Form 6-K
Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of November 2015

 

 

LG Display Co., Ltd.

(Translation of Registrant’s name into English)

 

 

LG Twin Towers, 128 Yeoui-daero, Yeongdeungpo-gu, Seoul 07336, Republic of Korea

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  x            Form 40-F  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ¨

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ¨

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submission to furnish a report or other document that the registration foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  ¨            No   x

 

 

 


Table of Contents

QUARTERLY REPORT

(From January 1, 2015 to September 30, 2015)

THIS IS A TRANSLATION OF THE QUARTERLY REPORT ORIGINALLY PREPARED IN KOREAN AND IS IN SUCH FORM AS REQUIRED BY THE KOREAN FINANCIAL SUPERVISORY COMMISSION.

IN THE TRANSLATION PROCESS, SOME PARTS OF THE REPORT WERE REFORMATTED, REARRANGED OR SUMMARIZED AND CERTAIN NUMBERS WERE ROUNDED FOR THE CONVENIENCE OF READERS. REFERENCES TO “Q1”, “Q2”, “Q3” and “Q4” OF A FISCAL YEAR ARE REFERENCES TO THE THREE-MONTH PERIODS ENDED MARCH 31, JUNE 30, SEPTEMBER 30 AND DECEMBER 31, RESPECTIVELY, OF SUCH FISCAL YEAR. REFERENCES TO “Q1~Q3” OF A FISCAL YEAR ARE REFERENCES TO THE NINE-MONTH PERIOD ENDED SEPTEMBER 30 OF SUCH FISCAL YEAR.

UNLESS EXPRESSLY STATED OTHERWISE, ALL INFORMATION CONTAINED HEREIN IS PRESENTED ON A CONSOLIDATED BASIS IN ACCORDANCE WITH KOREAN INTERNATIONAL FINANCIAL REPORTING STANDARDS, OR K-IFRS, WHICH DIFFER IN CERTAIN RESPECTS FROM GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CERTAIN OTHER COUNTRIES, INCLUDING THE UNITED STATES. K-IFRS ALSO DIFFERS IN CERTAIN RESPECTS FROM THE INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ISSUED BY THE INTERNATIONAL ACCOUNTING STANDARDS BOARD. WE HAVE MADE NO ATTEMPT TO IDENTIFY OR QUANTIFY THE IMPACT OF THESE DIFFERENCES IN THIS DOCUMENT.

Contents

 

1.    Company      4   
   A.      Name and contact information      4   
   B.      Domestic credit rating      4   
   C.      Capitalization      6   
   D.      Voting rights      6   
   E.      Dividends      7   
2.    Business      7   
   A.      Business overview      7   
   B.      Industry      7   
   C.      New businesses      9   
3.    Major Products and Raw Materials      9   
   A.      Major products      9   
   B.      Average selling price trend of major products      10   
   C.      Major raw materials      10   
4.    Production and Equipment      10   
   A.      Production capacity and output      10   
   B.      Production performance and utilization ratio      11   
   C.      Investment plan      11   
5.    Sales      11   
   A.      Sales performance      11   
   B.      Sales route and sales method      11   
6.    Market Risks and Risk Management      12   
   A.      Market risks      12   
   B.      Risk management      13   

 

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7.    Derivative Contracts      13   
   A.      Currency risks      13   
   B.      Interest rate risks      13   
8.    Major Contracts      13   
9.    Research & Development      14   
   A.      Summary of R&D-related expenditures      14   
   B.      R&D achievements      14   
10.    Intellectual Property      19   
11.    Environmental and Safety Matters      19   
12.    Financial Information      21   
   A.      Financial highlights (Based on consolidated K-IFRS)      21   
   B.      Financial highlights (Based on separate K-IFRS)      21   
   C.      Consolidated subsidiaries      22   
   D.      Status of equity investment      22   
13.    Audit Information      23   
   A.      Audit service      23   
   B.      Non-audit service      23   
14.    Board of Directors      24   
   A.      Members of the board of directors      24   
   B.      Committees of the board of directors      24   
   C.      Independence of directors      24   
15.    Information Regarding Shares      25   
   A.      Total number of shares      25   
   B.      Shareholder list      25   
16.    Directors and Employees      25   
   A.      Directors      25   
   B.      Employees      27   

Attachment: 1. Financial Statements in accordance with K-IFRS

 

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1. Company

 

  A. Name and contact information

The name of our company is “EL-GI DISPLAY CHUSIK HOESA,” which shall be “LG Display Co., Ltd.” in English.

Our principal executive office is located at LG Twin Towers, 128 Yeoui-daero, Yeongdeungpo-gu, Seoul 07336, Republic of Korea, and our telephone number is +82-2-3777-1010. Our website address is http://www.lgdisplay.com.

 

  B. Domestic credit rating

 

  (1) Corporate bonds

 

Subject instrument

  

Month of rating

  

Credit rating (1)

  

Rating agency (Rating range)

Corporate bonds    February 2010    AA-    NICE Information Service Co., Ltd. (AAA ~ D)
   May 2010      
   December 2010      
   August 2011      
   June 2012      
   October 2012      
   March 2013      
   June 2013      
   October 2013      
  

 

  
   April 2014    AA   
   September 2014      
   April 2015      
  

 

   February 2010    AA-    Korea Investors Service, Inc. (AAA ~ D)
   May 2010      
   August 2010      
   February 2011      
   April 2011      
   August 2011      
   October 2011      
   June 2012      
   October 2012      
   June 2013      
   October 2013      
  

 

  
   March 2014    AA   
   April 2015      
  

 

   August 2010    AA-    Korea Ratings Corporation (AAA ~ D)
   December 2010      
   February 2011      
   April 2011      
   July 2011      
   October 2011      
   June 2012      
   March 2013      
   June 2013      
  

 

  
   March 2014    AA   
   September 2014      
   May 2015      

 

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  a. Domestic corporate bond credit ratings are generally defined to indicate the following:

 

Subject

instrument

  

Credit rating

  

Definition

Corporate bonds    AAA    Strongest capacity for timely repayment.
   AA+/AA/AA-    Very strong capacity for timely repayment. This capacity may, nevertheless, be slightly inferior than is the case for the highest rating category
   A+/A/A-    Strong capacity for timely repayment. This capacity may, nevertheless, be more vulnerable to adverse changes in circumstances or in economic conditions than is the case for higher rating categories.
   BBB+/BBB/BBB-    Capacity for timely repayment is adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity.
   BB+/BB/BB-    Capacity for timely repayment is currently adequate, but that there are some speculative characteristics that make the repayment uncertain over time.
   B+/B/B-    Lack of adequate capacity for repayment and speculative characteristics. Interest payment in time of unfavorable economic conditions is uncertain.
   CCC    Lack of capacity for even current repayment and high risk of default.
   CC    Greater uncertainties than higher ratings.
   C    High credit risk and lack of capacity for timely repayment.
   D    Insolvency.

 

  (2) Commercial paper

 

Subject instrument

 

Month of rating

 

Credit rating (1)

 

Rating agency (Rating range)

Commercial paper   October 2015   A1   Korea Investors Service, Inc. (A1 ~ D)
  October 2015   A1   NICE Information Service Co., Ltd. (A1 ~ D)

 

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  a. Domestic commercial paper credit ratings are generally defined to indicate the following:

 

Subject

instrument

  

Credit rating

  

Definition

Commercial paper    A1    Timely repayment capability is at the highest level with extremely low investment risk and is stable such that it will not be influenced by any reasonably foreseeable changes in external factors.
   A2    Strong capacity for timely repayment with very low investment risk. This capacity may, nevertheless, be slightly inferior than is the case for the highest rating category.
   A3    Capacity for timely repayment is adequate with low investment risk. This capacity may, nevertheless, be somewhat influenced by sudden changes in external factors.
   B    Capacity for timely repayment is acknowledged, but there are some speculative characteristics.
   C    Capacity for timely repayment is questionable.
   D    Insolvency.

ø ‘+’ or ‘-’ modifier can be attached to ratings A2 through B to differentiate ratings within broader rating categories.

 

  C. Capitalization

 

  (1) Change in capital stock (as of September 30, 2015)

There were no changes to our issued capital stock during the quarterly reporting period ended September 30, 2015.

 

  (2) Convertible bonds

Not applicable.

 

  D. Voting rights (as of September 30, 2015)

 

    (Unit: share)  

Description

       Number of shares  

A. Total number of shares issued: (1)

   Common shares (1)     357,815,700   
   Preferred shares     —     
    

 

 

 

B. Shares without voting rights:

   Common shares     —     
   Preferred shares     —     

C. Shares subject to restrictions on voting rights pursuant to our articles of incorporation:

   Common shares     —     
   Preferred shares     —     

D. Shares subject to restrictions on voting rights pursuant to regulations:

   Common shares     —     
   Preferred shares     —     

E. Shares with restored voting rights:

   Common shares     —     
   Preferred shares     —     
    

 

 

 

Total number of issued shares with voting rights (=A – B – C – D + E):

   Common shares     357,815,700   
   Preferred shares     —     
    

 

 

 

 

(1) Authorized: 500,000,000 shares

 

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  E. Dividends

Dividends for the three most recent fiscal years

 

Description (unit)

       2014     2013      2012  

Par value (Won)

       5,000        5,000         5,000   

Profit for the year (million Won) (1)

       904,268        426,118         233,204   

Earnings per share (Won) (2)

       2,527        1,191         652   
    

 

 

   

 

 

    

 

 

 

Total cash dividend amount for the period (million Won)

       178,908        —           —     
    

 

 

   

 

 

    

 

 

 

Total stock dividend amount for the period (million Won)

       —          —           —     
    

 

 

   

 

 

    

 

 

 

Cash dividend payout ratio (%)

       19.78     —           —     

Cash dividend yield (%) (3)

  Common shares      1.47     —           —     
  Preferred shares      —          —           —     

Stock dividend yield (%)

  Common shares      —          —           —     
  Preferred shares      —          —           —     

Cash dividend per share (Won)

  Common shares      500        —           —     
  Preferred shares      —          —           —     

Stock dividend per share (share)

  Common shares      —          —           —     
  Preferred shares      —          —           —     

 

(1) Based on profit for the year attributable to us as owners of the controlling company.
(2) Earnings per share is based on par value of W5,000 per share and is calculated by dividing net income by weighted average number of common shares.
(3) Cash dividend yield is the percentage that is derived by dividing cash dividend by the arithmetic average of the daily closing prices of our common shares during the one-week period ending two trading days prior to the closing of the register of shareholders for the purpose of determining the shareholders entitled to receive annual dividends.

 

2. Business

 

  A. Business overview

We were incorporated in February 1985 under the laws of the Republic of Korea. LG Electronics and LG Semicon transferred their respective LCD business to us in 1998, and since then, our business has been focused on the research, development, manufacture and sale of display panels, applying technologies such as TFT-LCD and OLED.

As of September 30, 2015, in Korea we operated TFT-LCD and OLED production facilities and a research center in Paju and TFT-LCD production facilities in Gumi. We have also established subsidiaries in the Americas, Europe and Asia.

As of September 30, 2015, our business consisted of the manufacture and sale of display and display related products utilizing TFT-LCD, OLED and other technologies under a single reporting business segment.

In order to achieve synergies and strengthen the competitiveness of our OLED business, we plan to acquire the OLED Light business of LG Chem in December 2015 for an estimated acquisition price of approximately W160 billion. Such transaction was approved at a meeting of our board of directors in October 2015, and the final agreement for such transaction was signed on November 10, 2015.

2015 Q1~Q3 consolidated operating results highlights

 

     (Unit: In billions of Won)  

2015 Q1-Q3

   Display business  

Sales Revenue

     20,888   

Gross Profit

     3,548   

Operating Profit

     1,565   

 

  B. Industry

 

  (1) Industry characteristics and growth potential

 

    The entry barriers to manufacture display panels are relatively high due to the technology and capital intensive nature of the mass manufacturing process that is required to achieve economies of scale, among other factors.

 

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    While growth in the market for displays used in notebook computer, monitor and other traditional IT products has stagnated or declined, the market for small- and medium-sized displays (including those used in smartphones) in the rapidly evolving IT environment has shown steady growth. The display market for televisions has also shown steady growth mainly due to growing demand from developing countries as well as from consumers in general for larger sized display panels. As for displays used in industrial, automobile and other value added products, we expect to see growth in these markets.

 

  (2) Cyclicality

 

    The display panel business is highly cyclical and sensitive to fluctuations in the general economy. The industry experiences periodic volatility caused by imbalances between supply and demand due to capacity expansion and changing production utilization rates within the industry.

 

    Macroeconomic factors and other causes of business cycles can affect the rate of growth in demand for display panels. Accordingly, if supply exceeds demand, average selling prices of display panels may decrease. Conversely, if growth in demand outpaces growth in supply, average selling prices may increase.

 

  (3) Market conditions

 

    Overall, while there have been some variations in rates of production capacity growth among individual display panel manufacturers, display panel manufacturers have generally slowed their respective rates of production capacity growth since 2011 due to a slowdown in growth of the display panel industry.

 

    Most display panel manufacturers are located in Asia.

 

  a. Korea: LG Display, Samsung Display, etc.

 

  b. Taiwan: AU Optronics, Innolux, CPT, HannStar, etc.

 

  c. Japan: Japan Display, Sharp, Panasonic LCD, etc.

 

  d. China: BOE, CSOT, etc.

 

  (4) Market shares

 

    Our worldwide market share of large-sized display panels (i.e., panels that are 9 inches or larger) based on revenue is as follows:

 

     2015 Q1~Q3     2014     2013  

Panels for Televisions (1)

     25.4     25.0     24.7

Panels for Monitors

     38.7     32.7     34.0

Panels for Notebook Computers (2)

     26.7     27.5     32.3

Panels for Tablet Computers

     23.4     27.0     32.0
  

 

 

   

 

 

   

 

 

 

Total

     27.8     26.9     27.8
  

 

 

   

 

 

   

 

 

 

Source: Large-Area Display Market Tracker (formerly, DisplaySearch)

 

(1) Includes panels for public displays.
(2) Includes panels for netbooks.

 

  (5) Competitiveness

 

    Our ability to compete successfully depends on factors both within and outside our control, including product pricing, our relationship with customers, timely investments, adaptable production capabilities, development of new and premium products through technological advances, competitive production costs, success in marketing to our end-brand customers, component and raw material supply costs, foreign exchange rates and general economic and industry conditions.

 

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    In order to compete effectively, it is critical to be cost competitive and maintain stable and long-term relationships with customers which will enable us to be profitable even in a buyer’s market.

 

    A substantial portion of our sales is attributable to a limited number of end-brand customers and their designated system integrators. The loss of these end-brand customers, as a result of customers entering into strategic supplier arrangements with our competitors or otherwise, would result in reduced sales.

 

    Developing new products and technologies that can be differentiated from those of our competitors is critical to the success of our business. It is important that we take active measures to protect our intellectual property internationally by obtaining patents and undertaking monitoring activities in our major markets. It is also necessary to recruit and retain experienced key managerial personnel and skilled line operators.

 

    As a leading technology innovator in the display industry, we continue to focus on delivering differentiated value to our customers by developing various technologies and products, including display panels with IPS, Advanced In-cell Touch, OLED and other technologies. With respect to TFT-LCD panels, we are leading the market with our differentiated products with IPS technology, such as our slim and light ultra-high definition (“Ultra HD”) television panels and 21:9 screen aspect ratio ultra-wide IPS curved monitors, and have prepared our production facilities to produce products with Advanced In-cell Touch technology. With respect to OLED panels, following our supply of the world’s first 55-inch OLED 3D panels for televisions in January 2013, we have supplied Ultra HD OLED panels for televisions, flexible plastic OLED panels for smartphones, round OLED panels for wearable devices among others and have shown that we are technologically a step ahead of the competition.

 

    Moreover, we entered into long-term sales contracts with major global firms to secure customers and expand partnerships for technology development.

 

  C. New businesses

For our continued growth, we are actively exploring and preparing for new business opportunities that may arise in the changing market environment. As such, we are continually reviewing and looking at opportunities in the display and promising new industries.

 

3. Major Products and Raw Materials

 

  A. Major products

We manufacture TFT-LCD and OLED panels, of which a significant majority is exported overseas.

 

(Unit: In billions of Won, except percentages)  

Business area

 

Sales type

 

Items (Market)

 

Usage

 

Major
trademark

  Sales in 2015 Q1~Q3 (%)  

Display

  Product/ Service/ Other sales   Display panel (Overseas (1))   Panels for notebook computers, monitors, televisions, smartphones, tablets, etc.   LG Display     19,130 (91.6%)   
    Display panel (Korea (1))   Panels for notebook computers, monitors, televisions, smartphones, tablets, etc.   LG Display     1,758 (8.4%)   
         

 

 

 

Total

            20,888 (100.0%)   
         

 

 

 

 

  Period: January 1, 2015 ~ September 30, 2015.

 

(1) Based on ship-to-party.

 

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  B. Average selling price trend of major products

The average selling price of LCD panels per square meter of net display area shipped in the third quarter of 2015 remained relatively stable compared to the second quarter of 2015, while average selling prices of LCD panels exhibited varying trends according to demand by product category. There is no assurance that the average selling prices of LCD panels will not fluctuate in the future due to change in market conditions.

 

     (Unit: US$ / m2)  

Description

   2015 Q3      2015 Q2      2015 Q1      2014 Q4      2014 Q3  

Display panel (1)(2)

     622         620         652         773         658   

 

(1) Quarterly average selling price per square meter of net display area shipped.
(2) Excludes semi-finished products in the cell process.

 

  C. Major raw materials

Prices of major raw materials depend on fluctuations in supply and demand in the market as well as on change in size and quantity of raw materials due to the increased production of large-sized panels.

 

     (Unit: In billions of Won, except percentages)

Business area

  

Purchase type

  

Items

  

Usage

   Cost (1)      Ratio (%)     Suppliers

Display

   Raw materials    Glass    Display panel manufacturing      1,153         9.98   NEG, Asahi Glass, etc.
     

Backlight

        2,296         19.88   HeeSung Electronics, etc.
     

Polarizer

        1,800         15.58   LG Chem, etc.
     

Others

        6,304         54.57  
           

 

 

    

 

 

   

Total

              11,553         100.0  
           

 

 

    

 

 

   

 

  Period: January 1, 2015 ~ September 30, 2015.

 

(1) Based on total cost for purchase of raw materials which includes manufacturing and development costs, etc.

 

4. Production and Equipment

 

  A. Production capacity and output

 

  (1) Production capacity

The table below sets forth the production capacity of our Gumi, Paju and Guangzhou facilities in the periods indicated.

 

     (Unit: 1,000 glass sheets)  

Business area

  

Items

  

Location of facilities

   2015 Q1~Q3(1)      2014(2)      2013(2)  

Display

   Display panel    Gumi, Paju, Guangzhou      7,284         9,573         8,562   

 

(1) Calculated based on the maximum monthly input capacity (based on glass input substrate size for eighth generation glass sheets) during the period multiplied by the number of months in the period (i.e., 9 months).
(2) Calculated based on the maximum monthly input capacity (based on glass input substrate size for eighth generation glass sheets) during the year multiplied by the number of months in a year (i.e., 12 months).

 

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  (2) Production output

The table below sets forth the production output of our Gumi, Paju and Guangzhou facilities in the periods indicated.

 

     (Unit: 1,000 glass sheets)  

Business area

  

Items

  

Location of facilities

   2015 Q1~Q3      2014      2013  

Display

   Display panel    Gumi, Paju, Guangzhou      6,468         8,425         7,670   

 

  Based on glass input substrate size for eighth generation glass sheets.

 

  B. Production performance and utilization ratio

 

     (Unit: Hours, except percentages)  

Production facilities

   Available working hours
in 2015 Q1~Q3
  Actual working hours
in 2015 Q1~Q3
  Average utilization ratio  

Gumi

   6,552 (1)

(273 days) (2)

  6,324 (1)

(263.5 days) (2)

    96.5

Paju

   6,552 (1)

(273 days) (2)

  6,552 (1)

(273 days) (2)

    100.0

Guangzhou

   6,552 (1)

(273 days) (2)

  6,552 (1)

(273 days) (2)

    100.0

 

(1) Based on the assumption that all 24 hours in a day have been fully utilized.
(2) Number of days is calculated by averaging the number of working days for each facility.

 

  C. Investment plan

In 2014, our total capital expenditures on a cash out basis was W3 trillion. In 2015, we currently expect that our total capital expenditures on a cash out basis will be W3 trillion or less in anticipation of funding the production of future display products and leading the market for OLED panels, as well as investing in our production facilities to respond to increases in demand for large-sized panels. Such amount is subject to change depending on business conditions and market environment.

 

5. Sales

 

  A. Sales performance

 

     (Unit: In billions of Won)  

Business area

  

Sales types

  

Items (Market)

   2015 Q1~Q3      2014      2013  

Display

   Products, etc.    Display panel    Overseas (1)      19,130         23,847         24,341   
         Korea (1)      1,758         2,609         2,692   
           

 

 

    

 

 

    

 

 

 
         Total      20,888         26,456         27,033   
           

 

 

    

 

 

    

 

 

 

 

(1) Based on ship-to-party.

 

  B. Sales route and sales method

 

  (1) Sales organization

 

    As of September 30, 2015, each of our television, IT/mobile and OLED businesses had individual sales and customer support functions.

 

    Sales subsidiaries in the United States, Germany, Japan, Taiwan, China and Singapore perform sales activities and provide local technical support to customers.

 

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  (2) Sales route

Sales of our products take place through one of the following two routes:

 

    LG Display HQ and overseas manufacturing subsidiaries g Overseas sales subsidiaries (USA/Germany/Japan/Taiwan/China/Singapore), etc. g System integrators and end-brand customers g End users

 

    LG Display HQ and overseas manufacturing subsidiaries g System integrators and end-brand customers g End users

 

  (3) Sales methods and sales terms

 

    Direct sales and sales through overseas subsidiaries, etc. Sales terms are subject to change depending on the fluctuation in the supply and demand of LCD panels.

 

  (4) Sales strategy

 

    As part of our sales strategy, we have secured stable sales to major personal computer manufacturers and leading consumer electronics manufacturers globally, led the television market with our OLED and other market leading television panels, increased the proportion of sales of our differentiated television panels, such as our Ultra HD and large television panels, in our product mix and strengthened sales of high-resolution, IPS, narrow bezel and other high-end display panels in the monitor, notebook computer and tablet markets.

 

    In the smartphone, industrial products (including aviation and medical equipment) and automobile displays segment, we have continued to build a strong and diversified business portfolio by expanding our business with customers with a global reach on the strength of our differentiated products applying IPS, plastic OLED, high-resolution, Advanced In-cell Touch and other technologies.

 

  (5) Purchase orders

 

    Customers generally place purchase orders with us one month prior to delivery. Our customary practice for procuring orders from our customers and delivering our products to such customers is as follows:

 

    Receive order from customer (overseas sales subsidiaries, etc.) g Headquarter is notified g Manufacture product g Ship product (overseas sales subsidiaries, etc.) g Sell product (overseas sales subsidiaries, etc.)

 

6. Market Risks and Risk Management

 

  A. Market risks

The display industry continues to experience continued declines in the average selling prices of TFT-LCD and OLED 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 display 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 manufacturers in Korea, Taiwan, China and Japan coupled with changes in the production mix of such manufacturers. Our main competitors in the industry include Samsung Display, AU Optronics, Innolux, Sharp, BOE, CSOT, Japan Display, CPT, HannStar and Panasonic LCD.

Our ability to compete successfully depends on factors both within and outside our control, including product pricing, performance and reliability, timely investments, adaptable production capabilities, utilization of differentiated technologies in 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 compete successfully with our competitors on these fronts and, as a result, we may be unable to sustain our current market position.

 

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Our results of operations are subject to exchange rate fluctuations. To the extent that we incur costs in one currency and generate sales in a different currency, 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. Seeking to achieve stable management, we take every precaution in our foreign currency risk management to minimize the risk of foreign currency fluctuations on our foreign currency denominated assets and liabilities.

 

  B. Risk management

As the average selling prices of TFT-LCD and OLED panels can continue to decline over time irrespective of industry-wide cyclical fluctuations, we may find it hard to manage risks associated with certain factors that are outside our control. However, we counteract such declines in average selling prices by increasing the proportion of high value added panels in our product mix while also implementing various cost reduction measures. In addition, in order to manage our risk against foreign currency fluctuations, we continually monitor our currency position and risk, and when needed, we may from time to time enter into cross-currency interest rate swap contracts and foreign currency forward contracts. As of September 30, 2015, we had not entered into any such contract for currency related derivative products.

 

7. Derivative Contracts

 

  A. Currency risks

 

    We are exposed to currency risks on sales, purchases and borrowings that are denominated in currencies other than in Won, our functional currency. These currencies are primarily the U.S. dollar, the Japanese Yen and the Chinese Yuan.

 

    Interest on borrowings is denominated in the currency of the borrowing. Generally, borrowings are denominated in currencies that match the cash flows generated by our underlying operations, primarily in Won and the U.S. dollar.

 

    In respect of other monetary assets and liabilities denominated in foreign currencies, we ensure that our net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates, when necessary, to address short-term imbalances.

 

  B. Interest rate risks

 

    Our exposure to interest rate risks relates primarily to our floating rate long term loan obligations. We have established and are managing interest rate risk policies to minimize uncertainty and costs associated with interest rate fluctuations by monitoring cyclical interest rate fluctuations and enacting countermeasures.

 

8. Major contracts

Our material contracts, other than contracts entered into in the ordinary course of business, are set forth below:

 

Type of agreement

  

Name of party

  

Term

  

Content

Technology licensing agreement    Semiconductor Energy Laboratory    October 2005 ~    Patent licensing of LCD and OLED related technology
   Hewlett-Packard    January 2011 ~    Patent licensing of semi-conductor device technology
Technology licensing/supply agreement    HannStar Display Corporation    December 2013 ~    Patent cross-licensing of LCD technology
   AU Optronics Corporation    August 2011~    Patent cross-licensing of LCD technology
   Innolux Corporation    July 2012 ~    Patent cross-licensing of LCD technology, etc.

 

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9. Research & Development

 

  A. Summary of R&D-related expenditures

 

     (Unit: In millions of Won, except percentages)  

Items

        2015 Q1~Q3     2014     2013  

Material Cost

        500,589        762,008        586,901   

Labor Cost

        391,729        542,857        500,705   

Depreciation Expense

        168,165        249,306        319,854   

Others

        128,560        233,422        267,320   
     

 

 

   

 

 

   

 

 

 

Total R&D-Related Expenditures

        1,189,043        1,787,593        1,674,780   
     

 

 

   

 

 

   

 

 

 

Accounting Treatment (1)

   Selling & Administrative Expenses      909,035        1,164,294        1,095,727   
   Manufacturing Cost      121,695        356,218        456,818   
   Development Cost (Intangible Assets)      158,313        267,081        122,235   

R&D-Related Expenditures / Revenue Ratio (Total R&D-Related Expenditures ÷ Revenue for the period × 100)

        5.7     6.8     6.2

 

(1) For accounting purposes, R&D-related expenditures are recognized in accordance with our financial statements.

 

  B. R&D achievements

Achievements in 2013

 

  (1) Developed 19.5-inch desktop monitor product

 

    Developed new display panel size for desktop monitor products

 

    Increased yield of glass panel area per glass substrate by cutting glass substrates at 19.5 inches

 

  (2) Developed 11.6-inch Tab Book product applying GF2 touch technology

 

    Applied GF2 direct bonding process

 

  (3) Developed 5.0-inch and 5.5-inch high resolution (over 400 PPI) smartphone products applying AH-IPS technology

 

    Luminance increased by 10% compared to conventional panels (5.0-inch FHD panel has 403 PPI and 5.5-inch FHD panel has 440 PPI)

 

    Developed new source D-IC to drive 4 lanes of MIPI with speeds of up to 1 Gbps per lane

 

  (4) Developed the world’s first 60-inch three-side borderless product

 

    Made possible by removing the forward-facing case top, resulting in “zero” bezel on three sides with a borderless like bottom design

 

  (5) Developed the world’s first 47-inch and 55-inch FHD TV product with 2.3 mm narrow bezels

 

    Achieved optimal slim design by minimizing bezel width to 2.3 mm

 

  (6) Developed 55-inch and 65-inch Ultra HD products with narrow bezels

 

    Ultra HD (55-inch model has 80 PPI and 65-inch model has 68 PPI)

 

    Achieved high transmittance panel by applying 1 Gate 1 Data structure

 

    Achieved narrow bezels (55-inch model has 6.9 mm and 65-inch has 7.5 mm) by optimizing panel and mechanical design

 

  (7) Developed 42-inch, 47-inch and 55-inch FHD three-side borderless products with direct backlight units

 

    Borderless design made possible by removing the forward-facing case top, resulting in “zero” bezel on three sides

 

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  (8) Developed 5-inch HD smartphone product utilizing oxide cell technology

 

    Reduced energy consumption and achieved narrower bezels by using indium gallium zinc oxide (IGZO) cell technology (energy consumption reduced by 26.7% and bezel size reduced by 23.0% compared to products utilizing conventional silicon (a-Si) cell technology)

 

  (9) Developed FHD a-Si AH-IPS technology for use in smartphone products (more than 400 PPI)

 

    Improved structure and technology compared to conventional FHD panels (luminance increased by 30%, achieved 443 PPI in 5.0-inch FHD panel)

 

    Developed new D-IC and IC bonding materials and processes

 

  (10) Developed new line of 19.5-inch HD+ monitor products with IPS technology

 

    Developed new line of display panels for desktop monitor products

 

    Increased yield of glass panel area per glass substrate by cutting glass substrates at 19.5 inches

 

  (11) Developed 19.5-inch HD+ ultra-light monitor product

 

    The world’s lightest (at the time) 19.5-inch HD+ IPS monitor product with slim concept design

 

    Reduced weight by 55% from 1520g to 830g and thickness from 7.6t to 5.4t compared to a conventional 19.5-inch HD+ IPS monitor product

 

  (12) Developed the world’s first borderless monitor product with 3.5 mm narrow bezel (23.8-inch FHD)

 

    Developed 23.8-inch FHD Neo Blade1 monitor product with the world’s narrowest (at the time) bezel (3.5 mm)

 

  (13) Introduced 9.2-inch WXGA high resolution / high luminance automotive display product

 

    The first automotive display product to apply EPI interface (800Mbps high speed transmission with Real 8it)

 

    High luminance (800 nit) and high color gamut (70%)

 

    Developed T-con with improved reliability and resolution

 

  (14) Developed 49-inch FHD four sided borderless like product

 

    Achieved narrow borders by applying 4.9 mm GIP technology and developed a new PSJ mechanical structure

 

    Developed new resin technology to apply to the bottom base decoration

 

  (15) Developed 55-inch FHD wide color gamut (“WCG”) LCM product

 

    Achieved life like colors with WCG by combining panel and optical technologies

 

    Developed differentiated case top set design

 

  (16) Developed our first 60-inch FHD product

 

    Achieved narrow panel bezel size (7.8 mm)

 

    New size in our product lineup

 

  (17) Developed the world’s first 23.8-inch Ultra HD monitor product

 

    The world’s first Ultra HD AH-IPS monitor product (23.8-inch Ultra HD: 185 ppi)

 

    Applied PAC panel technology and developed Ultra HD T-con/D-IC driver

 

    Developed high luminance dual LED array structure

 

  (18) Expanded product lineup of 21:9 screen aspect ratio monitors

 

    Expanded product lineup of 21:9 screen aspect ratio monitors to include 25-inch, 29-inch and 34-inch monitors

 

    Borderless on three sides by removing case top

 

  (19) Developed the world’s first 13.3-inch FHD notebook model with 1.9 mm narrow bezel

 

    Development slim notebook design by utilizing panel GLA structure and minimizing bezel size to 1.9 mm

 

    Achieved slim (3.0 mm) and ultra-light (230 g) LCM by utilizing 0.25 mm glass PPP LGP technology

 

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  (20) Developed our first quad HD (“QHD”) notebook model (13.3-inch, 222 ppi / 14.0-inch / 210 ppi)

 

    Increased transmittance rate by utilizing 3rd metal, coop CS, red eye 12 um technology and improving aperture ratio

 

    Achieved slim (2.6 mm) and ultra-light (235 g) LCM by utilizing 0.3 mm glass PPP LGP technology

 

  (21) Introduced product applying PPP LGP to maximize light collimation

 

    Developed PPP technology for light collimation (improved luminance by 44% compared to conventional panels) for a more energy efficient panel model

 

    Used 2 sheet structure to reduce thickness

 

  (22) Developed 12.3-inch FHD full cluster automotive product

 

    The world’s first full cluster product to apply IPS technology

 

    Ultra-high luminance (800 nit) and high color gamut (85%). High color PR and developed RG LED for high light collimation

 

    Applied the highest resolution (1920 x 720), at the time, for clusters

 

  (23) Developed 5.5-inch QHD LTPS smartphone panel applying AH-IPS technology with the worlds’ highest resolution, at the time, for smartphone panels (more than 500 ppi)

 

    Designed and developed QHD, the world’s highest resolution, at the time, for smartphone panels (538 ppi)

 

    The world’s first QHD module applying 1 chip D-IC driver

Achievements in 2014

 

  (1) Developed the world’s first green plus structure television panel products (42-inch, 49-inch and 55-inch Ultra HD)

 

    Added white pixels to increase transmittance by 55% compared to conventional display panels

 

    Developed energy conservation technology for Ultra HD products

 

  (2) Developed the world’s narrowest, at the time, bezel (BtB 3.5 mm) videowall product (55-inch FHD)

 

    The world’s narrowest, at the time, bezel (BtB 3.5 mm) videowall product

 

    Reduced panel PAD parts and minimized bezel size

 

  (3) Developed our first 79-inch Ultra HD product

 

    New size in our product lineup

 

    Achieved narrow bezel (On 9.9 mm) and slim depth (13.9 mm)

 

  (4) Developed the world’s first 4 sided borderless like product (49-inch, 55-inch and 60-inch FHD)

 

    Removed front case top and narrowed gap between the panel and front deco cabinet (set side reduced from 2.0 mm to 0.5 mm)

 

  (5) Developed the world’s first a-Si AF-IPS 5Mask panel product for smartphones (5.0 WVGA)

 

    Reduced production cost and simplified manufacturing process by reducing the number of mask steps from 6 to 5

 

    Same level of performance as 6Mask panels

 

  (6) Developed the world’s first LTPS AH-IPS photo alignment and negative LC panel product for smartphones (5.0-inch FHD)

 

    LTPS AH-IPS photo alignment and negative LC panel product for smartphones developed in March 2014

 

    Improved luminance and contrast ratio through improvement in panel transmittance (450 nit to 515 nit; 1,000:1 to 1500:1).

 

  (7) Developed the world’s first 23.8-inch FHD ultra slim and light monitor product

 

    Achieved ultra-light design (reduced LCM weight from 2,270g to 1,280g compared to conventional LCMs)

 

    Achieved ultra slim design by using slim component parts (7.6t reduced to 5.5t)

 

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  (8) Developed LTPS AH-IPS QHD smartphone product (5.5-inch QHD, 538 ppi, LG Electronics’ G3 model smartphone)

 

    LTPS AH-IPS QHD smartphone product developed in April 2014

 

    Width of panel bezel: 0.95 mm (L/R); luminance: 500 nit; G1F Touch Direct Bonded LCM

 

  (9) Developed our first curved Ultra HD product (65-inch and 55-inch Ultra HD)

 

    The curved LCM retains the same panel transmissivity as a conventional flat LCM through application of BM-less COT structure with a double pigment lamination

 

    Realized curved LCM technology by applying Frame (Horizontal / Vertical / Center) Structure and Curved C/T & Guide Panel Technologies

 

  (10) Developed the world’s first 6-inch plastic OLED product

 

    Developed the world’s first curved display with a curvature radius (“R”) of 700

 

    Precursor to the development of future bendable, foldable and rollable display products

 

  (11) Developed the world’s first 34-inch curved monitor product (3,800R)

 

    Launched the world’s first blade type 21:9 screen aspect ratio 34-inch wide QHD 3,800R curved monitor product and created a new market and standard for curved monitor products

 

    Achieved curvature of 3,800R by using annealing process and setting up assembly equipment utilizing 0.4t glass for curved panels and pol edge type curved backlight

 

  (12) Developed the world’s first AH-IPS FHD GIP/DRD product (15.6-inch notebook product)

 

    The world’s first AH-IPS FHD (more than 142 ppi) GIP/DRD product developed in September 2014

 

    Increased cost competitiveness by developing GIP/DRD technology

 

  (13) Developed the world’s first Advanced In-cell Touch LTPS smartphone product (4.5-inch HD product)

 

    Completed development of an AH-IPS LTPS product applying LG Display’s own in-cell touch technology, which utilizes the AH-IPS Vcom electrodes in an all point sensing self-capacitive manner in July 2014 (450 nit luminance; L/R panel bezel of 1.00 mm; module thickness of 2.28 mm)

 

    Simplified SCM and provided a cost competitive and differentiated valued product with touch functionality

 

  (14) Developed the world’s first Advanced In-cell Touch a-Si smartphone product (4.5-inch WVGA product)

 

    Completed development of an AH-IPS a-Si product applying LG Display’s own in-cell touch technology, which utilizes the AH-IPS Vcom electrodes in an all point sensing self-capacitive manner in August 2014 (450 nit luminance; L/R panel bezel of 1.35 mm; module thickness of 2.6 mm)

 

    Simplified SCM and provided a cost competitive and differentiated valued product with touch functionality

 

  (15) Developed the world’s first Ultra HD+ curved (6,000R) product (105-inch Ultra HD)

 

    The world’s first large 105-inch 21:9 screen aspect ratio Ultra HD curved (6,000R) display product

 

  (16) Developed our first 98-inch Ultra HD product

 

    Our new line of 98-inch Ultra HD products

 

    Achieved ultra-high definition through utilizing the direct BLU local dimming and FCIC circuit compensation algorithm.

 

  (17) Developed four sided product with even bezels (5.9 mm) for commercial use (42-inch, 49-inch and 55-inch FHD product)

 

    Developed our first 4 sided even bezel product (off bezel: 5.9 mm)

 

    Reduced panel PAD and lower bezel thickness

 

    Improved PAC transmittance and after image reliability

 

  (18) Developed our first 60-inch Ultra HD product

 

    Our new line of 60-inch Ultra HD products

 

    Achieved narrow panel bezel of 7.8 mm

 

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  (19) Developed the world’s first circular plastic OLED product (1.3 F)

 

    Developed the world’s first circular plastic OLED product in September 2014

 

    Developed ultrathin display module of 559 um (without cover window)

 

    Lowered power consumption by developing Power Save Mode algorithm

 

    Display can be turned on without powering the P-IC

 

  (20) Developed the world’s first four sided borderless OLED television product (55-inch)

 

    Product developed using the world’s first four sided borderless technology utilizing reverse tab bonding manufacturing process in September 2014

 

  (21) Developed the world’s first ultra-slim OLED television products (49-inch, 55-inch and 65-inch Ultra HD)

 

    Achieved LCM thickness of 7.5 mm

 

    Reduced thickness by combining exterior set with LCM parts (B/cover, M/cabinet)

 

  (22) Developed the world’s first 1:1 screen aspect ratio New Platform Monitor (26.5-inch; 1920 x 1920 resolution)

 

    Creation of new market through the development of new 1:1 screen aspect ratio platform display

 

    Development of high resolution display with four sided even bezels (on bezel: 8 mm)

 

  (23) Development of 14-inch FHD notebook product with three sided even bezels (3.9 mm)

 

    World’s first notebook panel with three sided narrow bezels (top and side bezels: 3.9 mm)

 

    Reduced GIP area by 50% compared to conventional GIP area

 

  (24) Development of 12.3-inch new display size UXGA tablet product

 

    Developed new display panel size for tablet products: 12.3-inch UXGA (4:3 screen aspect ratio)

 

    Increased yield of glass panel area per glass substrate by cutting glass substrates at 12.3 inches

Achievements in 2015

 

  (1) Developed the world’s narrowest, at the time, module bezel (0.7mm) LTPS smartphone display (5.3-inch FHD AIT)

 

    Developed the world’s first FHD Advanced In-cell Touch display (LTPS 5.3-inch FHD) applying the “Neo Edge” module process (new manufacturing technology) in January 2015

 

    Set-up glue & laser cutting process, 0.6mm panel bezel (L/R)

 

  (2) Developed the world’s first QHD Advanced In-cell Touch (AIT) LTPS smartphone display (5.5-inch QHD)

 

    Developed LTPS 5.5-inch QHD display applying LG Display’s new capacitive type in-cell touch technology with “all points sensing” in March 2015; luminance: 500nit, contrast ratio: 1500:1(using photo alignment & negative LC), 0.95mm panel bezel (L/R)

 

    Delivered differentiated value proposition based on touch performance, simplified SCM process and competitive cost innovation

 

  (3) Developed the world’s narrowest, at the time, bezel videowall product (49-inch FHD)

 

    Developed the world’s narrowest bezel videowall product (bezel to bezel 3.5mm)

 

    Optimized sizing of panel PAD and mechanical bezel

 

  (4) Developed our first 43-inch Ultra HD slim and light LED television

 

    Achieved LCD module thickness of 8.4mm

 

    Reduced thickness through publication of set LCM parts (back cover and middle cabinet)

 

  (5) Developed the world’s first Ultra HD OLED television (55-inch and 65-inch Ultra HD)

 

    Developed the world’s first Ultra HD television product lineup

 

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  (6) Developed the world’s first Ultra HD television product applying DRD technology (55-inch, 49-inch and 43-inch Ultra HD)

 

    World’s first application of Ultra HD DRD technology based on an RGBW(M+) pixel structure

 

    Utilized RGBW(M+) technology to optimize picture quality (high definition, high luminance, low energy consumption and High Dynamic Range (HDR))

 

  (7) Developed our first Ultra HD asymmetric RGBW(M+) structure product (15.6-inch)

 

    Improved panel transmittance, lowered energy consumption and enhanced outdoor visibility compared to previous models

 

  (8) Developed the world’s first “second display” LTPS smartphone product (5.7-inch QHD+)

 

    Delivered differentiated set design through the realization of a second display by applying a panel exterior manufacturing process

 

    Developed panel and instrumental optics technology for the independent operation of main display and second display

 

    Developed advanced power consumption technology for the realization of “Always On Display” functionality for the second display

 

10. Intellectual Property

As of September 30, 2015, our cumulative patent portfolio (including patents that have already expired) included a total of 27,959 patents, consisting of 13,600 in Korea and 14,359 in other countries.

 

11. Environmental and Safety Matters

We are subject to a variety of environmental laws and regulations, and we may be subject to fines or restrictions that could cause our operations to be interrupted. Our manufacturing processes generate worksite waste, including water and air pollutants, at various stages in the manufacturing process, and we are subject to relevant laws and regulations in each area of the environment, including with respect to the treatment of chemical by-products. We have installed various types of anti-pollution equipment, consistent with environmental standards, for the treatment of chemical waste and equipment for the recycling of treated waste water at 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.

In accordance with the Framework Act on Low Carbon, Green Growth, we implemented the greenhouse gas emission and energy consumption target system from 2012 to 2014. Starting from 2015, we plan on implementing the greenhouse gas trading system, under which we will be responsible to meet our emission targets based on the emission credits allocated to us by the Ministry of Environment of the Korean government. As a result, we may need to invest in additional equipment and there may be other costs associated with meeting reduction targets, which may have a negative effect on our profitability or production activities. As a designated company subject to greenhouse gas emission targets under the Framework Act on Low Carbon, Green Growth, if we fail to meet a reduction target and are unable to comply with the government’s subsequent enforcement notice relating to such failure, we may be subject to fines. Furthermore, as a designated company subject to the Act on Allocation and Trading of Greenhouse Gas Emissions, if do not have enough emission credits, we may be required to purchase additional credits or be subject to fines.

In connection with the greenhouse gas emission and energy reduction target system, we submitted a statement of our domestic emissions and energy usage for the 2013 to the Korean government (i.e., the Ministry of Environment and the Ministry of Trade, Industry & Energy) in March 2014 after it was certified by Lloyd’s Register Quality Assurance, a government-designated certification agency. The table below sets forth yearly levels of our greenhouse gases emissions and energy usage in the statement submitted to the Korean government:

 

(Unit: thousand tonnes of CO2 equivalent; Tetra Joules)  

Category

   2014      2013      2012  

Greenhouse gases

     7,537         6,922         6,161   

Energy

     60,002         61,092         61,169   

 

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Operations at our manufacturing plants are subject to regulation and periodic scheduled and unscheduled on-site inspections by the Ministry of Environment and local environmental protection authorities. We believe that we have adopted adequate anti-pollution measures and have minimized our impact on the environment by improving existing and developing new technologies for the effective maintenance of environmental protection standards consistent with local industry practice. In addition, we have continually monitored, and we believe 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 to manage our water and air pollution, toxic materials and waste. In December 2013, to ensure safe water quality and reduce costs, we entered into a contract with a specialist company to operate our waste water treatment facilities. In stages beginning in November 1997, we have obtained environmental management system ISO 14001 certifications for our domestic panel and module production facilities and our overseas module production plants in Nanjing, Yantai and Guangzhou, China, and with respect to our domestic panel and module production plants, we received ISO 50001 certification in December 2013 for our energy management system.

In addition, in August 2014, GP1, our newest eighth-generation panel fabrication facility located in Guangzhou, China, was the first electronics plant in China to receive the “Green Plant” designation under China’s Green China Policy, in addition to receiving ISO 14001, ISO 50001, OHSAS 18001, ISO 9001, PAS 2050 and ISO 14064-1 certifications. Furthermore, with respect to our production facilities in Gumi, we have been certified by the Ministry of Environment as a “Green Company” for P1 and our Gumi module production plant since 1997, P2 and P3 since 2006 and P4, P5 and P6 since 2008. Also, we received certification to self-inspect designated waste products with respect to our Paju plant by the Ministry of Environment in 2011, which was recertified in 2013. In addition, in recognition of our efforts to reduce greenhouse gas emissions, we were awarded a commendation from the Minster of Environment in the efforts against climate change category in the 2013 Green Management Awards, which was jointly hosted by the Ministry of Environment and the Ministry of Trade, Industry & Energy. In recognition of our efforts to improve recycling and reduce waste, we received a citation for being a leading recycling company by the Prime Minister of Korea.

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 (RoHS) Directive 2011/65/EU, and restricts the use of certain hazardous substances in the manufacture of electrical and electronic equipment.

In addition, as part of our commitment to use environment-friendly raw materials, we have implemented a green purchasing system that prevents the introduction of hazardous materials at the purchasing stage. The green purchasing system has been a key component in our efforts to comply with RoHS and other applicable environmental laws and regulation.

In October 2005, we became the first display panel company to receive accreditation as an International Accredited Testing Laboratory by the Korea Laboratory Accreditation Scheme, which is operated by the Korean Ministry of Trade, Industry & Energy. In September 2006, we received international accreditation from TUV SUD, EU’s German accreditation agency, as a RoHS testing laboratory. Our efforts to keep pace with the increasingly stringent accreditation standards and to receive and maintain such accreditations are part of our on-going efforts to systematically monitor environmentally controlled substances in our component parts inventory. Moreover, we participated in reforming IEC 62321, an international testing standard published by the International Electrotechnical Commission and used by RoHS, and the commission adopted our halogen-free combustion ion chromatography method in as IEC 62321-3-2, which was published in June 2013.

In February 2015, we were issued a corrective order and assessed a fine of W276 million, which we subsequently followed and paid, respectively, for violating the Occupational Health and Safety Act in connection with an accidental nitrogen gas exposure at one of our production facilities in Paju, Korea in January 2015. To prevent such accidents happening again in the future, we have strengthened our safety standards and management and employee education.

 

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12. Financial Information

 

  A. Financial highlights (Based on consolidated K-IFRS)

 

(Unit: In millions of Won)  

Description

   As of September 30, 2015      As of December 31, 2014      As of December 31, 2013  

Current assets

     10,474,775         9,240,629         7,731,788   

Quick assets

     7,598,312         6,486,531         5,798,547   

Inventories

     2,876,463         2,754,098         1,933,241   

Non-current assets

     13,321,490         13,726,394         13,983,496   

Investments in equity accounted investees

     399,399         407,644         406,536   

Property, plant and equipment, net

     10,902,241         11,402,866         11,808,334   

Intangible assets

     695,912         576,670         468,185   

Other non-current assets

     1,323,938         1,339,214         1,300,441   
  

 

 

    

 

 

    

 

 

 

Total assets

     23,796,265         22,967,023         21,715,284   
  

 

 

    

 

 

    

 

 

 

Current liabilities

     7,304,533         7,549,556         6,788,919   

Non-current liabilities

     3,470,214         3,634,057         4,128,945   
  

 

 

    

 

 

    

 

 

 

Total liabilities

     10,774,747         11,183,613         10,917,864   
  

 

 

    

 

 

    

 

 

 

Share capital

     1,789,079         1,789,079         1,789,079   

Share premium

     2,251,113         2,251,113         2,251,113   

Reserves

     182,059         (63,843      (91,674

Retained earnings

     8,255,646         7,455,063         6,662,655   

Non-controlling interest

     543,621         351,998         186,247   
  

 

 

    

 

 

    

 

 

 

Total equity

     13,021,518         11,783,410         10,797,420   
  

 

 

    

 

 

    

 

 

 
     (Unit: In millions of Won, except for per share data and number of consolidated entities)  

Description

   For the nine months ended
September 30, 2015
     For the year ended
December 31, 2014
     For the year ended
December 31, 2013
 

Revenue

     20,888,135         26,455,529         27,033,035   

Operating profit

     1,564,946         1,357,255         1,163,314   

Operating profit from continuing operations

     1,036,959         917,404         418,973   

Profit for the period

     1,036,959         917,404         418,973   

Profit (loss) attributable to:

        

Owners of the Company

     982,388         904,268         426,118   

Non-controlling interest

     54,571         13,136         (7,145

Basic earnings per share

     2,746         2,527         1,191   

Diluted earnings per share

     2,746         2,527         1,191   

Number of consolidated entities

     19         18         18   

 

  B. Financial highlights (Based on separate K-IFRS)

 

     (Unit: In millions of Won)  

Description

   As of September 30, 2015      As of December 31, 2014      As of December 31, 2013  

Current assets

     8,623,142         8,291,088         6,877,367   

Quick assets

     6,348,316         6,244,413         5,290,725   

Inventories

     2,274,826         2,046,675         1,586,642   

Non-current assets

     12,162,034         12,720,749         13,767,226   

Investments

     2,586,691         2,301,881         1,820,806   

Property, plant and equipment, net

     7,988,161         8,700,301         10,294,740   

Intangible assets

     455,797         548,078         461,620   

Other non-current assets

     1,131,385         1,170,489         1,190,060   
  

 

 

    

 

 

    

 

 

 

Total assets

     20,785,176         21,011,837         20,644,593   
  

 

 

    

 

 

    

 

 

 

Current liabilities

     7,201,949         7,550,330         6,754,175   

Non-current liabilities

     2,552,488         2,837,432         4,127,993   
  

 

 

    

 

 

    

 

 

 

Total liabilities

     9,754,437         10,387,762         10,882,168   
  

 

 

    

 

 

    

 

 

 

Share capital

     1,789,079         1,789,079         1,789,079   

Share premium

     2,251,113         2,251,113         2,251,113   

Reserves

     310         276         (305

Retained earnings

     6,990,237         6,583,607         5,722,538   
  

 

 

    

 

 

    

 

 

 

Total equity

     11,030,739         10,624,075         9,762,425   
  

 

 

    

 

 

    

 

 

 

 

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     (Unit: In millions of Won, except for per share data)  

Description

   For the nine months ended
September 30, 2015
     For the year ended
December 31, 2014
     For the year ended
December 31, 2013
 

Revenue

     19,028,734         25,383,670         25,854,183   

Operating profit

     895,074         984,790         753,550   

Operating profit from continuing operations

     587,829         973,118         99,672   

Profit for the period

     587,829         973,118         99,672   

Basic earnings per share

     1,643         2,720         279   

Diluted earnings per share

     1,643         2,720         279   

 

  C. Consolidated subsidiaries (as of September 30, 2015)

 

Company Interest

   Primary Business    Location    Equity  

LG Display America, Inc.

   Sales    U.S.A.      100

LG Display Japan Co., Ltd.

   Sales    Japan      100

LG Display Germany GmbH

   Sales    Germany      100

LG Display Taiwan Co., Ltd.

   Sales    Taiwan      100

LG Display Nanjing Co., Ltd.

   Manufacturing and sales    China      100

LG Display Shanghai Co., Ltd.

   Sales    China      100

LG Display Poland Sp. zo.o.

   Manufacturing and sales    Poland      100

LG Display Guangzhou Co., Ltd.

   Manufacturing and sales    China      100

LG Display Shenzhen Co., Ltd.

   Sales    China      100

LG Display Singapore Pte. Ltd.

   Sales    Singapore      100

L&T Display Technology (Fujian) Limited

   Manufacturing    China      51

LG Display Yantai Co., Ltd.

   Manufacturing and sales    China      100

LG Display (China) Co., Ltd.

   Manufacturing and sales    China      70

LG Display U.S.A. Inc.

   Manufacturing and sales    U.S.A.      100

Nanumnuri Co., Ltd.

   Workplace services    Korea      100

Unified Innovative Technology, LLC

   Managing intellectual property    U.S.A.      100

Global OLED Technology LLC

   Managing intellectual property    U.S.A.      100

LG Display Guangzhou Trading Co., Ltd.

   Sales    China      100

MMT (Money Market Trust)

   Money market trust    Korea      100

 

  D. Status of equity investments (as of September 30, 2015)

 

Company(1)

   Investment Amount      Initial Equity
Investment Date
     Equity
Interest
 

LG Display America, Inc.

   US$ 411,000,000         September 24, 1999         100

LG Display Germany GmbH

   EUR 960,000         November 5, 1999         100

LG Display Japan Co., Ltd.

   ¥ 95,000,000         October 12, 1999         100

LG Display Taiwan Co., Ltd.

   NT$ 115,500,000         May 19, 2000         100

LG Display Nanjing Co., Ltd.

   CNY 2,936,759,345         July 15, 2002         100

LG Display Shanghai Co., Ltd.

   CNY 4,138,650         January 16, 2003         100

LG Display Poland Sp. zo.o.

   PLN 511,071,000         September 6, 2005         100

LG Display Guangzhou Co., Ltd.

   CNY 1,654,693,079         August 7, 2006         100

LG Display Shenzhen Co., Ltd.

   CNY 3,775,250         August 28, 2007         100

LG Display Singapore Pte. Ltd.

   SGD 1,400,000         January 12, 2009         100

L&T Display Technology (Fujian) Limited

   CNY 59,197,026         January 5, 2010         51

LG Display Yantai Co., Ltd.

   CNY 955,915,000         April 19, 2010         100

LG Display U.S.A. Inc.

   US$ 10,920,000         December 8, 2011         100

Nanumnuri Co., Ltd.

   W 800,000,000         March 19, 2012         100

LG Display (China) Co., Ltd.(2)

   CNY 5,703,466,124         December 27, 2012         70

Unified Innovative Technology, LLC

   US$ 9,000,000         March 21, 2014         100

Global OLED Technology LLC(3)

   US$ 152,767,000         May 7, 2015         100

 

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Company(1)

   Investment Amount      Initial Equity
Investment Date
     Equity
Interest
 

LG Display Guangzhou Trading Co., Ltd.(4)

   CNY 1,223,960         May 27, 2015         100

MMT (Money Market Trust)

   W 10,500,000,000         June 11, 2007         100

Suzhou Raken Technology Co., Ltd.

   CNY 637,079,715         October 7, 2008         51

Paju Electric Glass Co., Ltd.

   W 33,648,000,000         March 25, 2005         40

TLI Co., Ltd.

   W 14,073,806,250         May 16, 2008         10

AVACO Co., Ltd.

   W 6,172,728,120         June 9, 2008         16

New Optics Ltd.

   W 12,199,600,000         July 30, 2008         46

LIG Invenia Co., Ltd. (formerly LIG ADP Co., Ltd.)

   W 6,330,000,000         February 24, 2009         13

Wooree E&L Co., Ltd. (formerly Wooree LED Co., Ltd.)

   W 11,900,000,000         May 22, 2009         21

LB Gemini New Growth Fund No. 16(5)

   W 7,659,704,518         December 7, 2009         31

Can Yang Investment Ltd.

   CNY 93,740,124         January 27, 2010         9

YAS Co., Ltd.

   W 10,000,000,000         September 16, 2010         19

Narae Nanotech Corporation

   W 30,000,000,000         April 22, 2011         23

Avatec Co., Ltd.

   W 10,600,000,000         December 6, 2011         16

Glonix Co., Ltd.

   W 2,000,000,000         April 10, 2012         20

Fuhu, Inc.(6)

   US$ 26,006,159         July 27, 2015         10

Changes since December 31, 2014:

 

(1) In August 2015, we completed the dissolution of L&T Display Technology (Xiamen) Limited.
(2) In January and August 2015, we invested CNY1,414 million and CNY35 million, respectively, in cash for the capital increase of LG Display (China) Co., Ltd. The investment did not affect our percentage interest.
(3) In May 2015, we invested US$103 million to acquire an additional 67% interest in Global OLED Technology LLC in order to strengthen our intellectual property portfolio for our OLED business. Our shareholding in such company is 100%.
(4) In April 2015, we founded LG Display Guangzhou Trading Co. Ltd. in Guangzhou, China for the purpose of sales of TFT-LCD products. Our shareholding in such company is 100%.
(5) In March 2015, we invested W360 million in LB Gemini New Growth Fund No. 16, and in April, July and August 2015, we divested W2,490 million, W2,100 million and W2,175 million, respectively. The investment and divestment did not affect our percentage interest.
(6) In July 2015, we invested US$26 million to acquire 500,000 common shares and 1,011,280 voting preferred shares of Fuhu, Inc., a producer of tablets and contents for children. Our shareholding in such company is 10% and we have the right to appoint one member of such company’s board of directors.

 

13. Audit Information

 

  A. Audit service

 

     (Unit: In millions of Won, hours)  

Description

   2015 Q1~Q3     2014     2013  

Auditor

     KPMG Samjong        KPMG Samjong        KPMG Samjong   

Activity

    
 
Audit by independent
auditor
  
  
   
 
Audit by independent
auditor
  
  
   
 
Audit by independent
auditor
  
  

Compensation (1)

     990 (400)  (2)      910 (326)  (2)      910 (325)  (2) 

Time required

     10,316        16,380        16,202   

 

(1) Compensation amount is the contracted amount for the full fiscal year.
(2) Compensation amount in (    ) is for Form 20-F filing and SOX 404 audit.

 

  B. Non-audit service

 

(Unit: In millions of Won)  

Fiscal year

 

Contract

date

 

Service description

 

Service period

  Compensation  

2013

  July 29, 2013   Advisory services in establishing a compliance system in connection with our disclosure obligations under the U.S. Securities and Exchange commission’s conflict mineral rule.   July 2013 to October 2013     126   

 

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14. Board of Directors

 

  A. Members of the board of directors

As of September 30, 2015 our board of directors consist of two non-outside directors, one non-standing director and three outside directors.

 

          (As of September 30, 2015)

Name

  

Position

  

Primary responsibility

Yu Sig Kang(1)    Director (non-standing)    Chairman of the board of directors
Sang Beom Han(2)    Representative Director (non-outside), Chief Executive Officer and President    Overall head of management
Sangdon Kim    Director (non-outside), Chief Financial Officer and Senior Vice President    Overall head of finances
Jin Jang    Outside Director    Related to the overall management
Joon Park    Outside Director    Related to the overall management
Sung-Sik Hwang(3)    Outside Director    Related to the overall management

 

(1) Yu Sig Kang is also a registered executive of LG Electronics.
(2) Sang Beom Han was reappointed for another term as a non-outside director at the annual general meeting of shareholders held on March 13, 2015.
(3) Sung-Sik Hwang was appointed as an outside director by the courts on January 22, 2015. Mr. Hwang was reappointed for a full term at the annual general meeting of shareholders held on March 13, 2015.

 

  Tae Sik Ahn stepped down as an outside director on January 15, 2015 before the end of his term.

 

  Dongil Kwon stepped down as an outside director on September 25, 2015 before the end of his term.

 

  B. Committees of the board of directors

As of September 30, 2015, we have the following committees that serve under our board of directors: Audit Committee, Outside Director Nomination Committee and Management Committee.

 

          (As of September 30, 2015)

Committee

  

Composition

  

Member

Audit Committee    3 outside directors    Joon Park, Jin Jang, Sung-Sik Hwang(1)
Outside Director Nomination Committee    1 non-standing director and 2 outside directors    Yu Sig Kang, Jin Jang(2), Joon Park(2)
Management Committee    2 non-outside directors    Sang Beom Han, Sangdon Kim

 

(1) Sung-Sik Hwang was appointed as member of the audit committee of the board of directors by the courts on January 22, 2015. Mr. Hwang was reappointed for a full term at the annual general meeting of shareholders held on March 13, 2015.
(2) Jin Jang and Joon Park were appointed as members of the outside director nomination committee of the board of directors by the board of directors on January 27, 2015.

 

  Tae Sik Ahn stepped down as a member of the audit committee and the outside director nomination committee of the board of directors on January 15, 2015 before the end of his term.

 

  C. Independence of directors

Directors are appointed in accordance with the procedures of the Commercial Act and other relevant laws and regulations. Following Dongil Kwon’s stepping down from his role as an outside director on September 25, 2015, three out of the six directors that comprise the board are outside directors. In order to comply with outside director requirements and in accordance with the Commercial Act, we plan to form, at our next general meeting of shareholders, a board of directors comprised of seven directors of whom the majority (four) will be outside directors. Outside directors candidates are nominated for appointment at a shareholders’ meeting after undergoing rigorous review by the Outside Director Nomination Committee.

 

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All of our current outside directors were nominated by the Outside Director Nomination Committee, and all of our current non-outside directors were nominated by the board of directors.

 

15. Information Regarding Shares

 

  A. Total number of shares

 

  (1) Total number of shares authorized to be issued (as of September 30, 2015): 500,000,000 shares.

 

  (2) Total shares issued and outstanding (as of September 30, 2015): 357,815,700 shares.

 

  B. Shareholder list

 

  (1) Largest shareholder and related parties as of September 30, 2015:

 

Name

   Relationship    Number of shares of common stock      Equity interest  

LG Electronics

   Largest

Shareholder

     135,625,000         37.9

Sang Beom Han

   Related
Party
     13,014         0.0

Sangdon Kim

   Related
Party
     1,500         0.0

 

  (2) Shareholders who are known to us to own 5% or more of our shares as of September 30, 2015:

 

Beneficial owner

   Number of shares of common stock      Equity interest  

LG Electronics

     135,625,000         37.9

National Pension Service

     29,071,950         8.12

 

16. Directors and Employees

 

  A. Directors

 

  (1) Remuneration for directors in 2015 Q1~Q3

 

(Unit: person, in millions of Won)  

Classification

   No. of directors(1)      Amount paid(2)     Per capita average
remuneration paid(4)
 

Non-outside directors

     3         2,207  (3)      736   

Outside directors who are not audit committee members

     0         57        57   

Outside directors who are audit committee members

     3         175        58   
  

 

 

    

 

 

   

 

 

 

Total

     6         2,439        —     
  

 

 

    

 

 

   

 

 

 

 

(1) Number of directors as at September 30, 2015. Dongil Kwon stepped down as an outside director on September 25, 2015 before the end of his term.
(2) Amount paid is calculated on the basis of amount of cash actually paid.
(3) Among the non-outside directors, Yu Sig Kang does not receive any remuneration.
(4) Per capita average remuneration paid is calculated by dividing total amount paid by the average number of directors for the nine months ended September 30, 2015.

 

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  (2) Remuneration for individual directors and audit committee members

 

    Individual amount of remuneration paid in 2015 Q1~Q3

 

(Unit: in millions of Won)  

Name

   Position      Total remuneration      Payment not included in
total remuneration
 

Sang Beom Han

     President         1,710         —     

 

    Method of calculation

 

Name

 

Method of calculation

Sang Beom Han   Total remuneration
      W1,710 million (consisting of W870 million in salary and W840 million in bonus).
  Salary
      Annual salary is set in accordance with the executive compensation regulations established by the board of directors.
      Annual salary is equally divided and paid on a monthly basis.
  Bonus
      Bonus is awarded by the board of directors based on performance and evaluation standards derived from the special bonus provisions of the executive compensation regulations.
      Bonus in the range of 0 to 150% of annual salary may be awarded by evaluating the previous year’s performance through certain financial indicators, such as revenue and operating profit, and non-financial indicators, such as meeting our medium- to long-term expectations, leadership and other contributions.
          Financial indicators: For the year ended December 31, 2014, revenue was W26,456 billion and operating profit was W1,357 billion, which was a 17% improvement compared to the previous year’s operating profit.
          Non-financial indictors: We maintained industry-leading technology through the continual release of differentiated technologies and products while improving profit margins and market position and Mr. Han showed leadership in leading us.

 

  (3) Stock options

Not applicable.

 

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Table of Contents
  B. Employees

As of September 30, 2015, we had 32,693 employees (excluding our executive officers). On average, our male employees have served 7.7 years and our female employees have served 5.8 years. The total amount of salary paid to our employees for the nine months ended September 30, 2015 based on income tax statements submitted to the Korean tax authority in accordance with Article 20 of the Income Tax Act was W1,335,404 million for our male employees and W353,915 million for our female employees. The following table provides details of our employees as of September 30, 2015:

 

(Unit: person, in millions of Won, year)  
     Number of
employees(1)
     Total salary in 2015 Q1~Q3(2)(3)(4)      Total salary
per capita(5)
     Average years of
service
 

Male

     23,763         1,355,404         57         7.7   

Female

     8,930         353,915         40         5.8   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     32,693         1,709,320         53         7.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Includes part-time employees.
(2) Welfare benefits and retirement expenses have been excluded. Total welfare benefit provided to our employees for the nine months ended September 30, 2015 was W266,116 million and the per capita welfare benefit provided was W8.2 million.
(3) Based on income tax statements, which are submitted to the Korean tax authority in accordance with Article 20 of the Income Tax Act.
(4) Includes incentive payments to employees who have transferred from our affiliated companies.
(5) Calculated using the average number of employees (male: 23,592, female: 8,910) for the nine months ended September 30, 2015.

 

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LG DISPLAY CO., LTD. AND SUBSIDIARIES

Condensed Consolidated Interim Financial Statements

(Unaudited)

September 30, 2015 and 2014

(With Independent Auditors’ Review Report Thereon)

 

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Table of Contents

 

     Page  

Independent Auditors’ Review Report

     30   

Condensed Consolidated Interim Statements of Financial Position

     32   

Condensed Consolidated Interim Statements of Comprehensive Income

     33   

Condensed Consolidated Interim Statements of Changes in Equity

     34   

Condensed Consolidated Interim Statements of Cash Flows

     35   

Notes to the Condensed Consolidated Interim Financial Statements

     37   

 

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Table of Contents

Independent Auditors’ Review Report

Based on a report originally issued in Korean

To the Board of Directors and Shareholders

LG Display Co., Ltd.:

Reviewed Financial Statements

We have reviewed the accompanying condensed consolidated interim financial statements of LG Display Co., Ltd. and subsidiaries (the “Group”) which comprise the condensed consolidated interim statement of financial position as of September 30, 2015, the condensed consolidated interim statements of comprehensive income for each of the three-month and nine-month periods ended September 30, 2015 and 2014, and statements of changes in equity and cash flows for the nine-month periods ended September 30, 2015 and 2014, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Condensed Consolidated Interim Financial Statements

Management is responsible for the preparation and fair presentation of these condensed consolidated interim financial statements in accordance with Korean International Financial Reporting Standards No. 1034, Interim Financial Reporting, and for such internal controls as management determines necessary to enable the preparation of condensed consolidated interim financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to issue a report on these condensed consolidated interim financial statements based on our reviews.

We conducted our reviews in accordance with the Review Standards for Quarterly and Semiannual Financial Statements established by the Security and Futures Commission of the Republic of Korea. A review of interim financial statements consists principally of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Korean Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our reviews, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial statements referred to above are not presented fairly, in all material respects, in accordance with Korean International Financial Reporting Standards No. 1034, Interim Financial Reporting.

Emphasis of Matter

Without qualifying our opinion, we draw attention to the following:

As discussed in note 17 to the consolidated financial statements, the Group has been or is named as defendants in a number of individual lawsuits and class actions in the United States and Canada, respectively, in connection with alleged antitrust violations concerning the sale of LCD panels. The Group estimated and recognized losses related to these alleged violations. However, actual losses are subject to change in the future based on new developments in each matter, or changes in circumstances, which could be materially different from those estimated and recognized by the Group.

 

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Table of Contents

Other Matters

The procedures and practices utilized in the Republic of Korea to review such condensed consolidated interim financial statements may differ from those generally accepted and applied in other countries. Accordingly this report is for use by those knowledgeable about Korean review standards and their application in practice.

We audited the consolidated statement of financial position as of December 31, 2014 and the related consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, which are not accompanying this review report, in accordance with Korean Standards on Auditing and our report thereon, dated February 17, 2015, expressed an unqualified opinion. The accompanying condensed consolidated statement of financial position of the Group as of December 31, 2014, presented for comparative purposes, is consistent, in all material respects, with the audited consolidated financial statements from which it has been derived.

/s/ KPMG Samjong Accounting Corp.

Seoul, Korea

October 30, 2015

 

This report is effective as of October 30, 2015 the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying condensed consolidated interim financial statements and notes thereto. Accordingly, the readers of the review report should understand that the above review report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

 

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LG DISPLAY CO., LTD. AND SUBSIDIARIES

Condensed Consolidated Interim Statements of Financial Position

(Unaudited)

As of September 30, 2015 and December 31, 2014

 

(In millions of won)    Note    September 30, 2015      December 31, 2014  

Assets

        

Cash and cash equivalents

   9    W 556,821        889,839  

Deposits in banks

   9      2,037,652        1,526,482  

Trade accounts and notes receivable, net

   9,16,19      4,347,770        3,444,477  

Other accounts receivable, net

   9      101,250        119,478  

Other current financial assets

   9      4,633        3,250  

Inventories

   5      2,876,463        2,754,098  

Prepaid income taxes

        5,257        6,340  

Other current assets

        544,929        496,665  
     

 

 

    

 

 

 

Total current assets

          10,474,775          9,240,629  

Deposits in banks

   9      13        8,427  

Investments in equity accounted investees

   6      399,399        407,644  

Other non-current financial assets

   9      46,981        33,611  

Property, plant and equipment, net

   7,20      10,902,241        11,402,866  

Intangible assets, net

   8,20      695,912        576,670  

Deferred tax assets

   21      984,277        1,036,507  

Other non-current assets

        292,667        260,669  
     

 

 

    

 

 

 

Total non-current assets

        13,321,490        13,726,394  
     

 

 

    

 

 

 

Total assets

      W 23,796,265        22,967,023  
     

 

 

    

 

 

 

Liabilities

        

Trade accounts and notes payable

   9,19    W 3,392,978        3,391,635  

Current financial liabilities

   9,10      1,300,195        967,909  

Other accounts payable

   9,19      1,447,520        1,508,158  

Accrued expenses

        795,232        740,492  

Income tax payable

        150,015        227,714  

Provisions

   17      110,940        193,884  

Advances received

   16      51,632        488,379  

Other current liabilities

        56,021        31,385  
     

 

 

    

 

 

 

Total current liabilities

        7,304,533        7,549,556  

Non-current financial liabilities

   9,10      3,080,564        3,279,477  

Non-current provisions

        12,502        8,014  

Defined benefit liabilities, net

   14      330,317        324,180  

Deferred tax liabilities

   21      36,309        245  

Other non-current liabilities

        10,522        22,141  
     

 

 

    

 

 

 

Total non-current liabilities

        3,470,214        3,634,057  
     

 

 

    

 

 

 

Total liabilities

        10,774,747        11,183,613  
     

 

 

    

 

 

 

Equity

        

Share capital

   18      1,789,079        1,789,079  

Share premium

        2,251,113        2,251,113  

Reserves

   18      182,059        (63,843 )

Retained earnings

        8,255,646        7,455,063  
     

 

 

    

 

 

 

Total equity attributable to owners of the Controlling Company

        12,477,897        11,431,412  
     

 

 

    

 

 

 

Non-controlling interests

        543,621        351,998  
     

 

 

    

 

 

 

Total equity

        13,021,518        11,783,410  
     

 

 

    

 

 

 

Total liabilities and equity

      W 23,796,265        22,967,023  
     

 

 

    

 

 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

32


Table of Contents

LG DISPLAY CO., LTD. AND SUBSIDIARIES

Condensed Consolidated Interim Statements of Comprehensive Income

(Unaudited)

For the three-month and nine-month periods ended September 30, 2015 and 2014

 

(In millions of won, except earnings per share)    Note    For the three-month period
ended September 30
    For the nine-month period
ended September 30
 
          2015     2014     2015     2014  

Revenue

   19, 20    W 7,158,201       6,546,853     W 20,888,135       18,113,591  

Cost of sales

   5,11,19        (6,111,527 )     (5,463,180 )       (17,340,386 )     (15,657,517 )
     

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

        1,046,674       1,083,673       3,547,749       2,456,074  

Selling expenses

   12      (249,726 )     (167,857 )     (631,552 )     (486,293 )

Administrative expenses

   12      (153,284 )     (133,216 )     (442,216 )     (377,877 )

Research and development expenses

        (310,726 )     (308,483 )     (909,035 )     (860,424 )
     

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

        332,938       474,117       1,564,946       731,480  
     

 

 

   

 

 

   

 

 

   

 

 

 

Finance income

   15      40,877       22,569       109,384       71,663  

Finance costs

   15      (126,889 )     (65,959 )     (237,092 )     (134,555 )

Other non-operating income

   13      430,917       196,594       937,529       701,132  

Other non-operating expenses

   13      (412,435 )     (198,013 )     (978,364 )     (629,407 )

Equity in income of equity accounted investees, net

        7,142       2,710       6,847       13,209  
     

 

 

   

 

 

   

 

 

   

 

 

 

Profit before income tax

        272,550       432,018       1,403,250       753,522  

Income tax expense

   21      (73,918 )     (77,889 )     (366,291 )     (225,324 )
     

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the period

        198,632       354,129       1,036,959       528,198  
     

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

           

Items that will never be reclassified to profit or loss

           

Remeasurements of net defined benefit liabilities

   14      (692 )     (355 )     (3,629 )     (3,730 )

Related income tax

        166       86       732       951  
     

 

 

   

 

 

   

 

 

   

 

 

 
        (526 )     (269 )     (2,897 )     (2,779 )

Items that are or may be reclassified to profit or loss

           

Net change in fair value of available-for-sale financial assets

   15      1,166       23       2,060       1,749  

Foreign currency translation differences for foreign operations

        185,302       111,505       278,206       (74,929 )

Share of loss from sale of treasury stocks by associates

        (9 )     194       (353 )     (431 )

Related income tax

        170       169       133       (198 )
     

 

 

   

 

 

   

 

 

   

 

 

 
        186,629       111,891       280,046       (73,809 )
     

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) for the period, net of income tax

        186,103       111,622       277,149       (76,588 )
     

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

      W 384,735       465,751     W 1,314,108       451,610  
     

 

 

   

 

 

   

 

 

   

 

 

 

Profit attributable to:

           

Owners of the Controlling Company

        189,168       349,804       982,388       528,180  

Non-controlling interests

        9,464       4,325       54,571       18  
     

 

 

   

 

 

   

 

 

   

 

 

 

Profit for the period

      W 198,632       354,129     W 1,036,959       528,198  
     

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income attributable to:

           

Owners of the Controlling Company

        354,882       449,204       1,225,393       455,010  

Non-controlling interests

        29,853       16,547       88,715       (3,400 )
     

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the period

      W 384,735       465,751     W 1,314,108       451,610  
     

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share (In Won)

           

Basic earnings per share

   22    W 529       978       2,746       1,476  
     

 

 

   

 

 

   

 

 

   

 

 

 

Diluted earnings per share

   22    W 529       978       2,746       1,476  
     

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

33


Table of Contents

LG DISPLAY CO., LTD. AND SUBSIDIARIES

Condensed Consolidated Interim Statements of Changes in Equity

(Unaudited)

For the nine-month periods ended September 30, 2015 and 2014

 

    Attributable to owners of the Controlling Company              
(In millions of won)   Share
capital
    Share
premium
    Share of loss
from sale of treasury
stocks by associates
    Fair value
reserve
    Translation
reserve
    Retained
earnings
    Non-controlling
interests
    Total
equity
 

Balances at January 1, 2014

  W   1,789,079       2,251,113       (254 )     572       (91,992 )     6,662,655       186,247       10,797,420  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) for the period

               

Profit for the period

    —         —         —         —         —         528,180       18       528,198  

Other comprehensive income (loss)

               

Net change in fair value of available-for-sale financial assets, net of tax

    —         —         —         1,652       —         —         —         1,652  

Remeasurements of the net defined benefit liabilities, net of tax

    —         —         —         —         —         (2,779 )     —         (2,779 )

Foreign currency translation differences for foreign operations, net of tax

    —         —         —         —         (71,612 )     —         (3,418 )     (75,030 )

Share of loss from sale of treasury stocks by associates, net of tax

    —         —         (431 )     —         —         —         —         (431 )
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

    —         —         (431 )     1,652       (71,612 )     (2,779 )     (3,418 )     (76,588 )
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) for the period

  W —         —         (431 )     1,652       (71,612 )     525,401       (3,400 )     451,610  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transaction with owners, recognized directly in equity

               

Decrease of share interest in non-controlling interests

    —         —         —         —         —         —         (2,955 )     (2,955 )

Capital contribution from non-controlling interests

    —         —         —         —         —         —         146,159       146,159  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at September 30, 2014

  W 1,789,079       2,251,113       (685 )     2,224       (163,604 )     7,188,056       326,051       11,392,234  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at January 1, 2015

  W 1,789,079       2,251,113       (1,614 )     1,368       (63,597 )     7,455,063       351,998       11,783,410  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) for the period

               

Profit for the period

    —         —         —         —         —         982,388       54,571       1,036,959  

Other comprehensive income (loss)

               

Net change in fair value of available-for-sale financial assets, net of tax

    —         —         —         2,049       —         —         —         2,049  

Remeasurements of the net defined benefit liabilities, net of tax

    —         —         —         —         —         (2,897 )     —         (2,897 )

Foreign currency translation differences for foreign operations, net of tax

    —         —         —         —         244,206       —         34,144       278,350  

Share of loss from sale of treasury stocks by associates, net of tax

    —         —         (353 )     —         —         —         —         (353 )
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

    —         —         (353 )     2,049       244,206       (2,897 )     34,144       277,149  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) for the period

  W —         —         (353 )     2,049       244,206       979,491       88,715       1,314,108  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transaction with owners, recognized directly in equity

               

Dividends to equity holders

    —         —         —         —         —         (178,908 )     —         (178,908 )

Capital contribution from non-controlling interests

    —         —         —         —         —         —         102,908       102,908  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at September 30, 2015

  W 1,789,079       2,251,113       (1,967 )     3,417       180,609       8,255,646       543,621       13,021,518  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

34


Table of Contents

LG DISPLAY CO., LTD. AND SUBSIDIARIES

Condensed Consolidated Interim Statements of Cash Flows

(Unaudited)

For the nine-month periods ended September 30, 2015 and 2014

 

(In millions of won)    Note    2015     2014  

Cash flows from operating activities:

       

Profit for the period

      W 1,036,959       528,198  

Adjustments for:

       

Income tax expense

   21      366,291       225,324  

Depreciation

   11      2,251,289       2,400,836  

Amortization of intangible assets

   11      303,270       185,346  

Gain on foreign currency translation

        (84,168 )     (98,211 )

Loss on foreign currency translation

        85,054       105,331  

Expenses related to defined benefit plans

   14      149,275       152,738  

Impairment loss on intangible assets

        239       662  

Reversal of impairment loss on intangible assets

        (80 )     —    

Gain on disposal of property, plant and equipment

        (10,242 )     (7,629 )

Loss on disposal of property, plant and equipment

        146       359  

Loss on disposal of intangible assets

        26       —    

Finance income

        (66,540 )     (40,129 )

Finance costs

        180,806       90,240  

Equity in income of equity method accounted investees, net

        (6,847 )     (13,209 )

Other income

        (12,510 )     (7,281 )

Other expenses

        220,458       98,368  
     

 

 

   

 

 

 
        3,376,467       3,092,745  

Change in trade accounts and notes receivable

        (1,287,375 )     (442,389 )

Change in other accounts receivable

        43,028       5,830  

Change in other current assets

        (23,216 )     (228,535 )

Change in inventories

        (122,364 )     (694,244 )

Change in other non-current assets

        (68,610 )     (76,130 )

Change in trade accounts and notes payable

        (55,190 )     129,955  

Change in other accounts payable

        (463,436 )     (301,543 )

Change in accrued expenses

        95,254       89,477  

Change in other current liabilities

        30,335       (9,033 )

Change in other non-current liabilities

        435       18,390  

Change in provisions

        (92,976 )     (76,926 )

Change in defined benefit liabilities, net

        (146,161 )     (105,294 )
     

 

 

   

 

 

 
        (2,090,276 )     (1,690,442 )

Cash generated from operating activities

        2,323,150       1,930,501  

Income taxes paid

        (392,017 )     (73,895 )

Interests received

        44,932       27,677  

Interests paid

        (102,608 )     (129,915 )
     

 

 

   

 

 

 

Net cash provided by operating activities

      W   1,873,457       1,754,368  
     

 

 

   

 

 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

35


Table of Contents

LG DISPLAY CO., LTD. AND SUBSIDIARIES

Condensed Consolidated Interim Statements of Cash Flows, Continued

(Unaudited)

For the nine-month periods ended September 30, 2015 and 2014

 

(In millions of won)    Note    2015     2014  

Cash flows from investing activities:

       

Dividends received

      W 25,577       727  

Proceeds from withdrawal of deposits in banks

        1,725,172       1,299,676  

Increase in deposits in banks

        (2,227,928 )     (1,546,642 )

Acquisition of investments in equity accounted investees

        (30,647 )     (324 )

Proceeds from disposal of investments in equity accounted investees

        6,765       5,185  

Acquisition of property, plant and equipment

        (1,653,728 )     (2,352,432 )

Proceeds from disposal of property, plant and equipment

        214,966       21,658  

Acquisition of intangible assets

        (207,383 )     (258,979 )

Government grants received

        3,200       47,791  

Proceeds from collection of short-term loans

        —         6  

Net cash inflow from disposal of a subsidiary

        —         2,409  

Net cash outflow from acquisition of a subsidiary

        (110,093 )     —    

Increase in long-term loans

        (16,516 )     —    

Proceeds from disposal of other financial assets

        92       28  

Acquisition of other non-current financial assets

        (2,101 )     (5,052 )

Proceeds from disposal of other non-current financial assets

        —         15,445  
     

 

 

   

 

 

 

Net cash used in investing activities

        (2,272,624 )     (2,770,504 )
     

 

 

   

 

 

 

Cash flows from financing activities:

       

Proceeds from short-term borrowings

        —         419,941  

Repayments of short-term borrowings

        (223,626 )     (18,533 )

Proceeds from issuance of debentures

        298,778       298,783  

Proceeds from long-term debt

        253,869       841,253  

Repayments of long-term debt

        —         (503,618 )

Repayments of current portion of long-term debt and debentures

        (334,360 )     (387,993 )

Capital contribution from non-controlling interest

        102,908       146,159  

Dividends paid

        (178,908 )     —    
     

 

 

   

 

 

 

Net cash provided by (used in) financing activities

        (81,339 )     795,992  
     

 

 

   

 

 

 

Net decrease in cash and cash equivalents

        (480,506 )     (220,144 )

Cash and cash equivalents at January 1

        889,839       1,021,870  

Effect of exchange rate fluctuations on cash held

        147,488       21,738  
     

 

 

   

 

 

 

Cash and cash equivalents at September 30

      W 556,821       823,464  
     

 

 

   

 

 

 

See accompanying notes to the condensed consolidated interim financial statements.

 

36


Table of Contents
1. Reporting Entity

 

  (a) Description of the Controlling Company

LG Display Co., Ltd. (the “Controlling Company”) was incorporated in February 1985 under its original name of LG Soft, Ltd. as a wholly owned subsidiary of LG Electronics Inc. In 1998, LG Electronics Inc. and LG Semicon Co., Ltd. transferred their respective Thin Film Transistor-Liquid Crystal Display (“TFT-LCD”) related business to the Controlling Company. The main business of the Controlling Company and its subsidiaries (the “Group”) is to manufacture and sell TFT-LCD panels. The Controlling Company is a stock company (“Jusikhoesa”) domiciled in the Republic of Korea with its address at 128 Yeouidae-ro, Yeongdeungpo-gu, Seoul, the Republic of Korea. In July 1999, LG Electronics Inc. and Koninklijke Philips Electronics N.V. (“Philips”) entered into a joint venture agreement. Pursuant to the agreement, the Controlling Company changed its name to LG.Philips LCD Co., Ltd. However, in February 2008, the Controlling Company changed its name to LG Display Co., Ltd. considering the decrease of Philips’s share interest in the Controlling Company and the possibility of its business expansion to other display products including Organic Light Emitting Diode (“OLED”) and Flexible Display products. As of September 30, 2015, LG Electronics Inc. owns 37.9% (135,625,000 shares) of the Controlling Company’s common stock.

As of September 30, 2015, the Controlling Company has TFT-LCD manufacturing plants, an OLED manufacturing plant and a Research & Development Center in Paju and TFT-LCD manufacturing plants in Gumi. The Controlling Company has overseas subsidiaries located in North America, Europe and Asia.

The Controlling Company’s common stock is listed on the Korea Exchange under the identifying code 034220. As of September 30, 2015, there are 357,815,700 shares of common stock outstanding. The Controlling Company’s common stock is also listed on the New York Stock Exchange in the form of American Depository Shares (“ADSs”) under the symbol “LPL”. One ADS represents one-half of one share of common stock. As of September 30, 2015, there are 31,303,446 ADSs outstanding.

 

37


Table of Contents
1. Reporting Entity, Continued

 

 

  (b) Consolidated Subsidiaries as of September 30, 2015

 

(In millions)                                

Subsidiaries

  

Location

  

Percentage of
ownership

  

Fiscal year

end

  

Date of
incorporation

  

Business

   Capital stocks  

LG Display America, Inc.

   San Jose, U.S.A.    100%    December 31    September 24, 1999    Sell TFT-LCD products    USD 411   

LG Display Japan Co., Ltd.

   Tokyo, Japan    100%    December 31    October 12, 1999    Sell TFT-LCD products    JPY 95   

LG Display Germany GmbH

   Ratingen, Germany    100%    December 31    November 5, 1999    Sell TFT-LCD products    EUR 1   

LG Display Taiwan Co., Ltd.

   Taipei, Taiwan    100%    December 31    April 12, 1999    Sell TFT-LCD products    NTD 116   

LG Display Nanjing Co., Ltd.

   Nanjing, China    100%    December 31    July 15, 2002    Manufacture and sell TFT-LCD products    CNY 2,937   

LG Display Shanghai Co., Ltd.

   Shanghai, China    100%    December 31    January 16, 2003    Sell TFT-LCD products    CNY 4   

LG Display Poland Sp. z o.o.

   Wroclaw, Poland    100%    December 31    September 6, 2005    Manufacture and sell TFT-LCD products    PLN 511   

LG Display Guangzhou Co., Ltd.

   Guangzhou, China    100%    December 31    June 30, 2006    Manufacture and sell TFT-LCD products    CNY 1,655   

LG Display Shenzhen Co., Ltd.

   Shenzhen, China    100%    December 31    August 28, 2007    Sell TFT-LCD products    CNY 4   

LG Display Singapore Pte. Ltd.

   Singapore    100%    December 31    January 12, 2009    Sell TFT-LCD products    SGD 1.4   

L&T Display Technology (Fujian) Limited

   Fujian, China    51%    December 31    January 5, 2010    Manufacture LCD module and monitor sets    CNY 116   

LG Display Yantai Co., Ltd.

   Yantai, China    100%    December 31    April 19, 2010    Manufacture and sell TFT-LCD products    CNY 956   

LG Display U.S.A. Inc.

   McAllen, U.S.A.    100%    December 31    October 26, 2011    Manufacture TFT-LCD products    USD 11   

Nanumnuri Co., Ltd.

   Gumi, South Korea    100%    December 31    March 21, 2012    Janitorial services    KRW 800   

LG Display (China) Co., Ltd. (*1)

   Guangzhou, China    70%    December 31    December 10, 2012    Manufacture and sell TFT-LCD products    CNY 8,147   

Unified Innovative Technology, LLC

   Wilmington, U.S.A.    100%    December 31    March 12, 2014    Manage intellectual property    USD 9   

LG Display Guangzhou Trading Co., Ltd. (*2)

   Guangzhou, China    100%    December 31    April 28, 2015    Sell TFT-LCD products    CNY 1.2   

Global OLED Technology, LLC (*3)

   Herndon, U.S.A.    100%    December 31    December 18, 2009    Manage intellectual property    USD 138   

Money Market
Trust(*4)

   Seoul, South Korea    100%    December 31    —      Money market trust    KRW 10,500   

 

(*1) In January 2015, the Controlling Company invested W134,619 million in cash for the capital increase of LG Display (China) Co., Ltd. (“LGDCA”). In addition, LG Display Guangzhou Co., Ltd. (“LGDGZ”), a subsidiary of the Controlling Company, invested W118,936 million in cash for the capital increase of LGDCA in January and August 2015. The Controlling Company’s ownership percentage in LGDCA decreased from 56% to 52% and LGDGZ’s ownership percentage in LGDCA increased from 14% to 18%, respectively, as of December 31, 2014 to September 30, 2015.

 

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1. Reporting Entity, Continued

 

(*2) In April 2015, the Controlling Company established LG Display Guangzhou Trading Co., Ltd. to sell TFT-LCD products. As of September 30, 2015, the Controlling Company has a 100% equity interest of this subsidiary and its capital stock amounts to W218 million as of September 30, 2015.
(*3) In May 2015, the Controlling Company acquired 67% ownership in Gloabl OLED Technology LLC from LG Electronics Inc., LG Chem Ltd. and Idemitsu Kosan Co., Ltd. and paid W54,025 million, W2,990 million and W54,025million, respectively, in cash. As a result, the Controlling Company’s ownership percentage in Global OLED Technology increased from 33% to 100% as of December 31, 2014 to September 30, 2015.
(*4) In January 2015, the Controlling Company disposed W18,100 million in MMT. As of September 30, 2015, the MMT balance as a result of its acquisition and disposal during the nine-month period ended September 30, 2015 is W10,500 million. There was no change in the Controlling Company’s ownership percentage in MMT as a result of its disposal and acquisition.

In August 2015, L&T Display Technology (Xiamen) Limited, a subsidiary of the Controlling Company, completed liquidation.

 

2. Basis of Presenting Financial Statements

 

  (a) Statement of Compliance

The condensed consolidated interim financial statements have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRSs”) No.1034, Interim Financial Reporting. They do not include all of the information required for full annual consolidated financial statements and should be read in conjunction with the consolidated financial statements of the Group as of and for the year ended December 31, 2014.

 

  (b) Basis of Measurement

The condensed consolidated interim financial statements have been prepared on the historical cost basis except for the following material items in the statements of financial position:

 

    available-for-sale financial assets measured at fair value, and

 

    net defined benefit liabilities are recognized as the present value of defined benefit obligations less the fair value of plan assets

 

  (c) Functional and Presentation Currency

The condensed consolidated interim financial statements are presented in Korean won, which is the Controlling Company’s functional currency.

 

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2. Basis of Presenting Financial Statements, Continued

 

  (d) Use of Estimates and Judgments

The preparation of the condensed consolidated interim financial statements in conformity with K-IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those applied in its consolidated financial statements as of and for the year ended December 31, 2014.

 

3. Summary of Significant Accounting Policies

The significant accounting policies followed by the Group in the preparation of its condensed consolidated interim financial statements are the same as those followed by the Group in its preparation of the consolidated financial statements as of and for the year ended December 31, 2014.

 

4. Financial Risk Management

The objectives and policies on financial risk management followed by the Group are consistent with those disclosed in the consolidated financial statements as of and for the year ended December 31, 2014.

 

5. Inventories

Inventories as of September 30, 2015 and December 31, 2014 are as follows:

 

(In millions of won)    September 30, 2015      December 31, 2014  

Finished goods

   W 1,151,849         1,200,592   

Work-in-process

     804,751         745,614   

Raw materials

     576,626         426,380   

Supplies

     343,237         381,512   
  

 

 

    

 

 

 
   W   2,876,463         2,754,098   
  

 

 

    

 

 

 

For the nine-month periods ended September 30, 2015 and 2014, the amount of inventories recognized as cost of sales, inventory write-downs and reversal and usage of inventory write-downs included in cost of sales is as follows;

 

(In millions of won)    2015      2014  

Inventories recognized as cost of sales

   W 17,340,386         15,657,517   

Including: inventory write-downs

     369,174         255,009   

Including: reversal and usage of inventory write-downs

     (332,699      (211,363

 

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6. Investments in Equity Accounted Investees

Associates and Joint Ventures (Equity Method Investees) as of September 30, 2015 are as follows:

 

(In millions of won)                                 

Associates and joint ventures

   Location    Percentage
of ownership
    Fiscal
year end
   Date of
incorporation
   Business    Carrying
amount
 

Suzhou Raken Technology Co., Ltd.(*1)

   Suzhou, China      51   December 31    October 2008    Manufacture and sell

LCD modules and

LCD TV set

   W 146,612   

Paju Electric Glass Co., Ltd.

   Paju,

South Korea

     40   December 31    January 2005    Manufacture electric

glass for FPDs

     59,110   

TLI Inc.(*2)

   Seongnam,

South Korea

     10   December 31    October 1998    Manufacture and sell

semiconductor parts for
FPDs

     5,138   

AVACO Co., Ltd.(*2)

   Daegu,

South Korea

     16   December 31    January 2001    Manufacture and sell

equipment for FPDs

     11,955   

New Optics Ltd.

   Yangju,

South Korea

     46   December 31    August 2005    Manufacture back light

parts for TFT-LCDs

     45,415   

LIG INVENIA Co., Ltd. (LIG ADP Co., Ltd.)(*2)

   Seongnam,

South Korea

     13   December 31    January 2001    Develop and manufacture
equipment for FPDs
     2,019   

WooRee E&L Co., Ltd.

   Ansan,

South Korea

     21   December 31    June 2008    Manufacture LED back

light unit packages

     24,104   

LB Gemini New Growth Fund No. 16 (*3)

   Seoul,

South Korea

     31   December 31    December 2009    Invest in small and

middle sized

companies and

benefit from M&A
opportunities

     13,203   

Can Yang Investments Limited(*2)

   Hong Kong      9   December 31    January 2010    Develop, manufacture
and sell LED parts
     8,012   

YAS Co., Ltd.(*2)(*4)

   Paju,

South Korea

     19   December 31    April 2002    Develop and

manufacture deposition

equipment for OLEDs

     10,794   

Narenanotech Corporation

   Yongin,

South Korea

     23   December 31    December 1995    Manufacture and sell

FPD manufacturing

equipment

     24,896   

AVATEC Co., Ltd.(*2)

   Daegu,

South Korea

     16   December 31    August 2000    Process and sell

glass for FPDs

     19,060   

Glonix Co., Ltd.(*5)

   Gimhae,

South Korea

     20   December 31    October 2006    Manufacture and sell

LCD

     —     

Fuhu, Inc.(*2)(*6)

   Los Angeles,
U.S.A.
     10   March 31    June 2008    Develop and manufacture

tablet for kids and

Contents service

     29,081   
                

 

 

 
                 W   399,399   
                

 

 

 

 

(*1) Despite its 51% ownership, management concluded that the Controlling Company does not have control of Suzhou Raken Technology Co., Ltd. because the Controlling Company and AmTRAN Technology Co., Ltd., which has a 49% equity interest of the investee, jointly control the board of directors of the investee through equal voting powers. Accordingly, investment in Suzhou Raken Technology Co., Ltd. was accounted for as an equity method investment.

 

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6. Investments in Equity Accounted Investees, Continued

 

(*2) Although the Controlling Company’s share interests in TLI Inc., AVACO Co., Ltd., LIG INVENIA Co., Ltd., Can Yang Investments Limited, YAS Co., Ltd., AVATEC Co., Ltd., and Fuhu, Inc. are below 20%, the Controlling Company is able to exercise significant influence through its right to appoint a director to the board of directors of each investee and the transactions between the Controlling Company and the investees are significant. Accordingly, the investments in these investees have been accounted for using the equity method.
(*3) The Controlling Company is a member of a limited partnership in the LB Gemini New Growth Fund No.16 (“the Fund”). In March 2015, the Controlling Company made an additional cash investment of W360 million in the Fund and received W2,490 million, W2,100 million and W2,175 million from the Fund as capital distribution in April, July and August 2015, respectively. There were no changes in the Controlling Company’s ownership percentage in the Fund and the Controlling Company is committed to making future investments of up to an aggregate of W30,000 million.
(*4) In 2015, YAS Co., Ltd. exercised its stock option and the Controlling Company’s ownership percentage in YAS Co., Ltd. decreased from 19.2% to 18.5% as of December 31, 2014 to September 30, 2015.
(*5) The Controlling Company’s share of net assets of Glonix Co., Ltd. (“Glonix”) was reduced below zero and, accordingly, the Controlling Company discontinued the recognition of its share of losses of the Glonix. The Controlling Company’s unrecognized share of losses of the Glonix amounts to W210 million.
(*6) In July 2015, the Controlling Company invested W30,287 million and acquired 500,000 shares of common stock and 1,011,280 shares of preferred stock with voting rights in Fuhu, Inc.. As of September 30, 2015, the Controlling Company’s ownership percentage in Fuhu, Inc. is 10% and the Controlling Company has the right to appoint a director to the board of directors of the investee.

 

7. Property, Plant and Equipment

For the nine-month periods ended September 30, 2015 and 2014, the Group purchased property, plant and equipment of W1,824,781 million and W2,503,119 million, respectively. The capitalized borrowing costs and the annualized capitalization rate were W10,277 million and 3.80%, and W26,560 million and 3.75% for the nine-month periods ended September 30, 2015 and 2014, respectively. Also, for the nine-month periods ended September 30, 2015 and 2014, the Group disposed of property, plant and equipment with carrying amounts of W228,139 million and W25,456 million, respectively, and recognized W10,242 million and W146 million as gain and loss, respectively, on disposal of property, plant and equipment for the nine-month period ended September 30, 2015 (gain and loss for the nine-month period ended September 30, 2014: W7,629 million and W359 million, respectively).

 

8. Intangible Assets

The Group capitalizes expenditures related to development activities, such as expenditures incurred on designing, manufacturing and testing of products that are ultimately selected for production. The carrying amounts of capitalized development costs as of September 30, 2015 and December 31, 2014 are W189,344 million and W253,624 million, respectively.

 

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Table of Contents
9. Financial Instruments

 

  (a) Credit risk

 

  (i) Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk as of September 30, 2015 and December 31, 2014 is as follows:

 

(In millions of won)              
     September 30, 2015      December 31, 2014  

Cash and cash equivalents

   W 556,821         889,839   

Deposits in banks(*)

     2,037,665         1,534,909   

Trade accounts and notes receivable, net

     4,347,770         3,444,477   

Other accounts receivable, net

     101,250         119,478   

Available-for-sale financial assets

     3,207         3,237   

Deposits

     22,023         19,602   

Other non-current financial assets

     19,522         7,859   
  

 

 

    

 

 

 
   W   7,088,258         6,019,401   
  

 

 

    

 

 

 

 

(*) As of September 30, 2015, the amount of deposits in banks restricted in use is W82,115 million (as of December 31, 2014: W81,232 million).

The maximum exposure to credit risk for trade accounts and notes receivable as of September 30, 2015 and December 31, 2014 by geographic region was as follows:

 

(In millions of won)              
     September 30, 2015      December 31, 2014  

Domestic

   W 483,007         406,163   

Euro-zone countries

     396,946         309,296   

Japan

     176,372         135,972   

United States

     1,403,850         1,300,700   

China

     961,464         746,111   

Taiwan

     552,427         378,272   

Others

     373,704         167,963   
  

 

 

    

 

 

 
   W   4,347,770         3,444,477   
  

 

 

    

 

 

 

 

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Table of Contents
9. Financial Instruments, Continued

 

  (ii) Impairment loss

The aging of trade accounts and notes receivable as of September 30, 2015 and December 31, 2014 was as follows:

 

(In millions of won)              
     September 30, 2015      December 31, 2014  
     Book
value
     Impairment
loss
     Book
value
     Impairment
loss
 

Not past due

   W 4,309,748         (1,335      3,412,933         (762

Past due 1-15 days

     16,830         (5      26,220         (30

Past due 16-30 days

     285         —           4,130         (13

Past due 31-60 days

     11,629         (116      1,830         (18

Past due more than 60 days

     10,836         (102      189         (2
  

 

 

    

 

 

    

 

 

    

 

 

 
   W   4,349,328         (1,558      3,445,302         (825
  

 

 

    

 

 

    

 

 

    

 

 

 

The movement in the allowance for impairment in respect of receivables during the nine-month period ended September 30, 2015 and the year ended December 31, 2014 are as follows:

 

(In millions of won)              
     2015      2014  

Balance at the beginning of the period

   W 825         330   

Bad debt expense

     733         495   
  

 

 

    

 

 

 

Balance at the reporting date

   W   1,558         825   
  

 

 

    

 

 

 

 

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Table of Contents
9. Financial Instruments, Continued

 

  (b) Liquidity risk

The following are the contractual maturities of financial liabilities, including estimated interest payments, as of September 30, 2015.

 

(In millions of won)           Contractual cash flows  
     Carrying
amount
     Total      6 months or
less
     6-12
months
     1-2 years      2-5 years      More than
5 years
 

Non-derivative financial liabilities :

                    

Secured bank loans

   W 718,432         781,041         11,070         11,070         111,770         647,131         —     

Unsecured bank loans

     966,843         988,282         186,863         5,772         528,045         267,481         121   

Unsecured bond issues

     2,695,484         2,859,162         863,808         330,712         513,681         1,067,128         83,833   

Trade accounts and notes payables

     3,392,978         3,392,978         3,392,978         —           —           —           —     

Other accounts payable

     1,457,278         1,458,531         1,445,099         2,660         5,452         5,320         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W   9,231,015         9,479,994         5,899,818         350,214         1,158,948         1,987,060         83,954   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.

 

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9. Financial Instruments, Continued

 

  (c) Currency risk

 

  (i) Exposure to currency risk

The Group’s exposure to foreign currency risk based on notional amounts as of September 30, 2015 and December 31, 2014 is as follows:

 

(In millions)    September 30, 2015  
     USD     JPY     CNY     TWD     EUR     PLN  

Cash and cash equivalents

     292        966        874        30        1        57   

Deposits in banks

     —          —          2,717        —          —          —     

Trade accounts and notes receivable

     3,073        —          1,381        —          —          —     

Other accounts receivable

     12        2        38        13        —          —     

Long-term other accounts receivable

     4        —          —          —          —          —     

Other assets denominated in foreign currencies

     1        254        28        6        —          —     

Trade accounts and notes payable

     (1,422     (17,626     (1,446     —          —          —     

Other accounts payable

     (209     (2,996     (1,512     (5     (3     (5

Long-term other accounts payable

     —          —          (1     —          —          —     

Debt

     (1,405     —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net exposure

     346        (19,400     2,079        44        (2     52   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(In millions)    December 31, 2014  
     USD     JPY     CNY     TWD     EUR     PLN     BRL  

Cash and cash equivalents

     507        1,221        1,565        146        1        79        —     

Trade accounts and notes receivable

     2,737        682        962        —          —          —          —     

Other accounts receivable

     13        —          205        1        21        —          —     

Long-term other accounts receivable

     6        —          —          —          —          —          —     

Other assets denominated in foreign currencies

     1        255        18        7        —          —          —     

Trade accounts and notes payable

     (1,750     (21,468     (1,233     —          —          —          —     

Other accounts payable

     (268     (6,056     (1,522     (128     (20     (11     (34

Long-term other accounts payable

     —          —          (1     —          —          —          —     

Debt

     (1,508     —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net exposure

     (262     (25,366     (6     26        2        68        (34
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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9. Financial Instruments, Continued

 

Average exchange rates applied for the nine-month periods ended September 30, 2015 and 2014 and the exchange rates at September 30, 2015 and December 31, 2014 are as follows:

 

(In won)    Average rate      Reporting date spot rate  
     2015      2014      September 30,
2015
     December 31,
2014
 

USD

   W   1,122.29         1,041.36         1,194.50         1,099.20   

JPY

     9.28         10.11         9.97         9.20   

CNY

     179.20         168.93         188.23         176.81   

TWD

     35.69         34.56         36.12         34.69   

EUR

     1,251.92         1,412.26         1,343.93         1,336.52   

PLN

     301.16         338.29         317.29         312.49   

BRL

     359.37         455.31         294.29         413.62   

 

  (ii) Sensitivity analysis

A weaker won, as indicated below, against the following currencies which comprise the Group’s assets or liabilities denominated in foreign currency as of September 30, 2015 and December 31, 2014, would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Group considers to be reasonably possible as of the end of reporting period. The analysis assumes that all other variables, in particular interest rates, would remain constant. The changes in equity and profit or loss would have been as follows:

 

(In millions of won)    September 30, 2015      December 31, 2014  
     Equity      Profit
or loss
     Equity      Profit
or loss
 

USD (5 percent weakening)

   W   14,161         20,097         (15,674      3,829   

JPY (5 percent weakening)

     (7,783      (5,908      (9,701      (6,169

CNY (5 percent weakening)

     20,306         (2,304      197         (757

TWD (5 percent weakening)

     82         —           46         —     

EUR (5 percent weakening)

     (264      386         (360      1,511   

PLN (5 percent weakening)

     913         (238      981         242   

BRL (5 percent weakening)

     —           —           (533      (533

A stronger won against the above currencies as of September 30, 2015 and December 31, 2014 would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

 

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Table of Contents
9. Financial Instruments, Continued

 

  (d) Interest rate risk

 

  (i) Profile

The interest rate profile of the Group’s interest-bearing financial instruments as of September 30, 2015 and December 31, 2014 is as follows:

 

(In millions of won)              
     September 30, 2015      December 31, 2014  

Fixed rate instruments

     

Financial assets

   W 2,597,680         2,427,972   

Financial liabilities

     (2,698,857      (2,822,170
  

 

 

    

 

 

 
   W (101,177      (394,198
  

 

 

    

 

 

 

Variable rate instruments

     

Financial liabilities

   W   (1,681,902      (1,425,216

 

  (ii) Equity and profit or loss sensitivity analysis for variable rate instruments

As of September 30, 2015 and December 31, 2014, a change of 100 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below for each 12-month period following the reporting dates. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.

 

(In millions of won)    Equity      Profit or loss  
     1%p
increase
     1%p
decrease
     1%p
increase
     1%p
decrease
 

September 30, 2015

           

Variable rate instruments

   W   (12,749      12,749         (12,749      12,749   

December 31, 2014

           

Variable rate instruments

   W (10,803      10,803         (10,803      10,803   

 

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Table of Contents
9. Financial Instruments, Continued

 

  (e) Fair values

 

  (i) Fair values versus carrying amounts

The fair values of financial assets and liabilities, together with the carrying amounts shown in the condensed consolidated interim statements of financial position, are as follows:

 

(In millions of won)                           
     September 30, 2015     December 31, 2014  
     Carrying
amounts
     Fair values     Carrying
amounts
     Fair values  

Assets carried at fair value

          

Available-for-sale financial assets

   W 3,207         3,207        3,237         3,237   

Assets carried at amortized cost

          

Cash and cash equivalents

   W 556,821           (*)      889,839           (*) 

Deposits in banks

     2,037,665           (*)      1,534,909           (*) 

Trade accounts and notes receivable

     4,347,770           (*)      3,444,477           (*) 

Other accounts receivable

     101,250           (*)      119,478           (*) 

Deposits

     22,023           (*)      19,602           (*) 

Other non-current financial assets

     19,522           (*)      7,859           (*) 

Liabilities carried at amortized cost

          

Secured bank loans

   W 718,432         718,432        649,140         649,140   

Unsecured bank loans

     966,843         966,913        1,003,563         1,003,590   

Unsecured bond issues

       2,695,484         2,764,344        2,594,683         2,667,092   

Trade accounts and notes payable

     3,392,978           (*)      3,391,635           (*) 

Other accounts payable

     1,447,520         1,447,718        1,494,095         1,493,869   

Other non-current liabilities

     9,758         10,404        12,924         13,376   

 

(*) Excluded from disclosures as the carrying amount approximates fair value.

The basis for determining fair values above by the Group are consistent with those disclosed in the financial statements as of and for the year ended December 31, 2014

 

  (ii) Financial Instruments measured at cost

Available-for-sale financial assets measured at cost as of September 30, 2015 and December 31, 2014 are as follows:

 

(In millions of won)              
     September 30, 2015      December 31, 2014  

Intellectual Discovery Co., Ltd.

   W 2,673         2,673   

ARCH Venture Fund VIII, L.P

     817         118   

Henghao Technology Co., Ltd.

     3,372         3,372   
  

 

 

    

 

 

 
   W   6,862         6,163   
  

 

 

    

 

 

 

 

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Table of Contents
9. Financial Instruments, Continued

 

  (e) Fair Values, Continued

 

  (iii) Fair values of financial assets and liabilities

 

  i) Fair value hierarchy

The table below analyzes financial instruments carried at fair value based on the input variables used in the valuation method to measure fair value of assets and liabilities. The different levels have been defined as follows:

 

    Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

 

    Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

 

    Level 3: inputs for the asset or liability that are not based on observable market data

 

  ii) Financial instruments measured at fair value

Fair value hierarchy classifications of the financial instruments that are measured at fair value as of September 30, 2015 and December 31, 2014 are as follows:

 

(In millions of won)                            
     Level 1      Level 2      Level 3      Total  

September 30, 2015

           

Assets

           

Available-for-sale financial assets

   W   3,207         —           —           3,207   

 

(In millions of won)                            
     Level 1      Level 2      Level 3      Total  

December 31, 2014

           

Assets

           

Available-for-sale financial assets

   W   3,237         —           —           3,237   

 

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9. Financial Instruments, Continued

 

  (e) Fair Values, Continued

 

  iii) Financial instruments not measured at fair value but for which the fair value is disclosed

Fair value hierarchy classifications, valuation technique and inputs for fair value measurements of the financial instruments not measured at fair value but for which the fair value is disclosed as of September 30, 2015 and December 31, 2014 are as follows:

 

(In millions of won)    September 30, 2015      Valuation
technique
   Input

Classification

   Level 1      Level 2      Level 3        

Liabilities

              

Secured bank loans

   W   —           —           718,432       Discounted
cash flow
   Discount rate

Unsecured bank loans

     —           —           966,913       Discounted
cash flow
   Discount rate

Unsecured bond issues

     —           —           2,764,344       Discounted
cash flow
   Discount rate

Other accounts payable

     —           —           1,447,718       Discounted
cash flow
   Discount rate

Other non-current liabilities

     —           —           10,404       Discounted
cash flow
   Discount rate

 

(In millions of won)    December 31, 2014      Valuation
technique
   Input

Classification

   Level 1      Level 2      Level 3        

Liabilities

              

Secured bank loans

   W   —           —           649,140       Discounted
cash flow
   Discount rate

Unsecured bank loans

     —           —           1,003,590       Discounted
cash flow
   Discount rate

Unsecured bond issues

     —           —           2,667,092       Discounted
cash flow
   Discount rate

Other accounts payable

     —           —           1,493,869       Discounted
cash flow
   Discount rate

Other non-current liabilities

     —           —           13,376       Discounted
cash flow
   Discount rate

The significant interest rates applied for determination of the above fair value at the reporting date are as follows:

 

     September 30, 2015   December 31, 2014

Debentures, loans and others

   1.65~2.42%   2.23%~2.60%

 

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9. Financial Instruments, Continued

 

  (f) Capital management

Management’s policy is to maintain a capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Liabilities to equity ratio, net borrowings to equity ratio and other financial ratios are used by management to achieve an optimal capital structure. Management also monitors the return on capital as well as the level of dividends to ordinary shareholders.

 

(In millions of won)             
     September 30, 2015     December 31, 2014  

Total liabilities

   W   10,774,747        11,183,613   

Total equity

     13,021,518        11,783,410   

Cash and deposits in banks (*1)

     2,594,473        2,416,321   

Borrowings (including bonds)

     4,380,759        4,247,386   

Total liabilities to equity ratio

     83     95

Net borrowings to equity ratio (*2)

     14     16

 

(*1) Cash and deposits in banks consist of cash and cash equivalents and current deposits in banks.
(*2) Net borrowings to equity ratio is calculated by dividing total borrowings (including bonds) less cash and current deposits in banks by total equity.

 

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10. Financial Liabilities

 

  (a) Financial liabilities as of September 30, 2015 and December 31, 2014 are as follows:

 

(In millions of won)              
     September 30, 2015      December 31, 2014  

Current

     

Short-term borrowings

   W —           223,626   

Current portion of long-term debt

     1,300,195         744,283   
  

 

 

    

 

 

 
   W   1,300,195         967,909   
  

 

 

    

 

 

 

Non-current

     

Won denominated borrowings

   W 3,357         4,452   

Foreign currency denominated borrowings

     1,501,219         1,289,837   

Bonds

     1,575,988         1,985,188   
  

 

 

    

 

 

 
   W   3,080,564         3,279,477   
  

 

 

    

 

 

 

 

  (b) Short-term borrowings as of September 30, 2015 and December 31, 2014 are as follows:

 

(In millions of won and USD)         

Lender

   Annual interest rate
as of
September 30, 2015 (%)
   September 30,
2015
     December 31,
2014
 

Korea Development Bank and others

   —      W —           219,839   

Industrial and Commercial Bank of China and others

   —        —           3,787   
     

 

 

    

 

 

 

Foreign currency equivalent

        —         USD 203   
     

 

 

    

 

 

 
      W   —           223,626   
     

 

 

    

 

 

 

 

  (c) Won denominated long-term debt as of September 30, 2015 and December 31, 2014 is as follows:

 

(In millions of won)                   

Lender

   Annual interest rate
as of
September 30, 2015 (%)
   September 30,
2015
     December 31,
2014
 

Woori Bank and others

   3-year Korean Treasury Bond
rate less 1.25, 2.75
   W 4,881         7,336   
     

 

 

    

 

 

 

Less current portion of long-term debt

          (1,524      (2,884
     

 

 

    

 

 

 
      W 3,357         4,452   
     

 

 

    

 

 

 

 

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10. Financial Liabilities, Continued

 

  (d) Long-term debt denominated in currencies other than won as of September 30, 2015 and December 31, 2014 is as follows:

 

(In millions of won and USD)  

Lender

   Annual interest
rate as of
September 30, 2015 (%)(*)
   September 30,
2015
     December 31,
2014
 

China Construction Bank and others

   3ML+0.90~2.80    W   1,680,394         1,421,741   
     

 

 

    

 

 

 

Foreign currency equivalent

      USD 1,405       USD 1,305   
     

 

 

    

 

 

 

Less current portion of long-term debt

        (179,175      (131,904
     

 

 

    

 

 

 
      W   1,501,219         1,289,837   
     

 

 

    

 

 

 

 

(*) ML represents Month LIBOR (London Inter-Bank Offered Rates).

 

  (e) Details of bonds issued and outstanding as of September 30, 2015 and December 31, 2014 are as follows:

 

(In millions of won)                        
     Maturity    Annual interest rate
as of

September 30,
2015 (%)
   September 30,
2015
     December 31,
2014
 

Won denominated bonds (*)

           

Publicly issued bonds

   October 2015~

May 2022

   2.12~4.95    W 2,700,000         2,600,000   

Less discount on bonds

           (4,516      (5,317

Less current portion

             (1,119,496      (609,495
        

 

 

    

 

 

 
         W 1,575,988         1,985,188   
        

 

 

    

 

 

 

 

(*) Principal of the won denominated bonds is to be repaid at maturity and interests are paid quarterly in arrears.

 

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11. The Nature of Expenses and Others

The classification of expenses by nature for the three-month and nine-month periods ended September 30, 2015 and 2014 are as follows:

 

(In millions of won)    For the three-month
periods ended September 30,
     For the nine-month
periods ended September 30,
 
     2015      2014      2015      2014  

Changes in inventories

   W (297,695      (640,800      (122,365      (691,605

Purchases of raw materials, merchandise and others

       4,077,443         3,835,334         10,680,494         9,676,753   

Depreciation and amortization

     845,028         820,776         2,554,559         2,586,182   

Outsourcing fees

     303,434         303,085         820,867         777,966   

Labor costs

     781,331         731,794         2,279,630         2,176,100   

Supplies and others

     279,562         249,665         782,738         710,562   

Utility

     220,062         211,369         627,375         576,663   

Fees and commissions

     151,982         129,824         426,125         351,591   

Shipping costs

     61,260         63,835         171,185         174,022   

Advertising

     93,893         25,364         191,280         83,169   

Warranty expenses

     36,465         28,890         96,740         72,666   

Taxes and dues

     18,391         18,632         60,986         52,583   

Travel

     19,034         19,573         52,213         51,308   

Others

     238,940         282,354         836,592         832,357   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W   6,829,130         6,079,695         19,458,419         17,430,317   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(*) Total expenses consist of cost of sales, selling, administrative, research and development expenses and other non-operating expenses, excluding foreign exchange differences.

 

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Table of Contents
12. Selling and Administrative Expenses

Details of selling and administrative expenses for the three-month and nine-month periods ended September 30, 2015 and 2014 are as follows:

 

(In millions of won)    For the three-month
periods ended September 30,
     For the nine-month
periods ended September 30,
 
     2015      2014      2015      2014  

Salaries

   W   68,259         64,016         200,235         192,350   

Expenses related to defined benefit plans

     6,715         6,210         20,364         21,623   

Other employee benefits

     26,829         17,854         63,252         49,131   

Shipping costs

     53,452         51,643         148,149         140,894   

Fees and commissions

     46,249         47,242         144,346         130,681   

Depreciation

     30,793         22,148         85,976         66,284   

Taxes and dues

     7,268         6,971         26,057         18,484   

Advertising

     93,893         25,364         191,280         83,169   

Warranty expenses

     36,465         28,890         96,740         72,666   

Rent

     6,326         5,578         17,848         16,342   

Insurance

     3,029         2,166         7,960         8,929   

Travel

     6,232         5,703         17,799         17,058   

Training

     4,083         3,939         11,469         9,343   

Others

     13,417         13,349         42,293         37,216   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W   403,010         301,073         1,073,768         864,170   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
13. Other Non-operating Income and Other Non-operating Expenses

 

  (a) Details of other non-operating income for the three-month and nine-month periods ended September 30, 2015 and 2014 are as follows:

 

(In millions of won)    For the three-month
periods ended September 30,
     For the nine-month
periods ended September 30,
 
     2015      2014      2015      2014  

Rental income

   W 1,099         1,189         3,336         5,589   

Foreign currency gain

       412,216         188,366         900,471         636,465   

Reversal of impairment loss on intangible assets

     105         —           80         —     

Gain on disposal of property, plant and equipment

     1,445         2,628         10,242         7,629   

Reversal of allowance for doubtful accounts for other receivables

     532         —           308         —     

Commission earned

     —           733         18         1,645   

Others

     15,520         3,678         23,074         49,804   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 430,917         196,594         937,529         701,132   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (b) Details of other non-operating expenses for the three-month and nine-month periods ended September 30, 2015 and 2014 are as follows:

 

(In millions of won)    For the three-month
periods ended September 30,
     For the nine-month
periods ended September 30,
 
     2015      2014      2015      2014  

Other bad debt expense

   W —           104         —           403   

Foreign currency loss

     408,568         191,054         843,134         581,201   

Loss on disposal of property, plant and equipment

     9         —           146         359   

Loss on disposal of intangible assets

     15         —           26         —     

Impairment loss on intangible assets

     —           44         239         662   

Donations

     1,371         1,536         8,162         8,750   

Expenses related to legal proceedings or claims and others

     2,472         5,275         126,657         38,032   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W   412,435         198,013         978,364         629,407   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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14. Employee Benefits

The Controlling Company and certain subsidiaries’ defined benefit plans provide a lump-sum payment to an employee based on final salary rates and length of service at the time the employee leaves the Controlling Company.

 

  (a) Recognized liabilities for defined benefit plans as of September 30, 2015 and December 31, 2014 are as follows:

 

(In millions of won)              
     September 30, 2015      December 31, 2014  

Present value of partially funded defined benefit obligations

   W   1,229,540         1,114,689   

Fair value of plan assets

     (899,223      (790,509
  

 

 

    

 

 

 
   W 330,317         324,180   
  

 

 

    

 

 

 

 

  (b) Expenses recognized in profit or loss for the three-month and nine-month periods ended September 30, 2015 and 2014 are as follows:

 

(In millions of won)    For the three-month
periods ended September 30,
     For the nine-month
periods ended September 30,
 
     2015      2014      2015      2014  

Current service cost

   W   46,941         40,032         140,826         119,202   

Past service cost

     —           —           —           21,990   

Net interest cost

     2,816         3,754         8,449         11,546   
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 49,757         43,786         149,275         152,738   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (c) Plan assets as September 30, 2015 and December 31, 2014 are as follows:

 

(In millions of won)              
     September 30, 2015      December 31, 2014  

Guaranteed deposits in banks

   W   899,223         790,509   

As of September 30, 2015, the Group maintains the plan assets primarily with Mirae Asset Securities Co., Ltd. and Shinhan Bank.

 

  (d) Remeasurements of net defined benefit liabilities included in other comprehensive income (loss) for the three-month and nine-month periods ended September 30, 2015 and 2014 are as follows:

 

(In millions of won)    For the three-month
periods ended September 30,
     For the nine-month
periods ended September 30,
 
     2015      2014      2015      2014  

Remeasurements of net defined benefit liabilities

   W   (692      (355      (3,629      (3,730

Income tax

     166         86         732         951   
  

 

 

    

 

 

    

 

 

    

 

 

 

Remeasurements of net defined benefit liabilities, net of income tax

   W (526      (269      (2,897      (2,779
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
15. Finance Income and Finance Costs

 

  (a) Finance income and costs recognized in profit and loss for the three-month and nine-month periods ended September 30, 2015 and 2014 are as follows:

 

(In millions of won)    For the three-month
periods ended September 30,
     For the nine-month
periods ended September 30,
 
     2015      2014      2015      2014  

Finance income

           

Interest income

   W 15,304         11,494         43,759         35,135   

Dividend income

     —           —           —           282   

Foreign currency gain

     25,128         11,075         42,844         35,190   

Gain on disposal of available-for-sale financial assets

     —           —           —           780   

Gain on disposal of investments in subsidiaries

     —           —           —           276   

Gain on disposal of investments in equity accounted investees

     445         —           22,781         —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 40,877         22,569         109,384         71,663