Edgar Filing: LG Display Co., Ltd.

Form 6-K

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 March 2016

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

ANNUAL REPORT

(From January 1, 2015 to December 31, 2015)

THIS IS A TRANSLATION OF THE ANNUAL 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.

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	5
	D.	Voting rights	6
	E.	Dividends	6

2.	Business		6
	A.	Business overview	6
	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	9
	C.	Major raw materials	9

4.	Production and Equipment		10
	A.	Production capacity and output	10
	B.	Production performance and utilization ratio	10
	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	12

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)	22
	C.	Consolidated subsidiaries	22
	D.	Status of equity investment	23

13.	Audit Information		24
	A.	Audit service	24
	B.	Non-audit service	24

14.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
	A.	Risk relating to forward-looking statements	25
	B.	Overview	25
	C.	Financial condition and results of operation	25

15.	Board of Directors		29
	A.	Members of the board of directors	29
	B.	Committees of the board of directors	30
	C.	Independence of directors	30

16.	Information Regarding Shares		30
	A.	Total number of shares	30
	B.	Shareholder list	30

17.	Directors and Employees		31
	A.	Directors	31
	B.	Employees	33

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

1.	Company

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.

Domestic credit rating

(1)

Corporate bonds


Subject instrument	Month of rating	Credit rating⁽¹⁾	Rating agency (Rating range)
Corporate bonds	March 2013	AA-	NICE Information Service Co., Ltd. (AAA ~ D)
	June 2013
	October 2013

	April 2014	AA
	September 2014
	April 2015

	June 2013	AA-	Korea Investors Service, Inc. (AAA ~ D)
	October 2013	AA-

	March 2014	AA
	April 2015	AA

	March 2013	AA-	Korea Ratings Corporation (AAA ~ D)
	June 2013	AA-

	March 2014	AA
	September 2014
	May 2015

(1)	Domestic corporate bond credit ratings are generally defined to indicate the following:


Subject instrument	Credit rating	Definition
	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.
Corporate bonds	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)
Commercial paper	October 2015	A1	NICE Information Service Co., Ltd. (A1 ~ D)

(1)	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.

Capitalization

(1)

Change in capital stock (as of December 31, 2015)

There were no changes to our issued capital stock during the annual reporting period ended December 31, 2015.

(2)

Convertible bonds

Not applicable.

Voting rights (as of December 31, 2015)


		(Unit: share)
Description		Number of shares
A. Total number of shares issued: ⁽¹⁾	Common shares ⁽¹⁾		357,815,700
A. Total number of shares issued: ⁽¹⁾
	Preferred shares		—

B. Shares without voting rights:	Common shares		—
B. Shares without voting rights:	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

Dividends

Dividends for the three most recent fiscal years


Description (unit)		2015			2014			2013
Par value (Won)			5,000			5,000			5,000
Profit for the year (million Won) ⁽¹⁾			966,553			904,268			426,118
Earnings per share (Won) ⁽²⁾			2,701			2,527			1,191

Total cash dividend amount for the period (million Won)			178,908			178,908			—

Total stock dividend amount for the period (million Won)			—			—			—

Cash dividend payout ratio (%)			18.51	%		19.78	%		—
Cash dividend yield (%) ⁽³⁾	Common shares		1.97	%		1.47	%		—
	Preferred shares		—			—			—
Stock dividend yield (%)	Common shares		—			—			—
	Preferred shares		—			—			—
Cash dividend per share (Won)	Common shares		500			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 ￦5,000 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

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 December 31, 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 December 31, 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 acquired the OLED light business of LG Chem on December 15, 2015 for an acquisition price of approximately ￦160 billion. Such transaction was approved at a meeting of our board of directors in October 2015.

2015 consolidated operating results highlights


	(Unit: In billions of Won)
2015	Display business
Sales Revenue		28,384
Gross Profit		4,314
Operating Profit		1,626

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.

•

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 recurring 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.

Korea: LG Display, Samsung Display, etc.

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

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

China: BOE, CSOT, CEC Panda, 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			2014			2013
Panels for Televisions ⁽¹⁾		25.4	%		25.0	%		24.7	%
Panels for Monitors		39.0	%		32.7	%		34.0	%
Panels for Notebook Computers ⁽²⁾		27.3	%		27.5	%		32.3	%
Panels for Tablet Computers		22.5	%		27.0	%		32.0	%

Total		27.7	%		26.9	%		27.8	%

Source: Large-Area Display Market Tracker (IHS Technology)

(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.

•

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.

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

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 (%)
Display	Product/ Service/ Other sales	Display panel (Overseas⁽¹⁾)	Panels for notebook computers, monitors, televisions, smartphones, tablets, etc.	LG Display	26,166 (92.2%)
		Display panel (Korea ⁽¹⁾)	Panels for notebook computers, monitors, televisions, smartphones, tablets, etc.	LG Display	2,218 (7.8%)

Total					28,384 (100.0%)

- Period: January 1, 2015 ~ December 31, 2015.

(1)	Based on ship-to-party.

Average selling price trend of major products

The average selling price of LCD panels per square meter of net display area shipped in the fourth quarter of 2015 increased slightly compared to the third quarter of 2015 due to improvements in our product mix attributable to the launch of new small- and medium-sized products, despite a general decline in average selling prices, 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 changes in market conditions.

(Unit: US$ / m²)

Description

2015 Q4

2015 Q3

2015 Q2

2015 Q1

Display panel⁽¹⁾⁽²⁾

632

622

620

652

(1)	Quarterly average selling price per square meter of net display area shipped.

(2)	Excludes semi-finished products in the cell process.

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		1,534		9.82	%	NEG, Asahi Glass, etc.
		Backlights			3,221		20.63	%	HeeSung Electronics, etc.
		Polarizers			2,433		15.58	%	LG Chem, etc.
		Printed circuit boards			1,500		9.61	%	Korea SMT, etc.
		Others			6,925		44.36	%

Total					15,613		100.0	%

- Period: January 1, 2015 ~ December 31, 2015.

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

4.	Production and Equipment

Production capacity and output

(1)

Production capacity

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

(Unit: 1,000 glass sheets)

Business area

Items

Location of facilities

2015⁽¹⁾

2014⁽¹⁾

2013⁽¹⁾

Display

Display panel

Gumi, Paju, Guangzhou, Ochang

9,781

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 year multiplied by the number of months in a year (i.e., 12 months).

(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		2014		2013
Display	Display panel	Gumi, Paju, Guangzhou, Ochang		8,609		8,425		7,670

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

Production performance and utilization ratio

(Unit: Hours, except percentages)

Production facilities

Available working hours
in 2015

Actual working hours in
2015

Average utilization ratio

Gumi

8,760

(365 days

⁽¹⁾

) ⁽²⁾

8,450

(352 days

⁽¹⁾

) ⁽²⁾

96.5

Paju

8,760

(365 days

⁽¹⁾

) ⁽²⁾

8,760

(365 days

⁽¹⁾

) ⁽²⁾

100.0

Guangzhou

8,760

(365 days

⁽¹⁾

) ⁽²⁾

8,760

(365 days

⁽¹⁾

) ⁽²⁾

100.0

Ochang ⁽³⁾

384

(16 days

⁽¹⁾

) ⁽²⁾

288

(12 days

⁽¹⁾

) ⁽²⁾

75.0

(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.

(3)	Working hours and utilization ratio for the Ochang facility is indicated for the period from our acquisition of the OLED light business on December 15, 2015 to the end of the reporting period.

Investment plan

In 2015, our total capital expenditures on a cash out basis was ￦2.4 trillion. In 2016, we plan to continue capital expenditures 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.

Sales

Sales performance


	(Unit: In billions of Won)
Business area	Sales types	Items (Market)		2015		2014		2013
Display	Products, etc.	Display panel	Overseas ⁽¹⁾		26,166		23,847		24,341
			Korea ⁽¹⁾		2,218		2,609		2,692

			Total		28,384		26,456		27,033

(1)	Based on ship-to-party.

Sales route and sales method

(1)

Sales organization

•

As of December 31, 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.

(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

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, Panasonic LCD and CEC Panda.

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.

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 foreign currency denominated 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.

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.

7.	Derivative Contracts

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, the U.S. dollar and the Chinese Yuan.

•

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.

•

As of December 31, 2015, we had not entered into any such contract for currency related derivative products.

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.

•

As of December 31, 2015, we have entered into a ￦200 billion interest rate swap agreement with Shinhan Bank, for which we have not applied hedge accounting.

We recognized a loss on derivatives transactions and recorded a derivative instruments liability in the amount of ￦85 million with respect to derivative instruments held as of December 31, 2015.

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
Technology licensing agreement	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.

9.	Research & Development

Summary of R&D-related expenditures


	(Unit: In millions of Won, except percentages)
Items		2015		2014		2013
Material Cost			679,603		762,008		586,901
Labor Cost			510,455		542,857		500,705
Depreciation Expense			196,799		249,306		319,854
Others			159,983		233,422		267,320

Total R&D-Related Expenditures			1,546,840		1,787,593		1,674,780

Accounting Treatment⁽¹⁾	Selling & Administrative Expenses		1,217,929		1,164,294		1,095,727
	Manufacturing Cost		101,844		356,218		456,818
	Development Cost (Intangible Assets)		227,067		267,081		122,235

R&D-Related Expenditures / Revenue Ratio (Total R&D-Related Expenditures ÷ Revenue for the period × 100)			5.4%		6.8%		6.2%

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

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

(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

(20)

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

•

Increased transmittance rate by utilizing 3^rd 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)

(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

(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 µm (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 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 product

•

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 product (55-inch, 65-inch and 77-inch Ultra HD)

•

Developed the world’s first Ultra HD television product lineup

(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

(9)

Developed the world’s first four sided borderless monitor product (23.8-inch FHD and 27-inch QHD)

•

Developed the world’s first four sided borderless design LCD module

•

Improved design by reducing lower bezel size from 12.6mm to 6.15mm (23.8-inch FHD)

(10)

Developed the world’s first Advanced In-cell Touch notebook product (15.6-inch and 14-inch FHD)

•

Improved touch functionality and cost competitiveness through world’s first application of Advanced In-cell Touch technology on notebook products

•

Simplified customer supply chain management by providing “touch” total solution

(11)

Developed the world’s first 15.6-inch FHD notebook narrow bezel (2.9mm) product

•

Ultra-light and narrow concept project for 15.6-inch line extension to LG Electronics’ 13.3-inch and 14-inch Gram products

•

Delivered differentiated design utilizing 2.9mm bezels (Top/L/R)

•

Ultra slim and light design (225g, 2.3t)

(12)

Developed 1900R curved monitor product (34-inch, 21:9 screen aspect ratio)

•

Strengthened product competitiveness by improving the curvature radius of 21:9 screen aspect ratio monitors (3800 reduced to 1900R)

•

Applied 0.25T etching to address looseness and backlight bleeding attributable to curved screen

•

Applied COT structure to enhance panel transmittance and address color mixing defects

(13)

Developed the world’s first four sided borderless 55-inch Ultra HD LED television product

•

Developed panel reverse structure in order to deliver a four sided borderless product

(14)

Developed the world’s first a-Si 98-inch Quad Ultra HD 120Hz television product

•

Developed the world’s first drive technology for a-Si based extra-large 8K 120Hz panels

(15)

Developed the world’s first 65-inch 8K M+ product

•

Achieved cost competitiveness and maximized 8K transmittance by applying GIP/Source single bank for the first time in the world

•

Developed super resolution (4K enhanced to 8K) and M+ algorithm technologies

(16)

Developed our first 75-inch Ultra HD Signage product

•

Delivered 11.9mm thickness on large-size LCD module

10.

Intellectual Property

As of December 31, 2015, our cumulative patent portfolio (including patents that have already expired) included a total of 28,811 patents, consisting of 13,909 in Korea and 14,902 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 year ended 2014 to the Korean government (i.e., the Ministry of Environment and the Ministry of Trade, Industry & Energy) in March 2015 after it was certified by BSI Korea, 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

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 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 addition, in recognition of our efforts to improve recycling and reduce waste, we received a citation in 2014 for being a leading recycling company from the Prime Minister of Korea and, in recognition of our continued greenhouse gas emission reduction activities, we received a special carbon management award in 2015 from the Carbon Disclosure Project, which was presided over by the Carbon Disclosure Project Korea Committee.

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 ￦276 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.

12.

Financial Information

Financial highlights (Based on consolidated K-IFRS)


(Unit: In millions of Won)
Description	As of December 31, 2015			As of December 31, 2014			As of December 31, 2013
Current assets		9,531,634			9,240,629			7,731,788
Quick assets		7,179,965			6,486,531			5,798,547
Inventories		2,351,669			2,754,098			1,933,241
Non-current assets		13,045,526			13,726,394			13,983,496
Investments in equity accounted investees		384,755			407,644			406,536
Property, plant and equipment, net		10,546,020			11,402,866			11,808,334
Intangible assets		838,730			576,670			468,185
Other non-current assets		1,276,021			1,339,214			1,300,441

Total assets		22,577,160			22,967,023			21,715,284

Current liabilities		6,606,712			7,549,556			6,788,919
Non-current liabilities		3,265,492			3,634,057			4,128,945
Total liabilities		9,872,204			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		(5,766	)		(63,843	)		(91,674	)
Retained earnings		8,158,526			7,455,063			6,662,655
Non-controlling interest		512,004			351,998			186,247

Total equity		12,704,956			11,783,410			10,797,420


(Unit: In millions of Won, except for per share data and number of consolidated entities)
Description	For the year ended December 31, 2015		For the year ended December 31, 2014		For the year ended December 31, 2013
Revenue		28,383,884		26,455,529		27,033,035
Operating profit		1,625,566		1,357,255		1,163,314
Operating profit from continuing operations		1,023,456		917,404		418,973
Profit for the period		1,023,456		917,404		418,973
Profit (loss) attributable to:
Owners of the Company		966,553		904,268		426,118
Non-controlling interest		56,903		13,136		(7,145	)
Basic earnings per share		2,701		2,527		1,191
Diluted earnings per share		2,701		2,527		1,191
Number of consolidated entities		18		18		18

Financial highlights (Based on separate K-IFRS)


(Unit: In millions of Won)
Description	As of December 31, 2015		As of December 31, 2014		As of December 31, 2013
Current assets		8,246,330		8,291,088		6,877,367
Quick assets		6,396,117		6,244,413		5,290,725
Inventories		1,850,213		2,046,675		1,586,642
Non-current assets		11,964,363		12,720,749		13,767,226
Investments		2,543,205		2,301,881		1,820,806
Property, plant and equipment, net		7,719,022		8,700,301		10,294,740
Intangible assets		607,398		548,078		461,620
Other non-current assets		1,094,738		1,170,489		1,190,060

Total assets		20,210,693		21,011,837		20,644,593

Current liabilities		6,505,979		7,550,330		6,754,175
Non-current liabilities		2,375,131		2,837,432		4,127,993

Total liabilities		8,881,110		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		58		276		(305	)
Retained earnings		7,289,333		6,583,607		5,722,538

Total equity		11,329,583		10,624,075		9,762,425


(Unit: In millions of Won, except for per share data)
Description	For the year ended December 31, 2015		For the year ended December 31, 2014		For the year ended December 31, 2013
Revenue		25,856,426		25,383,670		25,854,183
Operating profit		770,856		984,790		753,550
Operating profit from continuing operations		968,209		973,118		99,672
Profit for the period		968,209		973,118		99,672
Basic earnings per share		2,706		2,720		279
Diluted earnings per share		2,706		2,720		279

Consolidated subsidiaries (as of December 31, 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	%

Status of equity investments (as of December 31, 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.⁽²⁾	CNY	1,007,720,600		April 19, 2010		100	%
LG Display U.S.A. Inc.⁽³⁾	US$	201,116		December 8, 2011		100	%
Nanumnuri Co., Ltd.	￦	800,000,000		March 19, 2012		100	%
LG Display (China) Co., Ltd.⁽⁴⁾	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⁽⁵⁾	US$	152,767,000		May 7, 2015		100	%
LG Display Guangzhou Trading Co., Ltd.⁽⁶⁾	CNY	1,223,960		May 27, 2015		100	%
Suzhou Raken Technology Co., Ltd.	CNY	637,079,715		October 7, 2008		51	%
Paju Electric Glass Co., Ltd.	￦	33,648,000,000		March 25, 2005		40	%
TLI Co., Ltd.	￦	14,073,806,250		May 16, 2008		10	%
AVACO Co., Ltd.	￦	6,172,728,120		June 9, 2008		16	%
New Optics Ltd.	￦	12,199,600,000		July 30, 2008		46	%
LIG Invenia Co., Ltd. (formerly LIG ADP Co., Ltd.)	￦	6,330,000,000		February 24, 2009		13	%
Wooree E&L Co., Ltd. (formerly Wooree LED Co., Ltd.)	￦	11,900,000,000		May 22, 2009		21	%
LB Gemini New Growth Fund No. 16⁽⁷⁾	￦	7,659,704,518		December 7, 2009		31	%
Can Yang Investments Limited⁽⁸⁾	CNY	93,740,124		January 27, 2010		9	%
YAS Co., Ltd.⁽⁹⁾	￦	10,000,000,000		September 16, 2010		19	%
Narae Nanotech Corporation	￦	30,000,000,000		April 22, 2011		23	%
Avatec Co., Ltd.	￦	10,600,000,000		December 6, 2011		16	%
Fuhu, Inc.⁽¹⁰⁾	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 and in December 2015, we disposed of our entire investment in Glonix Co., Ltd., which we had acquired for LCD manufacturing and sales, for ￦498 million. We conducted money market trust acquisitions and dispositions during the reporting period and had no outstanding amounts in money market trusts as of December 31, 2015.

(2)	In December 2015, we invested CNY52 million in cash for the capital increase of LG Display Yantai Co., Ltd. The investment did not affect our shareholding percentage interest.

(3)	As of December 31, 2015, LG Display U.S.A. Inc. was in the liquidation process, and in December 2015, we divested US$10.7 million from LG Display U.S.A. Inc. The divestment did not affect our shareholding percentage interest.

(4)	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 shareholding percentage interest.

(5)	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 percentage interest in such company is 100%.

(6)	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 percentage interest in such company is 100%.

(7)	In March 2015, we invested ￦360 million in LB Gemini New Growth Fund No. 16, and in April, July and August 2015, we divested ￦2,490 million, ￦2,100 million and ￦2,175 million, respectively. The investment and divestment did not affect our shareholding percentage interest.

(8)	In 2015, Can Yang Investments Limited conducted a rights offering in which we did not participate. As a result, our shareholding percentage interest in such company decreased from 9.4% as of December 31, 2014 to 8.9% as of December 31, 2015.

(9)	In 2015, the number of outstanding shares of YAS Co., Ltd. was increased due to the exercies of stock options. As a result, our shareholding percentage interest in such company decreased from 19.2% as of December 31, 2014 to 18.5% as of December 31, 2015.

(10)

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. As of December 31, 2015, we determined that the recoverability of such investment was uncertain and we recognized an impairment loss of ￦26,791 million, an amount equal to the difference between the carrying amount and the recoverable amount of such investment. Our shareholding percentage interest in such company is 10% and we have the right to appoint one member of such company’s board of directors.

13.

Audit Information

Audit service

(Unit: In millions of Won, hours)

Description

2015

2014

2013

Auditor

KPMG Samjong

Activity

Audit by independent
auditor

Compensation⁽¹⁾

990 (400

) ⁽²⁾

910 (326

) ⁽²⁾

910 (325

) ⁽²⁾

Time required

17,530

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.

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

14.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Risk relating to forward-looking statements

This annual report contains forward-looking statements that are, by their nature, subject to significant risks and uncertainties. These forward-looking statements reflect our current views as of the date of this report with respect to future events and are not a guarantee of future performance or results. Actual results may differ materially from information contained in the forward-looking statements as a result of a number of factors beyond our control. We have no obligation to update or correct the forward-looking statements contained in these materials subsequent to the date hereof. All forward-looking statements attributable to us in this report are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

Overview

In 2015, the display industry faced a persistently difficult business environment due to weak demand and increased supply. However, we increased our profits compared to 2014 by increasing the proportion of differentiated technologies and products, including M+ technology, Ultra HD television panels, IT products utilizing IPS technology, Advanced In-cell Touch technology-based mobile panels and other differentiated display panels. We also strengthened the foundation for our future through our OLED panels business, which are the next generation display products.

With respect to each of our business areas:

•

Television. In this business area, we expanded our offering of Ultra HD television panels with IPS and M+ technologies. Ultra HD television panels accounted for approximately 20% of our sales volume in this business area in 2015 compared to approximately 9% in 2014.

•

IT/Mobile. In this business area, the proportion of Advanced In-cell Touch technology-based panels among monitor panels and notebook panels increased from 69% and 22% in 2014 to 77% and 38% in 2015, respectively. In the case of mobile panels, the proportion of Advanced In-cell Tough technology-based panels among smartphone panels increased from 4% in 2014 to 38% in 2015.

•

OLED. We achieved expansions in this business area by increasing our OLED panel production capacities and launching new products. We increased production of large-sized OLED television panels while solidifying our foundation in the market for small-sized OLED panels by introducing new small- and medium-sized panels for smartphones and wearable devices.

In addition, we continued to increase our activities in new business areas and sales of panels for automotive, signage and industrial applications increased by approximately 31% from 2014 to 2015.

As a result of these accomplishments, we were able to record an annual revenue of ￦28,384 billion and an operating profit of ￦1,626 billion for the year ended 2015.

Financial condition and results of operations

(1)

Results of operations

In 2015, the display industry faced a persistently difficult business environment due to weak demand and increased supply. However, we improved our profitability by increasing the proportion of differentiated products, such as Ultra HD television panels utilizing M+ technology, monitor panels utilizing IPS technology and high-definition mobile panels and other differentiated display panels. In addition, with respect to OLED technology, which is the next generation in display panel technology, we were a step ahead of our competition with our technology and production know-how and were the first to introduce 65-inch and 77-inch Ultra HD OLED television panels to the market. As for small-sized OLED panels, we were also able to introduce smartphone and wearable panels based on our plastic OLED technology and are quickly preparing ourselves for the future markets for OLED panels.

Through our increased sales of differentiated products, our revenue increased by 7% from ￦26,456 billion in 2014 to ￦28,384 billion in 2015. In addition, our operating profit increased by 20% from ￦1,357 billion in 2014 to ￦1,626 billion in 2015, and profit for the year increased by 12% from ￦917 billion in 2014 to ￦1,024 billion in 2015 mainly due to our efforts to increase the proportion of high value added, technologically competitive products in our product mix and decrease costs.


(Unit: In millions of Won)
Description	2015			2014			Changes
Revenue		28,383,884			26,455,529			1,928,355
Cost of sales		(24,069,572	)		(22,667,134	)		(1,402,438	)
Gross profit		4,314,312			3,788,395			525,917
Selling expenses		(878,300	)		(746,686	)		(131,614	)
Administrative expenses		(592,517	)		(520,160	)		(72,357	)
Research and development expenses		(1,217,929	)		(1,164,294	)		(53,635	)
Operating profit		1,625,566			1,357,255			268,311
Finance income		158,829			105,443			53,386
Finance costs		(316,229	)		(215,536	)		(100,693	)
Other non-operating income		1,273,833			1,071,903			201,930
Other non-operating expenses		(1,326,782	)		(1,095,071	)		(231,711	)
Equity income on investment, net		18,765			17,963			802
Profit before income tax		1,433,982			1,241,957			192,025
Income tax expense		410,526			324,553			85,973
Profit for the period		1,023,456			917,404			106,052

(a)

Selected financial ratios


Ratios	Calculation	2015 Ratio			2014 Ratio			Percentage Point Change
Current ratio	(current assets ÷ current liabilities) x 100		144.3	%		122.4	%		21.9	%
Debt to equity ratio	(total liabilities ÷ total equity) x 100		77.7	%		94.9	%		(17.2	)%
Operating margin	(results from operating activities ÷ revenue) x 100		5.7	%		5.1	%		0.6	%
Net margin	(profit for the period ÷ revenue) x 100		3.6	%		3.5	%		0.1	%
Return on assets	(profit for the period ÷ total assets) x 100		4.5	%		4.0	%		0.5	%
Return on equity	(profit for the period ÷ total equity) x 100		8.1	%		7.8	%		0.3	%
Net cash from operating activities to assets ratio	(net cash from operating activities ÷ total assets) x 100		12.1	%		12.5	%		(0.4	)%


Ratios	Calculation	2015 Ratio
Revenue growth	(current year revenue ÷ prior year revenue) x 100 -1		7.3	%
Operating profit growth	(current year results from operating activities ÷ prior year results from operating activities) x 100 -1		19.8	%
Net profit growth	(current year profit ÷ prior year profit) x 100 -1		11.6	%

Total assets growth	(current year end total assets ÷ prior year end total assets) x 100 -1		(1.7	) %

Asset turnover	Revenue ÷ ((total assets at beginning of year + total assets at end of year) ÷ 2)		1.2

(b)

Revenue and cost of sales

Our cost of sales as a percentage of revenue decreased by 0.9 percentage points from 85.7% in 2014 to 84.8% in 2015 primarily due to our continued efforts to reduce costs and increase the proportion of high value added products, which tend to command higher margins, in our product mix.


(Unit: In millions of Won, except percentages)
							Changes
Description	2015			2014			Amount			Percentage
Revenue		28,383,884			26,455,529			1,928,355			7.3	%
Cost of sales		24,069,572			22,667,134			1,402,438			6.2	%
Gross profit		4,314,312			3,788,395			525,917			13.9	%
Cost of sales as a percentage of sales		84.8	%		85.7	%		(0.9	)%		N/A

(c)

Sales by category

Revenue attributable to sales of panels for mobile applications and others as a percentage of total revenue increased by 8.6 percentage points in 2015 compared to 2014 due to an increase in demand for larger high resolution smartphone panels during the same period. Revenue attributable to sales of panels for tablet computers as a percentage of total revenue decreased during the same period due to continued negative sales growth of tablet computers attributable in part to the expanded offering of hybrid personal computer products, such as two-in-one notebook computers.


Categories	2015			2014			Difference
Panels for televisions		38.2	%		39.4	%		(1.2	)%
Panels for desktop monitors		16.0	%		17.6	%		(1.6	)%
Panels for notebook computers		8.8	%		10.1	%		(1.3	)%
Panels for tablet computers		8.9	%		13.4	%		(4.5	)%
Panels for mobile applications and others		28.1	%		19.5	%		8.6	%

(d)

Production capacity

Our annual production capacity increased by 2% in 2015 compared to 2014, in large part due to capacity increases in China in anticipation of the global trend toward increased demand for larger display panels.

(2)

Financial condition

Our current assets increased by ￦291 billion from ￦9,241 billion as of December 31, 2014 to ￦9,532 billion as of December 31, 2015, and our non-current assets decreased by ￦681 billion from ￦13,726 billion as of December 31, 2014 to ￦13,046 billion as of December 31, 2015. Our current liabilities decreased by ￦943 billion from ￦7,550 billion as of December 31, 2014 to ￦6,607 billion as of December 31, 2015, and our non-current liabilities decreased by ￦369 billion from ￦3,634 billion as of December 31, 2014 to ￦3,265 billion as of December 31, 2015. Our total equity increased by ￦922 billion from ￦11,783 billion as of December 31, 2014 to ￦12,705 billion as of December 31, 2015.


	(Unit: In millions of Won)
Description	2015			2014			Changes
Current assets		9,531,634			9,240,629			291,005
Non-current assets		13,045,526			13,726,394			(680,868	)

Total assets		22,577,160			22,967,023			(389,863	)

Current liabilities		6,606,712			7,549,556			(942,844	)
Non-current liabilities		3,265,492			3,634,057			(368,565	)

Total liabilities		9,872,204			11,183,613			(1,311,409	)

Share capital		1,789,079			1,789,079			—
Share premium		2,251,113			2,251,113			—
Reserves		(5,766	)		(63,843	)		58,077
Retained earnings		8,158,526			7,455,063			703,463
Non-controlling interest		512,004			351,998			160,006

Total equity		12,704,956			11,783,410			921,546

Total liabilities and equity		22,577,160			22,967,023			(389,863	)

Due in part to steady consumption of our inventories in the fourth quarter of 2015 and changes to our product mix in anticipation of weakening demand in the first half of 2016, our inventory decreased by ￦402 billion from ￦2,754 billion as of December 31, 2014 to ￦2,352 billion as of December 31, 2015.

Net trade accounts and notes receivable as of December 31, 2015 was ￦4,098 billion, an increase of ￦653 billion from net trade accounts and notes receivable as of December 31, 2014. Such increase was attributable mainly to a decrease in trade accounts and notes receivable which were sold to financial institutions, but current and outstanding, from approximately ￦1,690 billion (US$1,537 million) as of December 31, 2014 to approximately ￦291 billion (US$248 million) as of December 31, 2015.

The book value of our total tangible assets as of December 31, 2015 was ￦10,546 billion, a decrease of ￦857 billion from the book value of our total tangible assets as of December 31, 2014. The decrease was primarily due to the depreciation of certain of our existing production facilities which outpaced increases resulting from investments in production facilities.

Trade accounts and notes payable as of December 31, 2015 was ￦2,765 billion, a decrease of ￦627 billion from trade accounts and notes payable as of December 31, 2014.

Other accounts payable as of December 31, 2014 was ￦1,500 billion, a decrease of ￦8 billion from other accounts payable as of December 31, 2014.

(3)

Liquidity and capital resources

In 2015, our net cash from operating activities amounted to ￦2,727 billion, our net cash provided by financing activities, including the incurrence of short- and long-term borrowings as well as the issuance of corporate debentures, amounted to ￦175 billion, and our net cash used in investing activities, including the acquisition of tangible assets and our acquisition of investments in equity accounted investees, amounted to ￦2,732 billion.

In 2015, our capital expenditures on a cash out basis was approximately ￦2.4 trillion, which was used primarily to fund the expansion of our OLED and LTPS-based panel production capacities for larger panels, as well as to fund the expansion of GP1 in anticipation of increasing demand from China.


	(Unit: In millions of Won)
Description	2015			2014			Changes
Results from operating activities		1,625,566			1,357,255			268,311
Net cash provided by operating activities		2,726,577			2,864,521			(137,944	)
Net cash provided by (used in) financing activities		(174,498	)		404,659			(579,157	)
Net cash used in investing activities		(2,731,929	)		(3,451,279	)		719,350
Cash and cash equivalents at December 31,		751,622			889,839			(138,177	)

15.

Board of Directors

Members of the board of directors

As of December 31, 2015 our board of directors consisted of two non-outside directors, one non-standing director and three outside directors.


		(As of December 31, 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.

As of the date of this report, our board of directors consist of two non-outside directors, one non-standing director and four outside directors.


		(As of the date of this report)
Name	Position	Primary responsibility
Yu Sig Kang ⁽¹⁾	Director (non-standing)	Chairman of the board of directors
Sang Beom Han	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 ⁽²⁾	Outside Director	Related to the overall management
Sung-Sik Hwang	Outside Director	Related to the overall management
Kun Tai Han ⁽³⁾	Outside Director	Related to the overall management

(1)	Yu Sig Kang is also a registered executive of LG Electronics.

(2)	Joon Park was reappointed for another term as an outside director at the annual general meeting of shareholders held on March 11, 2016.

(3)	Kun Tai Han was appointed as an outside director at the annual general meeting of shareholders held on March 11, 2016.

Committees of the board of directors

As of December 31, 2015, we have the following committees that serve under our board of directors: Audit Committee, Outside Director Nomination Committee and Management Committee.


		(As of December 31, 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 a 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.

As of the date of this report, we have the following committees that serve under our board of directors: Audit Committee, Outside Director Nomination Committee and Management Committee.


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

(1)	Joon Park was reappointed for another term as a member of the audit committee of the board of directors at the annual general meeting of shareholders held on March 11, 2016

(2)	Sung-Sik Hwang was appointed as a member of the outside director nomination committee of the board of directors by the board of directors on January 26, 2016.

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 comprised the board as of the end of the reporting period were outside directors. As of the date of this report, our board of directors is independent as four out of the seven directors that comprise the board are outside directors. Outside directors candidates are nominated for appointment at a shareholders’ meeting after undergoing rigorous review by the Outside Director Nomination Committee.

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.

16.

Information Regarding Shares

Total number of shares

(1)

Total number of shares authorized to be issued (as of December 31, 2015): 500,000,000 shares.

(2)

Total shares issued and outstanding (as of December 31, 2015): 357,815,700 shares.

Shareholder list

(1)

Largest shareholder and related parties as of December 31, 2015:


Name	Relationship	Number of shares of common stock		Equity interest
LG Electronics	Largest Shareholder		135,625,000		37.9	%
Sang Beom Han⁽¹⁾	Related Party		13,014		0.0	%
Sangdon Kim⁽¹⁾	Related Party		1,500		0.0	%

(1)	As a result of acquisitions of additional shares in March 2016, Sang Beom Han and Sangdon Kim owned 23,014 shares and 2,500 shares of our common stock, respectively, as of the date of this report.

(2)

Shareholders who are known to us to own 5% or more of our shares as of December 31, 2015:


Beneficial owner	Number of shares of common stock		Equity interest
LG Electronics		135,625,000		37.9	%
National Pension Service		30,051,473		8.40	%
The Capital Group Companies, Inc.		18,211,000		5.09	%

17.

Directors and Employees

Directors

(1)

Remuneration for directors in 2015


	(Unit: person, in millions of Won)
Classification	No. of directors⁽¹⁾		Amount paid⁽²⁾			Per capita average remuneration paid⁽⁴⁾
Non-outside directors		3		2,611	⁽³⁾		870
Outside directors who are not audit committee members		0		57			57
Outside directors who are audit committee members		3		234			78

Total		6		2,902			—

(1)	Number of directors as at December 31, 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 year ended December 31, 2015.

(2)

Remuneration for individual directors and audit committee members

•

Individual amount of remuneration paid in 2015


	(Unit: in millions of Won)
Name	Position	Total remuneration		Payment not included in total remuneration
Sang Beom Han	President		2,017		—
Sangdon Kim	Director		594		—

•

Method of calculation


Name	Method of calculation
Sang Beom Han	Total remuneration

	•	￦2,017 million (consisting of ￦1,177 million in salary and ￦840 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 ￦26,456 billion and operating profit was ￦1,357 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.

Sangdon Kim	Total remuneration

	•	￦594 million (consisting of ￦393 million in salary and ￦201 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 ￦26,456 billion and operating profit was ￦1,357 billion, which was a 17% improvement compared to the previous year’s operating profit.

		•	Non-financial indictors: As chief financial officer, Mr. Kim actively endeavored to firmly establish a companywide risk management system and optimize our performance management system, while driving advances in our core processes and infrastructure.

(3)

Stock options

Not applicable.

Employees

As of December 31, 2015, we had 32,603 employees (excluding our executive officers). On average, our male employees have served 7.9 years and our female employees have served 6.0 years. The total amount of salary paid to our employees for the year ended December 31, 2015 based on income tax statements submitted to the Korean tax authority in accordance with Article 20 of the Income Tax Act was ￦1,708,126 million for our male employees and ￦447,674 million for our female employees. The following table provides details of our employees as of December 31, 2015:


	(Unit: person, in millions of Won, year)
	Number of employees⁽¹⁾		Total salary in 2015^{(2) (3) (4)}		Total salary per capita⁽⁵⁾		Average years of service
Male		23,711		1,708,126		72		7.9
Female		8,892		447,674		50		6.0

Total		32,603		2,155,800		66		7.4

(1)	Includes part-time employees and contract-base professionals.

(2)	Welfare benefits and retirement expenses have been excluded. Total welfare benefit provided to our employees for the year ended December 31, 2015 was ￦364,420 million and the per capita welfare benefit provided was ￦11.2 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: 23,626, female: 8,908) for the year ended December 31, 2015.


		LG DISPLAY CO., LTD. AND SUBSIDIARIES

		Consolidated Financial Statements

		For the Years Ended December 31, 2015 and 2014

		(With Independent Auditors’ Report Thereon)

Contents


	Page

Independent Auditors’ Report		36

Consolidated Statements of Financial Position		38

Consolidated Statements of Comprehensive Income		39

Consolidated Statements of Changes in Equity		40

Consolidated Statements of Cash Flows		41

Notes to the Consolidated Financial Statements		43

Independent Auditors’ Report

Based on a report originally issued in Korean

To the Board of Directors and Shareholders

LG Display Co., Ltd.:

We have audited the accompanying consolidated financial statements of LG Display Co., Ltd. and its subsidiaries (the “Group”) which comprise the consolidated statements of financial position of the Group as of December 31, 2015 and 2014, the related consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Korean International Financial Reporting Standards (“K-IFRS”), and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatements, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Korean Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2015 and 2014, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with K-IFRS.

Emphasis of Matter

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

As discussed in note 20 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.

The procedures and practices utilized in the Republic of Korea to audit such consolidated financial statements may differ from those generally accepted and applied in other countries.

/s/ KPMG Samjong Accounting Corp.

Seoul, Korea

February 19, 2016

This report is effective as of February 19, 2016, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

LG DISPLAY CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Financial Position

As of December 31, 2015 and 2014


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

Assets
Cash and cash equivalents	6, 13	￦	751,662			889,839
Deposits in banks	6, 13		1,772,337			1,526,482
Trade accounts and notes receivable, net	7, 13, 19, 22		4,097,836			3,444,477
Other accounts receivable, net	7, 13		105,815			119,478
Other current financial assets	9, 13		4,904			3,250
Inventories	8		2,351,669			2,754,098
Prepaid income taxes			3,469			6,340
Other current assets	7		443,942			496,665

Total current assets			9,531,634			9,240,629

Deposits in banks	6,13		13			8,427
Investments in equity accounted investees	10		384,755			407,644
Other non-current financial assets	9,13		49,732			33,611
Property, plant and equipment, net	11,23		10,546,020			11,402,866
Intangible assets, net	12,23		838,730			576,670
Deferred tax assets	29		930,629			1,036,507
Other non-current assets	7		295,647			260,669

Total non-current assets			13,045,526			13,726,394

Total assets		￦	22,577,160			22,967,023


Liabilities
Trade accounts and notes payable	13, 22	￦	2,764,694			3,391,635
Current financial liabilities	13, 14		1,416,112			967,909
Other accounts payable	13		1,499,722			1,508,158
Accrued expenses			633,113			740,492
Income tax payable			91,726			227,714
Provisions	18		109,897			193,884
Advances received			51,127			488,379
Other current liabilities	18		40,321			31,385
Total current liabilities			6,606,712			7,549,556

Non-current financial liabilities	13, 14		2,808,204			3,279,477
Non-current provisions	18		11,817			8,014
Defined benefit liabilities, net	17		353,798			324,180
Deferred tax liabilities	29		34,663			245
Other non-current liabilities	18		57,010			22,141

Total non-current liabilities			3,265,492			3,634,057

Total liabilities			9,872,204			11,183,613


Equity
Share capital	21		1,789,079			1,789,079
Share premium			2,251,113			2,251,113
Reserves	21		(5,766	)		(63,843	)
Retained earnings			8,158,526			7,455,063


Total equity attributable to owners of the Controlling Company			12,192,952			11,431,412


Non-controlling interests			512,004			351,998

Total equity			12,704,956			11,783,410


Total liabilities and equity		￦	22,577,160			22,967,023

See accompanying notes to the consolidated financial statements.

LG DISPLAY CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2015 and 2014


(In millions of won, except earnings per share)	Note	2015			2014

Revenue	22, 23, 24	￦	28,383,884			26,455,529
Cost of sales	8, 22		(24,069,572	)		(22,667,134	)

Gross profit			4,314,312			3,788,395

Selling expenses	16		(878,300	)		(746,686	)
Administrative expenses	16		(592,517	)		(520,160	)
Research and development expenses			(1,217,929	)		(1,164,294	)

Operating profit			1,625,566			1,357,255


Finance income	27		158,829			105,443
Finance costs	27		(316,229	)		(215,536	)
Other non-operating income	25		1,273,833			1,071,903
Other non-operating expenses	25		(1,326,782	)		(1,095,071	)
Equity in income of equity accounted investees, net			18,765			17,963


Profit before income tax			1,433,982			1,241,957
Income tax expense	28		(410,526	)		(324,553	)


Profit for the year			1,023,456			917,404


Other comprehensive income (loss)
Items that will never be reclassified to profit or loss
Remeasurements of net defined benefit liabilities	17,28		(110,864	)		(147,633	)
Related income tax	17,28		26,682			35,773

			(84,182	)		(111,860	)
Items that are or may be reclassified to profit or loss
Net change in fair value of available-for-sale financial assets	27,28		13,297			982
Foreign currency translation differences for foreign operations	27,28		50,829			37,739
Share of loss from sale of treasury stocks by associates	28		(325	)		(1,360	)
Related income tax	28		214			(119	)

			64,015			37,242

Other comprehensive loss for the year, net of income tax			(20,167	)		(74,618	)

Total comprehensive income for the year		￦	1,003,289			842,786


Profit attributable to:
Owners of the Controlling Company			966,553			904,268
Non-controlling interests			56,903			13,136

Profit for the year		￦	1,023,456			917,404


Total comprehensive income attributable to:
Owners of the Controlling Company			940,448			820,239
Non-controlling interests			62,841			22,547

Total comprehensive income for the year		￦	1,003,289			842,786


Earnings per share (In won)
Basic earnings per share	30	￦	2,701			2,527

Diluted earnings per share	30	￦	2,701			2,527

See accompanying notes to the consolidated financial statements.

LG DISPLAY CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Changes in Equity

For the years ended December 31, 2015 and 2014


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

Balances at January 1, 2014	￦	1,789,079		2,251,113		(254	)		572		(91,992	)		6,662,655			186,247			10,797,420

Total comprehensive income for the year
Profit for the year		—		—		—			—		—			904,268			13,136			917,404

Other comprehensive income (loss)
Net change in fair value of available-for-sale financial assets, net of tax		—		—		—			796		—			—			—			796
Foreign currency translation differences for foreign operations, net of tax		—		—		—			—		28,395			—			9,411			37,806
Remeasurements of net defined benefit liabilities, net of tax		—		—		—			—		—			(111,860	)		—			(111,860	)
Share of loss from sale of treasury stocks by associates, net of tax		—		—		(1,360	)		—		—			—			—			(1,360	)

Total other comprehensive income (loss)		—		—		(1,360	)		796		28,395			(111,860	)		9,411			(74,618	)

Total comprehensive income (loss) for the year	￦	—		—		(1,360	)		796		28,395			792,408			22,547			842,786

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 December 31, 2014	￦	1,789,079		2,251,113		(1,614	)		1,368		(63,597	)		7,455,063			351,998			11,783,410


Balances at January 1, 2015	￦	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 year
Profit for the year		—		—		—			—		—			966,553			56,903			1,023,456

Other comprehensive income (loss)
Net change in fair value of available-for-sale financial assets, net of tax		—		—		—			13,367		—			—			—			13,367
Foreign currency translation differences for foreign operations, net of tax		—		—		—			—		45,035			—			5,938			50,973
Remeasurements of net defined benefit liabilities, net of tax		—		—		—			—		—			(84,182	)		—			(84,182	)
Share of loss from sale of treasury stocks by associates, net of tax		—		—		(325	)		—		—			—			—			(325	)

Total other comprehensive income (loss)		—		—		(325	)		13,367		45,035			(84,182	)		5,938			(20,167	)

Total comprehensive income (loss) for the year	￦	—		—		(325	)		13,367		45,035			882,371			62,841			1,003,289

Transaction with owners, recognized directly in equity
Dividends to equity holders		—		—		—			—		—			(178,908	)		(5,743	)		(184,651	)
Capital contribution from non-controlling interests		—		—		—			—		—			—			102,908			102,908

Balances at December 31, 2015	￦	1,789,079		2,251,113		(1,939	)		14,735		(18,562	)		8,158,526			512,004			12,704,956

See accompanying notes to the consolidated financial statements.

LG DISPLAY CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the years ended December 31, 2015 and 2014


(In millions of won)	Note	2015			2014

Cash flows from operating activities:
Profit for the year		￦	1,023,456			917,404
Adjustments for:
Income tax expense	28		410,526			324,553
Depreciation	11, 15		2,969,394			3,222,085
Amortization of intangible assets	12, 15		406,462			270,226
Gain on foreign currency translation			(73,057	)		(63,626	)
Loss on foreign currency translation			80,084			89,453
Expenses related to defined benefit plans	17, 26		199,033			196,756
Gain on disposal of property, plant and equipment			(18,179	)		(8,989	)
Loss on disposal of property, plant and equipment			4,037			2,173
Impairment loss on property, plant and equipment			3,027			8,097
Loss on disposal of intangible assets			29			672
Impairment loss on intangible assets			239			492
Reversal of impairment loss on intangible assets			(80	)		—
Finance income			(81,572	)		(55,655	)
Finance costs			222,699			148,129
Equity in income of equity method accounted investees, net	10		(18,765	)		(17,963	)
Other income			(12,454	)		(14,508	)
Other expenses			269,995			277,128

			4,361,418			4,379,023

Change in trade accounts and notes receivable			(1,060,718	)		(921,433	)
Change in other accounts receivable			38,411			(14,195	)
Change in other current assets			87,130			(219,599	)
Change in inventories			404,862			(823,497	)
Change in other non-current assets			(78,859	)		(93,987	)
Change in trade accounts and notes payable			(670,565	)		390,046
Change in other accounts payable			(459,730	)		(229,679	)
Change in accrued expenses			(66,071	)		245,373
Change in other current liabilities			14,015			(18,242	)
Change in other non-current liabilities			48,240			18,248
Change in provisions			(143,228	)		(187,021	)
Change in defined benefit liabilities, net			(279,672	)		(339,482	)

			(2,166,185	)		(2,193,468	)

Cash generated from operating activities			3,218,689			3,102,959
Income taxes paid			(414,007	)		(110,720	)
Interests received			58,860			39,452
Interests paid			(136,965	)		(167,170	)


Net cash provided by operating activities		￦	2,726,577			2,864,521

See accompanying notes to the consolidated financial statements.

LG DISPLAY CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Cash Flows, Continued

For the years ended December 31, 2015 and 2014


(In millions of won)	Note	2015			2014

Cash flows from investing activities:
Dividends received		￦	25,577			1,340
Proceeds from withdrawal of deposits in banks			2,306,672			1,651,176
Increase in deposits in banks			(2,544,114	)		(1,884,533	)
Acquisition of investments in equity accounted investees			(30,647	)		(324	)
Proceeds from disposal of investments in equity accounted investees			7,263			8,832
Acquisition of property, plant and equipment			(2,364,988	)		(2,982,549	)
Proceeds from disposal of property, plant and equipment			447,320			39,647
Acquisition of intangible assets			(294,638	)		(353,298	)
Proceeds from disposal of intangible assets			1,135			—
Government grants received			5,017			49,424
Proceeds from collection of short-term loans			—			8
Proceeds from settlement of derivatives			(35	)		—
Increase in long-term loans			(16,516	)		—
Proceeds from disposal of other financial assets			2,263			82
Acquisition of other non-current financial assets			(6,145	)		(5,129	)
Proceeds from disposal of other non-current financial assets			—			15,500
Net cash inflow from disposal of subsidiaries, net of cash transferred			—			8,545
Acquisition of businesses, net of cash acquired			(270,093	)		—


Net cash used in investing activities			(2,731,929	)		(3,451,279	)


Cash flows from financing activities:
Proceeds from short-term borrowings			—			219,839
Repayments of short-term borrowings			(223,626	)		(14,747	)
Proceeds from issuance of debentures			298,778			597,563
Proceeds from long-term debt			901,451			846,759
Repayments of long-term debt			(324,570	)		(503,618	)
Repayments of current portion of long-term debt and debentures			(744,788	)		(887,296	)
Decrease in non-controlling interests			(5,743	)		—
Increase in non-controlling interests			102,908			146,159
Dividends paid			(178,908	)		—


Net cash provided by (used in) financing activities			(174,498	)		404,659


Net decrease in cash and cash equivalents			(179,850	)		(182,099	)
Cash and cash equivalents at January 1			889,839			1,021,870
Effect of exchange rate fluctuations on cash held			41,673			50,068

Cash and cash equivalents at December 31		￦	751,662			889,839

See accompanying notes to the consolidated financial statements.

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 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 December 31, 2015, LG Electronics Inc. owns 37.9% (135,625,000 shares) of the Controlling Company’s common stock.

As of December 31, 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 December 31, 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 December 31, 2015, there are 29,554,854 ADSs outstanding.

1.	Reporting Entity, Continued

(b)

Consolidated Subsidiaries as of December 31, 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

LG Display Germany GmbH

Ratingen, Germany

100

December 31

November 5, 1999

Sell TFT-LCD products

EUR

LG Display Taiwan Co., Ltd.

Taipei, Taiwan

100

December 31

April 12, 1999

Sell TFT-LCD products

NTD

116

LG Display Nanjing Co., Ltd. (*2)

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

LG Display Poland Sp. z o.o. (*3)

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

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

December 31

January 5, 2010

Manufacture LCD module and monitor sets

CNY

116

LG Display Yantai Co., Ltd. (*1)

Yantai, China

100

December 31

April 19, 2010

Manufacture and sell TFT-LCD products

CNY

1,008

LG Display U.S.A., Inc. (*2)

McAllen, U.S.A.

100

December 31

October 26, 2011

Manufacture TFT-LCD products

USD

0.2

1.	Reporting Entity, Continued

(b)

Consolidated Subsidiaries as of December 31, 2015, Continued

(In millions)

Subsidiaries

Location

Percentage
of
ownership

Fiscal year

end

Date of
incorporation

Business

Capital
stocks

Nanumnuri Co., Ltd.

Gumi, South Korea

100

December 31

March 21, 2012

Janitorial services

KRW

800

LG Display (China) Co., Ltd. (*3)

Guangzhou, China

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

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

Guangzhou, China

100

December 31

April 28, 2015

Sell TFT-LCD Products

CNY

1.2

Global OLED Technology, LLC (*5)

Herndon, U.S.A.

100

December 31

December 18, 2009

Manage OLED intellectual property

USD

138

(*1)	In December 2015, the Controlling Company invested in ￦9,426 million in cash for the capital increase of LG Display Yantai Co., Ltd. (“LGDYT”). There was no change in the Controlling Company’s ownership percentage in LGDYT as a result of this additional investment.

(*2)

As of December 31, 2015, LG Display U.S.A., Inc. is in the process of voluntary liquidation and the Controlling Company received ￦12,125 million in cash as capital distribution from LG Display U.S.A., Inc.. There was no change in the Controlling Company’s ownership percentage in LG Display U.S.A., Inc..

(*3)

In January 2015, the Controlling Company invested ￦134,619 million in cash for the capital increase of LG Display (China) Co., Ltd. (“LGDCA”). In addition, in January and August 2015, LG Display Guangzhou Co., Ltd. (“LGDGZ”), a subsidiary of the Controlling Company, invested an aggregate of ￦118,936 million in cash for the capital increase of LGDCA. In 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%.

(*4)	In April 2015, the Controlling Company established LG Display Guangzhou Trading Co., Ltd. to sell TFT-LCD products. As of December 31, 2015, the Controlling Company has a 100% equity interest of this subsidiary and its capital stock amounts to ￦218 million.

(*5)

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 ￦54,025 million, ￦2,990 million and ￦54,025 million, respectively, in cash. As a result, the Controlling Company’s ownership percentage in Global OLED Technology increased from 33% to 100% in 2015 (Note 32).

1.	Reporting Entity, Continued

(b)

Consolidated Subsidiaries as of December 31, 2015, Continued

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

￦531,304 million and ￦430,534 million, respectively, are attributable to the Controlling Company over the distributed dividends from consolidated subsidiaries for the years ended December 31, 2015 and 2014.

(c)

Summary of financial information of subsidiaries at the reporting date is as follows:


(In millions of won)	December 31, 2015						2015
Subsidiaries	Total assets		Total liabilities		Total shareholders’ equity		Sales		Net income (loss)
LG Display America, Inc.	￦	1,530,639		1,479,935		50,704		11,508,652		3,046
LG Display Japan Co., Ltd.		174,686		154,090		20,596		1,590,675		1,682
LG Display Germany GmbH		511,703		503,726		7,977		2,123,368		2,459
LG Display Taiwan Co., Ltd.		670,674		660,241		10,433		1,995,216		2,483
LG Display Nanjing Co., Ltd.		695,623		64,864		630,759		403,552		41,017
LG Display Shanghai Co., Ltd.		926,503		911,682		14,821		1,518,461		6,791
LG Display Poland Sp. z o.o.		167,491		10,117		157,374		64,228		4,405
LG Display Guangzhou Co., Ltd.		1,908,061		1,134,064		773,997		2,453,655		237,369
LG Display Shenzhen Co., Ltd.		266,804		261,145		5,659		1,829,569		2,897
LG Display Singapore Pte. Ltd.		169,790		169,668		122		1,111,372		1,994
L&T Display Technology (Fujian) Limited		355,249		283,643		71,606		1,280,286		20,010
LG Display Yantai Co., Ltd.		1,441,411		1,091,911		349,500		2,273,020		88,604
LG Display U.S.A., Inc.		333		22		311		235		2,993
Nanumnuri Co., Ltd.		3,199		1,834		1,365		11,360		103
LG Display (China) Co., Ltd.		2,678,341		1,090,259		1,588,082		1,654,680		127,654
Unified Innovative Technology, LLC		8,447		1		8,446		—		(1,225	)
LG Display Guangzhou Trading Co., Ltd.		93,246		92,854		392		187,630		170
Global OLED Technology, LLC		89,329		5,753		83,576		4,882		(5,017	)

	￦	11,691,529		7,915,809		3,775,720		30,010,841		537,435

1.	Reporting Entity, Continued


(In millions of won)	December 31, 2014							2014
Subsidiaries	Total assets		Total liabilities		Total shareholders’ equity (deficit)			Sales		Net income (loss)
LG Display America, Inc.	￦	1,867,934		1,823,178		44,756			9,019,130		3,142
LG Display Japan Co., Ltd.		171,716		153,741		17,975			1,608,510		1,675
LG Display Germany GmbH		448,851		443,062		5,789			2,955,383		1,770
LG Display Taiwan Co., Ltd.		399,524		389,753		9,771			2,195,670		2,374
LG Display Nanjing Co., Ltd.		709,192		82,789		626,403			396,246		32,917
LG Display Shanghai Co., Ltd.		553,749		514,407		39,342			2,372,405		5,873
LG Display Poland Sp. z o.o.		199,585		11,308		188,277			76,023		30,293
LG Display Guangzhou Co., Ltd.		1,959,569		1,092,161		867,408			2,277,400		164,663
LG Display Shenzhen Co., Ltd.		306,757		291,645		15,112			2,056,861		1,481
LG Display Singapore Pte. Ltd.		251,422		250,199		1,223			1,209,181		1,947
L&T Display Technology (Xiamen) Limited		6,531		24,617		(18,086	)		—		(335	)
L&T Display Technology (Fujian) Limited		314,948		251,941		63,007			1,187,511		17,446
LG Display Yantai Co., Ltd.		1,346,589		1,032,278		314,311			1,049,993		76,860
LG Display U.S.A., Inc.		23,191		10,117		13,074			131,622		(3,672	)
Nanumnuri Co., Ltd.		2,567		1,305		1,262			9,538		406
LG Display (China) Co., Ltd.		2,208,485		1,123,609		1,084,876			689,102		16,511
Unified Innovative Technology, LLC		9,118		19		9,099			—		(762	)

	￦	10,779,728		7,496,129		3,283,599			27,234,575		352,589

1.	Reporting Entity, Continued

(d)

Associates and Joint ventures (Equity Method Investees) as of December 31, 2015


(In millions of won)
Associates and joint ventures	Location	Percentage of ownership						Fiscal year end	Date of incorporation	Business	Carrying amount
		2015			2014
Suzhou Raken Technology Co., Ltd. (*1)	Suzhou, China		51	%		51	%	December 31	October 2008	Manufacture and sell LCD modules and LCD TV sets	￦	145,731

Paju Electric Glass Co., Ltd.	Paju, South Korea		40	%		40	%	December 31	January 2005	Manufacture electric glass for FPDs		58,852

TLI Inc. (*2)	Seongnam, South Korea		10	%		10	%	December 31	October 1998	Manufacture and sell semiconductor parts		5,351

AVACO Co., Ltd. (*2)	Daegu, South Korea		16	%		16	%	December 31	January 2001	Manufacture and sell equipment for FPDs		12,758

New Optics Ltd.	Yangju, South Korea		46	%		46	%	December 31	August 2005	Manufacture back light parts for TFT-LCDs		48,491

LIG INVENIA Co, Ltd. (LIG ADP Co., Ltd.) (*2)	Seongnam, South Korea		13	%		13	%	December 31	January 2001	Develop and manufacture equipment for FPDs		1,827

WooRee E&L Co., Ltd.	Ansan, South Korea		21	%		21	%	December 31	June 2008	Manufacture LED back light unit packages		25,021

LB Gemini New Growth Fund No. 16 (*3)	Seoul, South Korea		31	%		31	%	December 31	December 2009	Invest in small and middle sized companies and benefit from M&A opportunities		24,268

Can Yang Investments Limited (2)(4)	Hong Kong		9	%		9	%	December 31	January 2010	Develop, manufacture and sell LED parts		7,384

YAS Co., Ltd. (2)(5)	Paju, South Korea		19	%		19	%	December 31	April 2002	Develop and manufacture deposition equipment for OLEDs		10,607

1.	Reporting Entity, Continued

(In millions of won)

Associates and joint ventures

Location

Percentage of
ownership

Fiscal year

end

Date of
incorporation

Business

Carrying
amount

2015

2014

Narenanotech Corporation

Yongin, South Korea

December 31

December 1995

Manufacture and sell FPD manufacturing equipment

￦

24,661

AVATEC Co., Ltd. (*2)

Daegu, South Korea

December 31

August 2000

Process and sell glass for FPDs

19,804

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

Los Angenles USA

—

March 31

June 2008

Develop and manufacture tablet for kids

—

￦

384,755

(*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 as an equity method investment.

(*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 limited partnership in the LB Gemini New Growth Fund No.16 (“the Fund”). In April, July and August 2015, the Controlling Company received ￦2,490 million, ￦2,100 million and ￦2,175 million, respectively, from the Fund as capital distribution and made an additional cash investment of ￦360 million in the Fund in March 2015. There was no change in the Controlling Company’s ownership percentage in the Fund and the Controlling Company is committed to making future investments of up to an aggregate of ￦30,000 million.

(*4)	In 2015, the Controlling Company did not participate in capital contribution for Can Yang Investments Limited. Accordingly, the Controlling Company’s ownership percentage in Can Yang Investments Limited decreased from 9.4% as of December 31, 2014 to 8.9% as of December 31, 2015.

(*5)	In 2015, the number of outstanding common shares of YAS Co., Ltd. was increased due to the execution of its stock option and the Controlling Company’s ownership percentage in YAS Co., Ltd. decreased from 19.2% as of December 31, 2014 to 18.5% as of December 31, 2015.

(*6)

In July 2015, the Controlling Company invested ￦30,287 million and acquired 500,000 shares of common stock and 1,011,280 shares of preferred stock with voting rights in Fuhu, Inc.. In 2015, the Controlling Company recognized an impairment loss of ￦26,791 million as finance cost for the difference between the carrying amount and the recoverable amount of investments in Fuhu, Inc.. As of December 31, 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.

1.	Reporting Entity, Continued

In December 2015, the Controlling Company disposed of the entire investments in Glonix Co., Ltd., had acquired for manufacturing and selling LCD, for ￦498 million and recognized ￦487 million for the difference between the disposal amount and the carrying amount as finance income.

2.	Basis of Presenting Financial Statements

(a)

Statement of Compliance

In accordance with the Act on External Audits of Stock Companies, these consolidated financial statements have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”).

The consolidated financial statements were authorized for issuance by the Board of Directors on January 26, 2016, which will be submitted for approval to the shareholders’ meeting to be held on March 11, 2016.

(b)

Basis of Measurement

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

•

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

•

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

(c)

Functional and Presentation Currency

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

(d)

Use of Estimates and Judgments

The preparation of the consolidated 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.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following notes:

•

Classification of financial instruments (note 3.(d))

•

Estimated useful lives of property, plant and equipment (note 3.(e))

2.	Basis of Presenting Financial Statements, Continued

(d)

Use of Estimates and Judgments, Continued

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next 12 months is included in the following notes:

•

Recognition and measurement of provisions (note 3.(j), 18 and 20)

•

Net realizable value of inventories (note 8)

•

Measurement of defined benefit obligations (note 17)

•

Deferred tax assets and liabilities (note 29)

3.	Summary of Significant Accounting Policies

The significant accounting policies followed by the Group in preparation of its consolidated financial statements are as follows:

(a)

Consolidation

(i) Business Combinations

The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities in accordance with K-IFRS No. 1032 and K-IFRS No. 1039. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss.

(ii) Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed, or has right to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

(iii) Non-controlling interests

Non-controlling interests (“NCI”) are measured at their proportionate share of the acquiree’s identifiable net assets at the acquisition date.

Changes in the Group’s interest in subsidiaries that do not result in a loss of control are accounted for as equity transactions.

3.	Summary of Significant Accounting Policies, Continued

(a)

Consolidation, Continued

(iv) Loss of Control

If the Controlling Company loses control of subsidiaries, the Controlling Company derecognizes the assets and liabilities of the former subsidiaries from the consolidated statement of financial position and recognizes the gain or loss associated with the loss of control attributable to the former controlling interest. Meanwhile, the Controlling Company recognizes any investment retained in the former subsidiaries at its fair value when control is lost.

(v) Associates and joint ventures (equity method investees)

Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.

Investments in associates and joint ventures are initially recognized at cost and subsequently accounted for using the equity method of accounting. The carrying amount of investments in associates and joint ventures is increased or decreased to recognize the Group’s share of the profits or losses and changes in the Group’s proportionate interest of the investee after the date of acquisition. Distributions received from an investee reduce the carrying amount of the investment.

If an associate or joint ventures uses accounting policies different from those of the Controlling Company for like transactions and events in similar circumstances, appropriate adjustments are made to the consolidated financial statements. As of and during the periods presented in the consolidated financial statements, no adjustments were made in applying the equity method.

When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term investments, is reduced to nil, and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.

(vi) Transactions eliminated on consolidation

Intra-group balances and transactions, including income and expenses and any unrealized income and expenses and balance of trade accounts and notes receivable and payable arising from intra-group transactions, are eliminated. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

3.	Summary of Significant Accounting Policies, Continued

(b)

Foreign Currency Transactions and Translation

Transactions in foreign currencies are translated to the respective functional currencies of the Group at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency at the exchange rate on the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was originally determined. Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on available-for-sale equity instruments and a financial asset and liability designated as a cash flow hedge, which are recognized in other comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the original transaction. Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition are recognized in profit or loss in the period in which they arise. Foreign currency differences arising from assets and liabilities in relation to the investing and financing activities including loans, bonds and cash and cash equivalents are recognized in finance income (costs) in the consolidated statement of comprehensive income and foreign currency differences arising from assets and liabilities in relation to activities other than investing and financing activities are recognized in other non-operating income (expense) in the consolidated statement of comprehensive income. Relevant foreign currency differences are presented in gross amounts in the consolidated statement of comprehensive income.

If the presentation currency of the Group is different from a foreign operation’s functional currency, the financial position and financial performance of the foreign operation are translated into the presentation currency using the following methods. The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, including goodwill and fair value adjustments arising on acquisition, are translated to the Group’s functional currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to the Group’s functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income. However, if the operation is a non-wholly-owned subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-controlling interests. When a foreign operation is disposed of in its entirety or partially such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. If the Group disposes part of its interest in a subsidiary but retains control, then the relevant proportion of the cumulative amount is reattributed to NCI. When the Group disposes of only part of an associate or joint venture while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign operation. Thus, they are expressed in the functional currency of the foreign operation and translated at the at each reporting date’s exchange rate.

3.	Summary of Significant Accounting Policies, Continued

(c)

Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted-average method, and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated selling expenses. In the case of manufactured inventories and work-in-process, cost includes an appropriate share of production overheads based on the actual capacity of production facilities. However, the normal capacity is used for the allocation of fixed production overheads if the actual level of production is lower than the normal capacity.

(d)

Financial Instruments

(i) Non-derivative financial assets

The Group initially recognizes loans and receivables and deposits on the date they are originated. All other non-derivative financial assets, including financial assets at fair value through profit or loss (“FVTPL”), are recognized in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows of the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognized as a separate asset or liability. If a transfer does not result in derecognition because the Group has retained substantially all the risks and rewards of ownership of the transferred asset, the Group continues to recognize the transferred asset and recognizes a financial liability for the consideration received. In subsequent periods, the Group recognizes any income on the transferred assets and any expense incurred on the financial liability.

Financial assets and liabilities are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.

The Group has the following non-derivative financial assets: financial assets at FVTPL, loans and receivables and available-for-sale financial assets.

Financial assets at fair value through profit or loss

A financial asset is classified at FVTPL if it is classified as held for trading or is designated as such upon initial recognition. If a contract contains one or more embedded derivatives, the Group designates the entire hybrid (combined) contract as a financial asset at FVTPL unless: the embedded derivative(s) does not significantly modify the cash flows that otherwise would be required by the contract; or it is clear with little or no analysis when a similar hybrid (combined) instrument is first considered that separation of the embedded derivative(s) is prohibited. Upon initial recognition, attributable transaction costs are recognized in profit or loss as incurred. Financial assets at FVTPL are measured at fair value, and changes therein are recognized in profit or loss.

3.	Summary of Significant Accounting Policies, Continued

(d)

Financial Instruments, Continued

(i) Non-derivative financial assets, Continued

Cash and cash equivalents

Cash and cash equivalents include all cash balances and short-term highly liquid investments with an original maturity of three months or less that are readily convertible into known amounts of cash.

Deposits in banks

Deposits in banks are those with maturity of more than three months and less than one year and are held for cash management purposes.

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. When loans and receivables are recognized initially, the Group measures them at their fair value plus transaction costs that are directly attributable to the acquisition or issue of the financial asset. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses. Loans and receivables comprise trade accounts and notes receivable and other accounts receivable.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or that are not classified as financial assets at FVTPL, held-to-maturity financial assets or loans and receivables. The Group’s investments in equity securities and certain debt securities are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on available-for-sale equity instruments, are recognized in other comprehensive income and presented within equity in the fair value reserve. When an investment in available-for-sale financial assets is derecognized, the cumulative gain or loss in other comprehensive income is transferred to profit or loss.

Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and whose derivatives are linked to and must be settled by delivery of such unquoted equity instruments are measured at cost.

3.	Summary of Significant Accounting Policies, Continued

(d)

Financial Instruments, Continued

(ii) Non-derivative financial liabilities

The Group classifies financial liabilities into two categories, financial liabilities at FVTPL and other financial liabilities, in accordance with the substance of the contractual arrangement and the definitions of financial liabilities, and recognizes them in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Financial liabilities at FVTPL include financial liabilities held for trading or designated as such upon initial recognition at FVTPL. After initial recognition, financial liabilities at FVTPL are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the issuance of financial liabilities are recognized in profit or loss as incurred.

Non-derivative financial liabilities other than financial liabilities classified as FVTPL are classified as other financial liabilities and measured initially at fair value minus transaction costs that are directly attributable to the issuance of financial liabilities. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method. As of December 31, 2015, non-derivative financial liabilities comprise borrowings, bonds and others.

The Group derecognizes a financial liability when its contractual obligations are discharged, cancelled or expired.

(iii) Share Capital

The Group only issued common stocks and they are classified as equity. Incremental costs directly attributable to the issuance of common stocks are recognized as a deduction from equity, net of tax effects. Capital contributed in excess of par value upon issuance of common stocks is classified as share premium within equity.

3.	Summary of Significant Accounting Policies, Continued

(d)

Financial Instruments, Continued

(iv) Derivative financial instruments, including hedge accounting

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognized in profit or loss except in the case where the derivatives are designated as cash flow hedges and the hedge is determined to be an effective hedge.

If necessary, the Group designates derivatives as hedging items to hedge the risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow hedge).

On initial designation of the hedge, management formally documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. Management makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value or cash flows of the respective hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80-125 percent. For a cash flow hedge of a forecasted transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported net income.

Cash flow hedges

When a derivative is designated as a hedge of the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and presented in the hedging reserve in equity. The amount recognized in other comprehensive income is removed and included in profit or loss in the same period the hedged cash flows affect profit or loss under the same line item in the consolidated statement of comprehensive income. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss.

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in other comprehensive income and presented in the hedging reserve in equity remains there until the forecasted transaction affects profit or loss. When the hedged item is a non-financial asset, the amount recognized in other comprehensive income is transferred to the carrying amount of the asset when the asset is recognized. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss. In other cases the amount recognized in other comprehensive income is transferred to profit or loss in the same period that the hedged item affects profit or loss.

3.	Summary of Significant Accounting Policies, Continued

(d)

Financial Instruments, Continued

(iv) Derivative financial instruments, including hedge accounting, Continued

Embedded derivative

Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at FVTPL. Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.

(e)

Property, Plant and Equipment

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes an expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and borrowing costs on qualifying assets.

The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item and recognized in other non-operating income or other non-operating expenses.

(ii) Subsequent costs

Subsequent expenditure on an item of property, plant and equipment is recognized as part of its cost only if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred.

(iii) Depreciation

Depreciation is recognized in profit or loss on a straight-line basis method, reflecting the pattern in which the asset’s future economic benefits are expected to be consumed by the Group. The residual value of property, plant and equipment is zero. Land is not depreciated.

Estimated useful lives of the assets are as follows:


		Useful lives (years)
Buildings and structures		20, 40
Machinery		4, 5
Furniture and fixtures		4
Equipment, tools and vehicles		4, 12

Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate and any changes are accounted for as changes in accounting estimates. There were no such changes for all periods presented.

3.	Summary of Significant Accounting Policies, Continued

(f)

Borrowing Costs

The Group capitalizes borrowing costs, which includes interests and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs, directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. To the extent that the Group borrows funds specifically for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. The Group immediately recognizes other borrowing costs as an expense.

(g)

Government Grants

In case there is reasonable assurance that the Group will comply with the conditions attached to a government grant, the government grant is recognized as follows:

(i) Grants related to the purchase or construction of assets

A government grant related to the purchase or construction of assets is deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduced depreciation expense and cash related to grant received is presented in investing activities in the statement of cash flows.

(ii) Grants for compensating the Group’s expenses incurred

A government grant that compensates the Group for expenses incurred is recognized in profit or loss as a deduction from relevant expenses on a systematic basis in the periods in which the expenses are recognized.

(iii) Other government grants

A government grant that becomes receivable for the purpose of giving immediate financial support to the Group with no compensation for expenses or losses already incurred or no future related costs is recognized as income of the period in which it becomes receivable.

(h)

Intangible Assets

Intangible assets are initially measured at cost. Subsequently, intangible assets are measured at cost less accumulated amortization and accumulated impairment losses.

(i) Goodwill

Goodwill arising from business combinations is recognized as the excess of the acquisition cost of investments in subsidiaries, associates and joint ventures over the Group’s share of the net fair value of the identifiable assets acquired and liabilities assumed. Any deficit is a bargain purchase that is recognized in profit or loss. Goodwill is measured at cost less accumulated impairment losses.

3.	Summary of Significant Accounting Policies, Continued

(h)

Intangible Assets, Continued

(ii) Research and development

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss as incurred.

Development activities involve a plan or design of the production of new or substantially improved products and processes. Development expenditure is capitalized only if the Group can demonstrate all of the following:

•

the technical feasibility of completing the intangible asset so that it will be available for use or sale,

•

its intention to complete the intangible asset and use or sell it,

•

its ability to use or sell the intangible asset,

•

how the intangible asset will generate probable future economic benefits. Among other things, the Group can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset,

•

the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset, and

•

its ability to measure reliably the expenditure attributable to the intangible asset during its development.

The expenditure capitalized includes the cost of materials, direct labor, overhead costs that are directly attributable to preparing the asset for its intended use, and borrowing costs on qualifying assets.

(iii) Other intangible assets

Other intangible assets include intellectual property rights, software, customer relationships, technology, memberships and others.

(iv) Subsequent costs

Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific intangible asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred.

3.	Summary of Significant Accounting Policies, Continued

(h)

Intangible Assets, Continued

(v) Amortization

Amortization is calculated on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. The residual value of intangible assets is zero. However, as there are no foreseeable limits to the periods over which condominium and golf club memberships are expected to be available for use, these intangible assets are regarded as having indefinite useful lives and not amortized.


		Estimated useful lives (years)
Intellectual property rights		5, 10
Rights to use electricity, water and gas supply facilities		10
Software		4
Customer relationships		7, 10
Technology		10
Development costs		(*)
Condominium and golf club memberships		Not amortized

(*)	Capitalized development costs are amortized over the useful life considering the life cycle of the developed products. Amortization of capitalized development costs is recognized in research and development expenses in the consolidated statement of comprehensive income.

Amortization periods and the amortization methods for intangible assets with finite useful lives are reviewed at each financial year-end. The useful lives of intangible assets that are not being amortized are reviewed each period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. If appropriate, the changes are accounted for as changes in accounting estimates.

(i)

Impairment

(i) Financial assets

A financial asset not carried at FVTPL is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets are impaired can include default or delinquency in interest or principal payments by an issuer or a debtor, for economic reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the Group would not otherwise consider, or the disappearance of an active market for that financial asset. In addition, for an investment in an equity security, objective evidence of impairment includes significant financial difficulty of the issuer and a significant or prolonged decline in its fair value below its cost.

3.	Summary of Significant Accounting Policies, Continued

(i)

Impairment, Continued

(i) Financial assets, Continued

Management considers evidence of impairment for loans and receivables at both a specific asset and collective level. All individually significant loans and receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Loans and receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics.

In assessing collective impairment the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

If there is objective evidence that an impairment loss has been incurred on financial assets carried at amortized cost, the amount of the impairment loss is measured as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Impairment losses are recognized in profit or loss and reflected in an allowance account against loans and receivables.

The amount of the impairment loss on financial assets including equity securities carried at cost is measured as the difference between the carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed.

When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income the amount of the cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition cost and current fair value, less any impairment loss on that financial asset previously recognized in profit or loss.

In a subsequent period, for the financial assets recorded at fair value, if the fair value increases and the increase can be objectively related to an event occurring after the impairment loss was recognized, the previously recognized impairment loss is reversed. The amount of the reversal in financial assets carried at amortized cost and a debt instrument classified as available for sale is recognized in profit or loss. However, impairment loss recognized for an investment in an equity instrument classified as available-for-sale is reversed through other comprehensive income.

3.	Summary of Significant Accounting Policies, Continued

(i)

Impairment, Continued

(ii) Non-financial assets

The carrying amounts of the Group’s non-financial assets, other than assets arising from employee benefits, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, the recoverable amount is estimated each year at the same time.

For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”, or “CGU”). The recoverable amount of an asset or cash-generating unit is determined as the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Fair value less costs to sell is based on the best information available to reflect the amount that the Group could obtain from the disposal of the asset in an arm’s length transaction between knowledgeable, willing parties, after deducting the costs of disposal.

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Goodwill acquired in a business combination is allocated to CGUs that are expected to benefit from the synergies of the combination. Impairment losses recognized in respect of a CGU are allocated first to reduce the carrying amount of any goodwill allocated to the unit, and then to reduce the carrying amounts of the other assets in the unit on a pro rata basis.

In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of accumulated depreciation or amortization, if no impairment loss had been recognized. An impairment loss in respect of goodwill is not reversed.

3.	Summary of Significant Accounting Policies, Continued

(j)

Provisions

A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

The risks and uncertainties that inevitably surround events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows. The unwinding of the discount is recognized as finance cost.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

The Group recognizes a liability for warranty obligations based on the estimated costs expected to be incurred under its basic limited warranty. This warranty covers defective products and is normally applicable for eighteen months from the date of purchase. These liabilities are accrued when product revenues are recognized. Factors that affect the Group’s warranty liability include historical and anticipated rates of warranty claims on those repairs and cost per claim to satisfy the Group’s warranty obligation. Warranty costs primarily include raw materials and labor costs. As these factors are impacted by actual experience and future expectations, management periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Accrued warranty obligations are included in the current and non-current provisions.

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources, are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated.

(k)

Employee Benefits

(i) Short-term employee benefits

Short-term employee benefits that are due to be settled within twelve months after the end of the period in which the employees render the related service are recognized in profit or loss on an undiscounted basis. The expected cost of profit-sharing and bonus plans and others are recognized when the Group has a present legal or constructive obligation to make payments as a result of past events and a reliable estimate of the obligation can be made.

(ii) Other long-term employee benefits

The Group’s net obligation in respect of long-term employee benefits other than pension plans is the amount of future benefit that employees have earned in return for their service in the current and prior periods.

3.	Summary of Significant Accounting Policies, Continued

(k)

Employee Benefits, Continued

(iii) Defined contribution plan

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the periods during which services are rendered by employees.

(iv) Defined benefit plan

A defined benefit plan is a post-employment benefit plan other than defined contribution plans. The Group’s net obligation in respect of its defined benefit plan is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The fair value of any plan assets is deducted.

The calculation is performed annually by an independent actuary using the projected unit credit method. The discount rate is the yield at the reporting date on high quality corporate bonds that have maturity dates approximating the terms of the Group’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The Group recognizes all actuarial gains and losses arising from defined benefit plans in retained earnings immediately.

The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Consequently, the net interest on the net defined benefit liability (asset) now comprises: interest cost on the defined benefit obligation, interest income on plan assets, and interest on the effect on the asset ceiling.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.

(l)

Revenue

Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of estimated returns, earned trade discounts, volume rebates and other cash incentives paid to customers. Revenue is recognized when persuasive evidence exists that the significant risks and rewards of ownership have been transferred to the buyer, generally on delivery and acceptance at the customers’ premises, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue when the sales are recognized. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenues in the consolidated statements of comprehensive income.

3.	Summary of Significant Accounting Policies, Continued

(m)

Operating Segments

An operating segment is a component of the Group that: 1) engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with other components of the group, 2) whose operating results are reviewed regularly by the Group’s chief operating decision maker (“CODM”) in order to allocate resources and assess its performance, and 3) for which discrete financial information is available. Management has determined that the CODM of the Group is the Board of Directors. The CODM does not receive and therefore does not review discrete financial information for any component of the Group. Consequently, no operating segment information is included in these consolidated financial statements. Entity wide disclosures of geographic and product revenue information are provided in note 23 to these consolidated financial statements.

(n)

Finance Income and Finance Costs

Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-for-sale financial assets, changes in the fair value of financial assets at FVTPL, and gains on hedging instruments that are recognized in profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest method. Dividend income is recognized in profit or loss on the date that the Group’s right to receive payment is established.

Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, changes in the fair value of financial assets at FVTPL, impairment losses recognized on financial assets, and losses on hedging instruments that are recognized in profit or loss. Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset.

(o)

Income Tax

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

(i) Current tax

Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the reporting date and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible items from the accounting profit.

3.	Summary of Significant Accounting Policies, Continued

(o)

Income Tax, Continued

(ii) Deferred tax

Deferred tax is recognized, using the liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. However, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill.

The Group recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, except to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. A deferred tax asset is recognized for all deductible temporary differences to the extent that it is probable that the differences relating to investments in subsidiaries, associates and joint ventures will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

The Group offsets deferred tax assets and deferred tax liabilities if, and only if the Group has a legally enforceable right to set off current tax assets against current tax liabilities and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously.

(p)

Earnings Per Share

The Group presents basic and diluted earnings per share (“EPS”) data for its common stocks. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Controlling Company by the weighted average number of common stocks outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of common stocks outstanding, adjusted for the effects of all dilutive potential common stocks, which comprise convertible bonds.

(q)

New Standards and Amendments Not Yet Adopted

(i) K-IFRS No. 1109, Financial Instruments

K-IFRS No. 1109 provides revised guidance on the classification and measurement of financial instruments and replaces incurred loss model with expected credit losses model for calculating impairment on financial assets. K-IFRS No. 1109 also includes new general hedge accounting requirements including hedged items, hedging instruments and risk being hedged in order to expand applicable risk management strategies being utilized. K-IFRS No. 1109 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. K-IFRS No. 1109 has not been early adopted in preparing the consolidated financial statements.

3.	Summary of Significant Accounting Policies, Continued

(q)

New Standards and Amendments Not Yet Adopted, Continued

(ii) K-IFRS No. 1115, Revenue from contracts with customers

K-IFRS No. 1115 establishes a single new revenue recognition standard for contracts with customers and introduces a five-step model for determining whether, how much and when revenue is recognized. K-IFRS No. 1115 replaces risk-and-reward based model with control-based model. K-IFRS No. 1115 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. K-IFRS No. 1115 has not been early adopted in preparing the consolidated financial statements.

Management is currently assessing the potential impact on its consolidated financial statements resulting from the application of new standards.

4.	Determination of Fair Value

A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

(a)

Current Assets and Liabilities

The carrying amounts approximate fair value because of the short maturity of these instruments.

(b)

Trade Receivables and Other Receivables

The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes. The carrying amounts of short-term receivables approximate fair value.

(c)

Investments in Equity and Debt Securities

The fair value of marketable available-for-sale financial assets is determined by reference to their quoted closing bid price at the reporting date. The fair value of non-marketable securities is determined using valuation methods.

(d)

Non-derivative Financial Liabilities

Fair value, which is determined for disclosure purposes, except for the liabilities at FVTPL, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date.

5.	Risk Management

(a)

Financial Risk Management

The Group is exposed to credit risk, liquidity risk and market risks. The Group identifies and analyzes such risks, and controls are implemented under a risk management system to monitor and manage these risks at below a threshold level.

(i) Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers.

The Group’s exposure to credit risk of trade and other receivables is influenced mainly by the individual characteristics of each customer. However, management believes that the demographics of the Group’s customer base, including the default risk of the country in which customers operate, do not have a significant influence on credit risk since the majority of the customers are global electronic appliance manufacturers operating in global markets.

The Group establishes credit limits for each customer and each new customer is analyzed quantitatively and qualitatively before determining whether to utilize third party guarantees, insurance or factoring as appropriate.

The Group does not establish allowances for receivables under insurance or receivables from customers with a high credit rating. For the rest of the receivables, the Group establishes an allowance for impairment of trade and other receivables that have been individually or collectively evaluated for impairment and estimated on the basis of historical loss experience for assets.

(ii) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group has historically been able to satisfy its cash requirements from cash flows from operations and debt and equity financing. To the extent that the Group does not generate sufficient cash flows from operations to meet its capital requirements, the Group may rely on other financing activities, such as external long-term borrowings and offerings of debt securities, equity-linked and other debt securities. In addition, the Group maintains a line of credit with various banks.

(iii) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

5.	Risk Management, Continued

(a)

Financial Risk Management, Continued

(iv) Currency risk

The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the functional currency of the Group, Korean won (KRW). The currencies in which these transactions primarily are denominated are USD, EUR, JPY, etc.

Interest on borrowings is denominated in the currency of the borrowing. Generally, borrowings are denominated in currencies that match the cash flows generated by the underlying operations of the Group, primarily KRW and USD.

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

(v) Interest rate risk

Interest rate risk arises principally from the Group’s debentures and borrowings. The Group establishes and applies its policy to reduce uncertainty arising from fluctuations in the interest rate and to minimize finance cost and manages interest rate risk by monitoring of trends of fluctuations in interest rate and establishing plan for countermeasures.

(b)

Capital Management

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


(In millions of won)
	December 31, 2015			December 31, 2014
Total liabilities	￦	9,872,204			11,183,613
Total equity		12,704,956			11,783,410
Cash and deposits in banks (*1)		2,523,999			2,416,321
Borrowings (including bonds)		4,224,231			4,247,386
Total liabilities to equity ratio		78	%		95	%
Net borrowings to equity ratio (*2)		13	%		16	%

(*1)	Cash and deposits in banks consist of cash and cash equivalents and current deposit in banks.

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

6.	Cash and Cash Equivalents and Deposits in Banks

Cash and cash equivalents and deposits in banks at the reporting date are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Current assets
Cash and cash equivalents
Demand deposits	￦	751,662		889,839
Deposits in banks
Time deposits	￦	1,701,837		1,453,677
Restricted cash (*)		70,500		72,805

	￦	1,772,337		1,526,482

Non-current assets
Deposits in banks
Restricted cash (*)		13		8,427

	￦	2,524,012		2,424,748

(*)	Restricted cash includes mutual growth fund to aid LG Group’s second and third-tier suppliers, and others.

7.	Receivables and Other Current Assets

(a)

Trade accounts and notes receivable at the reporting date are as follows:


(In millions of won)
	December 31, 2015		December 31, 2014
Trade, net	￦	3,008,123		2,572,880
Due from related parties		1,089,713		871,597

	￦	4,097,836		3,444,477

(b)

Other accounts receivable at the reporting date are as follows:


(In millions of won)	December 31, 2015		December 31, 2014
Current assets
Non-trade accounts receivable, net	￦	89,792		101,027
Accrued income		16,023		18,451

	￦	105,815		119,478

Due from related parties included in other accounts receivable, as of December 31, 2015 and 2014 are ￦2,526 million and ￦13,694 million, respectively.

(c)

Other assets at the reporting date are as follows:


(In millions of won)	December 31, 2015		December 31, 2014
Current assets
Advance payments	￦	11,465		11,960
Prepaid expenses		59,962		48,858
Value added tax refundable		372,515		435,847

	￦	443,942		496,665

Non-current assets
Long-term prepaid expenses	￦	293,847		257,769
Others		1,800		2,900

	￦	295,647		260,669

8.	Inventories

Inventories at the reporting date are as follows:


(In millions of won)	December 31, 2015		December 31, 2014
Finished goods	￦	910,844		1,200,592
Work-in-process		720,221		745,614
Raw materials		389,442		426,380
Supplies		331,162		381,512

	￦	2,351,669		2,754,098

For the years ended December 31, 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	￦	24,069,572			22,667,134
Including: inventory write-downs		363,755			332,699
Including: reversal and usage of inventory write downs		(332,699	)		(211,363	)

There were no significant reversals of inventory write-downs recognized during 2015 and 2014.

9.	Other Financial Assets

(a)

Other financial assets at the reporting date are as follows:


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