LG Display Co., Ltd. - SEC Form 6-K Summary
Business Context and Reporting Period
This Form 6-K, filed on March 19, 2010, contains the translated Annual Report of LG Display Co., Ltd. for the fiscal year ended December 31, 2009. LG Display is a leading manufacturer of Thin Film Transistor Liquid Crystal Display (TFT-LCD) panels and Organic Light Emitting Diode (OLED) panels. The company operates fabrication facilities in Paju and Gumi, South Korea, with sales subsidiaries in the United States, Europe, and Asia. The report is prepared in accordance with Korean GAAP (non-consolidated and consolidated).
Key Financial Metrics (2009)
| Metric | 2009 (Non-Consolidated) | 2008 (Non-Consolidated) | 2009 (Consolidated) |
|---|---|---|---|
| Sales Revenue | WON 20,119 billion | WON 15,865 billion | WON 20,614 billion |
| Operating Income | WON 1,001 billion | WON 1,536 billion | WON 1,067 billion |
| Net Income | WON 1,068 billion | WON 1,087 billion | WON 1,084 billion |
| Gross Profit | WON 1,821 billion | WON 2,239 billion | WON 2,299 billion |
| Operating Margin | 5.0% | 9.7% | 5.2% |
| Total Assets | WON 18,885 billion | WON 16,502 billion | WON 19,538 billion |
| Total Liabilities | WON 8,760 billion | WON 7,226 billion | WON 9,322 billion |
| Shareholders' Equity | WON 10,125 billion | WON 9,276 billion | WON 10,216 billion |
| Cash & Equivalents | WON 704 billion | WON 1,208 billion | WON 862 billion |
| Net Cash from Operations | WON 3,493 billion | WON 4,955 billion | WON 4,081 billion |
Material Changes vs. Prior Period
- Revenue Growth: Sales revenue increased by 27% (non-consolidated) driven by the successful ramp-up of the 8th generation (P8) and 6th generation (P6E) fabrication facilities and strong demand for LCD panels for televisions, which accounted for over 50% of sales.
- Margin Compression: Despite revenue growth, operating income decreased by 35% and gross profit declined by 19%. This was primarily due to a decrease in average selling prices (ASP) of LCD panels outpacing the reduction in cost of sales per panel. Cost of sales as a percentage of revenue rose from 85.9% in 2008 to 90.9% in 2009.
- Production Capacity: Annual production capacity increased by 39% compared to 2008. Utilization ratios remained high at 99.4% (Gumi) and 99.9% (Paju).
- Balance Sheet: Total assets increased by 14.5% due to capital expenditures and inventory buildup. Inventory increased by 46% (WON 404 billion) due to capacity expansion and a reversal of previous write-downs.
Guidance, Outlook, and Risks
- Outlook: Management expects to continue strengthening market share in LCD television panels, particularly in 240Hz products. The company plans to invest approximately WON 4 trillion in capital expenditures for facility expansion and new business ventures, subject to market conditions.
- Strategic Investments: Significant investments were made in 2009 to secure supply chains and future technologies, including acquisitions of stakes in AVACO, TLI, New Optics, Wooree LED, Dynamic Solar Design, and RPO Inc. A joint venture (Global OLED Technology LLC) was established to manage OLED patents acquired from Eastman Kodak.
- Key Risks:
- Price Volatility: The TFT-LCD industry is highly cyclical. ASPs may continue to decline due to oversupply and technological advancements, pressuring margins.
- Antitrust Litigation: The company is under investigation by antitrust authorities in Korea, the EU, Japan, Canada, and the US. In 2008, the company and its US subsidiary pleaded guilty to Sherman Antitrust Act violations and agreed to pay a USD 400 million fine. The company faces numerous class action lawsuits in the US and Canada.
- Foreign Exchange: Sales are primarily in USD, while costs are in USD and JPY. Fluctuations in exchange rates impact profit margins.
- Environmental Compliance: Strict regulations regarding chemical waste and greenhouse gas emissions (PFCs, SF6) could result in fines or operational interruptions.
Investor Verification Checklist
- Antitrust Liability: Verify the current status of the USD 400 million fine payment schedule and the potential exposure from pending class action lawsuits in the US and Canada.
- ASP Trends: Monitor quarterly average selling prices for LCD panels to assess if the margin compression trend is stabilizing or worsening.
- Capital Expenditure Execution: Confirm the progress and cost of the planned WON 4 trillion capital expenditure, specifically the expansion of the P8 facility and the new facility in Guangzhou, China.
- Inventory Levels: Review inventory turnover ratios given the 46% increase in inventory levels to ensure no significant write-downs are required in future periods.
- Convertible Bonds: Note the USD 550 million zero-coupon convertible bonds maturing in 2012, which were reclassified as current liabilities in 2009 due to put option exercise dates.