Edgar Filing: LG Display Co., Ltd.

Form 20-F

As filed with the Securities and Exchange Commission on April 30, 2012

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

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

For the transition period from to

Commission file number 1-32238

LG Display Co., Ltd.

(Exact name of Registrant as specified in its charter)

LG Display Co., Ltd.

(Translation of Registrant’s name into English)

The Republic of Korea

(Jurisdiction of incorporation or organization)

LG Twin Towers, 128 Yeoui-daero, Yeongdeungpo-gu, Seoul 150-721, Republic of Korea

(Address of principal executive offices)

Suk Heo

LG Twin Towers, 128 Yeoui-daero, Yeongdeungpo-gu, Seoul 150-721, Republic of Korea

Telephone No.: +82-2-3777-0978

Facsimile No.: +82-2-3777-0797

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.


Title of each class		Name of each exchange on which registered
American Depositary Shares, each representing one-half of one share of Common Stock		New York Stock Exchange
Common Stock, par value (Won)5,000 per share		New York Stock Exchange*

* Not for trading, but only in connection with the registration of the American Depositary Shares.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

357,815,700 shares of common stock, par value (Won)5,000 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x Yes ¨ No

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934. ¨ Yes x 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. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨

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 x

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 x No

TABLE OF CONTENTS


		Page

Presentation of Financial and Other Information			1

Forward-Looking Statements			2

PART I

Item 1.	Identity of Directors, Senior Management and Advisers		3

Item 2.	Offer Statistics and Expected Timetable		3

Item 3.	Key Information		3

	Item 3.A. Selected Financial Data		3

	Item 3.B. Capitalization and Indebtedness		7

	Item 3.C. Reasons for the Offer and Use of Proceeds		7

	Item 3.D. Risk Factors		7

Item 4.	Information on the Company		25

	Item 4.A. History and Development of the Company		25

	Item 4.B. Business Overview		26

	Item 4.C. Organizational Structure		38

	Item 4.D. Property, Plants and Equipment		38

Item 4A.	Unresolved Staff Comments		40

Item 5.	Operating and Financial Review and Prospects		41

	Item 5.A. Operating Results		41

	Item 5.B. Liquidity and Capital Resources		56

	Item 5.C. Research and Development, Patents and Licenses, etc.		59

	Item 5.D. Trend Information		61

	Item 5.E. Off-Balance Sheet Arrangements		61

	Item 5.F. Tabular Disclosure of Contractual Obligations		62

	Item 5.G. Safe Harbor		62

Item 6.	Directors, Senior Management and Employees		62

	Item 6.A. Directors and Senior Management		62

	Item 6.B. Compensation		64

	Item 6.C. Board Practices		65

	Item 6.D. Employees		66

	Item 6.E. Share Ownership		67

Item 7.	Major Shareholders and Related Party Transactions		67

	Item 7.A. Major Shareholders		67

	Item 7.B. Related Party Transactions		67

	Item 7.C. Interests of Experts and Counsel		69

Item 8.	Financial Information		69

	Item 8.A. Consolidated Statements and Other Financial Information		69

	Item 8.B. Significant Changes		72

Item 9.	The Offer and Listing		72

(i)


	Item 9.A. Offer and Listing Details	72

	Item 9.B. Plan of Distribution	73

	Item 9.C. Markets	73

	Item 9.D. Selling Shareholders	77

	Item 9.E. Dilution	77

	Item 9.F. Expenses of the Issue	77

Item 10.	Additional Information	77

	Item 10.A. Share Capital	77

	Item 10.B. Memorandum and Articles of Association	77

	Item 10.C. Material Contracts	81

	Item 10.D. Exchange Controls	81

	Item 10.E. Taxation	85

	Item 10.F. Dividends and Paying Agents	89

	Item 10.G. Statements by Experts	89

	Item 10.H. Documents on Display	89

	Item 10.I. Subsidiary Information	89

Item 11.	Quantitative and Qualitative Disclosures about Market Risk	89

Item 12.	Description of Securities Other than Equity Securities	92

PART II

Item 13.	Defaults, Dividend Arrearages and Delinquencies	93

Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	93

Item 15.	Controls and Procedures	93

Item 16.	[RESERVED]	94

Item 16A.	Audit Committee Financial Expert	94

Item 16B.	Code of Ethics	94

Item 16C.	Principal Accountant Fees and Services	94

Item 16D.	Exemptions from the Listing Standards for Audit Committees	95

Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	95

Item 16F.	Change in Registrant’s Certifying Accountant	95

Item 16G.	Corporate Governance	95

PART III

Item 17.	Financial Statements	97

Item 18.	Financial Statements	97

Item 19.	Exhibits	98

(ii)

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, 2009, 2010 and 2011 and for each of the years ended in the three-year period ended December 31, 2011 included in this annual report.

In accordance with rule amendments adopted by the U.S. Securities and Exchange Commission, or the SEC, which became effective on March 4, 2008, we are not required to provide a reconciliation to generally accepted accounting principles in the United States, or U.S. GAAP.

The consolidated financial statements included in our annual reports on Form 20-F previously filed with the SEC in respect of the years ended December 31, 2009, 2008, 2007, 2006, 2005 and 2004 were prepared in accordance with U.S. GAAP. For additional information, please refer to our annual reports on Form 20-F previously filed with the SEC.

Unless expressly stated otherwise, all financial data included in this annual report are presented on a consolidated basis.

All references to “Korean Won,” “Won” or “(Won)” in this annual report are to the currency of the Republic of Korea, all references to “U.S. dollars” or “US$” are to the currency of the United States, all references to “Japanese Yen,” “Yen” or “¥” are to the currency of Japan, all references to “RMB” or “Chinese Renminbi” are to the currency of the People’s Republic of China, all references to “NT$” are to the currency of Taiwan, all references to “Euro” or “€” are to the official currency of the European Economic and Monetary Union, all references to “PLN” are to the currency of the Republic of Poland, all references to “MXN” are to the currency of Mexico, and all references to “SG$” are to the currency of Singapore.

Any discrepancies in any table between the totals and the sums of the amounts listed are due to rounding.

For your convenience, this annual report contains translations of Won amounts into U.S. dollars at the noon buying rate in New York City for cable transfers in Korean Won as certified by the Federal Reserve Bank of New York for customs purposes in effect on December 30, 2011, which was (Won)1,158.50 = US$1.00.

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 expand our capacity;

•

our dependence on key personnel;

•

general economic and political conditions, including those related to the display panel industry;

•

possible disruptions in commercial activities caused by events such as natural disasters, terrorist activity and armed conflict;

•

fluctuations in foreign currency exchange rates; and

•

those other risks identified in the “Risk Factors” section of this annual report.

Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the events discussed in the forward-looking statements in this annual report might not occur and our actual results could differ materially from those anticipated in these forward-looking statements.

All subsequent forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

PART I

Item 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

Item 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

Item 3.

KEY INFORMATION

Item 3.A.

Selected Financial Data

You should read the selected consolidated financial data below in conjunction with our audited consolidated financial statements as of December 31, 2009, 2010 and 2011 and for each of the years in the three-year period ended December 31, 2011, and the related notes included in this annual report. These audited financial statements and the related notes have been prepared under IFRS as issued by the IASB. The selected consolidated financial data for the three years ended December 31, 2011 have been derived from our audited consolidated financial statements.

In accordance with rule amendments adopted by the SEC which became effective on March 4, 2008, we are not required to provide a reconciliation to U.S. GAAP.

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.

Consolidated statements of comprehensive income (loss) data


	Year Ended December 31,
	2009			2010			2011			2011 ⁽⁷⁾
	(in billions of Won, except for per share data)									(in millions of US$, except for per share data)
Revenue	(Won)	20,038		(Won)	25,512		(Won)	24,291		US$	20,968
Cost of sales		(17,477	)		(21,781	)		(23,081	)		(19,923	)
Gross profit		2,561			3,731			1,210			1,044
Selling expenses		(713	)		(846	)		(728	)		(628	)
Administrative expenses		(325	)		(521	)		(564	)		(487	)
Research and development expenses		(408	)		(675	)		(681	)		(588	)
Results from operating activities		1,010			1,310			(924	)		(798	)
Profit (loss) before income tax		1,013			1,266			(1,081	)		(933	)
Income tax expense (benefit)		(105	)		106			(293	)		(253	)
Profit (loss) for the period		1,118			1,159			(788	)		(680	)
Total comprehensive income (loss) for the period		1,051			1,178			(757	)		(653	)
Basic earnings (loss) per share		3,124			3,232			(2,155	)		(1.86	)
Diluted earnings (loss) per share		3,124			3,152			(2,155	)		(1.86	)

Consolidated statements of financial position data


	As of December 31,
	2009		2010		2011		2011 ⁽⁷⁾
	(in billions of Won)						(in millions of US$)
Cash and cash equivalents	(Won)	818	(Won)	1,631	(Won)	1,518	US$	1,310
Deposits in banks		2,500		1,503		815		703
Trade accounts and notes receivable, net		2,950		3,001		2,740		2,365
Inventories		1,668		2,215		2,317		2,000
Total current assets		8,226		8,840		7,858		6,783
Property, plant and equipment, net		9,596		12,815		14,697		12,686
Total assets		19,703		23,858		25,163		21,720
Trade accounts and notes payable		2,031		2,962		3,783		3,265
Current financial liabilities		2,007		2,101		895		773
Other accounts payable		1,596		2,593		3,993		3,447
Total current liabilities		6,495		8,882		9,911		8,555
Non-current financial liabilities		2,076		2,543		3,722		3,213
Long-term advance received		584		945		669		577
Total liabilities		9,663		12,797		15,032		12,975
Share capital and share premium		4,040		4,040		4,040		3,487
Retained earnings		6,051		7,031		6,063		5,233
Total equity		10,040		11,061		10,131		8,745

Other financial data


	Year Ended December 31,
	2009			2010			2011			2011 ⁽⁷⁾
	(in billions of Won, except for percentages)									(in millions of US$, except for percentages)
Gross margin ⁽¹⁾		12.8	%		14.6	%		5.0	%		5.0	%
Operating margin ⁽²⁾		5.0	%		5.1	%		(3.8	)%		(3.8	)%
Net margin ⁽³⁾		5.6	%		4.5	%		(3.2	)%		(3.2	)%
EBITDA ⁽⁴⁾	(Won)	3,852		(Won)	4,236		(Won)	2,727		US$	2,354
Capital expenditures		3,761			4,942			4,063			3,507
Depreciation and amortization ⁽⁵⁾		2,842			2,926			3,651			3,151
Net cash provided by operating activities ⁽⁶⁾		4,153			4,884			3,666			3,164
Net cash used in investing activities		(4,564	)		(4,515	)		(3,494	)		(3,016	)
Net cash provided by (used in) financing activities		(117	)		408			(278	)		(240	)

(1)	Gross margin represents gross profit (loss) divided by revenue.

(2)	Operating margin represents results from operating activities divided by revenue.

(3)	Net margin represents profit (loss) for the period divided by revenue.

(4)

EBITDA is defined as profit (loss) for the period (x) plus finance costs (income), other non-operating loss, net, income tax expense (benefit), depreciation and amortization of intangible assets and (y) minus equity income on investments, net. EBITDA is a key financial measure used by our senior management to internally evaluate the performance of our business and for other required or discretionary purposes. Specifically, our significant capital assets are in different stages of depreciation, and because we do not have separate operating divisions, our senior management uses EBITDA internally to measure the performance of these assets on a comparable basis. We also believe that the presentation of EBITDA will enhance an investor’s understanding of our operating performance as we believe it is commonly reported and widely used by analysts and investors in our industry. It also provides useful information for comparison on a more comparable basis of our operating performance and those of our competitors, who follow different accounting policies. For example, depreciation on most of our equipment is made based on a four-year useful life while most of our competitors use different depreciation schedules from our own. EBITDA is not a measure determined in accordance with IFRS. EBITDA should not be considered as an alternative to results of operating activities, cash flows from operating activities or profit (loss) for the period, as determined in accordance with IFRS. Our calculation of EBITDA may not be comparable to similarly titled measures reported by other companies. A reconciliation of profit (loss) for the period to EBITDA is as follows:


	Year Ended December 31,
	2009			2010			2011			2011 ⁽⁷⁾
	(in billions of Won)									(in millions of US$)
Profit (loss) for the period	(Won)	1,118		(Won)	1,159		(Won)	(788	)	US$	(680	)
Finance income		(333	)		(241	)		(207	)		(179	)
Finance costs		344			288			363			313
Other non-operating loss, net		6			16			17			15
Equity income on investments, net		(20	)		(18	)		(16	)		(14	)
Income tax expense (benefit)		(105	)		106			(293	)		(253	)
Depreciation		2,779			2,757			3,413			2,946
Amortization of intangible assets		63			169			238			205

EBITDA	(Won)	3,852		(Won)	4,236		(Won)	2,727		US$	2,354

(5)	Includes amortization of intangible assets.

(6)	Effect of exchange rate change on cash and cash equivalents has been excluded from net cash provided by operating activities.

(7)

For convenience, the Korean Won amounts are expressed in U.S. dollars at the rate of (Won)1,158.50 to US$1.00, the noon buying rate in effect on December 30, 2011 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.

Operating data


	Year Ended December 31,
	2009		2010		2011
	(in thousands)
Number of panels sold by product category:
Televisions ⁽¹⁾		35,316		51,184		53,084
Notebook computers ⁽²⁾		50,632		70,124		90,577
Desktop monitors ⁽³⁾		43,384		49,336		50,247
Mobile and other applications ⁽⁴⁾		161,804		188,798		172,688

Total		291,136		359,442		366,596


	Year Ended December 31,
	2009		2010		2011		2011 ⁽⁵⁾
	(in billions of Won)						(in millions of US$)
Revenue by product category:
Televisions ⁽¹⁾	(Won)	10,965	(Won)	14,079	(Won)	11,579	US$	9,995
Notebook computers ⁽²⁾		3,568		4,424		5,120		4,420
Desktop monitors ⁽³⁾		4,640		5,390		4,975		4,294
Mobile and other applications ⁽⁴⁾		816		1,575		2,540		2,192

Total sales of goods	(Won)	19,989	(Won)	25,468	(Won)	24,214	US$	20,901
Royalties		22		23		61		53
Others		27		21		16		14

Revenue	(Won)	20,038	(Won)	25,512	(Won)	24,291	US$	20,968

(1)	Includes television sets manufactured and sold by our joint venture company, L&T Display Technology (Xiamen) Limited.

(2)	Includes panels for certain types of tablet personal computers, as well as semi-finished products manufactured by LUCOM Display Technology (Kunshan) Ltd.

(3)	Includes desktop monitors manufactured and sold by our joint venture company, L&T Display Technology (Fujian) Limited.

(4)

Includes, among others, panels for handheld application products, including smartphones and other mobile phones, certain types of tablet personal computers, and industrial and other applications, including entertainment systems, automotives, portable navigation devices, e-books, digital photo displays and medical diagnostic equipment.

(5)

Exchange Rates

The table below sets forth, for the periods and dates indicated, information concerning the noon buying rate for Korean Won, expressed in Korean Won per one U.S. dollar. The “noon buying rate” is the rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise stated, translations of Korean Won amounts into U.S. dollars in this annual report were made at the noon buying rate in effect on December 30, 2011, which was (Won)1,158.50 to US$1.00. We do not intend to imply that the Korean Won or U.S. dollar amounts referred to herein could have been or could be converted into U.S. dollars or Korean Won, as the case may be, at any particular rate, or at all. On April 20, 2012, the noon buying rate was (Won)1,138.10 = US$1.00.

Fluctuation in the exchange rate between the Korean Won and the U.S. dollar will affect the amount of U.S. dollars received in respect of cash dividends or other distributions paid in Korean Won by us on, and the Korean Won proceeds received from any sales of, our common stock.


Year Ended December 31,	At End of Period		Average Rate⁽¹⁾		High		Low
	(Korean Won per US$1.00)
2007	(Won)	935.8	(Won)	928.0	(Won)	950.2	(Won)	903.2
2008		1,262.0		1,105.8		1,507.9		935.2
2009		1,163.7		1,270.0		1,570.1		1,149.0
2010		1,130.6		1,158.7		1,253.2		1,104.0
2011		1,158.5		1,105.2		1,197.5		1,049.2
October		1,112.1		1,150.7		1,197.5		1,102.5
November		1,140.1		1,133.5		1,162.0		1,110.6
December		1,158.5		1,148.1		1,175.5		1,149.0
2012 (through April 20)		1,138.1		1,130.6		1,160.0		1,115.7
January		1,128.0		1,141.1		1,160.0		1,120.1
February		1,117.1		1,122.7		1,128.9		1,115.7
March		1,131.4		1,126.2		1,139.8		1,116.0
April (through April 20)		1,138.1		1,134.8		1,143.4		1,122.4

(1)

The average rate for each full year is calculated as the average of the noon buying rates on the last business day of each month during the relevant year. The average rate for a full month (or portion thereof) is calculated as the average of the noon buying rates on each business day during the relevant month (or portion thereof).

Item 3.B.

Capitalization and Indebtedness

Not applicable.

Item 3.C.

Reasons for the Offer and Use of Proceeds

Not applicable.

Item 3.D.

Risk Factors

You should carefully consider the risks described below.

Risks Relating to Our Industry

Our industry is subject to cyclical fluctuations, including recurring periods of capacity increases, that may adversely affect our results of operations.

Display panel manufacturers are vulnerable to cyclical market conditions. Intense competition and expectations of growth in demand across the industry may cause display panel manufacturers to make additional investments in manufacturing capacity on similar schedules, resulting in a surge in capacity when production is ramped up at new fabrication facilities. During such surges in capacity growth, as evidenced by past experiences, our 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. In recent years, there has been a general decline in the average selling price of our display panels. For example, 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, decreased by 2.9% from US$834 per square meter of net display area in 2009 to US$810 in 2010. In 2011, our average revenue per square meter of net display area shipped further decreased by 16.2% to US$679, resulting mainly from strong downward pressure on the average selling price of our display panels in 2011 which in turn was due in large part to overcapacity in the TFT-LCD industry relative to the demand for such panels, which was negatively impacted by the global economic difficulties in 2011.

Our gross margin has also fluctuated from period to period, from 12.8% in 2009 to 14.6% in 2010 and 5.0% in 2011. Principal factors affecting our gross margin include declines in the average selling prices of our display panels, as well as our ability to maintain or increase unit sales volume and market share, minimize the impact of fluctuations in prices and foreign exchange rates and the supply and demand for principal components and raw materials, reduce unit manufacturing costs and introduce new products with higher margins in a timely manner. In 2011, in particular, a decline in the average selling price of our display panels due to downward price pressure affecting TFT-LCD products generally, which in turn resulted from overcapacity in the industry relative to the demand for such products, and the appreciation of the Korean Won against the U.S. dollar contributed to a sharp decrease in our gross margin as compared to 2010. We have reduced utilization rates of our existing fabrication facilities in response to market conditions starting in July 2010 and have been fine-tuning our growth strategies in light of our assessment of future market conditions, and there have been indications that the industry as a whole has been responding similarly. However, construction of new fabrication facilities and other capacity expansion projects in the display panel industry are undertaken with a multiple-year time horizon based on expectations of future market trends. Therefore, 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. Since the end of 2011, there has been a modest increase in industry-wide demand for display products, resulting primarily from channel inventory replenishment, in response to which we have been adjusting our utilization rates to meet the increase in demand. However, we cannot provide any assurance that the recent increase in demand reflects any improvement in general market conditions for display panels or that it can be sustained. 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. We cannot provide assurance that any future downturns resulting from any large increases in capacity or other factors affecting the industry would not have a material adverse effect on our business, financial condition and results of operations.

A global economic downturn may result in reduced demand for our products and adversely affect our profitability.

In recent years, difficulties affecting the global financial sectors, adverse conditions and volatility in the worldwide credit and financial markets, fluctuations in oil and commodity prices and the general weakness of the global economy have increased the uncertainty of global economic prospects in general and have adversely affected the global and Korean economies. The recent global economic downturn has adversely affected demand for consumer products manufactured by our customers in Korea and overseas, including televisions, notebook computers, desktop monitors and mobile and other application products utilizing TFT-LCD panels, which in turn led them to reduce or plan reductions of their production beginning in the fourth quarter of 2008. Partly in response to such weak demand, we reduced our TFT-LCD production from July 2008 to February 2009. Although demand for our products, as measured by the number of panels sold, started to recover in the second half of 2009 and generally remained strong in 2010, the renewed global economic difficulties in 2011 contributed to another decline in demand for our products in 2011. While there has been a modest increase in demand for our products in recent months since the end of 2011 resulting primarily from channel inventory replenishment, we cannot provide any assurance that this will lead to a sustained recovery in demand for our products or, even if demand for our products recovers, that the demand for our products will not decrease again in the future due to another such economic downturn which may adversely affect our profitability. We may decide to adjust our production levels in the future subject to market demand for our products, the production outlook of the global display panel industry, in particular, the TFT-LCD industry, and global economic conditions in general. Any decline in demand for display panel products may adversely affect our business, results of operations and/or financial condition.

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 industry capacity from panel makers in Korea, Taiwan, China and Japan. Our main competitors in the industry include Samsung Display (which was recently spun off from Samsung Electronics), Samsung Mobile Display, InfoVision Optoelectronics, Hydis Technologies, AU Optronics, Chimei Innolux, Chunghwa Picture Tubes, HannStar Display, SVA-NEC, Beijing BOE Optronics Technology, Japan Display (which was recently created by integrating the LCD panel businesses of Hitachi and TMDisplay, as well as certain businesses of Sony Mobile Display), Sharp, Mitsubishi and Panasonic LCD. Some of our competitors may currently, or at some point in the future, have greater financial, sales and marketing, manufacturing, research and development or technological resources than we do. In addition, our competitors may be able to manufacture panels on a larger scale or with greater cost efficiencies than we do and we anticipate increases in production capacity in the future by other display panel manufacturers using similar display panel technologies as us. Any price erosion resulting from strong global competition or additional industry capacity may materially adversely affect our financial condition and results of operations.

In addition, industry consolidation among our competitors may result in increased competition as the entities emerging from such consolidation may have greater financial, manufacturing, research and development and other resources than we do, especially if such mergers or consolidations are sponsored by a government entity. Increased competition resulting from such mergers or consolidations may lead to decreased margins, which may have a material adverse effect on our financial condition and results of operations.

We and our competitors each seek to establish our own products as the industry standards. For example, in the growing large-sized television panel market, we currently manufacture primarily 32-inch, 37-inch, 42-inch, 47-inch and 55-inch television panels. Other display panel manufacturers produce competing large-sized television panels in slightly different dimensions. If our competitors’ panels become the standard market size, we may lose market share, which may have a material adverse effect on our financial condition and results of operations.

Our ability to compete successfully also depends on factors both within and outside our control, including product pricing, performance and reliability, our relationship with customers, successful and timely investment and product development, success or failure of our end-brand customers in marketing their brands and products, component and raw material supply costs, and general economic and industry conditions. We cannot provide assurance that we will be able to maintain a competitive edge with respect to all these factors and, as a result, we may be unable to sustain our current market position.

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 emerging customer requirements and to develop new and differentiated products in anticipation of future demand. Any delay in our development of commercially successful products with reliable quality and advanced features that address our customers’ evolving needs may adversely affect our business.

Success of a new product also depends on other factors such as close cooperation with our customers to gain insights into their product needs and to understand general trends in the market. When developing new products, we often work with equipment suppliers to design equipment that will make our production processes for such new products more efficient. If we are unable to work together with our customers and equipment suppliers, or to sufficiently understand their respective needs and capabilities or general market trends, we may not be able to introduce new products in a timely manner, which may have a material adverse effect on our financial situation.

We plan to continue to grow our operations to meet increasing demands for new applications in consumer electronics and other markets. Because these products, such as televisions and mobile devices, are expected to be marketed to a diverse group of end users with different specifications, functions and prices, we have developed differentiated sales and marketing strategies to promote our panels for these products. We cannot provide assurance that our growth strategy or our differentiated sales and marketing strategies for these panels will be successful.

Problems with product quality, including defects, in our products could result in a decrease in customers and sales, unexpected expenses and loss of market share.

Our products are manufactured using advanced and often new technology and must meet stringent quality requirements. Products manufactured using advanced and new technology such as ours may contain undetected errors or defects, especially when first introduced. For example, our TFT-LCD panels may contain defects that are not detected until after they are shipped or installed because we cannot test for all possible scenarios.

Such defects could cause us to incur significant re-designing costs, divert the attention of our technology personnel from product development efforts and significantly affect our customer relations and business reputation. In addition, future product failures could cause us to incur substantial expense to repair or replace defective products. We recognize a provision for warranty obligations based on the estimated costs that we expect to incur under our basic limited warranty for our products, which covers defective products and is normally valid for eighteen months from the date of purchase. The warranty provision is largely based on historical and anticipated rates of warranty claims, and therefore we cannot provide assurance that the provision would be sufficient to cover any surge in future warranty expenses that significantly exceed historical and anticipated rates of warranty claims. In addition, if we deliver products with errors or defects, or if there is a perception that our products contain errors or defects, our credibility and the market acceptance and sales of our products could be harmed. Widespread product failures may damage our market reputation and reduce our market share and cause our sales to decline.

We sell our products to a select group of key customers, including our largest shareholder, and any significant decrease in their order levels will negatively affect our financial condition and results of operations.

A substantial portion of our sales is attributable to a limited group of end-brand customers and their designated system integrators. Sales attributed to our end-brand customers are for their end-brand products and do not include sales to these customers for their system integration activities for other end-brand products, if any. Our top ten end-brand customers, including LG Electronics, our largest shareholder, together accounted for 76.5% of our sales in 2009, 75.8% in 2010 and 70.9% in 2011. Our top five end-brand customers together accounted for 55.1% of our sales in 2009, 55.0% in 2010 and 53.6% in 2011. In 2011, only two end-brand customers, LG Electronics and Apple, contributed to 10% or more of our sales.

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.

In addition, we engage in related party transactions with LG Electronics, our largest shareholder, and its affiliates:

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Sales to LG Electronics – sales to LG Electronics (including its overseas subsidiaries) on an invoiced basis, which include sales to LG Electronics both as an end-brand customer and a system integrator, amounted to 25.9%, 24.8% and 21.4% of our sales in 2009, 2010 and 2011, respectively.

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Sales to LG International – sales to LG International Corp. and its subsidiaries on an aggregate basis amounted to 7.3%, 8.8% and 6.3% of our sales in 2009, 2010 and 2011, respectively.

We expect that we will continue to be dependent upon LG Electronics and its affiliates for a significant portion of our revenue for the foreseeable future. See “Item 7.B. Related Party Transactions” for a description of these related party transactions with LG Electronics and its affiliates. Our results of operations and financial condition could be affected by the overall performance of LG Electronics and its affiliates.

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.

Any material deterioration in the financial condition of our key end-brand customers, their system integrators or our affiliated trading company will have an adverse effect on our results of operations.

Our top ten end-brand customers together accounted for 76.5% of our sales in 2009, 75.8% in 2010 and 70.9% in 2011. Although we negotiate directly with our end-brand customers concerning the price and quantity of the sales, for some sales transactions we invoice the end-brand customers’ designated system integrators. In addition, a portion of our sales to end-brand customers and their system integrators located in certain regions are sold through our affiliated trading company, LG International and its subsidiaries. Our credit policy typically requires payment within 30 to 90 days, and payments on the vast majority of our sales have typically been collected within 65 days. Although we have not experienced any material problems relating to customer payments to date, as a result of our significant dependence on a concentrated group of end-brand customers and their designated system integrators, as well as the sales we make to our affiliated trading company and its subsidiaries, we are exposed to credit risks associated with these entities.

Consolidation and other changes at our end-brand customers could cause sales of our products to decline.

Mergers, acquisitions, divestments or consolidations involving our end-brand customers can present risks to our business, as management at the new entity may change the way they do business, including their transactions with us, or may decide not to use us as one of their suppliers of TFT-LCD or other products. In addition, we cannot provide assurance that a combined entity resulting from a merger, acquisition or consolidation or a newly formed entity resulting from a divestment will continue to purchase TFT-LCD or other panels from us at the same level, if at all, as each entity purchased in the aggregate when they were separate companies or that a divested company will purchase panels from us at the same level, if at all, as prior to the divestment.

Our results of operations depend on our ability to keep pace with changes in technology.

Advances in technology typically lead to rapid declines in sales volumes for products made with older technologies and may lead to these products becoming less competitive in the marketplace, or even obsolete. As a result, we will likely be required to make significant expenditures to develop or acquire new process and product technologies. In particular, many TFT-LCD panel producers, including us, are currently focused on developing 3D televisions and other 3D products using the latest technology in order to gain a competitive advantage in this relatively new market for 3D products. In addition, the rapidly expanding mobile display market for smart devices such as smartphones and certain tablet personal computers has resulted in increased demand for display panels using new energy-efficient technologies that provide for greater resolutions, wider viewing angles, high light transmittance and stability of images even when used on a touchscreen device. We have introduced mobile display products based on Advanced High-Performance In-Plane Switching technology, or AH-IPS, which have helped us quickly secure a leading role in this market.

While the TFT-LCD technology undergoes continued innovation, we and our competitors are also developing new display technologies that depart from TFT-LCD technology, such as organic light-emitting diode, or OLED, electronic paper display and flexible display. In particular, we and some of our competitors have already commenced commercial production of OLED display products. We commenced mass production of OLED display panels in September 2011 and reached a monthly input capacity of 12,000 substrates by the end of 2011. In addition, with the recent unveiling of our 55-inch OLED television panel, we intend to deploy greater resources in expanding our OLED display panel fabrication capabilities with the aim of establishing an early competitive edge in the market. We expect to commence mass production of OLED panels primarily for use in televisions in the second half of 2012.

Also, our ability to manufacture our products by utilizing advanced process technologies to increase production yields at low production cost will be critical to our sustained competitiveness. We cannot provide assurance that we will be able to continue to successfully develop new products through our research and development efforts or through obtaining technology licenses, or that we will keep pace with technological changes in the marketplace.

Our revenue depends on continuing demand for televisions, notebook computers, desktop monitors 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 using our products in televisions, notebook computers, desktop monitors and mobile and other application products with display devices. In particular, a substantial percentage of our sales is increasingly derived from end-brand customers, or their designated system integrators, who use our panels in their televisions, which accounted for 54.7%, 55.2% and 47.7% of our total revenue in 2009, 2010 and 2011, respectively. A substantial portion of our sales is also derived from end-brand customers, or their designated system integrators, who use our panels in their notebook computers, which accounted for 17.8%, 17.3% and 21.1% of our total revenue in 2009, 2010 and 2011, respectively, those who use our panels in their desktop monitors, which accounted for 23.2%, 21.1% and 20.5% of our total revenue in 2009, 2010 and 2011, respectively, and those who use our panels in their mobile and other applications, which accounted for 4.1%, 6.2% and 10.4% of our total revenue in 2009, 2010 and 2011, respectively. Although our dependence on sales of television panels decreased in 2011, television panels remain our largest product category in terms of revenue and we will therefore continue to be dependent on growth of the television industry. In addition, we will continue to be dependent on the growth of the personal computer industry, as well as 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, reduced revenues, lower average selling prices and/or reduced margins.

The introduction of alternative display panel technologies, including those currently under development by our competitors and us, may erode future sales of TFT-LCD panels, which may have a material adverse effect on our financial condition and results of operations.

New display technologies, such as OLED, electronic paper display and flexible display, which are at various stages of development by us and other display panel makers, may gain wider market acceptance than TFT-LCD technology for use in certain products, such as smartphones, certain other types of tablet personal computers and industrial and other applications, including entertainment systems, automotives, portable navigation devices, e-books, digital photo displays and medical diagnostic equipment. If consumers do not purchase products utilizing TFT-LCD panels as we expect, or if TFT-LCD technology itself is rendered obsolete, this would have a material adverse effect on our financial condition and results of operations to the extent we cannot offset such loss in demand for TFT-LCD products by selling products using other display technologies.

We will have significant capital requirements in connection with our business strategy and if capital resources are not available we may not be able to implement our strategy and future plans.

In connection with our strategy to further enhance the diversity and capacity of our display panel production, we estimate that we will continue to incur significant capital expenditures for the enhancement of existing production facilities, including the construction of additional production lines, and the construction of new production facilities. In March 2011, we commenced mass production at P83, the second expansion to our eighth generation fabrication facility, P81. We are currently constructing P98, a new eighth generation panel fabrication facility located in our Paju Display Cluster in Paju, Korea. We expect mass production to commence at P98 in the second quarter of 2012. In addition, we are currently in the planning stages for the construction of an eighth-generation panel fabrication facility in Guangzhou, China, for which we received final approval from the Chinese government in November 2010. In January 2011, we signed a memorandum of understanding with Gumi City to extend administrative support for our plans to invest (Won)1.35 trillion and expand our production facilities over the next five years in Gumi, Korea.

In 2011, our total capital expenditure on a cash out basis amounted to approximately (Won)4.1 trillion. In 2012, we expect that our total capital expenditures on a cash out basis will amount to approximately (Won)4 trillion. Such amounts are subject to periodic assessment, and we cannot provide any assurance that such amounts may not change materially after assessment.

These capital expenditures will be made well in advance of any additional sales that will be generated from these expenditures. However, in the event of adverse market conditions, or if our actual expenditures far exceed our planned expenditures, our external financing activities combined with our internal sources of liquidity may not be sufficient to effect our current and future operational plans, and we may decide not to expand the capacity of certain of our facilities or construct new production facilities as scheduled or at all. Our ability to obtain additional financing will depend upon a number of factors outside our control, including general economic, financial, competitive, regulatory and other considerations.

Our manufacturing processes are complex and periodic improvements to increase efficiency can expose us to potential disruptions in operations.

The manufacturing process for TFT-LCD and other display products is highly complex, requiring sophisticated and costly equipment that is periodically modified and updated 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 ramping up new plants, difficulties in changing manufacturing line technologies 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. For example, with respect to our Korean facilities in recent years, we enhanced our capacity by commencing mass production at P81, our first eighth-generation fabrication facility, in March 2009, at P62, an expansion to our P61 fabrication facility, in April 2009, at P82, the first expansion to our P81 fabrication facility, in May 2010, and at P83, the second expansion to our P81 fabrication facility, in March 2011. In addition, we have continually made investments in our other facilities, including our low temperature polycrystalline silicon, or LTPS, fabrication facility. We are currently constructing P98, a new eighth-generation fabrication facility, and we expect to commence mass production at P98 in the second quarter of 2012. In January 2011, we signed a memorandum of understanding with Gumi City to extend administrative support for our plans to invest (Won)1.35 trillion and expand our production facilities over the next five years in Gumi, Korea. With respect to our overseas facilities in recent years, we commenced mass production at our module production plant in Wroclaw, Poland, in March 2007 and at our module production plant in Guangzhou, China, in December 2007. In addition, we are currently in the planning stages for the construction of an eighth-generation panel fabrication facility in Guangzhou, China, for which we received final approval from the Chinese government in November 2010. In March 2012, we commenced mass production at our module production plant in Reynosa, Mexico. 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.

This sustained growth may strain our managerial, financial, manufacturing and other resources. We may experience manufacturing difficulties in starting new production lines, upgrading existing facilities or ramping up 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 revenues. In addition, failure to keep up with our competitors in future investments in next generation panel fabrication facilities or in the manufacturing capacity of existing facilities would impair our ability to effectively compete within the display panel industry. Failure to obtain intended economic benefits from expansion projects could adversely affect our business, financial condition and results of operations.

If we cannot maintain high capacity utilization rates, our profitability will be adversely affected.

The production of TFT-LCD panels entails high fixed costs resulting from considerable expenditures for the construction of complex fabrication and assembly facilities and the purchase of costly equipment. We aim to maintain high capacity utilization rates so that we can allocate these fixed costs over a greater number of panels produced and realize a higher gross margin. However, due to any number of reasons, including weak demand for our products or overcapacity in the industry, we may need to reduce production, resulting in lower-than-optimal capacity utilization rates. For example, partly due to weak demand, we reduced our TFT-LCD production from July 2008 to February 2009 and again starting from July 2010. As such, we cannot provide assurance that we will be able to sustain our capacity utilization rates in the future.

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 backlight units, glass substrates, driver integrated circuits and polarizers used in our TFT-LCD 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 TFT-LCD industry or our dependence on a limited number of suppliers. Our results of operations would be adversely affected if we were unable to obtain adequate supplies of high-quality raw materials or components in a timely manner or make alternative arrangements for such supplies in a timely manner.

Furthermore, we may be limited in our ability to pass on increases in the costs of raw materials and components to our customers. We do not typically enter into binding long-term contracts with our customers, and even in those cases where we do enter into long-term agreements with certain of our major end-brand customers, the price terms are contained in the purchase orders which are generally placed by them one month in advance of delivery. Except under certain special circumstances, the price terms in the purchase orders are not subject to change. Prices for our products are generally determined through negotiations with our customers, based generally on the complexity of the product specifications and the labor and technology involved in the design or production processes. However, if we become subject to any significant increase in the costs 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 revenues and cause financial stress on our operations.

Earthquakes, tsunamis, floods and other natural calamities could materially adversely affect our business, results of operations or financial condition.

A number of suppliers of our raw materials, components and manufacturing equipment, as well as customers of our products, are located in Japan, which has suffered an earthquake and tsunami in March 2011 (which also resulted in the release of radioactive materials from a nuclear plant that had been damaged by the earthquake). We believe that the impact was not material to our financial condition or operating results as of and for the year ended December 31, 2011. However, there still remain some uncertainties such that the full extent and duration of the impact of the events in Japan may not be fully known and therefore it may be possible that we may in the future experience shortages or delays in the supply of raw materials, components or manufacturing equipment from our suppliers in Japan, or reduced demand for our products from our customers in Japan. If we experience such supply constraints or reduced demand for our products in Japan, our business, results of operations or financial condition could be adversely affected. Furthermore, in October 2011, there were massive floods in Thailand, which we understand may have adversely affected suppliers of certain components for some of our end customers, in particular, notebook computer manufacturers. We believe that the floods did not have a material impact on our operating results for the year ended December 31, 2011. However, if earthquakes, tsunamis, floods or any other natural calamities were to occur in the future in any area where any of our assets, suppliers or customers are located, our business, results of operations or financial condition could be adversely affected.

Purchase orders from our customers, which are placed generally one month in advance of delivery, vary in volume from period to period, and we operate with a modest inventory, which may make it difficult for us to efficiently allocate capacity on a timely basis in response to changes in demand.

Our major customers and their designated system integrators provide us with three- to six-month rolling forecasts of their product requirements. However, firm orders are not placed until one month before delivery when negotiations on purchase prices are also finalized. Firm orders may be less than anticipated based on these three- to six-month forecasts. Due to the cyclicality of the TFT-LCD industry, purchase order levels from our customers have varied from period to period. Although we typically operate with a two- to four-week inventory, it may be difficult for us to adjust production costs or to allocate production capacity in a timely manner to compensate for any such volatility in order volumes. Our inability to respond quickly to changes in overall demand for TFT-LCD products as well as changes in product mix and specifications may result in lost revenue, which would adversely affect our results of operations.

We may experience losses on inventories.

Frequent new product introductions in the computer and consumer electronics industries can result in a decline in the average selling prices of our TFT-LCD panels and the obsolescence of our existing TFT-LCD panel inventory. This can result in a decrease in the stated value of our TFT-LCD panel inventory, which we value at the lower of cost or market value.

We manage our inventory based on our customers’ and our own forecasts and typically operate with a two- to four-week inventory. Although adjustments are regularly made based on market conditions, we typically deliver our goods to the customers one month after a firm order has been placed. While we maintain open channels of communication with our major customers to avoid unexpected decreases in firm orders or subsequent changes to placed orders, and try to minimize our inventory levels, such actions by our customers may have an adverse effect on our inventory management.

Sanctions or judgments against us and other TFT-LCD panel producers for possible anti-competitive activities may have a direct and indirect material impact on our operations.

In December 2006, LG Display received notices of investigation by the U.S. Department of Justice, the European Commission, the Korea Fair Trade Commission and the Japan Fair Trade Commission with respect to possible anti-competitive activities in the TFT-LCD industry. LG Display subsequently received similar notices from the Competition Bureau of Canada, the Secretariat of Economic Law of Brazil, the Taiwan Fair Trade Commission and the Federal Competition Commission of Mexico.

In November 2008, LG Display executed an agreement with the U.S. Department of Justice whereby LG Display and LG Display America pleaded guilty to a Sherman Antitrust Act violation and agreed to pay a single total fine of US$400 million. In December 2008, the U.S. District Court for the Northern District of California accepted the terms of the plea agreement and entered a judgment against LG Display and LG Display America and ordered the payment of US$400 million. The agreement resolved all federal criminal charges against LG Display and LG Display America in the United States in connection with this matter, provided that LG Display continues to cooperate with the U.S. Department of Justice in connection with the ongoing proceedings.

In December 2010, the European Commission issued a decision finding that LG Display engaged in anti-competitive activities in the TFT-LCD industry in violation of European Union competition laws, and imposed a fine of €215 million. In February 2011, LG Display filed with the European Union General Court an application for partial annulment and reduction of the fine imposed by the European Commission. As of April 29, 2012, the European Union General Court has not ruled on LG Display’s application. In November 2011, LG Display received a request for information from the European Commission relating to certain alleged anti-competitive activities in the TFT-LCD industry and has responded to the request.

In November 2009, the Taiwan Fair Trade Commission terminated its investigation without any finding of violations or levying of fines. Also, in February 2012, the Competition Bureau of Canada terminated its investigation without any finding of violations or levying of fines. As of April 29, 2012, no decision has been issued by the Japan Fair Trade Commission, and we believe the statutory time period by which the Commission was required to have issued a decision has already lapsed. As of April 29, 2012, investigations by the Federal Competition Commission of Mexico and the Secretariat of Economic Law of Brazil are ongoing.

In December 2011, the Korea Fair Trade Commission imposed a fine of (Won)31.4 billion after finding that LG Display and certain of its subsidiaries engaged in anti-competitive activities in violation of Korean fair trade laws. In December 2011, LG Display filed an appeal of the decision with the Seoul High Court. As of April 29, 2012, the Seoul High Court has not ruled on LG Display’s appeal.

After the commencement of the U.S. Department of Justice investigation, a number of class action complaints were filed against LG Display, LG Display America and other TFT-LCD panel manufacturers in the United States and Canada alleging violation of respective antitrust laws and related laws. In a series of decisions in 2007 and 2008, the class action lawsuits in the United States were transferred to the Northern District of California for pretrial proceedings (“MDL Proceedings”). In March 2010, the federal district court granted the class certification motion filed by the indirect purchaser plaintiffs, and granted in part and denied in part the class certification motion filed by the direct purchaser plaintiffs. In January 2011, 78 entities (including groups of affiliated entities) submitted requests for exclusion from the direct purchaser class. The time period for submitting requests for exclusion from the indirect purchaser class expired on April 13, 2012. In addition, since 2010, the attorneys general of Arkansas, California, Florida, Illinois, Michigan, Mississippi, Missouri, New York, Oklahoma, Oregon, South Carolina, Washington, West Virginia and Wisconsin filed complaints against LG Display, alleging similar antitrust violations as alleged in the MDL Proceedings.

In June 2011, LG Display reached a settlement with the direct purchaser class, which the federal district court approved in December 2011. In late April 2012, LG Display reached a settlement-in-principle with the indirect purchaser class plaintiffs and with the state attorneys general of Arkansas, California, Florida, Michigan, Missouri, New York, West Virginia and Wisconsin, which is subject to court approval and, in the case of the state attorneys general actions, subject to approval by their respective state governments. Once the settlement-in-principle is approved, only the Illinois, Mississippi, Oklahoma, Oregon, South Carolina and Washington attorneys general actions will remain pending. While the Oklahoma and Oregon attorneys general actions are pending in the MDL Proceedings, the Illinois and Washington attorneys general actions are pending in their respective state courts, and the Mississippi and South Carolina attorneys general actions are pending in federal courts in their respective districts.

In addition, in relation to the MDL Proceedings, in 2009, ATS Claim, LLC (assignee of Ricoh Electronics, Inc.), AT&T Corp. and its affiliates, Motorola, Inc., and Electrograph Technologies Corp. and its subsidiary filed separate claims in the United States, and all of the actions were subsequently consolidated into the MDL Proceedings. In November 2010, ATS Claim, LLC dismissed its action as to LG Display pursuant to a settlement agreement. In addition, in 2010, TracFone Wireless Inc., Best Buy Co., Inc. and its affiliates, Target Corp., Sears, Roebuck and Co., Kmart Corp., Old Comp Inc., Good Guys, Inc., RadioShack Corp., Newegg Inc., Costco Wholesale Corp., Sony Electronics, Inc., Sony Computer Entertainment America LLC, SB Liquidation Trust and the trustee of the Circuit City Stores, Inc. Liquidation Trust filed claims in the United States. In addition, in 2011, the AASI Creditor Liquidating Trust on behalf of All American Semiconductor Inc., Compucom Systems, Inc., Interbond Corporation of America, Jaco Electronics, Inc., Office Depot, Inc., P.C. Richard & Son Long Island Corporation, MARTA Cooperative of America, Inc., ABC Appliance, Inc., Schultze Agency Services, LLC on behalf of Tweeter Opco, LLC and Tweeter Newco, LLC,T-Mobile U.S.A., Inc., Tech Data Corporation and Tech Data Product Management, Inc. filed similar claims in the United States. In 2012, ViewSonic Corp., NECO Alliance LLC and Rockwell Automation LLC filed similar claims. To the extent these claims were not filed in the MDL Proceedings, they have been transferred or are expected to be transferred to the MDL Proceedings for pretrial proceedings.

In Canada, the Ontario Superior Court of Justice certified the class action complaints filed by the direct and indirect purchasers in May 2011. LG Display is pursuing an appeal of the decision as well as defending the on-going class actions in Quebec and British Columbia.

In February 2007, LG Display and certain of its current and former officers and directors were named as defendants in a purported shareholder class action in the U.S. District Court for the Southern District of New York, alleging violation of the U.S. Securities Exchange Act of 1934. In May 2010, the defendants, including LG Display, reached an agreement in principle with the class plaintiffs to settle the action and, in March 2011, the district court granted final approval of the settlement.

In each of these ongoing matters, we are continually evaluating the merits of the respective claims and vigorously defending ourselves. Irrespective of the validity or the successful assertion of the claims described above, we may incur significant costs with respect to litigating or settling any or all of the asserted claims. See “Item 8.A. Consolidated Statements and Other Financial Information—Legal Proceedings—Antitrust and Others” for a description of these matters. While we continue to vigorously defend the various proceedings described above, it is possible that one or more proceedings may result in an unfavorable outcome. We have recognized provisions in 2011 with respect to those contingencies in which our management has concluded that the likelihood of an unfavorable outcome is probable and the amount of loss is reasonably estimable. However, actual liability may be materially different from that estimated as of December 31, 2011 and may have a material adverse effect on our operating results or financial condition.

We need to observe certain financial and other covenants under the terms of our debt instruments, the failure to comply with which would put us in default under those instruments.

Certain of our debt instruments contain financial and other covenants with which we are required to comply on an annual and semi-annual basis. The financial covenants include, but are not limited to, maintenance of credit ratings and debt-to-equity ratios. 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 in our debt instruments, our financial condition will be adversely affected to the extent we are not able to cure such breaches, obtain a waiver from the relevant debtholders or repay the relevant debt.

Our results of operations are subject to exchange rate fluctuations.

There has been considerable volatility in foreign exchange rates in recent years, including rates between the Won and the U.S. dollar. To the extent that we incur costs in one currency and make sales in another, our profit margins may be affected by changes in the exchange rates between the two currencies.

Our sales of display panels are denominated mainly in U.S. dollars, whereas our purchases of raw materials are denominated mainly in U.S. dollars and Japanese Yen. Our expenditures on capital equipment are denominated principally in Korean Won. In 2011, 95.8% of our sales were denominated in U.S. dollars. During the same period, 74.5% of our purchases of raw materials were denominated in U.S. dollars and 24.3% in Japanese Yen. In addition, approximately 77% of our equipment purchases and construction costs, which represented almost all of our total capital expenditures in 2011, were denominated in Korean Won.

Accordingly, fluctuations in exchange rates, in particular between the U.S. dollar and the Korean Won as well as between the Japanese Yen and the Korean Won, affect our operating profits and pre-tax income. From the second half of 2008 to the first half of 2010, the value of the Won relative to the U.S. dollar in particular fluctuated widely. See “Item 3.A. Selected Financial Data—Exchange Rates.” During this period, the value of the Won relative to the Japanese Yen has also fluctuated significantly. Although a depreciation of the Korean Won against the U.S. dollar or the Japanese Yen increases the Korean Won value of our export sales and enhances the price-competitiveness of our products in foreign markets in U.S. dollar or Japanese Yen terms, it also increases the cost of imported raw materials in Korean Won terms and our cost in Korean Won of servicing our foreign currency debt. In addition, continued exchange rate volatility may also result in foreign exchange losses for us. Although a depreciation of the Korean Won against the U.S. dollar, in general, has a net positive impact on our results of operations that more than offsets the net negative impact caused by a depreciation of the Korean Won against the Japanese Yen, we cannot provide assurance that the exchange rate of the Korean Won against foreign currencies will not be subject to significant fluctuations, including a sharp appreciation of the Korean Won against the U.S. dollar or the Japanese Yen, or that the impact of such fluctuations will not adversely affect the results of our operations.

Our business relies on our patent rights which may be narrowed in scope or found to be invalid or otherwise unenforceable.

Our success will depend, to a significant extent, on our ability to obtain and enforce our patent rights both in Korea and worldwide. The coverage claimed in a patent application can be significantly reduced before a patent is issued, either in Korea or abroad. Consequently, we cannot provide assurance that any of our pending or future patent applications will result in the issuance of patents. Patents issued to us may be subjected to further proceedings limiting their scope and may not provide significant proprietary protection or competitive advantage. Our patents also may be challenged, circumvented, invalidated or deemed unenforceable. In addition, because patent applications in certain countries generally are not published until more than 18 months after they are first filed, because we currently monitor patent applications filed only by other parties in Korea, Japan and the United States, and because publication of discoveries in scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were, or any of our licensors was, the first creator of inventions covered by pending patent applications, that we or any of our licensors will be entitled to any rights in purported inventions claimed in pending or future patent applications, or that we were, or any of our licensors was, the first to file patent applications on such inventions.

Furthermore, pending patent applications or patents already issued to us or our licensors may become subject to dispute, and any dispute could be resolved against us. For example, we may become involved in re-examination, reissue or interference proceedings and the result of these proceedings could be the invalidation or substantial narrowing of our patent claims. We also could be subject to court proceedings that could find our patents invalid or unenforceable or could substantially narrow the scope of our patent claims. In addition, depending on the jurisdiction, statutory differences in patentable subject matter may limit the protection we can obtain on some of our inventions.

Failure to protect our intellectual property rights could impair our competitiveness and harm our business and future prospects.

We believe that developing new products and technologies that can be differentiated from those of our competitors is critical to the success of our business. We take active measures to obtain international protection of our intellectual property by obtaining patents and undertaking monitoring activities in our major markets. However, we cannot assure you that the measures we are taking will effectively deter competitors from improper use of our proprietary technologies. Our competitors may misappropriate our intellectual property, disputes as to ownership of intellectual property may arise and our intellectual property may otherwise become known or independently developed by our competitors.

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.

Although we take and will continue to take steps to ensure that our new products do not infringe upon third party 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. If our products or manufacturing processes are found to infringe upon third party rights, we may be subject to significant liabilities and be required to change our manufacturing processes or be prohibited from manufacturing certain products, which could have a material adverse effect on our operations and financial condition.

We may be required to defend against charges of infringement of patent or other proprietary rights of third parties. Although patent and other intellectual property disputes in our industry have often been settled through licensing or similar arrangements, such defense could require us to incur substantial expense and to divert significant resources of our technical and management personnel, and could result in our loss of rights to develop or make certain products or require us to pay monetary damages or royalties to license proprietary rights from third parties. Furthermore, we cannot be certain that the necessary licenses would be available to us on acceptable terms, if at all. Accordingly, an adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling certain of our products. Any such litigation, whether successful or unsuccessful, could result in substantial costs to us and diversions of our resources, either of which could adversely affect our business.

In December 2006, LG Display filed a complaint in the U.S. District Court for the District of Delaware against Chi Mei Optoelectronics Corp. and AU Optronics Corp. claiming infringement of patents related to liquid crystal displays and the manufacturing processes for TFT-LCDs and seeking, among other things, monetary damages for past infringement and an injunction against future infringement. In March 2007, AU Optronics filed a counter-claim against LG Display and its U.S. subsidiary, LG Display America, in the U.S. District Court for the Western District of Wisconsin for alleged infringement of patents related to the manufacturing processes for TFT-LCDs, but the suit was transferred to the U.S. District Court for the District of Delaware in May 2007. In May 2007, Chi Mei Optoelectronics filed a counter-claim against LG Display and LG Display America for patent infringement in the U.S. District Court for the Eastern District of Texas, but the suit was transferred to the U.S. District Court for the District of Delaware in March 2008. The U.S. District Court for the District of Delaware bifurcated the trial between AU Optronics and Chi Mei Optoelectronics, holding the first trial against AU Optronics in June 2009.

Although LG Display had a total of nine patents to be tried and AU Optronics had a total of seven patents to be tried in the first trial against AU Optronics, the trial was further bifurcated so that only four patents from each side were tried. In February 2010, the U.S. District Court for the District of Delaware found that the four AU Optronics patents were valid and were infringed by LG Display and LG Display America, and in April 2010, the court further found that LG Display’s four patents were valid but were not infringed by AU Optronics. In October and November 2010, LG Display filed a motion for a new trial and to amend certain findings on the AU Optronics patents and LG Display’s patents, respectively. In September 2011, LG Display and AU Optronics filed a stipulation for dismissal of the case and amicably settled all claims and counterclaims as between the parties. The stay of the Chi Mei Optoelectronics case was lifted on January 31, 2012, and the parties filed a joint status report with the court on March 23, 2012. A trial date has been set for November 5, 2012.

In February 2007, Anvik Corporation filed a complaint in the U.S. District Court for the Southern District of New York against LG Display and LG Display America, along with other TFT-LCD manufacturing companies, for alleged patent infringement in connection with the use of photo-masking equipment manufactured by Nikon Corporation. The court granted Nikon Corporation’s motion for summary judgment of invalidity of the patents-in-suit and entered a judgment in favor of Nikon Corporation, LG Display and LG Display America and the other TFT-LCD manufacturing companies, dismissing the case on April 5, 2012. On April 6, 2012, Anvik Corporation appealed the court’s decision to the United States Court of Appeals for the Federal Circuit.

On February 7, 2012, the United States International Trade Commission, or USITC, granted a motion by Industrial Technology Research Institute, or ITRI, to add LG Display and LG Display America as additional respondents in a Section 337 investigation pending before the USITC. ITRI is seeking an exclusion order prohibiting the importation of televisions and monitors incorporating LG Display’s products into the United States for alleged patent infringement.

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.

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 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. Further, others may acquire or independently develop similar technology, or if patents are not issued with respect to products arising from research, we may not be able to maintain information pertinent to such research as proprietary technology or trade secrets and that could have an adverse effect on our competitive position within the display panel industry.

We rely on key researchers and engineers, senior management and production facility operators, and the loss of the services of any such personnel or the inability to attract and retain them may negatively affect our business.

Our success depends to a significant extent upon the continued service of our research and development and engineering personnel, and on our ability to continue to attract, retain and motivate qualified researchers and engineers, especially during periods of rapid growth. In particular, our focus on leading the market in introducing new products and advanced manufacturing processes has meant that we must aggressively recruit research and development personnel and engineers with expertise in cutting-edge technologies.

We also depend on the services of experienced key senior management, and if we lose their services, it would be difficult to find and integrate replacement personnel in a timely manner, if at all. We also employ highly skilled line operators at our various production facilities.

The loss of the services of any of our key research and development and engineering personnel, senior management or skilled operators without adequate replacement, or the inability to attract new qualified personnel, would have a material adverse effect on our operations.

The interests of LG Electronics, our largest shareholder, and any directors or officers nominated by it, may differ from or conflict with those of us or our other shareholders.

When exercising its rights as our largest shareholder, LG Electronics may take into account not only our interests but also its interests and the interests of its affiliates. The interests of display businesses of LG Electronics may at times conflict with ours since the growth of our business depends, in part, on successful competition with other display technologies. These conflicts may result in alternative display technologies gaining wider market acceptance than TFT-LCDs or a decision by our largest shareholder to sell products using other display technologies.

Various other conflicts of interest between LG Electronics and us may arise in the future in a number of areas relating to our business, including potential acquisitions of businesses or properties, incurrence of indebtedness, financial commitments, sales and marketing functions, indemnity arrangements, service arrangements and the exercise by LG Electronics of control 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, 2011, approximately 75% of our total employees, including those of our subsidiaries, were union members, and production employees accounted for substantially all of these members. We have a collective bargaining arrangement with our labor union, which is negotiated once a year. Any deterioration in our relationship with our employees or labor unrest resulting in a work stoppage or strike may have a material adverse effect on our financial condition and results of operations.

We are subject to strict environmental regulations and we may be subject to fines or restrictions that could cause our operations to be interrupted.

Our manufacturing processes generate chemical waste, waste water and other industrial waste at various stages in the manufacturing process, and we are subject to a variety of laws and regulations relating to the use, storage, discharge and disposal of such chemical by-products and waste substances. We have installed various types of anti-pollution equipment, consistent with industry standards, for the treatment of chemical waste and equipment for the recycling of treated waste water at our various facilities. See “Item 4.B. Business Overview—Environmental Matters” for a description of the anti-pollution equipment that we have installed in our various facilities. However, we cannot provide assurance that environmental claims will not be brought against us or that the local or national governments will not take steps toward adopting more stringent environmental standards.

Any failure on our part to comply with any present or future environmental regulations could result in the assessment of damages or imposition of fines against us, suspension of production or a cessation of operations. In addition, environmental regulations could require us to acquire costly equipment or to incur other significant compliance expenses that may materially and negatively affect our financial condition and results of operations.

Risks Relating to our American Depositary Shares, or ADSs, or our Common Stock

Future sales of shares of our common stock in the public market may depress our stock price and make it difficult for you to recover the full value of your investment in our common stock or our ADSs.

We cannot predict the effect, if any, that market sales of shares of our common stock or the availability of our common stock for sale will have on the market price of our common stock prevailing from time to time. Our largest shareholder, LG Electronics, currently owns approximately 37.9% of our voting stock. There is no assurance that LG Electronics will not sell all or a part of its ownership interest in us.

Any future sales by LG Electronics or any future issuance by us of a significant number of shares of our common stock in the public market, or the perception that any of these events may occur, could cause the market price of our common stock to decrease or to be lower than it might be in the absence of these events or perceptions.

Our public shareholders may have more difficulty protecting their interests than they would as shareholders of a U.S. corporation.

Our corporate affairs are governed by our articles of incorporation and by the laws governing Korean corporations. The rights and responsibilities of our shareholders and members of our board of directors under Korean law may be different from those that apply to shareholders and directors of a U.S. corporation. For example, minority shareholder rights afforded under Korean law often require the minority shareholder to meet minimum shareholding requirements in order to exercise certain rights. In the case of public companies, a shareholder must own, individually or collectively with other shareholders, at least 0.01% of our common stock for at least six consecutive months in order to file a derivative suit on our behalf. While the facts and circumstances of each case will differ, the duty of care required of a director under Korean law may not be the same as the fiduciary duty of a director of a U.S. corporation. Holders of our common stock or our ADSs may have more difficulty protecting their interests against actions of our management, members of our board of directors or controlling shareholders than they would as shareholders of a U.S. corporation.

You may be limited in your ability to deposit or withdraw the common stock underlying the ADSs, which may adversely affect the value of your investment.

Under the terms of our deposit agreement, holders of common stock may deposit such common stock with the depositary’s custodian in Korea and obtain ADSs, and holders of ADSs may surrender ADSs to the depositary and receive common stock. However, to the extent that a deposit of common stock exceeds the difference between:

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the aggregate number of shares of common stock we have consented to allow to be deposited for the issuance of ADSs (including deposits in connection with offerings of ADSs and stock dividends or other distributions relating to ADSs); and

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the number of shares of common stock on deposit with the custodian for the benefit of the depositary at the time of such proposed deposit,

such common stock will not be accepted for deposit unless (1) our consent, subject to governmental authorization, with respect to such deposit has been obtained or (2) such consent is no longer required under Korean laws and regulations.

Under the terms of the deposit agreement, no consent is required if the shares of common stock are obtained through a dividend, free distribution, rights offering or reclassification of such stock. The current limit on the number of shares that may be deposited into our ADR facility is 68,095,700 as of April 27, 2012. 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 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. We might not consent to the deposit of any additional shares of common stock. As a result, if a holder surrenders ADSs and withdraws common stock, it may not be able to deposit the common stock again to obtain ADSs.

Holders of ADSs will not have preemptive rights in some circumstances.

The Korean Commercial Code of 1962, as amended, and our articles of incorporation require us, with some exceptions, to offer shareholders the right to subscribe for new shares of our common stock in proportion to their existing shareholding ratio whenever new shares are issued, except under certain circumstances as provided in our articles of incorporation. Accordingly, if we issue new shares to non-shareholders based on such exception, a holder of our ADSs may experience dilution in its holdings. Furthermore, if we offer any right to subscribe for additional shares of our common stock or any rights of any other nature to existing shareholders subject to their preemptive rights, the depositary, after consultation with us, may make the rights available to holders of our ADSs or use reasonable efforts to dispose of the rights on behalf of such holders and make the net proceeds available to such holders. The depositary, however, is not required to make available to holders any rights to purchase any additional shares of our common stock unless it deems that doing so is lawful and feasible and;

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a registration statement filed by us under the U.S. Securities Act of 1933, as amended, is in effect with respect to those shares; or

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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 U.S. Securities and Exchange Commission 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.

In recent years, adverse conditions and volatility in the worldwide financial markets, fluctuations in oil and commodity prices and the general weakness of the U.S. and global economy have contributed to the uncertainty of global economic prospects in general and have adversely affected, and may continue to adversely affect, the Korean economy. From the second half of 2008 to the first half of 2010, the value of the Won relative to major foreign currencies in general and the U.S. dollar in particular fluctuated widely. While such fluctuations generally stabilized in the second half of 2010 and into 2011, there has been increased volatility in the value of the Won in recent months reflecting the general volatility in the global financial markets. There is no guarantee that such levels of currency fluctuation will not occur again in the future. See “Item 3A. Selected Financial Data—Exchange Rates.” A depreciation of the Won increases the cost of imported goods and services and the Won revenue needed by Korean companies to service foreign currency denominated debt. An appreciation of the Won, on the other hand, causes export products of Korean companies to be less competitive by raising their prices in terms of the relevant foreign currency and reduces the Won value of such export sales. Furthermore, as a result of adverse global and Korean economic conditions, there has been an overall decline and continuing volatility in the stock prices of Korean companies. The Korea Composite Stock Price Index (known as the “KOSPI”) declined from 1,897.1 on December 31, 2007 to 938.8 on October 24, 2008. While the KOSPI has recovered to a significant extent since 2008, there has been increased volatility and substantial declines in the KOSPI in recent months, particularly following the downgrading by Standard & Poor’s Rating Services of the long-term sovereign credit rating of the United States to “AA+” from “AAA” in August 2011 and in light of the financial difficulties affecting many other governments worldwide, in particular Greece, Portugal, Spain, Italy and other countries in Europe. There is no guarantee that the stock prices of Korean companies will not decline again in the future. On April 27, 2012, the KOSPI closed at 1,975.35. Future declines in the KOSPI and large amounts of sales of Korean securities by foreign investors and subsequent repatriation of the proceeds of such sales may continue to adversely affect the value of the Won, the foreign currency reserves held by financial institutions in Korea, and the ability of Korean companies to raise capital. Any future deterioration of the Korean or global economy could adversely affect our business, financial condition and results of operations.

Developments that could have an adverse impact on Korea’s economy in the future include:

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difficulties in the housing and financial sectors in the United States and elsewhere and increased sovereign default risks in selected countries and the resulting adverse effects on the global financial markets;

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adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the U.S. dollar or Japanese Yen exchange rates or revaluation of the Chinese Renminbi), interest rates, inflation rates or stock markets;

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continuing adverse conditions in the economies of countries that are important export markets for Korea, such as the United States, Japan and China, or in emerging market economies in Asia or elsewhere;

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substantial decreases in the market prices of Korean real estate;

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increasing delinquencies and credit defaults by consumer and small- and medium-sized enterprise borrowers;

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declines in consumer confidence and a slowdown in consumer spending;

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the continued emergence of the Chinese economy, to the extent its benefits (such as increased exports to China) are outweighed by its costs (such as competition in export markets or for foreign investment and the relocation of the manufacturing base from Korea to China);

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social and labor unrest;

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a decrease in tax revenues and a substantial increase in the Korean government’s expenditures for fiscal stimulus measures, unemployment compensation and other economic and social programs that, together, would lead to an increased Korean government budget deficit;

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financial problems or lack of progress in the restructuring of large troubled companies, their suppliers or the financial sector;

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loss of investor confidence arising from corporate accounting irregularities or corporate governance issues at certain Korean companies;

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the economic impact of the free trade agreements with the United States and the European Union and any pending or future free trade agreements;

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geo-political uncertainty and risk of further attacks by terrorist groups around the world;

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the occurrence of severe health epidemics in Korea or other parts of the world;

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deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from trade disputes or disagreements in foreign policy;

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political uncertainty or increasing strife among or within political parties in Korea;

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the occurrence of severe earthquakes, tsunamis or other natural disasters in Korea or other parts of the world, particularly in trading partners (such as the March 2011 earthquake and tsunami in Japan, which also resulted in the release of radioactive materials from a nuclear plant that had been damaged by the earthquake);

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hostilities or political or social tensions involving oil producing countries in the Middle East or North Africa and any material disruption in the supply of oil or increase in the price of oil; and

•

an increase in the level of tensions or an outbreak of hostilities between North Korea and Korea or the United States.

Escalations in tensions with North Korea could have an adverse effect on us and the market value of our common stock.

Relations between Korea and North Korea have been tense throughout Korea’s modern history. The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of current and future events.

In particular, since the death of the North Korean ruler, Kim Jong-il, in December 2011, there has been increased uncertainty with respect to the future of North Korea’s political leadership and concern regarding its implications for political and economic stability in the region. Although before his death, Kim Jong-il designated his third son, Kim Jong-eun, as his successor and also named him as the vice chairman of the Central Military Commission and a general of the North Korean army, the eventual outcome of such leadership transition remains uncertain. Furthermore, as only limited information is available outside of North Korea about Kim Jong-eun, who is reported to be in his late twenties, and it is unclear which individuals or factions, if any, will share political power with Kim Jong-eun or assume the leadership if the transition is not successful, there is significant uncertainty regarding the policies, actions and initiatives that North Korea might pursue in the future.

In addition, in recent years, there have been heightened security concerns stemming from North Korea’s nuclear weapons and long-range missile programs and increased uncertainty regarding North Korea’s actions and possible responses from the international community. In January 2003, North Korea renounced its obligations under the Nuclear Non-Proliferation Treaty. Since the renouncement, Korea, the United States, North Korea, China, Japan and Russia have held numerous rounds of six party multi-lateral talks in an effort to resolve issues relating to North Korea’s nuclear weapons program.

North Korea announced in October 2006 that it had successfully conducted a nuclear test, which increased tensions in the region and elicited strong objections worldwide. In May 2009, North Korea announced that it had successfully conducted a second nuclear test and test-fired three short-range surface-to-air missiles. In response, the United Nations Security Council unanimously passed a resolution in June 2009 that condemned North Korea for the nuclear test and decided to expand and tighten sanctions against North Korea. In March 2010, a Korean warship 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 has denied responsibility for the sinking and has threatened retaliation for any attempt to punish it for the act. In November 2010, North Korean forces reportedly fired more than one hundred artillery shells targeting Yeonpyeong Island located 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, killing two Korean soldiers and two civilians as well as causing substantial property damage. Korea responded by firing approximately 80 artillery shells and putting the military on its highest alert level. The Korean government condemned North Korea for the act and vowed stern retaliation should there be further provocation.

In February 2012, North Korea agreed with the United States to suspend its uranium enrichment activities, place a moratorium on nuclear and long-range missile tests and allow United Nations’ International Atomic Energy Agency inspectors to monitor activities at its main nuclear complex in exchange for food aid. However, in April 2012, North Korea failed in its attempt to launch a satellite using a long-range rocket, despite concerns in the international community that such a launch would be in violation of the recent agreement with the United States as well as United Nations Security Council resolutions that prohibit North Korea from conducting launches that use ballistic missile technology.

North Korea’s economy also faces severe challenges. For example, in November 2009, the North Korean government redenominated its currency at a ratio of 100 to 1 as part of a currency reform undertaken in an attempt to control inflation and reduce income gaps. In tandem with the currency redenomination, the North Korean government banned the use or possession of foreign currency by its residents and closed down privately run markets, which led to severe inflation and food shortages. Such developments may further aggravate social and political tensions within North Korea.

Reunification of Korea and North Korea could occur in the future. Reunification may entail a significant economic commitment by Korea. In a national address in August 2010, Korean President Lee Myung Bak suggested the possible adoption of a reunification tax in order to prepare for the long-term economic burden associated with reunification. Such discussions on reunification are very preliminary, and it has not been decided whether or when such tax would be implemented. If a reunification tax is implemented, it may lead to a decrease in domestic consumption, which in turn may have a material adverse effect on the Korean economy. In addition, there can be no assurance that the level of tension on the Korean peninsula will not escalate in the future. Any further increase in tension, which may occur, for example, if North Korea experiences a leadership crisis, high-level contacts between Korea and North Korea break down or military hostilities occur, could have a material adverse effect on our business, financial condition and results of operations and the market value of our common stock.

If the Korean government deems that emergency circumstances are likely to occur, it may restrict holders of our ADSs and the depositary from converting and remitting dividends and other amounts in U.S. dollars.

Under the Korean Foreign Exchange Transaction Law, if the Korean government deems that certain emergency circumstances, including sudden fluctuations in interest rates or exchange rates, extreme difficulty in stabilizing the balance of payments or substantial disturbance in the Korean financial and capital markets, are likely to occur, it may impose any necessary restrictions as requiring Korean or foreign investors to obtain prior approval from the Minister of Strategy and Finance for the acquisition of Korean securities or the repatriation of interest, dividends or sales proceeds arising from disposition of such securities or other transactions involving foreign exchange. See “Item 10.D. Exchange Controls.”

Item 4.

INFORMATION ON THE COMPANY

Item 4.A.

History and Development of the Company

We are a leading innovator of thin-film transistor liquid crystal display, or TFT-LCD, technology and other display panel technologies, including organic light-emitting display, or OLED, and flexible display products. We manufacture display panels based primarily on TFT-LCD technology in a broad range of sizes and specifications primarily for use in televisions, notebook computers, desktop monitors and various other applications, including mobile products. We are also expecting to commence mass production of OLED panels primarily for use in televisions in the second half of 2012.

The origin of our TFT-LCD business can be traced to the TFT-LCD research that began in 1987 at the Goldstar R&D Center, which was then part of LG Electronics, Inc. TFT-LCD research continued at the Anyang R&D Center, a research and development center established by LG Electronics in 1990 in Anyang, Korea, which was subsequently moved to our Paju Display Cluster in 2008, and which today continues to lead our technology innovation efforts. In 1993, the TFT-LCD business division was launched within LG Electronics, and in September 1995 mass production of TFT-LCD panels began at P1, its first fabrication facility, producing mainly TFT-LCD panels for notebook computers and other applications. In December 1997, LG Semicon Inc., a subsidiary of LG Electronics, began mass production at P2, producing mainly TFT-LCD panels for notebook computers.

We were incorporated in 1985 under the laws of the Republic of Korea under the original name of LG Soft, Ltd., a subsidiary of LG Electronics whose main business was the development and marketing of software. At the end of 1998, LG Electronics and LG Semicon transferred their respective TFT-LCD-related businesses to LG Soft, which, as part of the business transfer, changed its name to LG LCD Co., Ltd.

In July 1999, LG Electronics entered into a joint venture agreement with Koninklijke Philips Electronics N.V., pursuant to which Philips Electronics acquired a 50% interest in LG LCD. In connection with this transaction, LG LCD transferred its existing software-related business to LG Electronics in order to focus solely on the TFT-LCD business. The joint venture, which was renamed LG.Philips LCD Co., Ltd., was officially launched in August 1999. In July 2004, we completed our initial public offering and listed shares of our common stock on the Korea Exchange under the identifying code “034220” and our ADSs on the New York Stock Exchange under the symbol “LPL”. Prior to the listings, LG Electronics and Philips Electronics terminated the joint venture agreement and entered into a shareholders’ agreement to reflect new arrangements between them as controlling shareholders. The shareholders’ agreement automatically terminated upon Philips Electronics’ sale of all of its remaining ownership interest in us in March 2009. See “Item 7.A. Major Shareholders” for a more detailed discussion of the shareholding structure and Philips Electronics’ change in ownership interest in us. Effective March 3, 2008, we changed our name from LG.Philips LCD Co., Ltd. to LG Display Co., Ltd.

In September 2010, due to renovation works at LG Twin Towers at 128 Yeoui-daero, Yeongdeungpo-gu, Seoul 150-721, Korea, where our principal executive offices were previously located, we temporarily moved our principal executive offices to 65-228, Hangangro, 3-ga, Yongsan-gu, Seoul 140-716, Korea. In December 2011, renovation works at LG Twin Towers were completed and we moved our principal executive offices back to the LG Twin Towers. Currently, our principal executive offices are located at LG Twin Towers, 128 Yeoui-daero, Yeongdeungpo-gu, Seoul 150-721 (telephone number +82-2-3777-0978).

We have continued to develop our manufacturing process technologies and expand our production facilities. Each of our new fabrication facilities, or fabs, has been designed to process increasingly larger-size glass substrates, which allows us to cut a larger number of panels, sometimes with larger sizes, from each glass substrate. The ability to process larger glass substrates allows us to produce a larger variety of display sizes to accommodate evolving business and consumer demands. For example, in order to respond to business and consumer demands for large-sized panels, in March 2009, we commenced mass production at P81, which is optimized to produce 32-inch, 47-inch and 55-inch display panels for televisions and 23-inch display panels for desktop monitors. In April 2009, we commenced mass production at P62, an expansion to P61, which is optimized to produce 15.6-inch display panels for notebook computers and 18.5-inch and 20-inch display panels for desktop monitors. In May 2010, we commenced mass production at P82, our first expansion to P81, which is optimized to produce 32-inch, 47-inch and 55-inch display panels for televisions and 20-inch and 21.5-inch display panels for desktop monitors. In March 2011, we commenced mass production at P83, our second expansion to P81, which is optimized to produce 32-inch, 47-inch and 55-inch display panels for televisions. 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.”

We are currently constructing P98, our new eighth-generation panel fabrication facility. P98 is expected to commence mass production in the second quarter of 2012 and will be optimized to produce certain notebook computer panels and desktop monitor panels. In addition, we are currently in the planning stages for the construction of an eighth-generation panel fabrication facility in Guangzhou, China, for which we received final approval from the Chinese government in November 2010. See “Item 3.D. Risk Factors—Risks Relating to Our Company—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.”

With respect to our assembly facilities, from 1995 to early 2003, we assembled all panels in our Gumi assembly facility adjacent to our P1 facility. In May 2003, we commenced operations at a new assembly facility in Nanjing, China, which we built and have since expanded, in order to manage our expanding display capacity and better serve the growing needs of our global customers with manufacturing facilities in China. In November 2005, we commenced operations at a new assembly facility in Paju, Korea. In March 2007, we commenced mass production at our module production plant in Wroclaw, Poland. In December 2007, we commenced mass production at our module production plant in Guangzhou, China, our second such module production site in China. In addition, in March 2012, we commenced mass production at our module production plant in Reynosa, Mexico. We anticipate that our overseas plants will help to better serve our customers, especially our European, Chinese and North American customers, and further expand our global production capabilities.

Item 4.B.

Business Overview

Overview

We manufacture TFT-LCD panels in a broad range of sizes and specifications primarily for use in televisions, notebook computers and desktop monitors, and we are one of the world’s leading suppliers of high-definition television panels. We also manufacture TFT-LCDs for other application products, such as mobile phones, including certain types of mobile phones commonly referred to as “smartphones”, certain types of tablet personal computers, including those commonly referred to as “smartbooks”, and industrial and other applications, including entertainment systems, automotives, portable navigation devices, e-books, digital photo displays and medical diagnostic equipment. In 2011, we sold a total of 194.7 million TFT-LCD panels that are nine inches or larger. According to DisplaySearch, we had a global market share for display panels of nine inches or larger of approximately 28% based on sales revenue in 2011.

In addition to TFT-LCD panels, we also manufacture OLEDs and flexible displays. In January 2008, as part of our plan to pursue commercialization of OLED technology, we acquired LG Electronics’ active matrix OLED, or AMOLED, business by way of taking over its inventory, intellectual property rights and employees related to the AMOLED business. OLED is a next-generation flat panel display technology that enables the display of images of fast moving objects that are much clearer than what is possible using conventional technology. In December 2009, we launched our Mobile/OLED Business Division in anticipation of future growth of the OLED business. In September 2011, we commenced mass production of OLED display panels at our 4.5-generation production lines and reached a monthly input capacity of 12,000 substrates by the end of 2011. In December 2011, we developed a 55-inch OLED panel display, which was unveiled at the Consumer Electronics Show in Las Vegas in January 2012. We expect to commence mass production of OLED panels primarily for use in televisions in the second half of 2012.

We currently operate a total of twelve panel fabrication facilities, including expansions to certain facilities, located in our Display Clusters in Gumi and Paju, Korea. We also currently operate module facilities located in China (Nanjing, Guangzhou and Yantai), Korea (Gumi and Paju), Poland (Wroclaw) and Mexico (Reynosa). For a full description of our current facilities, see “Item 4.D. Property, Plants and Equipment—Current Facilities.”

We seek to build our market position based on collaborative customer relationships, a focus on high-end display products and manufacturing productivity. Our end-brand customers include many of the world’s leading manufacturers of televisions, notebook computers and desktop monitors. In 2011, for example, our display panels were included in products sold by LG Electronics, Apple, Toshiba, Dell, Hewlett-Packard, Philips Electronics, among others. For a description of our sales to LG Electronics, our largest shareholder, see “Item 7.B. Related Party Transactions.”

At the direction of our end-brand customers, we typically ship our display panels to their original equipment manufacturers, known as “system integrators,” who use our display panels in products they assemble on a contract basis for our end-brand customers. Our sales are conducted through our multi-channel sales and distribution network, including direct sales to end-brand customers and their system integrators, sales through our overseas subsidiaries and sales through our affiliated trading company, LG International, and its subsidiaries. For a description of our sales arrangements with LG International, see “Item 7.B. Related Party Transactions.”

Our sales were (Won)20,038 billion in 2009, (Won)25,512 billion in 2010 and (Won)24,291 billion (US$20,968 million) in 2011.

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 front glass substrate is fitted with a color filter, while the back glass substrate, also called a TFT array, has a thin film of transistors, or TFT, formed on its surface. The liquid crystals are normally aligned to allow the polarized light from the backlight unit to pass through the two glass panels to form a picture element, or pixel. When voltage is applied to the transistors on the TFT array, the liquid crystals change their alignment and alter the amount of light that passes through them. Meanwhile, the color filter on the front 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.

Manufacturing Process

The process for manufacturing a TFT-LCD consists of four steps:

•

TFT array process – involves fabricating a large number of thin film transistors on the back 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 front glass substrate that overlays the TFT array in the cell process. The colored dots of red, green and blue combine to form various colors. The process is similar to the TFT array process but involves depositing colored dyes instead of transistors;

•

Cell process – involves joining together the back glass substrate that is arrayed with transistors and the front 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 formed by combining the glass substrates and liquid crystal materials.

The TFT array, color filter and cell processes are capital-intensive and require highly automated production equipment and are the primary determinants of fixed manufacturing cost. In contrast, the module assembly process involves semi-automated production equipment and manual labor to assemble the various components. Materials are the primary drivers of variable manufacturing cost.

IPS Technology

In-Plane Switching, or IPS, is a liquid crystal switching technology that was developed to address commonly faced problems with TFT-LCD panels that utilized other liquid crystal technologies, namely narrow viewing angles, inconsistent picture uniformity and slow response times. Unlike other liquid crystal technologies where the liquid crystals are aligned vertically or at an angle in relation to the glass substrate, with IPS technology, the liquid crystals are aligned horizontally in parallel to the glass substrate, which allows for wider viewing angles, greater picture uniformity and faster response times. Our TFT-LCD display panels, including our TFT-LCD television panels, utilize IPS technology.

Advanced High Performance IPS, or AH-IPS, is our next-generation IPS technology that integrates ultra-fine pitch technology and high transmittance technology, which allows for ultra-high resolution imagery, increased luminance and greater energy efficiency. For example, at the end of 2011, we were able to produce AH-IPS panels with a resolution of 326 pixels-per-inch. AH-IPS is currently utilized mostly in our smartphone panels and other mobile display products and certain of our tablet personal computer panels.

Film-Type Patterned Retarder 3D Technology

Film-Type Patterned Retarder 3D, or FPR 3D, technology is utilized in display panels to display three-dimensional imagery when viewed with polarized glasses. A patterned retarder film polarizes images projected by the display panel into left and right images, which are then received by the respective side of the polarized glasses worn by the viewer to create a 3D effect. As both the right and left images are received simultaneously by the polarized glasses, there is no flicker effect commonly associated with display panels utilizing shutterglass technology, which projects left and right images in alternative succession. Since 3D television sets using our FPR 3D television panel products were first introduced to the market in March 2011, television sets using FPR 3D technology rapidly increased their market share. According to DisplaySearch, television sets using FPR 3D technology accounted for 37.6% of the global 3D television market in 2011.

OLED Technology

An OLED panel consists of a thin film of organic material encased between two conductors. 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, thinner and more energy efficient compared to TFT-LCD panels, which require a separate backlight. In addition, images projected on OLED panels have higher contrast ratios and more realistic color reproduction compared to images projected on TFT-LCD panels. We commenced mass production of OLED displays for mobile and other applications in September 2011.

Our large-sized OLED display products, including the recently unveiled 55-inch OLED television panel which we expect to commence mass producing in 2012, are produced using OLED technologies and processes that are different from the ones we use for our smaller-sized OLED display products. Our large-sized OLED display products, which employs Oxide TFT technology, are produced using the existing TFT process to deposit white OLEDs as compared to our smaller-sized OLED display products which utilize the LTPS process to deposit RGB OLEDs. We were the first company in the display industry to successfully adopt Oxide TFT technology in large-sized OLED display 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 display panels are similar to the process used to manufacture TFT-LCD panels, we are able to use our existing TFT-based fabrication lines with relatively little modification to mass produce large-sized OLED panels. Our OLED display products are produced at fabrication facilities in our Paju Display Cluster.

Products

We manufacture primarily TFT-LCD panels of various specifications that are integrated by our customers into principally the following products:

•

Televisions, which typically utilize large-sized display panels ranging from 15 inches to 84 inches in size, including full high-definition television panels;

•

Notebook computers, which typically utilize display panels ranging from 7 inches to 20.1 inches in size;

•

Desktop monitors, which typically utilize large-sized display panels ranging from 15 inches to 30 inches in size; and

•

Mobile and other applications, which utilize a wide array of display panel sizes, including smartphones and other types of mobile phones, certain types of tablet personal computers and industrial and other applications, including entertainment systems, automotives, portable navigation devices, e-books, digital photo displays 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 televisions, a premium is placed on faster response times, wider viewing angles, higher resolution and greater color fidelity. Notebook computers require an emphasis on thinness, light weight and power efficiency, while desktop monitors demand a greater focus on brightness, color brilliance and wide viewing angles.

In addition to manufacturing and selling display panels, we also manufacture and sell television sets and desktop monitors through our joint venture companies. See “—Joint Ventures.”

Televisions

Our television display panels range from 15 inches to 84 inches in size. We began mass production of television display panels in 2001. Television display panels constitute our largest product category in terms of revenue. Our sales of display panels for televisions were (Won)10,965 billion, or 54.7% of our total revenue, in 2009, (Won)14,079 billion, or 55.2% of our total revenue, in 2010 and (Won)11,579 billion (US$9,995 million), or 47.7% of our total revenue, in 2011.

Our product portfolio includes panels of various sizes such as 17-inch, 19-inch, 20-inch, 22-inch, 26-inch, 32-inch, 37-inch, 42-inch, 47-inch, 55-inch, 72-inch and 84-inch display panels. Currently, 32-inch, 37-inch, 42-inch, 47-inch and 55-inch display panels comprise our principal products in this category in terms of sales revenue. In particular, a substantial portion of our larger panels shipped in 2011 were equipped with FPR 3D technology.

Brand manufacturers of televisions and their distribution channels prefer long-term arrangements with a limited number of display panel suppliers that can offer a full product line, and we believe that we are well positioned to meet their requirements with our strengths in technology, manufacturing scale and efficiency as well as the breadth of our product portfolio.

Notebook Computers

Our display panels for notebook computers, which include display panels for certain types of tablet personal computers, range from 7 inches to 20.1 inches in size in a variety of display formats. Revenue from sales of our display panels for notebook computers were (Won)3,568 billion, or 17.8% of our total revenue, in 2009, (Won)4,424 billion, or 17.3% of our total revenue, in 2010 and (Won)5,120 billion (US$4,420 million), or 21.1% of our total revenue, in 2011.

In 2010, notebook computer display panels comprised our third largest product category in terms of sales revenue, but in 2011, due in large extent to a significant increase in demand for tablet personal computer displays that are included in this category, it surpassed desktop monitor display panels and became our second largest product category. Our principal products in terms of sales revenue in this category were 15.4-inch and 15.6-inch display panels in 2009, 15.6-inch and 9.7-inch display panels in 2010 and 9.7-inch and 15.6-inch display panels in 2011. In particular, there was strong demand for our panels employing AH-IPS technology, such as our 9.7-inch panels. In addition, we have experienced growing demand for our hinge-up display panels, also known as Shuriken displays, which are optimized for use in ultrabooks, Intel’s new ultra-slim notebook platform.

Desktop Monitors

Our desktop monitor display panels range from 15 inches to 30 inches in size in a variety of display resolutions and formats. We began mass production of desktop monitor display panels in 1999. Revenue from sales of our display panels for desktop monitors were (Won)4,640 billion, or 23.2% of our total revenue, in 2009, (Won)5,390 billion, or 21.1% of our total revenue, in 2010 and (Won)4,975 billion (US$4,294 million), or 20.5% of our total revenue, in 2011.

Desktop monitor display panels constitute our third largest product category in terms of sales revenue. In recent years, consumer demand for larger panels for desktop monitors has steadily grown. Our principal products in terms of sales revenue in this category were 18.5-inch and 19-inch display panels in 2009, 19-inch and 21.5-inch display panels in 2010 and 21.5-inch and 23-inch display panels in 2011.

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, certain types of tablet personal computers that are not included in the notebook computer category and industrial and other applications, including entertainment systems, automotives, portable navigation devices, e-books, digital photo displays and medical diagnostic equipment. TFT-LCD panels that are nine inches and smaller are referred to as small and medium-sized panels, with those smaller than four inches being considered small-sized panels. In 2011, sales of small-sized panels constituted a significant majority in terms of both sales revenue and sales volume in the mobile and other applications category.

Some of the panels we produce for industrial products, such as medical diagnostic equipment, are highly specialized niche products manufactured to the specifications of our clients, while others, such as industrial controllers, may be manufactured by slightly modifying a standard product design for our other products, such as desktop monitors. Display panels for these other applications broaden our sales base and product mix. They are also often a good channel through which we can commercialize a particular technology that we have developed. We generally determine the production level and specification of our TFT-LCD panels for mobile and other applications by assessing various business opportunities as they arise.

Revenue from sales of our display panels for mobile and other applications were (Won)816 billion, or 4.1% of our total revenue, in 2009, (Won)1,575 billion, or 6.2% of our total revenue, in 2010 and (Won)2,540 billion (US$2,192 million), or 10.4% of our total revenue, in 2011.

Sales and Marketing

Customer Profile

Our display panels are included primarily in televisions, notebook computers, desktop monitors and mobile and other applications sold by our global end-brand customers. In 2011, our top ten end-brand customers included LG Electronics, Apple, Hewlett-Packard, Toshiba, Dell, Philips Electronics, Skyworth, TPV, Sony Electronics and Acer. 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, including our largest shareholder, together accounted for 76.5% of our sales in 2009, 75.8% for 2010 and 70.9% for 2011, respectively. Our top five end-brand customers together accounted for 55.1% in 2009, 55.0% in 2010 and 53.6% for 2011. In 2011, only two end-brand customers, LG Electronics and Apple, contributed to 10% or more of our sales.

The following table presents our top five end-brand customers based on sales in our principal product categories for 2011:


Televisions	Computer Products		Mobile and Other Applications
Televisions	Notebook Computers	Desktop Monitors	Mobile and Other Applications
LG Electronics	Apple	Apple	Apple
Philips Electronics	Hewlett-Packard	LG Electronics	LG Electronics
Skyworth	Dell	Dell	Barnes & Noble
Toshiba	Toshiba	Hewlett-Packard	Amazon
Suzhou Raken	Acer	TPV	Truly Semiconductors

In addition to our top ten end-brand customers, we sell our TFT-LCD panels to a variety of other manufacturers of computers and electronic products. Sales to these other manufacturers constituted 23.5% of our sales in 2009, 24.2% in 2010 and 29.1% in 2011, respectively.

The following table sets forth for the periods indicated the geographic breakdown of our sales by the region where purchase orders are originated, without regard to the location of end-brand customers. The figures below therefore reflect orders from our end-brand customers, their system integrators and our affiliated trading company, LG International, and its subsidiaries:


	Year Ended December 31,
	2009					2010					2011
	Sales		%			Sales		%			Sales		Sales⁽²⁾		%
	(in billions of Won and millions of US$, except for percentages)
Korea	(Won)	1,205		6.0	%	(Won)	1,705		6.7	%	(Won)	1,964	US$	1,695		8.1	%
China		10,504		52.5			14,077		55.1			14,293		12,338		58.8
Europe		3,751		18.7			4,125		16.2			3,526		3,044		14.5
Americas		2,491		12.4			2,853		11.2			2,217		1,914		9.1
Asia (excluding China)		2,086		10.4			2,746		10.8			2,248		1,940		9.3
Others		1		0.0			6		0.0			43		37		0.2

Total⁽¹⁾	(Won)	20,038		100.0	%	(Won)	25,512		100.0	%	(Won)	24,291	US$	20,968		100.0	%

(1)	Figures provided in this table include our revenue attributable to royalty and others.

(2)

Sales

Our sales and marketing departments seek to maintain and strengthen relationships with our current customers in existing markets as well as expand our business in new markets and with new customers. We currently have wholly-owned sales subsidiaries in the United States, Japan, Germany, Taiwan, China and Singapore. As of December 31, 2011, our sales and marketing force employed a total of approximately 1,633 employees in regional offices in these countries and in our head office in Korea.

The focus of our sales activities is on strengthening our relationships with large end-brand customers, with whom we maintain strong collaborative relationships. Customers look to us for a reliable supply of a wide range of TFT-LCD products. We believe our reliability and scale as a supplier helps support our customers’ product positions. We view our relationships with our end-brand customers as important to their product development strategies, and we collaborate with our end-brand customers in the design and development stages of their new products. In addition, our sales teams coordinate closely with our end-brand customers’ designated system integrators to ensure timely delivery. For each key customer, we appoint an account manager who is primarily responsible for our relationship with that specific customer, complemented by a product development team consisting of engineers who participate in meetings with that customer to understand the customer’s specific needs.

We do not typically enter into binding long-term contracts with our customers. However, we have in place long-term supply and purchase agreements with certain major end-brand customers, whereby we and our end-brand customers agree on general volume parameters and, in some cases, product specifications and delivery terms. These agreements serve as an indication of the size and key components of a customer’s order, and neither party is committed to supply or purchase any products until a firm purchase order is issued.

Our sales are conducted through our multi-channel sales and distribution network, including direct sales to end-brand customers and their system integrators, sales through our overseas subsidiaries and sales through our affiliated trading company, LG International, and its subsidiaries. Our sales subsidiaries procure purchase orders from, and distribute our products to, system integrators and end-brand customers located in their region. In regions where we do not have a sales subsidiary, or where doing so is consistent with local market practices, we sell our products to LG International and its subsidiaries. These subsidiaries of LG International process orders from and distribute products to customers located in their region. In particular, we have sold a portion of our products to LG International Japan, Ltd. and LG International (HK) Ltd. Sales to LG International and its subsidiaries on an aggregate basis amounted to 6.3% in 2011. See “Item 7.B. Related Party Transactions” for further discussion of these sales arrangements.

We may establish sales subsidiaries in the relevant geographical markets when the benefit of doing so outweighs the cost of solely utilizing our affiliated trading company, LG International, or its subsidiaries, and where local market practice permits. For example, in January 2009, we established a sales subsidiary in Singapore to replace LG International Singapore Ltd. in conducting sales to system integrators located in Singapore. We may establish additional sales subsidiaries in the future in these or other regions as sales volumes to customers located in these regions increase and/or market practice warrants.

Our end-brand customers or their system integrators generally place purchase orders with us one month prior to delivery based on our non-binding supply and purchase agreements with them. Generally, the head office of an end-brand customer provides us with three- to six-month forecasts, which, together with our own forecasts, enable us to plan our production schedule in advance. Our customers usually issue monthly purchase orders containing prices we have negotiated with the end-brand customer one month prior to delivery, at which point the customer becomes committed to the order at the volumes and prices indicated in the purchase orders. Under certain special circumstances, however, a negotiated price may be subject to change during the one-month period prior to delivery.

Prices for our products are generally determined based on negotiations with our end-brand customers. Pricing of our display panel products is generally market-driven, based on the complexity of the product specifications and the labor and technology involved in the design or production processes. Purchase prices and payment terms for sales to our largest shareholder is substantially the same as those for our non-affiliated end-brand customers.

We generally provide a limited warranty to our end-brand customers, including the provision of replacement parts and after-sale services for our products. Costs incurred under our warranty liabilities consist primarily of repairs. We set aside a warranty reserve based on our historical experience and future expectations as to the rate and cost of claims under our warranties.

Our credit policy typically requires payment within 30 to 90 days, and payments on the vast majority of our sales have typically been collected within 65 days. Where system integrators located in certain regions are invoiced directly, we have established certain measures, such as factoring arrangements and accounts receivable insurance programs, to protect us from excessive exposure to credit risks. To date we have not experienced any material problems relating to customer payments.

Competition

The display panel industry is highly competitive. Due to the capital intensive nature of the display panel industry and the high production volumes required to achieve economies of scale, the international market for display devices is characterized by significant barriers to entry, but the competition among the relatively small number of major producers is intense. In the case of TFT-LCD panel manufacturers, currently almost all of them are located in Asia, and we compete principally with manufacturers from Korea, Taiwan, China and Japan.

The principal elements of competition for customers in the display panel market include:

•

product portfolio range and availability;

•

product specifications and performance;

•

price;

•

capacity allocation and reliability;

•

customer service, including product design support; and

•

logistics support and proximity of regional stocking facilities.

Our principal competitors are:

•

Samsung Display (which was recently spun off from Samsung Electronics), Samsung Mobile Display and Hydis Technologies in Korea;

•

AU Optronics, Chimei Innolux, Chunghwa Picture Tubes and HannStar Display in Taiwan;

•

Japan Display (which was recently created by integrating LCD panel businesses of Hitachi and TMDisplay, as well as certain businesses of Sony Mobile Display), Sharp, Mitsubishi and Panasonic LCD in Japan; and

•

SVA-NEC, InfoVision Optoelectronics and Beijing BOE Optronics Technology in China.

According to DisplaySearch, in 2011, Korean display panel manufacturers had a market share of 54% of the 9-inch or larger panel market based on revenue, Taiwanese manufacturers had 33% and Japanese manufacturers had 10%. Our market share of the 9-inch or larger panel market based on revenue was approximately 28%.

Components, Raw Materials and Suppliers

Components and raw materials accounted for 71.3% of our cost of sales in 2009, 71.9% in 2010 and 69.2% in 2011. The key components and raw materials of our TFT-LCD products include backlight units, glass substrates, driver integrated circuits, polarizers, color filters and liquid crystal materials. We source these components and raw materials from outside sources, although, unlike many other TFT-LCD manufacturers, we produce a substantial portion of the color filters we use. With respect to glass substrates, Paju Electric Glass Co., Ltd., a joint venture company of which we and Nippon Electric Glass Co., Ltd. own 40% and 60%, respectively, provides us with a stable supply at competitive prices.

We generally negotiate non-binding master supply agreements with our suppliers several times a year, but pricing terms are negotiated on a quarterly basis, or if necessary, on a monthly basis. Firm purchase orders are issued generally six weeks prior to the scheduled delivery, except in the case of purchase orders for driver integrated circuits, which are issued generally six to ten weeks prior to the scheduled delivery. We purchase our components and raw materials based on forecasts from our end-brand customers as well as our own assessments of our end-brand customers’ needs.

In January 2008, we entered into a purchase agreement with HannStar, pursuant to which HannStar agreed to supply us, on a monthly basis, with TFT-LCD modules and cells to be used in our TFT-LCD products. The agreement has a term of three years but will be automatically renewed unless either party provides the other with prior notice to terminate. We pay the purchase price for the modules and cells on a delivery basis. In addition, in February 2008, we purchased 180 million shares of non-voting mandatorily redeemable convertible preferred shares of HannStar for a purchase price of (Won)96 billion. In January 2011, we exercised our put option and converted all of the preferred shares of HannStar into common shares of HannStar at a ratio of one-to-one, and we received (Won)124 billion, which was classified as receivables. As of March 31, 2012, we held a 0.04% equity interest in HannStar.

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 the 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 and weigh the reduction in logistics and transportation costs we may achieve by sourcing our components and raw materials from suppliers based in Korea against the price reduction we may achieve by sourcing from suppliers based abroad that are price competitive. 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. For example, in May 2009, we invested (Won)12 billion in Wooree LED Co., Ltd., an LED packaging company, in return for approximately 29.6% of its then outstanding common stock. In November 2009, we purchased NT$400 million (including NT$188 million purchased by our subsidiary, LG Display Taiwan) in convertible bonds from Everlight Electronics Co., Ltd. Everlight Electronics is an LED packaging company based in Taiwan. In January 2010, we invested US$10.8 million in Can Yang Investment Limited, a company that manufactures LED chips, in return for approximately 18.0% of its then outstanding equity interests.

We generally maintain a component and raw material inventory sufficient for approximately 10 days, or 20 days for driver integrated circuits, as a safeguard against potential disruptions in supply.

In addition to components and raw materials, the manufacturing of our products requires significant quantities of electricity and water. In order to obtain and maintain reliable electric power and water supplies, we have our own back-up power generation facilities and water storage tanks as well as easy access to nearby water sources. To date we have not experienced any material problems with our electricity and water supplies.

Equipment, Suppliers and Third Party Processors

We depend on a limited number of equipment manufacturers for equipment tailored to specific requirements. Since our manufacturing processes depend on the quality and technological capacity of our equipment, we work closely with the equipment manufacturers in the design process to ensure that the equipment meets our specifications. The principal types of equipment we use to manufacture TFT-LCD panels include chemical deposition equipment, steppers, developers and coaters.

We purchase equipment from a small number of qualified vendors to ensure consistent quality, timely delivery and performance. We maintain strategic relationships with many equipment manufacturers as part of our efforts to ensure quality while reducing costs. For example, in September 2010, we invested (Won)10 billion in YAS Co., Ltd., a developer and manufacturer of OLED deposition equipment, in return for approximately 20.0% of its then outstanding common stock. In April and June 2011, we invested a total of (Won)30 billion in return for an aggregate 23.0% of the then outstanding equity interests of Narae Nanotech Corporation, a Korean equipment manufacturer that supplies us with coaters.

Historically, we have relied on overseas vendors for equipment purchases, but in recent years, we have intentionally diversified and localized our equipment purchases by substituting a portion of our equipment purchased from overseas vendors with purchases from local vendors to diversify our supply source and reduce costs. For example, in 2011, approximately 77% of our equipment for our facilities in Korea was purchased from local vendors on an invoiced basis. We plan to maintain this localization effort as part of our sourcing diversification and cost reduction strategy. A large majority of the equipment purchased from overseas vendors are from Japanese vendors. In the procurement of equipment from Japan, we also use LG International’s subsidiary in Japan in order to take advantage of their relationships with vendors, experience in negotiations and logistics as well as their ability to obtain volume discounts. See “Item 7.B. Related Party Transactions.”

Our engineers begin discussions with equipment manufacturers far in advance of the planned installation of equipment in a new fab, 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 fabs to assist in the installation process to ensure proper operation. To date, we have not experienced any material problems with our equipment supplies or after-delivery services.

In addition, we outsource certain manufacturing processes to third party processers from time to time to supplement our processing capacity, and in certain cases, we maintain strategic relationships with such third party processors. For example, in December 2011, we invested approximately (Won)11 billion in AVATEC Co., Ltd., a third party processor that etches glass substrates, in return for 20.3% of its then outstanding common stock.

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 fabs 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 not only to ensure effective and consistent application of our quality control procedures, but also to introduce new methodologies, including six-sigma quality control. Our quality assurance programs have received accredited ISO/TS 16949 certifications. The ISO/TS certification process involves subjecting our manufacturing processes and quality management systems to reviews and observation for various fixed periods. ISO/TS certification is required by certain European countries and the United States in connection with sales of industrial products in those countries, and provides independent verification to our customers regarding the quality control measures employed in our manufacturing and assembly processes.

Insurance

We currently have insurance coverage for our production facilities in Gumi and Paju, Korea, for up to (Won)2.4 trillion per claim, which includes business interruption coverage. We also have insurance coverage for work-related injuries to our employees, accidents during overseas business travel, damage during construction, damage to products and equipment during shipment, damage to equipment during installation at our fabs, automobile accidents, bodily injury and property damage from gas accidents, as well as mandatory unemployment insurance for our workers and director and officer liability insurance. In addition, we maintain general and product liability, employment practice liability and aviation product liability insurance. Our dormitories in Gumi and Paju, Korea have fire insurance coverage for up to (Won)434 billion per claim. Our subsidiaries also have insurance coverage for damage to office fixtures and equipment, cargo insurance and life and disability insurance for their employees. Our overseas manufacturing subsidiaries in Nanjing, Guangzhou, Xiamen, Fujian, Dongguan, Kunshan and Yantai, China, Wroclaw, Poland, and Reynosa, Mexico, also carry property insurance, business interruption insurance and commercial general liability insurance

Environmental Matters

Our production processes generate various forms of chemical waste, waste water and other industrial waste at various stages in the manufacturing process. We have installed various types of anti-pollution equipment for the treatment of chemical waste and waste water and equipment for the recycling of treated waste water in our facilities in Korea. In addition, as a member of the World LCD Industry Cooperation Committee, or WLICC, a TFT-LCD industry organization focusing on environmental issues, we have voluntarily agreed to reduce emission of greenhouse gases, such as nitrogen trifluoride, or NF3, and sulfur hexafluoride, or SF6, gases, by developing and adopting cost-effective abatement technologies and systems and increasing the number of abatement systems installed in our facilities.

We installed NF3 abatement systems at all of our production lines when the production facilities were being constructed. In April 2005, we voluntarily installed SF6 abatement systems in P1, and in December 2009 and January 2012, we installed SF6 abatement systems in P61 and P7, respectively, as part of the implementation of Clean Development Mechanism, or CDM, projects under the Kyoto Protocol to the United Nations Framework Convention on Climate Change, or UNFCCC, which allows participants in CDM projects to earn certified emission reduction, or CER, credits for meeting certain reduction targets under the Kyoto Protocol. We manage our CDM projects jointly with LG International. Pursuant to the terms of our arrangement with LG International relating to our CDM projects, LG International provides the funds necessary for the procurement, installation and operation of SF6 abatement systems in our facilities and, in return, LG International is allocated all CER credits earned through the CDM projects, which it can then sell in the CER credit markets. We are entitled to a portion of the proceeds from such sales that exceed certain agreed levels. In July 2010, we became the first TFT-LCD manufacturer in the world to obtain validation from the CDM Executive Board with respect to our CDM project for SF6 decomposition. TÜV-SÜD, which is certified as a designated operational entity for CDM projects by the CDM Executive Board, verified our reductions in emissions during the period from August 2010 to December 2010, based on which UNFCCC issued to us CERs in the amount of 343,971 tonnes of CO2 equivalent, which were allocated to LG International. All of these CER credits were subsequently sold to a third party purchaser in December 2011.

Under the Framework Act on Low Carbon, Green Growth, the Korean government designated us in September 2010 as one of the companies that will be subject to greenhouse gas emission and energy consumption targets. Our greenhouse gas emission and energy usage statements for the years 2007 through 2010, which was verified by DNV Certification Co., Ltd., a government-designated third party certification agency, was submitted to the Korean government in May 2011. In September 2011, we received greenhouse gas emission and energy consumption targets, and we submitted our emission and energy reduction plan for 2012 to the Korean government at the end of 2011. We will submit greenhouse gas emission and energy usage statements for 2011 to the Korean government after certification by LRQ Certification Co., Ltd, a government-designated third party certification agency.

Operations at our manufacturing plants are subject to regulation and periodic monitoring 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. Expenditures related to such compliance may be substantial. Such expenditures 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 also have an internal monitoring system to control the use of hazardous substances in the manufacture of our products as we are committed to compliance with all applicable environmental laws and regulations, including European Union Restriction of Hazardous Substances, or RoHS, Directive 2002/95/EC, which took effect on July 1, 2006 in the European Union and restricts the use of certain hazardous substances in the manufacture of electrical and electronic equipment. Furthermore, we are operating a “green purchasing system,” which excludes the hazardous materials at the purchasing stage. This system has enabled us to comply with various environmental legislations of hazardous substances, including the European Union RoHS. Moreover, we participated in reforming IEC 62321, a RoHS international testing standard, by including a halogen-free combustion ion chromatography method in our committee draft that we submitted to the International Electrotechnical Commission in June 2010.

We have been certified by the Korean Ministry of Environment as a “Green Company”, with respect to our environmental record for P1 and our module production plant in Gumi since 1997, with respect to our operations at P2 and P3 since 2006, and with respect to our operations at P4, P5 and P61 since 2008. In addition, we currently have ISO 14001 certifications with respect to the environmental record for P1 through P83 facilities, our Gumi and Paju module production plants, as well as our module production plants in Nanjing and Guangzhou, China. Furthermore, we have received KS 7001 and 7002 certifications from the Korean Standards Service Network for our Green Management System for P1 through P83 facilities and our Gumi and Paju module production plants.

Joint Ventures

We consider joint ventures an important part of our business, both operationally and strategically. We have used joint ventures to enter into new geographic markets, in particular China, to gain new customers and/or strengthen positions with existing customers and to procure certain components and raw materials. When entering new geographic markets where we do not have substantial local experience and infrastructure, teaming up with a local partner can reduce capital investment by leveraging the pre-existing infrastructure of local partners. In addition, local partners in these markets can provide knowledge and insight into local customs and practices and access to local suppliers of raw materials and components. All of these advantages can reduce the risk, and thereby enhance the prospects for the success, of an entry into a new geographic market. If the partner of the joint venture already has an established customer base, it can also be an effective means to acquire such new customers. Joint venture arrangements also allow us to access technology we would otherwise have to develop independently, thereby reducing the time and cost of development. They can also provide the opportunity to create synergies and applications of technology that would not otherwise be possible.

In recent years, we have pursued a number of joint venture initiatives. For example:

•

In November 2009, we entered into two joint venture agreements with Top Victory Investments Limited, a wholly-owned subsidiary of TPV Technology Ltd., to establish two joint venture companies, L&T Display Technology (Xiamen) Limited and L&T Display Technology (Fujian) Limited. We invested US$6.1 million in return for a 51.0% equity interest in L&T Display Technology (Xiamen) Limited and US$8.7 million in return for a 51.0% equity interest in L&T Display Technology (Fujian) Limited. L&T Display Technology (Xiamen) Limited manufactures and sells TFT-LCD televisions and L&T Display Technology (Fujian) Limited manufactures and sells monitors including multi-function monitors. Both joint venture companies also conduct research and development activities and provide after sales services for their products.

•

In December 2009, we and certain of our affiliates established a joint venture company, Global OLED Technology LLC, which acquired the OLED business of Kodak in an asset transaction. We invested (Won)72.3 billion in return for a 49.0% equity interest in the joint venture company. In June 2010, we sold (Won)19.0 billion worth of our equity interest in the joint venture company, which reduced our equity interest to 32.7%.

•

In June 2010, we entered into a joint venture agreement with Iriver Ltd. to establish L&I Electronic Technology (Dongguan) Ltd. in Dongguan, China. We invested US$2.6 million in return for a 51.0% equity interest in the joint venture company. L&I Electronic Technology specializes in e-book manufacturing.

•

In August 2010, we entered into a joint venture agreement with Everlight Electronics Co., Ltd. and AmTRAN Technology Co., Ltd., to establish Eralite Optoelectronics (Jiangsu) Co., Ltd. We invested US$4 million in return for a 20.0% equity interest in the joint venture company. Eralite Optoelectronics specializes in LED packaging and manufacturing.

•

In November 2010, we entered into a joint venture agreement with Compal Electronics, Inc., a Taiwanese company, and established LUCOM Display Technology (Kunshan) Ltd. in Kunshan, China. We invested US$2.3 million and acquired a 51.0% equity interest in LUCOM Display Technology (Kunshan) Ltd. In February and April 2011, we invested an additional US$3.1 million and US$2.3 million, respectively, in LUCOM Display Technology (Kunshan) Ltd., but the additional investments did not change our percentage interest in LUCOM Display Technology (Kunshan) Ltd. LUCOM Display Technology specializes in notebook borderless hinge-up display manufacturing.

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.

Subsidiaries

The following table sets forth summary information for our subsidiaries as of December 31, 2011:


Subsidiary	Main Activities	Jurisdiction of Incorporation		Date of Incorporation	Total Equity Investment		Percentage of Our Ownership Interest			Percentage of Our Voting Power
LG Display Taiwan Co., Ltd.	Sales		Taiwan	April 1999	NT$	115,500,000		100	%		100	%

LG Display America, Inc.⁽¹⁾	Sales		U.S.A.	September 1999	US$	185,000,000		100	%		100	%

LG Display Japan Co., Ltd.	Sales		Japan	October 1999	¥	95,000,000		100	%		100	%

LG Display Germany GmbH	Sales		Germany	November 1999	€	960,000		100	%		100	%

LG Display Nanjing Co., Ltd.⁽²⁾	Manufacturing and sales		China	July 2002	RMB	2,552,191,315		100	%		100	%

LG Display Shanghai Co., Ltd.	Sales		China	January 2003	RMB	4,138,650		100	%		100	%

LG Display Poland Sp. zo.o.	Manufacturing and sales		Poland	September 2005	PLN	410,327,700		80	%		80	%

LG Display Guangzhou Co., Ltd.	Manufacturing and sales		China	June 2006	RMB	895,904,754		90	%		90	%

LG Display Shenzhen Co., Ltd.	Sales		China	August 2007	RMB	3,775,250		100	%		100	%

LG Display Singapore Pte. Ltd.	Sales		Singapore	January 2009	SG$	1,400,000		100	%		100	%

LG Display Yantai Co., Ltd	Manufacturing and sales		China	April 2010	RMB	273,048,000		100	%		100	%

L&T Display Technology (Xiamen) Ltd.	Manufacturing and sales		China	January 2010	RMB	41,785,824		51	%		51	%

L&T Display Technology (Fujian) Ltd.	Manufacturing and sales		China	January 2010	RMB	59,197,026		51	%		51	%

L&I Electronic Technology (Dongguan) Ltd.	Manufacturing and sales		China	September 2010	RMB	17,062,560		51	%		51	%

Image & Materials, Inc.⁽³⁾	Manufacturing and sales		Korea	May 2006	(Won)	40,999,919,576		100	%		100	%

LUCOM Display Technology (Kunshan) Ltd.⁽⁴⁾	Manufacturing and sales		China	December 2010	RMB	50,353,677		51	%		51	%

LG Display USA Inc.	Manufacturing and sales		U.S.A.	October 2011	US$	10,920,000		100	%		100	%

LG Display Reynosa S.A. de C.V.	Manufacturing		Mexico	November 2011	MXN	111,998,058		100	%		100	%

(1)	In June 2011, we made an additional investment of US$80 million in LG Display America, Inc.

(2)	In July 2010, LG Electronics (Nanjing) Plasma was acquired by, and merged into, LG Display Nanjing Co., Ltd. In January and June 2011, we made additional investments of RMB 84 million and RMB 214 million in LG Display Nanjing Co., Ltd, respectively.

(3)

In November 2010, we acquired a 100% equity interest in Image & Materials, Inc., a company that develops and manufactures e-book deposition equipment components, at a purchase price of (Won)35 billion. In each of June 2011 and September 2011, respectively, we invested an additional (Won)3.0 billion in Image & Materials, Inc.

(4)	In February and April 2011, we made additional investments of RMB 20 million and RMB 15 million in LUCOM Display Technology (Kunshan) Ltd, respectively.

Item 4.C.

Organizational Structure

These matters are discussed under Item 4.B. where relevant.

Item 4.D.

Property, Plants and Equipment

Current Facilities

We currently operate a total of twelve panel fabrication facilities, including expansions to certain facilities (P1 through P83, located in our Display Clusters in Gumi and Paju, Korea and AP2, located in our Paju Display Cluster). Recent expansions that are currently in operation include P61, an expansion to our P6 fabrication facility, that commenced mass production in April 2009 and P82 and P83, expansions to our P8 fabrication facility, that commenced mass production in May 2010 and March 2011, respectively. Our AP2 facility, where we manufacture display panels using LTPS technology, began mass production in July 2010. We also currently operate module facilities located in China (Nanjing, Guanzhou and Yantai), Korea (Gumi and Paju), Poland (Wroclaw) and Mexico (Reynosa).

The following table sets forth the size, primary use and capacity of our fabrication facilities and the size of our research and development facility and assembly facilities.


Facility	Generation⁽¹⁾		Gross Floor Area (in square meters)		Input Substrates Size (in mm)/ Mass Production Commencement	Nominal TFT Capacity as of December 31, 2011 (in input substrates per month)⁽²⁾		Primary Size of Panels Produced or Other Activity
P1		2		38,838	370 x 470 September 1995		42,000	3.47”, 2.6”, 10.4”

P2		3.5		71,149	590 x 670 December 1997		84,000	7.0”, 4.3”, 3.2”

P3		4		71,149	680 x 880 July 2000		111,000	9.7”, 7.0”, 2.4”

P4		5		93,278	1,000 x 1,200 March 2002		147,000	14.0”, 13.3”, 17.3”

P5		5		93,278	1,100 x 1,250 May 2003		166,000	24.0”, 13.3”, 15.6”

P61		6		288,602	1,500 x 1,850 August 2004		190,000	21.5”, 37.0”, 9.7”

P7		7		310,136	1,950 x 2,250 January 2006		196,000	42.0”, 27.0”, 19.0”

P81		8		172,083	2,200 x 2,500 March 2009		116,000	55.0”, 32.0”, 23.0”

P62		6		101,607	1,500 x 1,850 April 2009		63,000	15.6”, 20.0”, 18.5”

P82		8		172,083	2200 x 2500 May 2010		133,000	32.0”

P83		8		78,536	2,200 x 2,500 March 2011		64,000	32.0”, 47.0”

AP2		4		86,042	730 x 920 July 2010		68,000	LTPS panels and backplanes for AMOLED

R&D Center				69,857

Gumi assembly facility				163,405	January 1995

Nanjing assembly facility				171,068	May 2003

Paju assembly facility				223,664	November 2005

Wroclaw assembly facility				106,928	March 2007

Guangzhou assembly facility				32,948	December 2007

Yantai assembly facility				78,285	June 2010

Reynosa assembly facility				76,129	March 2012

(1)

Based on internal reference to evolutions in facility design, material flows and input substrate sizes. There are several definitions of “generations” in the TFT-LCD industry. There has been no consensus in the TFT-LCD industry on a uniform definition. References to fab generations made in this annual report are based on our current definition of generations as indicated in the table below.

Substrate Sizes (in millimeters)

Gen 2

Gen 3

Gen 4

Gen 5

Gen 6

Gen 7

Gen 8

360 x 465

550 x 650

680 x 880

1,000 x 1,200

1,500 x 1,800

1,870 x 2,200

2,200 x 2,500

370 x 470

590 x 670

730 x 920

1,100 x 1,250

1,500 x 1,850

1,950 x 2,250

400 x 500

600 x 720

1,100 x 1,300

620 x 750

1,200 x 1,300

650 x 830

LG Display

370 x 470

590 x 670

680 x 880

1,000 x 1,200

1,100 x 1,250

P61

1,500 x 1,850

1,950 x 2,250

P81

2,200 x 2,500

P62

1,500 x 1,850

P82

2,200 x 2,500

P83

2,200 x 2,500

AP2

730 x 920

(2)	Reflects processing capacity for TFT glass substrates only. All of our fabs except P1 and AP2 have the capacity to process both TFT and color filter substrates.

Expansion Projects

We are currently constructing P98, our new eighth generation fabrication facility, and we expect mass production to commence at P98 in the second quarter of 2012. We are currently in the planning stages for the construction of an eighth-generation panel fabrication facility in Guangzhou, China, for which we received final approval from the Chinese government in November 2010. In addition, in January 2011, we signed a memorandum of understanding with Gumi City to extend administrative support for our plans to invest (Won)1.35 trillion and expand our production facilities over the next five years in Gumi, Korea.

We expect that our total capital expenditures on a cash out basis to be approximately (Won)4 trillion in 2012. This amount is subject to periodic assessment, and we cannot provide any assurance that this amount may not change materially after assessment. We may undertake further expansion projects in the future with respect to our existing facilities as our overall business strategy may require.

Prior to January 16, 2009, the construction of factories exceeding a certain size was prohibited in designated areas around Seoul, such as Paju, under the Presidential Decree of the Industrial Cluster Development and Factory Establishment Act. Due to such prohibition, we had relied on an exemption available to companies whose “foreign equity interest” equals or exceeds 30% to construct the facilities at our Paju Display Cluster. On January 16, 2009, the Presidential Decree was amended to permit the construction or expansion of factories in such designated areas if (i) the purpose of the factory is to manufacture certain equipment, such as audiovisual equipment, and (ii) the factory is located in an area that has been designated as an “industrial complex area” under Korean law. On August 5, 2009, the Presidential Decree was further amended and condition (i) above was removed and is no longer required to be satisfied. Our Paju Display Cluster meets the remaining criterion, and we may construct new facilities and make additional expansions at our Paju Display Cluster without relying on the exemption available to companies whose “foreign equity interest” equals or exceeds 30%.

Item 4A.

UNRESOLVED STAFF COMMENTS

We do not have any unresolved comments from the U.S. Securities and Exchange Commission staff regarding our periodic reports under the Exchange Act.

Item 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Item 5.A.

Operating Results

Overview

Our results of operations are affected principally by overall market conditions, our manufacturing productivity and costs, and our product mix.

Market Conditions

The industry in which we operate is affected by market conditions that are often outside the control of individual manufacturers. Our results of operations might fluctuate significantly from period to period due to market factors, such as seasonal variations in consumer demand, surges in production capacity by competitors and changes in technology. Over the past decade, our industry has grown significantly as a result of cost reductions and product improvements that stimulated consumer demand and supported the technology substitution of traditional CRT-based displays for TFT-LCD panels. According to DisplaySearch, unit sales across the TFT-LCD industry grew from 44 million units in 2001 to 703 million units in 2011. Market revenue grew from US$11 billion to US$74 billion during the same period, showing a compounded annual growth rate of 21%, according to the same source.

While the industry has grown rapidly, it has also experienced business cycles with significant and rapid price declines from time to time. Historically, TFT-LCD manufacturers have increased display area fabrication capacity rapidly. Capacity expansion occurs especially rapidly when several manufacturers ramp-up new factories at the same time. During such surges in the rate of supply growth, our customers are able to exert downward pricing pressure, leading to sharp declines in average selling prices and significant fluctuations in our gross margin. In addition, regardless of relative capacity expansion, we expect average selling prices of our existing products will decline as the cost of manufacturing declines due to technology advances and component cost reductions. Conversely, constraints in the industry supply chain or increased demand for new technology products have led to increased prices for TFT-LCD panels in some past periods, most recently in 2010. According to DisplaySearch, the average selling price of TFT-LCD panels that are nine inches or larger, increased by approximately 6% from US$122 in 2009 to US$129 in 2010, primarily as a result of an increase in sales of large-sized television panels despite the increase in production capacity of TFT-LCD manufacturers which resulted in an increased supply of TFT-LCD panels in 2010. In 2011, however, the industry saw a general decrease in the average selling price of TFT-LCD panels that are nine inches or larger due to, among other reasons, overcapacity in the industry and depressed consumer demand due to continued difficulties in the global economy, increased consumer demand for tablet personal computers, which use smaller TFT-LCD panels relative to other TFT-LCD products and which therefore command lower average selling prices, as well as further advancement along the technology lifecycle that tends to erode premiums. According to DisplaySearch, the average selling price of TFT-LCD panels that are nine inches or larger decreased by approximately 16% from US$129 in 2010 to US$106 in 2011, primarily as a result of excess supply in the industry.

Our product cost and price vary with the product display area to a significant extent. 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, including small panels for applications other than computers or televisions, can fluctuate significantly. Our average selling price per panel of panels used in televisions, notebook computers and desktop monitors decreased by 5.6% from (Won)148,246 per panel in 2009 to (Won)140,017 in 2010 and further decreased by 20.2% to (Won)111,775 (US$96) in 2011.

As discussed further under “—Operating Results”, the sharp decrease in the average selling price of our products in 2011 compared to 2010 was primarily caused by the increased downward pressure affecting TFT-LCD products generally, which in turn resulted from overcapacity in the industry relative to the demand for such products, which was negatively impacted by the global economic difficulties in 2011. In addition, the proportion of smaller-sized TFT-LCD panels in our product mix increased in 2011 compared to 2010, due in part to an increase in unit sales of display panels for tablet personal computers and mobile devices, which use smaller-sized TFT-LCD panels relative to large-sized TFT-LCD products such as large-sized television panels and therefore command lower average selling prices, and a decrease in unit sales of large-sized television panels in 2011 compared to 2010. The appreciation of the Korean Won against the U.S. dollar in 2011 compared to 2010 also contributed to the decrease in our average selling prices in 2011 compared to 2010 because the appreciation of the Korean Won tends to reduce the selling prices in Korean Won terms. Furthermore, given where we are in the technology cycle of some of the TFT-LCD technologies, we have experienced greater erosions in the premiums of some of our products based on such TFT-LCD technologies, which were not sufficiently offset by the higher premiums generated by our display products based on newer technologies.

We strive to mitigate the effect of industry cyclicality and the resulting price fluctuations by planning capacity expansions and capacity allocations, or shifting our product mix, to capture premium prices in specific emerging product categories. For example, in the face of industry-wide overcapacity, we have tried to carefully balance the need to scale back our production by lowering the utilization rate of some of our facilities with respect to certain products, while carefully selecting and pursuing areas of expansion in anticipation of future growth with respect to certain other products. In July 2010, we started to scale back our production by lowering our utilization rates in response to industry-wide overcapacity issues. Since the end of 2011, there has been a modest increase in industry-wide demand for display products, resulting primarily from channel inventory replenishment, in response to which we have been adjusting our utilization rates to meet the increase in demand. However, we cannot provide any assurance that the recent increase in demand reflects any improvement in general market conditions for display panels or that it can be sustained. While we continue to monitor market conditions and adjust our production levels, we have also been proceeding with the construction of new fabrication facilities and expansions to existing facilities that are important to our growth strategy. For example, P83, the second expansion to our P8 fabrication facility, started mass production in March 2011, and we are currently proceeding with the construction of P98, our new eighth-generation fabrication facility, which is expected to commence mass production in the second quarter of 2012. We are currently in the planning stages for the construction of an eighth-generation panel fabrication facility in Guangzhou, China, for which we received final approval from the Chinese government in November 2010. In addition, in January 2011, we signed a memorandum of understanding with Gumi City to extend administrative support for our plans to invest (Won)1.35 trillion and expand our production facilities over the next five years in Gumi, Korea.

In addition, we are vigorously pursuing our strategy to develop differentiated 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 recently allocated greater amounts of our resources to the development and production of FPR 3D television panels, public display panels, display panels utilizing AH-IPS technology for various tablet personal computers, smartphones and other applications and hinge-up display products for notebook computers. In addition, with the recent unveiling of our 55-inch OLED television panel, we intend to deploy greater resources into OLED display panels to establish an early competitive edge in the market. We expect to commence mass production of OLED panels primarily for use in televisions in the second half of 2012.

Another key aspect of our strategy is to foster close cooperation with our customers and build on our strategic relationships with many of our key suppliers. Success of a new product depends on, among other things, working closely with our customers to gain insights into their product needs and to understand general trends in the market. At the same, we often work with our equipment suppliers to design equipment that can enhance the efficiency of our production processes for such new products.

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 fabs 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 fabs as of the dates indicated:


Fabrication Facility	Mass Production Commencement	Input Substrates Size (in millimeters)		Initial Design Capacity (in input substrates per month)		Year-end Input Capacity⁽¹⁾
Fabrication Facility	Mass Production Commencement	Input Substrates Size (in millimeters)				2009		2010		2011
						(in input substrates per month)⁽²⁾
P1	September 1995		370x470		30,000		77,000		60,000		42,000
P2	December 1997		590x670		60,000		108,000		90,000		84,000
P3	July 2000		680x880		60,000		138,000		122,000		111,000
P4	March 2002		1,000x1,200		60,000		160,000		154,000		147,000
P5	May 2003		1,100x1,250		60,000		182,000		175,000		166,000
P61	August 2004		1,500x1,850		90,000		205,000		205,000		190,000
P7	January 2006		1,950x2,250		90,000		200,000		200,000		196,000
P81	March 2009		2,200x2,500		83,000		120,000		123,000		116,000
P62	April 2009		1,500x1,850		60,000		60,000		62,000		63,000
P82	May 2010		2,200x2,500		83,000		N/A		107,000		133,000
P83	March 2011		2,200x2,500		68,000		N/A		N/A		64,000
AP2	July 2010		730x920		21,000		N/A		24,000		68,000

N/A = Not applicable.

(1)	Year-end input capacity is the total input substrates for the month that had the highest monthly input substrates during the fiscal year.

(2)	Reflects processing capacity for TFT glass substrates only. All of our fabs except P1 and AP2 have the capacity to process both TFT and color filter substrates.

Our cash outflows for capital expenditures amounted to (Won)3,761 billion in 2009, (Won)4,942 billion in 2010 and (Won)4,063 billion (US$3,507 million) in 2011. Such capital expenditures relate mainly to the construction of new fabrication facilities and expansions to existing fabrication facilities, including the construction and equipping of P62, P81, P82 and AP2 in 2009, P82, P83, P98 and AP2 in 2010 and P98 in 2011, as well as additional investments in our AP2 facility and the construction of module production facilities such as our module production plant in Reynosa, Mexico in 2011. Capital expenditures were also incurred for the acquisition of new equipment during the same period. Our depreciation expense as a percentage of revenue decreased from 13.9% in 2009 to 10.8% in 2010 but increased to 14.1% in 2011. The decrease in 2010 was primarily due to an increase in revenue in 2010 compared to 2009 as well as the significant decrease in depreciation expense for P7, for which the initial investment had been fully depreciated by December 2009. The increase in 2011 was primarily due to recognition of depreciation expenses for newly constructed facilities such as P83 and newly purchased equipment. The 4.8% decrease in revenue in 2011 compared to 2010 also contributed to the increase in our depreciation expense as a percentage of sales in 2011 compared to 2010. In 2012, we expect that our total capital expenditures on a cash out basis will amount to approximately (Won)4 trillion. Such amounts are subject to periodic assessment, and we cannot provide any assurance that such amounts may not change materially after assessment.

Since inception we have designed our fabs 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 fabs 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 fabs, thereby lowering costs. For example, our P81 facility reached an initial design capacity of 83,000 input sheets of glass substrate per month in the first quarter of 2010 and an expanded capacity of 123,000 input sheets of glass substrate per month in the third quarter of 2010. In addition, in recent years, we have substituted a portion of our equipment purchased from overseas vendors with purchases from local vendors to diversify our supply source and reduce costs. For example, in 2011, we purchased approximately 77% of our equipment for our facilities in Korea from local suppliers on an invoiced basis. We also fabricate certain components internally, such as color filters, which are one of the industry’s higher-cost components.

We also continue to make various process improvements at our fabs, 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 fabs without significant capital investment, thus enabling us to reduce fixed costs on a per panel basis. In addition, as we prepare for the mass production of large-sized OLED display products, such as the recently unveiled 55-inch OLED television panel, we have been making modifications to certain of our existing TFT-LCD fabrication lines to convert them into OLED panel fabrication lines. Because our large-sized OLED display panels employ Oxide TFT technology, which can be produced using manufacturing processes similar to the processes used to manufacture TFT-LCD panels, relatively little modification has been necessary, thereby reducing the costs of additional investments needed for the conversion of our fabrication lines.

Raw materials comprise the largest component of our costs. In 2011, approximately 90% of the raw materials procured for our facilities in Korea were sourced from local suppliers. To the extent overseas suppliers are able to provide raw materials at competitive prices, we intend to diversify our supplier base by also procuring raw materials from such overseas suppliers. We have also been able to leverage our scale and leading industry position to obtain competitive prices from our suppliers. Certain strategic decisions, such as fabricating our own color filters, one of the higher cost components, have also been important drivers of our cost control.

The size of our operations has also expanded considerably from 2002 to date, enabling us to benefit from economies of scale. As a result of the above factors, our cost of sales per square meter of net display area, which is derived by dividing total cost of sales by total square meters of net display area shipped, decreased by 6.9% from US$742 per square meter of net display area in 2009 to US$691 in 2010 and further decreased by 6.7% to US$645 in 2011.

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. For example, in order to capture the market for large-sized desktop monitors, we currently offer panels with full high-definition resolution ranging from 21.5 inches to 27 inches in a variety of formats. In addition to increases in sales of panels for computer products, we increased our sales of panels for televisions in 2009 and 2010 in response to a notable rise in consumer demand for televisions using TFT-LCD panels. We have the flexibility to increase the production and sales of 32-inch, 37-inch, 42-inch, 47-inch, 55-inch, 60-inch, 72-inch and 84-inch display panels as demand grows for these larger sizes. As a result of our product mix shift to target large-sized panels that command higher prices as well as an increase in overall sales, we were generally able to mitigate the negative effect of price declines in 2009 and 2010 in most of our product categories. Our average selling price per panel of panels used in televisions, notebook computers and desktop monitors decreased by 5.6% from (Won)148,246 per panel in 2009 to (Won)140,017 in 2010. In 2011, increased consumer demand for tablet personal computers, which use smaller display panels relative to other large-sized display products and which therefore command lower average selling prices, among other things, resulted in a decrease in the average selling price per panel of our panels used in televisions, notebook computers and desktop monitors by 20.2% from (Won)140,017 in 2010 to (Won)111,775 (US$96) in 2011.

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, certain types of tablet personal computers and industrial and other applications, including entertainment systems, automotives, portable navigation devices, e-books, digital photo displays and medical diagnostic equipment. Unit sales of our small and medium-sized display panels, or panels smaller than nine inches, for these applications increased from 161.5 million in 2009 to 188.1 million in 2010, principally as a result of increased demand for handheld application products, smartphones, digital photo displays and portable navigation devices. In 2011, unit sales of our small and medium-sized display panels for these applications decreased to 171.9 million units, largely due to decrease in demand for certain smaller-sized panels used in certain end products that are being, or have been, phased out of the market, including smaller-sized panels used in older mobile phones that have been increasingly superseded in the market by smartphones equipped with larger-sized panels.

The following table sets forth our revenue by product category for the periods indicated and revenue in each product category as a percentage of our total revenue:


	Year Ended December 31,
	2009					2010					2011
	Sales		%			Sales		%			Sales		Sales⁽⁵⁾		%
Panels for:	(in billions of Won and millions of US$, except for percentages)
Televisions⁽¹⁾	(Won)	10,965		54.7	%	(Won)	14,079		55.2	%	(Won)	11,579	US$	9,995		47.7	%
Notebook Computers⁽²⁾		3,568		17.8			4,424		17.3			5,120		4,420		21.1
Desktop Monitors⁽³⁾		4,640		23.2			5,390		21.1			4,975		4,294		20.5
Mobile and Other Applications⁽⁴⁾		816		4.1			1,575		6.2			2,540		2,192		10.4

Sales of Goods	(Won)	19,989		99.8	%	(Won)	25,468		99.8	%	(Won)	24,214	US$	20,901		99.7	%
Royalties and Others		49		0.2			44		0.2			77		67		0.3

Revenue	(Won)	20,038		100.0	%	(Won)	25,512		100.0	%	(Won)	24,291	US$	20,968		100.0	%

(1)	Includes television sets manufactured and sold by our joint venture company, L&T Display Technology (Xiamen) Limited.

(2)	Includes panels for certain types of tablet personal computers, as well as semi-finished products manufactured by LUCOM Display Technology (Kunshan) Ltd.

(3)	Includes desktop monitors manufactured and sold by our joint venture company, L&T Display Technology (Fujian) Limited.

(4)

Includes, among others, panels for handheld application products, including mobile phones, including smartphones, certain types of tablet personal computers, and industrial and other applications, including entertainment systems, automotives, portable navigation devices, e-books, digital photo displays and medical diagnostic equipment.

(5)

The following table sets forth our sales volume by product category for the periods indicated and as a percentage of our total panels sold:


	Year Ended December 31,
	2009					2010					2011
Panels for	Number of Panels		%			Number of Panels		%			Number of Panels		%
	(in thousands, except for percentages)
Televisions ⁽¹⁾		35,316		12.1	%		51,184		14.3	%		53,084		14.5	%
Notebook Computers ⁽²⁾		50,632		17.4			70,124		19.5			90,577		24.7
Desktop Monitors ⁽³⁾		43,384		14.9			49,336		13.7			50,247		13.7
Mobile and Other Applications ⁽⁴⁾		161,804		55.6			188,798		52.5			172,688		47.1

Total		291,136		100.0	%		359,442		100.0	%		366,596		100.0	%

(1)	Includes television sets manufactured and sold by our joint venture company, L&T Display Technology (Xiamen) Limited.

(2)	Includes panels for certain types of tablet personal computers, as well as semi-finished products manufactured by LUCOM Display Technology (Kunshan) Ltd.

(3)	Includes desktop monitors manufactured and sold by our joint venture company, L&T Display Technology (Fujian) Limited.

(4)

The following table sets forth our average selling price per panel by markets for the periods indicated:


	Average Selling Price⁽⁵⁾
	Year Ended December 31,
	2009		2010		2011 ⁽⁶⁾
Televisions ⁽¹⁾	(Won)	310,483	(Won)	275,066	(Won)	218,126	US$	188
Notebook Computers ⁽²⁾		70,469		63,088		56,526		49
Desktop Monitors ⁽³⁾		106,952		109,251		99,011		85
Mobile and Other Applications ⁽⁴⁾		5,043		8,342		14,709		13

(1)	Includes television sets manufactured and sold by our joint venture company, L&T Display Technology (Xiamen) Limited.

(2)	Includes panels for certain types of tablet personal computers, as well as semi-finished products manufactured by LUCOM Display Technology (Kunshan) Ltd.

(3)	Includes desktop monitors manufactured and sold by our joint venture company, L&T Display Technology (Fujian) Limited.

(4)

(5)	Average selling price for each market represents revenue per market divided by unit sales per market.

(6)

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, decreased by 2.9% from US$834 per square meter of net display area in 2009 to US$810 in 2010. In 2011, our average revenue per square meter of net display area shipped further decreased by 16.2% to US$679.

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.

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 amounted to (Won)133.3 billion, (Won)155.1 billion and (Won)96.9 billion (US$83.6 million) in 2009, 2010 and 2011, respectively. The amount of any such adjustment is recognized as cost of sales in the period the adjustment occurs.

Income Taxes

We have significant deferred income tax assets that may be used to offset taxable income in future periods. Our ability to utilize deferred income tax assets is dependent on our ability to generate future taxable income sufficient to utilize these deferred income tax assets before their expiration. Changes in estimates of our ability to realize our deferred tax assets are generally recognized in earnings as a component of our income tax (benefit) expense. At each reporting date, we review our deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected timing of reversals of existing temporary differences and expiration of unused tax losses and tax credits. If we are unable to generate sufficient future taxable income, or if we are unable to identify suitable tax planning strategies, the deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized. An increase in unrecognized deferred tax assets would result in an increase in our effective tax rate and could materially adversely impact our operating results. Conversely, if conditions improve and we determine that previously unrecognized deferred tax assets should be recognized because of changes in estimates in future taxable income or other conditions that affect our expected recovery of deferred tax assets, this would result in an increase in reported earnings in such period. As of December 31, 2011, unused tax credit carryforwards of (Won)209 billion (US$180 million) were not recognized as deferred tax assets since we do not believe that the realization would be probable while there was no unrecognized deferred tax asset as of December 31, 2010. If the unrecognized deferred tax assets are recognized as deferred tax assets in a future period, the effective tax rate for the period could decrease. In estimating projected future taxable income, we considered a variety of factors, including recent overcapacity issues in the TFT-LCD industry and the industry-wide response to scale back capacity expansion plans and adjust utilization rates, as well as trends in demand for display products.

Provisions –Warranty Obligations

We recognize a provision for warranty obligations based on the estimated costs that we expect to incur under our basic limited warranty for our products. This warranty covers defective products and is normally valid for eighteen months from the date of purchase. These liabilities are accrued when product revenue are recognized. Warranty costs primarily include raw materials and labor costs. Factors that affect our warranty liability include historical and anticipated rates of warranty claims on repairs, calculated based on our sales volume and cost per claim to satisfy our warranty obligation. There were no changes in assumptions or methods used which had a significant impact on the amount of warranty obligations from 2009 to 2011. 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 (Won)98.7 billion, (Won)121.8 billion and (Won)61.7 billion (US$53.5 million) as of December 31, 2009, 2010 and 2011, respectively. Warranty expenses increased from (Won)113.9 billion in 2009 to (Won)188.5 billion in 2010. The increase in warranty expenses in 2010 compared to 2009 was due to expenses incurred in 2010 in connection with defects found in certain of our products and an increase in sales volume in 2010 compared to 2009, partially offset by reductions in the per unit cost of warranty services resulting from a decrease in the historical and anticipated rates of warranty claims on repairs and our cost reduction efforts in general. In 2011, however, warranty expenses decreased to (Won)55.5 billion (US$47.9 million). The decrease in warranty expenses in 2011 compared to 2010 was due largely to the resolution of the product defects issue that had resulted in an increase in our warranty expense in 2010, a general decrease in the historical and anticipated rates of warranty claims, and continued reductions in the per unit cost of warranty services resulting from improvements in our product quality through the feedback of experiences gained through providing warranty services and our cost reduction efforts in general, partially offset by an increase in warranty expenses resulting from an increase in sales volume in 2011 compared to 2010.

Long-Lived Assets: Useful Lives, Valuation and Impairment

Property, plant and equipment are recorded at cost less accumulated depreciation over the estimated useful lives of the individual assets, with depreciation calculated on a straight line basis. The determination of an asset’s useful life and salvage value requires judgment based on our historical and anticipated use of the asset. Since 1999, all new machinery is being depreciated on a straight-line basis over four years.

We review the carrying amounts of long-lived assets and intangible assets at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the relevant asset’s recoverable amount is estimated. If circumstances require that a long-lived asset or asset group be tested for possible impairment, and the carrying value of such long-lived asset or asset group 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 asset group exceeds its estimated recovery value. The recoverable amount of a long-lived asset or asset group is the greater of its value in use and its fair value less costs to sell. Fair value is determined by employing a variety of valuation techniques as necessary, including discounted cash flow models, quoted market values and third-party independent appraisals. The determination of the value in use and the fair value requires our judgments and assumptions about future operations. The determination of an asset’s useful life, and the potential impairment of our long-lived assets could have a material effect on our results of operations. Such impairment losses amounted to less than (Won)1 billion in 2009 and there were no impairment losses in 2010. In 2011, such impairment losses amounted to approximately (Won)3.6 billion (US$3.1 million). Impairment loss is recognized as other operating expenses.

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, future pay inflation and expected rate of return on plan assets. 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. The expected rate of returns assumptions on plan assets are based on the portfolio as a whole and determined on the assumptions considering long-term historical returns and asset allocations. Due to changing market and economic conditions, the underlying key assumptions may differ from actual developments and may lead to significant changes in our defined benefit plan. We immediately recognize all actuarial gains and losses arising from defined benefit plans in retained earnings.

Provisions – Legal Proceedings

We are involved from time to time in certain routine legal proceedings and governmental investigations incidental to our business. See “Item 8.A. Consolidated Statements and Other Financial Information—Legal Proceedings.” We recognize liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. In determining whether a loss should be accrued, we evaluate, among other factors, the probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss, considering factors such as the nature of the litigation, claim, or assessment, the progress of the case and the opinions or views of legal counsel and other advisers. These estimates have been based on our assessment of the facts and circumstances at each reporting date and are subject to change based upon new information and intervening events. Revisions to estimates may significantly impact future net income. If any of the legal proceedings or governmental investigations results in an unfavorable outcome that exceeds our estimates, we may incur charges in excess of the recorded provisions for such proceeding or investigation and our results of operations or financial position may be materially adversely affected. We recognized provisions for litigation and claims amounting to (Won)263.5 billion, (Won)514.4 billion and (Won)222.7 billion (US$192.2 million) in the statements of financial position as of December 31, 2009, 2010 and 2011, respectively. Legal costs incurred in connection with loss contingencies are expensed as incurred.

Operating Results

The following table presents selected results of operations data and as a percentage of our sales for the periods indicated:


	Year Ended December 31,
	2009			%			2010			%			2011			2011⁽¹⁾			%
	(in billions of Won and in millions of US$, except for percentages)
Revenue	(Won)	20,038			100.0	%	(Won)	25,512			100.0	%	(Won)	24,291		US$	20,968			100.0	%
Cost of sales		(17,477	)		87.2			(21,781	)		85.4			(23,081	)		(19,923	)		95.0
Gross profit		2,561			12.8			3,731			14.6			1,210			1,044			5.0
Other income		1,366			6.8			1,483			5.8			1,224			1,057			5.0
Selling expenses		(713	)		3.6			(846	)		3.3			(728	)		(628	)		3.0
Administrative expenses		(325	)		1.6			(521	)		2.0			(564	)		(487	)		2.3
Research and development expenses		(408	)		2.0			(675	)		2.6			(681	)		(588	)		2.8
Other expenses		(1,470	)		7.3			(1,862	)		7.3			(1,384	)		(1,195	)		5.7
Results from operating activities		1,010			5.0			1,310			5.1			(924	)		(798	)		3.8
Finance income		333			1.7			241			0.9			207			179			0.9
Finance costs		(344	)		1.7			(288	)		1.1			(363	)		(313	)		1.5
Other non-operating loss, net		(6	)		0.0			(15	)		0.1			(17	)		(15	)		0.1
Equity income on investments, net		20			0.1			18			0.1			16			14			0.1
Profit (loss) before income tax		1,013			5.1			1,266			5.0			(1,081	)		(933	)		4.5
Income tax expense (benefit)		(105	)		0.5			106			0.4			(293	)		(253	)		1.2
Profit (loss) for the period		1,118			5.6			1,159			4.5			(788	)		(680	)		3.2
Other comprehensive income (loss) for the period, net of income tax		(67	)		0.3			19			0.1			31			27			0.1
Total comprehensive income (loss) for the period	(Won)	1,051			5.2	%	(Won)	1,178			4.6	%	(Won)	(757	)	US$	(653	)		3.1	%

(1)

Comparison of 2011 to 2010

Revenue

Our revenue decreased by 4.8% from (Won)25,512 billion in 2010 to (Won)24,291 billion (US$20,968 million) in 2011. Decreases in the average selling prices of panels for televisions and desktop monitors, which outpaced increases in the respective numbers of units sold, were the primary contributing factors to this decrease, offset in part by an increase in the number of notebook computer panel units sold that outpaced a decrease in its average selling price and an increase in the average selling price of mobile and other applications that outpaced a decrease in the number of units sold. In particular:

•

Demand for our large-sized television panels, comprising 42-inch and larger panels, grew in 2011, leading to an increase in the number of those panels sold in 2011 compared to 2010. In the case of 55-inch television panels, for example, the number of units sold increased by 81.8% from approximately 1.1 million panels in 2010 to approximately 2.0 million in 2011. However, the decrease in the average selling prices of our large-sized television panels in 2011 compared to 2010 outpaced the increase in sales volume over the same periods, resulting in a decrease in revenue from large-sized television panels sold in 2011 compared to 2010. As for our television panels that are less than 42-inch in size, both the sales volume and average selling prices decreased in 2011 compared to 2010.

•

While the average selling prices of our notebook computer panels generally decreased in 2011 compared to 2010, the number of units sold of 15.6-inch or smaller notebook computer panels, which category includes 9.7-inch, 15.6-inch and 14-inch panels constituting three of our top selling notebook computer panel models in 2011, increased by 31.5% from approximately 65.4 million panels in 2010 to 86.0 million in 2011.

•

Demand for our large-sized desktop monitor panels, comprising 21.5-inch and larger panels, grew in 2011, leading to an increase in the number of those panels sold in 2011 compared to 2010. In the case of 23-inch desktop monitor panels, for example, the number of units sold increased by 45.2% from approximately 6.2 million panels in 2010 to approximately 9.0 million in 2011. However, the decrease in the average selling prices of our large-sized desktop monitor panels in 2011 compared to 2010 outpaced the increase in sales volume over the same periods, resulting in a decrease in revenue from large-sized desktop monitor panels sold in 2011 compared to 2010. As for our desktop monitor panels that are less than 21.5-inch in size, both the sales volume and average selling prices decreased in 2011 compared to 2010.

•

Both the number of units sold and revenue attributable to sales of 3.54-inch, 7-inch and 4.3-inch panels in our mobile and other applications category, which constituted three of our top selling products in that category in 2011, increased in 2011 compared to 2010. In the case of 7-inch and 4.3-inch panels, average selling prices increased in 2011 compared to 2010, whereas in the case of 3.54-inch panels, average selling price decreased in 2011 compared to 2010. However, the increase in revenue attributable to sales of 3.54-inch panels resulting from an increase in the number of units sold in 2011 compared to 2010 more than offset the decrease in revenue resulting from the decrease in their average selling price over the same period. In contrast, the average selling prices and sales volume of certain other panels in our mobile and other applications category, such as smaller-sized panels that were used in older mobile models that have been increasingly superseded in the market by smartphones equipped with larger-sized panels, decreased in 2011 compared to 2010, resulting in lower overall sales volume in our mobile and other applications category in 2011 compared to 2010 and partially offsetting the increase in revenue in that category in 2011 compared to 2010.

In addition, the appreciation of the Korean Won against the U.S. dollar in 2011 compared to 2010 contributed to the reduction of our revenue in 2011 compared to 2010. The average exchange rate of the Korean Won against the U.S. dollar, calculated as the average of the noon buying rates as certified by the Federal Reserve Bank of New York for customs purposes on the last business day of each month in the calendar year, appreciated to (Won)1,105.2 for US$1.00 in 2011 from (Won)1,158.7 for US$1.00 in 2010. See “Item 3.A. Selected Financial Data—Exchange Rates.” Because the U.S. dollar is the primary foreign currency in which we make sales, with U.S. dollar denominated sales-related accounts receivable making up 86.9% and 97.5% of our total sales-related accounts receivable balance at the end of 2011 and 2010, respectively, the appreciation of the Won against the U.S. dollar in 2011 compared to 2010 has had the effect of reducing our revenue in Korean Won terms.

Revenue attributable to sales of panels for televisions decreased by 17.8% from approximately (Won)14,079 billion in 2010 to approximately (Won)11,579 billion (US$9,995 million) in 2011. The average selling price of panels for televisions decreased by 20.7% from approximately (Won)275,066 in 2010 to approximately (Won)218,126 (US$188) in 2011, whereas the total unit sales of panels for televisions increased by 3.7% from approximately 51.2 million panels in 2010 to approximately 53.1 million in 2011. The decrease in revenue attributable to sales of panels for televisions primarily reflected an overall decrease in average selling prices of panels for televisions due to increased downward price pressure affecting TFT-LCD products generally resulting from, among other factors, overcapacity in the industry relative to the demand for such panels, which have been negatively impacted by the global economic difficulties in 2011. In particular, both the average selling prices and number of unit sales of our television panels that are less than 42-inch in size decreased, which decrease was more prominent in some of our smaller-sized models than others. While the total unit sales of panels for televisions increased, due primarily to an increase in the number of unit sales of our large-sized television panels, comprising 42-inch or larger models, which in turn reflected the continued growth in market demand for larger-sized televisions, the additional revenue from increased number of unit sales was not sufficient to fully offset the overall decrease in revenue from sales of panels for televisions resulting from the decrease in the average selling prices.

Revenue attributable to sales of panels for notebook computers increased by 15.7% from approximately (Won)4,424 billion in 2010 to approximately (Won)5,120 billion (US$4,420 million) in 2011. The average selling price of panels for notebook computers decreased by 10.4% from approximately (Won)63,088 in 2010 to approximately (Won)56,526 (US$49) in 2011, whereas the total unit sales of panels for notebook computers increased by 29.2% from approximately 70.1 million panels in 2010 to approximately 90.6 million in 2011. The growth in revenue attributable to sales of panels for notebook computers primarily reflected continuing growth in demand for higher resolution and higher performance quality panels as well as certain types of notebook computer display panels, including display panels for tablet personal computers and hinge-up displays, which more than offset the decrease in the average selling price of panels for notebook computers in 2011. The continued increase in sales of panels for tablet personal computers in 2011 was one of the primary reasons for the increase in unit sales of panels for notebook computers.

Revenue attributable to sales of panels for desktop monitors decreased by 7.7% from approximately (Won)5,390 billion in 2010 to approximately (Won)4,975 billion (US$4,294 million) in 2011. The average selling price of panels for desktop monitors decreased by 9.4% from approximately (Won)109,251 in 2010 to approximately (Won)99,011 (US$85) in 2011, whereas the total unit sales of panels for desktop monitors increased by 1.8% from approximately 49.3 million panels in 2010 to approximately 50.2 million in 2011. The decrease in revenue attributable to sales of panels for desktop monitors primarily resulted from decreases in average selling prices due to the downward price pressures affecting TFT-LCD products generally as discussed above, which in the case of our desktop monitor panels, outpaced the increase in the number of units sold by us. Furthermore, demand for and revenue from smaller panels, comprising panels that are less than 21.5-inch in size, decreased in 2011, partially offset by increases in revenue from sales of our large-sized models, comprising panels that are 21.5-inch or larger in size, reflecting the continued shift in market demand toward larger-sized desktop monitors.

Revenue attributable to sales of panels for mobile and other applications increased by 61.3% from approximately (Won)1,575 billion in 2010 to approximately (Won)2,540 billion (US$2,192 million) in 2011. The increase in revenue was primarily attributable to a 76.3% increase in the average selling price of panels for mobile and other applications from approximately (Won)8,342 to (Won)14,709 (US$13) in 2011, offset in part by a 8.5% decrease in the total unit sales of panels for mobile and other applications sold from approximately 188.8 million panels in 2010 to approximately 172.8 million in 2011. The increase in the average selling price primarily reflected a shift in our product mix toward higher resolution and higher performance quality products for a variety of applications, particularly smartphones, certain types of tablet computers and e-books, some of which are highly innovative and customized to the particular needs of customer’s end products and therefore command a higher price premium. The decrease in the number of units sold in this category was largely due to decrease in demand for certain smaller-sized panels used in certain end products that are being, or have been, phased out of the market, including smaller-sized panels used in older mobile phones that have been increasingly superseded in the market by smartphones equipped with larger-sized panels.

In addition, our revenue attributable to royalty and others increased by 75.0% from (Won)44 billion in 2010 to (Won)77 billion (US$67 million) in 2011, due primarily to a 165.2% increase in royalty income included in revenue from (Won)23 billion in 2010 to (Won)61 billion (US$53 million) in 2011.

Cost of Sales

Cost of sales increased by 6.0% from (Won)21,781 billion in 2010 to (Won)23,081 billion (US$19,923 million) in 2011. As a percentage of revenue, cost of sales increased from 85.4% in 2010 to 95.0% in 2011. The increase in our cost of sales in 2011 was attributable primarily to increases in depreciation and amortization, resulting mainly from an increase in depreciation of newly constructed facilities and newly purchased equipment, in 2011 compared to 2010. In addition, an increase in raw materials and component costs, which remained relatively flat on a per unit basis but increased overall due to an increase in the number of panels sold, and an increase in labor costs also contributed to the increase in cost of sales in 2011 compared to 2010.

As a percentage of our total cost of sales, raw materials and component costs decreased slightly from 71.9% in 2010 to 69.2% in 2011, while labor costs and depreciation and amortization increased from 6.5% and 12.8%, respectively, in 2010 to 7.1% and 15.0%, respectively, in 2011.

Cost of sales per square meter of net display area, which is derived by dividing total cost of sales by total square meters of net display area shipped, decreased by 6.7% from US$691 per square meter of net display area in 2010 to US$645 in 2011.

Gross Profit and Gross Margin

As a result of the cumulative effect of the reasons explained above, our gross profit decreased by 67.6% from (Won)3,731 billion in 2010 to (Won)1,210 billion (US$1,044 million) in 2011. Our gross margin decreased from 14.6% to 5.0% over the same period primarily as a result of the decrease in average selling prices of our panels due to increased downward price pressure affecting TFT-LCD products generally, which in turn resulted from overcapacity in the industry relative to the demand for such products in 2011 compared to 2010, and the appreciation of the Korean Won against the U.S. dollar in 2011, which had the impact of reducing our U.S. dollar-denominated sales in Korean Won terms in 2011 compared to 2010. In addition, our gross margin was further negatively impacted by the increase in cost of sales per panel sold in 2011 compared to 2010, due primarily to reduced utilization rates of our facilities in 2011, which in turn resulted in the allocation of increased fixed costs over a proportionally smaller number of panels produced in 2011 relative to our expanded production capacity in 2011 compared to the number of panels produced in 2010 relative to our production capacity in 2010.

Selling and Administrative Expenses

Selling and administrative expenses decreased by 5.5% from (Won)1,367 billion in 2010 to (Won)1,292 billion (US$1,115 million) in 2011. As a percentage of revenue, our selling and administrative expenses decreased slightly from 5.4% in 2010 to 5.3% in 2011. The decrease in selling and administrative expenses in 2011 was attributable primarily to decreases in:

•

after-sales service expenses, resulting from the resolution of the product defects issue in 2010 that had resulted in an increase in our after-sales service expenses in 2010, a general decrease in the historical and anticipated rates of warranty claims and continued reductions in costs attributable to providing after-sales services and replacement parts for defective products sold to customers, partially offset by an increase attributable to an increase in our sales volume in 2011 compared to 2010; and

•

shipping costs, resulting primarily from a decrease in the proportion of air shipments in our total shipments and a decrease in the per unit shipping costs in general in 2011 compared to 2010.

Such decreases were offset in part by an increase in depreciation expense (which includes amortization expense) attributable primarily to an increase in capitalized development costs and an increase in advertising expense resulting from an increase in our advertising activities primarily in our overseas markets, including FPR 3D promotion activities especially in China and Brazil.

The following table shows selling and administrative expenses broken down by major components for each of the years in the two-year period ended December 31, 2011:


	Year Ended December 31,
	2010⁽¹⁾		2011
	(in billions of Won)
Salaries	(Won)	207	(Won)	203
Expenses related to defined benefit plan		14		20
Other employee benefit		55		63
Shipping costs		332		262
Fees and commissions		163		174
Depreciation		143		194
Taxes and dues		24		32
Advertising		88		136
After-sales service expenses		203		72
Others		138		136

Total	(Won)	1,367	(Won)	1,292

(1)	Components of selling and administrative expenses for the year ended December 31, 2010 have been reclassified to conform to the criteria of classification for the year ended December 31, 2011.

Research and Development Expenses

Research and development expenses increased by 0.9% from (Won)675 billion in 2010 to (Won)681 billion (US$588 million) in 2011. As a percentage of revenue, our research and development expenses increased slightly from 2.6% in 2010 to 2.8% in 2011. The increase in research and development expenses in 2011 was attributable to an increase in the average number of research and development employees.

Other Income (Expense)

Other income includes primarily foreign currency gains from operating activities and other expenses include primarily foreign currency losses from operating activities and expenses related to legal proceedings and claims. Our total net other expense decreased from (Won)379 billion in 2010 to (Won)160 billion (US$138 million) in 2011, primarily due to a decrease in expenses related to legal proceedings and claims from (Won)309 billion in 2010 to (Won)150 billion (US$129 million) in 2011 and a decrease in net foreign currency loss from (Won)85 billion in 2010 to (Won)29 billion (US$25 million) in 2011.

We recognized expenses related to legal proceedings and claims of (Won)309 billion and (Won)150 billion (US$129 million) in 2010 and 2011, respectively. These expenses include provisions with respect to certain loss contingencies relating to legal proceedings as well as settlement payments in connection with related claims. See “Item 8.A.—Consolidated Statements and Other Financial Information—Legal Proceedings” for a discussion of our legal proceedings and associated settlement payments.

Results from Operating Activities

As a result of the cumulative effect of the reasons explained above, our results from operating activities was a loss of (Won)924 billion (US$798 million) in 2011 compared to income of (Won)1,310 billion in 2010. Our operating margin was (3.8)% in 2011 compared to 5.1% in 2010.

Finance Income (Costs) and Other Non-Operating Income and Loss, Net

Finance income recognized in profit and loss includes primarily interest income and foreign currency gains. Finance cost recognized in profit and loss includes primarily interest expense and foreign currency loss.

Our total net finance costs increased by 231.9% from (Won)47 billion in 2010 to (Won)156 billion (US$135 million) in 2011. Our total net finance costs increased because of a decrease in finance income and an increase in finance expenses in 2011 compared to 2010.

Our finance income decreased by 14.1% from (Won)241 billion in 2010 to (Won)207 billion (US$179 million) in 2011 primarily attributable to a (Won)33 billion decrease in interest income primarily due to reduced average amounts of cash held in the form of time deposits in 2011 compared to 2010.

Our finance costs increased by 26.0% from (Won)288 billion in 2010 to (Won)363 billion (US$313 million) in 2011 primarily due to a (Won)45 billion increase in interest expense due to an increase in average interest rates applicable to our financial liabilities in 2011 compared to 2010 and a (Won)14 billion loss on impairment of investments in equity accounted investees in 2011 primarily due to impairment of investments in RPO, Inc. and Dynamic Solar Design Co., Ltd in 2011. We did not record a loss on impairment of investments in equity accounted investees in 2010.

Income Tax Expense (Benefit)

We recognized income tax benefit of (Won)293 billion (US$253 million) in 2011 compared to income tax expense of (Won)106 billion in 2010, resulting from a decrease in current tax expense and an increase in deferred tax benefit in 2011 compared to 2010. Our current tax expense decreased by 77.1% from (Won)253 billion in 2010 to (Won)58 billion (US$50 million) in 2011, and our deferred tax benefit increased by 138.8% from (Won)147 billion in 2010 to (Won)351 billion (US$303 million) in 2011, primarily as a result of recording a loss before income tax of (Won)1,081 billion in 2011 compared to a profit before income tax of (Won)1,266 billion in 2010. As a result, our effective income tax rate was (27.1)% in 2011 compared to 8.4% in 2010. As of December 31, 2011, unused tax credit carryforwards of (Won)209 billion (US$180 million) were not recognized as deferred tax assets because we did not believe realization of such amounts would be probable while there was no unrecognized deferred tax asset as of December 31, 2010.

Profit (Loss) for the Period

As a result of the cumulative effect of the reasons explained above, our loss for the period was (Won)788 billion (US$680 million) in 2011 compared to a profit of (Won)1,159 billion in 2010.

Comparison of 2010 to 2009

Revenue

Our revenue increased by 27.3% from (Won)20,038 billion in 2009 to (Won)25,512 billion in 2010. Increases in unit sales of our large-sized panels for televisions, notebook computers and desktop monitors and an increase in the average selling price of our panels used in mobile and other applications were the primary contributing factors to this increase, offset in part by a decrease in the average selling price of our panels used in televisions, notebook computers and desktop monitors. In particular:

•

unit sales of 32-inch panels for televisions increased by 44.3% from 13.4 million panels in 2009 to 19.3 million panels in 2010;

•

unit sales of 42-inch panels for televisions increased by 44.0% from 8.1 million panels in 2009 to 11.7 million panels in 2010;

•

unit sales of 9.7-inch panels for notebook computers increased more than a thousand-fold from 8,718 panels in 2009 to 10.9 million panels in 2010; and

•

unit sales of 21.5-inch panels for desktop monitors increased by 110.8% from 3.7 million panels in 2009 to 7.8 million panels in 2010.

The total unit sales of panels for televisions increased by 44.9% from approximately 35.3 million in 2009 to 51.2 million in 2010. Revenue attributable to sales of television panels increased by 28.4% from approximately (Won)10,965 billion in 2009 to (Won)14,079 billion in 2010. Growth in total sales of panels for televisions primarily reflected increased demand for larger- and wider-sized panels as well as for second television sets at home, which more than offset a decrease in the average selling price of our panels for televisions in 2010.

The total unit sales of panels for notebook computers increased by 38.5% from approximately 50.6 million in 2009 to 70.1 million in 2010. Revenue attributable to sales of panels for notebook computers increased by 24.0% from approximately (Won)3,568 billion in 2009 to (Won)4,424 billion in 2010. Growth in total sales of panels for notebook computers primarily reflected increased demand for higher resolution and higher performance quality panels as well as increased demand resulting from the development of new types of notebook computers including tablet personal computers, which more than offset a decrease in the average selling price of our panels for notebook computers in 2010. The significant increase in sales of our panels for tablet personal computers in 2010 was one of the primary reasons for the increase in unit sales of panels for notebook computers.

The total unit sales of panels for desktop monitors increased by 13.7% from approximately 43.4 million in 2009 to 49.3 million in 2010. Revenue attributable to sales of panels for desktop monitors increased by 16.2% from approximately (Won)4,640 billion in 2009 to (Won)5,390 billion in 2010. The increase in total sales of panels for desktop monitors is due primarily to increased demand for larger- and wider-sized panels for desktop monitors and, to a lesser extent, an increase in the average selling price of our panels for desktop monitors in 2010.

The effect of the overall increase in unit sales was partially offset by a decrease in the average selling price of panels for televisions, notebook computers and desktop monitors from 2009 to 2010 which in turn had a negative effect on our gross profit and gross margin. Our average selling price per panel of panels used in televisions, notebook computers and desktop monitors decreased by 5.6% from (Won)148,246 per panel in 2009 to (Won)140,017 in 2010. The average selling price of panels for televisions decreased by 11.4% from (Won)310,483 per panel in 2009 to (Won)275,066 in 2010, the average selling price of panels for notebook computers decreased by 10.5% from (Won)70,469 per panel in 2009 to (Won)63,088 in 2010. On the other hand, the average selling price of panels for desktop monitors increased by 2.1% from (Won)106,952 per panel to (Won)109,251 over the same period.

In 2010, a significant increase in revenue from sales of panels in our mobile and other applications category also contributed to the increase in our total revenue. Revenue attributable to sales of panels for mobile and other applications increased by 93.0% from approximately (Won)816 billion in 2009 to (Won)1,575 billion in 2010. The increase in revenue was primarily attributable to an increase in the average selling price of panels used in mobile and other applications and, to a lesser extent, an increase in total unit sales of panels for mobile and other applications. The average selling price of panels for mobile and other applications increased by 65.4% from (Won)5,043 per panel in 2009 to (Won)8,342 in 2010 primarily as a result of an increase in sales of panels for applications using medium to large-sized panels, including tablet personal computers. The total unit sales of panels for mobile and other applications increased by 16.7% from approximately 161.8 million in 2009 to 188.8 million in 2010, which also contributed to the increase in revenue.

In addition, our revenue attributable to royalty and others decreased by 10.2% from (Won)49 billion in 2009 to (Won)44 billion in 2010, due primarily to a 22.2% decrease in others, which includes sales of unused components and raw materials and unfinished products, from (Won)27 billion in 2009 to (Won)21 billion in 2010.

Cost of Sales

Cost of sales increased by 24.6% from (Won)17,477 billion in 2009 to (Won)21,781 billion in 2010. As a percentage of revenue, cost of sales decreased from 87.2% in 2009 to 85.4% in 2010. The increase in our cost of sales in 2010 was attributable primarily to increases in raw material costs, resulting from an overall increase in sales volume, especially of large-sized panels, in 2010 compared to 2009.

As a percentage of our total cost of sales, components and raw material costs increased slightly, from 71.3% in 2009 to 71.9% in 2010.

Cost of sales per square meter of net display area, which is derived by dividing total cost of sales by total square meters of net display area shipped, decreased by 6.8% from US$742 per square meter of net display area in 2009 to US$691 in 2010.

Gross Profit and Gross Margin

As a result of the cumulative effect of the reasons explained above, our gross profit increased by 45.7% from (Won)2,561 billion in 2009 to (Won)3,731 billion in 2010. Our gross margin increased from 12.8% to 14.6% over the same period primarily as a result of the higher capacity utilization rates at our plants in 2010 compared to 2009 as well as the greater decline in the unit cost of raw materials compared to the decline in the average selling price of our products in 2010. High capacity utilization rates allow us to allocate fixed costs over a greater number of panels produced and thereby increase our gross margin.

Selling and Administrative Expenses

Selling and administrative expenses increased by 31.7% from (Won)1,038 billion in 2009 to (Won)1,367 billion in 2010. As a percentage of revenue, our selling and administrative expenses increased slightly from 5.2% in 2009 to 5.4% in 2010. The increase in selling and administrative expenses in 2010 was attributable primarily to increases in:

•

depreciation expenses (which includes amortization expenses), resulting primarily from the amortization of certain intangible assets we have acquired through the acquisition of the TFT-LCD module division of LG Innotek in May 2010;

•

after-sales service expenses, resulting primarily from providing more services and replacement parts for defective products sold to customers as a result of an increase in our sales volume as well as from service expenses incurred in 2010 in connection with defects found in certain of our products;

•

salaries, resulting from an increase in the number of employees, particularly at the production lines of our new facilities (including P82 and AP2), as well as at our module production plants in China; and

•

advertising expenses, resulting from an increase in our advertising activities, primarily in overseas markets including China, India and Brazil.

Such increases were offset in part by a decrease in our shipping costs, resulting primarily from increased usage of more cost effective transportation methods to ship our products to our customers.

The following table shows selling and administrative expenses broken down by major components for each of the years in the two-year period ended December 31, 2010:


	Year Ended December 31,
	2009⁽¹⁾		2010⁽¹⁾
	(in billions of Won)
Salaries	(Won)	161	(Won)	207
Expenses related to defined benefit plan		8		14
Other employee benefit		41		55
Shipping costs		350		332
Fees and commissions		145		163
Depreciation		44		143
Taxes and dues		9		24
Advertising		60		88
After-sales service expenses		124		203
Others		96		138

Total	(Won)	1,038	(Won)	1,367

(1)	Components of selling and administrative expenses for the years ended December 31, 2009 and 2010 have been reclassified to conform to the criteria of classification for the year ended December 31, 2011.

Research and Development Expenses

Research and development expenses increased by 65.4% from (Won)408 billion in 2009 to (Won)675 billion in 2010. As a percentage of revenue, our research and development expenses increased from 2.0% in 2009 to 2.6% in 2010. The increase in research and development expenses in 2010 was attributable to an increase in research and development activities and from an increase in the number of research and development employees.

Other Income (Expense)

Other income includes primarily foreign currency gains from operating activities and other expenses include primarily foreign currency losses from operating activities and expenses related to legal proceedings and claims. Our total net other expense increased from (Won)104 billion in 2009 to (Won)379 billion in 2010, primarily due to net foreign exchange loss of (Won)85 billion in 2010 compared to net foreign exchange gain from operating activities of (Won)164 billion in 2009, which resulted primarily from a significant increase in net foreign exchange loss from operating activities incurred in 2010 as a result of currency fluctuations between the Korean Won and the U.S. dollar as well as between the Korean Won and the Japanese Yen.

We recognized expenses related to legal proceedings and claims of (Won)295 billion and (Won)309 billion, respectively, in 2009 and 2010. These expenses include provisions with respect to certain loss contingencies relating to legal proceedings as well as settlement payments in connection with related claims. See “Item 8.A.—Consolidated Statements and Other Financial Information—Legal Proceedings” for a discussion of our legal proceedings and associated settlement payments.

Results from Operating Activities

As a result of the cumulative effect of the reasons explained above, our results from operating activities increased by 29.7% from (Won)1,010 billion in 2009 to (Won)1,310 billion in 2010. Our operating margin increased slightly from 5.0% to 5.1% over the same period.

Finance Income (Costs) and Other Non-Operating Income and Loss, Net

Finance income recognized in profit and loss includes primarily interest income of financial assets, interest income of available-for-sale securities and foreign currency gain. Finance cost recognized in profit and loss includes primarily interest expense of financial liabilities, foreign currency loss, loss on redemption of debentures, loss on valuation of financial liabilities at fair value through profit or loss and loss on sale of trade accounts and notes receivable.

Our total net finance costs increased by 326.5% from (Won)11 billion in 2009 to (Won)47 billion in 2010. Our total net finance costs increased because the decrease in finance income in 2010 compared to 2009 outpaced the decrease in finance costs over the same period.

Our finance income decreased by 27.6% from (Won)333 billion in 2009 to (Won)241 billion in 2010 primarily attributable to a (Won)60 billion decrease in foreign currency gain primarily due to less fluctuation in the exchange rate between the Korean Won and the U.S. dollars in 2010 compared to 2009 and a (Won)30 billion decrease in interest income of financial assets measured at amortized cost due to a decrease in the average balance of deposits in banks in 2010 compared to 2009.

Our finance costs decreased by 16.1% in 2010 compared to 2009 primarily due to a (Won)106 billion decrease in loss on valuation of financial liabilities at fair value through profit or loss which was in turn primarily due to the put option exercise of certain holders of our US$550 million convertible bonds which reduced the principal amount of the convertible bond from US$550 million to US$66 million and a (Won)13 billion decrease in interest expense of financial liabilities measured at amortized costs which was in turn primarily due to the general decrease in interest rates in Korea from 2009 to 2010. Such decrease in finance costs were offset in part by a (Won)62 billion increase in foreign currency loss primarily due to an increase in Japanese Yen and Chinese Renminbi denominated borrowings in 2010 compared to 2009 and the general appreciating trends of both currencies against the Korean Won in 2010.

Income Tax Expense (Benefit)

We recognized income tax expense of (Won)106 billion in 2010 compared to income tax benefit of (Won)105 billion in 2009, primarily due to a (Won)253 billion increase in profit excluding income tax in 2010 compared to 2009, which led to a (Won)61 billion increase in income tax expense, a (Won)68 billion decrease in income tax credits in 2010 compared to 2009, as well as a (Won)61 billion increase in non-deductible items included in expenses related to legal proceedings and claims in 2010 compared to 2009. Our effective income tax rate increased by 18.7 percentage points from (10.3)% in 2009 to 8.4% in 2010 primarily attributable to the decrease in income tax credits and the increase in non-deductible items included in expenses related to legal proceedings and claims.

Profit for the Period

As a result of the cumulative effect of the reasons explained above, our profit for the period increased by 3.7% from (Won)1,118 billion in 2009 to (Won)1,159 billion in 2010.

Item 5.B.

Liquidity and Capital Resources

Our principal sources of liquidity have been net cash flows generated from our operating activities and debt and equity financing activities. We had cash and cash equivalents of (Won)818 billion, (Won)1,631 billion and (Won)1,518 billion (US$1,310 million) as of December 31, 2009, 2010 and 2011, respectively. We also had deposits in banks of (Won)2,500 billion, (Won)1,503 billion and (Won)815 billion (US$703 million), respectively, as of December 31, 2009, 2010 and 2011. Our primary use of cash has been to fund capital expenditures related to the expansion and improvement of our production capacity with respect to existing and newly developed products, including the construction and ramping-up of new, or in certain cases, expansions of existing, fabrication facilities and the acquisition of new equipment. We also use cash flows from operations for our working capital requirements and servicing our debt payments. We expect our cash requirements for 2012 to be primarily for capital expenditures and repayment of maturing debt.

As of December 31, 2011, we had current liabilities of (Won)9,911 billion (US$8,555 million), which exceeded our current assets of (Won)7,858 billion (US$6,783 million) by (Won)2,053 billion. As of December 31, 2009 and 2010, we had current assets of (Won)8,226 billion and (Won)8,840 billion, respectively, and current liabilities of (Won)6,495 billion and (Won)8,882 billion, respectively. The increase in net current liabilities in 2010 compared to 2009 was primarily attributable to a (Won)996 billion increase in other accounts payable mainly as a result of our active investments in our P8 and P98 facilities in 2010. The increase in net current liabilities in 2011 compared to 2010 was primarily attributable to a (Won)1,400 billion increase in other accounts payable mainly as a result of our active investments in our fabrication and other production facilities, including the construction of our P98 facility, as well as additional investments in our AP2 facility, in 2011, a (Won)821 billion increase in trade accounts and notes payable mainly as a result of larger amounts remaining payable at year end due to longer payment terms of the trade accounts and notes payable created in 2011 and increases in purchases of raw materials and components to meet increases in production levels since the end of 2011 as utilization rates of our facilities were adjusted upwards to meet a modest increase in demand resulting from channel inventory replenishment, a (Won)688 billion decrease in deposit in banks due to a general reduction in our cash levels in 2011 and a (Won)261 billion decrease in trade accounts and notes receivable, net caused mainly by reduced revenue and increased sales of trade accounts and notes receivables in 2011 compared to 2010 and appreciation of the Korean Won against the U.S. dollar at the end of 2011 compared to the end of 2010, partially offset by a (Won)1,206 billion decrease in current financial liabilities due primarily to repayment of short-term debt with cash on hand and proceeds from long-term debt and a (Won)102 billion increase in inventories. Our management has been constantly monitoring our working capital since the occurrence of such an increase in current liabilities. However, we have historically been able to satisfy our cash requirements from cash flows from operations and debt and equity financing and we believe that we will have sufficient working capital available to us, including in the form of debt, for our current requirements. We also issued domestic debentures in the aggregate principal amount of (Won)1,150 billion in 2011, proceeds from which have been used to satisfy our working capital requirements and redeem our short-term borrowings.

Our ability to satisfy our cash requirements from cash flows from operations and financing activities will be affected by our ability to maintain and improve our margins and, in the case of external financing, market conditions, which in turn may be affected by several factors outside of our control. Therefore, we re-evaluate our capital requirements regularly in light of our cash flows from operations, the progress of our expansion plans and market conditions. To the extent that we do not generate sufficient cash flows from our operations to meet our capital requirements, we may rely on other financing activities, such as external long-term borrowings and securities offerings, including the issuance of equity, equity-linked and other debt securities.

Our net cash provided by operating activities amounted to (Won)4,153 billion in 2009, (Won)4,884 billion in 2010 and (Won)3,666 billion (US$3,164 million) in 2011. The increase in net cash provided by operating activities in 2010 compared to 2009 was mainly due to an increase in cash collected from our customers as a result of an increase in sales volumes as well as from an increase in accounts receivables sold to financial institutions in 2010 compared to 2009. The increase in net cash provided by our operating activities in 2010 compared to 2009 was offset in part by a decrease in long-term advances received in 2010 compared to 2009, the increase in cash paid for purchases of components and raw materials due to our increased sales and related production volumes and the increase in cash paid as salaries resulting from an increase in the number of employees. The decrease in net cash provided by operating activities in 2011 compared to 2010 was mainly due to the recording of a loss in 2011 compared to a profit in 2010, a decrease in revenue in 2011 compared to 2010 which in turn led to a general decrease in cash collected from our customers, an increase in the volume of sales made on credit relative to sales made for cash payment in 2011 compared to 2010 and an increase in cash paid for cost of sales in 2011 compared to 2010. The decrease in net cash provided by our operating activities in 2011 compared to 2010 was offset in part by an increase in the amount of trade accounts and notes receivable sold to financial institutions in 2011 compared to 2010.

The cyclical market conditions that are characteristic of our industry, as well as the regular ramp-up of our new fabrication facilities and our cost reduction measures, contribute to the fluctuations in our inventory levels from period to period. In 2009, increased production capacity of our existing facilities as well as the commencement of mass production at P81 and P62 in 2009 contributed to a 46.7% increase in our inventory levels from year-end 2008. In 2010, a further increase in the production capacity of our existing facilities and the commencement of mass production at P82 and AP2 contributed to a 32.8% increase in our inventory levels from year-end 2009. In 2011, a further increase in the production capacity of our existing facilities and the commencement of mass production at P83 contributed to a 4.6% increase in our inventory levels from year-end 2010. Increases in our inventory levels in 2010 and 2011 were partially offset by the reduction of utilization rates of our facilities starting in July 2010 in response to market conditions. Inventories consisted of the following for the periods indicated:


	As of December 31,
	2009		2010		2011		2011⁽¹⁾
	(in billions of Won and millions of US$)
Finished goods	(Won)	763	(Won)	978	(Won)	922	US$	796
Work in process		544		612		772		666
Raw materials		229		422		458		395
Supplies		132		203		165		142

Total	(Won)	1,668	(Won)	2,215	(Won)	2,317	US$	1,999

(1)

Our net cash used in investing activities amounted to (Won)4,564 billion in 2009, (Won)4,515 billion in 2010 and (Won)3,494 billion (US$3,016 million) in 2011. Net cash used in investing activities primarily reflected the substantial capital expenditures we have made in connection with the expansion and improvement of our production capacity in recent years, mainly relating to construction of our new, or in certain cases, expansions of existing, fabrication facilities and acquisition of new equipment. These cash outflows from capital expenditures amounted to (Won)3,761 billion, (Won)4,942 billion and (Won)4,063 billion (US$3,507 million) in 2009, 2010 and 2011, respectively. We intend to fund our capital requirements associated with our construction projects, including the construction of P98, with cash flows from operations and financing activities, such as external long-term borrowings.

We currently expect that our total capital expenditures on a cash out basis will be approximately (Won)4 trillion in 2012, primarily to fund the construction of P98, and improvements to our existing facilities. However, our overall expenditure levels and our allocation among projects are subject to many uncertainties. We review the amount of our capital expenditures and may make adjustments from time to time based on cash flows from operations, the progress of our expansion plans and market conditions.

Our net cash used in financing activities amounted to (Won)117 billion in 2009, our net cash provided by financing activities amounted to (Won)408 billion in 2010 and our net cash used in financing activities amounted to (Won)278 billion (US$240 million) in 2011. The net cash used in financing activities in 2009 reflects primarily repayment and prepayment of Won denominated loans and debentures and the payment of dividends. The net cash provided by financing activities in 2010 reflects primarily the net proceeds from short-term borrowings and long-term debt (net of repayments), including the incurrence of Won denominated and foreign currency denominated debt, which were offset in part by the payment of dividends. Net cash used in financing activities in 2011 reflects primarily the repayment of foreign currency denominated short-term borrowings and, to a lesser degree, certain long-term debt and the payment of dividends. On March 13, 2009, we declared a cash dividend of (Won)179 billion to our shareholders of record as of December 31, 2008 and distributed the cash dividend to such shareholders on April 3, 2009. On March 12, 2010, we declared a cash dividend of (Won)179 billion to our shareholders of record as of December 31, 2009 and distributed the cash dividend to such shareholders on April 9, 2010. On March 11, 2011, we declared a cash dividend of (Won)179 billion to our shareholders of record as of December 31, 2010 and distributed the cash dividend to such shareholders on April 7, 2011. At our shareholders meeting on March 9, 2012, we did not declare a cash dividend to our shareholders.

We had a total of (Won)771 billion, (Won)1,213 billion and (Won)22 billion (US$19 million) of short-term borrowings outstanding as of December 31, 2009, 2010 and 2011, respectively. In 2010 compared to 2009, our short-term borrowings increased primarily due to an increase in our Japanese Yen denominated short-term borrowings, including banker’s usance and bank loans, used to pay for the purchase of certain equipments from Japanese suppliers. In 2011 compared to 2010, our short-term borrowings decreased primarily due to a decrease in our U.S. dollar, Japanese Yen and Chinese Renminbi denominated short-term borrowings, which in turn resulted from repayment of such borrowings by their respective maturity dates without incurring new short-term borrowings. The weighted average interest rate under the terms of our short-term borrowings was 1.53% as of December 31, 2011.

As of December 31, 2011, we maintained accounts receivable negotiating facilities with several banks for up to an aggregate amount of US$1,231 million. Our subsidiaries have also entered into various accounts receivable negotiating facilities. For further information regarding these facilities, please see Note 20 of the notes to our financial statements.

As of December 31, 2011, we had outstanding long-term debt including current portion and discounts on debentures in the amount of (Won)4,588 billion (US$3,960 million), primarily consisting of (Won)2,250 billion of Korean Won denominated debentures, US$350 million of U.S. dollar denominated debentures, ¥10 billion of Yen denominated debentures, US$1,025 million of U.S. dollar denominated long-term loans, RMB142 million of RMB denominated long-term loans, US$76 million of convertible bonds, €27 million of Euro denominated long-term loans, (Won)371 billion of Korean Won denominated long-term loans and ¥6 billion of Yen denominated long-term loans.

In April 2010, certain holders of our US$550 million convertible bonds due 2012 exercised their put option for an aggregate principal amount of US$484 million and were repaid at 109.75% of their principal amount. The remaining US$66 million of these convertible bonds were repaid in full upon their maturity on April 18, 2012 at 116.77% of their principal amount. The conversion price of the convertible bonds due 2012 was initially (Won)49,070 per share, but was adjusted to (Won)48,251 per share after the approval of a cash dividend of (Won)178.9 billion at the annual general meeting of shareholders on March 13, 2009, adjusted to (Won)48,075 per share after the approval of a cash dividend of (Won)178.9 billion at the annual general meeting of shareholders on March 12, 2010 and was further adjusted to (Won)47,892 per share after the approval of a cash dividend of (Won)178.9 billion at the annual general meeting of shareholders on March 11, 2011.

The terms of some of our long-term debt contain provisions that would trigger a requirement for early payment. The principal and interest under these obligations may be accelerated if there is a default, including defaults triggered by failure to comply with financial covenants and cross defaults triggered under our other debt obligations. We believe we were in compliance with the covenants under our debt obligations at December 31, 2011. For further information about our short- and long-term debt obligations as of December 31, 2011, see Note 14 of the notes to our financial statements.

As of December 31, 2011, we were obligated to guarantee the payment obligation of our Poland subsidiary in the amount of €27 million under a long-term credit facility that our Poland subsidiary entered into with a syndicate of banks. In addition, as of December 31, 2011, we were obligated to guarantee the payment obligation of LG Display America’s term loan credit facilities amounting to US$7 million from J.P. Morgan. We have also provided a payment guarantee with respect to L&T Display Technology (Xiamen) Limited’s accounts payable up to US$2 million as of December 31, 2011. Other than the foregoing, we have not entered into any other financial guarantees or similar commitments to guarantee the payment obligations of our subsidiaries or other third parties as of December 31, 2011.

Set forth below are the aggregate amounts, as of December 31, 2011, of our future contractual financing and licensing obligations under our existing debt and other contractual arrangements:


	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(in millions of Won)
Long-Term Debt, including current portion	(Won)	4,598,362	(Won)	848,338	(Won)	2,194,290	(Won)	1,552,741	(Won)	2,993
Fixed License Payment		73,020		18,255		36,510		18,255		—
Long-Term Other Payables		319,488		126,007		193,481		—		—

Total	(Won)	4,990,870	(Won)	992,600	(Won)	2,424,281	(Won)	1,570,996	(Won)	2,993

Estimates of interest payment based on contractual interest rates effective as of December 31, 2011	(Won)	510,192	(Won)	166,972	(Won)	248,718	(Won)	94,350	(Won)	152

In addition to fixed license payments listed above that we are obligated to make under certain technology license agreements, we also have continuing obligations to make cash royalty payments under our technology license agreements, the amount of which are generally determined based on a percentage of sales of our TFT-LCD products.

Expenses relating to our license fees and royalty payments under existing license agreements were (Won)31 billion in 2009, (Won)33 billion in 2010 and (Won)35 billion (US$30 million) in 2011, representing 7.6% of our research and development expenses in 2009, 4.9% in 2010 and 5.1% in 2011. We expect to make additional license fee payments as we enter into new technology license agreements from time to time with third parties.

Taxation

The effective statutory corporate income tax rate applicable to us is 22.0% (including local income surtax) for the first (Won)200 million of our taxable income and 24.2% (including local income surtax) for our taxable income in excess of (Won)200 million in 2011.

Tax Credits

We are entitled to tax credits relating to certain investment and technology and human resources development under the Special Tax Treatment Control Law. Specifically, we are entitled to a tax credit of 10% for our capital investments made on or before June 30, 2003, 15% for our capital investments made on or before December 31, 2004, 10% for our capital investments made on or before December 31, 2005, 7% for our capital investments made on or before December 31, 2008, 10% for our capital investments made on or before December 31, 2009, 7% for our capital investments made on or before December 31, 2010 and 5% for our capital investments made on or before December 31, 2011, each in proportion to the percentage of equity investment in us other than foreign direct equity investment.

In addition, pursuant to the Special Tax Treatment Control Law, we were entitled to a separate additional tax credit of 10% on the positive difference between the total amount of capital investments we made in 2009 and the average of the amount of capital investments we made in the three preceding fiscal years. 2010 was the last taxable year for companies, including us, to benefit from this tax credit, which has expired and is no longer available from 2011.

We are entitled to a tax credit of up to 40% of the increase in certain expenses incurred in connection with technology and human resources development over the average of such expenses during the previous four years.

Tax credits not utilized in the fiscal year during which the relevant investment was made may be carried forward over the next five years in the case of capital investments and five years in the case of investments relating to technology and human resources development. As of December 31, 2011, we had available deferred tax assets related to these credits of (Won)829 billion (US$716 million), which may be utilized against future income tax liabilities through 2016. In addition, we also had unused tax credit carryforwards of (Won)209 billion (US$180 million) for which no deferred tax asset was recognized.

Item 5.C.

Research and Development, Patents and Licenses, etc.

Research and Development

The display panel industry is subject to rapid technological changes. We believe that effective research and development is essential to maintaining our position as one of the industry’s leading technology innovators. Our research and development expenses amounted to (Won)408 billion in 2009, (Won)675 billion in 2010 and (Won)681 billion (US$588 million) in 2011, representing 2.0% of our revenue in 2009, 2.6% in 2010 and 2.8% in 2011.

We believe that the future trends for display products will include the widespread use of affordable large-sized flat panel products with higher performance qualities and the use of different types of display products for a variety of purposes, such as using flexible display panels in a range of products, using large-sized display panels for public display or advertising, and using small-sized panels for mobile devices. To meet the demands of the future trends, we have formulated a long-term research and development strategy aimed at enhancing the process, device and design aspects of the existing products and diversifying the use of display panels as new opportunities arise with the development of communication systems and information technology. The following are examples of products and technologies that have been developed through our research and development activities in recent years:

•

In 2009, we developed an 11.5-inch flexible electronic paper display with in cell touch screen function for use in e-books. In addition, we also developed a 19-inch electronic paper display, the world’s largest at the time.

•

In 2010, we developed a 47-inch full high-definition TFT-LCD panel that utilized FPR 3D and IPS technologies and polarized glasses for use in televisions. We received the Gold Award from the Society for Information Display, a display panel industry trade group, in recognition of the panel’s high quality 3D display imagery. In addition, we developed 47-inch and 55-inch full high-definition TFT-LCD panels that utilized TruMotion 480Hz driving technology for use in televisions. TruMotion 480Hz driving technology decreases motion blur by quadrupling the speed of the prior conventional frame rate of 120Hz.

•

In 2011, we developed a 4.5-inch high-definition TFT-LCD panel that utilized AH-IPS technology, which allows for wide viewing angles and high resolution imagery for use in 4G smartphones. In addition, we became the first display panel manufacturer to develop a 55-inch OLED display panel that utilized WOLED technology. We also developed a 55-inch full high-definition TFT-LCD panel with a super narrow bezel of just 5.3 mm for use in public displays. The super narrow bezel allows the public displays to be displayed alongside each other to create a large 165-inch multi-screen public display capable of producing large near seamless imagery. Furthermore, we developed a 3.9-inch wide VGA OLED panel that utilized On-Cell Touch technology. On-Cell Touch technology eliminates the need for a touch sensor overlay on the OLED panel by integrating the touch sensor directly into the OLED panel, which allows for a very thin and light touch sensitive display for use in products such as smartphones.

As the product lifecycle of display panels using certain of the existing TFT-LCD technology is approaching maturity, we plan to further focus on developing a next generation flat panel display technology, such as OLED, that can replace panels using such maturing technology, while also exploring new growth opportunities in the application of display panels, such as in tablet personal computers, smartphones, public displays and electronic paper 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. Therefore, 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. We also enter into joint research and development agreements from time to time with third parties for the development of technologies in specific fields. In addition, we belong to several display industry consortia, and we receive annual government funding to support our research and development efforts. In addition to these collaborations, we may form strategic technology alliances with the research arms of LG Electronics, as well as suppliers and equipment makers in “cluster” industries, that is, industries related to the TFT-LCD industry, in order to enhance our capability to develop new technology.

We have developed a research and development management system whereby we encourage our engineers to propose new projects freely and to implement rigorous evaluation criteria for each stage of project development. We select our projects primarily based on their feasibility and alignment with our research and development strategy, and we review the progress of all ongoing projects on a quarterly basis. As of December 31, 2011, we employed approximately 4,099 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 TFT-LCD 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 TFT-LCD manufacturing processes, products and applications. We hold a large number of patents in Korea and in other countries, including in the United States, China, Japan Germany, France, Great Britain and Taiwan. These patents will expire at various dates upon the expiration of their respective terms ranging from 2012 to 2030.

As part of our ongoing efforts to prevent infringements on our intellectual property rights and to keep abreast of critical technology developments by our competitors, we closely monitor patent applications in Korea, Japan and the United States. We also plan to initiate monitoring activities in China. We intend to continue to file patent applications, where appropriate, to protect our proprietary technologies.

We 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.

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 (Won)31 billion in 2009, (Won)33 billion in 2010 and (Won)35 billion (US$30 million) in 2011, representing 7.6% of our research and development expenses in 2009, 4.9% in 2010 and 5.1% in 2011. We recognized royalty income in the amount of (Won)29 billion in 2009, (Won)28 billion in 2010 and (Won)69 billion (US$60 million) in 2011.

We have a license agreement with each of Lemelson Foundation, Columbia University, Penn State University, Honeywell International, Honeywell Intellectual Properties, Plasma Physics Corporation and Fergason Patent Properties. Each license agreement provides for a non-exclusive license under certain patents relating to TFT-LCD technologies.

We entered into a license agreement with Semiconductor Energy Laboratory which provides for a non-exclusive license under certain patents relating to amorphous silicon TFT technology and LTPS AMOLED technologies. For IPS technologies, we entered into a non-exclusive license agreement with Merck & Co.

We entered into a cross-license agreement with each of Hitachi, HannStar and Hydis for a non-exclusive license under certain patents relating to display technologies.

We entered into separate cross-license agreements with each of NEC, Chunghwa Picture Tubes and AU Optronics in connection with the settlement of certain patent infringement lawsuits. Under the agreements, each party grants the other party a license under certain patents relating to TFT-LCD technologies.

We are licensed to use certain patents for our TFT-LCD products pursuant to a cross license agreement between Philips Electronics and Toshiba Corporation.

In addition to the above, we have also entered into license or cross-license agreements with other third parties in the course of our business operations in connection with certain patents which such third parties own or control.

As well as licensing key technologies from third parties, we aim to benefit from our own patents and other intellectual property rights by granting licenses to third parties from time to time in return for royalty payments. For example, we entered into a license agreement with Rockwell Collins Inc. under which we granted to Rockwell a non-exclusive, non-transferable license under our patents primarily for use in military applications.

Under several patent purchase and license agreements between us and third parties where we have sub-licensing rights, we are obligated to share with these third parties a portion of the license payments and/or royalty income received from any such sub-licensing. Our royalty income attributable to such sub-licensing rights after deducting amounts due to third parties under the patent purchase and license agreements accounted for less than 15% of our royalty income in 2011.

Item 5.D.

Trend Information

These matters are discussed under Item 5.A. and Item 5.B. above where relevant.

Item 5.E.

Off-Balance Sheet Arrangements

For a discussion of our off-balance sheet arrangements, please see “— Factoring and securitization of accounts receivable”, “— Letters of credit” and “— Payment guarantees” in Note 20 of the notes to our financial statements.

Item 5.F.

Tabular Disclosure of Contractual Obligations

Presented in Item 5.B. above.

Item 5.G.

Safe Harbor

See “Forward-Looking Statements.”

Item 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Item 6.A.

Directors and Senior Management

Board of Directors

Our board of directors has the ultimate responsibility for the management of our business affairs. Our articles of incorporation provide for a board consisting of between five and seven directors, more than half of whom must be outside directors. Our shareholders elect all directors at a general meeting of shareholders. Under the Korean Commercial Code, a representative director of a company established in Korea is authorized to represent and act on behalf of such company and has the power to bind such company. Sang Beom Han is currently our sole representative director.

The term of office for our directors shall not exceed the closing of the annual general meeting of shareholders convened in respect of the last fiscal year within three years after they take office. Our board must meet at least once every quarter, and may meet as often as the chairman of the board of directors or the person designated by the regulation of the board of directors deem necessary or advisable.

The tables below set forth information regarding our current directors and executive officers. The business address of all of the directors and executive officers is LG Twin Towers, 128 Yeoui-daero, Yeongdeungpo-gu, Seoul 150-721, Korea.

Our Outside Directors

Our current outside directors are set out in the table below. Each of our outside directors meets the applicable independence standards set forth under the rules of the Korean Commercial Code and also meets the applicable independence criteria set forth under Rule 10A-3 of the Exchange Act.


Name	Date of Birth	Position	First Elected/ Appointed	Term Expires	Principal Occupation
Tae Sik Ahn	March 21, 1956	Director	March 2010	March 2013	Professor, College of Business Administration and Graduate School of Business, Seoul National University

William Y. Kim	June 6, 1956	Director	February 2008	March 2014	Partner, Ropes & Gray LLP

Jin Jang	November 28, 1954	Director	March 2011	March 2014	Chair Professor, Department of Information Display, Kyung Hee University

Dong Il Kwon	February 5, 1957	Director	March 2012	March 2015	Professor, Department of Materials Engineering, Seoul National University

Our Non-Outside Directors

Our current non-outside directors are set out in the table below:


Name	Date of Birth	Position	First Elected/ Appointed	Term Expires	Principal Occupation
Sang Beom Han	June 18, 1955	Representative Director, Executive Vice President and Chief Executive Officer	March 2012	March 2015	—

Yu Sig Kang	November 3, 1948	Director	March 2011	March 2014	Vice Chairman, Representative Director, LG Corp.

James (Hoyoung) Jeong	November 2, 1961	Director, Executive Vice President and Chief Financial Officer	February 2008	March 2014	—

Our Executive Officers


Name	Date of Birth	Position	First Elected/ Appointed	Division/Department
Sang Beom Han	June 18, 1955	Representative Director, Executive Vice President and Chief Executive Officer	March 2012	—

James (Hoyoung) Jeong	November 2, 1961	Director, Executive Vice President and Chief Financial Officer	January 2008	—

Name	Date of Birth	Position	Elected/Appointed to Current Position	Division/Department
Hyun He Ha	December 18, 1956	Executive Vice President	January 2007	TV Business

Yu Seoung Yin	June 20, 1956	Executive Vice President	January 2009	IT Business

Sang Deog Yeo	December 3, 1955	Executive Vice President	January 2005	Mobile/OLED Business

Bock Kwon	August 4, 1954	Executive Vice President	January 2006	China Center

We and our subsidiaries do not have any service contracts with our directors providing for benefits upon termination of their employment with us or our subsidiaries.

Sang Beom Han has served as representative director since March 2012 and Chief Executive Officer since December 2011. Mr. Han also served as head of the TV Business Division, the Panel Center and as vice-president for our P5 facility and the Manufacturing Technology Center since joining LG Display in December 2001. Prior to joining LG Display, Mr. Han served as vice president of Hynix Semiconductor Inc. Mr. Han holds a Ph.D. degree in material science from Stevens Institute of Technology.

Yu Sig Kang has served as director since March 2011. Mr. Kang is currently the representative director and vice chairman of LG Corp. He also served as the head of LG Corp’s Restructuring Office. He holds a bachelor’s degree in business administration from Seoul National University.

James (Hoyoung) Jeong has served as director, executive vice president and chief financial officer since February 2008. Mr. Jeong also served as head of our Business Supporting Center. Prior to joining LG Display, he served as chief financial officer of LG Electronics. Mr. Jeong holds a bachelor’s degree in business administration from Yonsei University.

Tae Sik Ahn has served as outside director since March 2010. Mr. Ahn is currently a professor of the College of Business Administration and Graduate School of Business at Seoul National University and a member of the executive committee of the Asia-Pacific Management Accounting Association. He is also currently an outside director of Hyundai Elevator Co., Ltd. Mr. Ahn holds a bachelor’s degree in business administration from Seoul National University and a Ph.D. in accounting from the University of Texas, Austin.

William Y. Kim has served as outside director since February 2008. Mr. Kim is currently a partner at Ropes & Gray LLP. He also served as partner at Alston & Bird LLP and Dorsey & Whitney LLP. He is currently the chairman of the Scholarship and Rules Committee of the National Board of Directors of the Korean-American Scholarship Foundation. Mr. Kim holds a bachelor’s degree in science from the Catholic University of America, a J.D. degree from Georgetown University Law Center and an M.B.A. degree from the University of Michigan.

Jin Jang has served as outside director since March 2011. Mr. Jang is currently the chair professor of the Department of Information Display at Kyung Hee University. He also served as the vice president of The Korean Information Display Society. Mr. Jang holds a bachelor’s degree in physics from Seoul National University, and a master’s degree and a Ph.D. in physics from the Korea Advanced Institute of Science.

Dong Il Kwon has served as outside director since March 2012. Mr. Kwon is currently a professor of the Department of Materials Engineering at Seoul National University. Mr. Kwon holds a bachelor and master’s degree in Metallurgical Engineering from Seoul National University, and a Ph.D. in Materials Engineering from Brown University.

Hyun He Ha has served as executive vice-president since January 2007 and head of the TV Business Division since December 2011. Mr. Ha also served as head of the IT Business Division and vice president of the Corporate Strategy Department. Mr. Ha holds a bachelor’s degree in history from Pusan National University and an M.B.A. degree from Waseda University.

Yu Seoung Yin has served as executive vice-president since January 2009 and head of the IT Business Division Since December 2011. Mr.Yin also served as head of the China Center. Prior to joining LG Display, Mr. Yin served as executive vice-president of the Chairman’s Office at LG Holdings. Mr. Yin holds a bachelor’s degree in mass communication from Chung-Ang University.

Sang Deog Yeo has served as executive vice-president since January 2005. Mr. Yeo has also served as head of the Mobile/OLED Business Division since November 2009. Prior to joining LG Display, Mr. Yeo served as head of Monitor Product Development at LG Electronics. Mr. Yeo holds a bachelor’s degree in electronic engineering from Kyungpook National University.

Bock Kwon has served as executive vice-president since January 2006 and as head of the China Center since December 2011. Mr. Kwon also previously served as head of System Solution Division and the Corporate Strategy & Marketing Center. Prior to joining LG Display, Mr. Kwon worked for the worldwide sales division at LG Electronics. Mr. Kwon holds a bachelor’s degree in electrical engineering from Pusan National University.

Item 6.B.

Compensation

The aggregate remuneration and benefits-in-kind we paid in 2011 to our executive officers and our directors was (Won)6.1 billion. In addition, as of December 31, 2011, our accrued severance and retirement benefits to those directors and officers amounted to (Won)1.9 billion (US$1.6 million).

Our articles of incorporation provide for a long-term incentive plan to aid retention of executives and key staff and to provide an incentive to meet strategic objectives. See “Item 6.E. Share Ownership—Stock Options” below for information concerning our long-term incentive plan.

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 2011, we paid a premium of approximately US$1.5 million in respect of this insurance policy.

Item 6.C.

Board Practices

See “Item 6.A. Directors and Senior Management” above for information concerning the terms of office and contractual employment arrangements with our directors and executive officers.

Committees of the Board of Directors

We currently have three committees that serve under our board of directors:

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Audit Committee;

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Outside Director Nomination and Corporate Governance Committee; and

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Remuneration Committee.

Our board of directors may establish other committees if they deem them necessary.

Our board of directors will appoint each member of these committees except that candidates for the Audit Committee will first be elected by our shareholders at the general meeting of shareholders.

Audit Committee

Under Korean law and our articles of incorporation, we are required to have an Audit Committee. Our Audit Committee is comprised of three outside directors: Tae Sik Ahn, Jin Jang and William Y. Kim. The chairman is Tae Sik Ahn. Members of the Audit Committee are elected by our shareholders at the annual general meeting of shareholders and all members must meet the applicable independence criteria set forth under the rules and regulations of the Sarbanes-Oxley Act of 2002 and the Korean Commercial Code. The committee reviews all audit and compliance-related matters and makes recommendations to our board of directors. The Audit Committee’s primary responsibilities include the following:

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engaging or dismissing independent auditors;

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approving independent audit fees;

•

approving audit and non-audit services;

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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

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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 and Corporate Governance Committee

The Outside Director Nomination and Corporate Governance Committee is comprised of two outside directors, Dong Il Kwon and Jin Jang, and one non-outside director, James (Hoyoung) Jeong. The chairman is James (Hoyoung) Jeong. The Outside Director Nomination and Corporate Governance Committee reviews the qualifications of potential candidates for outside directors and proposes nominees to serve on our board of directors. The committee also develops and recommends to the board of directors a set of corporate governance principles and oversees our policies, practices and procedures in the area of corporate governance.

The committee holds regular meetings at least once each year, and more frequently as needed.

Remuneration Committee

The Remuneration Committee is comprised of two outside directors, William Y. Kim and Tae Sik Ahn, and one non-outside director, James (Hoyoung) Jeong. The chairman is William Y. Kim. The Remuneration Committee’s primary responsibilities include making recommendations to the board of directors concerning salaries and incentive compensation for our directors and executive officers.

The committee holds regular meetings at least once each year, and more frequently as needed.

Management Committee

The Management Committee was created at our annual general meeting of shareholders that was held on March 9, 2012. The Management Committee is comprised of two non-outside directors, Sang Beom Han and James (Hoyoung) Jeong. The chairman is Sang Beom Han. The Management 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.

Item 6.D.

Employees

As of December 31, 2011, we had 56,029 employees, including 21,136 employees in our overseas subsidiaries. The following table provides a breakdown of our employees by function as of December 31, 2009, 2010 and 2011:


	As of December 31,
Employees⁽¹⁾	2009		2010		2011
Production		24,115		37,255		45,744
Technical⁽²⁾		5,169		6,931		7,587
Sales & Marketing		1,218		1,527		1,633
Management & Administration		904		992		1,065

Total		31,406		46,705		56,029

(1)	Includes employees of our subsidiaries.

(2)	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, 2011, approximately 75% of our employees, including those of our subsidiaries, were union members, and production employees accounted for substantially all of these members. We have a collective bargaining arrangement with our labor union, which is negotiated once a year. We consider our relationship with our employees to be good.

The salaries of our employees are reviewed annually. Salaries are adjusted based on individual and team performance, industry standards and inflation. As an incentive, discretionary bonuses may be paid based on the performance of individuals, and a portion of our operating income 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, 2011, our recognized liabilities for defined benefit obligations amounted to (Won)147 billion (US$127 million). See Note 18 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, 2011, our employee stock ownership association owned approximately 0.01% of our common stock.

Item 6.E.

Share Ownership

Common Stock

The persons who are currently our executive officers held, as a group, 14,808 shares of our common stock as of April 27, 2012, the most recent date for which this information is available. Our executive officers acquired our shares of common stock through our employee stock ownership association and pursuant to open market purchases on the Korea Exchange. Due to Korean law restrictions, our chief executive officer and chief financial officer did not participate in the employee stock ownership association. Each of our directors and executive officers beneficially owns less than one percent of our common stock on an individual basis.

Stock Options

Our articles of incorporation provide for a long-term incentive plan to aid retention of executives and key staff and to provide an incentive to meet strategic objectives. As part of our long-term incentive plan, our board of directors resolved in April 2005 to grant the first performance-based stock options to our standing directors and executive officers. The stock option plan compares gains in the KOSPI against increases in the price of our common stock during the period from the grant date to the start of the exercise period. Depending on our performance, adjustments may be made to the number of options that a grantee may exercise during the exercise period. A grantee will be permitted to exercise 100% of the stock options initially granted if our common stock outperforms the KOSPI during the period of comparison. A grantee will be permitted to exercise only 50% of the stock options initially granted if the KOSPI outperforms our common stock during the period of comparison. The stock options granted in April 2005 which were previously unexercised expired as of April 7, 2012. In addition, our board adopted a Stock Appreciation Rights Plan pursuant to which we will pay in cash the difference between the exercise and market price at the date of exercise.

Item 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Item 7.A.

Major Shareholders

The following table sets forth information regarding beneficial ownership of our common stock as of April 27, 2012 by each person or entity known to us to own beneficially more than 5% of our outstanding shares:


Beneficial Owner	Number of Shares of Common Stock		Percentage
LG Electronics		135,625,000		37.9	%
National Pension Service		21,633,625		6.1	%

Other than as set forth above, no other person or entity known by us to be acting in concert, directly or indirectly, jointly or severally, owned more than 5% or more of our outstanding common stock or exercised control or could exercise control over us as of April 27, 2012. None of our major shareholders identified above has voting rights different from those of our other shareholders.

Item 7.B.

Related Party Transactions

We engage from time to time in a variety of transactions with related parties, including the sale of our products to, and the purchase of raw materials and components from, such related parties. See Notes 10 and 23 of the notes to our financial statements. We have conducted our transactions with related parties based on arm’s length negotiations taking into account such considerations as we would in comparable transactions with a non-related party.

We provide payment guarantees in favor of certain of our subsidiaries. For a discussion of such payment guarantee obligations, please see “Item 5.B. Liquidity and Capital Resources” and Note 20 of the notes to our financial statements.

Relationships and Transactions with LG Electronics and Related Companies

Sales to LG Electronics

We sell TFT-LCD panels, primarily large-sized panels for televisions, notebook computers and desktop monitors and small-sized panels for mobile and other applications, to LG Electronics (including its overseas subsidiaries) and certain of its affiliates on a regular basis, as both an end-brand customer and as a systems integrator for use in products they assemble on a contract basis for other end-brand customers. Pricing and other principal terms of the sales to LG Electronics are negotiated based on then-prevailing market terms and prices as adjusted for LG Electronics’ requirements such as volume and product specifications and our internal projections regarding market trends, which are the same considerations that we take into account when negotiating pricing and principal terms of sales to our non-affiliated end-brand customers.

Sales to LG Electronics (including its overseas subsidiaries) on an invoiced basis, which include sales to LG Electronics as an end-brand customer and system integrator, amounted to (Won)5,197 billion (US$4,486 million), or 21.4% of our sales, in 2011.

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.

In particular, we sell our products to LG International Japan, Ltd. and LG International Singapore Ltd. Sales to LG International and its subsidiaries on an aggregate basis amounted to (Won)1,528 billion (US$1,319 million), or 6.3% of our sales, in 2011. We sell our products to these subsidiaries of LG International at a price and on terms determined based on then-prevailing market terms and prices as adjusted for LG International’s requirements such as volume and our internal projections regarding market trends.

We establish sales subsidiaries in the relevant geographical markets when the benefit of doing so outweighs the cost of utilizing our affiliated trading company, LG International, or its subsidiaries, and where local market practice permits. Based on this approach, we have established sales subsidiaries in Shenzhen and Shanghai, China, Taiwan, Singapore, Japan, Germany and the U.S. We may establish additional sales subsidiaries in the future in other regions as sales volumes to customers located in these regions increase and/or market practice warrants.

Purchases from LG International

We procure a portion of our production materials, supplies and services, from LG International and its subsidiaries in Japan, Europe and the United States. We use these subsidiaries of LG International in order to take advantage of their relationships with vendors, experience in negotiations and logistics as well as their ability to obtain volume discounts. Purchase prices we pay to these subsidiaries of LG International and other terms of our transactions with them are negotiated based on then-prevailing market terms and prices as adjusted for our requirements such as volume and specifications and our internal projections regarding market trends. We expect to continue to utilize LG International’s overseas subsidiaries for the procurement of a portion of our production materials, supplies and services.

Our purchases, including purchases of materials, supplies and services, from LG International and its subsidiaries, amounted to (Won)1,335 billion (US$1,152 million), or 4.7% of our total purchases, in 2011.

Other Purchases

Under a master purchase agreement, we procure, on an “as-needed” basis, raw materials, components and other materials necessary for our production process from LG Electronics and its affiliated companies, including LG Chem and LG Innotek (formerly from LG Micron Ltd. prior to its merger with and into LG Innotek in July 2009). Our purchases of raw materials, such as polarizers, from LG Chem amounted to (Won)2,064 billion (US$1,781 million) in 2011. Our purchases of photo masks from LG Innotek amounted to (Won)273 billion (US$235 million) in 2011.

Our total purchases, including purchases of materials, supplies and services, from LG Electronics and its affiliated companies, excluding LG International and its subsidiaries, amounted to (Won)4,665 billion (US$4,027 million), or 16.4% of our total purchases, in 2011.

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, 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.

Trademark Agreement with LG Corp.

We entered into a trademark license agreement with LG Corp., the holding company of the LG Group, in July 2004 for use of the “LG” name. Under the agreement, we began making monthly payments to LG Corp. in the aggregate amount per year of 0.1% of our sales, net of advertising expenses, in 2005. This trademark license agreement expired on December 31, 2007, and although the agreement allowed for an automatic renewal, we signed a new trademark license agreement with LG Corp. in February 2008. Under the new agreement, from January 1, 2008 to June 30, 2008 and from July 1, 2008 to December 31, 2010, we are required to make monthly payments to LG Corp. in the aggregate amount per year of 0.1% and 0.2% of our sales, respectively, net of advertising expenses. As of April 27, 2012, we have made all monthly payments required to be made to LG Corp. in accordance with the terms of the new agreement.

Asset Purchase Agreement with LG Innotek

In May 2010, we purchased the TFT-LCD module division of LG Innotek, a subsidiary of LG Electronics, for a purchase price of (Won)238 billion. We expect that through this acquisition, we will be able to increase our TFT-LCD production capacity. The terms of the transaction has been negotiated by the parties on an arm’s-length basis.

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-83.

Legal Proceedings

We are involved from time to time in certain routine legal actions incidental to our business. However, except for the ongoing proceedings described below, we are not currently involved in any material litigation or other proceedings the outcome of which we believe might, individually or taken as a whole, have a material adverse effect on our results of operations or financial condition. In addition, except as described below, we are not aware of any other material pending or threatened litigation against us.

Intellectual Property

Antitrust and Others