Business Context and Reporting Period
This Form 6-K filing by LG Display Co., Ltd. (LG Display) reports the submission of its consolidated financial statements for the fiscal years ended December 31, 2010, and 2009. The filing date is March 4, 2011. LG Display is a global manufacturer of Thin Film Transistor Liquid Crystal Display (TFT-LCD) panels and Organic Light Emitting Diode (OLED) products. The financial statements are prepared in accordance with Korean International Financial Reporting Standards (K-IFRS), marking the company's first year of adoption for the 2010 reporting period.
Key Financial Metrics (FY 2010 vs. FY 2009)
| Item (KRW Millions) | FY 2010 | FY 2009 |
|---|---|---|
| Revenues | 25,511,535 | 20,037,701 |
| Operating Income | 1,310,472 | 1,010,352 |
| Net Income | 1,159,234 | 1,117,778 |
| Total Assets | 23,857,658 | 19,703,477 |
| Total Liabilities | 12,796,691 | 9,663,728 |
| Shareholders' Equity | 11,060,967 | 10,039,749 |
| Net Cash from Operating Activities | 4,883,532 | 4,153,306 |
| Net Cash Used in Investing Activities | (4,515,167) | (4,564,324) |
| Net Cash Provided by Financing Activities | 408,126 | (117,022) |
Margins: Operating margin improved to approximately 5.14% in 2010 from 5.04% in 2009. Net income margin was approximately 4.54% in 2010 compared to 5.58% in 2009.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased by 27.3% (KRW 5.47 trillion) driven by higher sales volumes and product mix shifts, particularly in TFT-LCD televisions which accounted for KRW 14.08 trillion in 2010.
- Profitability: Operating income rose by 29.7% to KRW 1.31 trillion. Net income increased by 3.7% to KRW 1.16 trillion.
- Balance Sheet Expansion: Total assets grew by 21.1% to KRW 23.86 trillion, primarily due to a significant increase in Property, Plant, and Equipment (PP&E) from KRW 9.60 trillion to KRW 12.82 trillion, reflecting heavy capital investment in manufacturing capacity.
- Debt Levels: Total liabilities increased by 32.4% to KRW 12.80 trillion. Borrowings increased to support capital expenditures, though the company maintained a net borrowing to equity ratio of 14%.
- Accounting Transition: The adoption of K-IFRS in 2010 resulted in significant reclassifications, including the treatment of convertible bonds as financial liabilities at fair value through profit or loss and changes in the recognition of employee benefits and development costs.
Guidance, Risks, and Contingencies
Antitrust Litigation and Fines: The filing highlights significant legal contingencies regarding anti-competitive activities in the LCD industry.
- European Commission: On December 8, 2010, the EC imposed a fine of EUR 215 million on LG Display. The company filed an application for partial annulment and reduction of the fine on February 23, 2011.
- United States: The company pleaded guilty to Sherman Antitrust Act violations and agreed to a fine of USD 400 million. It is also subject to multiple federal class actions and state government claims.
- Other Jurisdictions: Investigations are ongoing in Korea, Japan, Canada, Mexico, and Brazil. The company has recognized estimated losses related to these proceedings, but actual liabilities may differ materially.
Patent Litigation: The company is involved in patent infringement lawsuits against Chi Mei Optoelectronics Corp. and AU Optronics Corp. in the U.S., as well as a case filed by Anvik Corporation. Outcomes remain uncertain.
Customer Concentration: Sales to LG Electronics constituted 22.9% of total revenue in 2010. The top ten end-brand customers accounted for 75.8% of total sales.
Management Commentary: The company continues to invest heavily in capacity expansion (PP&E additions of KRW 4.94 trillion in 2010) and R&D (KRW 674.7 billion). Management maintains a strong capital base to sustain future development.
Key Facts for Investor Verification
- Antitrust Exposure: Verify the status of the EUR 215 million EC fine appeal and the potential exposure from ongoing U.S. class action lawsuits and other global investigations.
- Capital Intensity: Confirm the utilization rates of the new manufacturing capacity added in 2010 (KRW 4.94 trillion in PP&E additions) and its impact on future depreciation and cash flow.
- Customer Dependency: Monitor the stability of the relationship with LG Electronics (22.9% of revenue) and the top ten customers (75.8% of revenue).
- Convertible Bonds: Review the fair value fluctuations of the USD 66 million remaining convertible bonds designated as financial liabilities at fair value through profit or loss.
- Accounting Changes: Understand the specific impacts of the transition to K-IFRS on reported earnings, particularly regarding the capitalization of development costs and the treatment of employee benefits.