Business Context and Reporting Period
Company: LG Display Co., Ltd.
Filing Type: Form 6-K (Submission of Audit Report)
Reporting Period: Fiscal Year ended December 31, 2013 (compared to 2012)
Audit Date: February 19, 2014 (Report received Feb 26, 2014)
Auditor: Samjong Accounting Corporation (KPMG)
Opinion: Unqualified
Business Overview: The Group manufactures and sells TFT-LCD panels and OLED products. Major operations are located in South Korea, China, and overseas subsidiaries in North America, Europe, and Asia. LG Electronics Inc. owns 37.9% of the common shares.
Key Financial Metrics (FY 2013 vs. FY 2012)
| Item (In millions of KRW) | FY 2013 | FY 2012 |
|---|---|---|
| Revenues | 27,033,035 | 29,429,668 |
| Operating Income | 1,163,314 | 912,368 |
| Net Income | 418,973 | 236,345 |
| Total Assets | 21,715,284 | 24,455,511 |
| Total Liabilities | 10,917,864 | 14,215,331 |
| Total Shareholders' Equity | 10,797,420 | 10,240,180 |
| Net Cash from Operating Activities | 3,584,773 | 4,569,695 |
| Net Cash Used in Investing Activities | (4,504,321) | (3,688,185) |
| Cash and Cash Equivalents (End of Period) | 1,021,870 | 2,338,661 |
| Basic Earnings Per Share (KRW) | 1,191 | 652 |
Note: All figures are in millions of Korean Won (KRW) unless otherwise stated.
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased by approximately 8.2% (KRW 2.4 trillion) compared to 2012, driven by lower sales in TFT-LCD televisions and notebook computers.
- Profitability Improvement: Despite lower revenue, Operating Income increased by 27.5% and Net Income increased by 77.3%. This was primarily due to a significant reduction in "Other non-operating expenses" (down KRW 345 billion) and improved gross margins.
- Balance Sheet Strengthening: Total liabilities decreased by KRW 3.3 trillion, while Shareholders' Equity increased by KRW 557 billion. The Total Liabilities to Equity ratio improved from 139% in 2012 to 101% in 2013.
- Cash Flow: Net cash provided by operating activities decreased by KRW 985 billion, while cash used in investing activities increased due to higher capital expenditures and changes in bank deposits. The net decrease in cash and cash equivalents was KRW 1.3 trillion.
- Inventory Reduction: Inventories decreased by KRW 457 billion, contributing positively to operating cash flow.
Guidance, Risks, and Contingencies
Management Commentary & Outlook: The filing does not contain specific forward-looking guidance or numerical forecasts for future periods. Management notes that the Group continues to invest in R&D (KRW 1.1 trillion in 2013) and expand OLED capabilities.
Significant Risks and Contingencies:
- Antitrust Investigations: The Group is subject to ongoing investigations and litigation regarding alleged anti-competitive activities in the LCD industry in multiple jurisdictions (US, EU, Korea, etc.).
- US: Pleaded guilty in 2008 and paid a $400 million fine. Settled direct and indirect purchaser class actions in 2011 and 2012/2013.
- EU: Fined EUR 215 million in 2010; appeal pending before the European Union General Court.
- Korea: A fine of approx. KRW 31.4 billion imposed in 2011 was annulled by the Seoul High Court in February 2014.
- Other: Investigations in Mexico and Brazil are ongoing. Individual lawsuits remain pending.
- Patent Litigation:
- Anvik Corporation: Settled amicably in January 2014 with no payment.
- ITRI (Taiwan): USITC found no infringement and patent invalidity in 2013; ITRI appealed.
- Samsung Display: Patent infringement litigations were withdrawn in September 2013 following an amicable settlement.
- Delaware Display Group: New infringement case filed in December 2013; outcome cannot be reasonably estimated.
- Legal/Regulatory: A Supreme Court of Korea ruling in December 2013 regarding the definition of "ordinary wages" could impact overtime and allowance calculations. Management believes retrospective claims are unlikely to be accepted due to prior agreements with the labor union.
Key Facts for Investor Verification
- Antitrust Exposure: Verify the status of the European Union General Court appeal regarding the EUR 215 million fine and the outcome of ongoing investigations in Mexico and Brazil.
- Customer Concentration: Sales to the top two customers (Company A and Company B) accounted for 49% of total revenue in 2013 (26% and 23% respectively).
- Cash Position: Confirm the significant reduction in cash and cash equivalents (down 56% year-over-year) and the increase in bank deposits.
- Related Party Transactions: Review the substantial sales to LG Electronics Inc. and its subsidiaries (KRW 4.2 trillion in 2013).
- Effective Tax Rate: Note the high effective tax rate of 49.54% in 2013, largely driven by changes in unrecognized deferred tax assets (KRW 215 billion).