for the year
Adjustments for:
Income tax expense (benefit)
Depreciation and amortization
Gain on foreign currency translation
Loss on foreign currency translation
Expenses related to defined benefit plans
Gain on disposal of property, plant and equipment
Loss on disposal of property, plant and equipment
Impairment loss on property, plant and equipment
Impairment loss on inventories
Bad debt expense (reversal)
Gain on disposal of intangible assets
Loss on disposal of intangible assets
Impairment loss on intangible assets
Reversal of impairment loss on intangible assets
Impairment loss on other assets
Gain on disposal of non-current assets held for sale
Expense on increase of provisions
Finance income
Finance costs
Equity in income of equity method accounted investees, net
Loss on liquidation of investments in subsidiaries
Other income
Other expenses
See accompanying notes to the consolidated financial statements.
F-11
Note
2018
2019
2020
W (179,443)
(2,872,078)
(70,636)
22
9,10,17
88,077
3,554,565
12,19
8
(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
(472,164)
3,695,051
(103,460)
171,966
162,997
(35,788)
40,897
1,550,430
472,885
(17)
(552)
139
249,450
(960)
3,602
(8,353)
419,720
(186,707)
338,419
(12,147)
—
(20,416)
4,451
3,397,365
(524,462)
4,134,843
(296,870)
217,287
160,669
(37,835)
60,294
38,494
213,932
587
(111)
368
79,593
(1,110)
—
—
308,334
(331,723)
612,164
(12,545)
72,654
(11,485)
—
4,612,442
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
For the years ended December 31, 2018, 2019 and 2020
(In millions of won)
Changes in:
Trade accounts and notes receivable
Other accounts receivable
Inventories
Lease receivables
Other current assets
Other non-current assets
Trade accounts and notes payable
Other accounts payable
Accrued expenses
Provisions
Advances received
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
See accompanying notes to the consolidated financial statements.
F-12
Note
2018
2019
2020
W1,306,118
(56,870)
(763,081)
—
(249,968)
(61,164)
267,358
(111,053)
(194,394)
(217,984)
58,479
20,370
(224,335)
948,276
24,510
5,110,872
(486,549)
71,819
(212,019)
W4,484,123
(1,007,356)
(49,443)
159,474
6,617
(288,770)
(38,608)
(394,564)
2,035,750
11,787
(294,096)
(242,365)
27,690
(65,681)
63,672
7,045
3,328,517
(252,812)
47,276
(416,436)
2,706,545
(936,475)
63,192
(342,427)
6,428
175,486
(58,641)
1,387,084
(1,152,786)
(9,704)
(277,876)
(408,900)
(40,200)
(109,801)
—
12,973
2,920,795
(156,997)
75,424
(552,274)
2,286,948
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
For the years ended December 31, 2018, 2019 and 2020
(In millions of won)
Cash flows from investing activities:
Dividends received
Increase in deposits in banks
Proceeds from withdrawal of deposits in banks
Acquisition of financial assets at fair value through profit or loss
Proceeds from disposal of financial asset at fair value through profit or loss
Acquisition of financial assets at fair value through other comprehensive income
Proceeds from disposal of financial assets at fair value through other comprehensive income
Acquisition of investments in equity accounted investees
Proceeds from disposal of investments in equity accounted investees
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Acquisition of intangible assets
Proceeds from disposal of intangible assets
Government grants received
Proceeds from disposal of non-current assets held for sale
Receipt from settlement of derivatives
Increase in short-term loans
Proceeds from collection of short-term loans
Increase in long-term loans
Increase in deposits
Decrease in deposits
Proceeds from disposal of other assets
Net cash used in investing activities
See accompanying notes to the consolidated financial statements.
F-13
Note
2018
2019
2020
W
5,272
(775,239)
1,454,561
7,502
(114,557)
114,200
(431)
—
—
6
(14,732)
4,527
(7,942,210)
142,088
(480,607)
960
1,210
—
2,026
(7,700)
15,968
(36,580)
(58,794)
4,136
10,200
(708)
452
(21)
107
—
16,738
(6,926,985)
335,446
(540,996)
2,468
248,124
81,351
21,752
(8,725)
19,881
(6,465)
(30,680)
5,307
20,416
8,239
(78,452)
78,557
(3,227)
99
—
6
—
2,400
(2,603,545)
446,193
(353,313)
16,996
118,341
—
24,468
—
13,720
—
(2,084)
1,286
11,000
W(7,675,339)
(6,755,393)
(2,319,316)
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
For the years ended December 31, 2018, 2019 and 2020
(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 current portion of long-term borrowings and bonds
Payment of lease liabilities
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-14
Note
27
2018
2019
2020
W 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
W 2,365,022
1,841,008
(1,154,911)
1,323,251
4,341,087
(1,567,818)
(64,570)
276,396
(6,541)
—
4,987,902
939,054
2,365,022
31,927
3,336,003
2,238,806
(2,506,420)
49,949
2,329,013
(1,278,199)
(62,200)
172,966
(12,086)
—
931,829
899,461
3,336,003
(17,365)
4,218,099
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
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, 2020, the Group is operating Thin Film Transistor Liquid Crystal Display (“TFT-LCD”) and
Organic Light Emitting Diode (“OLED”) panel manufacturing plants in Gumi, Paju and China and TFT-LCD and OLED module manufacturing
plants in Gumi, Paju, China, and 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, 2020, 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, 2020, 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, 2020, there are 23,525,460 ADSs outstanding.
F-15
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
1.
Reporting Entity, Continued
(b)
Consolidated Subsidiaries as of December 31, 2020
(In millions)
Location
Subsidiaries
San Jose, U.S.A.
LG Display America, Inc.
Eschborn, Germany
LG Display Germany GmbH
Tokyo, Japan
LG Display Japan Co., Ltd.
Taipei, Taiwan
LG Display Taiwan Co., Ltd.
Nanjing, China
LG Display Nanjing Co., Ltd.
Shanghai, China
LG Display Shanghai Co., Ltd.
LG Display Guangzhou Co., Ltd. Guangzhou, China
Shenzhen, China
LG Display Shenzhen Co., Ltd.
Singapore
LG Display Singapore Pte. Ltd.
Fujian, China
L&T Display Technology
(Fujian) Limited
LG Display Yantai Co., Ltd.
Nanumnuri Co., Ltd.
LG Display (China) Co., Ltd.
Yantai, China
Gumi, South Korea
Guangzhou, China
Percentage
of ownership
Fiscal
year end
Date of
incorporation
Business
Sell display products
Sell display products
Sell display products
Sell display products
100% December 31 September 24, 1999
100% December 31 November 5, 1999
100% December 31 October 12, 1999
100% December 31
100% December 31
100% December 31
100% December 31
100% December 31 August 28, 2007
January 12, 2009
100% December 31
January 5, 2010
51% December 31
Capital stocks
USD 411
1
EUR
95
JPY
116
NTD
Manufacture display products CNY 3,020
4
June 30, 2006 Manufacture display products CNY 1,655
4
1
116
April 12, 1999
July 15, 2002
January 16, 2003
Sell display products
CNY
USD
CNY
CNY
Sell display products
Sell display products
Manufacture and sell LCD
module and LCD monitor
sets
100% December 31
100% December 31 March 21, 2012
April 19, 2010 Manufacture display products CNY 1,008
Provide janitorial services KRW 800
CNY 8,232
70% December 31 December 10, 2012 Manufacture and sell display
Unified Innovative Technology,
Wilmington, U.S.A.
100% December 31 March 12, 2014 Manage intellectual property USD
products
LLC
LG Display Guangzhou Trading
Guangzhou, China
100% December 31
April 28, 2015
Sell display products
CNY
Co., Ltd.
9
1
Global OLED Technology, LLC
Sterling, U.S.A.
100% December 31 December 18, 2009 Manage OLED intellectual
USD
138
property
LG Display Vietnam Haiphong
Haiphong Vietnam
100% December 31
May 5, 2016
Manufacture display products USD
600
Co., Ltd.
Suzhou Lehui Display Co., Ltd.
Suzhou, China
100% December 31
July 1, 2016
LG DISPLAY FUND I LLC(*1) Wilmington, U.S.A.
100% December 31
May 1, 2018
LG Display High-Tech (China)
Guangzhou, China
70% December 31
July 11, 2018
Co., Ltd.(*2)
F-16
Manufacture and sell LCD
module and LCD monitor
sets
Invest in venture business
and acquire technologies
Manufacture and sell display
products
CNY
637
USD
12
CNY 15,600
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
1.
Reporting Entity, Continued
(b)
Consolidated Subsidiaries as of December 31, 2020, Continued
(*1) For the year ended December 31, 2020, the Controlling Company contributed W7,242 million in cash for the capital increase by LG DISPLAY
FUND I LLC. There was no change in the Controlling Company’s ownership percentage in LG DISPLAY FUND I LLC as a result of this
additional investment.
(*2) For the year ended December 31, 2020, non-controlling shareholders contributed W172,966 million in cash for the stocks issued by LG Display
High-Tech (China) Co., Ltd. (“LGDCO”). The Group’s ownership percentage in LGDCO decreased from 75% to 70% as a result.
Meanwhile, the liquidation process of LG Display Poland Sp. z o.o., a subsidiary of the Controlling Company, was completed during the year
ended December 31, 2020 and the Group reclassified the comprehensive loss amounting to W72,654 million from foreign currency translation
differences to profit or loss.
In addition to the above subsidiaries, the Group has invested W11,300 million in MMT (Money Market Trust), which is controlled by the Group.
F-17
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
1.
Reporting Entity, Continued
(c)
Information of subsidiaries which have significant non-controlling interests as of and for the years ended December 31, 2018, 2019 and
2020 are as follows:
2018
LG Display (China)
Co., Ltd.
LG Display High-Tech
(China) Co., Ltd.
(In millions of won)
Percentage of ownership in non-controlling interest(%)
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Book value of non-controlling interests
Revenue
Profit(Loss) for the year
Profit(Loss) attributable to non-controlling interests
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Effect of exchange rate fluctuations on cash held
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at January 1
Cash and cash equivalents at December 31
W
30
96,145
1,625,717
931,733
793
789,336
554,847
W 2,573,254
106,269
31,881
W
792,670
(492,960)
(573,701)
4,019
(269,972)
366,117
96,145
Dividends distributed to non-controlling interests
W
53,107
F-18
31
895,494
2,363,336
1,573,480
634,764
1,050,586
322,286
—
(10,152)
(3,135)
(263,300)
(1,201,462)
2,118,574
(14,341)
639,471
—
639,471
—
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
1.
Reporting Entity, Continued
(In millions of won)
2019
LG Display (China)
Co., Ltd.
LG Display High-Tech
(China) Co., Ltd.
Percentage of ownership in non-controlling interest(%)
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Book value of non-controlling interests
Revenue
Profit(Loss) for the year
Profit(Loss) attributable to non-controlling interests
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Effect of exchange rate fluctuations on cash held
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at January 1
Cash and cash equivalents at December 31
Dividends distributed to non-controlling interests
F-19
W
30
817,702
1,208,840
327,049
2,084
1,697,409
509,718
W 1,978,487
(164,764)
(49,429)
427,324
380,331
(518,529)
(3,077)
286,049
96,145
382,194
6,541
W
W
25
1,022,736
5,584,138
1,248,446
2,940,320
2,418,108
603,799
40,766
12,503
3,126
(453,784)
(3,520,965)
3,487,367
19,862
(467,520)
639,471
171,951
—
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
1.
Reporting Entity, Continued
(In millions of won)
Percentage of ownership in non-controlling interest(%)
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Book value of non-controlling interests
Revenue
Profit(Loss) for the year
Profit(Loss) attributable to non-controlling interests
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Effect of exchange rate fluctuations on cash held
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at January 1
Cash and cash equivalents at December 31
LG Display (China)
Co., Ltd.
30
W 1,573,028
851,262
326,785
410,677
1,686,828
498,084
W 1,907,421
W
(12,279)
(3,684)
138,692
(686,387)
436,936
5,367
(105,392)
382,194
276,802
Dividends distributed to non-controlling interests
W
12,086
F-20
2020
LG Display High-Tech
(China) Co., Ltd.
30
1,544,816
5,466,627
1,588,688
2,757,499
2,665,256
798,190
1,249,487
57,000
17,100
142,648
(849,577)
826,940
(1,501)
118,510
171,951
290,461
—
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
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 Group’s management on April 22, 2021.
(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 statement of financial position:
•
•
derivative financial instruments at fair value, financial assets at fair value through profit or loss (“FVTPL”), financial assets at fair
value through other comprehensive income (“FVOCI”), financial liabilities at fair value through profit or loss (“FVTPL”), and
net defined benefit liabilities (defined benefit assets) recognized at the present value of defined benefit obligations less the fair value
of plan assets
(c)
Functional and Presentation Currency
Each subsidiary’s financial statements within the Group are presented in the subsidiary’s functional currency, which is the currency of the
primary economic environment in which each subsidiary operates. 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))
Impairment assessment of non-financial assets (notes 3(k), 10)
Deferred tax assets and liabilities (notes 3(s), 23)
F-21
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
2.
Basis of Presenting Financial Statements, Continued
(d)
Use of Estimates and Judgments, Continued
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:
•
•
•
•
•
•
Provisions (notes 3(m), 13)
Inventories (notes 3(e), 7)
Property, plant and equipment (note 9)
Intangible assets (Impairment assessment of non-financial assets) (note 10)
Employee benefits (note 12)
Deferred tax assets and liabilities (note 23)
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 applied IFRS 16, Leases, from January 1, 2019.
In application of IFRS 16, Leases, from January 1, 2019, the Group used the modified retrospective approach, under which right-of-use
assets and lease liabilities are recognized in equal amount as of January 1, 2019. Accordingly, the comparative financial information for
the year ended December 31, 2018 are presented, as previously reported, under IAS 17 and relative interpretations. The disclosure
requirements in IFRS 16 have not been applied to the comparative financial information for the year ended December 31, 2018. Details of
the changes in accounting policies are disclosed below.
i)
Definition of a lease
Previously, the Group determined at contract inception whether an arrangement was or contained a lease under IFRIC 4, Determining
Whether an Arrangement contains a Lease. For contracts entered into on or after January 1, 2019, the Group assesses whether a contract is
or contains a lease based on the definition of a lease under IFRS 16 as described in note 3(l).
On adoption of IFRS 16, as of January 1, 2019, the Group applied the practical expedient to grandfather the assessment of which
transactions are leases for then existing contracts. The Group applied IFRS 16 only to contracts that were previously identified as leases.
F-22
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
3.
Summary of Significant Accounting Policies, Continued
(a)
Changes in Accounting Policies, Continued
ii)
Accounting as a lessee
As a lessee, the Group leases buildings, vehicles, machinery, equipment and others. The Group previously classified leases as operating or
finance leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of
the underlying asset to the Group. Under IFRS 16, the Group recognizes right-of-use assets and lease liabilities for most of these leases on
the consolidated statement of financial position.
At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract
to each lease and non-lease component on the basis of its relative stand-alone price.
Leases classified as operating lease under IAS 17
The Group classified its leases of buildings, vehicles, machinery, equipment and others as operating leases under IAS 17. On adoption of
IFRS 16, for these leases, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Group’s
incremental borrowing rate as at January 1, 2019. Right-of-use assets are measured at an amount equal to the lease liability, adjusted by
the amount of any prepaid lease payments.
The Group used following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17:
•
•
•
•
did not recognize right-of-use assets and liabilities for leases for which the lease term ends within 12 months of the date of initial
application;
did not recognize right-of-use assets and liabilities for leases of low value assets;
excluded initial direct costs from the measurement of the right-of-use asset at the date of initial application; and
used hindsight when determining the remaining lease term.
iii) Accounting as a lessor
The Group leases out its own property and right-of-use assets. The Group classified these leases as operating leases or finance leases based
on their characteristics.
The Group is not required to make any adjustments on transition for leases as a lessor, except for sub-lease provided with the right-of-use
assets.
Under IAS 17, the head lease and sub-lease contracts were classified as operating leases. On adoption of IFRS 16, the right-of-use assets
recognized from the head leases are presented in property, plant and equipment, and measured at fair value at that date. The Group
assessed the classification of the sub-lease contracts with reference to the underlying asset, and concluded that they are finance leases.
The Group applied IFRS 15 to allocate consideration in the contracts to each lease and non-lease component.
F-23
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
3.
Summary of Significant Accounting Policies, Continued
(a)
Changes in Accounting Policies, Continued
iv)
Impact on the consolidated financial statements
Impacts on adoption
On adoption of IFRS 16, the Group recognized additional right-of-use assets and additional lease liabilities as below:
(In millions of won)
Right-of-use assets presented in property, plant and equipment
Prepaid expenses
Lease receivable
Lease liabilities
January 1, 2019
W 142,040
(61,570)
34,649
115,119
When measuring lease liabilities at January 1, 2019 for leases that were classified as operating leases in accordance with IAS 17, the
Group discounted lease payments using its incremental borrowing rate at January 1, 2019. The weighted-average discount rate applied is
3.36%.
(In millions of won)
Amount of operating lease commitments at December 31, 2018
Discounted using the incremental borrowing rate at January 1, 2019
Finance lease liabilities recognized as at December 31, 2018
- Recognition exemption for lease of low-value assets
- Recognition exemption for leases with less than 12 months of lease term
at adoption
Lease liabilities recognized at January 1, 2019
January 1, 2019
W 119,659
115,614
—
(262)
(233)
115,119
F-24
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
3.
Summary of Significant Accounting Policies, Continued
(b)
Consolidation
(i)
Business Combinations
The Group accounts for business combinations using the acquisition method except for a combination of entities or businesses under
common control. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets
acquired. If the aggregate sum of consideration transferred and non-controlling interest exceeds the fair value of identifiable net asset, the
Group recognizes goodwill; if not, then the Group recognizes gain on a bargain purchase. Any goodwill that arises is tested annually for
impairment. Transaction costs are expensed as incurred, except if related to the issue of debt or equity instruments 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.
Profit or loss and other comprehensive income (loss) of subsidiaries are attributed to owners of the Controlling Company and
non-controlling interests.
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-25
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
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 parties have joint control, whereby the parties 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 a joint venture 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-26
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
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 entities 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 instruments
designated as at FVOCI and a financial asset and liability designated as a cash flow hedge, which are recognized in other comprehensive
income. 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 (loss) and foreign
currency differences arising from assets and liabilities in relation to activities other than investing and financing activities are recognized
in other income (expenses) in the consolidated statement of comprehensive income (loss). Foreign currency differences are presented in
gross amounts in the consolidated statement of comprehensive income (loss).
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 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 and foreign currency differences are recognized in other comprehensive income
(loss). Relevant proportionate shares of foreign currency differences are allocated to the controlling interests and non-controlling interests.
When a foreign operation is disposed of in its entirety or partially such that control, significant influence or joint control is lost, the
cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on
disposal. If the Group disposes part of its interest in a subsidiary but retains control, then the relevant proportion of the cumulative amount
is reattributed to NCI. When the Group disposes of only part of an associate or joint venture while retaining significant influence or joint
control, the relevant proportion of the cumulative amount is reclassified to profit or loss.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and
liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign operation. Thus, they are
expressed in the functional currency of the foreign operation and translated at the at each reporting date’s exchange rate.
F-27
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
3.
Summary of Significant Accounting Policies, Continued
(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.
(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 instruments issued are initially recognized when they are originated. All other financial assets 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) 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
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 subsequent reporting
period following the change in the business model.
F-28
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
3.
Summary of Significant Accounting Policies, Continued
(f)
Financial Instruments, Continued
A financial asset is measured as at amortized cost 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 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.
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 as 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
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; 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 assets to third parties in transaction that do not qualify for derecognition are not considered sale for this purpose.
A financial asset that is held for trading or is managed and whose performance is evaluated on a fair value basis is measured at FVTPL.
F-29
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
3.
Summary of Significant Accounting Policies, Continued
(f)
Financial Instruments, Continued
iii)
Financial assets: Assessment whether contractual cash flows are solely payments of principal and interest
For the purpose of the 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.
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
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-30
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
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 continues to recognize the
transferred asset.
Offset
Financial assets and liabilities are offset and the net amount is 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.
(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 at 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, 2020,
non-derivative financial liabilities comprise borrowings, bonds, trade accounts and notes payable, other accounts payable and others.
The Group derecognizes a financial liability when its contractual obligations are discharged, cancelled or expired.
(iii) Share Capital
The Group 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.
F-31
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
3.
Summary of Significant Accounting Policies, Continued
(f)
Financial Instruments, Continued
(iv) Derivative financial instruments
Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes
therein are accounted for as described below.
Hedge Accounting
If necessary, the Group designates derivatives as hedging items to hedge the risk of changes in the fair value of assets, liabilities or firm
commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow
hedge).
On initial designation of the hedge, the Group’s management formally designates and documents the relationship between the hedging
instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together
with the methods that will be used to assess the effectiveness of the hedging relationship, both at the inception of the hedge relationship as
well as on an ongoing basis.
i)
Fair value hedges
Change in the fair value of a derivative hedging instrument designated as a fair value hedge and the hedged item is recognized in profit or
loss, respectively. The gain or loss from remeasuring the hedging instrument at fair value and the gain or loss on the hedged item
attributable to the hedged risk are recognized in profit or loss in the same line item of the statement of comprehensive income (loss). 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; if the hedging instrument expires or is sold, terminated or exercised; or if the hedge no longer meets
the criteria for hedge accounting.
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; 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.
F-32
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
3.
Summary of Significant Accounting Policies, Continued
(f)
Financial Instruments, Continued
Other derivative financial instruments
Other derivative financial instruments are measured at fair value and changes of their fair value are recognized in profit or loss.
(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 income or other expenses.
(ii)
Subsequent costs
Subsequent expenditure on an item of property, plant and equipment is recognized as part of its cost only if it is probable that future
economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The costs of the
day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred.
(iii) Depreciation
Land is not depreciated and depreciation of other items of property, plant and equipment 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.
Estimated useful lives of the assets are as follows:
Buildings and structures
Machinery
Furniture and fixtures
Equipment, tools and vehicles
Right-of-use assets
Useful lives (years)
20, 40
4, 5
4
2, 4, 12
(*)
(*)
The Group depreciates the right-of-use assets from the commencement date to the earlier of the end of the useful life of the right-of-use asset or
the end of the lease term.
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-33
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
3.
Summary of Significant Accounting Policies, Continued
(h)
Borrowing Costs
The Group capitalizes borrowing costs, which includes interests and exchange differences arising from foreign currency borrowings to the
extent that they are regarded as an adjustment to interest costs, directly attributable to the acquisition, construction or production of a
qualifying asset as part of the cost of that asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready
for its intended use or sale. To the extent that the Group borrows funds specifically for the purpose of obtaining a qualifying asset, the
Group determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during
the period less any investment income on the temporary investment of those borrowings. The Group immediately recognizes other
borrowing costs as an expense.
(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 a business over 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-34
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
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 as intangible assets 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
usefulness of the intangible asset by existence of a market for the output of the intangible asset or the intangible asset itself if it is to
be used internally),
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.
Development projects are divided into research activities and development activities. Expenditures on research activities are recognized in
profit or loss and qualifying development expenditures on development activities are capitalized.
The expenditure capitalized includes the cost of materials, direct labor and 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 expenditures are capitalized only when they increase the future economic benefits embodied in the specific intangible asset to
which they relate. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or
loss as incurred.
F-35
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
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(*1)
10
4(*1)
7, 10
10
(*2)
Indefinite
(*1) Software license and patent royalty are amortized over the useful lives considering the contract period.
(*2) Capitalized development costs are amortized over the useful lives considering the life cycle of the developed products. Amortization of capitalized
development costs are recognized in research and development expenses in the consolidated statement of comprehensive income (loss).
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 with indefinite useful lives are reviewed at each financial year-end 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
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 instruments that are determined to have low credit risk at the reporting date; and
other debt instruments and bank deposits 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.
F-36
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
3.
Summary of Significant Accounting Policies, Continued
(k)
Impairment, Continued
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.
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
Expected credit losses are a probability-weighted estimate of credit losses. Credit losses are measured using the present value of 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
At each reporting period-end, the Group assesses whether financial assets carried at amortized cost and debt instruments 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 lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having
granted to the borrower a concession(s) that the lender(s) would not otherwise consider;
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
Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt
instruments at FVOCI, the loss allowance is charged to profit or loss and is recognized in OCI instead of reducing the carrying amount of
financial assets in the consolidated statement of financial position.
F-37
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
3.
Summary of Significant Accounting Policies, Continued
(k)
Impairment, Continued
Write-off
The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations for recovering the 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.
(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.
Recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the
Group determines the recoverable amount of the cash-generating unit to which the asset belongs. The cash-generating unit (“CGU”) is the
smallest group of assets that includes the asset and generates cash inflows that are largely independent of the cash inflows from other
assets or groups of assets. Goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to
benefit from the synergies of the combination. 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 or
CGU. 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. 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 assets other than goodwill, 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 from the acquisition cost. An impairment loss in respect of goodwill is not reversed.
F-38
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
3.
Summary of Significant Accounting Policies, Continued
(l)
Leases
The Group applied IFRS 16 using the modified retrospective approach and therefore the comparative financial information as of and for
the year ended December 31, 2018 is not restated and continues to be reported applying IAS 17 and IFRIC 4.
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract
conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract
conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16.
The policy is applied to contracts entered into or changed, on or after January 1, 2019.
(i)
As a lessee
At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract
to each lease and non-lease component on the basis of its relative stand-alone price. For certain leases, the Group accounts for the lease
and non-lease components as a single lease component by applying the practical expedient not to separate non-lease components.
The Group recognizes a right-of-use asset and lease liability at the lease commencement date. The right-of-use asset is initially measured
at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at of before the commencement
date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the
underlying asset or the site on which it is located less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term,
unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset
reflects that the Group will exercise a purchase option. In that case, the right-of-use asset will be depreciated over the useful life of the
underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is
periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted
using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally,
the Group uses its incremental borrowing rate as the discount rate.
The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain
adjustments to reflect the terms of the lease and type of the asset leased.
F-39
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
3.
Summary of Significant Accounting Policies, Continued
(l)
Lease, Continued
Lease payments included in the measurement of the lease liability comprise the following:
•
•
•
•
fixed payments, including in-substance fixed payments;
variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
amounts expected to be payable under a residual value guarantee; and
the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal
period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the
Group is reasonably certain not to terminate early.
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease
payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under
a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if
there is a revised in-substance fixed lease payment.
When the lease liability is remeasured, the Group recognizes the amount of the remeasurement of the lease liability as an adjustment to the
right-of-use asset. However, if the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the
measurement of the lease liability, the Group recognizes any remaining amount of the remeasurement in profit or loss.
The Group presents right-of-use assets in ‘property, plant and equipment’ and lease liabilities in ‘financial liabilities’ in the consolidated
statement of financial position.
The Group has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short-term leases. The
Group recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
(ii) As a lessor
When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.
To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards
incidental to ownership of the underlying asset. If the lease transfers substantially all of the risks and rewards incidental to ownership of
the underlying asset, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Group considers
certain indicators such as whether the lease is for the major part of the economic life of the asset.
When the Group is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease
classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset.
If a head lease is a short-term lease to which the Group applies the exemption described above, then it classifies the sub-lease as an
operating lease.
F-40
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
3.
Summary of Significant Accounting Policies, Continued
(l)
Lease, Continued
If an arrangement contains lease and non-lease components, then the Group applies IFRS 15 to allocate the consideration in the contract.
At the commencement date, the Group recognizes assets held under a finance lease in its statement of financial position and present them
as a receivable at an amount equal to the net investment in the lease and recognize finance income over the lease term, based on a pattern
reflecting a constant periodic rate of return on the lessor’s net investment in the lease.
The Group recognizes lease payments received under operating leases as income on a straight-line basis over the lease term as part of
‘other revenue’.
The accounting policies applicable to the Group as a lessor in the comparative period are not different from IFRS 16 except for the
classification of the sub-lease entered into during current reporting period that resulted in a finance lease classification.
(m)
Provisions
A provision is recognized as a result of a past event, if the Group has a present legal or constructive obligation that can be estimated
reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
The risks and uncertainties that inevitably surround events and circumstances are taken into account in reaching the best estimate of a
provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future
cash flows. The unwinding of the discount is recognized as finance cost.
Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that
an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.
The Group recognizes a liability for warranty obligations based on the estimated costs expected to be incurred under its basic limited
warranty. This warranty covers defective products and is normally applicable for a warranty period 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, 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.
F-41
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
3.
Summary of Significant Accounting Policies, Continued
(n)
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.
(o)
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.
(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 period during which services are rendered by employees.
F-42
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
3.
Summary of Significant Accounting Policies, Continued
(o)
Employee Benefits, Continued
(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 involving 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-43
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
3.
Summary of Significant Accounting Policies, Continued
(p)
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, trade discounts, volume rebates and other cash incentives paid to customers.
The Group recognizes revenue according to the five stage revenue recognition model (①Identifying the contract(cid:74)② Identifying
performance obligations (cid:74)③ Determining transaction price(cid:74)④ Allocating the transaction price to performance obligations (cid:74)⑤
Recognizing revenue for performance obligations).
The Group generates revenue primarily from sale of display panels. Product revenue is recognized when a customer obtains control over
the Group’s products, which typically occurs upon shipment or delivery depending on the terms of the contracts with the customer.
The Group includes return option in the sales contract of display panels with its customers and the consideration receivable from the
customer is subject to change due to returns. 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 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 during the return period 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 or value-added taxes
collected from customers and remitted to governmental authorities are accounted for on a net basis and are excluded from revenues in the
consolidated statement of comprehensive income (loss).
(q)
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 16 to these consolidated financial statements.
F-44
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
3.
Summary of Significant Accounting Policies, Continued
(r)
Finance Income and Finance Costs
Finance income comprises interest income on funds invested (including debt instruments measured at FVOCI), dividend income, gains on
disposal of debt instruments measured at FVOCI, changes in 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.
(s)
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 comprises 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 amount of current tax
payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income
taxes, if any. 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 asset and 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 are recognized to the extent
that it is probable that future taxable income will be available against which the deductible temporary differences, unused tax losses and
unrecognized tax credit carryforwards can be utilized. 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.
F-45
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
3.
Summary of Significant Accounting Policies, Continued
(s)
Income Tax, Continued
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.
(t)
Earnings (Loss) Per Share
The Controlling Company presents basic and diluted earnings (loss) per share (“EPS”) data for its common stocks. Basic EPS is calculated
by dividing the profit or loss attributable to ordinary shareholders of the Controlling Company by the weighted average number of
common stocks outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary
shareholders and the weighted average number of common stocks outstanding, adjusted for the effects of all dilutive potential common
stocks such as convertible bonds and others.
(u)
New Standards and Amendments Not Yet Adopted
A number of amended standards are effective for annual periods beginning after January 1, 2020 and earlier application is permitted;
however, the Group has not early adopted the amended standards in preparing these separate financial statements.
(i)
Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, Financial Instruments, IAS 39, Financial Instruments:
Recognition and Measurement, IFRS 7, Financial Instruments: Disclosures, IFRS 4, Insurance Contracts and IFRS 16, Leases)
The amendments clarify the following accounting requirements according to market-wide reform of an interest rate:
•
•
•
application of practical expedient to account for a change in the basis;
temporary exceptions from applying specific hedge accounting requirements; and
additional disclosures related to interest rate benchmark reform.
This amendment is effective for annual periods beginning on January 1, 2021, with early adoption permitted, and they will generally be
applied retrospectively.
F-46
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
3.
Summary of Significant Accounting Policies, Continued
(u)
New Standards and Amendments Not Yet Adopted, Continued
(ii) COVID-19-Related Rent Concessions (Amendment to IFRS 16, Leases)
The amendment provides a practical expedient that permits a lessee not to assess whether rent concessions that occur as a direct
consequence of the COVID-19 pandemic are lease modification if they meet the following conditions:
•
•
•
any reduction in lease payments affects only payments originally due on or before 30 June 2021;
the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the
consideration for the lease immediately preceding the change; and
there is no substantive change to other terms and conditions of the lease
This amendment is effective for annual periods beginning on January 1, 2021, with early adoption permitted, and they will generally be
applied retrospectively.
(iii) Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16, Property, Plant and Equipment);
This amendment require an entity to recognize the proceeds from selling items produced in the manner intended by management (such as
samples produced when testing whether the asset is functioning properly) and the cost of those items in profit or loss and prohibit an entity
from deducting the proceeds from selling items produced before that asset is available for use from the cost of an items of property, plant
and equipment.
This amendment is effective for annual periods beginning on January 1, 2022, with early adoption permitted. Adoption of IAS 16 will be
applied retrospectively only to items of property, plant and equipment brought to the location and condition necessary for them to be
capable of operating in the manner intended by management on or after the beginning of the earliest period presented in the financial
statements in which the entity first applies the amendment.
(iv) Amendment of Reference to the Definition of an Asset and a Liability in the Conceptual Framework (Amendments to IFRS 3,
Business Combinations);
These amendments replace the reference to the definitions of an asset and a liability in the Conceptual Framework issued in 2007 to 2018
and added an exception to the recognition principle in IFRS 3, Business Combinations, for liabilities and contingent liabilities that would
be within the scope of IAS 37, Provisions, Contingent Liabilities and Contingent Assets, and IFRIC 21, Levies, to apply the recognition
criteria specified in those standards.
These amendments are effective for annual periods beginning on January 1, 2022, with early adoption permitted, and they will be applied
prospectively.
(v) Classification of Liabilities as Current or Non-current (Amendments to IAS 1, Presentation of Financial Statements)
These amendments clarify that an entity has a right to defer settlement of the liability at the end of the reporting period if it complies with
the conditions at that date and classification of a liability is unaffected by the likelihood that the entity will exercise its right to defer
settlement of the liability for at least 12 months after the reporting period.
F-47
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
3.
Summary of Significant Accounting Policies, Continued
(u)
New Standards and Amendments Not Yet Adopted, Continued
These amendments are effective for annual periods beginning on January 1, 2023, with early adoption permitted, and they will be applied
retrospectively.
(vi)
IFRS 17, Insurance Contracts and amendments to IFRS 17, Insurance Contracts
At initial recognition of insurance contact, an entity shall measure a group of insurance contract at the total of the fulfilment cash flows
and the contractual service margin, unearned profit the entity will recognize as it provides insurance contract services. Insurance contract
liability is adjusted reflecting the time value of money at the end of reporting period.
These amendments are effective for annual periods beginning on January 1, 2023, with early adoption permitted, and they will generally
be applied retrospectively.
(vii) Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37, Provisions, Contingent Liabilities and Contingent
Assets)
These amendments specify the scope of “the unavoidable costs of meeting the obligations under the contract” is “the costs that relate
directly to the contracts” (the incremental costs of fulfilling the contract and an allocation of other costs that relate directly to fulfilling
contracts).
These amendments are effective for annual periods beginning on January 1, 2022, with early adoption permitted, and they will be applied
prospectively.
Above amended standards except for the amendments to IAS 16, Property, Plant and Equipment are not expected to have a significant
impact on the Group’s consolidated financial statements. For the amendments to IAS 16, the Group is currently assessing the potential
impact on its consolidated financial statements resulting from the application of the amendments.
F-48
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
4.
Cash and Cash Equivalents and Deposits in Banks
Cash and cash equivalents and deposits in banks as of December 31, 2019 and December 31, 2020 are as follows:
(In millions of won)
Current assets
Cash and cash equivalents
Cash
Demand deposits
Deposits in banks
Time deposits
Restricted deposits(*)
Non-current assets
Deposits in banks
Restricted deposits(*)
December 31, 2019
December 31, 2020
W
375
3,335,628
W 3,336,003
W
W
1,500
77,257
78,757
11
W
W 3,414,771
156
4,217,943
4,218,099
1,800
76,852
78,652
11
4,296,762
(*)
Includes funds deposited under agreements on mutually beneficial cooperation to aid LG Group companies’ suppliers, restricted deposits pledged
to enforce the Group’s investment plans upon the receipt of grants from Gumi city and Gyeongsangbuk-do, and others.
F-49
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
5.
Trade Accounts and Notes Receivable, Other Accounts Receivable and Other Current Assets
(a)
Trade accounts and notes receivable as of December 31, 2019 and December 31, 2020 are as follows:
(In millions of won)
Due from third parties
Due from related parties
December 31, 2019
W 2,576,391
577,689
W 3,154,080
December 31, 2020
3,054,471
463,041
3,517,512
(b)
Other accounts receivable as of December 31, 2019 and December 31, 2020 are as follows:
(In millions of won)
Current assets
Non-trade receivables, net
Accrued income
Non-current assets
Long-term non-trade receivables
December 31, 2019
December 31, 2020
W 463,614
10,434
474,048
W
W
W
9,072
483,120
140,616
3,864
144,480
—
144,480
Due from related parties included in other accounts receivable, as of December 31, 2019 and 2020 are W19,431 million and
W21,189 million, respectively.
F-50
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
5.
Trade Accounts and Notes Receivable, Other Accounts Receivable and Other Current Assets, Continued
(c)
The aging of trade accounts and notes receivable, and other accounts receivable as of December 31, 2019 and December 31, 2020 are as
follows:
(In millions of won)
Current
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)
Current
Past due 1-15 days
Past due 16-30 days
Past due 31-60 days
Past due more than 60 days
December 31, 2019
Book value
Trade accounts
and notes
receivable
W 3,119,914
34,626
—
—
—
W 3,154,540
Other
accounts
receivable
208,086
3,512
598
61
274,185
486,442
Allowance for impairment
Other
accounts
receivable
Trade accounts
and notes
receivable
(454)
(6)
—
—
—
(460)
(3,292)
(1)
(4)
—
(25)
(3,322)
December 31, 2020
Book value
Allowance for impairment
Trade accounts
and notes
receivable
W 3,516,891
1,638
30
—
—
W 3,518,559
Other
accounts
receivable
143,674
1,023
522
782
257
146,258
Trade accounts
and notes
receivable
Other
accounts
receivable
(1,047)
—
—
—
—
(1,047)
(1,740)
(8)
—
(8)
(22)
(1,778)
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, 2018, 2019 and 2020 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
Write-off
Balance at the end of the year
F-51
Trade accounts and notes receivable
2020
2018
W 1,632
(1,155)
477
W
2019
477
(17)
460
460
587
1,047
2018
W 1,311
Other accounts receivable
2020
3,322
(480)
(1,064)
1,778
(30)
—
W 1,281
2019
1,281
2,041
—
3,322
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
5.
Trade Accounts and Notes Receivable, Other Accounts Receivable and Other Current Assets, Continued
(d)
Other current assets as of December 31, 2019 and December 31, 2020 are as follows:
(In millions of won)
Advanced payments
Prepaid expenses
Value added tax refundable
Right to recover returned goods
December 31, 2019
W
6,203
114,145
826,730
22,106
969,184
W
December 31, 2020
34,808
63,972
693,623
11,063
803,466
F-52
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
6.
Other Financial Assets
Other financial assets as of December 31, 2019 and 2020 are as follows:
(In millions of won)
Current assets
Financial assets at fair value through profit or loss
Derivatives(*)
Financial assets at fair value through other
comprehensive income
Debt instruments
Government bonds
Financial assets carried at amortized cost
Deposits
Short-term loans
Lease receivables
Non-current assets
Financial assets at fair value through profit or loss
Equity instruments
Convertible securities
Derivatives(*)
Financial assets at fair value through other
comprehensive income
Debt instruments
Government bonds
Financial assets carried at amortized cost
Deposits
Long-term loans
Lease receivables
December 31, 2019
December 31, 2020
W
34,036
9,252
W
W
W
W
W
W
W
W
W
W
6
9,585
21,623
5,695
36,903
70,945
9,879
1,544
15,640
27,063
70
21,451
40,827
22,099
84,377
111,510
24
8,696
28,491
5,940
43,127
52,403
13,223
2,377
111
15,711
48
22,251
13,899
16,322
52,472
68,231
(*) Represents valuation gain from cross currency interest rate swap contracts related to foreign currency denominated borrowings and bonds. The
contracts are not designated as hedging instruments.
F-53
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
7.
Inventories
Inventories as of December 31, 2019 and 2020 are as follows:
(In millions of won)
Finished goods
Work-in-process
Raw materials
Supplies
December 31, 2019
730,009
W
756,744
405,854
158,548
W 2,051,155
December 31, 2020
785,282
733,071
491,432
160,871
2,170,656
For the years ended December 31, 2018, 2019 and 2020, 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
2018
W21,251,305
313,180
2019
21,607,240
472,885
2020
21,587,554
213,932
There were no significant reversals of inventory write-downs recognized during the years ended December 31, 2018, 2019 and 2020.
F-54
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
8.
Investments in Equity Accounted Investees
(a)
Associates as of December 31, 2019 and 2020 are as follows:
(In millions of won)
Associates
Paju Electric Glass
Co., Ltd. (*1)
WooRee E&L Co.,
Ltd.(*2)
YAS Co., Ltd.
Location
Paju,
South Korea
Ansan,
South Korea
Paju,
South Korea
Fiscal
year end
December 31
December 31
December 31
Date of
incorporation
January
2005
June
2008
April
2002
AVATEC Co., Ltd.
Arctic Sentinel, Inc.
Cynora GmbH (*3)
Daegu,
South Korea
Los Angeles,
U.S.A.
Bruchsal,
Germany
December 31
March 31
December 31
Material Science
Co., Ltd.(*4)
Nanosys Inc.(*5)
Seoul,
South
Korea
Milpitas,
U.S.A.
December 31
December 31
August
2000
June
2008
March
2003
January
2014
July
2001
2019
2020
Percentage
of
ownership
Carrying
amount
Percentage
of
ownership
Carrying
amount
40% W 50,697
40% W 47,262
14%
7,310
14%
10,540
15%
19,424
15%
24,493
14%
19,929
14%
20,196
10%
—
10%
—
12%
4,714
12%
2,609
10% W 2,354
10% W 3,791
4%
5,183
W109,611
3%
5,660
W114,551
Business
Manufacture
glass for display
Manufacture
LED back light
unit packages
Develop and
manufacture
deposition
equipment for
OLEDs
Process and sell
glass for display
Develop and
manufacture
tablet for kids
Develop organic
emitting
materials for
displays and
lighting devices
Develop,
manufacture, and
sell materials for
display
Develop,
manufacture, and
sell materials for
display
F-55
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
8.
Investments in Equity Accounted Investees, Continued
(*1) During 2020, the Controlling Company recognized a reversal of impairment loss of W433 million as finance income for the investments in Paju
Electric Glass Co., Ltd.
(*2) During 2020, the Controlling Company recognized a reversal of impairment loss of W2,905 million as finance income for the investments in
WooRee E&L Co., Ltd.
(*3) During 2020, the Controlling Company recognized an impairment loss of W2,105 million as finance cost for the investments in Cynora GmbH.
As of December 31, 2020, the Controlling Company’s ownership percentage in Cynora GmbH decreased from 12.2% to 11.6% as the Controlling
Company did not participate in the rights issue.
(*4) During 2020, the Controlling Company recognized an impairment loss of W1,239 million as finance cost for the investments in Material Science
Co., Ltd.
(*5) During 2020, the Controlling Company recognized a reversal of impairment loss of W811 million as finance income for the investments in
Nanosys Inc. As of December 31, 2020, the Controlling Company’s ownership percentage in Nanosys Inc. decreased from 4% to 3% as the
Controlling Company did not participate in the rights issue.
F-56
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
8.
Investments in Equity Accounted Investees, Continued
Although the Controlling Company’s respective share interests in 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%, 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.
As of December 31, 2020, the market value of the Group’s share in WooRee E&L Co., Ltd., YAS Co., Ltd., and AVATEC Co., Ltd., all of which
are listed in KOSDAQ, are W10,540 million, W26,700 million and W17,180 million, respectively.
Dividends income recognized from equity method investees for the years ended December 31, 2018, 2019 and 2020 amounted to W5,272 million,
W7,502 million and W8,239 million, respectively.
F-57
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
8.
Investments in Equity Accounted Investees, Continued
(b)
Summary of financial information of Paju Electric Glass Co., Ltd., a significant associate of the Group, as of December 31, 2019 and 2020
and for the years ended December 31, 2018, 2019 and 2020 is as follows:
(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, 2019
195,815
W
126,314
69,501
66,017
51,625
14,392
December 31, 2020
204,880
143,086
61,794
85,224
64,921
20,303
2018
W384,144
12,744
2,612
15,356
2019
346,434
13,672
9,933
23,605
2020
307,756
9,615
(409)
9,206
(c)
Reconciliation from financial information of the significant associate to its carrying value in the consolidated financial statements as of
December 31, 2019 and 2020 is as follows:
(i)
As of December 31, 2019
(In millions of won)
Company
Paju Electric Glass Co., Ltd.
(ii) As of December 31, 2020
(In millions of won)
Company
Paju Electric Glass Co., Ltd.
Net
asset
W129,798
Ownership
interest
40%
Net asset
(applying
ownership
interest)
51,919
Goodwill
—
Intra-group
transaction
Impairment
loss
(789)
(433)
Book value
50,697
Net asset
W119,656
Ownership
interest
40%
F-58
Net asset
(applying
ownership
interest)
47,862
Goodwill
—
Intra-group
transaction
Impairment
loss
(600)
—
Book
value
47,262
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
8.
Investments in Equity Accounted Investees, Continued
(d)
Book value of other associates, in aggregate, as of December 31, 2019 and 2020 is as follows:
(i)
As of December 31, 2019
(In millions of won)
Other associates
(ii) As of December 31, 2020
(In millions of won)
Other associates
Book value
W 58,914
Net profit of associates (applying ownership interest)
Profit for the
year
6,756
Other comprehensive
income
Total comprehensive
income
190
6,946
Net profit (loss) of associates (applying ownership interest)
Profit for the
year
8,510
Other comprehensive
loss
Total comprehensive
income
(7)
8,503
Book value
W 67,289
F-59
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
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, 2019 and 2020 are as
follows:
(In millions of won)
2019
Company
Associates
January 1
Paju Electric Glass Co., Ltd. W 47,823
66,166
Others
W 113,989
(In millions of won)
Company
Associates
Paju Electric Glass Co., Ltd.
Others
Acquisition/
Disposal
Dividends
received
Equity income on
investments
—
(9,807)
(9,807)
(6,057)
(1,445)
(7,502)
5,391
6,756
12,147
2020
January 1
W 50,697
58,914
W109,611
Dividends
received
Equity income on
investments
(7,739)
(500)
(8,239)
4,035
8,510
12,545
F-60
Other
comprehensive
income
3,973
190
4,163
Other
comprehensive
loss
(164)
(7)
(171)
Other loss
(433)
(2,946)
(3,379)
December 31
50,697
58,914
109,611
Other gain
433
372
805
December 31
47,262
67,289
114,551
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
9.
Property, Plant and Equipment
(a)
Changes in property, plant and equipment for the year ended December 31, 2019 are as follows:
(In millions of won)
Acquisition cost as of January 1, 2019
Accumulated depreciation as of January 1,
Land
W461,828
Buildings
and
structures
6,528,939
Machinery
and
equipment
39,825,070
Furniture
and
fixtures
834,628
Construction
- in-progress
(*1)
12,234,824
Right-of-
use asset
142,040
Others
633,220
Total
60,518,509
2019
Accumulated impairment loss as of
January 1, 2019
Book value as of January 1, 2019
Additions
Depreciation
Disposals
Impairment loss (*2)
Others (*3)
Government grants
received
Effect of movements
in exchange rates
—
(2,991,445)
(34,817,982)
(692,372)
—
—
(368,983)
(38,870,782)
—
W461,828
—
—
(7,861)
—
68
(1,706)
(28,001)
3,535,788
—
(302,157)
(4,958)
(125,687)
1,064,123
4,979,087
—
(2,609,205)
(559,616)
(1,212,215)
6,958,793
—
142,256
—
(66,592)
(1,622)
(8,278)
70,140
(17,890)
12,216,934
5,878,369
—
—
(171,439)
(8,373,047)
—
142,040
29,733
(51,063)
(3,594)
(4,302)
—
—
264,237
—
(239,762)
(16,953)
(28,509)
279,923
(47,597)
21,600,130
5,908,102
(3,268,779)
(594,604)
(1,550,430)
—
—
(83,200)
(17,028)
—
(180,448)
—
—
(280,676)
—
W454,035
Book value as of December 31, 2019
Acquisition cost as of December 31, 2019 W454,035
Accumulated depreciation as of
21,984
4,105,893
7,381,156
30,957
7,570,773
43,604,721
884
136,788
899,053
75,958
9,446,327
9,618,256
436
113,250
169,133
1,643
260,579
823,101
131,862
22,087,645
62,949,455
December 31, 2019
W —
(3,154,387)
(34,810,300)
(753,987)
—
(51,581)
(534,013)
(39,304,268)
Accumulated impairment loss as of
December 31, 2019
W —
(120,876)
(1,223,648)
(8,278)
(171,929)
(4,302)
(28,509)
(1,557,542)
(*1) As of December 31, 2019, construction-in-progress mainly relates to construction of manufacturing facilities.
(*2) During 2019, Display (AD PO) and Lighting CGUs were assessed for impairment, and impairment losses amounting to W1,491,292 million
(W1,369,371 million and W121,921 million for Display (AD PO) and Lighting CGUs, respectively) were recognized as other expenses.
(*3) Others are mainly transferred from construction-in-progress.
F-61
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
9.
Property, Plant and Equipment, Continued
(b)
Changes in property, plant and equipment for the year ended December 31, 2020 are as follows:
(In millions of won)
Acquisition cost as of January 1, 2020
Accumulated depreciation as of
January 1, 2020
Accumulated impairment loss as of
January 1, 2020
Book value as of January 1, 2020
Additions
Depreciation
Disposals
Impairment loss
Others (*2)
Government grants received
Effect of movements in exchange
Land
W454,035
Buildings
and
structures
7,381,156
Machinery
and
equipment
43,604,721
Furniture
and
fixtures
899,053
Construction
-in-progress
(*1)
9,618,256
Right-of-
use
asset
169,133
Others
823,101
Total
62,949,455
—
(3,154,387)
(34,810,300)
(753,987)
—
(51,581)
(534,013)
(39,304,268)
—
W454,035
—
—
(11,266)
—
53
—
(120,876)
4,105,893
—
(332,058)
(31,936)
1,074
117,900
(12,647)
(1,223,648)
7,570,773
—
(3,036,497)
(117,538)
(30,815)
4,984,430
(93,825)
(8,278)
136,788
—
(67,391)
(2,963)
8
59,758
—
(171,929)
9,446,327
2,098,911
—
—
(3,801)
(5,481,494)
(11,869)
(4,302)
113,250
51,754
(54,069)
—
—
—
—
(28,509)
260,579
—
(236,986)
(38,345)
(4,960)
319,353
—
(1,557,542)
22,087,645
2,150,665
(3,727,001)
(202,048)
(38,494)
—
(118,341)
rates
—
W442,822
Book value as of December 31, 2020
Acquisition cost as of December 31, 2020 W442,822
Accumulated depreciation as of
(1,020)
(1,882)
(33)
(2,347)
(28)
(65)
(5,375)
3,847,206
7,420,854
9,274,646
48,174,525
126,167
735,329
6,045,727
6,122,364
110,907
184,036
299,576
1,021,641
20,147,051
64,101,571
December 31, 2020
W —
(3,457,052)
(37,582,109)
(600,912)
—
(69,130)
(697,134)
(42,406,337)
Accumulated impairment loss as of
December 31, 2020
W —
(116,596)
(1,317,770)
(8,250)
(76,637)
(3,999)
(24,931)
(1,548,183)
(*1) As of December 31, 2020, construction-in-progress mainly relates to construction of manufacturing facilities.
(*2) Others are mainly transferred from construction-in-progress.
F-62
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
(c)
Capitalized borrowing costs and capitalization rate for the years ended December 31, 2018, 2019 and 2020 are as follows:
(In millions of won)
Capitalized borrowing costs
Capitalization rate
2018
W146,607
2019
283,525
2020
191,876
2.80%
3.74%
4.14%
F-63
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
10.
Intangible Assets and Non-financial Assets Impairment
(a)
Changes in intangible assets for the year ended December 31, 2019 are as follows:
(In millions of won)
Acquisition cost as of
January 1, 2019
Accumulated amortization as
Intellectual
property
rights
Software
Member-
ships
Development
costs
Construction
-in-progress
(software)
Customer
relationships Technology
Good-
will
Others
(*2)
Total
W 926,969
992,139
57,560
2,142,832
36,963
59,176
11,075
104,311
13,077
4,344,102
of January 1, 2019
(696,948)
(814,540)
—
(1,775,922)
Accumulated impairment loss
as of January 1, 2019
Book value as of January 1,
—
—
(11,521)
—
—
—
(34,854)
(9,598)
—
(13,077) (3,344,939)
—
—
—
2019
W 230,021
177,599
46,039
366,910
36,963
24,322
1,477
104,311
Additions - internally
developed
Additions - external
purchases
Amortization (*1)
Disposals
Impairment loss (*3)(*4)
Reversal of impairment
loss
Transfer from
—
28,397
(42,550)
—
(29,152)
—
—
(82,016)
(239)
(8,905)
—
—
construction-in-progress
—
111,359
Effect of movements in
exchange rates
Book value as of December 31,
4,318
347
—
437,945
—
—
—
846
—
(1,816)
—
—
(297,959)
—
(131,713)
90,369
—
—
—
—
(2,637)
—
(21,685)
—
(1,108)
—
—
—
—
—
—
(57,995)
960
—
23
—
—
—
(112,159)
—
72
—
—
—
—
—
1,103
—
—
—
—
2019
W 191,034
198,145
46,052
375,183
15,245
369
47,419
1
873,448
Acquisition cost as of
December 31, 2019
Accumulated amortization as
W 959,683
1,097,290
56,612
2,580,777
15,245
59,176
11,074
105,414
13,080
4,898,351
of December 31, 2019
W(739,498)
(890,281)
—
(2,073,881)
—
(37,491)
(10,705)
—
(13,079) (3,764,935)
Accumulated impairment loss
as of December 31, 2019
W (29,151)
(8,864) (10,560)
(131,713)
—
(21,685)
—
(57,995)
—
(259,968)
(*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-64
—
—
—
3
(2)
—
—
—
—
—
(11,521)
987,642
437,945
119,615
(426,272)
(2,055)
(249,450)
960
(800)
5,863
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
10.
Intangible Assets and Non-financial Asset Impairment, Continued
(*3) During 2019, Display(AD PO) and Lighting CGUs were assessed for impairment, and the impairment losses amounting to W131,628 million
(W26,284 and W105,344 million for Display(AD PO) and Lighting CGUs, respectively) were recognized as other expenses. The impairment
amount reduced the carrying amount of goodwill, customer relationships and others.
(*4) The Group recognized an impairment loss amounting to W117,822 million for development projects which are not likely to generate revenue.
F-65
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
10.
Intangible Assets and Non-financial Assets Impairment, Continued
(b)
Changes in intangible assets for the year ended December 31, 2020 are as follows:
(In millions of won)
Acquisition cost as of
January 1, 2020
Accumulated amortization as
Intellectual
property
rights
Software
Member-
ships
Development
costs
Construction
-in-progress
Customer
relationships Technology
Good-
will
Others
(*2)
Total
W 959,683
1,097,290
56,612
2,580,777
15,245
59,176
11,074
105,414
13,080
4,898,351
of January 1, 2020
(739,498)
(890,281)
—
(2,073,881)
Accumulated impairment loss
as of January 1, 2020
Book value as of January 1,
(29,151)
(8,864) (10,560)
(131,713)
—
—
(37,491)
(10,705)
—
(13,079) (3,764,935)
(21,685)
—
(57,995)
—
(259,968)
2020
W 191,034
198,145
46,052
375,183
15,245
Additions - internally
developed
Additions - external
purchases
Amortization (*1)
Disposals
Impairment loss (*3)
Reversal of impairment
loss
Transfer from
construction-in-progress
Effect of movements in
exchange rates
Book value as of December 31,
—
—
—
284,487
—
291,405
(42,205)
27,789
(86,466)
—
—
(17,252)
—
—
(278,799)
—
(78,918)
—
(675)
—
—
—
—
—
1,110
54,753
—
(4,031)
887
(10)
51,520
—
—
—
—
(54,753)
55
—
—
—
2020
W 436,203
194,433
29,900
301,953
12,067
—
—
—
—
—
—
—
—
—
—
369
47,419
1
873,448
—
—
(369)
—
—
—
—
—
—
—
—
—
—
—
—
(1,888)
—
284,487
3
(3)
—
—
—
—
—
370,717
(407,842)
(17,252)
(79,593)
1,110
—
(4,987)
—
45,531
1
1,020,088
Acquisition cost as of
December 31, 2020
Accumulated amortization as
W1,247,057
1,180,719
39,350
2,865,264
12,067
59,176
11,074
103,526
13,083
5,531,316
of December 31, 2020
W (781,703)
(976,747)
—
(2,352,680)
—
(37,491)
(11,074)
—
(13,082) (4,172,777)
Accumulated impairment loss
as of December 31, 2020
W (29,151)
(9,539)
(9,450)
(210,631)
—
(21,685)
—
(57,995)
—
(338,451)
(*1) The Group has classified the amortization as manufacturing overhead costs, selling expenses, administrative expenses and research and
development expenses.
F-66
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
10.
Intangible Assets and Non-financial Assets Impairment, Continued
(*2) Others mainly consist of rights to use electricity and gas supply facilities.
(*3) The Group recognized an impairment loss amounting to W78,918 million for development projects which are not likely to generate revenue.
(c)
Development costs as of December 31, 2019 and 2020 are as follows:
(i)
As of December 31, 2019
(In millions of won and in years)
Classification
Development completed
Development in process
(ii) As of December 31, 2020
(In millions of won and in years)
Classification
Development completed
Development in process
Product type
TV
IT
Mobile
TV
IT
Mobile
Product type
TV
IT
Mobile
TV
IT
Mobile
Book Value
W22,597
26,834
53,350
W 102,781
W42,587
72,332
157,483
W 272,402
W 375,183
Book Value
W 20,803
51,784
33,097
W105,684
W 49,773
42,762
103,734
W196,269
W301,953
F-67
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
10.
Intangible Assets and Non-financial Assets Impairment, Continued
(d)
Impairment assessment as of December 31, 2019
(i)
(ii)
During 2019, the Group has distinguished Display (AD PO) and Lighting businesses as separate CGUs from the existing Display
CGU due to the initiation of independent factory production of Display (AD PO) business and the decision of Lighting business
planned discontinuance in response to business environmental changes. As of December 31, 2019, goodwill allocated to the Display
CGU amounts to W47,419 million.
Impairment on assets belonging to all of the CGUs was assessed due to the decision of planned discontinuance of Lighting business
and adverse changes in the business environment of Display (AD PO). The recoverable amount of each CGU is estimated based on
its value in use. Value in use is calculated using the estimated pre-tax cash flow based on 5-year business plan approved by
management. The estimated sales of the Group’s products used in the forecast was determined considering external sources and the
Group’s past experience. Management estimated the future pre- tax cash flow based on its past performance and forecasts on market
growth. The key assumptions used in the estimation of value in use for Display (AD PO) CGU and Display CGU include revenue
and operating expenditures for the forecast period, growth rates for subsequent years (“terminal growth rate”), and discount rate. For
all of the CGUs, the terminal growth rate and the discount rate in the estimation of value in use as of December 31, 2019 are as
follows.
Discount rate(*1)
Terminal growth rate
Lighting(*2)
Display (AD PO)(*3)
Display(*4)
6.1%
N/A
6.1%
0.0%
6.1%
1.0%
(*1) The discount rate was calculated using the weighted average cost of equity capital and debt, and the beta of equity capital was calculated as the
average of five global listed companies in the same industry and the Group. Cost of debt was calculated by the interest rate of the Group’s
publicly issued bonds and debt ratio was determined using the average of the debt ratios of the five global listed companies in the same industry
with the Group.
(*2) As a result of impairment test, the carrying amount of Lighting CGU which produces OLED lighting products was fully impaired with impairment
loss of W230,867 million recognized as other expenses for the year ended December 31, 2019.
(*3) As a result of impairment test, the carrying amount of Display (AD PO) CGU which produces plastic OLED mobile products and commenced
mass production in 2019, exceeds the recoverable amount of W1,729,209 million and an impairment loss of W1,395,655 million was recognized
as other expenses for the year ended December 31, 2019. The value in use determined for this CGU is sensitive to the discount rate and terminal
growth rate used in the discounted cash flow model. If the discount rate increases by 0.5%, the value in use would have decreased by W259,221
million (15.0%). If the terminal growth rate decreases by 0.5%, the value in use would have decreased by W169,626 million (9.8%).
(*4) As a result of impairment test for Display CGU, the recoverable amount exceeds the carrying amount by W3,568,588 million. The value in use
determined for this CGU is sensitive to the discount rate and terminal growth rate used in the discounted cash flow model. The discount rate and
terminal growth rate would need to increase by 1.06% and decrease by 1.39%, individually (holding all the other assumptions constant) for the
estimated recoverable amount to be equal to the carrying amount.
F-68
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
10.
Intangible Assets and Non-financial Assets Impairment, Continued
(e)
Impairment assessment on CGU with allocated goodwill as of December 31, 2020
As of December 31, 2020, goodwill is allocated to the Group’s Display CGU which constitutes a large portion of the Group’s
non-financial assets. The carrying amount of goodwill allocated to Display CGU as of December 31, 2020 is W45,531 million.
The recoverable amount of Display CGU is estimated based on its value in use. Value in use is calculated using the estimated pre-tax cash
flow based on 5-year business plan approved by management. The estimated sales of the Group’s products used in the forecast was
determined considering external sources and the Group’s past experience. Management estimated the future pre-tax cash flows based on
its past performance and forecasts on market growth. The key assumptions used in the estimation of value in use for Display CGU include
revenue and operating expenditures for the forecast period, growth rates for subsequent years (“terminal growth rate”), and discount rate.
For Display CGU, the terminal growth rate and the discount rate in the estimation of value in use as of December 31, 2020 are 1.0% and
7.0%, respectively.
The discount rate was calculated using the weighted average cost of equity capital and debt and the beta of equity capital was calculated as
the average of five global listed companies in the same industry and the Group. Cost of debt was calculated using the yield rate of
non-guaranteed corporate bond considering the Group’s credit rating and debt ratio was determined using the average of the debt ratios of
the five global listed companies in the same industry and the Group.
As a result of impairment test the Display CGU, the recoverable amount exceeds the carrying amount by W1,663,483 million. The value
in use determined for this CGU is sensitive to the discount rate and terminal growth rate used in the discounted cash flow model. An
increase in the discount rate by 0.68% or a decrease in terminal growth rate by 0.66% would result in the estimated recoverable amount to
be equal to the carrying amount of the CGU.
F-69
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
11.
Financial Liabilities
(a)
Financial liabilities as of December 31, 2019 and 2020 are as follows:
(In millions of won)
Current
Short-term borrowings
Current portion of long-term borrowings and bonds
Derivatives(*)
Lease liabilities
Non-current
Won denominated borrowings
Foreign currency denominated borrowings
Bonds
Derivatives(*)
Lease liabilities
December 31, 2019
December 31, 2020
W
696,793
1,242,904
—
37,387
W 1,977,084
W 2,692,560
6,107,117
2,741,516
20,592
51,125
W 11,612,910
394,906
2,705,709
58,875
35,534
3,195,024
2,435,000
6,584,658
1,948,541
108,750
47,897
11,124,846
(*) Represents cross currency interest rate swap contracts and others entered into by the Group to hedge currency and interest rate risks with respect
to foreign currency denominated borrowings and bonds. The contracts are not designated as hedging instruments.
(b)
Short-term borrowings as of December 31, 2019 and 2020 are as follows.
(In millions of won, USD and CNY)
Lender
Standard Chartered Bank Korea Limited
Standard Chartered Bank Vietnam and others
Standard Chartered Bank (China) Limited and others
Foreign currency equivalent
Annual interest rate
as of
December 31, 2020 (%)(*)
12ML + 0.98
3ML + 0.80~0.90
—
December 31,
2019
December 31,
2020
W
USD
CNY
W
347,340
61,613
287,840
353 USD
1,737
696,793
326,400
68,506
—
363
—
394,906
(*) ML represents Month LIBOR (London Inter-Bank Offered Rates).
F-70
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
11.
Financial Liabilities, Continued
(c)
Won denominated long-term borrowings as of December 31, 2019 and 2020 are as follows:
(In millions of won)
Lender
Woori Bank
Korea Development Bank and others
Less current portion of long-term borrowings
Annual interest rate
as of
December 31, 2020 (%)(*)
2.75
CD rate (91 days) +
1.00~1.60, 2.21~3.40
December 31,
2019
December 31,
2020
W
W
608
60
3,330,000
(638,048)
2,692,560
3,272,500
(837,560)
2,435,000
(*) CD represents certificate of deposit.
(d)
Foreign currency denominated long-term borrowings as of December 31, 2019 and 2020 are as follows:
(In millions of won and USD, CNY)
Lender
The Export-Import Bank of Korea and others
China Construction Bank and others
Foreign currency equivalent
Less current portion of long-term borrowings
Annual interest rate
as of
December 31, 2020 (%)(*)
3ML + 0.75~2.40
6ML + 1.25~1.35
USD: 3ML+0.65~1.43
CNY: LPR(5Y) + 0.44,
LPR(1Y) -0.15~+0.50, 4.70
December 31,
2019
December 31,
2020
W
1,696,177
1,680,960
4,606,094
2,767 USD
18,699 CNY
(195,154)
6,107,117
5,948,472
2,742
27,825
(1,044,774)
6,584,658
USD
CNY
W
W
(*)
LPR represents Loan Prime Rate of People’s Bank of China.
F-71
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
11.
Financial Liabilities, Continued
(e)
Details of bonds issued and outstanding as of December 31, 2019 and 2020 are as follows:
(In millions of won and USD)
Won denominated bonds at
amortized cost(*1)
Publicly issued bonds
Privately issued bonds
Less discount on bonds
Less current portion
Foreign currency denominated
bonds at amortized cost (*2)
Publicly issued bonds
Privately issued bonds
Foreign currency equivalent
Less discount on bonds
Less current portion
Financial liabilities at fair value
through profit or loss
Foreign currency denominated
convertible bonds
Foreign currency equivalent
Maturity
February 2021 ~
February 2024
May 2022 ~
May 2033
Annual interest rate
as of
December 31, 2020 (%)
December 31,
2019
December 31,
2020
1.95~2.95
W 1,730,000
1,320,000
3.25~4.25
November 2021
April 2023
3.88
3ML + 1.47
110,000
(3,404)
(409,702)
W 1,426,894
USD
W 347,340
115,780
400
(6,883)
—
W 456,237
160,000
(1,798)
(499,796)
978,406
326,400
108,800
400
(3,161)
(323,579)
108,460
USD
August 2024
1.50
W 858,385
USD
741
W 2,741,516
USD
861,675
792
1,948,541
(*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 bonds is to be repaid at maturity and interests are paid quarterly or semi-annually.
F-72
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
11.
Financial Liabilities, Continued
(f)
Details of the convertible bonds issued by the Controlling Company and outstanding as of December 31, 2020 are as follows:
(In won, USD)
Type
Issuance amount
Annual interest rate (%)
Issuance date
Maturity date
Interest payment
Principal redemption
Conversion price
Conversion period
Redemption at the option of the issuer (Call option)
Description
Unsecured foreign currency denominated convertible bonds
USD 687,800,000
1.50
August 22, 2019
August 22, 2024
Payable semi-annually in arrear until maturity date
1. Redemption at maturity :
Redeemed on the maturity date, at their outstanding principal
amount, which has not been early redeemed or converted.
2. Early redemption :
The Controlling Company has a right to redeem before maturity
(call option) or the bondholders have a right to require the
Controlling Company to redeem before maturity (put option). At
exercise of each option, the outstanding principal amount together
with accrued but unpaid interest are to be redeemed.
W19,845 per common share (subject to adjustment based on diluted
effects of certain events)
From August 23, 2020 to August 12, 2024
• On or at any time after 3 years from the issuance, if the closing
price of the shares for any 20 trading days out of the 30 consecutive
trading days is at least 130% of the applicable conversion price
• The aggregate principal amount of the convertible bonds
outstanding is less than 10% of the aggregate principal amount
originally issued, or
• In the event of certain changes in laws and other directives resulting
in additional taxes for the holders
Redemption at the option of the bondholders (Put option)
On the third anniversary from the issuance date
The Controlling Company designated the convertible bonds as financial liabilities at fair value through profit of loss and recognized the change in
fair value in profit or loss. The Controlling Company measures the convertible bond at fair value using the market price of convertible bonds
disclosed on Bloomberg. The number of convertible shares as of December 31, 2020 is as follows:
(In won and No. of shares)
Aggregate outstanding amount of the convertible bonds
Conversion price
Number of common shares to be issued at conversion
F-73
December 31, 2020
W813,426,670,000
19,845
W
40,988,998
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
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 (defined benefit plan assets) recognized as of December 31, 2019 and 2020 are as follows:
(In millions of won)
Present value of partially funded defined benefit obligations
Fair value of plan assets
Defined benefit liabilities, net
Defined benefit plan assets, net
December 31, 2019
W 1,481,339
(1,607,253)
(125,914)
1,338
127,252
W
W
W
December 31, 2020
1,397,542
(1,621,041)
(223,499)
1,498
224,997
(b)
Changes in the present value of the defined benefit obligations for the years ended December 31, 2019 and 2020 are as follows:
(In millions of won)
Defined benefit obligations at January 1
Current service cost
Past service cost
Interest cost
Remeasurements (before tax)
Benefit payments
Curtailment of plans
Net transfers from (to) related parties
Others
Defined benefit obligations at December 31
2019
W 1,595,423
194,469
(32,006)
42,360
(137,464)
(95,675)
(80,470)
(5,349)
51
W 1,481,339
2020
1,481,339
163,652
—
35,614
(155,700)
(124,701)
—
(2,645)
(17)
1,397,542
Weighted average remaining maturity of defined benefit obligations as of December 31, 2019 and 2020 are 15.12 years and 15.06 years,
respectively.
(c)
Changes in fair value of plan assets for the years ended December 31, 2019 and 2020 are as follows:
(In millions of won)
Fair value of plan assets at January 1
Expected return on plan assets
Remeasurements (before tax)
Contributions by employer directly to plan assets
Benefit payments
Net transfers from (to) related parties
Curtailment of plans
2019
W 1,550,063
41,826
(8,824)
2020
1,607,253
38,597
(7,264)
186,641
(82,266)
280
(80,467)
101,462
(119,007)
—
—
1,621,041
Fair value of plan assets at December 31
W 1,607,253
F-74
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
12. Employee Benefits, Continued
(d)
Plan assets as of December 31, 2019 and 2020 are as follows:
(In millions of won)
Guaranteed deposits in banks
December 31, 2019
W 1,607,253
December 31, 2020
1,621,041
As of December 31, 2020, the Group maintains the plan assets primarily with Mirae Asset Daewoo Co., Ltd., KB Insurance Co., Ltd. and
others.
(e)
Expenses recognized in profit or loss for the years ended December 31, 2018, 2019 and 2020 are as follows:
(In millions of won)
Current service cost
Past service cost
Net interest cost
2018
W 204,668
(25,749)
961
W 179,880
2019
194,469
(32,006)
534
162,997
2020
163,652
—
(2,983)
160,669
Expenses are recognized in the consolidated statements of comprehensive income (loss) as follows:
(In millions of won)
Cost of sales
Selling expenses
Administrative expenses
Research and development expenses
2018
W 134,879
11,045
19,472
14,484
W 179,880
2019
119,147
10,600
18,360
14,890
162,997
2020
122,369
8,505
17,875
11,920
160,669
(f)
Remeasurements of net defined benefit liabilities (assets) included in other comprehensive income (loss) for the years ended December 31,
2018, 2019 and 2020 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
Group’s share of associates regarding remeasurements
Income tax
Balance at December 31
2018
W (170,510)
2019
2020
(165,969)
(72,326)
56,225
(15,379)
(12,961)
(22,195)
20
W 5,710
W (1,169)
W (165,969)
43,644
(19,952)
113,772
(8,824)
238
128,878
(35,235)
(72,326)
36,769
(2,584)
121,515
(7,264)
39
148,475
(38,032)
38,117
F-75
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
12. Employee Benefits, Continued
(g)
Principal actuarial assumptions as of December 31, 2019 and 2020 (expressed as weighted averages) are as follows:
Expected rate of salary increase
Discount rate for defined benefit obligations
2019
3.4%
2.4%
2020
2.9%
2.6%
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,
2019
December 31,
2020
0.00%
0.00%
0.01%
0.00%
0.01%
0.00%
0.02%
0.01%
0.04%
0.02%
0.00%
0.00%
0.01%
0.00%
0.01%
0.00%
0.02%
0.01%
0.04%
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, 2020:
(In millions of won)
Discount rate for defined benefit obligations
Expected rate of salary increase
Defined benefit obligations
1% increase
W(182,556)
218,924
1% decrease
221,953
(183,720)
F-76
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
13.
Provisions
(a)
Changes in provisions for the year ended December 31, 2019 are as follows:
(In millions of won)
Balance at January 1, 2019
Additions
Usage
Balance at December 31, 2019
Current
Non-current
Litigations
and claims
W —
3,073
(3,073)
W —
W —
W —
Warranties (*)
122,088
418,942
(310,768)
230,262
163,144
67,118
Others
8,930
17,451
—
26,381
26,381
—
Total
131,018
439,466
(313,841)
256,643
189,525
67,118
(b)
Changes in provisions for the year ended December 31, 2020 are as follows:
(In millions of won)
Balance at January 1, 2020
Additions (reversal)
Usage
Balance at December 31, 2020
Current
Non-current
Warranties (*)
W 230,262
309,112
(267,179)
W 272,195
W 182,562
W 89,633
Others
26,381
(10,697)
(778)
14,906
14,906
—
Total
256,643
298,415
(267,957)
287,101
197,468
89,633
(*)
Product warranties on defective products are normally applicable for warranty periods from the date of customer’s purchase. The provision is
calculated by using historical and anticipated rates of warranty claims, and costs per claim to satisfy the Group’s warranty obligation.
F-77
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
14. Contingent Liabilities and Commitments
(a)
Legal Proceedings
Anti-trust litigations
Some individual claimants filed “follow-on” damages claims against the Group and other TFT-LCD manufacturers alleging violations of
EU competition law. While the Group continues its vigorous defense of the various pending proceedings described above, as of
December 31, 2020, the Group cannot reliably estimate the timing and amount of outflows of resources embodying economic benefits
relating to the proceedings.
Solas OLED Ltd. Litigations
Between April 2019 and September 2020, Solas OLED Ltd. filed altogether four patent infringement actions, with two in the United States
District Court for the Western District of Texas, one in the Mannheim District Court in Germany and one in the Beijing Intellectual
Property Court in China, against the Controlling Company and television manufacturers. The actions in the United States and Germany
also included the Controlling Company’s subsidiaries, LG Display America, Inc. and LG Display Germany GmbH, as defendants,
respectively. In December 2020, the parties have reached an agreement to amicably settle all claims and, subsequently, all patent
infringement actions have been formally dismissed.
Others
The Group is involved in various lawsuits and disputes in addition to pending proceedings described above. The Group cannot reliably
estimate the timing and amount of outflows of resources embodying economic benefits relating to the disputes.
(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 USD 1,115 million (W1,213,120 million) in connection with the Controlling Company’s
export sales transactions with its subsidiaries. As of December 31, 2020, there are no short-term borrowings that are outstanding but past
due in connection with these agreements. In connection with all of the contracts in this paragraph, the Controlling Company has sold its
accounts receivable with recourse.
F-78
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
14. Contingent Liabilities and Commitments, Continued
The Controlling Company and overseas subsidiaries have agreements with financial institutions for accounts receivables sales negotiating
facilities. The respective maximum amount of accounts receivables that could be sold under the agreement and the amount of sold, but not yet
due, accounts receivables by contract are as follows:
(In millions of USD and KRW)
Classification
Financial institutions
Credit limit
Not yet due
Controlling Company
Shinhan Bank
Subsidiaries
LG Display Singapore Pte. Ltd.
LG Display Taiwan Co., Ltd.
LG Display Germany GmbH
LG Display America, Inc.
Sumitomo Mitsui Banking
Corporation
MUFG Bank
BNP Paribas
ING Bank
Standard Chartered Bank
BNP Paribas
Australia and New Zealand Banking
Group Ltd.
KGI Bank Co., Ltd.
BNP Paribas
DZ Bank AG
Hong Kong & Shanghai Banking
Corp.
Standard Chartered Bank
Sumitomo Mitsui Banking
Corporation
LG Display Japan Co., Ltd.
Chelsea Capital Corporation Tokyo
Branch
Contractual
amount
KRW
USD
90,000
60
USD
20
KRW 17,000
160
USD
125
USD
90
USD
USD
455
KRW 107,000
USD
USD
USD
USD
USD
USD
USD
USD
300
15
70
30
75
7
400
600
KRW
equivalent
90,000
65,280
21,760
17,000
174,080
136,000
97,920
602,040
326,400
16,320
76,160
32,640
81,600
8,051
Contractual
amount
—
30
USD
—
—
USD 25
USD 25
—
USD 80
—
—
—
—
—
USD 75
7
USD
KRW
equivalent
—
32,657
—
—
27,050
27,249
—
86,956
—
—
—
—
81,551
8,051
435,200
652,800
USD 300
USD 318
326,399
345,658
USD
200
217,600
USD 20
21,760
USD
120
USD 1,817
USD 2,272
KRW 107,000
130,560
1,977,331
2,579,371
—
USD 720
USD 800
—
—
783,419
870,375
In connection with all of the contracts in the above table, the Group has sold its accounts receivable without recourse.
F-79
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
14. Contingent Liabilities and Commitments, Continued
Letters of credit
As of December 31, 2020, the Controlling Company entered into agreements with financial institutions in relation to the opening of letters of
credit and the respective credit limits under the agreements are as follows:
(In millions of won and USD)
KEB Hana Bank
Sumitomo Mitsui Banking Corporation
Industrial Bank of Korea
Industrial and Commercial Bank of China
Shinhan Bank
KB Kookmin Bank
MUFG Bank
The Export–Import Bank of Korea
Contractual amount
150
USD
50
USD
100
USD
200
USD
200
USD
100
USD
100
USD
USD
200
1,100
USD
KRW equivalent
W 163,200
54,400
108,800
217,600
217,600
108,800
108,800
217,600
W 1,196,800
Payment guarantees
The Controlling Company obtained payment guarantees amounting to USD 338 million (W367,200 million) from KB Kookmin Bank and others
for advances received related to the long-term supply agreements. The Controlling Company also obtained payment guarantees amounting to USD
306 million (W332,724 million) from Korea Development Bank for foreign currency denominated bonds and USD 2 million (W2,176 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 CNY 644 million (W107,522 million), JPY 900 million (W9,488 million), EUR 2.5 million (W3,346 million), VND
49,694 million (W2,341 million) and USD 0.5 million (W544 million), respectively, for their local tax payments and utility payments.
License agreements
As of December 31, 2020, the Group has technical license agreements with Hitachi Display, Ltd. and others in relation to its LCD business and
patent cross license agreement with Universal Display Corporation in relation to its OLED business. Also, the Group has a trademark license
agreement with LG Corp. and other intellectual property license agreements with various companies as of December 31, 2020.
Long-term supply agreement
As of December 31, 2020, in connection with long-term supply agreements with customers, the Controlling Company recognized USD
200 million (W217,600 million) in advances received. The advances received are 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 338 million (W367,200 million) from KB Kookmin Bank and other various banks relating to advances received (see note 14
(b) payment guarantees).
F-80
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
14. Contingent Liabilities and Commitments, Continued
Pledged Assets
In connection with the borrowings amounting to CNY 19,320 million (W3,225,667 million) from China Construction Bank and others, as of
December 31, 2020, the Group is providing its property, plant and equipment with carrying amount of W651,466 million as pledged assets.
15. 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, 2019 and
December 31, 2020, the number of issued common shares is 357,815,700. There have been no changes in the capital stock from January 1,
2018 to December 31, 2020.
(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 as of December 31, 2019 and 2020 are as follows:
(In millions of won)
Foreign currency translation differences for foreign operations
Other comprehensive loss from associates
December 31, 2019
W
(178,452)
(24,569)
(203,021)
December 31, 2020
(138,667)
(24,779)
(163,446)
W
F-81
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
15. Capital and Reserves, Continued
The movement in reserves for the years ended December 31, 2018, 2019 and 2020 are as follows:
(In millions of won)
January 1, 2018
Change in reserves
December 31, 2018
January 1, 2019
Change in reserves
December 31, 2019
January 1, 2020
Change in reserves
December 31, 2020
Foreign currency
translation differences
for foreign operations
W
(259,749)
(12,725)
(272,474)
(272,474)
94,022
(178,452)
(178,452)
39,785
(138,667)
F-82
Other comprehensive income
(loss) from associates
(excluding remeasurements)
Total
(28,531)
37
(28,494)
(28,494)
3,925
(24,569)
(24,569)
(210)
(24,779)
(288,280)
(12,688)
(300,968)
(300,968)
97,947
(203,021)
(203,021)
39,575
(163,446)
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
16. Geographic and Other Information
The following is a summary of the Group’s revenue by region based on the location of customers for the years ended December 31, 2018, 2019
and 2020.
(a)
Revenue by geography
(In millions of won)
Domestic
Foreign
China
Asia (excluding China)
United States
Europe (excluding Poland)
Poland
2018
W 1,589,452
2019
1,264,639
2020
905,760
15,242,533
2,481,112
2,462,918
1,496,138
1,064,418
W 22,747,119
W 24,336,571
15,432,503
2,404,739
1,940,321
1,475,942
957,423
22,210,928
23,475,567
16,677,420
2,295,727
2,060,656
1,215,461
1,075,100
23,324,364
24,230,124
Sales to Company A and Company B amount to W10,380,138 million and W4,229,781 million, respectively, for the year ended
December 31, 2020 (2018: W7,262,255 million and W5,171,354 million, 2019: W8,494,720 million and W4,501,790 million). The
Group’s top ten end-brand customers together accounted for 85% of sales for the year ended December 31, 2020 (2018: 77%, 2019: 80%).
(b)
Non-current assets by geography
(In millions of won)
Domestic
Foreign
China
Vietnam
Others
(c)
Revenue by product and services
(In millions of won)
TV
IT (*)
Mobile and others
December 31, 2019
December 31, 2020
Property, plant
and equipment
W12,764,240
Intangible
assets
708,047
Property, plant
and equipment
11,736,856
Intangible
assets
874,849
7,391,279
1,923,764
8,362
W 9,323,405
W22,087,645
34,337
7,630
123,434
165,401
873,448
6,731,052
1,663,807
15,336
8,410,195
20,147,051
39,396
7,688
98,155
145,239
1,020,088
2018
W 9,727,260
8,867,679
5,741,632
W24,336,571
2019
7,998,137
9,062,774
6,414,656
23,475,567
2020
6,706,217
10,120,668
7,403,239
24,230,124
(*)
IT consists of Monitor, Notebook and Tablet products and revenue by products and services for the years ended December 31, 2018 and 2019 are
reclassified according to classification for the year ended December 31, 2020.
F-83
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
17. The Nature of Expenses and Others
The classification of expenses by nature for the years ended December 31, 2018, 2019 and 2020 are as follows:
(In millions of won)
Changes in inventories
Purchases of raw materials, merchandise and others
Depreciation and amortization
Outsourcing
Labor
Supplies and others
Utility
Fees and commissions
Shipping
Advertising
Warranty
Travel
Taxes and dues
Impairment loss on property, plant, and equipment
Impairment loss on intangible assets
Others
2018
W (341,120)
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
43,601
82
713,990
W 24,328,829
2019
640,048
12,580,796
3,695,051
865,935
3,072,877
813,262
896,112
695,245
196,002
193,436
418,942
95,074
109,473
1,550,430
249,450
625,504
26,697,637
2020
(119,501)
12,597,032
4,134,843
988,899
2,866,055
900,019
885,972
679,475
184,105
113,547
309,113
61,520
141,669
38,494
79,593
666,983
24,527,818
Total expenses consist of cost of sales, selling, administrative, research and development expenses and other expenses, excluding foreign
exchange differences.
F-84
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
18.
Selling and Administrative Expenses
Details of selling and administrative expenses for the years ended December 31, 2018, 2019, and 2020 are as follows:
(In millions of won)
Salaries(*)
Expenses related to defined benefit plans
Other employee benefits
Shipping
Fees and commissions
Depreciation
Taxes and dues
Advertising
Warranty
Rent
Insurance
Travel
Training
Others
2018
W 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
W1,772,276
2019
514,736
29,018
77,690
162,509
219,784
225,909
49,826
193,436
418,942
2,887
11,386
23,594
12,215
63,799
2,005,731
2020
294,055
26,449
68,402
147,711
221,922
215,479
82,708
113,547
309,113
2,008
12,985
8,296
8,463
61,813
1,572,951
(*)
Expenses recognized in relation to employee termination benefits for the years ended December 31, 2019, 2019 and 2020 amount to
W184,941 million, W218,826 million and W1,417 million, respectively.
19.
Personnel Expenses
Details of personnel expenses for the years ended December 31, 2018, 2019 and 2020 are as follows:
(In millions of won)
Salaries and wages
Other employee benefits
Contributions to National Pension plan
Expenses related to defined benefit plans and defined contribution plans(*)
2018
W2,720,014
500,169
75,668
180,737
W3,476,588
2019
2,553,485
473,916
73,148
163,757
3,264,306
2020
2,326,792
444,090
67,241
161,285
2,999,408
(*)
Expenses recognized in relation to employee defined contribution plan for the years ended December 31, 2018, 2019 and 2020 amount to
W857 million, W760 million and W616 million, respectively.
F-85
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
20. Other Income and Other Expenses
(a)
Details of other income for the years ended December 31, 2018, 2019 and 2020 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
Gain on disposal of non-current assets held for sales
Others
2018
W 970,306
6,620
239
348
3,584
—
23,040
W1,004,137
2019
1,174,376
35,788
552
960
3,098
8,353
44,124
1,267,251
2020
1,688,838
37,835
111
1,110
3,629
—
53,123
1,784,646
(b)
Details of other expenses for the years ended December 31, 2018, 2019 and 2020 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
Loss on liquidation of investments in subsidiaries
Others
2018
W1,030,084
4
15,048
43,601
—
82
7,698
—
18,716
W1,115,233
2019
1,235,054
1,379
40,897
1,550,430
139
249,450
693
—
19,701
3,097,743
2020
1,730,703
—
60,294
38,494
368
79,593
934
72,654
16,240
1,999,280
F-86
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
21.
Finance Income and Finance Costs
(a)
Finance income and costs recognized in profit or loss for the years ended December 31, 2018, 2019 and 2020 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 on investments in equity accounted investees
Gain on transaction of derivatives
Gain on valuation of derivatives
Gain on disposal of financial assets at fair value through profit or loss
Gain on valuation of financial assets at fair value through profit or loss
Finance costs
Interest expense
Foreign currency loss
Loss on disposal of investments in equity accounted investees
Impairment loss on investments in equity accounted investees
Loss on repayment of borrowings
Loss on sale of trade accounts and notes receivable
Loss on transaction of derivatives
Loss on valuation of derivatives
Loss on valuation of financial assets at fair value through profit or loss
Loss on valuation of financial liabilities at fair value through profit or loss
Others
F-87
2018
2019
2020
W 69,020
160,989
—
802
2,075
13,059
—
8,186
W254,131
W 80,517
184,309
595
17,397
—
13,361
49
26,600
225
—
3,840
W326,893
53,378
135,006
4,531
1,744
21,752
59,781
138
402
276,732
172,750
154,421
—
5,123
—
19,728
—
17,999
4,630
56,384
12,212
443,247
69,651
336,155
—
4,149
24,759
—
—
4,072
438,786
370,479
194,384
—
3,344
794
5,258
291
187,344
2,311
36,798
1,675
802,678
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
21.
Finance Income and Finance Costs, Continued
(b)
Finance income and costs recognized in other comprehensive income or loss for the years ended December 31, 2018, 2019 and 2020 are as
follows:
(In millions of won)
Foreign currency translation differences for foreign operations
Finance income (costs) recognized in other comprehensive income (loss) after
tax
2018
W(19,987)
2019
106,690
2020
48,181
W(19,987)
106,690
48,181
22.
Income Tax Expense (Benefit)
(a)
Details of income tax expense (benefit) for the years ended December 31, 2018, 2019 and 2020 are as follows:
(In millions of won)
Current tax expense (benefit)
Current year
Adjustment for prior years
Deferred tax expense (benefit)
Origination and reversal of temporary differences and others
Change in unrecognized deferred tax assets(*)
Income tax expense (benefit)
2018
2019
2020
W 167,394
82,225
W 249,619
193,691
(35,787)
157,904
117,215
(55,410)
61,805
W(226,360)
64,818
W(161,542)
W 88,077
(963,385)
333,317
(630,068)
(472,164)
(319,496)
(266,771)
(586,267)
(524,462)
(*) Change in unrecognized deferred tax assets in 2020 consist of tax effect from recognizing previously unrecognized deferred tax assets in relation
to tax credit carry forwards due to amendments to tax laws in 2020 (extension of tax credit carryforward period from 5 years to 10 years and
others) resulting in increase of probability for utilization of tax credit carry forwards.
F-88
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
22.
Income Tax Expense (Benefit), Continued
(b)
Income taxes recognized directly in other comprehensive income or loss for the years ended December 31, 2018, 2019, and 2020 are as
follows:
(In millions of won)
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)
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)
Remeasurements of net defined benefit liabilities (assets)
Foreign currency translation differences for foreign operations
Change in equity of equity method investee
F-89
Before tax
W 5,690
(19,987)
57
W(14,240)
2018
Tax benefit
(1,169)
—
—
(1,169)
Net of tax
4,521
(19,987)
57
(15,409)
Before tax
W128,640
106,690
4,163
W239,493
2019
Tax expense
(35,235)
—
—
(35,235)
Net of tax
93,405
106,690
4,163
204,258
Before tax
W148,436
48,181
(171)
2020
Tax expense
(38,032)
—
—
Net of tax
110,404
48,181
(171)
W196,446
(38,032)
158,414
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
22.
Income Tax Expense (Benefit), Continued
(c)
Reconciliation of the actual effective tax rate for the years ended December 31, 2018, 2019, and 2020 is as follows:
(In millions of won)
Loss before income tax
Income tax expense (benefit) using the statutory tax rate of each country
Non-deductible expenses
Tax credits
Change in unrecognized deferred tax assets(*1)
Adjustment for prior years(*2)
Effect on change in tax rate
Others
Income tax expense (benefit)
Effective tax rate
2018
W
(33.60%)
(40.07%)
117.27%
(70.94%)
(90.00%)
15.68%
5.25%
W
(91,366)
30,695
36,608
(107,146)
64,818
82,225
(14,326)
(4,797)
88,077
(*3)
2019
(3,344,242)
2020
23.94%
(0.95%)
1.47%
(9.97%)
1.07%
(0.40%)
(1.05%)
(800,660) 31.55%
31,649
(2.32%)
(49,269) 12.61%
44.83%
333,318
9.31%
(35,787)
(1.24%)
13,353
35,232
(6.61%)
(472,164)
(*3)
(595,098)
(187,754)
13,789
(75,051)
(266,771)
(55,410)
7,386
39,349
(524,462)
(*3)
(*1) Change in unrecognized deferred tax assets in 2020 consist of tax effect from recognizing previously unrecognized deferred tax assets in relation
to tax credit carry forwards due to amendments to tax laws in 2020 (extension of tax credit carryforward period from 5 years to 10 years and
others) resulting in increase of probability for utilization of tax credit carryforwards.
(*2) Adjustment for prior years in 2020 consist of additional use of tax credits in amended tax returns and others.
(*3) Actual effective tax rate is not calculated due to loss before income tax.
(d)
Tax uncertainties
In 2019, additional taxes were imposed from tax authorities of China in relation to transfer price investigations conducted in subsidiaries
located in China, The mutual agreement procedures for elimination of double taxation between tax authorities of the Republic of Korea
and China are in progress from 2019 in order for the Group to receive tax refunds from the tax authority of the Republic of Korea. During
the year ended December 31, 2019, the Group recognized current tax assets of W109,222 million in connection with the above and there is
no change for the year ended December 31, 2020.
F-90
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
23. Deferred Tax Assets and Liabilities
(a)
Unrecognized deferred tax liabilities
As of December 31, 2020, in relation to the taxable temporary differences on investments in subsidiaries amounting to W96,405 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 and planned tax strategies are realizable. As of December 31, 2020, 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
Total
W230,768
December 31,
2026
10,278
December 31,
2027
48,578
December 31,
2028
48,293
December 31,
2029
82,707
December 31,
2030
40,912
F-91
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
23. Deferred Tax Assets and Liabilities, Continued
(c)
Deferred tax assets and liabilities are attributable to the following:
(In millions of won)
Other accounts receivable, net
Inventories, net
Defined benefit liabilities, net
Investments in subsidiaries and associates
Accrued expenses
Property, plant and equipment
Intangible assets
Provisions
Other temporary differences
Tax loss carryforwards
Tax credit carryforwards
Deferred tax assets (liabilities)
Assets
Liabilities
Total
December 31,
2019
December 31,
2020
December 31,
2019
December 31,
2020
December 31,
2019
December 31,
2020
W
—
89,522
—
131,196
691,599
21,886
59,875
137,667
607,432
38,337
W1,777,514
—
60,539
—
—
123,106
669,449
19,469
63,943
173,166
953,209
391,769
2,454,650
(4,364)
—
—
(20,015)
—
(21,690)
(10,759)
(4,446)
(328)
—
—
(61,602)
(13)
—
(35,617)
(79,301)
—
(63,971)
(8,000)
—
(3,601)
—
—
(190,503)
(4,364)
89,522
—
(20,015)
131,196
669,909
11,127
55,429
137,339
607,432
38,337
1,715,912
(13)
60,539
(35,617)
(79,301)
123,106
605,478
11,469
63,943
169,565
953,209
391,769
2,264,147
(d)
Changes in deferred tax assets and liabilities for the years ended December 31, 2019 and 2020 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
Other temporary differences
Tax loss carryforwards
Tax credit carryforwards
Deferred tax assets (liabilities)
January 1,
2019
W (1,013)
60,606
—
13,404
126,072
444,226
(11,120)
32,468
13
13,185
134,845
308,393
W1,121,079
Profit or
loss
(3,351)
28,916
35,235
(33,419)
5,124
225,683
22,247
22,961
(13)
124,154
472,587
(270,056)
630,068
Other
comprehensive
loss
December 31,
2019
—
—
(35,235)
—
—
—
—
—
—
—
—
—
(35,235)
(4,364)
89,522
—
(20,015)
131,196
669,909
11,127
55,429
—
137,339
607,432
38,337
1,715,912
Profit or
loss
4,351
(28,983)
2,415
(59,286)
(8,090)
(64,431)
342
8,514
—
32,226
345,777
353,432
586,267
Other
comprehensive
loss
December 31,
2020
—
—
(38,032)
—
—
—
—
—
—
—
—
—
(38,032)
(13)
60,539
(35,617)
(79,301)
123,106
605,478
11,469
63,943
—
169,565
953,209
391,769
2,264,147
F-92
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
24. Loss Per Share Attributable to Owners of the Controlling Company
(a)
Basic loss per share for the years ended December 31, 2018, 2019 and 2020 are as follows:
(In won and No. of shares)
Loss attributable to owners of the Controlling
Company
Weighted-average number of common stocks outstanding
Basic loss per share
W
W(207,239,484,774)
(2,829,705,069,665)
357,815,700
357,815,700
(89,342,064,677)
357,815,700
(579)
(7,908)
(250)
2018
2019
2020
For the years ended December 31, 2018, 2019 and 2020, there were no events or transactions that resulted in changes in the number of
common stocks used for calculating loss per share.
(b)
The Controlling Company issued the convertible bonds on August 22, 2019. Diluted loss per share is not different from basic loss per
share due to loss for the years ended December 31, 2019 and 2020. As of December 31, 2020, 40,988,998 shares of potential common
stock were excluded from the calculation of weighted-average number of common stocks due to antidilution.
25.
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 an acceptable 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 accrued 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. Meanwhile, the
Group entered into cross currency interest rate swap contracts to hedge currency risk with respect to foreign currency borrowings and bonds.
F-93
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
25.
Financial Risk Management, Continued
i)
Exposure to currency risk
The Group’s exposure to foreign currency risk based on notional amounts as of December 31, 2019 and 2020 are as follows:
(In millions)
Cash and cash equivalents
Trade accounts and notes receivable
Non-trade receivables
Other assets denominated in foreign currencies
Trade accounts and notes payable
Other accounts payable
Financial liabilities
Cross currency interest rate swap contracts
Net exposure
(In millions)
Cash and cash equivalents
Trade accounts and notes receivable
Non-trade receivables
Other assets denominated in foreign currencies
Trade accounts and notes payable
Other accounts payable
Financial liabilities
Cross currency interest rate swap contracts
Net exposure
USD
1,594
2,485
276
29
(628)
(488)
(4,255)
(987)
2,085
1,098
JPY
68
19
455
526
(9,043)
(12,396)
—
(20,371)
—
(20,371)
December 31, 2019
3
369
EUR
5
TWD
33
CNY
8,360
PLN
25
550 — — —
2 —
230
5,668
503
5
(2,289) — — —
(10) —
(4)
(3,239)
(20,436) — — —
528
(11,156) 401
— — — —
528
(11,156) 401
2
2
VND
28,663
—
13,131
4,032
(291,891)
(786,356)
—
(1,032,421)
—
(1,032,421)
USD
1,795
3,093
52
—
(1,948)
(268)
(4,294)
(1,570)
2,225
655
JPY
164
13
93
208
(9,831)
(6,239)
—
(15,592)
—
(15,592)
F-94
TWD
34
CNY
13,382
December 31, 2020
EUR
7
PLN
4
585 — — —
6 —
222
3
6
1 —
51
(2,037) — — —
(8) —
(4)
(2,018)
(27,825) — — —
4
39
(17,640)
— — — —
4
(17,640)
39
6
6
VND
GBP
33,843 —
— —
9,773 —
4,586 —
(357,149) —
(997,204)
(2)
— —
(1,306,151)
(2)
— —
(1,306,151)
(2)
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
25.
Financial Risk Management, Continued
Average exchange rates applied for the years ended December 31, 2018, 2019 and 2020 and the exchange rates at December 31, 2019 and 2020
are as follows:
(In won)
USD
JPY
CNY
TWD
EUR
PLN
VND
GBP
Average rate
Reporting date spot rate
2018
W1,100.21
9.96
166.41
36.51
1,298.53
304.87
0.0478
1,100.30
2019
1,165.46
10.70
168.56
37.74
1,304.52
303.62
0.0502
1,487.46
2020
1,180.46
11.05
170.90
40.07
1,345.71
302.95
0.0508
1,513.48
December 31,
2019
1,157.80
10.63
165.74
38.48
1,297.43
304.87
0.0500
1,420.32
December 31,
2020
1,088.00
10.54
166.96
38.67
1,338.24
292.02
0.0471
1,482.40
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, 2019 and 2020, 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 at 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)
GBP (5 percent weakening)
December 31, 2019
December 31, 2020
Equity
W 23,570
Profit or loss
105,398
(8,397)
(92,454)
772
221
8,036
(1,871)
—
(6,418)
11
—
(278)
28
(1,871)
—
Equity
12,438
(6,250)
(147,294)
75
250
43
(2,230)
(107)
Profit or loss
73,186
(5,194)
93
—
377
43
(2,230)
(107)
A stronger won against the above currencies as of December 31, 2019 and 2020 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-95
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
25.
Financial Risk Management, Continued
(ii)
Interest rate risk
Interest rate risk arises principally from the Group’s variable interest-bearing bonds and borrowings. The Group establishes and applies its
policy to reduce uncertainty arising from fluctuations in interest rate and to minimize finance cost and manages interest rate risk by
monitoring of trends of fluctuations in interest rates and establishing plan for countermeasures. Meanwhile, the Group entered into cross
currency interest rate swap contracts amounting to USD 1,925 million (W2,094,400 million) and interest rate swap contracts amounting to
W170,000 million in notional amount to hedge interest rate risk with respect to variable interest bearing borrowings.
i)
Profile
The interest rate profile of the Group’s interest-bearing financial instruments as of December 31, 2019 and 2020 is as follows:
(In millions of won)
Fixed rate instruments
Financial assets
Financial liabilities
Variable rate instruments
Financial liabilities
December 31, 2019
December 31, 2020
W 3,414,838
(6,066,554)
W (2,651,716)
4,296,823
(5,875,729)
(1,578,906)
W (7,414,336)
(8,193,085)
ii)
Equity and profit or loss sensitivity analysis for variable rate instruments
For the years ended December 31, 2019 and 2020 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, 2019
Variable rate instruments(*)
December 31, 2020
Variable rate instruments(*)
(*)
Financial instruments related to non-hedging interest rate swap are excluded.
F-96
Equity
Profit or loss
1%p
increase
1%p
decrease
1%p
increase
1%p
decrease
W(38,774)
38,774
(38,774)
38,774
W(45,352)
45,352
(45,352)
45,352
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
25.
Financial Risk Management, Continued
(b)
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 default risk of the country in which each customer operates, 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.
In relation to the impairment of financial assets subsequent to initial recognition, the Group recognizes the changes in expected credit loss
(“ECL”) in profit or loss at each reporting date.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk as of
December 31, 2019 and 2020 are as follows:
(In millions of won)
Financial assets carried at amortized cost
Cash and cash equivalents
Deposits in banks
Trade accounts and notes receivable, net
Non-trade receivables
Accrued income
Deposits
Short-term loans
Long-term loans
Long-term non-trade receivables
Lease receivables
Financial assets at fair value through profit or loss
Convertible securities
Derivatives
Financial assets at fair value through other comprehensive
income
Debt instruments
December 31, 2019
December 31, 2020
W 3,336,003
78,768
3,154,080
463,614
10,434
31,036
21,623
40,827
9,072
27,794
W 7,173,251
W
W
1,544
49,676
51,220
76
W
W 7,224,547
4,217,943
78,663
3,517,512
140,616
3,864
30,947
28,491
13,899
—
22,262
8,054,197
2,377
9,363
11,740
72
8,066,009
Trade accounts and notes receivable are insured in order for the Group to manage credit risk if they do not meet the Group’s internal credit
ratings. Uninsured trade accounts and notes receivables are managed by continuous monitoring of internal credit rating standards
established by the Group and seeking insurance coverage, if necessary.
F-97
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
25.
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 other financial assets. 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 instruments, equity-linked and other debt
instruments. 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, 2020.
(In millions of won)
Non-derivative financial liabilities
Carrying
amount
Total
6 months
or less
6-12
months
1-2 years
2-5 years
Contractual cash flows in
Borrowings
Bonds
Trade accounts and notes payable
Other accounts payable
Other accounts payable (enterprise procurement cards)(*)
Long-term other accounts payable
Security deposits received
Lease liabilities
W11,296,898
2,771,916
3,779,290
1,703,791
1,078,150
30
12,539
83,431
12,201,452
2,786,822
3,779,290
1,703,791
1,078,150
30
12,539
90,132
1,672,931
327,489
3,660,788
1,703,791
473,511
—
—
25,150
942,835
551,540
118,502
—
604,639
—
1,430
14,284
2,753,807
1,379,750
—
—
—
30
10,920
19,779
6,375,984
435,757
—
—
—
—
189
22,181
More than
5 years
455,895
92,286
—
—
—
—
—
8,738
Derivative financial liabilities
Derivatives
W 167,625
W20,893,670
153,487
21,805,693
26,332
7,889,992
22,861
2,256,091
39,277
4,203,563
65,017
6,899,128
—
556,919
F-98
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
25.
Financial Risk Management, Continued
(*) Represents liabilities payable to credit card companies for utility expenses and others paid using enterprise procurement cards. The Group
presented the payable to credit card companies as other accounts payable and disclosed related cash flows as operating activities since the Group
is using the enterprise procurement cards through agreements with suppliers for transactions arising from purchasing of goods and services, the
payment term is within a year from the purchase, as part of the normal operating cycle, and no security is provided. Change in liabilities related to
procurement cards for the year ended December 31, 2020 is as follows:
(In millions of won)
Other accounts payable (enterprise procurement cards)
January 1, 2020
W 2,353,355
Change
(Cash flows from
operation activities)
(1,275,205)
December 31, 2020
1,078,150
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different
amounts.
(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, 2019
W 23,086,282
12,488,281
3,414,760
13,480,889
December 31, 2020
22,334,584
12,736,939
4,296,751
14,068,814
185%
81%
175%
77%
(*1) Cash and deposits in banks consist of cash and cash equivalents and current deposits in banks.
(*2) Net borrowings to equity ratio is calculated by dividing total borrowings (including bonds and excluding lease liabilities and others) less cash and
current deposits in banks by total equity.
F-99
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
25.
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 their 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 current receivables approximate their
fair value.
iii)
Investments in equity and debt instruments
The fair value of marketable financial assets at FVTPL and at FVOCI is determined by reference to their quoted closing bid price at the
reporting date. The fair value of non-marketable instruments is determined using the results of fair value assessment performed by external
valuation institutions and others.
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-100
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
25.
Financial Risk Management, 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, 2019 and 2020 are as follows:
(In millions of won)
Financial assets carried at amortized cost
Cash and cash equivalents
Deposits in banks
Trade accounts and notes receivable
Non-trade receivables
Accrued income
Deposits
Short-term loans
Long-term loans
Long-term non-trade receivables
Lease receivables
Financial assets at fair value through profit or loss
Equity instruments
Convertible securities
Derivatives
Financial assets at fair value through other comprehensive income
Debt instruments
Financial liabilities at fair value through profit or loss
Derivatives
Convertible bonds
Financial liabilities carried at amortized cost
Borrowings
Bonds
Trade accounts and notes payable
Other accounts payable
Long-term other accounts payable
Security deposits received
Lease liabilities
Excluded from disclosures as the carrying amount approximates fair value.
(*)
.
F-101
December 31, 2019
December 31, 2020
Carrying
amounts
Fair values
W 3,336,003
78,768
3,154,080
463,614
10,434
31,036
21,623
40,827
9,072
27,794
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
9,879
1,544
49,676
9,879
1,544
49,676
W
W
Carrying
amounts
4,218,099
78,663
3,517,512
140,616
3,864
30,947
28,491
13,899
—
22,262
13,223
2,377
9,363
Fair values
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
(*)
13,223
2,377
9,363
76
76
72
72
W 20,592
858,385
20,592
858,385
167,625
861,675
167,625
861,675
W10,329,671
2,292,833
2,618,261
4,397,121
1,069
11,000
88,512
10,394,498
2,345,867
(*)
(*)
(*)
(*)
(*)
11,296,898
1,910,241
3,779,290
2,781,941
30
12,539
83,431
11,328,418
1,923,517
(*)
(*)
(*)
(*)
(*)
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
25.
Financial Risk Management, Continued
(iii)
Fair values of financial assets and liabilities
i)
Fair value hierarchy
Financial instruments carried at fair value are categorized into different levels in a fair value hierarchy based on the inputs used in
the valuation techniques. 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, 2019 and 2020 are
as follows:
(In millions of won)
December 31, 2019
Financial assets at fair value through profit or loss
Equity instruments
Convertible securities
Derivatives
Financial assets at fair value through other
comprehensive income
Debt instruments
Financial liabilities at fair value through profit or loss
Derivatives
Convertible bonds
(In millions of won)
Financial assets at fair value through profit or loss
Equity instruments
Convertible securities
Derivatives
Financial asset at fair value through other comprehensive
income
Debt instruments
Financial liabilities at fair value through profit or loss
Derivatives
Convertible bonds
Level 1
Level 2
Level 3
Total
W
W
W
—
—
—
76
—
858,385
—
—
—
—
—
—
9,879
1,544
49,676
—
20,592
—
9,879
1,544
49,676
76
20,592
858,385
Level 1
Level 2
Level 3
Total
December 31, 2020
W
W
W
—
—
—
72
—
861,675
F-102
—
—
—
—
—
—
13,223
2,377
9,363
13,223
2,377
9,363
—
72
167,625
—
167,625
861,675
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
25.
Financial Risk Management, 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, 2019 and December 31, 2020 are as follows:
(In millions of won)
Classification
Liabilities
Borrowings
Bonds
(In millions of won)
Classification
Liabilities
Borrowings
Bonds
December 31, 2019
Level 1 Level 2
Level 3
Valuation
technique
Input
W— —
10,394,498
— —
2,345,867
Discounted cash
flow
Discounted cash
flow
Discount
rate
Discount
rate
December 31, 2020
Level 1 Level 2
Level 3
Valuation
technique
Input
W— —
11,328,418
— —
1,923,517
Discounted cash
flow
Discounted cash
flow
Discount
rate
Discount
rate
iv)
The interest rates applied for determination of the above fair value as of December 31, 2019 and 2020 are as follows:
Borrowings, bonds and others
December 31, 2019
December 31, 2020
1.87~3.56%
2.15~4.46%
F-103
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
26. Leases
(a)
Leases as lessee
The Group leases buildings, vehicles, machinery and equipment and others. Information about leases for which the Group is a lessee is
presented below.
(i)
Right-of-use assets
Right-of-use assets are presented as property, plant and equipment as of December 31, 2019 and 2020 (see note 9(a)).
Changes in right-of-use assets for the years ended December 31, 2019 and 2020 are as follows:
(In millions of won)
Balance at January 1, 2019
Addition
Depreciation
Derecognition of
right-of-use assets
Impairment
Gain or loss on foreign currency translation
Balance at December 31, 2019
(In millions of won)
Balance at January 1, 2020
Additions
Depreciation
Gain or loss on foreign currency translation
Balance at December 31, 2020
Buildings
and
structures
W 75,777
19,743
(39,376)
Land
53,960
1,890
(2,272)
2019
Machinery
and
equipment
1,111
2,882
(1,305)
Vehicles Others
392
10,800
247
4,971
(350)
(7,760)
Total
142,040
29,733
(51,063)
(3,056)
(248)
373
W 53,213
—
(3,833)
9
49,754
(538)
(20)
17
2,147
— —
(193)
30
7,848
(8)
7
288
(3,594)
(4,302)
436
113,250
Buildings
and
structures
W 53,213
44,900
(42,923)
(24)
Land
49,754
607
(2,947)
(3)
W 55,166
47,411
2020
Machinery
and
equipment
2,147
1,197
(1,485)
—
1,859
Vehicles Others
288
591
(378)
7,848
4,459
(6,336)
(1) —
501
5,970
Total
113,250
51,754
(54,069)
(28)
110,907
F-104
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
26. Leases, Continued
(ii) Amounts recognized in profit or loss for the years ended December 31, 2019 and 2020 are as follows:
(In millions of won)
Interest on lease liabilities
Income from sub-leasing right-of-use assets
Expenses relating to short-term leases
Expenses relating to leases of low-value assets
2019
W
(4,085)
1,079
(1,783)
(1,188)
2020
(4,456)
896
(977)
(231)
(iii) Changes in lease liabilities for the years ended December 31, 2019 and 2020 are as follows:
(In millions of won)
Balance at January 1
Additions and others
Interest expense
Repayment of liabilities
Balance at December 31
(b)
Leases as lessor
2019
115,119
W
33,878
4,085
(64,570)
88,512
W
2020
88,512
52,663
4,456
(62,200)
83,431
During the years ended December 31, 2019 and 2020, the Group recognized interest income on lease receivables of W1,079 million and
W896 million, respectively.
The following table sets out a maturity analysis of lease receivables, showing the undiscounted lease payments to be received after the
reporting date.
(In millions of won)
6 months or less
6-12 months
1-2 years
2-3 years
3-4 years
4-5 years
Total undiscounted lease receivable
Unearned finance income
Net Investment in the lease
December 31, 2019
3,282
W
3,282
6,563
6,563
6,563
3,830
30,083
(2,289)
27,794
December 31, 2020
3,306
3,306
6,612
6,612
3,857
—
23,693
(1,431)
22,262
F-105
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
27. Changes in liabilities arising from financing activities
Changes in liabilities arising from financing activities for the year ended December 31, 2020 are as follows:
(In millions of won)
Short-term borrowings
Current portion of long-term borrowings and
bonds
Long-term borrowings
Bonds
Lease liabilities
January 1,
2020
W 696,793
1,242,904
8,799,677
2,741,516
88,512
W13,569,402
Cash flows
from financing
activities
(267,614)
(1,278,199)
2,329,013
49,949
(62,200)
770,949
F-106
Reclassification
—
2,763,075
(1,935,274)
(827,801)
—
—
Non-cash transactions
Gain or loss on
foreign
currency
translation
Effective
interest
adjustment
—
(34,273)
(23,627)
(173,758)
(72,129)
5,362
(298,425)
763
—
20,207
—
20,970
Others
—
793
—
36,799
51,757
89,349
December 31,
2020
394,906
2,705,709
9,019,658
1,948,541
83,431
14,152,245
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
28. Related Parties and Others
(a)
Related parties
Related parties as of December 31, 2020 are as follows:
Associates(*)
Classification
Paju Electric Glass Co., Ltd. and others
Description
Entity that has significant influence over the Controlling
Company
LG Electronics Inc.
Subsidiaries of the entity that has significant influence over the
Subsidiaries of LG Electronics Inc.
Controlling Company
(*) Details of associates are described in note 8.
F-107
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
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, 2018, 2019 and 2020 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.
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
LG Electronics India Pvt. Ltd.
LG Electronics Vietnam Haiphong Co., Ltd.
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
W
—
—
—
—
—
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
W 71,798
173,051
—
—
—
—
—
4,541
—
—
103
166
F-108
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
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
Sales
and others
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
Dividend
income
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,272
2018
Purchase and others
Purchase of
raw material
and others
—
—
—
147,453
—
—
—
—
—
—
—
—
330
—
—
—
—
28
147,811
555,463
Acquisition of
property, plant
and equipment
424
—
—
—
—
—
—
—
—
304,365
—
—
26,871
22,378
92,900
—
—
15
451,494
1,694,360
Outsourcing
fees
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
71,403
Other
costs
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
(*) Represents transactions occurred prior to the Group’s disposal of the entire investments.
F-109
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
28. Related Parties and Others, Continued
(In millions of won)
Associates
INVENIA Co., Ltd.(*1)
AVATEC Co., Ltd.
Paju Electric Glass Co., Ltd.
WooRee E&L Co., Ltd.
YAS Co., Ltd.
Material Science 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 India Pvt. Ltd.
LG Electronics Vietnam Haiphong Co., Ltd.
LG Electronics Nanjing New Technology Co., Ltd.
LG Electronics RUS, LLC
2019
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 —
2,639
—
—
—
—
W 2,639
180
265
6,057
—
1,000
—
7,502
1,024
—
342,958
6,441
6,764
59
357,246
45,580
—
—
—
102,316
—
147,896
—
73,323
—
—
—
—
73,323
297
891
4,416
5
3,655
313
9,577
W947,409
—
13,240
815,629
—
153,212
W 87,116
277,743
297,033
100,894
F-110
—
—
—
—
—
—
—
—
—
3,019
31
—
—
—
—
—
194
924
486
1,972
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
28. Related Parties and Others, Continued
(In millions of won)
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 Hitachi Water Solutions Co., Ltd.(*2)
LG Electronics Reynosa, S.A. DE C.V.
LG Electronics Air-Conditioning (Shandong) Co., Ltd.
HiEntech Co., Ltd.(*2)
HiEntech (Tianjin) Co., Ltd.(*2)
LG Electronics Egypt S.A.E.
LG Electronics Alabama Inc.
LG Electronics Japan, Inc.
P.T. LG Electronics Indonesia
Others
Sales
and others
W 145,546
7,572
22,563
41,858
114,520
618,715
—
722,194
—
47
—
97,359
12,869
—
11,200
12,564
W2,569,793
W3,519,841
Dividend
income
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
7,502
2019
Purchase and others
Purchase of
raw material
and others
—
53,886
—
—
—
—
—
—
444
—
—
—
—
—
—
—
54,330
424,816
Acquisition of
property, plant
and equipment
—
—
—
—
—
—
79,986
—
14,527
7,264
32,335
—
—
14
—
33
137,209
1,100,734
Outsourcing
fees
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
73,323
Other
costs
289
79,162
—
—
85
1,967
—
1,155
88
21,576
15,423
241
—
6,236
176
6,996
136,970
299,759
(*1) Represents transactions occurred prior to the Group’s disposal of the entire investments
(*2) Represents transactions occurred prior to LG Electronics Inc.’s disposal of the entire investments.
F-111
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
28. Related Parties and Others, Continued
(In millions of won)
Associates and their subsidiaries
AVATEC Co., Ltd.
Paju Electric Glass Co., Ltd.
WooRee E&L Co., Ltd.
YAS Co., Ltd.
Material Science 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 India Pvt. Ltd.
LG Electronics Vietnam Haiphong Co., Ltd.
LG Electronics Nanjing New Technology Co., Ltd.
LG Electronics RUS, LLC
2020
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
W
22
—
—
—
—
22
200
7,739
—
300
—
8,239
80
299,737
13,857
6,648
93
320,415
—
—
—
22,603
—
22,603
74,070
—
—
—
—
74,070
1,112
2,862
35
3,790
—
7,799
W647,329
—
19,810
233,504
—
141,191
W 53,441
332,977
439,674
95,465
F-112
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
173
1,138
1,333
303
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
28. Related Parties and Others, Continued
(In millions of won)
LG Electronics do Brasil Ltda.
LG Innotek Co., Ltd.
Qingdao LG Inspur Digital Communication Co., Ltd.
LG Electronics Mexicalli, S.A. DE C.V.
LG Electronics Mlawa Sp. z o.o.
LG Electronics Reynosa, S.A. DE C.V.
LG Electronics Egypt S.A.E.
LG Electronics Japan, Inc.
P.T. LG Electronics Indonesia
Others
2020
Purchase and others
Dividend
income
—
—
—
—
—
—
—
—
—
—
—
8,239
Purchase of
raw material
and others
—
25,012
—
—
—
—
—
—
—
229
25,241
365,466
Acquisition of
property, plant
and equipment
—
—
—
—
—
—
—
33
—
—
33
256,140
Outsourcing
fees
—
—
—
—
—
—
—
—
—
—
—
74,070
Other
costs
230
76,530
—
52
1,188
1,044
375
5,635
164
7,632
95,797
244,787
Sales
and others
W 111,710
5,321
7,298
145,032
729,135
780,710
69,853
—
157,820
5,030
W2,933,466
W3,580,817
F-113
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
28. Related Parties and Others, Continued
(c)
Trade accounts and notes receivable and payable as of December 31, 2019 and 2020 are as follows:
(In millions of won)
Associates
AVATEC Co., Ltd.
Paju Electric Glass Co., Ltd.
WooRee E&L Co., Ltd.
YAS Co., Ltd.
Material Science 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 India Pvt. Ltd.
LG Electronics Vietnam
Haiphong Co., Ltd.
LG Electronics Nanjing New
Technology Co., Ltd.
LG Electronics RUS, LLC
LG Electronics do Brasil Ltda.
LG Innotek Co., Ltd.
LG Electronics Mexicali, S.A.
DE C.V.
Trade accounts and notes receivable
and others
Trade accounts and notes payable
and others
December 31, 2019
December 31, 2020
December 31, 2019
December 31, 2020
W
W
—
—
—
—
—
—
—
—
—
—
1,029
62,853
1,888
27,489
8
93,267
2,714
84,095
3,637
18,126
—
108,572
W
209,939
94,193
157,713
88,629
W
6,113
47,740
55,343
17,600
14,805
267
W
11,195
F-114
3,697
36,417
88,075
10,295
7,481
227
20,969
—
75
49
83
26
36,426
17
—
16
83
—
14
31,309
15
28. Related Parties and Others, Continued
(In millions of won)
LG Electronics Mlawa Sp. z o.o.
LG Electronics Reynosa, S.A. DE
C.V.
LG Electronics Egypt S.A.E.
Qingdao LG Inspur Digital
Communication Co., Ltd.
P.T. LG Electronics Indonesia
Others
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
Trade accounts and notes receivable
and others
Trade accounts and notes payable
and others
December 31, 2019
124,390
W
December 31, 2020
89,481
December 31, 2019
75
December 31, 2020
10
82,927
9,432
7,221
7,696
2,452
387,181
597,120
W
W
F-115
70,555
13,359
—
48,677
804
390,037
484,230
62
—
—
16
3,548
40,377
291,357
50
—
—
—
2,062
33,559
230,760
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
28. Related Parties and Others, Continued
(d)
Details of significant financing transactions such as grants and collection of loans, which occurred in the normal course of business with
related parties for the years ended December 31, 2019 is as follows:
(In millions of won)
Associates
INVENIA Co., Ltd.
January 1, 2019
2,000
W
Increase
1,000
Decrease(*2)
(3,000)
December 31, 2019
—
Loans(*1)
(*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, 2019.
F-116
LG DISPLAY CO., LTD. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
For the years ended December 31, 2018, 2019 and 2020
28. Related Parties and Others, Continued
(e)
Key management personnel compensation
Compensation costs of key management for the years ended December 31, 2018, 2019 and 2020 are as follows:
(In millions of won)
Short-term benefits
Expenses related to the defined benefit plan
2018
W 2,622
794
W 3,416
2019
2,664
553
3,217
2020
2,233
346
2,579
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, 2018, 2019 and 2020 is as follows:
(In millions of won)
Non-cash investing and financing activities:
Changes in other accounts payable arising from the purchase of property,
plant and equipment
Recognition of right-of-use assets and lease liabilities
2018
2019
2020
W516,734
—
(1,333,967)
29,733
(662,164)
51,757
F-117
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
Amended on March 23, 2021
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)
(2)
(3)
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;
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;
(4)
(5)
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.
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.
CHAPTER II. SHARES
Article 7.
(Face Value)
The face value per share to be issued by the Company is 5,000 Won.
2
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)
(2)
(3)
(4)
(5)
Preferred shares to be issued by the Company shall be non-voting and the number thereof shall be 40,000,000.
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.
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.
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.
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.
3
(6)
(7)
(8)
(9)
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.
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).
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)
(2)
(3)
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.
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.
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. Where the Company invites or cause underwriters to invite subscriptions for new shares;
2. 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”);
3. 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;
4
4. Where the Company issues new shares by exercise of stock options under Article 340-2 of the Commercial Code;
5. Where the Company issues new shares for the issuance of a depositary receipt (DR) under Article 165-16 of the Capital Market Act;
6. 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
7. Where the Company issues new shares for the purpose of drawing foreign investment, when it deems necessary for its management;
or
8. 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.
Article 10-2
(Stock Options)
(1)
(2)
(3)
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.
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.
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.
5
(4)
(5)
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.
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)
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. Where an officer/employee of the Company voluntarily retires or resigns from his/her office after being granted stock options;
2. Where an officer/employee of the Company incurs substantial damages to the Company due to his/her willful misconduct or
negligence;
3. Where the Company cannot respond to the exercise of an officer/employee’s stock options due to the Company’s liquidation or
dissolution; or
4. 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.
6
(2)
(3)
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.
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)
(2)
(3)
(4)
The Company shall retain a transfer agent for shares.
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.
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.
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]
7
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. Where the Company issues convertible bonds through a general public offering;
2. Where the Company issues convertible bonds for the purpose of drawing foreign investment, when it deems necessary for its
management;
3. Where the Company issues convertible bonds to a domestic or overseas financial institution for an urgent need for funds; or
4. Where the Company issues convertible bonds in foreign countries in accordance with Article 165-16 of the Capital Market Act.
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.
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.
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.
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.
(2)
(3)
(4)
(5)
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):
1. Where the Company issues bonds with warrant through a general public offering;
2. Where the Company issues bonds with warrant for the purpose of drawing foreign investment, when it deems necessary for its
management;
3. Where the Company issues bonds with warrant to a domestic or overseas financial institution for an urgent need for funds; or
4. Where the Company issues bonds with warrant in foreign countries in accordance with Article 165-16 of the Capital Market Act.
8
(2)
(3)
(4)
(5)
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.
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.
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.
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.
CHAPTER III. GENERAL MEETINGS OF SHAREHOLDERS
Article 16.
(Time for convening of General Meetings of Shareholders)
(1)
(2)
General Meetings of the Shareholders of the Company shall be of two kinds: ordinary and extraordinary.
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.
9
Article 17.
(Convening of General Meetings of Shareholders)
(1)
(2)
(3)
(4)
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.
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.
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.
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.
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)
(2)
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.
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.
10
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)
(2)
Each share shall have one (1) voting right.
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.
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)
(2)
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.
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.
11
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.
Article 27.
(Election of Directors)
Directors shall be elected at a General Meeting of Shareholders of the Company.
Article 27-2.
(Nomination of Candidates for Outside Directors)
(1)
(2)
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.
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.
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.
12
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)
(2)
(3)
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.
If two (2) or more Representative Directors are appointed, each shall represent the Company.
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)
(2)
(3)
(4)
(5)
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.
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.
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.
The Chairman of the Board of Directors shall be elected by the Board of Directors.
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.
13
(2)
(3)
(4)
Resolutions of a meeting of the Board of Directors shall be adopted by the affirmative votes of a majority of the Directors present.
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.
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)
(2)
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.
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)
(2)
The proceedings of a Board of Directors’ meeting shall be recorded in the minutes.
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.
Audit Committee
Outside Director Nomination Committee
14
3.
Other committees as deemed necessary by the Board of Directors
(2)
(3)
Details on composition, power and operation of each committee shall be determined by a resolution of the Board of Directors.
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)
(2)
The total amount of remuneration for the Directors shall be determined by a resolution of the General Meeting of Shareholders.
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)
(2)
(3)
(4)
The Company shall have an Audit Committee in lieu of the statutory auditors in accordance with Article 34 hereof.
The Audit Committee shall consist of three (3) outside Directors.
The Company shall appoint the members of the Audit Committee from the Directors of the Company, after having appointed such
Directors as Directors of the Company at a General Meeting of Shareholders; provided, however, that, one (1) of the members of the Audit
Committee shall be a Director appointed as a Director to be appointed as a member of the Audit Committee, separate from other Directors
appointed, at the General Meeting of Shareholders.
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.
15
(5)
The Audit Committee shall appoint, by its resolution, a person to represent the committee.
Article 36-3.
(Duties of Audit Committee)
(1)
(2)
(3)
(4)
The Audit Committee shall examine the accounts and businesses of the Company.
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.
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.
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)
The fiscal year of the Company shall commence on January 1 of each year and end on December 31 (of the same year).
CHAPTER V. ACCOUNTING
Article 38.
[Deleted]
Article 39.
[Deleted]
16
Article 40.
[Deleted]
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)
(3)
(4)
(5)
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.
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.
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.
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.
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.
17
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.
2.
3.
4.
5.
Legal reserve;
Other statutory reserves;
Dividends;
Discretionary reserve; and
Other appropriation of retained earnings.
Article 42-2.
[Deleted]
Article 43.
(Dividends)
(1)
(2)
(3)
Dividends may be paid in either cash or shares.
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.
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)
(2)
(3)
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.
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.
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;
18
2.
3.
4.
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;
5.
Aggregate earned surplus reserves to be accumulated for the fiscal year concerned as a result of the interim dividends; and
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.
When distributing interim dividends, the same dividend ratio as that of the common shares of the Company shall be applied to the
preferred shares.
(4)
(5)
Article 44.
(Prescription Period for Claim for Payment of Dividends)
(1)
(2)
The right to dividends shall be extinguished by prescription if the right is not exercised for five (5) years.
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.
19
ADDENDA
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)
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.
20
ADDENDA (as of March 11, 2011)
These Articles of Incorporation shall be effective from March 8, 2013.
ADDENDA (as of March 8, 2013)
ADDENDA (as of March 15, 2019)
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.
These Articles of Incorporation shall be effective from March 23, 2021.
21
ADDENDA (as of March 23, 2021)
Exhibit 2.6
Description of LG Display Co., Ltd.’s American Depositary Shares
Citibank N.A. serves as the depositary for American depositary shares of LG Display Co., Ltd., pursuant to the deposit agreement among LG
Display Co., Ltd., Citibank, N.A., as ADR depositary, and all holders and beneficial owners of American depositary shares of LG Display Co., Ltd.,
dated as of July 22, 2004, as amended by the Amendment No. 1 thereto dated September 2, 2014 and supplemented by the side letter agreement dated as
of November 29, 2007. Unless otherwise indicated, all references in this exhibit to the terms “we,” “us,” “our” and “LG Display” refer to LG Display
Co., Ltd., all references in this exhibit to “ADSs” are to our American depositary shares, and all references to “ADRs” are to the American depositary
receipts issued under our ADSs.
The following is a summary description of the material terms of our ADSs and of your material rights as an owner of such ADSs. Because it is a
summary, this description does not contain all the information that may be important to you. Your rights and obligations as an owner of ADSs are
determined by reference to the terms of the deposit agreement and side letter agreement and not this summary. Statements printed in italics in this
description are provided for your information and either reflect the current state of Korean law or are not contained in the deposit agreement. For more
complete information, you should read the entire deposit agreement and the ADR. The original deposit agreement was filed with the United States
Securities and Exchanges Commission (the “SEC”) as an exhibit to the registration statement on Form F-6 on November 28, 2007, a form of the
Amendment No. 1 thereto was filed with the SEC as an exhibit to the registration statement on Form F-6 on July 30, 2014, and the side letter agreement
was filed with the SEC as an exhibit to the annual report on Form 20-F on April 16, 2008. You may obtain a copy of such filings from the SEC’s Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and from the SEC’s website at http://www.sec.gov. Copies of the deposit agreement are
also available for inspection at the principal New York office of the ADR depositary, currently located at 388 Greenwich Street, New York, New York
10013.
American Depositary Receipts
ADSs represent ownership interests in securities that are on deposit with the ADR depositary. ADSs may be represented by certificates that are
commonly known as ADRs. The ADR depositary typically appoints a custodian to safekeep the securities on deposit. The ADR depositary’s custodian
in this case is the Korea Securities Depository, located at 4 Gil 23 Yoinaru, Yeongdeungpo-gu, Seoul, Republic of Korea. Korea Securities Depository is
also the institution authorized under applicable law to effect book-entry transfers of shares of our common stock. Each ADS represents the right to
receive shares of our common stock on deposit with the custodian. An ADS also represents the right to receive any other property received by the ADR
depositary or the custodian on behalf of the owner of the ADS but that has not been distributed to the owners of ADSs because of legal restrictions or
practical considerations. An ADR may represent any number of ADSs. We and the ADR depositary treat only persons in whose names ADRs are
registered on the books of the registrar as holders of ADRs.
As an owner of our ADSs, you are a party to the deposit agreement and therefore are bound to its terms and to the terms of the ADR that
represents your ADSs. The deposit agreement and the ADR specify our rights and obligations as well as your rights and obligations as owner of ADSs
and those of the ADR depositary. As an ADS holder you appoint the ADR depositary to act on your behalf in certain circumstances. The deposit
agreement and the ADRs are governed by New York law. However, our obligations to the holders of shares of common stock are governed by the laws
of Korea, which may be different from the laws in the United States.
As an owner of ADSs, you may hold your ADSs either by means of an ADR registered in your name or through a brokerage or safekeeping
account. If you hold your ADSs through your brokerage or safekeeping account, you must rely on the procedures of your broker or bank to assert your
rights as ADS owner. Banks and brokers typically hold securities such as the ADSs through clearing and settlement systems such as The Depository
Trust Company (“DTC”). The procedures of such clearing and settlement systems may limit your ability to exercise your rights as an owner of ADSs.
Please consult with your broker or bank if you have any questions concerning these limitations and procedures. This summary description assumes you
own the ADSs directly by means of an ADS registered in your name and, as such, we refer to you as the “holder.” When we refer to “you,” we assume
the reader owns ADSs.
Uncertificated form of ADSs
Pursuant to the side letter agreement, the ADR depositary may also issue ADSs that are not evidenced by ADRs (the “uncertificated ADSs”) on its
direct registration system, unless otherwise specifically instructed in writing by the applicable holder. The uncertificated ADSs are not represented by
any instrument(s) but are evidenced only by the registration of “uncertificated securities” on the books and records of the ADR depositary maintained
for such purpose. Uncertificated ADSs are in all material respects identical to certificated ADSs of the same type and class, except that (i) no ADR(s)
are, nor need to be, issued to evidence uncertificated ADSs, (ii) uncertificated ADSs are, subject to the terms of the deposit agreement (as supplemented
by the side letter agreement), transferable upon the same terms and conditions as uncertificated securities under New York law, (iii) each holder’s
ownership of uncertificated ADSs are recorded on the books and records of the ADR depositary maintained for such purpose and evidence of such
holder’s ownership are reflected in periodic statements provided by the ADR depositary to each such holder in accordance with applicable law, (iv) the
ADR depositary may from time to time, upon notice to the holders of uncertificated ADSs affected thereby, establish rules and amend or supplement
existing rules, as may be deemed reasonably necessary to maintain the direct registration system for the ADSs and for the issuance of uncertificated
ADSs on behalf of holders, provided that such rules do not conflict with the terms of the deposit agreement (as supplemented by the side letter
agreement) and applicable law, (v) the holder of uncertificated ADSs are not entitled to any benefits under the deposit agreement (as supplemented by
the side letter agreement) and such holder’s uncertificated ADSs shall not be valid or enforceable for any purpose against the ADR depositary or us
unless such holder is registered on the books and records of the ADR depositary maintained for such purpose, (vi) the ADR depositary may, in
connection with any deposit of shares resulting in the issuance of uncertificated ADSs and with any transfer, pledge, release and cancellation of
uncertificated ADSs, require the prior receipt of such documentation as the ADR depositary may reasonably request, and (vii) upon termination of the
deposit agreement (as supplemented by the side letter agreement), the ADR depositary does not require holders of uncertificated ADSs to affirmatively
instruct the ADR depositary or to take other action before remitting proceeds from the sale of the deposited securities represented by such holders’
uncertificated ADSs under the terms of the deposit agreement.
Holders of uncertificated ADSs that are not subject to any registered pledges, liens, restrictions or adverse claims, of which the ADR depositary
has written notice at such time, may exchange the uncertificated ADSs (or any portion thereof) for ADRs of the same type and class, subject in each
case to applicable laws and any rules the ADR depositary may establish from time to time in respect of the uncertificated ADSs. In addition, so long as
the ADR depositary maintains its direct registration system for the ADSs, the holders of ADRs have the right to exchange the ADRs (or any portion
thereof) for uncertificated ADSs upon (i) the due surrender of the ADRs to the ADR depositary for such purpose, and (ii) the presentation of a written
request to such effect to the ADR depositary, subject in each case to all liens and restrictions noted on the ADR evidencing the ADS(s) and all adverse
claims of which the ADR depositary then has written notice, the terms of the deposit agreement (as supplemented by the side letter agreement) and the
rules that the ADR depositary may establish from time to time for such purposes thereunder, and applicable law. Moreover, holders of uncertificated
ADSs may also request the sale of ADSs through the ADR depositary, subject to the terms and conditions generally applicable to the sale of ADSs
through the ADR depositary from time to time (which may be changed by the ADR depositary).
Deposit and Withdrawal of Shares of Common Stock
The shares of common stock underlying the ADSs are delivered to the ADR depositary’s custodian in book-entry form. Accordingly, no share
certificates are issued for them, and the ADR depositary holds the shares of common stock in book-entry form through the custodian. The delivery of
the shares of common stock pursuant to the deposit agreement takes place through the facilities of the custodian.
The ADR depositary will create ADSs if you or your broker deposit shares of common stock with the custodian. Upon payment of its issuance
fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the ADR depositary will register the appropriate
number of ADSs in the names you designate. Your ability to deposit shares of common stock and receive ADSs may be limited by U.S. and Korean
legal considerations applicable at the time of deposit. The current limit on the number of shares that may be deposited into our ADR facility is
68,095,700 as of April 21, 2020. The number of shares issued or sold in any subsequent offering by us or our affiliates, 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 determine 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.
The issuance of ADSs may be delayed until the ADR depositary or the custodian receives confirmation that all required approvals have been
given and that the shares have been duly transferred to the custodian. The ADR depositary will only issue ADSs in whole numbers.
When you make a deposit of shares, you will be responsible for transferring good and valid title to these shares to the ADR depositary and you
will be deemed to represent and warrant that:
•
•
•
•
•
The shares are duly authorized, validly issued, fully paid, non-assessable and legally obtained.
All preemptive (and similar) rights, if any, with respect to such shares have been validly waived or exercised.
You are duly authorized to deposit the shares of common stock.
The shares of common stock presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or
adverse claim, and are not, and the ADSs issuable upon such deposit will not be, “restricted securities” (as defined in the deposit
agreement).
The shares of common stock presented for deposit have not been stripped of any rights or entitlements.
If any of the representations or warranties are incorrect in any way, we and the ADR depositary may, at your cost and expense, take any and all
actions necessary to correct the consequences of the misrepresentations.
The ADR depositary will arrange for the acceptance of the ADSs into DTC. A single ADR in the form of a “Balance Certificate” will evidence all
ADSs held through DTC and will represent the aggregate number of ADSs that have been issued from time to time. That ADR will be registered in the
name of the nominee for DTC (currently “Cede & Co.”). As such, Cede & Co., or any subsequent nominee for DTC, will be the only holder of the ADR
evidencing all ADSs held through DTC. Each beneficial owner of ADSs held through DTC must rely upon the procedures of DTC and the DTC
participants to exercise, effect transfer of or be entitled to any rights attributable to such ADSs.
The ADR depositary and the ADR depositary’s custodian will refuse to accept shares of common stock for deposit whenever we restrict transfer of
shares of common stock to comply with our articles of incorporation or applicable law.
You may surrender your ADRs to the ADR depositary for cancellation and withdraw the underlying shares of our common stock. Upon payment
of the cancellation fees provided in the deposit agreement and any governmental charges and taxes, subject to applicable laws and regulations of Korea
and our articles of incorporation, you are entitled to physical delivery or electronic delivery to an account in Korea or, if permissible under applicable
Korean law, outside Korea, of the shares of common stock evidenced by the ADSs and any other property at the time represented by ADRs you
surrendered.
You assume the risk for delivery of all funds and securities upon withdrawal. Once canceled, the ADSs will not have any rights under the deposit
agreement.
If you hold ADSs registered in your name, the ADR depositary may ask you to provide proof of identity and genuineness of any signature and
such other documents as the ADR depositary may deem appropriate before it will cancel your ADSs. The withdrawal of the shares of common stock
represented by your ADSs may be delayed until the ADR depositary receives satisfactory evidence of compliance with all applicable laws and
regulations. Please keep in mind that the ADR depositary will only accept ADSs for cancellation that represent a whole number of securities on deposit
and will only be permitted to deliver shares of common stock that have been listed for trading on the Korea Exchange. The ADR depositary will process
ADSs presented for withdrawal of the shares of common stock they represent on a first come, first served basis.
You have the right to withdraw the securities represented by your ADSs at any time except for:
•
•
•
Temporary delays that may arise because (1) the transfer books for the shares of common stock or ADSs are closed, or (2) shares of
common stock are immobilized on account of a shareholders’ meeting or a payment of dividends.
Obligations to pay fees, taxes and similar charges.
Restrictions imposed because of laws or regulations applicable to ADSs or the withdrawal of securities on deposit.
The deposit agreement may not be modified to impair your right to withdraw the securities represented by your ADSs except to comply with
mandatory provisions of law.
If you want to withdraw the shares of common stock from the depositary facility, you must register your identity with the Financial Supervisory
Service of Korea before you acquire the shares of common stock unless you intend to sell the shares of common stock within three months of acquisition.
See “Item 10.D. Exchange Controls and Securities Regulations—Restrictions Applicable to Shares” in our Annual Report on Form 20-F for the year
ended December 31, 2020.
Pre-Release Transactions
Under the provisions of the deposit agreement, the ADR depositary may not lend shares of common stock or ADSs. However, subject to the
provisions of the deposit agreement and to the extent permitted by applicable Korean law, the ADR depositary may issue ADSs before deposit of the
underlying shares of common stock. The ADR depositary may also deliver shares of common stock prior to receiving ADS for cancellation. These
transactions are commonly called pre-release transactions. The ADR depositary may execute a pre-release transaction only under the following
circumstances:
•
•
•
•
•
before or at the time of the pre-release transaction, the person to whom the pre-release transaction is being made must represent to the
ADR depositary in writing that it or its customer owns the shares of common stock to be deposited or the ADSs to be cancelled and show
evidence of ownership of those securities to the ADR depositary’s satisfaction;
before or at the time of such pre-release transaction, the person to whom the pre-release transaction is being made must agree in writing
with the ADR depositary that he will hold the shares of common stock or ADSs in trust for the ADR depositary until their delivery to the
ADR depositary or custodian, reflect on his records the ADR depositary as owner of such shares of common stock or ADSs and
unconditionally guarantee to deliver such shares of common stock or ADSs to the ADR depositary or custodian and agrees to any
additional requirements or restrictions that the ADR depositary may impose;
the pre-release transaction must be fully collateralized with cash or U.S. government securities or such other collateral as the ADR
depositary deems appropriate;
the ADR depositary must be able to terminate the pre-release transaction on not more than five business days’ notice; and
the pre-release transaction would be subject to further indemnities and credit regulations as the ADR depositary deems appropriate.
The deposit agreement limits the aggregate size of the pre-release transactions. The ADR depositary may retain for its own account any
compensation received by it in connection with the pre- release transactions, such as earnings on the collateral.
Dividends, Other Distributions and Rights
As a holder, you generally have the right to receive the distributions we make on the securities deposited with the custodian bank. Your receipt of
these distributions may be limited, however, by practical considerations and legal limitations. Holders receive such distributions under the terms of the
deposit agreement in proportion to the number of ADSs held as of a specified record date.
Distributions of Cash
If the ADR depositary can, in its reasonable judgment and pursuant to applicable law, convert Korean Won (or any other foreign currency) into
U.S. dollars on a reasonable basis and transfer the resulting U.S. dollars to the United States, the ADR depositary will as promptly as practicable convert
all cash dividends and other cash distributions received by it on the deposited shares of common stock into U.S. dollars and distribute the U.S. dollars to
you in proportion to the number of ADSs representing shares of common stock held by you, after deduction of the fees and expenses of the ADR
depositary and any applicable taxes and governmental charges payable by the holder pursuant to the deposit agreement.
Other Distributions
In the event that the ADR depositary or the ADR depositary’s custodian receives any distribution upon any deposited shares of common stock in
property or securities (other than cash, shares of common stock or rights to receive shares of common stock), the ADR depositary will distribute the
property or securities to you after deduction of the fees and expenses of the ADR depositary in proportion to your holdings in any manner that the ADR
depositary deems, after consultation with us, commercially feasible. If the ADR depositary determines that any distribution of property or securities
(other than cash, shares of common stock or rights to receive shares of common stock) cannot be made proportionally, or if for any other reason the
ADR depositary deems the distribution not to be commercially feasible, the ADR depositary may, after consultation with us, dispose of all or a portion
of the property or securities in such amounts and in such manner, including by public or private sale, as the ADR depositary deems equitable or
practicable. The ADR depositary will distribute to you the net proceeds of any such sale, or the balance of the property or securities, after the deduction
of the fees and expenses of the ADR depositary.
Distribution of Shares
If a distribution by us consists of a dividend in, or free distribution of, our shares of common stock, the ADR depositary may, with our approval,
and will, if we request, deposit the shares of common stock and either (1) distribute to you, in proportion to your holdings, additional ADSs representing
those shares of common stock, or (2) reflect on the records of the ADR depositary the increase in the aggregate number of ADSs representing the
aggregate number of shares of common stock received, in both cases, after the deduction of the fees and expenses of the ADR depositary. No such
distribution of new ADSs will be made if it would violate law (i.e., U.S. securities laws) or if it would not be operationally practicable. If the ADR
depositary deems that such distribution for any reason is not commercially feasible, the ADR depositary may adopt, after consultation with us, any
method as it may deem commercially feasible to effect such distribution, including by public or private sale of all or part of the shares of common stock
received. The ADR depositary will distribute to you the net proceeds of any such sale as with a cash distribution. The ADR depositary will only
distribute whole numbers of ADSs. Fractional entitlements to ADSs will be sold, and the proceeds of such sale will be distributed as in the case of a
cash distribution.
Distribution of Rights
If we offer holders of our shares of common stock any rights to subscribe for additional shares of common stock or any other rights, the ADR
depositary may make these rights available to you. The ADR depositary will first consult with us to determine whether it is lawful and commercially
feasible to distribute those rights to you.
The ADR depositary will establish procedures to distribute rights to purchase additional ADSs to holders and to enable such holders to exercise
such rights if it is lawful and reasonably practicable to make the rights available to holders of ADSs, and if we provide the ADR depositary with all of
the documentation contemplated in the deposit agreement (such as opinions to address the lawfulness of the transaction). You may have to pay fees,
expenses, taxes and other governmental charges to subscribe for the new ADSs upon the exercise of your rights. The ADR depositary is not obligated to
establish procedures to facilitate the distribution and exercise by holders of rights to purchase new shares of common stock other than shares of common
stock to be held in the form of ADSs. The ADR depositary will not distribute the rights to you if:
•
•
•
We do not timely request that the rights be distributed to you or we request that the rights not be distributed to you;
We fail to deliver satisfactory documents to the ADR depositary; or
It is not reasonably practicable to distribute the rights to you.
If the ADR depositary determines in consultation with us that it is not lawful or commercially feasible to make these rights available to you, then
upon our request, the ADR depositary will sell the rights and distribute the proceeds in the same way as it would do with a cash distribution. The ADR
depositary may allow these rights that are not distributed or sold to lapse. In that case, you will receive no value for these rights.
If a registration statement under the Securities Act with respect to the securities to which any rights relate is required in order for us to offer the
rights to you and to sell the securities represented by these rights, the ADR depositary will not offer such rights to you until such a registration statement
is in effect, or unless the offering and sale of such securities and such rights to you are exempt from the registration requirements of the Securities Act or
any required filing, report, approval or consent has been submitted, obtained or granted. Neither we nor the ADR depositary will be obligated to register
the rights or securities under the Securities Act or to submit, obtain or request any filing, report, approval or consent.
Elective Distributions
Whenever we intend to distribute a dividend payable at the election of shareholders either in cash or in additional shares, we will give prior notice
thereof to the ADR depositary and will indicate whether we wish the elective distribution to be made available to you. In such case, we will assist the
ADR depositary in determining whether such distribution is lawful and commercially feasible. The ADR depositary will make the election available to
you only if it is commercially feasible and if we have provided all of the documentation contemplated in the deposit agreement. In such case, the ADR
depositary will establish procedures to enable you to elect to receive either cash or additional ADSs, in each case as described in the deposit agreement.
If the election is not made available to you, you will receive either cash or additional ADSs, depending on what a shareholder in Korea would
receive upon failing to make an election, as more fully described in the deposit agreement.
Transfer, Combination and Split Up of ADRs
As an ADR holder, you are entitled to transfer, combine or split up your ADRs and the ADSs evidenced thereby. For transfers of ADRs, you will
have to surrender the ADRs to be transferred to the ADR depositary and also must:
•
ensure that the surrendered ADR certificate is properly endorsed or otherwise in proper form for transfer;
•
•
•
provide such proof of identity and genuineness of signatures as the ADR depositary deems appropriate;
provide any transfer stamps required by the State of New York or the United States; and
pay all applicable fees, charges, expenses, taxes and other government charges payable by ADR holders pursuant to the terms of the
deposit agreement, upon the transfer of ADRs.
To have your ADRs either combined or split up, you must surrender the ADRs in question to the ADR depositary with your request to have them
combined or split up, and you must pay all applicable fees, charges and expenses payable by ADR holders, pursuant to the terms of the deposit
agreement, upon a combination or split up of ADRs.
Record Dates
The ADR depositary will fix a record date, after consultation with us, in each of the following situations:
•
•
•
•
•
we make any cash dividend or other cash distribution upon our shares of common stock;
we make any distribution other than cash upon our shares of common stock;
we issue rights with respect to our shares of common stock;
the ADR depositary causes a change in the number of shares of common stock that are represented by each ADS; or
the ADR depositary receives notice of any shareholders’ meeting.
The record date will be, to the extent practicable, established as near as practicable to the record date fixed by us for the shares of common stock.
The record date will determine (1) the ADR holders who are entitled to receive the dividend, distribution or rights, or the net proceeds of the sale of the
rights; or (2) the ADR holders who are entitled to receive notices of meetings or to exercise rights.
Voting of the Underlying Shares of Common Stock
As a holder, you generally have the right under the deposit agreement to instruct the ADR depositary to exercise the voting rights for the shares of
common stock represented by your ADSs. The voting rights of holders of shares of common stock are described in the section titled “Item 10.B.
Memorandum and Articles of Association – Description of Capital Stock – Voting Rights” in our Annual Report on Form 20-F for the year ended
December 31, 2020.
We will give the ADR depositary a notice of any meeting or solicitation of shareholder proxies immediately after we finalize the form and
substance of such notice sufficiently in advance of the meeting or solicitation of shareholder proxies to provide holders with a reasonable opportunity to
take all actions requested, the ADR depositary having no obligation to provide holders with notice, voting or proxy solicitation materials if it does not
timely receive such materials from us. As soon as practicable after it receives our notice, the ADR depositary will fix a record date, and upon our written
request, the ADR depositary will mail to you a notice that will contain the following:
•
•
the information contained in our notice to the ADR depositary including an English translation, or, if requested by us, a summary of the
information provided by us;
a statement that the ADR holders as of the close of business on a specified record date will be entitled to instruct the ADR depositary as to
how to exercise their voting rights for the number of shares of deposited shares of common stock, subject to the provisions of applicable
Korean law and our articles of incorporation, which provisions, if any, will be summarized in the notice to the extent that they are
material; and
•
a statement as to the manner in which the ADR holders may give their instructions.
Upon your written request received on or before the date set by the ADR depositary for this purpose, the ADR depositary will endeavor, in so far
as practicable, to vote or cause to be voted the deposited shares of common stock in accordance with the instructions set forth in your written requests.
To the extent the ADR depositary does not timely receive voting instructions from a holder of ADSs, it will endeavor to vote the shares of common
stock represented by those ADSs in the same proportion as the holders of all other outstanding shares of common stock vote their shares of common
stock at the meeting. The ADR depositary will not, and will ensure that the custodian bank does not, vote the shares of common stock represented by
ADSs at any meeting for which we have not timely provided voting materials to the ADR depositary.
Please note that the ability of the ADR depositary to carry out voting instructions may be limited by practical and legal limitations and the terms
of the securities on deposit. We cannot assure you that you will receive voting materials in time to enable you to return voting instructions to the ADR
depositary in a timely manner.
The ADR depositary may not itself exercise any voting discretion over any deposited shares of common stock. You may only exercise the voting
rights in respect of whole numbers of ADSs. ADR holders may not be entitled to give instructions to vote the shares of common stock represented by
the ADSs if, and to the extent that, the total number of shares of common stock represented by the ADSs of an ADR holder exceeds any limit set under
applicable law. We can give no assurance to you, however, that we will notify the ADR depositary sufficiently in advance of the scheduled date of a
meeting or solicitation of consents or proxies to enable the ADR depositary to make a timely mailing of notices to you, or that you will receive the
notices sufficiently in advance of a meeting or solicitation of consents or proxies to give instructions to the ADR depositary.
Inspection of Transfer Books
The ADR depositary keeps books at its principal New York office which is currently located at 388 Greenwich Street, New York, New York
10013, for the registration and transfer of ADRs. You may inspect the books of the ADR depositary during regular business hours as long as the
inspection is not for the purpose of communicating with holders in the interest of a business or object other than our business or a matter related to the
deposit agreement or the ADSs.
Reports and Notices
On or before the first date on which we give notice, by publication or otherwise, of any meeting of shareholders, or of any adjourned meeting of
shareholders, or of the taking of any action in respect of any distribution of cash or other distribution or the offering of any rights in respect of the shares
of common stock, we will transmit to the custodian and the ADR depositary sufficient copies of the applicable notice in English in the form given or to
be given to shareholders. We will furnish to the ADR depositary English language versions of any reports, notices and other communications that we
generally transmit to holders of our common stock. The ADR depositary will arrange for the prompt mailing of copies of these documents, or, if we
request, a summary of any such notice provided by us to you or, at our request, make notices, reports (other than the annual reports and semiannual
financial statements) and other communications available to you on a basis similar to that for the holders of our common stock or on such other basis as
we may advise the ADR depositary according to any applicable law, regulation or stock exchange requirement.
Notices delivered to you under the deposit agreement will be deemed to be effective three days (in the case of domestic mail or air courier) or
seven days (in the case of overseas mail) from the date when a duly addressed letter containing the same is deposited, postage prepaid, in a post-office
letter box or delivered to an air courier service or at the time when a confirmation thereof is produced in the case of a cable, telex or facsimile
transmission, without regard for the actual receipt or time of actual receipt of the notice by you.
In addition, the ADR depositary will make available for inspection by holders at its principal New York office any notices, reports or
communications, including any proxy soliciting materials, received from us that we generally transmit to the holders of our common stock or other
deposited securities, including the ADR depositary. The ADR depositary will also send to you copies of reports and communications we will provide to
it as described in the deposit agreement.
Changes Affecting Deposited Shares of Common Stock
In case of a change in the par value, or a split-up, consolidation or any other reclassification of shares of our common stock or upon any
recapitalization, reorganization, merger or consolidation or sale of assets affecting us, any securities received by the ADR depositary or the custodian in
exchange for, in conversion of or in respect of deposited shares of our common stock will be treated as new deposited shares of common stock under the
deposit agreement. In that case, ADSs will represent, subject to the terms of the deposit agreement and applicable laws and regulations, including any
registration requirements under the Securities Act, the right to receive the new deposited shares of common stock, unless additional ADSs are issued, as
in the case of a stock dividend, or unless the ADR depositary calls for the surrender of outstanding ADRs to be exchanged for new ADRs.
If the ADR depositary may not lawfully distribute such property to you, the ADR depositary may sell such property and distribute the net
proceeds to you as in the case of a cash distribution.
Amendment and Termination of the Deposit Agreement
We may agree with the ADR depositary to amend or supplement the deposit agreement and the ADSs without your consent for any reason. If the
amendment or supplement adds or increases fees or charges, except for taxes and other governmental charges or certain expenses of the ADR
depositary, or prejudices any substantial existing right of ADR holders, it will only become effective 30 days after the ADR depositary notifies you of
the amendment or supplement. We do not consider to be materially prejudicial to your substantial rights any modifications or supplements that are
reasonably necessary for the ADSs to be registered under the Securities Act or to be eligible for book-entry settlement, in each case without imposing or
increasing the fees and charges you are required to pay. In addition, we may not be able to provide you with prior notice of any modifications or
supplements that are required to accommodate compliance with applicable provisions of law. If you continue to hold your ADSs at the time an
amendment or supplement becomes effective, you are considered to have agreed to the amendment or supplement and are bound by the deposit
agreement as amended. Except as otherwise required by any mandatory provisions of applicable law, no amendment may impair your right to surrender
your ADSs and to receive the underlying deposited securities.
The ADR depositary will terminate the deposit agreement if we ask it to do so with 90 days’ prior written notice. The ADR depositary may also
terminate the deposit agreement if the ADR depositary has notified us at least 90 days in advance that it would like to resign and we have not appointed
a new depositary. In both cases, the ADR depositary must notify you at least 30 days before the termination date.
If any ADSs remain outstanding after the date of termination, the ADR depositary will stop performing any further acts under the deposit
agreement, except:
•
•
•
to collect dividends and other distributions pertaining to the deposited shares of common stock;
to sell property and rights and the conversion of deposited shares of common stock into cash as provided in the deposit agreement; and
to deliver deposited shares of common stock, together with any dividends or other distributions received with respect to the deposited
shares of common stock and the net proceeds of the sale of any rights or other property represented by those ADSs in exchange for
surrendered ADSs.
At any time after the expiration of six months from the date of termination, the ADR depositary may sell any remaining deposited shares of
common stock and hold uninvested the net proceeds in an unsegregated account, together with any other cash or property then held, without liability for
interest, for the pro rata benefit of the holders of ADSs that have not been surrendered by then.
Charges of ADR Depositary
As an ADS holder, you are required to pay the following service fees to the ADR depositary:
Services
Issuance of ADSs
Cancellation of ADSs
Distribution of cash dividends or other cash distributions
Distribution of ADSs pursuant to (i) stock dividends or
other free stock distributions or (ii) exercise of rights to
purchase additional ADSs
Distribution of securities other than ADSs or rights to
purchase additional ADSs
Other ADS services
Fees
Up to US$0.05 per ADS issued
Up to US$0.05 per ADS canceled
Up to US$0.02 per ADS held
Up to US$0.02 per ADS held
Up to US$0.05 per ADS held
Up to US$0.02 per ADS held
As an ADS holder you are also responsible to pay certain fees and expenses incurred by the ADR depositary and certain taxes and governmental
charges such as:
•
•
•
•
•
•
taxes (including applicable interest and penalties) and other governmental charges;
registration fees applicable to transfers of shares of common stock on our shareholders’ register, or that of any entity acting as registrar for
the shares, to the name of the ADR depositary or its nominee, or the custodian or its nominee, when making deposits or withdrawals under
the deposit agreement;
cable, telex and facsimile transmission expenses that are expressly provided in the deposit agreement;
expenses incurred by the ADR depositary in the conversion of foreign currency into U.S. dollars under the deposit agreement;
such fees and expenses as are incurred by the ADR depositary in connection with compliance with exchange control regulations and other
regulatory requirements applicable to shares of common stock, shares of common stock on deposit, ADSs and ADRs; and
the fees and expenses incurred by the ADR depositary, the custodian or any nominee in connection with the servicing or delivery of shares
of common stock on deposit.
Limitations on Obligations and Liabilities
The deposit agreement limits our obligations and the ADR depositary’s obligations to you. Please note the following:
•
We and the ADR depositary are obligated only to take the actions specifically stated in the deposit agreement without negligence or bad
faith.
•
•
•
•
•
•
•
•
•
The ADR depositary disclaims any liability for any failure to carry out voting instructions, for any manner in which a vote is cast or for the
effect of any vote, provided it acts in good faith and in accordance with the terms of the deposit agreement.
The ADR depositary disclaims any liability for any failure to determine the lawfulness or practicality of any action, for the content of any
document forwarded to you on our behalf or for the accuracy of any translation of such a document, for the investment risks associated
with investing in shares of common stock, for the validity or worth of the shares of common stock, for any tax consequences that result
from the ownership of ADSs, for the credit-worthiness of any third party, for allowing any rights to lapse under the terms of the deposit
agreement, for the timeliness of any of our notices or for our failure to give notice.
We and the ADR depositary are not obligated to perform any act that is inconsistent with the terms of the deposit agreement.
We and the ADR depositary disclaim any liability if we are prevented or forbidden from acting on account of any law or regulation, any
provision of our articles of incorporation, any provision of any securities on deposit or by reason of any act of God or war or other
circumstances beyond our control.
We and the ADR depositary disclaim any liability by reason of any exercise of, or failure to exercise, any discretion provided for the
deposit agreement or in our articles of incorporation or in any provisions of securities on deposit with the ADR depositary.
We and the ADR depositary further disclaim any liability for any action taken or inaction in reliance on the advice or information received
from legal counsel, accountants, any person presenting shares of common stock for deposit, any holder of ADSs or authorized
representatives thereof, or any other person believed by either of us in good faith to be competent to give such advice or information.
We and the ADR depositary also disclaim liability for the inability by a holder to benefit from any distribution, offering, right or other
benefit which is made available to holders of shares of common stock but is not, under the terms of the deposit agreement, made available
to you.
We and the ADR depositary may rely without any liability upon any written notice, request or other document believed to be genuine or to
have been signed or presented by the proper parties.
We and the ADR depositary also disclaim liability for any consequential or punitive damages for any breach of the terms of the deposit
agreement.
General
The ADSs are transferable on the books of the ADR depositary; provided, however, that the ADR depositary may, after consultation with us,
close the transfer books at any time or from time to time, when deemed expedient by it in connection with the performance of its duties. As a condition
precedent to the execution and delivery of any ADSs, registration of transfer, split-up, combination of any ADR or surrender of any ADS for the
purpose of withdrawal of deposited shares of common stock, the ADR depositary or the custodian may require payment from the depositor of the shares
of common stock or holder of ADSs of a sum sufficient to reimburse the ADR depositary for any tax or other governmental charge and any stock
transfer or registration fee and payment of any applicable fees payable by the holders of ADSs.
Any person depositing shares of common stock, any holder of an ADS or any beneficial owner may be required from time to time to file with the
ADR depositary or the custodian a proof of citizenship, residence, exchange control approval, payment of applicable Korean or other taxes or
governmental charges, or legal or beneficial ownership and the nature of their interest, to provide information relating to the registration on our
shareholders’ register (or our appointed agent for the transfer and registration of shares of common stock) of the shares of common stock presented for
deposit or other information, to execute certificates and to make representations and warranties as we or the ADR depositary may deem necessary or
proper or to enable us or the ADR depositary to perform our and its obligations under the deposit agreement. The ADR depositary may withhold the
execution or delivery or registration of transfer of all or part of any ADR or the distribution or sale of any dividend or other distribution of rights or of
the proceeds from their sale or the delivery of any shares deposited under the deposit agreement and any other securities, property and cash received by
the ADR depositary or the custodian until the proof or other information is filed or the certificates are executed or the representations and warranties are
made. The ADR depositary shall provide us, unless otherwise instructed by us, in a timely manner, with copies of any of these proofs and certificates
and these written representations and warranties.
The delivery and surrender of ADSs and transfer of ADSs generally may be suspended during any period when our or the ADR depositary’s
transfer books are closed, or if that action is deemed necessary or advisable by us or the ADR depositary at any time or from time to time in accordance
with the deposit agreement. We may restrict, in a manner as we deem appropriate, transfers of shares of common stock where the transfers may result in
ownership of shares of common stock in excess of limits under applicable law.
Taxes
You are responsible for the taxes and other governmental charges payable on the ADSs and the securities represented by the ADSs. We, the ADR
depositary and the custodian may deduct from any distribution the taxes and governmental charges payable by holders and may sell any and all property
on deposit to pay the taxes and governmental charges payable by holders. You will be liable for any deficiency if the sale proceeds do not cover the
taxes that are due.
The ADR depositary may refuse to issue ADSs, to deliver, transfer, split and combine ADRs or to release securities on deposit until all taxes and
charges are paid by the applicable holder. The ADR depositary and the custodian may take reasonable administrative actions to obtain tax refunds and
reduced tax withholding for any distributions on your behalf. However, you may be required to provide to the ADR depositary and to the custodian
proof of taxpayer status and residence and such other information as the ADR depositary and the custodian may require to fulfill legal obligations. You
are required to indemnify us, the ADR depositary and the custodian for any claims with respect to taxes based on any tax benefit obtained for you.
Foreign Currency Conversion
The ADR depositary will arrange for the conversion of all foreign currency received into U.S. dollars if such conversion is practical, and it will
distribute the U.S. dollars in accordance with the terms of the deposit agreement. You may have to pay fees and expenses incurred in converting foreign
currency, such as fees and expenses incurred in complying with currency exchange controls and other governmental requirements.
If the conversion of foreign currency is not practical or lawful, or if any required approvals are denied or not obtainable at a reasonable cost or
within a reasonable period, the ADR depositary may take the following actions in its discretion:
•
•
•
Convert the foreign currency to the extent practical and lawful and distribute the U.S. dollars to the holders for whom the conversion and
distribution is lawful and practical.
Distribute the foreign currency to holders for whom the distribution is lawful and practical.
Hold the foreign currency (without liability for interest) for the applicable holders.
Governing Law
The deposit agreement, side letter agreement and the ADRs are interpreted under, and all rights under the deposit agreement, side letter agreement
or the ADRs are governed by, the laws of the State of New York.
We have irrevocably submitted to the non-exclusive jurisdiction of New York State or United States Federal Courts located in New York City and
waived any objection to legal actions or proceedings in these courts whether on the ground of venue or on the ground that the proceedings have been
brought in an inconvenient forum.
This submission was made for the benefit of the ADR depositary and the holders and shall not limit the right of any of them to take legal actions
or proceedings in any other court of competent jurisdiction nor shall the taking of legal actions or proceedings in one or more jurisdictions preclude the
taking of legal actions or proceedings in any other jurisdiction (whether concurrently or not), to the extent permitted under applicable law.
Exhibit 12.1
I, Hoyoung Jeong, 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 29, 2021
/s/ HOYOUNG JEONG
Hoyoung Jeong
Representative Director, President and Chief Executive
Officer
I, Donghee Suh, certify that:
Exhibit 12.2
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 29, 2021
/s/ DONGHEE SUH
Donghee Suh
Senior Vice President and
Chief Financial Officer
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)
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), 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, 2020 (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 29, 2021
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/ HOYOUNG JEONG
Hoyoung Jeong
Representative Director, President and Chief Executive
Officer
Exhibit 13.2
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
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), 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, 2020 (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 29, 2021
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