LPL

Business Context and Reporting Period

This Form 6-K filing by LG.Philips LCD Co., Ltd. (LPL) covers the fiscal year ended December 31, 2006. LPL is a leading global manufacturer of Thin Film Transistor Liquid Crystal Display (TFT-LCD) panels, operating fabrication facilities in Korea and module facilities in Korea, China, and Poland. The company operates in a highly cyclical, capital-intensive industry characterized by rapid technological evolution and intense competition. As of December 31, 2006, LPL held a 20.5% worldwide market share for large-size TFT-LCD panels.

Key Financial Metrics (Consolidated Basis)

Financial data is presented in millions of Korean Won (KRW) unless otherwise noted.

Note: The filing also provides non-consolidated figures, which show a net loss of KRW 769,313 million and sales of KRW 10,200,660 million for 2006.

Material Changes vs. Prior Period

• Revenue Growth: Consolidated sales increased by 5.4% year-over-year to KRW 10.62 trillion, driven by a 14.7% increase in non-consolidated sales to KRW 10.20 trillion.
• Profitability Reversal: The company swung from a net profit of KRW 517 billion in 2005 to a net loss of KRW 769 billion in 2006. Operating income dropped from KRW 470 billion to a loss of KRW 879 billion.
• Margin Compression: Gross profit turned negative (KRW -308 billion) due to a steep decline in average selling prices (ASP) of LCD panels, which fell from $1,953 per square meter in Q1 2006 to $1,414 in Q4 2006.
• Cash Flow: Despite the net loss, operating cash flow remained positive at KRW 1.87 trillion, supported by significant depreciation adjustments (KRW 2.59 trillion) and changes in working capital.
• Debt Levels: Total liabilities increased by approximately 10% to KRW 6.60 trillion, with long-term debts and debentures remaining substantial.

Guidance, Outlook, and Risks

Management Commentary and Outlook: Management attributes the 2006 loss to a difficult business environment, including supply-demand imbalances, a sharper-than-anticipated fall in ASPs, a drastic appreciation of the Korean Won, and high oil prices. The company is investing heavily in capacity expansion, including the P7 fab in Paju (reaching 90,000-110,000 input sheets/month in 2007) and the construction of P8. A new module facility in Wroclaw, Poland, is scheduled to begin mass production in Q1 2007.

Risks and Contingencies:

• Antitrust Investigations: The company is under investigation by fair trade authorities in Korea, Japan, the US, and other markets regarding possible anti-competitive activities in the LCD industry. It is also named as a defendant in federal class actions in the US alleging antitrust violations.
• Legal Proceedings: LPL is involved in various patent infringement lawsuits. Notably, the company secured verdicts awarding damages of US$53.5 million and US$52.4 million against Chunghwa Picture Tubes in 2006, though it lost an appeal in the UK regarding a case against Tatung and ViewSonic.
• Market Cyclicality: The industry faces high cyclicality with periodic volatility caused by capacity expansion surges, leading to downward pricing pressure.
• Foreign Exchange: Significant exposure to currency fluctuations, particularly the Korean Won, impacts financial results.

Key Facts for Investor Verification

• Loss Magnitude: Verify the sustainability of operations given the KRW 769 billion net loss and negative gross margin in 2006.
• Antitrust Exposure: Monitor the status of ongoing antitrust investigations and class actions in the US and other jurisdictions, as penalties could be material.
• Capital Expenditure: Assess the impact of continued heavy investment (KRW 1 trillion expected in 2007) on future cash flows and debt levels.
• ASP Trends: Track the average selling price of LCD panels to determine if the pricing pressure has stabilized.
• Debt Maturities: Review the schedule of long-term debt maturities, particularly the US$475 million convertible bonds due in 2010 (with a put option in 2007).