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, 2012 (compared to 2011)
Audit Date: February 15, 2013 (Report received Feb 27, 2013)
Auditor: Samjong Accounting Corporation (Unqualified Opinion)
Business Overview: The Group manufactures and sells TFT-LCD panels and OLED products. International sales accounted for approximately 93% of total revenue in 2012.
Key Financial Metrics (FY 2012 vs. FY 2011)
| Item (KRW Millions) | FY 2012 | FY 2011 |
|---|---|---|
| Revenues | 29,429,668 | 24,291,289 |
| Operating Income | 912,368 | (763,548) |
| Net Income | 236,345 | (787,895) |
| Total Assets | 24,455,511 | 25,162,931 |
| Total Liabilities | 14,215,331 | 15,031,903 |
| Shareholders' Equity | 10,240,180 | 10,131,028 |
| Net Cash from Operating Activities | 4,569,695 | 3,665,858 |
| Net Cash Used in Investing Activities | (3,688,185) | (3,494,461) |
| Net Borrowings to Equity Ratio | 18% | 22% |
Note: Financial statements are presented in Korean Won (KRW) in millions, prepared under K-IFRS.
Material Changes vs. Prior Period
- Turnaround to Profitability: The Company returned to profitability in 2012, reporting a Net Income of KRW 236.3 billion compared to a Net Loss of KRW 787.9 billion in 2011. Operating income improved from a loss of KRW 763.5 billion to a profit of KRW 912.4 billion.
- Revenue Growth: Total revenue increased by approximately 21% to KRW 29.4 trillion, driven by sales in China, the United States, and Europe.
- Accounting Policy Change: The Group adopted an amendment to K-IFRS No. 1001 regarding the presentation of operating profit. Operating profit is now presented as revenue less cost of sales, selling/administrative expenses, and R&D expenses. Comparative 2011 figures were restated to reflect this change.
- Impairment Charges: Significant impairment losses were recognized in 2012, including KRW 40.0 billion on intangible assets (including full impairment of goodwill and in-process R&D) and KRW 10.0 billion on investments in equity accounted investees.
- Foreign Exchange: The Company recorded a foreign currency gain of KRW 1.23 trillion in non-operating income, partially offset by a foreign currency loss of KRW 1.10 trillion in non-operating expenses.
Guidance, Risks, and Contingencies
Antitrust Investigations and Litigation: The Group is subject to ongoing investigations and litigation regarding alleged anti-competitive activities in the LCD industry across multiple jurisdictions (US, EU, Korea, China, etc.).
- US DOJ: Pleaded guilty in 2008 and paid a USD 400 million fine. Class action settlements with direct and indirect purchasers were reached in 2011 and 2012, respectively.
- European Commission: Imposed a EUR 215 million fine in 2010; the Company appealed, and the case remains pending.
- China: In December 2012, the National Development and Reform Commission imposed a fine of RMB 118 million (approx. KRW 20.3 billion), which the Company agreed to pay.
- Korea: A fine of approx. KRW 31.4 billion was imposed in 2011; the Company appealed to the Seoul High Court.
Patent Litigation:
- Samsung Display: Mutual patent infringement lawsuits were filed in September and December 2012 regarding OLED and LCD technologies. Invalidity proceedings were requested by Samsung.
- ITRI (Taiwan): USITC issued an initial determination in October 2012 finding no infringement; final determination expected June 2013.
- Anvik Corporation: Case dismissed in April 2012; Anvik appealed to the Federal Circuit.
Management Commentary: Management noted that while they continue to defend pending proceedings vigorously, unfavorable outcomes are possible. For certain early-stage cases, potential losses cannot be estimated. Provisions have been established for other contingencies based on current assessments.
Investor Verification Checklist
- Antitrust Exposure: Verify the status of the European Commission appeal and the outcome of the Korea High Court appeal regarding the KRW 31.4 billion fine.
- Patent Disputes: Monitor the final determination of the USITC case against ITRI and the progress of the mutual patent litigation with Samsung Display.
- Impairment Reversals: Assess the likelihood of future impairment charges or reversals related to the KRW 40 billion intangible asset write-down and equity method investments.
- Foreign Exchange Sensitivity: Review the impact of currency fluctuations (USD, JPY, CNY) on future earnings, given the significant foreign currency gains/losses recorded in 2012.
- Capital Expenditure: Confirm the utilization of the KRW 3.97 trillion spent on property, plant, and equipment in 2012 and its impact on future depreciation and cash flow.