Business Context and Reporting Period
Company: LG.Philips LCD Co., Ltd. (Foreign Private Issuer)
Filing Type: Form 6-K (Submission of Audit Report)
Reporting Period: Fiscal Year Ended December 31, 2004 (Comparison with 2003)
Audit Date: January 26, 2005 (Report received February 24, 2005)
Auditor: Samil Accounting Corporation (Unqualified Opinion)
The Company manufactures and sells Thin Film Transistor-Liquid Crystal Display (TFT-LCD) panels. It operates as a single segment business with over 90% of sales derived from exports. Major shareholders include LG Electronics Inc. and Koninklijke Philips Electronics N.V., each holding approximately 44.57% of the equity.
Key Financial Metrics (Non-Consolidated)
Unit: Millions of Korean Won (KRW), unless otherwise noted.
| Item | 2004 | 2003 |
|---|---|---|
| Revenues | 8,079,891 | 6,031,261 |
| Operating Income | 1,640,708 | 1,086,517 |
| Net Income | 1,655,445 | 1,019,100 |
| Operating Margin | 20.3% | 18.0% |
| Net Margin | 20.5% | 16.9% |
| Total Assets | 9,598,693 | 6,214,082 |
| Total Liabilities | 3,826,051 | 3,320,050 |
| Shareholders' Equity | 5,772,642 | 2,894,032 |
| Cash & Equivalents | 1,274,989 | 449,218 |
| Net Cash from Operating Activities | 3,016,735 | 1,567,476 |
| Net Cash Used in Investing Activities | (3,833,754) | (1,401,347) |
| Net Cash from Financing Activities | 1,642,790 | 224,007 |
Material Changes vs. Prior Period
- Revenue Growth: Sales increased 34% to KRW 8.08 trillion, driven by strong demand in China, Taiwan, and Europe.
- Profitability: Net income rose 62% to KRW 1.66 trillion. Operating income increased 51%.
- Capital Expenditures: Significant increase in investing cash outflows (KRW 3.83 trillion vs. KRW 1.40 trillion) due to the construction of the seventh-generation TFT-LCD fabrication plant ("P7").
- Equity Raise: In July and September 2004, the Company sold common stock and American Depositary Shares (ADSs) for gross proceeds of approximately KRW 298 billion and US$800 million, respectively, to fund the P7 plant.
- Foreign Exchange: The Company recorded significant foreign exchange gains (KRW 152.8 billion) and losses (KRW 244.3 billion) in 2004, reflecting volatility in currency rates.
- Debt Structure: Total long-term debt increased to KRW 1.89 trillion (including current maturities) compared to KRW 1.25 trillion in 2003, primarily to finance expansion.
Outlook, Risks, and Contingencies
- Capital Allocation: Proceeds from the 2004 stock issuance are designated for the P7 plant and other LCD facilities in Korea.
- Legal Proceedings: The Company is involved in patent infringement litigation with Chunghwa Picture Tubes, Tatung Company, and others in the US and UK. Management does not expect a material adverse effect on financial condition.
- Foreign Exchange Risk: The Company utilizes forward contracts and cross-currency swaps to hedge exposure. Unrealized gains/losses on derivatives are recognized in current operations if hedge accounting criteria are not met.
- Related Party Transactions: Significant sales and purchases occur with affiliates, including LG Electronics Inc., LG Construction, and various LG.Philips LCD subsidiaries globally.
- Accounting Changes: Reclassifications were made to conform to new Korean Financial Accounting Standards (SKFAS), moving certain non-operating expenses to cost of sales, though this had no effect on net income.
Investor Verification Checklist
- Capital Expenditure Progress: Verify the status and cost overruns of the P7 fabrication plant construction.
- Foreign Exchange Exposure: Assess the impact of KRW/USD and KRW/JPY fluctuations on future margins given the high volume of export sales.
- Legal Outcomes: Monitor the resolution of patent disputes with Chunghwa Picture Tubes and Tatung.
- Debt Maturities: Review the schedule of long-term debt maturities, particularly the KRW 1.35 trillion in Won currency debentures due through 2009.
- Related Party Dependence: Evaluate the concentration of sales and purchases with LG Group affiliates and Philips.