6-K 1 d140289d6k.htm FORM 6-K Form 6-K
Table of Contents

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 6-K

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of April 2021

 

 

LG Display Co., Ltd.

(Translation of Registrant’s name into English)

 

 

LG Twin Towers, 128 Yeoui-daero, Yeongdeungpo-gu, Seoul 07336, Republic of Korea

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  ☒            Form 40-F  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submission to furnish a report or other document that the registration foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  ☐            No  ☒

 

 

 


Table of Contents

ANNUAL REPORT

(From January 1, 2020 to December 31, 2020)

THIS IS A TRANSLATION OF THE ANNUAL REPORT ORIGINALLY PREPARED IN KOREAN AND IS IN SUCH FORM AS REQUIRED BY THE KOREAN FINANCIAL SUPERVISORY COMMISSION.

IN THE TRANSLATION PROCESS, SOME PARTS OF THE REPORT WERE REFORMATTED, REARRANGED OR SUMMARIZED AND CERTAIN NUMBERS WERE ROUNDED FOR THE CONVENIENCE OF READERS. REFERENCES TO “Q1”, “Q2”, “Q3” AND “Q4” OF A FISCAL YEAR ARE REFERENCES TO THE THREE-MONTH PERIODS ENDED MARCH 31, JUNE 30, SEPTEMBER 30 AND DECEMBER 31, RESPECTIVELY, OF SUCH FISCAL YEAR.

UNLESS EXPRESSLY STATED OTHERWISE, ALL INFORMATION CONTAINED HEREIN IS PRESENTED ON A CONSOLIDATED BASIS IN ACCORDANCE WITH KOREAN INTERNATIONAL FINANCIAL REPORTING STANDARDS, OR K-IFRS, WHICH DIFFER IN CERTAIN RESPECTS FROM GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CERTAIN OTHER COUNTRIES, INCLUDING THE UNITED STATES. K-IFRS ALSO DIFFERS IN CERTAIN RESPECTS FROM THE INTERNATIONAL FINANCIAL REPORTING STANDARDS AS ISSUED BY THE INTERNATIONAL ACCOUNTING STANDARDS BOARD. WE HAVE MADE NO ATTEMPT TO IDENTIFY OR QUANTIFY THE IMPACT OF THESE DIFFERENCES IN THIS DOCUMENT.

Contents

 

  1.    Company      3  
     A.    Name and contact information      3  
     B.    Credit rating      3  
     C.    Capitalization      5  
     D.    Voting rights      6  
     E.    Dividends      6  
  2.    Business      7  
     A.    Business overview      7  
     B.    Industry      8  
     C.    New businesses      10  
  3.    Major Products and Raw Materials      10  
     A.    Major products      10  
     B.    Average selling price trend of major products      10  
     C.    Major raw materials      11  
  4.    Production and Equipment      11  
     A.    Production capacity and output      11  
     B.    Production performance and utilization ratio      12  
     C.    Investment plan      12  
  5.    Sales      12  
     A.    Sales performance      12  
     B.    Sales organization and sales route      13  
     C.    Sales methods and sales terms      13  
     D.    Sales strategy      14  
     E.    Major customers      14  
  6.    Purchase Orders      14  
  7.    Market Risks and Risk Management      14  
     A.    Market risks      14  

 

1


Table of Contents
     B.    Risk management      15  
 

8.

   Derivative Contracts      15  
     A.    Currency risks      15  
     B.    Interest rate risks      15  
 

9.

   Major Contracts      16  
 

10.

   Research & Development      16  
     A.    Summary of R&D-related expenditures      16  
     B.    R&D achievements      16  
 

11.

   Intellectual Property      18  
 

12.

   Environmental and Safety Matters      18  
 

13.

   Financial Information      22  
     A.    Financial highlights (Based on consolidated K-IFRS)      22  
     B.    Financial highlights (Based on separate K-IFRS)      23  
     C.    Consolidated subsidiaries as of December 31, 2020      24  
     D.    Status of equity investments as of December 31, 2020      24  
 

14.

   Audit Information      25  
     A.    Audit service      25  
     B.    Non-audit service      26  
 

15.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     26  
     A.    Risk relating to forward-looking statements      26  
     B.    Overview      26  
     C.    Financial condition and results of operations      37  
     D.    Liquidity and capital resources   
 

16.

   Board of Directors      43  
     A.    Members of the board of directors      43  
     B.    Committees of the board of directors      43  
     C.    Independence of directors      44  
 

17.

   Information Regarding Shares      44  
     A.    Total number of shares      44  
     B.    Shareholder list      44  
 

18.

   Directors and Employees      45  
     A.    Directors      45  
     B.    Employees      48  
 

19.

   Other Matters      49  
     A.    Legal proceedings      49  
     B.    Material events subsequent to the reporting period      49  

Attachment: 1. Financial Statements in accordance with K-IFRS

 

2


Table of Contents
1.

Company

 

  A.

Name and contact information

The name of our company is “EL-GI DISPLAY CHUSIK HOESA,” which shall be “LG Display Co., Ltd.” in English.

Our principal executive office is located at LG Twin Towers, 128 Yeoui-daero, Yeongdeungpo-gu, Seoul 07336, Republic of Korea, and our telephone number is +82-2-3777-1010. Our website address is http://www.lgdisplay.com.

 

  B.

Credit rating

 

  (1)

Corporate bonds (Domestic)

 

Subject instrument

  

Month of rating

  

Credit rating(1)

  

Rating agency (Rating range)

Corporate bonds    February 2018    AA    NICE Information Service Co., Ltd. (AAA ~ D)
   May 2018
   February 2019    AA-
   April 2019
   November 2019
   February 2020    A+
   June 2020
   May 2018    AA    Korea Investors Service, Inc. (AAA ~ D)
   February 2019    AA-
   June 2019
   October 2019
   February 2020    A+
   June 2020
   February 2018    AA    Korea Ratings Corporation (AAA ~ D)
   April 2018
   April 2019    AA-
   November 2019
   February 2020    A+
   May 2020

 

(1)

The results of our credit ratings subsequent to the reporting period are as follows:

 

Subject instrument

  

Month of rating

  

Credit rating(2)

  

Rating agency (Rating range)

Corporate bonds    [February 2021]    A+    NICE Information Service Co., Ltd. (AAA ~ D)
Corporate bonds    [February 2021]    A+    Korea Investors Service, Inc. (AAA ~ D)

Corporate bonds

   [February 2021]    A+    Korea Ratings Corporation (AAA ~ D)

 

3


Table of Contents
(2)

Domestic corporate bond credit ratings are generally defined to indicate the following:

 

Subject instrument

  

Credit rating

  

Definition

Corporate bonds    AAA    Strongest capacity for timely repayment.
  

 

AA+/AA/AA-

  

 

Very strong capacity for timely repayment. This capacity may, nevertheless, be slightly inferior than is the case for the highest rating category

  

 

A+/A/A-

  

 

Strong capacity for timely repayment. This capacity may, nevertheless, be more vulnerable to adverse changes in circumstances or in economic conditions than is the case for higher rating categories.

  

 

BBB+/BBB/BBB-

   Capacity for timely repayment is adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity.
  

 

BB+/BB/BB-

  

 

Capacity for timely repayment is currently adequate, but that there are some speculative characteristics that make the repayment uncertain over time.

  

 

B+/B/B-

  

 

Lack of adequate capacity for repayment and speculative characteristics. Interest payment in time of unfavorable economic conditions is uncertain.

  

 

CCC

  

 

Lack of capacity for even current repayment and high risk of default.

  

 

CC

  

 

Greater uncertainties than higher ratings.

  

 

C

  

 

High credit risk and lack of capacity for timely repayment.

  

 

D

  

 

Insolvency.

 

  (2)

Corporate bonds (Overseas)

 

Subject instrument

  

Month of rating

  

Credit rating

  

Rating agency (Rating range)

Corporate bonds(1)

   November 2018    AA    Standard & Poor’s Rating Services (AAA ~ D)

 

(1)

Represents credit rating for our overseas corporate bonds guaranteed by the Korea Development Bank.

(2)

Overseas corporate bond credit ratings are generally defined to indicate the following:

 

Subject instrument

  

Credit rating

  

Definition

Corporate bonds   

 

AAA

   Highest level of stability.
  

 

AA+/AA/AA-

  

 

Very high level of stability. This stability may be slightly more risky than is the case for the highest rating category but presents no issues.

  

 

A+/A/A-

  

 

High level of stability. There are no issues with repaying the principal, but there are characteristics that could be subject to future deterioration.

  

 

BBB+/BBB/BBB-

  

 

Level of stability is adequate. Current level of stability and profitability is adequate, but requires special attention during times of economic downturns.

  

 

BB+/BB/BB-

  

 

Speculative characteristics. There is no guarantee on future stability. Expected business performance is uncertain.

  

 

B+/B/B-

  

 

Inadequate as an investment target. Ability to make principal repayments or comply with contractual terms and conditions is uncertain.

  

 

CCC/CC/C

  

 

Very low level of stability. Ability to make payments of principal and interest is highly unlikely. Extremely speculative. Currently in default or undergoing a serious problem.

  

 

D

  

 

Bankruptcy.

 

4


Table of Contents
  (3)

Commercial paper

 

Subject instrument

  

Month of rating

  

Credit rating(1)

  

Rating agency (Rating range)

Commercial paper

   May 2018    A1    Korea Investors Service, Inc. (A1 ~ D)
   May 2018    A1    NICE Information Service Co., Ltd. (A1 ~ D)
   November 2018    Cancelled(2)    Korea Investors Service, Inc. (A1 ~ D)
   November 2018    Cancelled(2)    NICE Information Service Co., Ltd. (A1 ~ D)

 

(1)

Domestic commercial paper credit ratings are generally defined to indicate the following:

 

Subject
instrument

   Credit
rating
  

Definition

Commercial paper    A1    Timely repayment capability is at the highest level with extremely low investment risk and is stable such that it will not be influenced by any reasonably foreseeable changes in external factors.
   A2    Strong capacity for timely repayment with very low investment risk. This capacity may, nevertheless, be slightly inferior than is the case for the highest rating category.
   A3    Capacity for timely repayment is adequate with low investment risk. This capacity may, nevertheless, be somewhat influenced by sudden changes in external factors.
   B    Capacity for timely repayment is acknowledged, but there are some speculative characteristics.
   C    Capacity for timely repayment is questionable.
   D    Insolvency.

※ ‘+’ or ‘-’ modifier can be attached to ratings A2 through B to differentiate ratings within broader rating categories.

 

(2)

Ratings have been cancelled due to repayment of our outstanding commercial paper on October 22, 2018 upon maturity.

 

  C.

Capitalization

 

  (1)

Change in capital stock (as of December 31, 2020)

There were no changes to our issued capital stock during the annual reporting period ended December 31, 2020.

 

  (2)

Convertible bonds (as of December 31, 2020)

 

Description

 

Issue Date

 

Maturity
Date

 

Issue Amount
(in Won)

   

Class of
Shares
Subject to
Conversion

 

Conversion
Period

 

Conditions for
Conversion

 

Outstanding Bonds

 

Notes

 

Conversion
Ratio

 

Conversion
Price

 

Issue Amount
(in Won)

   

Number of
Shares
subject to
conversion

Unsecured Foreign Convertible Bonds No. 3   Aug. 22, 2019   Aug. 22, 2024     813,426,670,000 (1)(2)    Registered Common Shares   Aug. 23,
2020 ~
Aug. 12,
2024
  100%   W19,845     813,426,670,000 (1)    40,988,998   Listed on Singapore Stock Exchange

Total

  —     —       813,426,670,000     —     —     100%   W19,845     813,426,670,000     40,988,998   —  

 

5


Table of Contents
(1)

The issue amount for Unsecured Foreign Convertible Bonds No. 3 is calculated based on the application of the mid-point of the relevant Won-US dollar exchange rates as of noon, July 30, 2019 (Korea Standard Time) quoted on Bloomberg, which was W1,182.65 per U.S. dollar, to the actual issue amount of USD 687,800,000.

(2)

The proceeds of our Unsecured Foreign Convertible Bonds No. 3 were used for general corporate purposes.

 

  D.

Voting rights (as of December 31, 2020)

(Unit: share)

 

Description

  

Number of shares

 

A. Total number of shares issued(1):

  

Common shares(1)

     357,815,700  
  

Preferred shares

     —    

B. Shares without voting rights:

  

Common shares

     —    
  

Preferred shares

     —    

C. Shares subject to restrictions on voting rights pursuant to our articles of incorporation:

  

Common shares

     —    
  

Preferred shares

     —    

D. Shares subject to restrictions on voting rights pursuant to regulations:

  

Common shares

     —    
  

Preferred shares

     —    
E. Shares with restored voting rights:   

Common shares

     —    
  

Preferred shares

     —    

Total number of issued shares with voting rights (=A – B – C – D + E):

  

Common shares

     357,815,700  
  

Preferred shares

     —    

 

(1)

Authorized: 500,000,000 shares

 

  E.

Dividends

Dividends for the three most recent fiscal years

 

Description (unit)

   2020      2019      2018  

Par value (Won)

        5,000        5,000        5,000  

Profit (loss) for the year (million Won)(1)

        (89,342      (2,829,705      (207,239

Earnings (loss) per share (Won)(2)

        (250      (7,908      (579

Total cash dividend amount for the period (million Won)

        —          —          —    

Total stock dividend amount for the period (million Won)

        —          —          —    

Cash dividend payout ratio (%)(3)

        —          —          —    

Cash dividend yield (%)(4)

  

Common shares

     —          —          —    
  

Preferred shares

     —          —          —    

Stock dividend yield (%)

  

Common shares

     —          —          —    
  

Preferred shares

     —          —          —    

Cash dividend per share (Won)

  

Common shares

     —          —          —    
  

Preferred shares

     —          —          —    

Stock dividend per share (share)

  

Common shares

     —          —          —    
   Preferred shares      —          —          —    

 

(1)

Based on profit for the year attributable to the owners of the controlling company.

(2)

Earnings per share is based on par value of W5,000 per share and is calculated by dividing net income by weighted average number of common shares.

(3)

Cash dividend payout ratio is the percentage that is derived by dividing total cash dividend by profit for the year attributable to the owners of the controlling company.

(4)

Cash dividend yield is the percentage that is derived by dividing cash dividend by the arithmetic average of the daily closing prices of our common shares during the one-week period ending two trading days prior to the closing of the register of shareholders for the purpose of determining the shareholders entitled to receive annual dividends.

 

6


Table of Contents

Historical dividend information

 

Number of consecutive years of dividends (*)

  

Average Dividend Yield

Interim dividends

   Annual dividends    Last 3 years    Last 5 years

—  

   —      —      0.65(**)

 

*

No dividends were paid during the last three fiscal years.

**

Arithmetic average of actual dividends paid in fiscal years 2016 and 2017 over the most recent five fiscal year period.

 

  F.

Matters relating to Articles of Incorporation

Our current articles of incorporation were amended as of March 15, 2019, and certain amendments as summarized below have been submitted for approval at the upcoming annual general meeting of shareholders. Consequently, our articles of incorporation may be subject to change based on the results of such upcoming annual general meeting of shareholders.

 

Articles to be Amended

  

Description of Amendments

Deletion of Article 27 (Election of Directors), Paragraph 2    To reflect the applicable provision of the amended Commercial Act that provides for a less stringent voting requirement for shareholder approval in the case of the adoption of electronic voting for the appointment of an audit committee member (including a director who will serve as an audit committee member).
Addition of new Paragraph 3 of Article 36-2 (Composition of Audit Committee) and re-numbering of previous Paragraphs 3 and 4 to Paragraphs 4 and 5, respectively    To reflect the applicable provision of the Commercial Act regarding a separate shareholder approval process for an audit committee member.
Deletion of Article 42-2 (Redemption of Shares)    To reflect the applicable provisions of the amended Commercial Act and the amended Financial Investment Services and Capital Markets Act, which permit a stock corporation to retire its own shares within the limit of its distributable income pursuant to a resolution of the board of directors without needing to have a basis to do so under its articles of incorporation.

 

2.

Business

 

  A.

Business overview

We were incorporated in February 1985 under the laws of the Republic of Korea. LG Electronics and LG Semicon transferred their respective LCD business to us in 1998, and since then, our business has been focused on the research, development, manufacture and sale of display panels, applying technologies such as TFT-LCD and OLED.

As of December 31, 2020, in order to support our business activities, we operated TFT-LCD and OLED production and research facilities in Paju and Gumi in Korea, and we have also established subsidiaries in the Americas, Europe and Asia.

As of December 31, 2020, our business consisted of the manufacture and sale of display and display related products utilizing TFT-LCD, OLED and other technologies under a single reporting business segment.

Consolidated operating results highlights

(Unit: In billions of Won)

 

     2020      2019      2018  

Sales Revenue

     24,230        23,476        24,337  

Gross Profit

     2,643        1,868        3,085  

Operating Profit (loss)

     (29      (1,359      93  

Total Assets

     35,072        35,575        33,176  

Total Liabilities

     22,335        23,086        18,289  

 

7


Table of Contents
  B.

Industry

 

  (1)

Industry characteristics

 

   

From the supply perspective, the display panel industry is technology- and capital-intensive in nature and requires mass production through achieving an economy of scale.

 

   

From the demand perspective, the display panel industry tends to demonstrate a high level of volatility depending on the global macroeconomic conditions, major regional sales events and/or seasonal factors.

 

   

Demand for display panels for traditional IT products such as notebooks and desktop monitors has shown a strong growth due to changes in lifestyle including increased instances of working from home and online classes as a result of the COVID-19 pandemic, and demand for high-end products has also sustained.

 

   

Demand for smartphone and automotive display panels has fluctuated due to weakened conditions in the end-product market in light of the COVID-19 pandemic. However, further growth is expected with the release of new products using plastic OLED panels and those that offer changes in form factors or new customer experiences such as foldable smartphones.

 

   

The market for television display panels has shown a steady growth, largely from developed countries, and has rapidly become focused on larger-sized panels reflecting increased consumer needs for larger screens.

 

   

We also anticipate a gradual growth in the market for high value-added product segments such as display panels for industrial uses.

 

  (2)

Growth Potential

 

   

We are focusing on securing profitability through differentiated products such as “Cinematic Sound” OLED and “Wallpaper” display panels under our strategic plan to transition our business to center around OLED, which has a strong future growth potential. In the television business, we are expanding our offerings of premium products such as OLED products. In particular, with respect to large-sized OLED television display panels, we are continuing to secure additional production capacity of 8.5th generation OLED panels and are planning to further strengthen the fundamentals of our OLED business by continuing to introduce differentiated products and obtaining additional production capacity for 8.5th and 10.5th generation OLED display panels. In the IT business, we are increasing the proportion of premium products such as high resolution and wide screen products based on IPS and Oxide technologies. In the mobile business, we have commenced mass production of 6th generation plastic OLED smartphones. We are also strengthening the foundation for the expansion of small- and medium-sized OLED business, including automotive display panels.

 

  (3)

Cyclicality

 

   

The display panel business is highly cyclical and sensitive to fluctuations in the general economy. The industry experiences recurring volatility caused by imbalances between supply and demand due to capacity expansion and changing production utilization rates within the industry.

 

   

Macroeconomic factors and other causes of business cycles can affect the rate of growth in demand for display panels. Accordingly, if supply exceeds demand, average selling prices of display panels may decrease. Conversely, if growth in demand outpaces growth in supply, average selling prices may increase.

 

8


Table of Contents
  (4)

Market conditions

 

   

Most display panel manufacturers are located in Asia as set forth below. Pursuant to the Chinese government’s initiative and support, Chinese panel manufacturers have continued to invest in new fabrication facilities and additional supplies, and the concern over intensification of a structural oversupply in the LCD industry continues to exist.

 

  a.

Korea: LG Display, Samsung Display, etc.

 

  b.

Taiwan: AU Optronics, Innolux, CPT, HannStar, etc.

 

  c.

Japan: Japan Display, Sharp, Panasonic LCD, etc.

 

  d.

China: BOE, CSOT, CEC Panda, HKC, etc.

 

   

Our worldwide market share of large-sized display panels (i.e., panels that are 9 inches or larger) based on revenue is as follows:

 

     2020     2019     2018  

Panels for Televisions(1)(2)

     21.6     28.1     28.3

Panels for IT Products(1)

     21.2     24.8     27.5

Total(1)

     21.4     27.2     28.8

 

(1)

Source: Large Area Display Market Tracker (OMDIA).

(2)

Includes panels for public displays.

 

  (5)

Competitiveness and competitive advantages

 

   

Our ability to compete successfully depends on factors both within and outside our control, including the development of new and premium products through technological advances, timely investments, adaptable product portfolio and flexible fabrication mix, achievement of competitive production costs through enhancing productivity and managing supply costs of components and raw materials, our relationship with customers, success in marketing to our end-brand customers, general economic and industry conditions and foreign exchange rates.

 

   

In order for us to compete effectively, it is critical to offer differentiated products that enable us to secure profit margins even during times of a mismatch in the market supply and demand, to be cost competitive and to maintain stable relationships with customers.

 

   

A substantial portion of our sales is attributable to a limited number of end-brand customers and their designated system integrators. As such, it is important to build a sustained relationship with such customers.

 

   

Developing new products and technologies that can be differentiated from those of our competitors is critical to the success of our business. It is important that we take active measures to protect our intellectual property internationally. It is also necessary to recruit and retain experienced key managerial personnel and skilled line operators.

 

   

As a leading technology innovator in the display industry, we continue to focus on delivering differentiated value to our customers by developing various technologies and products, including display panels with WOLED/POLED, IPS, Oxide, in-TOUCH and other technologies. With respect to OLED panels, following our supply of the world’s first 55-inch OLED 3D panels for televisions in January 2013, we have shown that we are technologically a step ahead of the competition by continuing to enhance the performance of our WOLED products and to introduce differentiated large-sized OLED products such as our “Transparent,” “Cinematic Sound,” “Bendable” and “Rollable” and “Transparent” large-sized OLED. Moreover, we have continually introduced differentiated plastic OLED products for smartphones, automotive products, wearable devices and foldable notebook computers, among others. With respect to TFT-LCD panels, we are leading the market with our competitive advantages in technology, including through our IPS, Oxide and LTPS technology-based ultra-large and ultra-high definition (“Ultra HD” or “UHD”) television panels, desktop and notebook monitors featuring high resolutions, differentiated designs and high frequency refresh rates, and specialized products for automotive, commercial and medical uses. Our production facilities are also equipped to produce products incorporating in-TOUCH technology.

 

9


Table of Contents
   

Moreover, we are maintaining and strengthening close long-term relationships with major global firms to secure customers and expand partnerships for technology development.

 

  C.

New businesses

For our continued growth, we are actively exploring and preparing for new business opportunities that may arise in the changing market environment. As such, we are continually reviewing and looking at opportunities in the display and promising new industries.

 

3.

Major Products and Raw Materials

 

  A.

Major products

We manufacture TFT-LCD and OLED panels, of which a significant majority is sold overseas.

(Unit: In billions of Won, except percentages)

 

                           2020  

Business area

   Sales type     

Items (By product)

  

Usage

  

Major
trademark

   Sales
Revenue
     Percentages
(%)
 

Display

    




Goods/

Products/
Services/
Other
sales

 

 
 
 
 

   Televisions    Panels for televisions    LG Display      6,706        27.7
      IT products    Panels for monitors, notebook computers and tablets    LG Display      10,121        41.8
      Mobile, etc.    Panels for smartphones, etc.    LG Display      7,403        30.5
              

 

 

    

 

 

 

Total

                 24,230        100.0
              

 

 

    

 

 

 

 

  B.

Average selling price trend of major products

The average selling prices of display panels are subject to change based on market conditions and demand by product category. The average selling price of display panels per square meter of net display area shipped in the fourth quarter of 2020 increased by approximately 12% compared to the third quarter of 2020 in part due to an increase in the production output of large-sized OLED and mobile plastic OLED panels as well as an increase in sales of our panels for IT products as a result of increased instances of online classes and working from home in light of the COVID-19 pandemic. There is no assurance that the average selling prices of display panels per square meter of net display area will not fluctuate in the future due to changes in market conditions.

(Unit: US$ / m2)

 

Period

   Average Selling Price(1)(2)
(in US$ / m2)
2020 Q4    790
2020 Q3    706
2020 Q2    654
2020 Q1    567
2019 Q4    606
2019 Q3    513
2019 Q2    456
2019 Q1    528
2018 Q4    559
2018 Q3    500
2018 Q2    501
2018 Q1    522

 

10


Table of Contents
(1)

Quarterly average selling price per square meter of net display area shipped.

(2)

Excludes semi-finished products in the cell process.

 

  C.

Major raw materials

Prices of major raw materials depend on fluctuations in supply and demand in the market as well as on change in size and quantity of raw materials due to the increased production of large-sized panels.

(Unit: In billions of Won, except percentages)

 

Business area

  

Purchase type

  

Items

  

Usage

   Cost(1)      Ratio (%)     

Suppliers

Display    Raw materials    Printed circuit boards (“PCB”)    Display panel manufacturing      2,578        21.5%      Youngpoong Electronics Co., Ltd., etc.
   Polarizers      2,016        16.8%      LG Chem, etc.
   Backlights (“BLU”)      1,636        13.6%      Heesung Electronics LTD., etc.
   Glass      838        7.0%      Paju Electric Glass Co., Ltd., etc.
   Drive IC      1,152        9.6%      Silicon Works Co., Ltd., etc.
   Others      3,800        31.6%     
           

 

 

    

 

 

    
Total               12,019        100.0%     
           

 

 

    

 

 

    
-

Period: January 1, 2020 ~ December 31, 2020.

 

(1)

Based on total cost for purchase of raw materials which includes manufacturing and development costs, etc.

 

(2)

Among our major suppliers, LG Chem and Silicon Works Co., Ltd. are member companies of the LG Group, and Paju Electric Glass Co., Ltd. is our affiliate.

 

 

The average price of electrolytic galvanized iron, which is the main raw material for BLU components, decreased by 2.0% from 2019 to 2020 but is expected to increase in 2021 due to China’s ban against the import of Australian iron ores and a supply shortage in China. The average price of resin increased by 32.0% from 2019 to 2020, primarily due to a rapid increase in demand in the Chinese domestic market. The average price of copper, the main raw material for PCB components, increased by 19.5% from 2019 to 2020, primarily due to the economic policy measures by the U.S. government and a depreciation in the U.S. dollar.

 

4.

Production and Equipment

 

  A.

Production capacity and output

 

  (1)

Production capacity

The table below sets forth the production capacity of our Gumi, Paju and Guangzhou facilities in the periods indicated.

 

11


Table of Contents

(Unit: 1,000 glass sheets)

 

Business area

   Items      Location of facilities      2020(1)      2019(1)      2018(1)  

Display

     Display panel        Gumi, Paju, Guangzhou        8,589        9,408        10,161  

 

(1)

Calculated based on the maximum monthly input capacity (based on glass input substrate size for eighth-generation glass sheets) during the year multiplied by the number of months in a year (i.e., 12 months). The production capacity for facilities with adjusted utilization rates have been calculated based on the maximum input capacity during the period.

 

  (2)

Production output

The table below sets forth the production output of our Gumi, Paju and Guangzhou facilities in the periods indicated.

(Unit: 1,000 glass sheets)

 

Business area

  

Items

  

Location of facilities

   2020(1)    2019(1)    2018(1)

Display

  

Display panel

  

Gumi, Paju, Guangzhou

   6,815    8,373    9,428

 

(1)

Based on the production results (input standard) of each plant converted into eighth-generation glass sheets.

 

  B.

Production performance and utilization ratio

(Unit: Hours, except percentages)

 

Production facilities

  

Available working hours
in 2020

  

Actual working hours in
2020

   Average utilization ratio  

Gumi

   8,784(1)
(24 hours x 366 days)
   8,718(1)
(24 hours x 363 days)(2)
     99.2

Paju

   8,784(1)
(24 hours x 366 days)
   8,756(1)
(24 hours x 365 days)(2)
     99.7

Guangzhou

   8,784(1)
(24 hours x 366 days)
   8,784(1)
(24 hours x 366  days)(2)
     100.0

 

(1)

Based on the assumption that all 24 hours in a day have been fully utilized.

(2)

Number of days is calculated by averaging the number of working days for each facility.

 

  C.

Investment plan

In 2020, our total capital expenditures on a cash out basis was around mid-W2 trillion. In 2021, we expect to make investments within our EBITDA and estimate that our total capital expenditures will be within low- to mid-W3 trillion range.

 

5.

Sales

 

  A.

Sales performance

(Unit: In billions of Won)

 

Business area

  

Sales types

  

Items (Market)

   2020      2019      2018  

Display

   Products    Display panel    Overseas(1)      23,287        22,180        22,722  
      Korea(1)      899        1,255        1,572  
      Total      24,186        23,435        24,294  
   Royalty    LCD, OLED technology patent    Overseas(1)      14        14        18  
      Korea(1)      0        0        0  
      Total      14        14        18  
  

Others

   Raw materials, components, etc.    Overseas(1)      24        17        13  
      Korea(1)      7        10        12  
      Total      30        26        25  
  

Total

   Overseas(1)      23,324        22,211        22,747  
         Korea(1)      906        1,265        1,590  
           

 

 

    

 

 

    

 

 

 
         Total      24,230        23,476        24,337  
           

 

 

    

 

 

    

 

 

 

 

12


Table of Contents
(1)

Based on ship-to-party.

 

  B.

Sales organization and sales route

 

   

As of December 31, 2020, each of our television, IT and mobile businesses had individual sales and customer support functions.

 

   

Sales subsidiaries in the United States, Germany, Japan, Taiwan, China and Singapore perform sales activities and provide local technical support to customers.

 

   

Sales of our products take place through one of the following two routes:

1) LG Display Headquarters and overseas manufacturing subsidiaries g Overseas sales subsidiaries (USA/Germany/Japan/Taiwan/China/Singapore), etc. g System integrators and end-brand customers g End users

2) LG Display Headquarters and overseas manufacturing subsidiaries g System integrators and end-brand customers g End users

 

   

Sales performance by sales route

 

Sales performance

   Sales route    Ratio  

Overseas

   Overseas subsidiaries      95.1
   Headquarters      4.9

Overseas sales portion (overseas sales / total sales)

     96.3

Korea

   Overseas subsidiaries      2.3
   Headquarters      97.7

Korea sales portion (Korea sales / total sales)

     3.7

 

  C.

Sales methods and sales terms

 

   

Direct sales and sales through overseas subsidiaries, etc. Sales terms are subject to change depending on the fluctuation in the supply and demand of LCD panels.

 

13


Table of Contents
  D.

Sales strategy

 

   

As part of our sales strategy for IT products, we have secured stable sales to major personal computer manufacturers and leading consumer electronics manufacturers globally.

 

   

With respect to television products, we have led the premium television market with our OLED TVs and strengthened the differentiation of our OLED products through unique designs and integration of additional technologies (Wallpaper, Cinematic Sound, Rollable, etc.). We also strengthened sales of high-resolution, IPS, narrow bezel and other high-end display panels in the monitor, notebook computer and tablet markets.

 

   

With respect to smartphones, commercial products (including interactive whiteboards and video wall displays, among others), industrial products (including aviation and medical equipment, among others) and automobile display products, we have continued to build a strong and diversified business portfolio by expanding our business with customers with a global reach on the strength of our differentiated products applying IPS, plastic OLED, high-resolution, high-reliability, Super Narrow bezel, in-TOUCH and other technologies.

 

  E.

Major customers

 

   

Customers “A” and “B” each accounted for more than 10% of our sales revenue in 2019 and 2020, and our sales revenue derived from our top ten customers comprised 80% of our total sales revenue in 2019 and 85% in 2020.

 

6.

Purchase Orders

 

   

We do not have purchase order contracts that recognize unbilled revenue by implementing the cost-based method.

 

7.

Market Risks and Risk Management

 

  A.

Market risks

The display industry may experience fluctuations in the average selling prices of TFT-LCD and OLED panels that may differ from cyclical patterns in the industry. To the extent prices decrease below our cost structure, our margins may be adversely impacted.

The display industry is highly competitive. We have experienced pressure on the prices and margins of our major products due largely to additional manufacturing capacity from competitors in Korea, China, Taiwan and Japan coupled with changes in the production mix of such competitors.

Our ability to compete successfully depends on factors both within and outside our control, including our development of products with differentiated technology, timely investments, adaptable production capabilities, our ability to execute and reliability, product prices, component and raw material supply costs, the success or failure of our end-brand customers in marketing their brands and products, and general economic and industry conditions.

Our results of operations are subject to exchange rate fluctuations. To the extent that we incur costs in one currency and generate sales in a different currency, our profit margins may be affected by changes in the exchange rates between the two currencies. Our sales of display panels are denominated mainly in U.S. dollars, whereas our foreign currency denominated purchases of raw materials are denominated mainly in U.S. dollars and Japanese Yen. Seeking to achieve stable management, we take every precaution in our foreign currency risk management to minimize the risk of foreign currency fluctuations on our foreign currency denominated assets and liabilities.

 

14


Table of Contents
  B.

Risk management

As the average selling prices of TFT-LCD and OLED panels can continue to decline over time irrespective of industry-wide cyclical fluctuations, we may find it hard to manage risks associated with certain factors that are outside our control. However, we counteract such declines in average selling prices by increasing the proportion of high value added panels in our product mix while also implementing various cost reduction measures. In addition, in order to manage our risk against foreign currency fluctuations, we eliminate such risk by matching foreign currency inflow and outflow by currency. We also continually monitor our currency position and risk, and when needed, we may from time to time enter into cross-currency interest rate swap contracts and foreign currency forward contracts.

 

8.

Derivative Contracts

 

  A.

Currency risks

 

   

We are exposed to currency risks on sales, purchases and borrowings that are denominated in currencies other than in Won, our functional currency. These currencies are primarily the U.S. dollar, the Chinese Yuan and the Japanese Yen.

 

   

Interest on borrowings is denominated in the currency of the borrowing. Generally, borrowings are denominated in currencies that match the cash flows generated by our underlying operations, primarily in Won, the U.S. dollar and the Chinese Yuan.

 

   

In respect of other monetary assets and liabilities denominated in foreign currencies, we have adopted a policy to maintain our net exposure within an acceptable level by buying or selling foreign currencies at spot rates, when necessary, to address short-term imbalances.

 

   

As of December 31, 2020, in order to avoid risks of interest rate fluctuations and exchange rate fluctuations on foreign currency denominated borrowings with floating interest rates, we entered into an aggregate of $2,225 million in Won/US dollar cross currency swap agreements with Standard Chartered Bank and others, for which we have not applied hedge accounting.

 

   

Any rights or obligations arising from derivative contracts that do not apply hedge accounting are measured at fair value and are accounted for as assets and liabilities, whereas any resulting valuation gain or loss is recognized as profit or loss at the time such valuation gain or loss is incurred.

We recognized a net loss on valuation of derivative instruments in the amount of W185 billion with respect to our foreign exchange derivative instruments held during the reporting period.

 

  B.

Interest rate risks

 

   

Our exposure to interest rate risks relates primarily to our floating rate long term loan obligations. We have established and are managing interest rate risk policies to minimize uncertainty and costs associated with interest rate fluctuations by monitoring cyclical interest rate fluctuations and enacting countermeasures.

 

   

As of December 31, 2020, we entered into an aggregate of W170 billion in interest rate swap agreements to KB Kookmin Bank and others, for which we have not applied hedge accounting. We recognized a net loss on valuation of derivative instruments in the amount of W2 billion with respect to our interest rate derivative instruments held during the reporting period.

 

15


Table of Contents
9.

Major Contracts

Our material contracts, other than contracts entered into in the ordinary course of business, are set forth below:

 

Type of agreement

  

Name of party

  

Term

  

Content

Technology licensing agreement

   Semiconductor Energy Laboratory    October 2005 ~ December 2020    Patent licensing of LCD and OLED related technology
   Hewlett-Packard    January 2011 ~    Patent licensing of semi-conductor device technology
   Ignis Innovation, Inc.    July 2016 ~    Patent licensing of OLED related technology

Technology licensing/supply agreement

   HannStar Display Corporation    December 2013 ~    Patent cross-licensing of LCD technology
   AU Optronics Corporation    August 2011~    Patent cross-licensing of LCD technology
   Innolux Corporation    July 2012 ~    Patent cross-licensing of LCD technology
   Universal Display Corporation    January 2015 ~ December 2022    Patent cross-licensing of OLED related technology

 

10.

Research & Development (“R&D”)

 

  A.

Summary of R&D-related expenditures

(Unit: In millions of Won, except percentages)

 

Items

   2020      2019      2018  

R&D Expenditures (prior to deducting governmental subsidies)

     1,740,083        1,776,879        1,758,813  

Governmental Subsidies

     (1,524      (590      (1,694

Net R&D-Related Expenditures

     1,738,559        1,776,289        1,757,119  

Accounting Treatment(1)

   R&D Expenses      1,454,072        1,338,344        1,384,284  
   Development Cost (Intangible Assets)      284,487        437,945        372,835  
     

 

 

    

 

 

    

 

 

 

R&D-Related Expenditures / Revenue Ratio(2)
(Total R&D-Related Expenditures ÷ Revenue for the period × 100)

     7.2      7.6      7.2
     

 

 

    

 

 

    

 

 

 

 

(1)

For accounting treatment purposes, R&D expenses are presented as research and development expenses in our statements of comprehensive income, net of amortization of capitalized intangible asset development costs.

(2)

Calculated based on the R&D-related expenditures before subtracting government subsidies (state subsidies).

 

  B.

R&D achievements

Achievements in 2018

 

  (1)

Developed the world’s first glass-integrated LCD television product (Art Glass Series)

 

   

Achieved LCD modular appearance and simplicity in design by using glass material throughout product (including the panel, light guide plate and back cover)

 

   

Strengthened competitiveness of frameless design by decreasing bezel size from 7.8mm to 5.9mm

 

  (2)

Developed our first 5.8-inch Ultra HD Mobile 4K product

 

   

Developed our first Ultra HD mobile product

 

   

Achieved high luminance, low power consumption and HD resolution by applying Ultra HD RGBW (M+) pixel structure

 

  (3)

Developed the world’s first 5.8-inch mobile FHD product applying M+

 

   

Our first product applying camera notch concept technology

 

  (4)

Developed the world’s first four-side borderless curved monitor with 1900R curvature radius

 

   

Our first product applying glass 0.25T (etching) bezel printing/reverse bonding process technology

 

   

Strengthened product competitiveness with our first shared design applying three-side/four-side borderless TFT Mask

 

   

Achieved high-speed driving at 144Hz, high color recall (DCI 98%) and HDR (peak luminance 550nit)

 

16


Table of Contents
  (5)

Developed the world’s first 34-inch large-screen monitor/high-resolution four-sided borderless HDR

 

   

Pioneered HD Premium 21:9 monitor market through development of the world’s first WUHD(5K2K), four-side borderless monitor

 

   

Delivered Ultra HD (DCI 98Z%, sRGB 135%) by applying Adv. KSF LED PKG technology

 

   

Achieved high luminance (HDR 600); typ. 450 nit, maximum 600nit

 

  (6)

Developed LGD 6.01QHD+M+ Full Screen Display (LG Electronics)

 

   

Developed a full screen display concept smartphone product (G7) through strategic collaboration with other LG Group companies

 

   

Implemented a full screen display product concept through achievement of our first 19.5:9 screen aspect ratio and lower bezel of 2.7mm

 

  (7)

Developed the world’s narrowest bezel videowall product (0.44mm bezel, 55-inch FHD)

 

   

Achieved product competitiveness by developing the world’s narrowest bezel (originally 0.9mm g 0.44mm, Even Bezel)

 

  (8)

Developed the world’s first automotive glassless 3D cluster product

 

   

Developed FHD glassless barrier type 3D model (12.3 inches, 167 ppi level)

 

   

Achieved customers’ eye-tracking movement by applying a top moving barrier panel at the top of the panel

 

   

Improved adhesion accuracy of image panel and barrier panel by using OCA bonding technology

 

   

Improved barrier contrast ratio by applying a copper-based metal barrier panel

 

  (9)

Developed the world’s first 6th generation a-Si Indirect DXD product (21.9-inch, 14 x 17 resolution, 14µm pixel pitches)

 

   

Entered the DXD market through development of the world’s first 6th generation a-Si Indirect DXD product

 

   

Set up infrastructure for DXD product development through the development of our first DXD product

 

  (10)

Developed the world’s first 17-inch large-sized and lightweight notebook monitor

 

   

Developed large-sized (17-inch) product with a new screen aspect ratio (16:10)

 

   

Developed light-weight product (268g) through securing 17-inch+ Slim Design model technology

Achievements in 2019

 

  (1)

Developed the world’s first ultra large-sized in-TOUCH product (50-inch UHD)

 

   

World’s first to apply in-TOUCH technology on ultra large-sized products (50-inch and larger)

 

   

World’s first to apply low temperature PAS to achieve in-TOUCH function

 

  (2)

Developed the world’s first transparent WOLED product (55-inch FHD)

 

   

Developed WOLED-based Top Emission OLED device and process technology

 

  (3)

Developed the world’s first OLED 8K product (88-inch 8K)

 

   

Developed gearing technology that secures and compensates aperture ratio for high resolution (8K) product implementation

 

  (4)

Developed the world’s first gaming monitor product applying OLED (55” UHD)

 

   

Developed 55” UHD gaming monitor product using advantages of OLED (latency, gray to gray, color recall)

 

  (5)

Developed the world’s first curved gaming monitor product applying AH-IPS COT (37.5” WQ+)

 

   

Developed and produced the world’s first monitor product applying AH-IPS COT

 

   

Pioneered gaming/curved premium monitor product market

 

  (6)

Developed the world’s first monitor product applying Crystal Sound Display (“CSD”) (27.0” FHD)

 

   

Developed and produced the world’s first monitor product applying CSD

 

   

Developed large-sized, front-oriented stereo speaker through the application of exciter and piezo to the bottom cover of the liquid crystal module

 

  (7)

Developed the world’s first automotive product applying plastic OLED (16.9” + 7.2” / 14.2”)

 

   

Developed and produced the world’s first 1CG multi-display product applying plastic OLED (16.9” + 7.2” / 14.2”)

 

17


Table of Contents

Achievements in 2020

 

  (1)

Developed the first products in our Guangzhou OLED panel production facility (77” UHD, 48” UHD)

 

   

Completed the development of the first products in our Guangzhou OLED panel production facility (77” UHD, 48” UHD)

 

  (2)

Developed the world’s first rollable television display product (65” UHD)

 

   

Introduced a new form factor (from flat to rollable) to the television market

 

   

Enhanced space utilization through adjusting the display size and ratio based on the purpose of use

 

  (3)

Developed the world’s first 2K zone mini-LED & ultra-slim UHD monitor product

 

   

Fulfilled customer needs for top quality monitor products and strengthened our market position in the premium market by developing the world’s first differentiated 2K zone product

 

   

By leveraging early advantage in the underlying mini-LED technology, explored a new revenue source through applying the technology to all IT products

 

   

Achieved high luminance at HDR 1000 and wide color gamut at 99.8% DCI

 

11.

Intellectual Property

As of December 31, 2020, our cumulative patent portfolio (including patents that have already expired) included 21,350 patents in Korea and 28,002 patents in other countries.

 

12.

Environmental and Safety Matters

We are subject to a variety of environmental laws and regulations, and we may be subject to fines or restrictions that could cause our operations to be interrupted. Our manufacturing processes generate worksite waste, including water and air pollutants, at various stages in the manufacturing process, and we are subject to relevant laws and regulations in each area of the environment, including with respect to the treatment of chemical by-products. We have installed and operate various types of anti-pollution equipment, consistent with environmental standards, for the treatment of chemical waste and equipment for the recycling of treated waste water at our various facilities. However, we cannot provide assurance that environmental claims will not be brought against us or that the local or national governments will not take steps toward adopting more stringent environmental standards. Any failure on our part to comply with any present or future environmental regulations could result in the assessment of damages or imposition of fines against us, suspension of production or a cessation of operations. In addition, environmental regulations could require us to acquire costly equipment or to incur other significant compliance expenses that may materially and negatively affect our financial condition and results of operations.

In accordance with the Framework Act on Low Carbon, Green Growth, we implemented the greenhouse gas emission and energy consumption target system from 2012 to 2014. In 2015, we implemented the greenhouse gas trading system, under which we are responsible to meet our emission targets based on the emission credits allocated to us by the Ministry of Environment of the Korean government. As a result, we have been investing in additional equipment and there may be other costs associated with meeting reduction targets, which may have a negative effect on our profitability or production activities. In April 2020, we submitted to the Korean government a report on the amount of greenhouse gas emissions and energy used in our domestic facilities in 2019, which was verified by an independent certifier appointed by the Korean government.

In connection with the greenhouse gas emission and energy reduction target system, we submitted a statement of our domestic emissions and energy usage for 2018 to the Korean government in March 2019 after it was certified by BSI Korea, a government-designated certification agency. The table below sets forth yearly levels of our greenhouse gases emissions and energy usage in the statement submitted to the Korean government:

 

18


Table of Contents

(Unit: thousand tonnes of CO2 equivalent; Tetra Joules)

 

Category

   2019      2018      2017  

Greenhouse gases

     5,885        6,696        6,314  

Energy

     62,776        64,296        63,451  

Note: The amounts for 2020 are subject to assessment and confirmation by the Korean government during the first quarter of 2021.

As we were designated as a target company for the greenhouse gas emission trading system in 2015, we submit a plan for allocating and monitoring our greenhouse gas emissions to the government every year. In order to continually promote the reduction of greenhouse gas emissions, we have set a short-term goal to reduce the emission level from 2014 to 2022 by 16.8% and a medium- to long-term goal to reduce the emission level from 2014 to 2045 by 65.1%. To achieve this, we are continually investing in facility improvements and monitoring our emission levels.

We are making extensive investments to replace SF6 gas, which is the main component of greenhouse gases, with NF3 gas. In addition, as a short-term strategy, we are actively implementing measures in compliance with the emission trading system. In 2018, we reduced our carbon dioxide greenhouse gas emission levels by 1.28 million tons, which was 0.63 million tons more than our initial target of 0.65 million tons. As our medium- to long-term goal, we plan to develop low-carbon production technologies in order to eliminate greenhouse gas emission during our manufacturing process and to conserve energy.

The increase in greenhouse gas emission in 2018 is due to the inclusion of certain other greenhouse gas emissions (N2O used in deposition facilities and CO2 in cleaning facilities) during the second planning period (2018 to 2020) that were not included during the first planning period (2015 to 2017) in the overall amount of greenhouse gas emissions in accordance with guidelines issued by the Korean government.

Operations at our manufacturing plants are subject to regulation and periodic scheduled and unscheduled on-site inspections by the Ministry of Environment and local environmental protection authorities. We believe that we have adopted adequate anti-pollution measures and have minimized our impact on the environment by improving existing and developing new technologies for the effective maintenance of environmental protection standards consistent with local industry practice. In addition, we have continually monitored, and we believe that we are in compliance in all material respects with, the applicable environmental laws and regulations in Korea. Expenditures related to such compliance may be substantial. Such expenditures are generally included in capital expenditures. As required by Korean law, we employ licensed environmental specialists to manage our water and air pollution, toxic materials and waste. In December 2013, to ensure safe water quality and reduce costs, we entered into a contract with a specialist company to operate our waste water treatment facilities. In stages beginning in November 1997, we have obtained environmental management system ISO 14001 certifications for our domestic panel and module production facilities in Paju and Gumi and our overseas module production plants in Nanjing, Yantai, Guangzhou and Vietnam and have operated such facilities in accordance with such certifications. Since December 2013, we have also obtained energy management system ISO 50001 certifications for our domestic panel and module production plants and our overseas facilities in Nanjing and Guangzhou and have operated such facilities in accordance with such certifications.

 

19


Table of Contents

In addition, in August 2014, our “CA” subsidiary in Guangzhou, China, became the first manufacturer in the electronics industry in China to receive the “Green Plant” designation under China’s Green China Policy, in addition to receiving ISO 14001, ISO 50001, ISO 45001, ISO 9001, PAS 2050 and ISO 14064-1 certifications. Furthermore, with respect to our production facilities in Gumi, we were first certified by the Ministry of Environment as a “Green Company” for P1 in 1997, and we currently continue to maintain such certification. In recognition of our efforts to reduce greenhouse gas emissions, we were awarded a commendation from the Minister of Environment in the efforts against climate change category in the 2013 Green Management Awards, which was jointly hosted by the Ministry of Environment and the Ministry of Trade, Industry and Energy. In addition, in recognition of our efforts to improve recycling and reduce waste, we received a citation in 2014 for being a leading recycling company from the Prime Minister of Korea and, in recognition of our continued water conservation activities (reuse system investments, etc.), we attained the highest level, Leadership A, and received the grand prize award at the CDP Water Korea Best Awards in 2016 from the Carbon Disclosure Project, which was presided over by the Carbon Disclosure Project Korea Committee. Since then, we have continued to maintain our excellence in water conservation activities in 2018 and 2019. In addition, our continued efforts to reduce greenhouse gas emissions have been recognized from 2017 to 2019 by becoming the only domestic information technology company to attain the Leadership A level and again receiving carbon management honors by ranking in the top five among all eligible companies. In May 2017, we were awarded a commendation from the Minister of Environment for having scored the highest grade among companies in the low- and medium-volume pollutant emitters category that had entered into voluntary agreements with the Metropolitan Air Quality Management Office, in recognition of having successfully met our voluntary targets for reduction of air pollutants as well as our overall efforts to enhance our relevant facilities and operational systems. In addition, in recognition of efficient control, management and operating systems implemented in our manufacturing facilities, we received the top-level certification, Level 1, in 2017 under the Factory Energy Management System evaluation presided by the Korea Energy Agency. Furthermore, in November 2017, we received the highest commendation, the Presidential Award, in the Korean Energy Efficiency Awards presided by the Ministry of Trade, Industry and Energy in recognition of our energy management practices and energy saving measures. In May 2018, we received the CEM Insight Award, presented at the Clean Energy Ministerial Meetings, and also received certification for our energy business management (Energy Champion) presided by the Ministry of Trade, Industry and Energy and the Korea Energy Agency in November 2018. Since 2019, we have been carrying out forest development activities around our manufacturing facilities after signing an agreement with Gyeong-gi Province to surround our facilities with forests to reduce air pollutants such as fine dust and have received a commendation for such efforts.

In the case of the European Union’s Restriction of Hazardous Substances (RoHS) Directive 2011/65/EU, with the adoption of Directive (EU) 2015/863 in 2016, four additional substances (four phthalate substances) have been added to the six already restricted substances, which additional restrictions became effective as of July 22, 2019. In order to address the latent risk elements of the four phthalate substances that became restricted in 2019 and to establish a more stable management system, we implemented in 2016 a preemptive response process with respect to such four phthalate substances. In implementing this process, we collaborated with external agencies to ascertain regulatory trends and establish our response strategy, and we formulated and applied effective management measures through the collaborative efforts of our development, procurement and quality teams. Beryllium (Be) was not designated internationally as a mandatorily restricted substance but has continued to be the subject of discussion for restriction, and certain of our customers have designated it as a restricted substance not to be used in products. Accordingly, we have completed verification of the parts used in products for customers who have banned the use of Beryllium. We have also conducted verification of the parts used in products for all customers who are expected to implement a ban and we have established a Beryllium verification process for parts in development. Through such efforts, we have established a voluntary hazardous substance response process that can be expanded to products for all customers, not only those who have requested a response.

In October 2005, we became the first display panel company to receive accreditation as an International Accredited Testing Laboratory by the Korea Laboratory Accreditation Scheme, which is operated by the Korean Ministry of Trade, Industry & Energy. In September 2006, we received international accreditation from TUV SUD, EU’s German accreditation agency, as a RoHS testing laboratory. Our efforts to keep pace with the increasingly stringent accreditation standards and to receive and maintain such accreditations are part of our on-going efforts to systematically monitor environmentally controlled substances in our component parts inventory. Moreover, we participated in reforming IEC 62321, an international testing standard published by the International Electrotechnical Commission and used by RoHS, and the commission adopted our halogen-free combustion ion chromatography method in as IEC 62321-3-2, which was published in June 2013. In 2017, in a joint effort with the global product testing/accreditation agency SGS, we became the first display panel company to develop Eco Label, an environmentally friendly accreditation program for television display modules, and have since continuously received the SGS Eco Label accreditation for our OLED television models. For the IPS Nano Color for LCD, we received the Quality & Performance Mark from Intertek, a global product testing/accreditation agency, by applying a technology to eliminate cadmium (Cd) and indium phosphide (InP). In 2018, we became the first display panel company to receive the “Green Technology Certification” from the Korean Ministry of Science and ICT for improving the light efficiency technology of OLED to promote energy use reduction.

In June 2017, we were assessed a fine of W1 million, which we subsequently paid, for failure to meet certain waste disposal subcontractor requirements under the Waste Management Act. To prevent such violations from occurring again, we are strengthening the periodic evaluation process for our waste management subcontractors.

 

20


Table of Contents

In June 2017, we were audited by the Ministry of Employment and Labor in connection with the occurrence of a safety accident and found to be in violation of certain provisions of the Industrial Safety and Health Act relating to supervisory obligations. As a result, we were issued a corrective order and assessed a fine of W2.4 million. In addition, the trial court ordered a fine of W0.5 million on each of us and our chief production officer on the basis of certain other applicable provisions of the Industrial Safety and Health Act. In relation to the same matter, in May 2018, the Prosecutor’s Office sought a fine of W3.0 million on each of us and our chief production officer on the basis of certain other applicable provisions of the Industrial Safety and Health Act. The trial court (Goyang Branch of Uijeongbu District Court) issued a summary order confirming the same fines of W3.0 million on November 22, 2018, which fines were paid in full after such order was confirmed on November 5, 2020. In order to prevent such accidents from occurring again, we are strengthening our safety management standards and training for our employees.

In January 2018, we were audited by the Ministry of Employment and Labor in connection with the occurrence of another safety accident and found to be in violation of certain provisions of the Industrial Safety and Health Act relating to supervisory obligations. As a result, we were issued a corrective order and assessed a fine of W14.4 million. In relation to this matter, in January 2019, the trial court (Goyang Branch of Uijeongbu District Court) assessed a fine of W1 million as a summary order on each of us and our chief production officer pursuant to certain other provisions of the Industrial Safety and Health Act. In addition, in January 2019, the trial court sought a fine of W4 million and W2 million on us and the employee in charge of on-site safety management, respectively, on the basis of certain other provisions of the Industrial Safety and Health Act. Relevant authorities are currently conducting further investigations. In order to prevent such accidents from occurring again, we are strengthening our safety management standards and training for our employees.

Also in January 2018, the government of Gyeong-gi Province issued a warning and assessed a fine of W1 million on us, which we subsequently paid, for the failure to comply with certain requirements relating to air pollutant emission and prevention facilities under the Air Quality Management Act. To prevent such violations from occurring again, we have shortened the air pollutant emission maintenance reporting period and strengthened the verification process for relevant data.

In March 2018, we were audited by the Ministry of Employment and Labor in connection with our health and safety training practices, and we were found to have omitted requisite health and safety training sessions for certain employees in our P9 facilities in 2016 and 2017. As a result, we were assessed a fine of W6.95 million, which we subsequently paid, and have strengthened our efforts to promote health and safety training programs in advance as well as our management and supervision activities to ensure such programs are conducted.

In June 2019, the government of Gyeong-gi Province reviewed the operational history and the number of self-measurements of our emission outlets and confirmed that there were certain deficiencies in self-measurements for our reserve facilities. As a result, we were assessed a fine of W1.6 million by the government of Gyeong-gi Province, which we subsequently paid, for the violation of Article 39 of the Air Quality Management Act. To prevent the recurrence, we have established a monthly self-measurement plan for our reserve facilities.

In May 2020, we were assessed a fine of W1.4 million by the National Institute of Chemical Safety for our failure to conduct safety training on hazardous chemicals in violation of Article 33 of the Chemicals Control Act, which we subsequently paid. In order to prevent recurrence, we conducted safety training on hazardous chemicals for the relevant personnel and newly established a working process that complies with safety regulations.

In May 2020, we received a warning from Daegu Regional Environmental Office regarding a safety incident that occurred in April 2020 in violation of Article 13-1 of the Chemical Control Act. In addition, in connection with another safety incident that occurred in May 2020, we were assessed an administrative penalty of W1.44 million in May 2020 and an improvement order in June 2020, in each case by Daegu Regional Environmental Office, for a violation of Article 13-2 of the Chemical Control Act. We subsequently paid such fine, and we also submitted a report of compliance with such improvement order in July 2020. Regarding these two incidents, Gimcheon Branch of Daegu District Court issued a summary order to assess fines of W3 million on each of us and two of our employees (the former head of safety and health management at our Gumi facilities and a former working level staff), which order was subsequently confirmed. In order to prevent recurrence, we are strengthening our safety management standards and employee training efforts.

 

21


Table of Contents

In January 2021, an incident involving a leakage of tetramethylammonium hydroxide 2.4% chemicals occurred during refurbishment of equipment at one of our plants in Paju, causing bodily harm to workers. Government authorities are currently investigating the cause of such incident. In light of such incident, we plan to implement measures to fundamentally enhance our safety management standards with an aim to ensure health and safety of all workers at our facilities and maintain public trust, including four key safety management initiatives comprising (i) performing detailed safety diagnosis at all of our facilities, (ii) internalizing major hazardous tasks, (iii) developing dedicated personnel for safety- and environment-related matters and strengthening our support to our service providers, and (iv) strengthening the authority and capability of our safety management organizations.

 

13.

Financial Information

 

  A.

Financial highlights (Based on consolidated K-IFRS).

Note: the financial information below is based on our financial statements which remain subject to approval at our upcoming annual general meeting of shareholders scheduled on March 23, 2021. If our financial statements are not approved at such annual general meeting of shareholders or otherwise become amended, we will disclose such matter and the reasons therefor in an amended report.

(Unit: In millions of Won)

 

Description

   As of
December 31,
2020
     As of
December 31,
2019
     As of
December 31,
2018
 

Current assets

     11,099,470        10,248,315        8,800,127  

Quick assets

     8,928,814        8,197,160        6,108,924  

Inventories

     2,170,656        2,051,155        2,691,203  

Non-current assets

     23,972,053        25,326,248        24,375,583  

Investments in equity accounted investees

     114,551        109,611        113,989  

Property, plant and equipment, net

     20,147,051        22,087,645        21,600,130  

Intangible assets

     1,020,088        873,448        987,642  

Other non-current assets

     2,690,363        2,255,544        1,673,822  

Total assets

     35,071,523        35,574,563        33,175,710  

Current liabilities

     11,006,948        10,984,976        9,954,483  

Non-current liabilities

     11,327,636        12,101,306        8,334,981  

Total liabilities

     22,334,584        23,086,282        18,289,464  

Share capital

     1,789,079        1,789,079        1,789,079  

Share premium

     2,251,113        2,251,113        2,251,113  

Retained earnings

     7,524,297        7,503,312        10,239,965  

Other equity

     (163,446      (203,021      (300,968

Non-controlling interest

     1,335,896        1,147,798        907,057  

Total equity

     12,736,939        12,488,281        14,886,246  

(Unit: In millions of Won, except for per share data and number of consolidated entities)

 

Description

   For the year
ended
December 31,
2020
     For the year
ended
December 31,
2019
     For the year
ended
December 31,
2018
 

Revenue

     24,230,124        23,475,567        24,336,571  

Operating profit (loss)

     (29,117      (1,359,382      92,891  

Profit (loss) from continuing operations

     (70,636      (2,872,078      (179,443

Profit (loss) for the period

     (70,636      (2,872,078      (179,443

Profit (loss) attributable to:

        

Owners of the Company

     (89,342      (2,829,705      (207,239

Non-controlling interest

     18,706        (42,373      27,796  

Basic earnings (loss) per share

     (250      (7,908      (579

Diluted earnings (loss) per share

     (250      (7,908      (579

Number of consolidated entities

     21        22        22  

 

22


Table of Contents
  B.

Financial highlights (Based on separate K-IFRS).

Note: the financial information below is based on our financial statements which remain subject to approval at our upcoming annual general meeting of shareholders scheduled on March 23, 2021. If our financial statements are not approved at such annual general meeting of shareholders or otherwise become amended, we will disclose such matter and the reasons therefor in an amended report.

(Unit: In millions of Won)

 

Description

   As of
December 31,
2020
     As of
December 31,
2019
     As of
December 31,
2018
 

Current assets

     6,948,054        7,081,228        6,378,339  

Quick assets

     5,529,932        5,554,929        4,427,184  

Inventories

     1,418,122        1,526,299        1,951,155  

Non-current assets

     19,757,148        20,301,452        20,683,767  

Investments

     4,784,828        4,958,308        3,602,214  

Property, plant and equipment, net

     11,736,673        12,764,175        14,984,564  

Intangible assets

     887,431        708,047        816,808  

Other non-current assets

     2,348,216        1,870,922        1,280,181  

Total assets

     26,705,202        27,382,680        27,062,106  

Current liabilities

     10,180,660        9,140,483        7,416,630  

Non-current liabilities

     6,261,307        7,576,104        6,432,895  

Total liabilities

     16,441,967        16,716,587        13,849,525  

Share capital

     1,789,079        1,789,079        1,789,079  

Share premium

     2,251,113        2,251,113        2,251,113  

Retained earnings

     6,223,043        6,625,901        9,172,389  

Other equity

     0        0        0  

Total equity

     10,263,235        10,666,093        13,212,581  

(Unit: In millions of Won, except for per share data)

 

Description

   For the year
ended
December 31,
2020
     For the year
ended
December 31,
2019
     For the year
ended
December 31,
2018
 

Revenue

     22,799,273        21,658,329        22,371,687  

Operating profit (loss)

     (812,979      (1,784,245      (472,995

Profit (loss) from continuing operations

     (513,262      (2,639,893      (442,291

Profit (loss) for the period

     (513,262      (2,639,893      (442,291

Basic earnings (loss) per share

     (1,434      (7,378      (1,236

Diluted earnings (loss) per share

     (1,434      (7,378      (1,236

 

23


Table of Contents
  C.

Consolidated subsidiaries (as of December 31, 2020)

 

Company Interest

   Primary Business    Location    Equity  

LG Display America, Inc.

   Sales    U.S.A.      100

LG Display Germany GmbH

   Sales    Germany      100

LG Display Japan Co., Ltd.

   Sales    Japan      100

LG Display Taiwan Co., Ltd.

   Sales    Taiwan      100

LG Display Nanjing Co., Ltd.

   Manufacturing    China      100

LG Display Shanghai Co., Ltd.

   Sales    China      100

LG Display Guangzhou Co., Ltd.

   Manufacturing    China      100

LG Display Shenzhen Co., Ltd.

   Sales    China      100

LG Display Singapore Pte. Ltd.

   Sales    Singapore      100

L&T Display Technology (Fujian) Limited

   Manufacturing and sales    China      51

LG Display Yantai Co., Ltd.

   Manufacturing    China      100

LG Display (China) Co., Ltd.

   Manufacturing and sales    China      70

Nanumnuri Co., Ltd.

   Workplace services    Korea      100

Unified Innovative Technology, LLC

   Managing intellectual property    U.S.A.      100

Global OLED Technology LLC

   Managing intellectual property    U.S.A.      100

LG Display Guangzhou Trading Co., Ltd.

   Sales    China      100

LG Display Vietnam Haiphong Co., Ltd.

   Manufacturing    Vietnam      100

Suzhou Lehui Display Co., Ltd.

   Manufacturing and sales    China      100

LG Display Fund I LLC

   Investing in new emerging
companies
   U.S.A      100

LG Display High-Tech (China) Co., Ltd.

   Manufacturing and sales    China      70

MMT (Money Market Trust)

   Money market trust    Korea      100

 

  D.

Status of equity investments (as of December 31, 2020)

 

  (1)

Consolidated subsidiaries

 

Company

   Capital Stock
(in millions)
     Date of
Incorporation
     Equity
Interest
 

LG Display America, Inc.

   USD 411        September 1999        100

LG Display Germany GmbH

   EUR 1        November 1999        100

LG Display Japan Co., Ltd.

   JPY 95        October 1999        100

LG Display Taiwan Co., Ltd.

   NTD 116        April 1999        100

LG Display Nanjing Co., Ltd.

   CNY 3,020        July 2002        100

LG Display Shanghai Co., Ltd.

   CNY 4        January 2003        100

LG Display Poland Sp. z o.o. (1)

     —          September 2005        —    

LG Display Guangzhou Co., Ltd.

   CNY 1,655        June 2006        100

LG Display Shenzhen Co., Ltd.

   CNY 4        August 2007        100

LG Display Singapore Pte. Ltd.

   USD 1        January 2009        100

L&T Display Technology (Fujian) Limited

   CNY 116        January 2010        51

LG Display Yantai Co., Ltd.

   CNY 1,008        April 2010        100

Nanumnuri Co., Ltd.

   KRW 800        March 2012        100

LG Display (China) Co., Ltd.

   CNY 8,232        December 2012        70

Unified Innovative Technology, LLC

   USD 9        March 2014        100

LG Display Guangzhou Trading Co., Ltd.

   CNY 1        April 2015        100

Global OLED Technology LLC

   USD 138        December 2009        100

LG Display Vietnam Haiphong Co., Ltd.

   USD 600        May 2016        100

Suzhou Lehui Display Co., Ltd.

   CNY 637        July 2016        100

LG Display Fund I LLC (2)

   USD 12        May 2018        100

LG Display High-Tech (China) Co., Ltd. (3)

   CNY 15,600        July 2018        70

MMT (Money Market Trust)

   KRW 11,300        January 2018        100

 

(1)

The liquidation process of LG Display Poland Sp. z o.o., our former consolidated subsidiary, was completed during 2020. We reclassified the comprehensive loss amounting to W72,654 million from foreign currency translation differences to profit or loss.

(2)

In 2020, we invested an additional W7,242 million in LG Display Fund I LLC. There has been no change in our interest in LG Display Fund I LLC due to such additional investment.

(3)

In 2020, the non-controlling shareholders invested an additional W172,966 million in LG Display High-Tech (China) Co., Ltd. Due to such additional investment, our interest in LG Display High-Tech (China) Co., Ltd. has decreased from 75% as of the end of 2019 to 70% as of the end of the reporting period.

 

24


Table of Contents
  (2)

Affiliated companies

 

Company

   Carrying
Amount
(in
millions)
     Date of
Incorporation
     Equity
Interest
 

Paju Electric Glass Co., Ltd. (1)

   W 47,262        January 2005        40

Wooree E&L Co., Ltd. (2)

   W 10,540        June 2008        14

YAS Co., Ltd.

   W 24,493        April 2002        15

Avatec Co., Ltd.

   W 20,196        August 2000        14

Arctic Sentinel, Inc.

     —          June 2008        10

Cynora GmbH (3)

   W 2,609        March 2003        12

Material Science Co., Ltd. (4)

   W 3,791        January 2014        10

Nanosys Inc. (5)

   W 5,660        July 2001        3

Changes since December 31, 2019:

 

(1)

In 2020, we recognized a reversal of impairment loss of W433 million as finance income with respect to the difference between the carrying amount and the recoverable amount of our investment in Paju Electric Glass Co., Ltd.

(2)

In 2020, we recognized a reversal of impairment loss of W2,905 million as finance income with respect to the difference between the carrying amount and the recoverable amount of our investment in Wooree E&L Co., Ltd.

(3)

In 2020, we recognized an impairment loss of W2,105 million as finance cost with respect to the difference between the carrying amount and the recoverable amount of our investment in Cynora GmbH. We did not participate in Cynora GmbH’s paid-in capital increase during the reporting period, and as a result, our equity interest decreased from 12.2% as of December 31, 2019 to 11.6% as of December 31, 2020.

(4)

In 2020, we recognized an impairment loss of W1,239 million as finance cost with respect to the difference between the carrying amount and the recoverable amount of our investment in Material Science Co., Ltd.

(5)

In 2020, we recognized a reversal of impairment loss of W811 million as finance income with respect to the difference between the carrying amount and the recoverable amount of our investment in Nanosys Inc. We did not participate in Nanosys Inc.’s paid-in capital increase during the reporting period, and as a result, our equity interest decreased from 4% as of December 31, 2019 to 3% as of December 31, 2020.

As of December 31, 2020, the market values of Woori E&L Co., Ltd., YAS Co., Ltd. and Avatec Co., Ltd., each of which is listed in the KOSDAQ market of the Korea Exchange, were W10,540 million, W26,700 million and W17,180 million, respectively.

Additionally, for the years ended December 31, 2019 and 2020, the aggregate amount of dividends we received from our affiliated companies was W7,502 million and W8,239 million, respectively.

 

14.

Audit Information

 

  A.

Audit service

(Unit: In millions of Won, hours)

 

Description

   2020    2019    2018

Auditor

   KPMG Samjong    KPMG Samjong    KPMG Samjong

Activity

   Audit by independent
auditor
   Audit by independent
auditor
   Audit by independent
auditor

Compensation(1)

   1,050 (280)(2)    1,280 (500)(2)    1,170 (450)(2)

Time required

   19,453    21,194    17,269

 

(1)

Compensation amount is the contracted amount for the full fiscal year.

(2)

Compensation amount in ( ) is for Form 20-F filing and SOX 404 audit.

 

25


Table of Contents
  B.

Non-audit service

(Unit: In millions of Won, hours)

 

Period

   Date of contract    Description of
service
   Period of service    Compensation

2020

   —      —      —      —  

2019

   July 23, 2019    Issuance of
comfort letters
   July 23, 2019 ~
August 31, 2019
   120

2018

   September 11, 2018    Green bond
verification
   September 11, 2018
~ October 9, 2018
   45

 

15.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

  A.

Risk relating to forward-looking statements

This annual report contains forward-looking statements that are, by their nature, subject to significant risks and uncertainties. These forward-looking statements reflect our current views as of the date of this report with respect to future events and are not a guarantee of future performance or results. Actual results may differ materially from information contained in the forward-looking statements as a result of a number of factors beyond our control. We have no obligation to update or correct the forward-looking statements contained in these materials subsequent to the date hereof. All forward-looking statements attributable to us in this report are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

 

  B.

Overview

In 2020, the role and significance of display products became greater as the culture of contactless and remote interactions became prevalent as a new lifestyle. Such changes in the macro-environment had a positive influence on demand for television and IT products, in response to which we quickly accommodated the changing needs of consumers and our customers in relation to large-sized OLED display panels for televisions and TFT-LCD display panels for IT products. As a result, we were able to improve our operating results. Such improvement in our operating results was further amplified by a continued increase in the TFT-LCD display panel prices.

With respect to each of our business areas:

 

   

Television. Sales of the OLED segment of our television display panel business achieved an increase of low-20s in percentage compared to the previous year through stable operation of our increased production capacity and diversification of our products and customer base.

 

   

IT. Our IT product display panel business benefited from opportunities arising from an increase in overall demand for IT products due to increased instances of working remotely and online classes. In response, we increased our production of differentiated products utilizing our strengths in oxide-TFT and IPS technologies and achieved an increase of more than 10% in sales compared to the previous year.

 

   

Mobile. We added new production capacity of plastic OLED products in the second half of 2020, which is currently engaged in mass production with stable product quality. Leveraging the increase in sales resulting from such development, we are strengthening the foundation for a turnaround in this business area.

 

  C.

Financial condition and results of operations

 

  (1)

Changes in Political, Economic, Social, Competitive and Regulatory Environment

Our industry is subject to cyclical fluctuations, including recurring periods of capacity increases, that may adversely affect our results of operations.

Display panel manufacturers are vulnerable to cyclical market conditions. Intense competition and expectations of growth in demand across the industry may cause display panel manufacturers to make additional investments in manufacturing capacity on similar schedules, resulting in a surge in capacity when production is ramped up at new fabrication facilities. During such surges in capacity growth, as evidenced by past experiences, customers can exert strong downward pricing pressure, resulting in sharp declines in average selling prices and significant fluctuations in the panel manufacturers’ gross margins. Conversely, demand surges and fluctuations in the supply chain can lead to price increases.

 

26


Table of Contents

We address overcapacity issues by, in the short-term, adjusting the utilization rates of our existing fabrication facilities based on our assessment of industry inventory levels and demand for our products and, in the mid- to long-term, by fine-tuning our investment strategies relating to product development and capacity growth in light of our assessment of future market conditions.

From time to time, we have been affected by overcapacity in the industry relative to the general demand for display panels which, together with uncertainties in the current global economic environment, has contributed to a general decline in the average selling prices of a number of our display panel products. However, in light of our ongoing efforts to continue increasing in our product mix the proportion of higher-priced OLED panels, coupled with an increase in the market price of TFT-LCD panels in 2020 attributable to an increase in demand for television and IT products due to the COVID-19 pandemic, our average revenue per square meter of net display area increased by 5.9% from W576,817 in 2018 to W610,716 in 2019 and further increased by 29.5% to W790,874 in 2020.

While we believe that overcapacity and other cyclical issues in the industry are best addressed by increasing the proportion of high margin, differentiated specialty products based on newer technologies in our product mix that are tailored to our customers’ evolving needs, we cannot provide any assurance that an increase in demand, which helped to mitigate the impact of industry-wide overcapacity in the past, can occur or be sustained in future periods. We will therefore continue to closely monitor the overcapacity issues in the industry and respond accordingly. However, construction of new fabrication facilities and other capacity expansion projects in the display panel industry are undertaken with a multiple-year time horizon based on expectations of future market trends. Therefore, even if overcapacity issues persist in the industry, there may be continued capacity expansion in the near future due to pre-committed capacity expansion projects in the industry that were undertaken in past years. Any significant industry-wide capacity increases that are not accompanied by a sufficient increase in demand could further drive down the average selling price of our panels, which would negatively affect our gross margin. Any decline in prices may be further compounded by a seasonal weakening in demand growth for end products such as personal computer products, consumer electronics products and mobile and other application products. Furthermore, once the differentiated products that had a positive impact on our performance mature in their technology cycle, if we are not able to develop and commercialize newer products to offset the price erosion of such maturing products in a timely manner, our ability to counter the impact of cyclical market conditions on our gross margins would be further limited. We cannot provide assurance that any future downturns resulting from any large increases in capacity or other factors affecting the industry would not have a material adverse effect on our business, financial condition and results of operations.

A global economic downturn may result in reduced demand for our products and adversely affect our profitability.

In recent years, difficulties affecting the global financial sectors, adverse conditions and volatility in the worldwide credit and financial markets, fluctuations in oil and commodity prices and the general weakness of the global economy have increased the uncertainty of global economic prospects in general and have adversely affected the global and Korean economies. Global economic downturns in the past have adversely affected demand for consumer products manufactured by our customers in Korea and overseas, including televisions, IT products (comprising notebook computers, desktop monitors and tablet computers) and mobile and other application products utilizing display panels, which in turn led them to reduce or plan reductions of their production.

The overall prospects for the global economy remain uncertain, especially in light of the ongoing COVID-19 pandemic in China, Korea and other countries. We cannot provide any assurance that demand for our products can be sustained at current levels in future periods or that the demand for our products will not decrease again in the future due to such economic downturns which may adversely affect our profitability. We may decide to adjust our production levels in the future subject to market demand for our products, the production outlook of the global display panel industry, in particular, the display panel industry, any significant disruptions in our supply chain and global economic conditions in general. Any decline in demand for display panel products may adversely affect our business, results of operations and/or financial condition.

Earthquakes, tsunamis, floods, infectious diseases and other natural calamities could materially adversely affect our business, results of operations or financial condition.

 

27


Table of Contents

As our main production facilities are concentrated in China, Korea and Vietnam and we are heavily dependent on certain countries including Korea, Japan and the United States for our major equipment, components and raw materials, any natural calamity that escalate in such regions may have an impact on our production. For such reasons, we experienced temporarily closures of certain of our manufacturing facilities located in those areas affected by the current outbreak of COVID-19 in order to disinfect such facilities, protect the safety of our employees and prevent the infection from further spreading to the local communities. As our supply chain is generally concentrated in Northeast Asia, there may be delays in the supply of raw materials, components and manufacturing equipment as well as disruptions in our production levels due to unforeseen natural calamities that may recur in the future.

In particular, an outbreak of infectious diseases, such as COVID-19, which has had an effect on the global economic activities, may affect our operations. The global economy may be adversely affected by a variety of infectious diseases that spreads worldwide, which may impact the market demand for finished products that utilize display panels. As a result, any changes in inventory management or purchase adjustment or other changes in the operational strategies of our end-brand customers, may affect our business performance.

Our industry continues to experience steady declines in the average selling prices of display panels irrespective of cyclical fluctuations in the industry, and our margins would be adversely impacted if prices decrease faster than we are able to reduce our costs.

The average selling prices of display panels have declined in general with time irrespective of industry-wide cyclical fluctuations as a result of, among other factors, enhancements in productivity through technological advancements and cost reductions. While such trend may continue in the future, fluctuations that are not consistent with past trends may emerge to the extent new technologies such as OLED expand or the production levels of higher value-added and differentiated products increase. Although we may be able to take advantage of the higher selling prices typically associated with new products and technologies when they are first introduced in the market, such prices decline over time, and in certain cases, very rapidly, as a result of market competition or otherwise. If we are unable to effectively anticipate and counter the price erosion that accompanies our products, or if the average selling prices of our display panels decrease faster than the speed at which we are able to reduce our manufacturing costs, our gross margin would decrease and our results of operations and financial condition may be materially and adversely affected.

We operate in a highly competitive environment and we may not be able to sustain our current market position.

The display panel industry is highly competitive. We have experienced pressure on the prices and margins of our major products due largely to additional capacity from panel makers in Korea, Taiwan, China and Japan.

Some of our competitors may currently, or at some point in the future, have greater financial, sales and marketing, manufacturing, research and development or technological resources than we do. In addition, our competitors may be able to manufacture panels on a larger scale or with greater cost efficiencies than we do and we anticipate increases in production capacity in the future by other display panel manufacturers using similar display panel technologies as us. Any price erosion resulting from strong global competition or additional industry capacity may materially adversely affect our financial condition and results of operations.

In addition, consolidation within the industry in which we operate may result in increased competition as the entities emerging from such consolidation may have greater financial, manufacturing, research and development and other resources than we do, especially if such mergers or consolidations result in vertical integration and operational efficiencies, which may have a material adverse effect on our financial condition and results of operations.

Our ability to compete successfully also depends on factors both within and outside our control, including product pricing, performance and reliability, our relationship with customers, successful and timely investment and product development, success or failure of our end-brand customers in marketing their brands and products, component and raw material supply costs, and general economic and industry conditions. We cannot provide assurance that we will be able to maintain a competitive advantage with respect to all these factors and, as a result, we may be unable to sustain our current market position.

 

28


Table of Contents

Our operating results fluctuate from period to period, so you should not rely on period-to-period comparisons to predict our future performance.

Our industry is affected by market conditions that are often outside the control of manufacturers. Our results of operations may fluctuate significantly from period to period due to a number of factors, including seasonal variations in consumer demand, capacity ramp-up by competitors, industry-wide technological changes, the loss of a key customer and the postponement, rescheduling or cancellation of large orders by a key customer, any of which may or may not reflect a continued trend from one period to the next. As a result of these factors and other risks discussed in this section, you should not rely on period-to-period comparisons to predict our future performance.

Our financial condition may be adversely affected if we cannot introduce new products to adapt to rapidly evolving customer needs on a timely basis.

Our success will depend greatly on our ability to respond quickly to rapidly evolving customer requirements and to develop and efficiently manufacture new and differentiated products in anticipation of future demand. A failure or delay on our part to develop and efficiently manufacture products of such quality and technical specifications that meet our customers’ evolving needs may adversely affect our business.

Close cooperation with our customers to gain insights into their product needs and to understand general trends in the end-product market is a key component of our strategy to produce successful products. In addition, when developing new products, we often work closely with equipment suppliers to design equipment that will make our production processes for such new products more efficient. If we are unable to work together with our customers and equipment suppliers, or to sufficiently understand their respective needs and capabilities or general market trends, we may not be able to introduce or efficiently manufacture new products in a timely manner, which may have a material adverse effect on our financial situation.

In addition, product differentiation, especially the ability to develop and market differentiated specialty products that command higher premiums in a timely manner, has become a key competitive strategy in the display panel market. This is in part due to trends in consumer electronics and other markets, such as televisions, tablet computers and mobile devices, where the growth in demand is led by end products employing newer technologies with specifications tailored to deliver enhanced performance, convenience and user experience in a cost-efficient and timely manner. Accordingly, we have focused our efforts on developing and marketing differentiated specialty products, such as “Cinematic Sound OLED” sound integrated panels, rollable OLED display panels and transparent OLED display panels. We also strive to deliver differentiated values to meet our consumers’ demand for various display panels including (i) panels utilizing ultra-high definition, or Ultra HD, technology with oxide TFT backplanes, (ii) Advanced High-Performance In-Plane Switching, or AH-IPS, panels for tablet computers, mobile devices, notebook computers, desktop monitors, and (iii) plastic OLED display panels for smartphones, automotive products and wearable devices. We have also focused our efforts on cost reductions in the production process, in particular of panels with newer technologies, such as OLED, in order to improve or maintain our profit margins while offering competitive prices to our customers.

We have developed differentiated sales and marketing strategies to promote our panels for differentiated specialty products as part of our strategy to grow our operations to meet increasing demand for new applications in consumer electronics and other markets. However, we cannot provide assurance that the differentiated products we develop and market will be responsive to our end customers’ needs nor that our products will be successfully incorporated into end products or new applications that lead market growth in consumer electronics or other markets.

Problems with product quality, including defects, in our products could result in a decrease in customers and sales, unexpected expenses and loss of market share.

Our products are manufactured using advanced, and often new, technology and must meet stringent quality requirements. Products manufactured using advanced and new technology, such as our OLED technology, may contain undetected errors or defects, especially when first introduced. For example, our latest display panels may contain defects that are not detected until after they are shipped or installed because we cannot test for all possible scenarios. Such defects could cause us to incur significant re-designing costs, divert the attention of our technology personnel from product development efforts and significantly affect our customer relations and business reputation. In addition, future product failures could cause us to incur substantial expense to repair or replace defective products.

 

29


Table of Contents

We recognize a provision for warranty obligations based on the estimated costs that we expect to incur under our basic limited warranty for our products, which covers defective products and is normally valid for a certain period from the date of purchase. The warranty provision is largely based on historical and anticipated rates of warranty claims, and therefore we cannot provide assurance that the provision would be sufficient to cover any surge in future warranty expenses that significantly exceed historical and anticipated rates of warranty claims. In addition, if we deliver products with errors or defects, or if there is a perception that our products contain errors or defects, our credibility and the market acceptance and sales of our products could be harmed. Widespread product failures may damage our market reputation and reduce our market share and cause our sales to decline.

If economic conditions in Korea deteriorate, our current business and future growth could be materially and adversely affected.

Developments that could have an adverse impact on Korea’s economy include:

 

   

declines in consumer confidence and a slowdown in consumer spending;

 

   

deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from territorial or trade disputes or disagreements in foreign policy (such as the ongoing trade disputes with Japan);

 

   

adverse conditions or developments in the economies of countries and regions that are important export markets for Korea, such as China, the United States, Europe and Japan, or in emerging market economies in Asia or elsewhere, including as a result of deteriorating economic and trade relations between the United States and China and increased uncertainties resulting from the United Kingdom’s exit from the European Union;

 

   

the occurrence of severe health epidemics in Korea and other parts of the world, such as the ongoing COVID-19 pandemic;

 

   

adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the U.S. dollar, Euro or Japanese Yen exchange rates or revaluation of the Chinese Yuan, as well as the impact from the United Kingdom’s exit from the European Union on the value of Korean Won), interest rates, inflation rates or stock markets;

 

   

increased sovereign default risk in select countries and the resulting adverse effects on the global financial markets;

 

   

a deterioration in the financial condition or performance of small- and medium-sized enterprises and other companies in Korea due to the Korean government’s policies to increase minimum wages and limit working hours of employees;

 

   

investigations of large Korean business groups and their senior management for possible misconduct;

 

   

a continuing rise in the level of household debt and increasing delinquencies and credit defaults by retail and small- and medium-sized enterprise borrowers in Korea;

 

   

the economic impact of any pending free trade agreements or changes in existing free trade agreements;

 

   

social and labor unrest;

 

   

volatility in the market prices of Korean real estate;

 

   

geo-political uncertainty and risk of further attacks by terrorist groups around the world;

 

   

a decrease in tax revenues or a substantial increase in the Korean government’s expenditures for fiscal stimulus measures, unemployment compensation and other economic and social programs, including in connection with the Korean government’s ongoing efforts to provide emergency relief payments to households and emergency loans to businesses in light of economic difficulties caused by COVID-19, which may lead to an increased government budget deficit as well as an increase in the government’s debt level;

 

30


Table of Contents
   

financial problems or lack of progress in the restructuring of Korean business groups, other large troubled companies, their suppliers or the financial sector;

 

   

loss of investor confidence arising from corporate accounting irregularities or corporate governance issues at certain Korean companies;

 

   

increases in social expenditures to support an aging population in Korea or decreases in economic productivity due to the declining population size in Korea;

 

   

natural or man-made disasters that have a significant adverse economic or other impact on Korea or its major trading partners;

 

   

political uncertainty or increasing strife among or within political parties in Korea;

 

   

hostilities or political or social tensions involving oil producing countries in the Middle East (including a potential escalation of hostilities between the U.S. and Iran) and Northern Africa and any material disruption in the global supply of oil or sudden increase in the price of oil;

 

   

increased reliance on exports to service foreign currency debts, which could cause friction with Korea’s trading partners;

 

   

the continued growth of the Chinese economy, to the extent its benefits (such as increased exports to China) are outweighed by its costs (such as competition in export markets or for foreign investment and the relocation of manufacturing bases from Korea to China);

 

   

political or social tensions involving Russia and any resulting adverse effects on the global supply of oil or the global financial markets; and

 

   

an increase in the level of tensions or an outbreak of hostilities between North Korea and Korea or the United States.

 

  (2)

Results of operations

In 2020, unprecedented levels of volatility in worldwide economies occurred due to the effects of COVID-19. In particular, contrary to concerns during the earlier part of the year, new opportunities arose in the display industry as an environment of “home economy” formed under the prevalent culture of contactless and remote interactions. By responding quickly to changes in consumption patterns and trends of actual product sales, we were able to increase our sales and significantly reduce our losses compared to the previous year.

By business area:

 

   

Television. Sales in the OLED segment of our television display panel business increased by low-20s in percentage compared to the previous year primarily due to a stronger product line-up and an increased level of diversification in our customer base compared to last year, as we commenced the operation of, and quickly achieved stable production quality at, our new fabrication facility in Guangzhou. We also engaged in organizational restructuring activities with respect to our fabrication facilities for TFT-LCD television panels in Korea. Furthermore, we were able to achieve meaningful enhancements in sales and profitability through a shift in our product mix to focus on display panels for ultra-large televisions, commercial displays and IT products.

 

   

IT. In response to opportunities arising from stronger demand for IT products due to increased instances of working remotely and online classes, we increased the proportion of the production of display panels for IT products in our TFT-LCD fabrication facilities in Korea, and by expanding the sales of larger and differentiated products leveraging our technological strengths, we achieved an increase of more than 10% in sales compared to the previous year. In addition, we further solidified our market leadership through close cooperation with our customers.

 

   

Mobile. Despite weakened conditions in the end-product market due to the effects of the COVID-19 pandemic, we commenced the operation of our newly added production capacity in the second half of the year and, through stable production, we achieved an increase of more than 10% in sales compared to the previous year in this business area. In addition, we began supplying the world’s first plastic OLED panels for automotive displays at the end of 2019, and we are continuing our efforts to increase the sales of automotive display panels and expand the use of plastic OLED products in other business areas.

 

31


Table of Contents

(Unit: In millions of Won)

 

Description

   2020      2019      Changes  

Revenue

     24,230,124        23,475,567        754,557  

Operating profit

     (29,117      (1,359,382      1,330,265  

Profit (loss) before income tax

     (595,098      (3,344,242      2,749,144  

Profit (loss) for the period

     (70,636      (2,872,078      2,801,442  

 

  (a)

Revenue and cost of sales

In 2020, the role and significance of display products became greater as the culture of contactless and remote interactions became prevalent as a new lifestyle, and as demand for television and IT products grew stronger, display panel prices also increased. As a result of such trend and an increase in the proportion of high value-added products in our product mix in light of the acceleration in the transition of our business focus to OLED, our revenue increased by 3.2% compared to 2019. Our cost of sales as a percentage of revenue decreased by 2.9 percentage points from 92.0% in 2019 to 89.1% in 2020, reflecting such transition in our business focus and the increase in the proportion of higher value-added products in our product mix.

(Unit: In millions of Won, except percentages)

 

Description

   2020     2019     Changes  
  Amount     Percentage  

Revenue

     24,230,124       23,475,567       754,557       3.2

Cost of sales

     21,587,554       21,607,240       (19,686     (0.1 )% 

Gross profit

     2,642,570       1,868,327       774,243       41.4

Cost of sales as a percentage of sales

     89.1     92.0     (2.9 )%      —    

 

  (b)

Sales by category

Revenue attributable to sales of panels exhibited varying trends by product category according to changes in product mix, customers and market conditions.

 

Categories

   2020     2019     Difference  

Panels for televisions

     27.7     34.1     (6.4 )% 

Panels for IT products

     41.8     38.6     3.2

Panels for mobile applications and others

     30.5     27.3     3.3

 

  (c)

Production capacity

We downsized certain of our production facilities, primarily relating to large-sized TFT-LCD fabrication facilities with relatively lower profitability in light of intensified competition in the market. As a result, our annual production capacity decreased by approximately 18% as of December 31, 2020 compared to the end of the previous year.

 

  (3)

Financial condition

Our current assets amounted to W11,099 billion as of December 31, 2020, representing an increase of W851 billion from the end of the previous year, and our non-current assets amounted to W23,972 billion as of December 31, 2020, representing a decrease of W1,354 billion from the end of the previous year. Our current liabilities amounted to W11,007 billion as of December 31, 2020, representing an increase of W22 billion from the end of the previous year, and our non-current liabilities amounted to W11,328 billion as of December 31, 2020, representing a decrease of W774 billion from the end of the previous year. Our total equity increased by W249 billion to W12,737 billion as of December 31, 2020 from the end of the previous year, which mainly reflected an increase in paid-in capital attributable to non-controlling interest.

 

32


Table of Contents

(Unit: In millions of Won)

 

Description

   2020      2019      Changes  
   Amount      Percentage  

Current assets

     11,099,470        10,248,315        851,155        8.3

Non-current assets

     23,972,053        25,326,248        (1,354,195      (5.3 )% 

Total assets

     35,071,523        35,574,563        (503,040      (1.4 )% 

Current liabilities

     11,006,948        10,984,976        21,972        0.2

Non-current liabilities

     11,327,636        12,101,306        (773,670      (6.4 )% 

Total liabilities

     22,334,584        23,086,282        (751,698      (3.3 )% 

Share capital

     1,789,079        1,789,079        —          0.0

Share premium

     2,251,113        2,251,113        —          0.0

Retained earnings

     7,524,297        7,503,312        20,985        0.3

Reserves

     (163,446      (203,021      39,575        (19.5 )% 

Non-controlling interest

     1,335,896        1,147,798        188,098        16.4

Total equity

     12,736,939        12,488,281        248,658        2.0

Total liabilities and equity

     35,071,523        35,574,563        (503,040      (1.4 )% 

Due to the re-adjustment of our product mix in light of an expected increase in demand during the first half of 2021, our inventory increased by W120 billion from the end of the previous year to W2,171 billion as of December 31, 2020.

Trade accounts and notes receivable as of December 31, 2020 was W3,518 billion, representing an increase of W363 billion from net trade accounts and notes receivable as of December 31, 2019, mostly reflecting an increase in our sales.

The book value of our total tangible assets as of December 31, 2020 was W20,147 billion, representing a decrease of W1,941 billion from the book value of our total tangible assets as of December 31, 2019. The decrease was due mainly to the significant effect of depreciation of our more recently acquired assets.

Trade accounts and notes payable as of December 31, 2020 was W3,779 billion, representing an increase of W1,161 billion from trade accounts and notes payable as of December 31, 2019.

 

  (4)

Dependence on Key Customers

We sell our products to a select group of key customers, including our largest shareholder, and any significant decrease in their order levels will negatively affect our financial condition and results of operations.

A substantial portion of our sales is attributable to a limited group of end-brand customers and their designated system integrators. Sales attributed to our end-brand customers are for their end-brand products and do not include sales to these customers for their system integration activities for other end-brand products, if any. Our top ten end-brand customers, including LG Electronics Inc., our largest shareholder, together accounted for approximately 77% of our sales in in 2018, 80% in 2019 and 85% in 2020.

We benefit from the strong collaborative relationships we maintain with our end-brand customers by participating in the development of their products and gaining insights about levels of future demand for our products and other industry trends. Customers look to us for a dependable supply of quality products, even during downturns in the industry, and we benefit from the brand recognition of our customers’ end products. The loss of these end-brand customers, as a result of their entering into strategic supplier arrangements with our competitors or otherwise, would thus result not only in reduced sales, but also in the loss of these benefits. We cannot provide assurance that a select group of key end-brand customers, including our largest shareholder, will continue to place orders with us in the future at the same levels as in prior periods, or at all.

 

33


Table of Contents

We expect that we will continue to be dependent upon LG Electronics and its affiliates for a significant portion of our revenue for the foreseeable future. Our results of operations and financial condition could therefore be affected by the overall performance of LG Electronics and its affiliates. Further details of our transactions with LG Electronics and its affiliates are described in Note 29 to our consolidated annual financial statements as of and for the years ended December 31, 2020 and 2019, which were furnished on March 4, 2020 as part of the current report on Form 6-K titled “Submission of Audit Report.”

Our revenue depends on continuing demand for IT products (comprising notebook computers, desktop monitors and tablet computers), televisions and mobile and other application products with panels of the type we produce. Our sales may not grow at the rate we expect if consumers do not purchase these products.

Currently, our total sales are derived principally from customers who use our products in IT products (comprising notebook computers, desktop monitors and tablet computers), televisions and mobile and other application products with display devices. In particular, a substantial percentage of our sales is derived from end-brand customers, or their designated system integrators, who use our panels in their IT products, which accounted for 36.5%, 38.6% and 41.8% of our total revenue in 2018, 2019 and 2020, respectively. A substantial portion of our sales is also derived from end-brand customers, or their designated system integrators, who use our panels in their televisions, which accounted for 40.0%, 34.1% and 27.7% of our total revenue in 2018, 2019 and 2020, respectively, and those who use our panels in their mobile and other applications, which accounted for 23.5%, 27.3% and 30.5% of our total revenue in 2018, 2019 and 2020, respectively. We will continue to be dependent on continuing demand from the IT products industry (comprising the personal computer and tablet computer industries), television industry and the mobile device industry for a substantial portion of our sales. Any downturn in any of those industries in which our customers operate would result in reduced demand for our products, which may in turn result in reduced revenue, lower average selling prices and/or reduced margins.

 

  (5)

Changes in Manufacturing Costs and Difficulties in Securing Supply of Raw Material

If we cannot maintain high capacity utilization rates, our profitability will be adversely affected.

The production of display panels entails high fixed costs resulting from considerable expenditures for the construction of complex fabrication and assembly facilities and the purchase of costly equipment. We aim to maintain high capacity utilization rates so that we can allocate these fixed costs over a greater number of panels produced and realize a higher gross margin. However, due to any number of reasons, including fluctuating demand for our products or overcapacity in the display industry, we may need to reduce production, resulting in lower-than-optimal capacity utilization rates. As such, we cannot provide assurance that we will be able to sustain our capacity utilization rates in the future nor can we provide assurance that we will not reduce our utilization rates in the future as market and industry conditions change.

Limited availability of raw materials, components and manufacturing equipment could materially and adversely affect our business, results of operations or financial condition.

Our production operations depend on obtaining adequate supplies of quality raw materials and components on a timely basis. As a result, it is important for us to control our raw material and component costs and reduce the effects of fluctuations in price and availability. In general, we source most of our raw materials as well as key components, such as glass substrates, driver integrated circuits, polarizers and color filters used in both our TFT-LCD and OLED products, backlight units and liquid crystal materials used in our TFT-LCD products and hole transport materials and emission materials used in our OLED products, from two or more suppliers for each key component. However, we may establish a working relationship with a single supplier if we believe it is advantageous to do so due to performance, quality, support, delivery, capacity, price or other considerations. We may experience shortages in the supply of these key components, as well as other components or raw materials, as a result of, among other things, anticipated capacity expansion in the display industry or our dependence on a limited number of suppliers. Our results of operations would be adversely affected if we were unable to obtain adequate supplies of high-quality raw materials or components in a timely manner or make alternative arrangements for such supplies in a timely manner.

 

34


Table of Contents

Furthermore, we may be limited in our ability to pass on increases in the cost of raw materials and components to our customers. We do not typically enter into binding long-term contracts with our customers, and even in those cases where we do enter into long-term agreements with certain of our major end-brand customers, the price terms are contained in the purchase orders. Except under certain special circumstances, the price terms in the purchase orders are not subject to change. Prices for our products are generally determined through negotiations with our customers, based generally on the complexity of the product specifications and the labor and technology involved in the design or production processes. However, if we become subject to any significant increase in the cost of raw materials or components that were not anticipated when negotiating the price terms after the purchase orders have been placed, we may be unable to pass on such cost increases to our customers.

We have purchased, and expect to purchase, a substantial portion of our equipment from a limited number of qualified foreign and local suppliers. From time to time, increased demand for new equipment may cause lead times to extend beyond those normally required by the equipment vendors. The unavailability of equipment, delays in the delivery of equipment, or the delivery of equipment that does not meet our specifications, could delay implementation of our expansion plans and impair our ability to meet customer orders. This could result in a loss of revenue and cause financial stress on our operations.

 

  (6)

Intangible Assets, Including Intellectual Property, and Research and Development Activities

Our business relies on our patent rights which may be narrowed in scope or found to be invalid or otherwise unenforceable.

Our success will depend, to a significant extent, on our ability to obtain and enforce our patent rights both in Korea and worldwide. The coverage claimed in a patent application can be significantly reduced before a patent is issued, either in Korea or abroad. Consequently, we cannot provide assurance that any of our pending or future patent applications will result in the issuance of patents. Patents issued to us may be subjected to further proceedings limiting their scope and may not provide significant proprietary protection or competitive advantage. Our patents also may be challenged, circumvented, invalidated or deemed unenforceable. In addition, because patent applications in certain countries generally are not published until more than 18 months after they are first filed, and because publication of discoveries in scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were, or any of our licensors was, the first creator of inventions covered by pending patent applications, that we or any of our licensors will be entitled to any rights in purported inventions claimed in pending or future patent applications, or that we were, or any of our licensors was, the first to file patent applications on such inventions.

Furthermore, pending patent applications or patents already issued to us or our licensors may become subject to dispute, and any dispute could be resolved against us. For example, we may become involved in re-examination, reissue or interference proceedings and the result of these proceedings could be the invalidation or substantial narrowing of our patent claims. We also could be subject to court proceedings that could find our patents invalid or unenforceable or could substantially narrow the scope of our patent claims. In addition, depending on the jurisdiction, statutory differences in patentable subject matter may limit the protection we can obtain on some of our inventions.

Failure to protect our intellectual property rights could impair our competitiveness and harm our business and future prospects.

We believe that developing new products and technologies that can be differentiated from those of our competitors is critical to the success of our business. We take active measures to obtain international protection of our intellectual property by obtaining patents and undertaking monitoring activities in our major markets. However, we cannot assure you that the measures we are taking will effectively deter competitors from improper use of our proprietary technologies. Our competitors may misappropriate our intellectual property, disputes as to ownership of intellectual property may arise and our intellectual property may otherwise become known or independently developed by our competitors.

Any failure to protect our intellectual property could impair our competitiveness and harm our business and future prospects.

 

35


Table of Contents

We rely on technology provided by third parties and our business will suffer if we are unable to renew our licensing arrangements with them.

From time to time, we have obtained licenses for patent, copyright, trademark and other intellectual property rights to process and device technologies used in the production of our display panels. We have entered into key licensing arrangements with third parties, for which we have made, and continue to make, periodic license fee payments. In addition, we also have cross-license agreements with certain other third parties. These agreements terminate upon the expiration of the respective terms of the patents.

If we are unable to renew our technology licensing arrangements on acceptable terms, we may lose the legal protection to use certain of the processes we employ to manufacture our products and be prohibited from using those processes, which may prevent us from manufacturing and selling certain of our products, including our key products. In addition, we could be at a disadvantage if our competitors obtain licenses for protected technologies on more favorable terms than we do.

In the future, we may also need to obtain additional patent licenses for new or existing technologies. We cannot provide assurance that these license agreements can be obtained or renewed on acceptable terms or at all, and if not, our business and operating results could be adversely affected.

We rely upon trade secrets and other unpatented proprietary know-how to maintain our competitive position in the display panel industry and any loss of our rights to, or unauthorized disclosure of, our trade secrets or other unpatented proprietary know-how could negatively affect our business.

We also rely upon trade secrets, unpatented proprietary know-how and information, as well as continuing technological innovation in our business. The information we rely upon includes price forecasts, core technology and key customer information. We enter into confidentiality agreements with each of our employees and consultants upon the commencement of an employment or consulting relationship. These agreements generally provide that all inventions, ideas, discoveries, improvements and copyrightable material made or conceived by the individual arising out of the employment or consulting relationship and all confidential information developed or made known to the individual during the term of the relationship is our exclusive property. We cannot provide assurance that these types of agreements will be fully enforceable, or that they will not be breached. We also cannot be certain that we will have adequate remedies for any such breach. The disclosure of our trade secrets or other know-how as a result of such a breach could adversely affect our business. Also, our competitors may come to know about or determine our trade secrets and other proprietary information through a variety of methods. Disputes may arise concerning the ownership of intellectual property or the applicability or enforceability of our confidentiality agreements, and there can be no assurance that any such disputes would be resolved in our favor. Furthermore, others may acquire or independently develop similar technology, or if patents are not issued with respect to technologies arising from our research, we may not be able to maintain information pertinent to such research as proprietary technology or trade secrets and that could have an adverse effect on our competitive position within the display panel industry.

We have designated R&D organizations for our research and development activities.

Our research organizations consist of the infrastructure technology research center and designated departments, all of which are overseen by our chief technology officer. Our research organizations conduct research on differentiated and next-generation technologies and basic infrastructure technology as well as enhances our competitiveness by conducting research that is geared toward future product development. Our development organization comprises of groups and departments dedicated to the development of a wide range of television, IT and mobile products, including product-specific circuits, instrument/optics and panel design.

Our research and development related expenditures amounted to W1,739 billion in 2020, a decrease of W38 billion from 2019. We plan to continue investing in research and development activities in the future.

The book value of our intangible assets increased by W147 billion compared to the previous year to W1,020 billion as of December 31, 2020.

 

36


Table of Contents
  (7)

Sensitivity to Exchange Rates and Inflation

There has been considerable volatility in foreign exchange rates in recent years, including rates between the Korean Won and the U.S. dollar, between the Korean Won and the Chinese Yuan and between the Korean Won and the Japanese Yen. To the extent that we incur costs in one currency and make sales in another, our profit margins may be affected by changes in the exchange rates between the two currencies.

Our sales of display panels are denominated mainly in U.S. dollars, whereas our purchases of raw materials are denominated mainly in U.S. dollars, Japanese Yen and Chinese Yuan. Our expenditures on capital equipment are primarily denominated in Korean Won, U.S. dollars, Chinese Yuan and Japanese Yen. Accordingly, fluctuations in exchange rates, in particular between the U.S. dollar and the Korean Won, between the Chinese Yuan and the Korean Won as well as between the Japanese Yen and the Korean Won, affect our pre-tax income, and in recent years, the value of the Won relative to the U.S. dollar, Chinese Yuan and Japanese Yen has fluctuated widely. Although a depreciation of the Korean Won against the U.S. dollar increases the Korean Won value of our export sales and enhances the price-competitiveness of our products in foreign markets in U.S. dollar terms, it also increases the cost of imported raw materials and components in Korean Won terms and our cost in Korean Won of servicing our U.S. dollar denominated debt. A depreciation of the Korean Won against the Chinese Yuan or Japanese Yen increases the Korean Won cost of our Chinese Yuan- or Japanese Yen-denominated purchases of equipment, raw materials or components, as applicable, and, to the extent we have any debt denominated in Chinese Yuan or Japanese Yen, our cost in Korean Won of servicing such debt, but has relatively little impact on our sales as most of our sales are denominated in U.S. dollars. In addition, continued exchange rate volatility may also result in foreign exchange losses for us. Although a depreciation of the Korean Won against the U.S. dollar, in general, has a net positive impact on our results of operations that more than offsets the net negative impact caused by a depreciation of the Korean Won against the Chinese Yuan or Japanese Yen, we cannot provide assurance that the exchange rate of the Korean Won against foreign currencies will not be subject to significant fluctuations, or that the impact of such fluctuations will not adversely affect the results of our operations.

 

  (8)

Changes in Organization and Business Reorganization

In order to secure the fundamental competitiveness of our businesses and to seek sustainable growth, we are accelerating the transition of our business focus to the OLED business, while simultaneously pursuing activities to restructure our LCD business. From the overall organizational level, we are in the process of establishing an organizational structure geared towards providing value innovations to customers and achieving differentiated competitive strengths and enhanced profitability of our OLED business.

 

  D.

Liquidity and capital resources

 

  (1)

Liquidity

Our main source for the procurement of funds include operations and financing activities. As of December 31, 2019 and 2020, our cash and cash equivalents amounted to W3,336 billion and W4,218 billion, respectively, and short-term deposits in banks amounted to W79 billion and W79 billion, respectively. Our primary use of cash has been to fund capital expenditures related to the expansion and improvement of our production capacity with respect to existing and newly developed products, including the construction and ramping-up of new, or in certain cases, expansion or conversion of existing, fabrication facilities and production lines and the acquisition of new equipment. We also use cash flows from operations for our working capital requirements and servicing our debt payments. We expect our cash requirements for 2021 to be primarily for capital expenditures and repayment of maturing debt.

 

37


Table of Contents

The details of the consolidated cash and cash equivalents and deposits in banks as of December 31, 2019 and 2020 are as follows:

(Unit: in millions of won)

 

Description

   2020      2019  

Current assets

     

Cash and cash equivalents

     

Cash

     156        375  

Demand deposits

     4,217,943        3,335,628  

Deposits in banks

     

Time deposits

     1,800        1,500  

Restricted cash (1)

     76,852        77,257  
  

 

 

    

 

 

 

Total current assets

     4,296,751        3,414,760  
  

 

 

    

 

 

 

Non-current assets

     

Deposits in banks

     

Restricted cash (1)

     11        11  
  

 

 

    

 

 

 

Total non-current assets

     11        11  
  

 

 

    

 

 

 

Total

     4,296,762        3,414,771  
  

 

 

    

 

 

 

 

(1)

Restricted cash includes mutual growth fund to aid LG Group’s suppliers, pledge to enforce investment plans following receipt of subsidies from Gumi city and Gyeongsangbuk-do and others.

(Unit: in millions of won)

 

Description

   2020      2019      Changes  
   Amount      Percentage  

Current assets

     11,099,470        10,248,315        851,155        8.3

Current liabilities

     11,006,948        10,984,976        21,972        0.2

Net current assets

     92,522        (736,661      829,183        112.6

As of December 31, 2019, our current assets and current liabilities amounted to W10,248 billion and W10,985 billion, respectively, resulting in net current liabilities of W737 billion. As of December 31, 2020, our current assets and current liabilities amounted to W11,099 billion and W11,007 billion, respectively, resulting in net current assets of W93 billion.

 

  (2)

Financial liabilities and capital resources

We need to observe certain financial and other covenants under the terms of our debt obligations, the failure to comply with which would put us in default under such debt obligations.

We are subject to financial and other covenants, including maintenance of credit ratings and debt-to-equity ratios, under certain of our debt obligations. The documentation for such debt also contains negative pledge provisions limiting our ability to provide liens on our assets as well as cross-default and cross-acceleration clauses, which give related creditors the right to accelerate the amounts due under such debt if an event of default or acceleration has occurred with respect to our existing or future indebtedness, or if any material part of our indebtedness or indebtedness of our subsidiaries is capable of being declared payable before the stated maturity date. In addition, such covenants restrict our ability to raise future debt financing.

If we breach the financial or other covenants contained in the documentation governing our debt obligations, our financial condition will be adversely affected to the extent we are not able to cure such breaches, obtain a waiver from the relevant lenders or debtholders or repay the relevant debt.

As of December 31, 2020, we had agreements with several banks for accounts receivable sales negotiating facilities of up to an aggregate of US$1,115 million in connection with our export sales transactions, and our subsidiaries also have various such arrangements.

As of December 31, 2019 and 2020, W697 billion and W395 billion of short-term borrowings were outstanding, respectively.

As of December 31, 2020, our long-term borrowings, including the current portion of long-term debt and the discount on bonds, amounted to W13,674 billion, which mainly consist of bonds of W2,772 billion, long-term debt denominated in foreign currencies of W7,629 billion and long-term debt denominated in Won of W3,273 billion.

 

38


Table of Contents

Some of our long-term borrowings may include covenants with acceleration rights. If an event of default occurs from failure to comply with the agreed financial ratios or cross-default occurs as a result of a breach of other debt obligations, the principal amount and interest may be subject to early repayment. As of December 31, 2020, we have complied with applicable financial and other covenants contained in the documentation governing our debt obligations.

Our financial liabilities and capital resources are as follows:

 

  (a)

Financial liabilities

Our financial liabilities amounted to W14,320 billion in 2020, representing an increase of W730 billion from 2019.

(Unit: in millions of won)

 

Description

   2020      2019  

Current financial liabilities

 

Short-term borrowings

     394,906        696,793  

Current portion of long-term borrowings

     2,705,709        1,242,904  

Derivatives(*)

     58,875        —    

Lease liabilities

     35,534        37,387  

Sub-total

     3,195,024        1,977,084  

Non-current financial liabilities

 

Won denominated borrowings

     2,435,000        2,692,560  

Foreign currency denominated borrowings

     6,584,658        6,107,117  

Bonds

     1,948,541        2,741,516  

Derivatives(*)

     108,750        20,592  

Lease liabilities

     47,897        51,125  
  

 

 

    

 

 

 

Sub-total

     11,124,846        11,612,910  
  

 

 

    

 

 

 

Total

     14,319,870        13,589,994  
  

 

 

    

 

 

 

 

(*)

Represents derivatives that have not been recognized as hedging instruments and have resulted from currency interest rate swap contracts entered into in order to manage risks arising from foreign currency denominated borrowings and foreign currency denominated bonds.

 

  (b)

Capital resources

Set forth below are the details of our procurement of funds as of December 31, 2020.

(Unit: In millions of Won or millions of other currency except percentages)

 

Short Term Borrowings

 

Lender

   Purpose      Interest rate as of December 31,
2020 (%)
     2020      2019  

Standard Chartered Bank Korea

    

Import
invoice
financing
 
 
 
     12-month LIBOR + 0.98        326,400        347,340  

Standard Chartered Bank Vietnam, etc.

    

Working
capital
loan
 
 
 
    
3-month LIBOR +
0.80~0.90
 
 
     68,506        61,613  

Standard Chartered Bank China, etc.

    

Working
capital
loan
 
 
 
     —          —          287,840  
        

 

 

    

 

 

 

Equivalent amount in applicable foreign currency

           US$363        US$353, CNY1,737  
        

 

 

    

 

 

 

Total

           394,906        696,793  
        

 

 

    

 

 

 

 

39


Table of Contents

Long-term borrowings denominated in Won

Lender

   Purpose     

Interest rate as of December 31,

2020 (%)

   2020     2019  

Woori Bank

     Policy loan      2.75      60       608  

Korea Development Bank, etc.

     Facility loan     

CD(**) interest rate (91 days) + 1.00~1.60,

2.21~3.40

     3,272,500       3,330,000  

Less: current portion

     (837,560     (638,048
        

 

 

   

 

 

 

Total

     2,435,000       2,692,560  
        

 

 

   

 

 

 

Long-term borrowings denominated in foreign currencies

 

Lender

   Purpose     

Interest rate as of December 31,

2020 (%)

   2020     2019  

Korea Export-Import Bank, etc.

     Facility loan     

3-month LIBOR + 0.75~2.40 /

6-month LIBOR + 1.25~1.35

     1,680,960       1,696,177  

China Construction Bank, etc.

     Facility loan     

US$: 3-month LIBOR + 0.80~1.43;
CNY: 5-year LPR(**) + 0.44 /

1-year LPR – 0.15 ~ + 0.50 /

4.70

     5,948,472       4,606,094  

Equivalent amount in applicable foreign currency

    
US$2,742,
CNY27,825
 
 
   
US$2,767,
CNY18,699

 

Less: current portion

     (1,044,774     (195,154
        

 

 

   

 

 

 

Total

     6,584,658       6,107,117  
        

 

 

   

 

 

 

Bonds denominated in Won net of amortization

 

Type

   Maturity     

Interest rate as of December 31,

2020 (%)

   2020     2019  

Public Offering

    
Feb. 2021 ~
Feb. 2024

 
   1.95~2.95      1,320,000       1,730,000  

Private Offering

    
May 2022 ~
May 2033

 
   3.25~4.25      160,000       110,000  

Less: original issue discount

     (1,798     (3,404

Less: current portion

     (499,796     (409,702
        

 

 

   

 

 

 

Total

     978,406       1,426,894  
        

 

 

   

 

 

 

Bonds denominated in foreign currencies net of amortization

 

Type

   Maturity     

Interest rate as of December 31,

2020 (%)

   2020     2019  

Public Offering

     Nov. 2021      3.88      326,400       347,340  

Private Offering

     Apr. 2023      3-month LIBOR + 1.47      108,800       115,780  

Equivalent amount in applicable foreign currency

     US$400       US$400  

Less: original issue discount

     (3,161     (6,883

Less: current portion

     (323,579     —    
        

 

 

   

 

 

 

Total

     108,460       456,237  
        

 

 

   

 

 

 

Financial liabilities at fair value through profit or loss

 

Type

   Maturity     

Interest rate as of December 31,

2020 (%)

   2020     2019  

Foreign currency convertible bonds

     Aug. 2024      1.50      861,675       858,385  

Equivalent amount in applicable foreign currency

           US$792       US$741  

 

(*)

Represents certificates of deposit.

(**)

Represents the People’s Bank of China’s Loan Prime Rate.

 

40


Table of Contents

Set forth below are the details of our convertible bonds as of December 31, 2020.

 

Categories

  

Content

Type of bond    Registered unsecured foreign currency-denominated convertible bonds
Issue amount    US$687,800,000
Annual interest rate (%)    1.50
Issue date    August 22, 2019
Maturity date    August 22, 2024
Interest payment    Payable semi-annually in arrear until maturity date in equal installments
Principal redemption   

1. Redemption at maturity:

 

Redeemed on the maturity date, at their outstanding principal amount, which has not been redeemed early or converted

 

2. Early redemption:

 

Payment of the principal and interest accrued up to the expected repayment date upon the exercise of the company’s call option or the bondholder’s put option

Conversion price    W19,845 per common share (subject to adjustment based on dilutive effects of certain events)
Conversion period    August 23, 2020 ~ August 12, 2024
Redemption at the option of the issuer (Call option)   

—   On or at any time after three years from the issue date, if the closing price of our common shares for any 20 trading days out of the 30 consecutive trading days is at least 130% of the applicable conversion price;

 

—   The aggregate principal amount of the convertible bonds outstanding is less than 10% of the aggregate principal amount originally issued; or

 

—   In the event of certain changes in laws and other directives resulting in additional taxes

Redemption at the option of the bondholders (Put option)   

—   On the date which is three years from the issue date

We designated the convertible bonds as financial liabilities at fair value through profit of loss and recognized the change in its fair value in our income statement. We measure the fair value of the convertible bonds using the market price of convertible bonds disclosed on Bloomberg. Set forth below is certain information regarding our common shares subject to conversion under the terms of the convertible bonds as of December 31, 2020:

 

41


Table of Contents

Categories

  

2020

Aggregate outstanding amount of the convertible bonds

  

W813,426,670,000

Conversion price

  

W19,845

Number of common shares subject to conversion

  

40,988,998 shares

Set forth below are the cash flows on our borrowings by maturity, including interest payable thereon. We do not expect that such cash outflows will occur materially earlier than, or be materially different in amounts from, as indicated below.

(Unit: In millions of Won or millions of other currency)

 

Categories

   Book value      Contractual cash flows  
   Total      Within 6
months
     6~12
months
     1~2 years      2~5 years      Over 5
years
 

Borrowings

     11,296,898        12,201,452        1,672,931        942,835        2,753,807        6,375,984        455,895  

Bonds

     2,771,916        2,786,822        327,489        551,540        1,379,750        435,757        92,286  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     14,068,814        14,988,274        2,000,420        1,494,375        4,133,557        6,811,741        548,181  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (3)

Cash usage

Our management constantly monitors our working capital, and we have historically been able to satisfy our cash requirements from cash flows from operations and debt financing. As of December 31, 2020, we believe that we have sufficient working capital for our present requirements.

Our ability to satisfy our cash requirements from cash flows from operations and financing activities will be affected by our ability to maintain and improve our margins and, in the case of external financing, market conditions, which in turn may be affected by several factors outside of our control. Therefore, we re-evaluate our capital requirements regularly in light of our cash flows from operations, the progress of our expansion plans and market conditions. To the extent that we do not generate sufficient cash flows from our operations to meet our capital requirements, we may rely on other financing activities, such as external long-term borrowings and securities offerings, including the issuance of equity, equity-linked and other debt securities.

Our net cash from operating activities amounted to W2,707 billion in 2019 and W2,287 billion in 2020. The decrease in net cash provided by operating activities in 2020 compared to 2019 was mainly due to changes in working capital.

Our net cash used in investing activities amounted to W6,755 billion in 2019 and W2,319 billion in 2020. Net cash used in investing activities primarily reflected the expansion and conversion of our existing production facilities and construction of our new facilities centered on OLED products. These cash outflows from capital expenditures amounted to W6,927 billion in 2019 and W2,604 billion in 2020. We intend to fund our capital requirements associated with our expansion and construction projects with cash flows from operations and financing activities, such as external long-term borrowings.

In 2020, our capital expenditures were significantly less compared to 2019. Our previously announced investments will primarily focus on investments related to facilities for OLED panels. However, our overall expenditure levels and our allocation among projects are subject to many uncertainties. We review the amount of our capital expenditures and may make adjustments from time to time based on the size of cash flows from operations and market conditions.

 

42


Table of Contents

Our net cash provided by financing activities amounted to W4,988 billion in 2019 and W932 billion in 2020. The net cash provided by financing activities in 2019 and 2020 primarily reflect long-term borrowings incurred during such periods.

(Unit: In millions of Won)

 

Description

   2020      2019      Changes  

Net cash provided by operating activities

     2,286,948        2,706,545        (419,597

Net cash used in investing activities

     (2,319,316      (6,755,393      4,436,077  

Net cash provided by financing activities

     931,829        4,987,902        (4,056,073

Cash and cash equivalents at December 31,

     4,218,099        3,336,003        882,096  

 

16.

Board of Directors

 

  A.

Members of the board of directors

As of December 31, 2020, our board of directors consisted of two non-outside directors, one non-standing director and four outside directors.

(As of December 31, 2020)

 

Name

  

Position

  

Primary responsibility

James (Hoyoung) Jeong(1)    Representative Director (non-outside), Chief Executive Officer and President   

Overall head of business management

Donghee Suh(2)    Director (non-outside), Chief Financial Officer and Senior Vice President   

Overall head of finances

Young-Soo Kwon    Director (non-standing)   

Chairman of the board of directors

Sung-Sik Hwang    Outside Director   

Related to the overall management

Kun Tai Han    Outside Director   

Related to the overall management

Byung Ho Lee    Outside Director   

Related to the overall management

Chang-Yang Lee    Outside Director   

Related to the overall management

 

(1)

James (Hoyoung) Jeong was newly appointed as a non-outside director at the annual general meeting of shareholders and as the representative director at the board of directors’ meeting, both held on March 20, 2020.

(2)

Donghee Suh was reappointed for another term as a non-outside director at the annual general meeting of shareholders held on March 20, 2020.

 

  B.

Committees of the board of directors

We have the following committees that serve under our board of directors: Audit Committee, Outside Director Nomination Committee and Management Committee. As of December 31, 2020, the Management Committee consisted of two non-outside directors, James (Hoyoung) Jeong and Donghee Suh.

As of March 20, 2020, the composition of the Outside Director Nomination Committee was as follows.

(As of March 20, 2020)

 

Committee

  

Composition

  

Member

Outside Director Nomination Committee(1)

   1 non-standing director and 2 outside directors    Young-Soo Kwon, Kun Tai Han, Chang-Yang Lee
(1)

Each of Young-Soo Kwon, Kun Tai Han, Chang-Yang Lee was appointed as a member of the outside director nomination committee of the board of directors at the board of directors’ meeting on March 20, 2020.

 

43


Table of Contents

As of December 31, 2020, the composition of the Audit Committee was as follows.

(As of the date of this report)

 

Committee

  

Composition

  

Member

Audit Committee

   3 outside directors    Sung-Sik Hwang(1), Kun Tai Han, Chang-Yang Lee

 

(1)

Sung-Sik Hwang is the audit committee chairman.

 

  C.

Independence of directors

Directors are appointed in accordance with the procedures of the Commercial Act and other relevant laws and regulations. Our board of directors is independent as four out of the seven directors that comprise the board are outside directors. Outside directors candidates are nominated for appointment at a shareholders’ meeting after undergoing rigorous review by the Outside Director Nomination Committee.

All of our current outside directors were nominated by the Outside Director Nomination Committee, and all of our current non-outside directors were nominated by the board of directors.

 

17.

Information Regarding Shares

 

  A.

Total number of shares

 

  (1)

Total number of shares authorized to be issued (as of December 31, 2020): 500,000,000 shares.

 

  (2)

Total shares issued and outstanding (as of December 31, 2020): 357,815,700 shares.

 

  B.

Shareholder list

 

  (1)

Largest shareholder and related parties as of December 31, 2020:

 

Name

  

Relationship

   Number of shares
of common stock
     Equity
interest
 

LG Electronics

   Largest shareholder      135,625,000        37.9

James (Hoyoung) Jeong

   Registered director of member company      10,000        0.0

Donghee Suh

   Registered director of member company      9,000        0.0

 

  (2)

Shareholders who are known to us that own 5% or more of our shares as of December 31, 2020:

 

Beneficial owner

   Number of shares
of common stock
   Equity
interest

LG Electronics

   135,625,000    37.90%

National Pension Service

   18,862,707    5.27%

 

44


Table of Contents
18.

Directors and Employees

 

  A.

Directors

 

  (1)

Remuneration for directors in 2020:

(Unit: person, in millions of Won)

 

Classification

   No. of directors(1)      Amount paid     Per capita average
remuneration paid(2)
 

Non-outside directors

     3        1,917 (3)      639  

Outside directors who are not audit committee members

     1        78       78  

Outside directors who are audit committee members

     3        234       78  
  

 

 

    

 

 

   

 

 

 

Total

     7        2,229       318  
  

 

 

    

 

 

   

 

 

 

 

(1)

Number of directors as at December 31, 2020.

(2)

Per capita average remuneration paid is calculated by dividing total amount paid by the average number of directors for the year ended December 31, 2020.

(3)

Due to Mr. Sang Beom Han’s resignation as a non-outside director and Mr. James (Hoyoung) Jeong’s nomination as a non-outside director at the annual general meeting of shareholders held on March 20, 2020, the amount paid to non-outside directors includes the remuneration paid to both directors (but only with respect to the period in which such directors served as our non-outside directors).

 

  (2)

Standards of remuneration paid to non-outside and outside directors

 

   

Non-outside directors (excluding outside directors and audit committee members)

The remuneration system for non-outside directors consists of base salary, position salary and performance-related pay. The remuneration for non-outside directors is measured in accordance with the standards established by the board of directors (within the amount approved at the annual general meeting of shareholders), including the non-outside director’s position and job responsibilities.

 

   

Standards for base salary/position salary: relevant position and job responsibilities, among others

 

   

Standards for performance-related pay: financial performance of the company and achievement of individual management goals, among others

 

   

Outside directors, audit committee members and auditor

The remuneration for outside directors, audit committee members and auditor is measured in accordance with the standards established by the board of directors (within the amount approved at the annual general meeting of shareholders), including the individual’s job responsibilities, among others.

 

  (3)

Remuneration for individual directors and audit committee members

 

   

Individual amount of remuneration paid in 2020 (among those paid over W500 million per year)

(Unit: in millions of Won)

 

Name(*)

   Position    Total remuneration   Payment not included in
total remuneration

James (Hoyoung) Jung

   Chief Executive Officer    1,317(**)   —  

 

*

Information relating to Mr. Sang Beom Han is omitted, as remuneration for Mr. Han for the period in which he served as our director was less than W500 million.

**

Remuneration for Mr. James (Hoyoung) Jung for the period in which he served as our director was W1,098 million.

 

45


Table of Contents
   

Method of calculation

 

Name

  

Method of calculation

James (Hoyoung) Jeong   

Total remuneration

 

•  W1,317 million.

 

Salary

 

•  Base salary is set in accordance with the executive compensation regulations established by the board of directors. Monthly payments of W60.9 million between January and December were made.

 

•  Position salary is calculated based on the significance of the position and responsibilities of the job. Monthly payments of W48.7 million between January and December were made.

 

•  A total of W1.6 million of welfare benefits were paid on an annual basis in accordance with welfare benefits standards.

 

  (4)

Remuneration for the five highest paid individuals (among those paid over W500 million per year)

 

   

Individual remuneration amount

(Unit: in millions of Won)

 

Name

   Position    Total remuneration      Payment not included in
total remuneration
 
Sang Beom Han    Senior Advisor      5,194        —    
Kyung Ho Lee    Advisor      1,530        —    
James (Hoyoung) Jeong    Chief Executive Officer      1,317        —    
Chul Gu Lee    Advisor      1,289        —    
Sang Hoon Lee    Advisor      1,122        —    

 

   

Method of calculation

 

Name

  

Method of calculation

Sang Beom Han   

Total remuneration

 

•  W5,194 million (consisting of W728 million in salary and W4,466 million in retirement pay).

 

Salary

 

•  Base salary is set in accordance with the executive compensation regulations established by the board of directors. Monthly payments of W71.6 million between January and March and W35.8 million between April and December were made.

 

•  Position salary is calculated based on the significance of the position and responsibilities of the job. Monthly payments of W57 million between January and March were made.

 

•  A total of W18 million of welfare benefits were paid on an annual basis in accordance with other welfare benefits standards.

 

Retirement pay

 

•  Retirement pay is calculated in accordance with the applicable provisions of our regulations on compensation for retiring executives and is evaluated by the duration of employment (18 years), monthly base salary at the time of retirement and payment rate per position (2.5 to 4.5%).

 

46


Table of Contents
Kyung Ho Lee(1)   

Total remuneration

 

•  W1,530 million (consisting of W226 million in salary and W1,304 million in retirement pay).

 

Salary

 

•  Base salary is set in accordance with the executive compensation regulations established by the board of directors. Monthly payments of W29.6 million between January and March and W14.8 million between April and December were made.

 

•  A total of W3.8 million of welfare benefits were paid on an annual basis in accordance with other welfare benefits standards.

 

Retirement pay

 

•  Retirement pay is calculated in accordance with the applicable provisions of our regulations on compensation for retiring executives and is evaluated by the duration of employment (16 years), monthly base salary at the time of retirement and payment rate per position (2.5 to 4.5%).

 

James (Hoyoung) Jeong   

Total remuneration

 

•  W1,317 million.

 

Salary

 

•  Base salary is set in accordance with the executive compensation regulations established by the board of directors. Monthly payments of W60.9 million between January and December were made.

 

•  Position salary is calculated based on the significance of the position and responsibilities of the job. Monthly payments of W48.7 million between January and December were made.

 

•  A total of W1.6 million of welfare benefits were paid on an annual basis in accordance with welfare benefits standards.

 

Chul Gu Lee(1)   

Total remuneration

 

•  W1,289 million (consisting of W246 million in salary and W1,043 million in retirement pay).

 

Salary

 

•  Base salary is set in accordance with the executive compensation regulations established by the board of directors. Monthly payments of W29.6 million between January and March and W14.8 million between April and December were made.

 

•  A total of W24 million of welfare benefits were paid on an annual basis in accordance with other welfare benefits standards.

 

Retirement pay

 

•  Retirement pay is calculated in accordance with the applicable provisions of our regulations on compensation for retiring executives and is evaluated by the duration of employment (13 years), monthly base salary at the time of retirement and payment rate per position (2.5 to 4.5%).

 

47


Table of Contents
Sang Hoon Lee(1)   

Total remuneration

 

•  W1,122 million (consisting of W227 million in salary and W895 million in retirement pay).

 

Salary

 

•  Base salary is set in accordance with the executive compensation regulations established by the board of directors. Monthly payments of W29.6 million between January and March and W14.8 million between April and December were made.

 

•  A total of W4.8 million of welfare benefits were paid on an annual basis in accordance with other welfare benefits standards.

 

Retirement pay

 

•  Retirement pay is calculated in accordance with the applicable provisions of our regulations on compensation for retiring executives and is evaluated by the duration of employment (11 years), monthly base salary at the time of retirement and payment rate per position (2.5 to 4.5%).

 

(1)

Mssrs. Sang Beom Han, Kyung Ho Lee, Chul Gu Lee, and Sang Hoon Lee are former officers who retired from our company effective as of March 31, 2020.

 

  (5)

Stock options

Not applicable.

 

  B.

Employees

As of December 31, 2020, we had 25,980 employees (excluding our directors). On average, our male employees have served 11.9 years and our female employees have served 9.8 years. The total amount of salary paid to our employees for the year ended December 31, 2020 based on income tax statements submitted to the Korean tax authority in accordance with Article 20 of the Income Tax Act was W1,602,359 million for our male employees and W221,579 million for our female employees. The following table provides details of our employees as of December 31, 2020:

(Unit: person, in millions of Won, year)

 

     Number of
employees(1)
     Total salary
in 2020(2)(3)(4)
     Average
salary per
capita(5)
     Average
years of
service
 

Male

     21,932        1,602,359        73        11.9  

Female

     4,048        221,579        54        9.8  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     25,980        1,823,938        70        11.6  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Includes part-time employees hired for temporary needs or to serve as temporary replacements for employees on parental leave.

(2)

Welfare benefits and retirement expenses have been excluded. Total welfare benefit provided to our employees for the year ended December 31, 2020 was W323,707 million and the per capita welfare benefit provided was W12.5 million.

(3)

Based on income tax statements, which are submitted to the Korean tax authority in accordance with Article 20 of the Income Tax Act.

(4)

Includes incentive payments to employees who have transferred from our affiliated companies.

(5)

Calculated using the cumulative salary and the average number of employees (male: 22,086, female: 4,077) for the year ended December 31, 2020.

In December 2017, we were audited by the Ministry of Employment and Labor regarding our human resource practices (including in relation to employment contracts, hours of work, outsourcing and employees in pregnancy), and we were found to be in violation of certain provisions of the Labor Standard Act relating to overtime, night and holiday work. As a result, we were issued a corrective order in January 2018 and paid additional overtime wages of W2,893 million to 16,106 administrative employees of our Paju facilities for their nighttime work between January 1, 2015 to December 31, 2017. In addition, we reviewed nighttime work records of our administrative employees outside of our Paju facilities during the same period and paid additional overtime wages of W2,166 million to eligible employees. In order to prevent such violation from occurring again, we are periodically monitoring the nighttime work records of our employees.

From December 2017 to January 2018, we were audited by the Ministry of Employment and Labor regarding our human resource practices relating to temporary and part-time employees, and we were found to have omitted certain required information (including the number of break hours and vacation days) in the employment contracts of 82 temporary employees. As a result, we were assessed a fine of W27 million, which we subsequently paid. In order to prevent such violation from occurring again, we have amended the relevant provisions of the applicable employment contracts.

 

48


Table of Contents
19.

Other Matters

 

  A.

Legal proceedings

We are a defendant in three separate civil lawsuits (comprising one damages claim in the United Kingdom filed by private plaintiffs, one damages claim in Israel filed by private plaintiffs and one unjust enrichment claim in the United States filed by the Commonwealth of Puerto Rico) filed against us and certain other TFT-LCD panel manufacturers in connection with alleged anticompetitive behavior of the defendants. In each of these cases, the amount being sought has not been determined, and no trial has been scheduled. While the expected outcome of each of these cases is unclear, we do not believe that any of these cases would have a material effect on our financial conditions.

We have also been a defendant in four patent infringement lawsuits (two in the United States, one in Germany and one in China) filed against us and certain other set manufacturers by Solas OLED Ltd. With respect to each of these cases, we have entered into a Settlement and License Agreement with the plaintiff in December 2020. The plaintiff withdrew its claim in China in January 2021 and its claim in Germany in February 2021. We expect the plaintiff to also withdraw its claim in each of the two cases in the United States.

 

  B.

Material events subsequent to the reporting period

None.

 

49


Table of Contents

LG DISPLAY CO., LTD. AND SUBSIDIARIES

Consolidated Financial Statements

For the Years Ended December 31, 2020 and 2019

(With Independent Auditors’ Report Thereon)

 

50


Table of Contents


Table of Contents

Independent Auditors’ Report

Based on a report originally issued in Korean

To the Shareholders and Board of Directors

LG Display Co., Ltd.:

Opinion

We have audited the accompanying consolidated financial statements of LG Display Co., Ltd. and its subsidiaries (the “Group”), which comprise the consolidated statements of financial position of the Group as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income (loss), changes in equity and cash flows for the years then ended, and notes to the consolidated financial statements comprising significant accounting policies and other explanatory information.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2020 and 2019, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with Korean International Financial Reporting Standards (“K-IFRS”).

Basis for Opinion

We conducted our audits in accordance with Korean Standards on Auditing. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in the Republic of Korea, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements as of and for the year ended December 31, 2020. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

(i)

Impairment test for Display CGU

As discussed in Notes 3(j), 9 and 10 to the consolidated financial statements, the goodwill of W45,531 million is allocated to the Group’s Display CGU. The Group’s non-financial assets as of December 31, 2020 amount to W21,167,139 million, and a large portion of which are related to the Display CGU. The recoverable amount used by the Group in impairment test of the Display CGU is value in use based on discounted cash flow model. As a result of impairment test for Display CGU, the Group concluded that recoverable amount exceeds the carrying amount.

We identified impairment test for Display CGU as a key audit matter. Revenue and operating expenditures for the forecast period, growth rates for subsequent years (“terminal growth rate”), and discount rate used to estimate value in use for impairment test of Display CGU involve significant judgement and minor changes would have a significant effect on the results of the Group’s impairment test of Display CGU.

 

52


Table of Contents

The primary procedures we performed to address the impairment test for Display CGU include followings:

 

   

We tested certain internal controls over the Group’s non-financial assets impairment test process, including controls related to development of the revenue and operating expenditures forecasts, terminal growth rate and discount rate assumptions for Display CGU.

 

   

We compared the Group’s historical revenue and operating expenditures forecasts to actual results to assess the Group’s ability to accurately forecast.

 

   

We evaluated the revenue and operating expenditures forecasts used to determine the value in use by comparison with the financial budgets approved by the board of directors.

 

   

We performed sensitivity analysis over the terminal growth rate and discount rate assumptions to assess their impact on the Group’s impairment test.

 

   

We involved our valuation professionals with specialized skills and knowledge who assisted us in the following:

 

   

testing discount rate by comparing them against independently developed rates using publicly available market data for comparable entities; and

 

   

testing revenue, operating expenditures forecasts and terminal growth rate by comparing them against analyst reports and industry reports.

 

(ii)

Assessment of recognition of deferred tax assets

As discussed in Note 24 to the consolidated financial statements, the deferred tax assets arise primarily due to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as, unused tax losses and tax credit carryforwards. The assessment of the recognition of these deferred tax assets is dependent on the generation of future taxable income of the Group. As of December 31, 2020, the Group had W2,273,677 million of deferred tax assets in the consolidated statement of financial position and W230,768 million of unrecognized tax credit carryforwards as of December 31, 2020, primarily related to LG Display Co., Ltd.

We identified the assessment of the recognition of the deferred tax assets as a key audit matter because it involves high degree of subjective management judgment in estimating future taxable profits over the periods in which the above mentioned differences become deductible and within the periods before the unused tax losses and tax credit forwards expire and the feasibility of planned tax strategies. The subjectivity is primarily driven by the Group’s assumptions in revenue, operating expenditures and subsidiaries’ dividend distribution, which are used to estimate the forecasted taxable income in the future.

The primary procedures we performed to address the assessment of recognition of deferred tax assets include followings:

 

   

We tested certain internal controls relating to the Group’s deferred tax assets recognition process, including controls related to the development of assumptions in determining the future taxable income and subsidiaries’ dividend distribution for each year.

 

   

We analyzed the Group’s estimates of taxable income, including analyzing the Group’s forecasted revenue and operating expense by comparing them with the financial budgets approved by the board of directors and historical performance.

 

   

We compared the forecasts of taxable income and timing of utilization of tax losses and tax credit carryforwards in prior years to actual results to assess the Group’s ability to accurately forecast.

 

   

We also evaluated the Group’s assessment on the history of realizing deferred tax assets in connection with the unused tax losses carryforwards and collecting declared subsidiaries’ dividends in connection with the development of assumptions in determining subsidiaries’ dividend distribution.

 

   

We involved tax professionals with specialized skills and knowledge who assisted in assessing the feasibility of planned tax strategies when recognizing deferred tax assets.

Other matter

The procedures and practices utilized in the Republic of Korea to audit such consolidated financial statements may differ from those generally accepted and applied in other countries.

 

53


Table of Contents

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with K-IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing these consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether theses consolidated financial statements as a whole are free from material misstatements, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Korean Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Korean Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 

   

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control.

 

   

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

 

   

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

 

   

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, then we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern.

 

   

Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

   

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

54


Table of Contents

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditors’ report is Sang Hyun Han.

KPMG Samjong Accounting Corp.

Seoul, Korea

March 3, 2021

 

This report is effective as of March 3, 2021, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

 

55


Table of Contents

LG DISPLAY CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Financial Position

As of December 31, 2020 and 2019

 

(In millions of won)    Note      December 31, 2020     December 31, 2019  

Assets

       

Cash and cash equivalents

     4, 26      W 4,218,099     3,336,003

Deposits in banks

     4, 26        78,652     78,757

Trade accounts and notes receivable, net

     5, 14, 26, 29        3,517,512     3,154,080

Other accounts receivable, net

     5, 26        144,480     474,048

Other current financial assets

     6, 26, 27        52,403     70,945

Inventories

     7        2,170,656     2,051,155

Prepaid income tax

        114,202     114,143

Other current assets

     5        803,466     969,184
     

 

 

   

 

 

 

Total current assets

        11,099,470     10,248,315

Deposits in banks

     4, 26        11     11

Investments in equity accounted investees

     8        114,551     109,611

Other non-current accounts receivable, net

     5, 26        —       9,072

Other non-current financial assets

     6, 26, 27        68,231     111,510

Property, plant and equipment, net

     9, 17, 27        20,147,051     22,087,645

Intangible assets, net

     10, 17        1,020,088     873,448

Deferred tax assets

     24        2,273,677     1,727,122

Defined benefits assets, net

     12        224,997     127,252

Other non-current assets

        123,447     280,577
     

 

 

   

 

 

 

Total non-current assets

        23,972,053     25,326,248
     

 

 

   

 

 

 

Total assets

      W 35,071,523     35,574,563
     

 

 

   

 

 

 

Liabilities

       

Trade accounts and notes payable

     26, 29      W 3,779,290     2,618,261

Current financial liabilities

     11, 26, 27        3,195,024     1,977,084

Other accounts payable

     26        2,781,941     4,397,121

Accrued expenses

        651,880     675,270

Income tax payable

        25,004     120,034

Provisions

     13        197,468     189,525

Advances received

     14        333,821     925,662

Other current liabilities

        42,520     82,019
     

 

 

   

 

 

 

Total current liabilities

        11,006,948     10,984,976

Non-current financial liabilities

     11, 26, 27        11,124,846     11,612,910

Non-current provisions

     13        89,633     67,118

Defined benefit liabilities, net

     12        1,498     1,338

Long-term advances received

     14        —       320,582

Deferred tax liabilities

     24        9,530     11,210

Other non-current liabilities

        102,129     88,148
     

 

 

   

 

 

 

Total non-current liabilities

        11,327,636     12,101,306
     

 

 

   

 

 

 

Total liabilities

        22,334,584     23,086,282
     

 

 

   

 

 

 

Equity

       

Share capital

     15        1,789,079     1,789,079

Share premium

        2,251,113     2,251,113

Retained earnings

        7,524,297     7,503,312

Reserves

     15        (163,446     (203,021
     

 

 

   

 

 

 

Total equity attributable to owners of the Controlling Company

        11,401,043     11,340,483
     

 

 

   

 

 

 

Non-controlling interests

        1,335,896     1,147,798
     

 

 

   

 

 

 

Total equity

        12,736,939     12,488,281
     

 

 

   

 

 

 

Total liabilities and equity

      W 35,071,523     35,574,563
     

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

56


Table of Contents

LG DISPLAY CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss)

For the years ended December 31, 2020 and 2019

 

(In millions of won, except earnings per share)    Note      2020      2019  

Revenue

     16, 17, 29      W 24,230,124      23,475,567

Cost of sales

     7, 18, 29        (21,587,554      (21,607,240
     

 

 

    

 

 

 

Gross profit

        2,642,570      1,868,327

Selling expenses

     19        (817,611      (1,057,753

Administrative expenses

     19        (755,340      (947,978

Research and development expenses

        (1,098,736      (1,221,978
     

 

 

    

 

 

 

Operating loss

        (29,117      (1,359,382
     

 

 

    

 

 

 

Finance income

     22        438,786      276,732

Finance costs

     22        (802,678      (443,247

Other non-operating income

     21        1,784,646      1,267,251

Other non-operating expenses

     21        (1,999,280      (3,097,743

Equity in income of equity accounted investees, net

     8        12,545      12,147
     

 

 

    

 

 

 

Loss before income tax

        (595,098      (3,344,242

Income tax benefit

     23        (524,462      (472,164
     

 

 

    

 

 

 

Loss for the year

        (70,636      (2,872,078
     

 

 

    

 

 

 

Other comprehensive income (loss)

        

Items that will never be reclassified to profit or loss

        

Remeasurements of net defined benefit liabilities

     12, 23        148,436      128,640

Other comprehensive income from associates

     8        39      238

Related income tax

     12, 23        (38,032      (35,235
     

 

 

    

 

 

 
        110,443      93,643

Items that are or may be reclassified to profit or loss

        

Foreign currency translation differences for foreign operations

     22, 23        48,181      106,690

Other comprehensive income (loss) from associates

     8, 23        (210      3,925
     

 

 

    

 

 

 
        47,971      110,615
     

 

 

    

 

 

 

Other comprehensive income for the period, net of income tax

        158,414      204,258
     

 

 

    

 

 

 

Total comprehensive income (loss) for the period

      W 87,778      (2,667,820
     

 

 

    

 

 

 

Profit (loss) attributable to:

        

Owners of the Controlling Company

        (89,342      (2,829,705

Non-controlling interests

        18,706      (42,373
     

 

 

    

 

 

 

Loss for the year

      W (70,636      (2,872,078
     

 

 

    

 

 

 

Total comprehensive income (loss) attributable to:

        

Owners of the Controlling Company

        59,730      (2,636,948

Non-controlling interests

        28,048      (30,872
     

 

 

    

 

 

 

Total comprehensive income (loss) for the year

      W 87,778      (2,667,820
     

 

 

    

 

 

 

Loss per share (in won)

        

Basic and diluted loss per share

     25      W (250      (7,908
     

 

 

    

 

 

 

See accompanying notes to the consolidated financial statements.

 

57


Table of Contents

LG DISPLAY CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Changes in Equity

For the years ended December 31, 2020 and 2019

 

    Attributable to owners of the Controlling Company              
(In millions of won)   Share
capital
    Share
premium
    Retained
earnings
    Reserves     Sub-total     Non-controlling
interests
    Total
equity
 

Balances at January 1, 2019

  W 1,789,079     2,251,113     10,239,965     (300,968     13,979,189     907,057     14,886,246
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) for the year

             

Loss for the year

    —         —         (2,829,705     —         (2,829,705     (42,373     (2,872,078

Other comprehensive income (loss)

             

Remeasurements of net defined benefit liabilities, net of tax

    —         —         93,405     —         93,405     —         93,405

Foreign currency translation differences

    —         —         —         95,189     95,189     11,501     106,690

Other comprehensive income from associates

    —         —         238     3,925     4,163     —         4,163
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income (loss)

    —         —         93,643     99,114     192,757     11,501     204,258
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) for the year

  W —         —         (2,736,062     99,114     (2,636,948     (30,872     (2,667,820
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transaction with owners, recognized directly in equity

             

Subsidiaries’ dividends distributed to non-controlling interests

    —         —         —         —         —         (6,541     (6,541

Capital contribution from non-controlling interests

    —         —         (591     (1,167     (1,758     278,154     276,396
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at December 31, 2019

  W 1,789,079     2,251,113     7,503,312     (203,021     11,340,483     1,147,798     12,488,281
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at January 1, 2020

  W 1,789,079     2,251,113     7,503,312     (203,021     11,340,483     1,147,798     12,488,281
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) for the year

             

Profit (loss) for the year

    —         —         (89,342     —         (89,342     18,706     (70,636

Other comprehensive income (loss)

             

Remeasurements of net defined benefit liabilities, net of tax

    —         —         110,404     —         110,404     —         110,404

Foreign currency translation differences

    —         —         —         38,839     38,839     9,342     48,181

Other comprehensive income from associates

    —         —         39     (210     (171     —         (171
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other comprehensive income

    —         —         110,443     38,629     149,072     9,342     158,414
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income for the year

  W —         —         21,101     38,629     59,730     28,048     87,778
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Transaction with owners, recognized directly in equity

             

Subsidiaries’ dividends distributed to non-controlling interests

    —         —         —         —         —         (12,086     (12,086

Capital contribution from non-controlling interests

    —         —         (116     946     830     172,136     172,966
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances at December 31, 2020

  W 1,789,079     2,251,113     7,524,297     (163,446     11,401,043     1,335,896     12,736,939
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

58


Table of Contents

LG DISPLAY CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the years ended December 31, 2020 and 2019

 

(In millions of won)    Note      2020     2019  

Cash flows from operating activities:

       

Loss for the year

      W (70,636     (2,872,078

Adjustments for:

       

Income tax benefit

     23        (524,462     (472,164

Depreciation and amortization

     9,10,18        4,134,843     3,695,051

Gain on foreign currency translation

        (296,870     (103,460

Loss on foreign currency translation

        217,287     171,966

Expenses related to defined benefit plans

     12, 20        160,669     162,997

Gain on disposal of property, plant and equipment

        (37,835     (35,788

Loss on disposal of property, plant and equipment

        60,294     40,897

Impairment loss on property, plant and equipment

        38,494     1,550,430

Gain on disposal of intangible assets

        (111     (552

Loss on disposal of intangible assets

        368     139

Impairment loss on intangible assets

        79,593     249,450

Reversal of impairment loss on intangible assets

        (1,110     (960

Impairment loss on other assets

        —         3,602

Gain on disposal of non-current assets held for sale

        —         (8,353

Expense on increase of provisions

        308,334     419,720

Finance income

        (331,723     (186,707

Finance costs

        612,164     338,419

Equity in income of equity method accounted investees, net

     8        (12,545     (12,147

Loss on liquidation of investments in subsidiaries

        72,654     —    

Other income

        (11,485     (20,416

Other expenses

        —         4,451
     

 

 

   

 

 

 
        4,468,559     5,796,575

Changes in:

       

Trade accounts and notes receivable

        (935,888     (1,007,373

Other accounts receivable

        63,192     (49,443

Inventories

        (128,495     632,359

Lease receivables

        6,428     6,617

Other current assets

        175,486     (288,770

Other non-current assets

        (58,641     (38,608

Trade accounts and notes payable

        1,387,084     (394,564

Other accounts payable

        (1,152,786     2,035,750

Accrued expenses

        (9,704     11,787

Provisions

        (277,876     (294,096

Short-term advances received

        (408,900     (242,365

Other current liabilities

        (40,200     27,690

Defined benefit liabilities, net

        (109,801     (65,681

Long-term advances received

        —         63,672

Other non-current liabilities

        12,973     7,045
     

 

 

   

 

 

 
        (1,477,128     404,020

Cash generated from operating activities

        2,920,795     3,328,517

Income taxes paid

        (156,997     (252,812

Interests received

        75,424     47,276

Interests paid

        (552,274     (416,436
     

 

 

   

 

 

 

Net cash provided by operating activities

      W 2,286,948     2,706,545
     

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

59


Table of Contents

LG DISPLAY CO., LTD. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the years ended December 31, 2020 and 2019

 

 

(In millions of won)    Note      2020     2019  

Cash flows from investing activities:

       

Dividends received

      W 8,239     7,502

Increase in deposits in banks

        (78,452     (114,557

Proceeds from withdrawal of deposits in banks

        78,557     114,200

Acquisition of financial assets at fair value through profit or loss

        (3,227     (708

Proceeds from disposal of financial assets at fair value through profit or loss

        99     452

Acquisition of financial assets at fair value through other comprehensive income

        —         (21

Proceeds from disposal of financial assets at fair value through other comprehensive income

        6     107

Proceeds from disposal of investments in equity accounted investees

        2,400     16,738

Acquisition of property, plant and equipment

        (2,603,545     (6,926,985

Proceeds from disposal of property, plant and equipment

        446,193     335,446

Acquisition of intangible assets

        (353,313     (540,996

Proceeds from disposal of intangible assets

        16,996     2,468

Government grants received

        118,341     248,124

Proceeds from disposal of non-current assets held for sale

        —         81,351

Receipt from settlement of derivatives

        24,468     21,752

Increase in short-term loans

        —         (8,725

Proceeds from collection of short-term loans

        13,720     19,881

Increase in long-term loans

        —         (6,465

Increase in deposits

        (2,084     (30,680

Decrease in deposits

        1,286     5,307

Proceeds from disposal of other assets

        11,000     20,416
     

 

 

   

 

 

 

Net cash used in investing activities

        (2,319,316     (6,755,393
     

 

 

   

 

 

 

Cash flows from financing activities:

     28       

Proceeds from short-term borrowings

        2,238,806     1,841,008

Repayments of short-term borrowings

        (2,506,420     (1,154,911

Proceeds from issuance of bonds

        49,949     1,323,251

Proceeds from long-term borrowings

        2,329,013     4,341,087

Repayments of current portion of long-term borrowings and bonds

        (1,278,199     (1,567,818

Repayment of lease liabilities

        (62,200     (64,570

Capital contribution from non-controlling interests

        172,966     276,396

Subsidiaries’ dividends distributed to non-controlling interests

        (12,086     (6,541
     

 

 

   

 

 

 

Net cash provided by financing activities

        931,829     4,987,902
     

 

 

   

 

 

 

Net increase in cash and cash equivalents

        899,461     939,054

Cash and cash equivalents at January 1

        3,336,003     2,365,022

Effect of exchange rate fluctuations on cash held

        (17,365     31,927
     

 

 

   

 

 

 

Cash and cash equivalents at December 31

      W 4,218,099     3,336,003
     

 

 

   

 

 

 

See accompanying notes to the consolidated financial statements.

 

60


Table of Contents
1.

Reporting Entity

 

  (a)

Description of the Controlling Company

LG Display Co., Ltd. (the “Controlling Company”) was incorporated in February 1985 and the Controlling Company is a public corporation listed in the Korea Exchange since 2004. The main business of the Controlling Company and its subsidiaries (the “Group”) is to manufacture and sell displays and its related products. As of December 31, 2020, the Group is operating Thin Film Transistor Liquid Crystal Display (“TFT-LCD”) and Organic Light Emitting Diode (“OLED”) panel manufacturing plants in Gumi, Paju and China and TFT-LCD and OLED module manufacturing plants in Gumi, Paju, China and Vietnam. The Controlling Company is domiciled in the Republic of Korea with its address at 128 Yeouidae-ro, Yeongdeungpo-gu, Seoul, the Republic of Korea. As of December 31, 2020, LG Electronics Inc., a major shareholder of the Controlling Company, owns 37.9% (135,625,000 shares) of the Controlling Company’s common stock.

The Controlling Company’s common stock is listed on the Korea Exchange under the identifying code 034220. As of December 31, 2020, there are 357,815,700 shares of common stock outstanding. The Controlling Company’s common stock is also listed on the New York Stock Exchange in the form of American Depository Shares (“ADSs”) under the symbol “LPL”. One ADS represents one-half of one share of common stock. As of December 31, 2020, there are 23,525,460 ADSs outstanding.

 

61


Table of Contents
1.

Reporting Entity, Continued

 

  (b)

Consolidated Subsidiaries as of December 31, 2020

 

(In millions)                            

Subsidiaries

  Location   Percentage of
ownership
    Fiscal year
end
 

Date of
incorporation

 

Business

  Capital stocks  

LG Display America, Inc.

  San Jose, U.S.A.     100   December 31   September 24, 1999   Sell display products   USD  411  

LG Display Germany GmbH

  Eschborn, Germany     100   December 31   November 5, 1999   Sell display products   EUR 1  

LG Display Japan Co., Ltd.

  Tokyo, Japan     100   December 31   October 12, 1999   Sell display products   JPY 95  

LG Display Taiwan Co., Ltd.

  Taipei, Taiwan     100   December 31   April 12, 1999   Sell display products   NTD 116  

LG Display Nanjing Co., Ltd.

  Nanjing, China     100   December 31   July 15, 2002   Manufacture display products   CNY 3,020  

LG Display Shanghai Co., Ltd.

  Shanghai, China     100   December 31   January 16, 2003   Sell display products   CNY 4  

LG Display Guangzhou Co., Ltd.

  Guangzhou, China     100   December 31   June 30, 2006   Manufacture display products   CNY 1,655  

LG Display Shenzhen Co., Ltd.

  Shenzhen, China     100   December 31   August 28, 2007   Sell display products   CNY 4  

LG Display Singapore Pte. Ltd.

  Singapore     100   December 31   January 12, 2009   Sell display products   USD 1  

L&T Display Technology (Fujian) Limited

  Fujian, China     51   December 31   January 5, 2010   Manufacture and sell LCD module and LCD monitor sets   CNY 116  

LG Display Yantai Co., Ltd.

  Yantai, China     100   December 31   April 19, 2010   Manufacture display products   CNY 1,008  

Nanumnuri Co., Ltd.

  Gumi, South Korea     100   December 31   March 21, 2012   Provide janitorial services   KRW 800  

LG Display (China) Co., Ltd.

  Guangzhou, China     70   December 31   December 10, 2012   Manufacture and sell display products   CNY 8,232  

Unified Innovative Technology, LLC

  Wilmington, U.S.A.     100   December 31   March 12, 2014   Manage intellectual property   USD 9  

LG Display Guangzhou Trading Co., Ltd.

  Guangzhou, China     100   December 31   April 28, 2015   Sell display products   CNY 1  

Global OLED Technology, LLC

  Sterling, U.S.A.     100   December 31   December 18, 2009   Manage OLED intellectual property   USD 138  

LG Display Vietnam Haiphong Co., Ltd.

  Haiphong, Vietnam     100   December 31   May 5, 2016   Manufacture display products   USD 600  

Suzhou Lehui Display Co., Ltd.

  Suzhou, China     100   December 31   July 1, 2016   Manufacture and sell LCD module and LCD monitor sets   CNY 637  

LG DISPLAY FUND I LLC(*1)

  Wilmington, U.S.A.     100   December 31   May 1, 2018   Invest in venture business and acquire technologies   USD 12  

LG Display High-Tech (China) Co., Ltd.(*2)

  Guangzhou, China     70   December 31   July 11, 2018   Manufacture and sell display products   CNY 15,600  

 

62


Table of Contents
1.

Reporting Entity, Continued

 

  (b)

Consolidated Subsidiaries as of December 31, 2020, Continued

 

(*1)

For the year ended December 31, 2020, the Controlling Company contributed W7,242 million in cash for the capital increase by LG DISPLAY FUND I LLC. There was no change in the Controlling Company’s ownership percentage in LG DISPLAY FUND I LLC as a result of this additional investment.

 

(*2)

For the year ended December 31, 2020, non-controlling shareholders contributed W172,966 million in cash for the stocks issued by LG Display High-Tech (China) Co., Ltd. (“LGDCO”). The Group’s ownership percentage in LGDCO decreased from 75% to 70% as a result.

Meanwhile, the liquidation process of LG Display Poland Sp. z o.o., a subsidiary of the Controlling Company, was completed during the year ended December 31, 2020 and the Group reclassified the comprehensive loss amounting to W72,654 million from foreign currency translation differences to profit or loss.

In addition to the above subsidiaries, the Group has invested W11,300 million in MMT (Money Market Trust), which is controlled by the Group.

 

63


Table of Contents
1.

Reporting Entity, Continued

 

  (c)

Summary of financial information of subsidiaries as of and for the years ended December 31, 2020 and 2019 is as follows:

 

(In millions of won)    December 31, 2020      2020  

Subsidiaries

   Total
assets
     Total
liabilities
     Total
shareholders’
equity
     Sales      Net
income

(loss)
 

LG Display America, Inc.

   W 1,375,795        1,351,562        24,233        11,383,528        8,063  

LG Display Germany GmbH

     309,702        295,599        14,103        1,440,763        1,890  

LG Display Japan Co., Ltd.

     365,295        359,114        6,181        1,923,132        1,105  

LG Display Taiwan Co., Ltd.

     319,284        301,210        18,074        1,453,734        2,363  

LG Display Nanjing Co., Ltd.

     1,476,667        710,717        765,950        1,487,428        99,311  

LG Display Shanghai Co., Ltd.

     373,503        348,609        24,894        814,964        7,237  

LG Display Poland Sp. z o.o.

     —          —          —          —          17,216  

LG Display Guangzhou Co., Ltd.

     4,081,473        3,025,937        1,055,536        2,506,152        107,163  

LG Display Shenzhen Co., Ltd.

     50,255        34,421        15,834        580,638        4,924  

LG Display Singapore Pte. Ltd.

     499,158        492,045        7,113        1,176,876        2,105  

L&T Display Technology (Fujian) Limited

     323,801        242,939        80,862        1,168,972        10,796  

LG Display Yantai Co., Ltd.

     791,520        345,930        445,590        966,393        56,735  

Nanumnuri Co., Ltd.

     5,659        3,323        2,336        21,062        631  

LG Display (China) Co., Ltd.

     2,424,290        737,462        1,686,828        1,907,421        (12,279

Unified Innovative Technology, LLC

     2,740        14        2,726        —          (1,094

LG Display Guangzhou Trading Co., Ltd.

     931,858        924,180        7,678        1,372,006        1,050  

Global OLED Technology, LLC

     66,691        14,369        52,322        8,899        (4,934

LG Display Vietnam Haiphong Co., Ltd.

     3,319,103        2,708,904        610,199        1,829,840        164,533  

Suzhou Lehui Display Co., Ltd.

     281,293        152,665        128,628        531,464        2,494  

LG DISPLAY FUND I LLC

     3,127        11        3,116        —          (4,353

LG Display High-Tech (China) Co., Ltd.

     7,011,443        4,346,187        2,665,256        1,249,487        57,000  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 24,012,657        16,395,198        7,617,459        31,822,759        521,956  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

64


Table of Contents
1.

Reporting Entity, Continued

 

(In millions of won)    December 31, 2019      2019  

Subsidiaries

   Total assets      Total
liabilities
     Total
shareholders’
equity
     Sales      Net
income

(loss)
 

LG Display America, Inc.

   W 961,070        942,860        18,210        9,669,140        5,366  

LG Display Germany GmbH

     404,852        392,824        12,028        1,715,627        5,451  

LG Display Japan Co., Ltd.

     296,106        290,976        5,130        2,268,430        1,641  

LG Display Taiwan Co., Ltd.

     473,177        457,469        15,708        1,455,596        1,671  

LG Display Nanjing Co., Ltd.

     1,239,381        575,137        664,244        1,428,020        13,046  

LG Display Shanghai Co., Ltd.

     297,068        279,362        17,706        1,001,478        7,182  

LG Display Poland Sp. z o.o.

     160,385        228        160,157        7,904        (3,440

LG Display Guangzhou Co., Ltd.

     2,893,673        1,949,732        943,941        2,582,137        100,726  

LG Display Shenzhen Co., Ltd.

     134,575        123,641        10,934        445,691        4,163  

LG Display Singapore Pte. Ltd.

     517,449        511,962        5,487        1,140,952        2,006  

L&T Display Technology (Fujian) Limited

     342,450        272,489        69,961        1,153,099        8,008  

LG Display Yantai Co., Ltd.

     886,198        498,890        387,308        1,273,553        34,044  

Nanumnuri Co., Ltd.

     5,243        3,537        1,706        22,529        292  

LG Display (China) Co., Ltd.

     2,026,541        329,133        1,697,408        1,978,487        (164,764

Unified Innovative Technology, LLC

     3,976        —          3,976        —          (1,104

LG Display Guangzhou Trading Co., Ltd.

     377,295        370,665        6,630        1,250,110        4,396  

Global OLED Technology, LLC

     81,481        21,004        60,477        8,380        (5,220

LG Display Vietnam Haiphong Co., Ltd.

     3,367,337        2,878,707        488,630        1,261,053        (253,694

Suzhou Lehui Display Co., Ltd.

     219,974        94,615        125,359        350,870        6,682  

LG DISPLAY FUND I LLC

     589        39        550        —          (3,532

LG Display High-Tech (China) Co., Ltd.

     6,606,874        4,188,766        2,418,108        40,766        12,503  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 21,295,694        14,182,036        7,113,658        29,053,822        (224,577
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

65


Table of Contents
1.

Reporting Entity, Continued

 

  (d)

Information of subsidiaries which have significant non-controlling interests as of and for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)       
     2020  
     LG Display (China)
Co., Ltd.
    LG Display High-Tech
(China) Co., Ltd.
 

Percentage of ownership in non-controlling interest(%)

     30       30  

Current assets

   W 1,573,028       1,544,816  

Non-current assets

     851,262       5,466,627  

Current liabilities

     326,785       1,588,688  

Non-current liabilities

     410,677       2,757,499  

Net assets

     1,686,828       2,665,256  

Book value of non-controlling interests

     498,084       798,190  

Revenue

   W 1,907,421       1,249,487  

Profit(Loss) for the year

     (12,279     57,000  

Profit(Loss) attributable to non-controlling interests

     (3,684     17,100  

Cash flows from operating activities

   W 138,692       142,648  

Cash flows from investing activities

     (686,387     (849,577

Cash flows from financing activities

     436,936       826,940  

Effect of exchange rate fluctuations on cash held

     5,367       (1,501

Net increase (decrease) in cash and cash equivalents

     (105,392     118,510  

Cash and cash equivalents at January 1

     382,194       171,951  

Cash and cash equivalents at December 31

     276,802       290,461  

Dividends distributed to non-controlling interests

   W 12,086       —    

 

66


Table of Contents
1.

Reporting Entity, Continued

 

(In millions of won)       
     2019  
     LG Display (China)
Co., Ltd.
    LG Display High-Tech
(China) Co., Ltd.
 

Percentage of ownership in non-controlling interest(%)

     30       25  

Current assets

   W 817,702       1,022,736  

Non-current assets

     1,208,840       5,584,138  

Current liabilities

     327,049       1,248,446  

Non-current liabilities

     2,084       2,940,320  

Net assets

     1,697,409       2,418,108  

Book value of non-controlling interests

     509,718       603,799  

Revenue

   W 1,978,487       40,766  

Profit(Loss) for the year

     (164,764     12,503  

Profit(Loss) attributable to non-controlling interests

     (49,429     3,126  

Cash flows from operating activities

   W 427,324       (453,784

Cash flows from investing activities

     380,331       (3,520,965

Cash flows from financing activities

     (518,529     3,487,367  

Effect of exchange rate fluctuations on cash held

     (3,077     19,862  

Net increase (decrease) in cash and cash equivalents

     286,049       (467,520

Cash and cash equivalents at January 1

     96,145       639,471  

Cash and cash equivalents at December 31

     382,194       171,951  

Dividends distributed to non-controlling interests

   W 6,541       —    

 

67


Table of Contents
2.

Basis of Presenting Financial Statements

 

  (a)

Statement of Compliance

In accordance with the Act on External Audits of Stock Companies, Etc., these consolidated financial statements have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”).

The consolidated financial statements were authorized for issuance by the Board of Directors on January 26, 2021, which will be submitted for approval to the shareholders’ meeting to be held on March 23, 2021.

 

  (b)

Basis of Measurement

The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the consolidated statement of financial position:

 

   

derivative financial instruments at fair value, financial assets at fair value through profit or loss (“FVTPL”), financial assets at fair value through other comprehensive income (“FVOCI”), financial liabilities at fair value through profit or loss (“FVTPL”), and

 

   

net defined benefit liabilities (defined benefit assets) recognized at the present value of defined benefit obligations less the fair value of plan assets

 

  (c)

Functional and Presentation Currency

Each subsidiary’s financial statements within the Group are presented in the subsidiary’s functional currency, which is the currency of the primary economic environment in which each subsidiary operates.

The consolidated financial statements are presented in Korean won, which is the Controlling Company’s functional currency.

 

  (d)

Use of Estimates and Judgments

The preparation of the consolidated financial statements in conformity with K-IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following notes:

 

   

Financial instruments (Note 3(e))

 

   

Impairment assessment of non-financial assets (Note 3(j), 10)

 

   

Deferred tax assets and liabilities (Note 3(r), 24)

 

68


Table of Contents
2.

Basis of Presenting Financial Statements, Continued

 

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next 12 months is included in the following notes:

 

   

Provisions (Note 3(l), 13)

 

   

Inventories (Note 3(d), 7)

 

   

Property, plant and equipment (Note 9)

 

   

Intangible assets (Impairment assessment of non-financial assets) (Note 10)

 

   

Employee benefits (Note 12)

 

   

Deferred tax assets and liabilities (Note 24)

 

3.

Summary of Significant Accounting Policies

The accounting policies applied in these consolidated financial statements are the same as those applied in the Group’s consolidated financial statements as of and for the year ended December 31, 2019 and the significant accounting policies followed by the Group in the preparation of its consolidated financial statements are as follows:

 

  (a)

Consolidation

 

  (i)

Business Combinations

The Group accounts for business combinations using the acquisition method except for a combination of entities or businesses under common control. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. If the aggregate sum of consideration transferred and non-controlling interest exceeds the fair value of identifiable net asset, the Group recognizes goodwill; if not, then the Group recognizes gain on a bargain purchase. Any goodwill that arises is tested annually for impairment. Transaction costs are expensed as incurred, except if related to the issue of debt or equity instruments in accordance with K-IFRS No. 1032 and K-IFRS No. 1109. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss.

 

69


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (a)

Consolidation, Continued

 

  (ii)

Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed, or has right to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

 

  (iii)

Non-controlling interests

Non-controlling interests (“NCI”) are measured at their proportionate share of the acquiree’s identifiable net assets at the acquisition date. Profit or loss and other comprehensive income (loss) of subsidiaries are attributed to owners of the Controlling Company and non-controlling interests.

Changes in the Group’s interest in subsidiaries that do not result in a loss of control are accounted for as equity transactions.

 

  (iv)

Loss of Control

If the Controlling Company loses control of subsidiaries, the Controlling Company derecognizes the assets and liabilities of the former subsidiaries from the consolidated statement of financial position and recognizes the gain or loss associated with the loss of control attributable to the former controlling interest. Meanwhile, the Controlling Company recognizes any investment retained in the former subsidiaries at its fair value when control is lost.

 

  (v)

Associates and joint ventures (equity method investees)

Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the parties have joint control, whereby the parties has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.

Investments in associates and joint ventures are initially recognized at cost and subsequently accounted for using the equity method of accounting. The carrying amount of investments in associates and joint ventures is increased or decreased to recognize the Group’s share of the profits or losses and changes in the Group’s proportionate interest of the investee after the date of acquisition. Distributions received from an investee reduce the carrying amount of the investment.

If an associate or a joint venture uses accounting policies different from those of the Controlling Company for like transactions and events in similar circumstances, appropriate adjustments are made to the consolidated financial statements. As of and during the periods presented in the consolidated financial statements, no adjustments were made in applying the equity method.

When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term investments, is reduced to nil, and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.

 

70


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (a)

Consolidation, Continued

 

  (vi)

Transactions eliminated on consolidation

Intra-group balances and transactions, including income and expenses and any unrealized income and expenses and balance of trade accounts and notes receivable and payable arising from intra-group transactions, are eliminated. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

 

  (b)

Foreign Currency Transaction and Translation

Transactions in foreign currencies are translated to the functional currency of the Group at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency at the exchange rate on the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was originally determined. Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on an investment in equity instruments designated as at FVOCI and a financial asset and liability designated as a cash flow hedge, which are recognized in other comprehensive income. Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition are recognized in profit or loss in the period in which they arise. Foreign currency differences arising from assets and liabilities in relation to the investing and financing activities including borrowings, bonds and cash and cash equivalents are recognized in finance income (costs) in the consolidated statement of comprehensive income (loss) and foreign currency differences arising from assets and liabilities in relation to activities other than investing and financing activities are recognized in other non-operating income (expense) in the consolidated statement of comprehensive income (loss). Foreign currency differences are presented in gross amounts in the consolidated statement of comprehensive income (loss).

If the presentation currency of the Group is different from a foreign operation’s functional currency, the financial position and financial performance of the foreign operation are translated into the presentation currency using the following methods. The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy are translated to the Group’s functional currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to the Group’s functional currency at exchange rates at the dates of the transactions and foreign currency differences are recognized in other comprehensive income (loss). Relevant proportionate shares of foreign currency differences are allocated to the controlling interests and non-controlling interests. When a foreign operation is disposed of in its entirety or partially such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. If the Group disposes part of its interest in a subsidiary but retains control, then the relevant proportion of the cumulative amount is reattributed to NCI. When the Group disposes of only part of an associate or joint venture while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.

 

71


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (b)

Foreign Currency Transaction and Translation, Continued

 

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation is treated as assets and liabilities of the foreign operation. Thus, they are expressed in the functional currency of the foreign operation and translated at the at each reporting date’s exchange rate.

 

  (c)

Cash and cash equivalents

Cash and cash equivalents include all cash balances and short-term highly liquid investments with an original maturity of three months or less that are readily convertible into known amounts of cash.

 

  (d)

Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted-average method, and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated selling expenses. In the case of manufactured inventories and work-in-process, cost includes an appropriate share of production overheads based on the actual capacity of production facilities. However, the normal capacity is used for the allocation of fixed production overheads if the actual level of production is lower than the normal capacity.

 

  (e)

Financial Instruments

 

  (i)

Non-derivative financial assets

Recognition and initial measurement

Trade receivables and debt instruments issued are initially recognized when they are originated. All other financial assets are recognized in statement of financial position when, and only when, the Group becomes a party to the contractual provisions of the instrument.

A financial asset (unless it is a trade receivable without a significant financing component) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

Classification and subsequent measurement

 

  i)

Financial assets

On initial recognition, a financial asset is classified as measured at: amortized cost; FVOCI – debt investment; FVOCI – equity investments; or FVTPL. Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the subsequent reporting period following the change in the business model.

 

72


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (e)

Financial Instruments, Continued

 

A financial asset is measured as at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:

 

   

it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

 

   

its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

 

   

it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

 

   

the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investments that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in OCI. This election is made on an investment-by-investment basis.

All financial assets not classified as measured at amortized cost or FVOCI as described above are measured as at FVTPL. This includes all derivative financial assets. At initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

 

  ii)

Financial assets: business model

The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes:

 

   

the stated policies and objectives for the portfolio and the operation of those policies in practice (these include whether management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realizing cash flows through the sale of the assets);

 

   

how the performance of the portfolio is evaluated and reported to the Group’s management;

 

   

the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; and

 

   

the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity.

Transfers of financial assets to third parties in transaction that do not qualify for derecognition are not considered sale for this purpose.

A financial asset that is held for trading or is managed and whose performance is evaluated on a fair value basis is measured at FVTPL.

 

73


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (e)

Financial Instruments, Continued

 

  iii)

Financial assets: Assessment whether contractual cash flows are solely payments of principal and interest

For the purpose of the assessment, “principal” is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and cost (e.g. liquidity risk and administrative costs), as well as profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers.

 

   

contingent events that would change the amount or timing of cash flows:

 

   

terms that may adjust the contractual coupon rate, including variable-rate features;

 

   

prepayment and extension features; and

 

   

terms that limit the Group’s claim to cash flows from specified assets (e.g. non-recourse features)

A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest or the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract.

Additionally, for a financial asset acquired at a discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued but unpaid contractual interest (which may also include reasonable additional compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition.

 

  iv)

Financial assets: Subsequent measurement and gains and losses

 

Financial assets at FVTPL    These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss.
Financial assets at amortized cost    These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.
Debt investments at FVOCI    These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.

 

74


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (e)

Financial Instruments, Continued

 

Derecognition

The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, it transfers the rights to receive the contractual cash flows of the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred, or it transfers or does not retain substantially all the risks and rewards of ownership of a transferred asset, and does not retain control of the transferred asset.

If the Group has retained substantially all the risks and rewards of ownership of the transferred asset, the Group continues to recognize the transferred asset.

Offset

Financial assets and liabilities are offset and the net amount is presented in the consolidated statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.

 

  (ii)

Non-derivative financial liabilities

The Group classifies financial liabilities into two categories, financial liabilities at FVTPL and other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities, and recognizes them in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Financial liabilities at FVTPL include financial liabilities held for trading or designated as such upon initial recognition at FVTPL. After initial recognition, financial liabilities at FVTPL are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the issuance of financial liabilities are recognized in profit or loss as incurred.

Non-derivative financial liabilities other than financial liabilities classified as at FVTPL are classified as other financial liabilities and measured initially at fair value minus transaction costs that are directly attributable to the issuance of financial liabilities. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method. As of December 31, 2020, non-derivative financial liabilities comprise borrowings, bonds, trade accounts and notes payable, other accounts payable and others.

The Group derecognizes a financial liability when its contractual obligations are discharged, cancelled or expired.

 

  (iii)

Share Capital

The Group issued common stocks and they are classified as equity. Incremental costs directly attributable to the issuance of common stocks are recognized as a deduction from equity, net of tax effects. Capital contributed in excess of par value upon issuance of common stocks is classified as share premium within equity.

 

75


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (e)

Financial Instruments, Continued

 

  (iv)

Derivative financial instruments

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

Hedge Accounting

If necessary, the Group designates derivatives as hedging items to hedge the risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow hedge).

On initial designation of the hedge, the Group’s management formally designates and documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship, both at the inception of the hedge relationship as well as on an ongoing basis.

 

  i)

Fair value hedges

Change in the fair value of a derivative hedging instrument designated as a fair value hedge and the hedged item is recognized in profit or loss, respectively. The gain or loss from remeasuring the hedging instrument at fair value and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the statement of comprehensive income (loss). The Group discontinues fair value hedge accounting if it does not designate the derivative hedging instrument and the hedged item as the hedge relationship between them anymore; if the hedging instrument expires or is sold, terminated or exercised; or if the hedge no longer meets the criteria for hedge accounting.

 

  ii)

Cash flow hedges

When a derivative designated as a cash flow hedging instrument meets the criteria of cash flow hedge accounting, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and the ineffective portion of changes in the fair value of the derivative is recognized in profit or loss. The Group discontinues cash flow hedge accounting if it does not designate the derivative hedging instrument and the hedged item as the hedge relationship between them anymore; if the hedging instruments expires or is sold, terminated or exercised; or if the hedge no longer meets the criteria for hedge accounting. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the periods during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss.

 

76


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (e)

Financial Instruments, Continued

 

Embedded derivative

Embedded derivatives are separated from the host contract and accounted for separately if the host contract is not a financial asset and certain criteria are met.

Other derivative financial instruments

Other derivative financial instruments are measured at fair value and changes of their fair value are recognized in profit or loss.

 

  (f)

Property, Plant and Equipment

 

  (i)

Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes an expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and borrowing costs on qualifying assets.

The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item and recognized in other non-operating income or other non-operating expenses.

 

  (ii)

Subsequent costs

Subsequent expenditure on an item of property, plant and equipment is recognized as part of its cost only if it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred.

 

  (iii)

Depreciation

Land is not depreciated and depreciation of other items of property, plant and equipment is recognized in profit or loss on a straight-line basis, reflecting the pattern in which the asset’s future economic benefits are expected to be consumed by the Group. The residual value of property, plant and equipment is zero.

Estimated useful lives of the assets are as follows:

 

    

Useful lives (years)

Buildings and structures

   20, 40

Machinery

   4, 5

Furniture and fixtures

   4

Equipment, tools and vehicles

   2, 4, 12

Right-of-use assets

   (*)

 

77


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (f)

Property, Plant and Equipment, Continued

 

  (*)

The Group depreciates the right-of-use assets from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.

Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate and any changes are accounted for as changes in accounting estimates.

 

  (g)

Borrowing Costs

The Group capitalizes borrowing costs, which includes interests and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs, directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. To the extent that the Group borrows funds specifically for the purpose of obtaining a qualifying asset, the Group determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. The Group immediately recognizes other borrowing costs as an expense.

 

  (h)

Government Grants

In case there is reasonable assurance that the Group will comply with the conditions attached to a government grant, the government grant is recognized as follows:

 

  (i)

Grants related to the purchase or construction of assets

A government grant related to the purchase or construction of assets is deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduced depreciation expense and cash related to grant received is presented in investing activities in the statement of cash flows.

 

  (ii)

Grants for compensating the Group’s expenses incurred

A government grant that compensates the Group for expenses incurred is recognized in profit or loss as a deduction from relevant expenses on a systematic basis in the periods in which the expenses are recognized.

 

  (iii)

Other government grants

A government grant that becomes receivable for the purpose of giving immediate financial support to the Group with no compensation for expenses or losses already incurred or no future related costs is recognized as income of the period in which it becomes receivable.

 

  (i)

Intangible Assets

Intangible assets are initially measured at cost. Subsequently, intangible assets are measured at cost less accumulated amortization and accumulated impairment losses.

 

78


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (i)

Intangible Assets, Continued

 

  (i)

Goodwill

Goodwill arising from business combinations is recognized as the excess of the acquisition cost of a business over the net fair value of the identifiable assets acquired and liabilities assumed. Any deficit is a bargain purchase that is recognized in profit or loss. Goodwill is measured at cost less accumulated impairment losses.

 

  (ii)

Research and development

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss as incurred. Development activities involve a plan or design of the production of new or substantially improved products and processes. Development expenditure is capitalized as intangible assets only if the Group can demonstrate all of the following:

 

   

the technical feasibility of completing the intangible asset so that it will be available for use or sale,

 

   

its intention to complete the intangible asset and use or sell it,

 

   

its ability to use or sell the intangible asset,

 

   

how the intangible asset will generate probable future economic benefits (among other things, the Group can demonstrate the usefulness of the intangible asset by existence of a market for the output of the intangible asset or the intangible asset itself if it is to be used internally),

 

   

the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset, and

 

   

its ability to measure reliably the expenditure attributable to the intangible asset during its development.

Development projects are divided into research activities and development activities. Expenditures on research activities are recognized in profit or loss and qualifying development expenditures on development activities are capitalized.

The expenditure capitalized includes the cost of materials, direct labor and overhead costs that are directly attributable to preparing the asset for its intended use, and borrowing costs on qualifying assets.

 

  (iii)

Other intangible assets

Other intangible assets include intellectual property rights, software, customer relationships, technology, memberships and others.

 

  (iv)

Subsequent costs

Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific intangible asset to which they relate. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.

 

79


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (i)

Intangible Assets, Continued

 

  (v)

Amortization

Amortization is calculated on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. The residual value of intangible assets is zero. However, as there are no foreseeable limits to the periods over which condominium and golf club memberships are expected to be available for use, these intangible assets are regarded as having indefinite useful lives and not amortized.

 

     Estimated useful lives (years)

Intellectual property rights

   5, 10 (*1)

Rights to use electricity, water and gas supply facilities

   10

Software

   4 (*1)

Customer relationships

   7, 10

Technology

   10

Development costs

   (*2)

Condominium and golf club memberships

   Indefinite

 

(*1)

Software license and patent royalty are amortized over the useful lives considering the contract period.

(*2)

Capitalized development costs are amortized over the useful lives considering the life cycle of the developed products. Amortization of capitalized development costs are recognized in research and development expenses in the consolidated statement of comprehensive income (loss).

Amortization periods and the amortization methods for intangible assets with finite useful lives are reviewed at each financial year-end. The useful lives of intangible assets with indefinite useful lives are reviewed at each financial year-end to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. If appropriate, the changes are accounted for as changes in accounting estimates.

 

  (j)

Impairment

 

  (i)

Financial assets

Financial instruments and contract assets

The Group recognizes loss allowance for financial assets measured at amortized cost and debt investments at FVOCI at the ‘expected credit loss’ (ECL).

The Group recognizes a loss allowance for the life-time expected credit losses except for following, which are measured at 12-month ECLs:

 

   

debt instruments that are determined to have low credit risk at the reporting date; and

 

   

other debt instruments and bank deposits for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition.

 

80


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (j)

Impairment, Continued

 

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both qualitative and quantitative information and analysis, based on the Group’s historical experience and informed credit assessment including forward-looking information.

Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.

12-month ECLs are the portion of the ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).

The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

Estimation of expected credit losses

Expected credit losses are a probability-weighted estimate of credit losses. Credit losses are measured using the present value of the difference between the contractual cash flows and the expected contractual cash flows. The expected credit losses are discounted using effective interest rate of the financial assets.

Credit-impaired financial assets

At each reporting period-end, the Group assesses whether financial assets carried at amortized cost and debt instruments at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable data:

 

   

significant financial difficulty of the issuer or the borrower;

 

   

the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider;

 

   

it is probable that the borrower will enter bankruptcy or other financial reorganization; or

 

   

the disappearance of an active market for a security because of financial difficulties.

Presentation of loss allowance for ECL in the statement of financial position

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt instruments at FVOCI, the loss allowance is charged to profit or loss and is recognized in OCI instead of reducing the carrying amount of financial assets in the consolidated statement of financial position.

 

81


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (j)

Impairment, Continued

 

Write-off

The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations for recovering the financial asset in its entirety or a portion thereof. The Group assess whether there are reasonable expectations of recovering the contractual cash flows from customers and individually assess the timing and amount of write-off. The Group expects no significant recovery from the amount written-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due.

 

  (ii)

Non-financial assets

The carrying amounts of the Group’s non-financial assets, other than assets arising from employee benefits, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, the recoverable amount is estimated each year.

Recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the Group determines the recoverable amount of the cash-generating unit to which the asset belongs. The cash-generating unit (“CGU”) is the smallest group of assets that includes the asset and generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination. The recoverable amount of an asset or cash-generating unit is determined as the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. Fair value less costs to sell is based on the best information available to reflect the amount that the Group could obtain from the disposal of the asset in an arm’s length transaction between knowledgeable, willing parties, after deducting the costs of disposal.

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of a CGU are allocated first to reduce the carrying amount of any goodwill allocated to the unit, and then to reduce the carrying amounts of the other assets in the unit on a pro rata basis.

In respect of assets other than goodwill, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of accumulated depreciation or amortization, if no impairment loss had been recognized from the acquisition cost. An impairment loss in respect of goodwill is not reversed.

 

82


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (k)

Leases

A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

 

  (i)

As a lessee

At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease and non-lease component on the basis of its relative stand-alone price. For certain leases, the Group accounts for the lease and non-lease components as a single lease component by applying the practical expedient not to separate non-lease components.

The Group recognizes a right-of-use asset and lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at of before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case, the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.

The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.

Lease payments included in the measurement of the lease liability comprise the following:

 

   

fixed payments, including in-substance fixed payments;

 

   

variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

 

   

amounts expected to be payable under a residual value guarantee; and

 

   

the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.

 

 

83


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (k)

Leases, Continued

 

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.

When the lease liability is remeasured, the Group recognizes the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. However, if the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the Group recognizes any remaining amount of the remeasurement in profit or loss.

The Group presents right-of-use assets in ‘property, plant and equipment’ and lease liabilities in ‘financial liabilities’ in the consolidated statement of financial position.

The Group has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short-term leases. The Group recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

 

  (ii)

As a lessor

When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.

To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset.

When the Group is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Group applies the exemption described above, then it classifies the sub-lease as an operating lease.

If an arrangement contains lease and non-lease components, then the Group applies K-IFRS No. 1115 to allocate the consideration in the contract.

At the commencement date, the Group recognizes assets held under a finance lease in its statement of financial position and present them as a receivable at an amount equal to the net investment in the lease and recognize finance income over the lease term, based on a pattern reflecting a constant periodic rate of return on the lessor’s net investment in the lease.

The Group recognizes lease payments received under operating leases as income on a straight-line basis over the lease term as part of ‘other revenue’.

 

84


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (l)

Provisions

A provision is recognized as a result of a past event, if the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

The risks and uncertainties that inevitably surround events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows. The unwinding of the discount is recognized as finance cost.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

The Group recognizes a liability for warranty obligations based on the estimated costs expected to be incurred under its basic limited warranty. This warranty covers defective products and is normally applicable for a warranty period from the date of purchase. These liabilities are accrued when product revenues are recognized. Factors that affect the Group’s warranty liability include historical and anticipated rates of warranty claims on those repairs and cost per claim to satisfy the Group’s warranty obligation. Warranty costs primarily include raw materials and labor costs. As these factors are impacted by actual experience and future expectations, management periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Accrued warranty obligations are included in the current and non-current provisions.

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources, are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated.

 

  (m)

Non-current Assets Held for Sale

Non-current assets, or disposal groups comprising assets and liabilities, are classified as held-for-sale if it is highly probable that they will be recovered primarily from sale rather than through continuing use. In order to be classified as held for sale, the asset (or disposal group) is available for immediate sale in its present condition and its sale is highly probable. The assets (or disposal groups) that are classified as non-current assets held for sale are measured at the lower of their carrying amount and fair value less costs to sell on initial classification. The Group recognizes an impairment loss for any subsequent decrease in fair value of the asset (or disposal group) for which an impairment loss was recognized on initial classification as held-for-sale and a gain for any subsequent increase in fair value in profit or losses, up to the cumulative impairment loss previously recognized.

The Group does not depreciate a non-current asset while it is classified as held for sale or while it is part of a disposal group classified as held for sale.

 

85


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

 

  (n)

Employee Benefits

 

  (i)

Short-term employee benefits

Short-term employee benefits that are due to be settled within twelve months after the end of the period in which the employees render the related service are recognized in profit or loss on an undiscounted basis. The expected cost of profit-sharing and bonus plans and others are recognized when the Group has a present legal or constructive obligation to make payments as a result of past events and a reliable estimate of the obligation can be made.

 

  (ii)

Other long-term employee benefits

The Group’s net obligation in respect of long-term employee benefits other than pension plans is the amount of future benefit that employees have earned in return for their service in the current and prior periods.

 

  (iii)

Defined contribution plan

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the period during which services are rendered by employees.

 

  (iv)

Defined benefit plan

A defined benefit plan is a post-employment benefit plan other than defined contribution plans. The Group’s net obligation in respect of its defined benefit plan is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The fair value of any plan assets is deducted.

The calculation is performed annually by an independent actuary using the projected unit credit method. The discount rate is the yield at the reporting date on high quality corporate bonds that have maturity dates approximating the terms of the Group’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The Group recognizes all actuarial gains and losses arising from defined benefit plans in retained earnings immediately.

The Group determines the net interest expense (income) on the net defined benefit liability (employee benefits asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (employee benefits asset), taking into account any changes in the net defined benefit liability (employee benefits asset) during the period as a result of contributions and benefit payments. Consequently, the net interest on the net defined benefit liability (defined benefit asset) now comprises: interest cost on the defined benefit obligation, interest income on plan assets, and interest on the effect on the asset ceiling.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Group recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.

 

86


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (n)

Employee Benefits, Continued

 

  (v)

Termination benefits

The Group recognizes expense for termination benefits at the earlier of the date when the entity can no longer withdraw the offer of those benefits and when the entity recognizes costs for a restructuring involving the payment of termination benefits. If the termination benefits are not expected to be settled wholly before twelve months after the end of the annual reporting period, the Group measures the termination benefit with present value of future cash payments.

 

  (o)

Revenue from contracts with customers

Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of estimated returns, trade discounts, volume rebates and other cash incentives paid to customers.

The Group recognizes revenue according to the five stage revenue recognition model (①Identifying the contract g② Identifying performance obligations g③ Determining transaction price g④ Allocating the transaction price to performance obligations g⑤ Recognizing revenue for performance obligations).

The Group generates revenue primarily from sale of display panels. Product revenue is recognized when a customer obtains control over the Group’s products, which typically occurs upon shipment or delivery depending on the terms of the contracts with the customer.

The Group includes return option in the sales contract of display panels with its customers and the consideration receivable from the customer is subject to change due to returns. The Group estimates an amount of variable consideration by using the expected value method which the Group expects to better predict the amount of consideration. The Group includes in the transaction price an amount of variable consideration estimated only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur during the return period when the uncertainty associated with the variable consideration is subsequently resolved. The Group recognizes a refund liability and an asset for its right to recover products from customers if the Group receives consideration from a customer and expects to refund some or all of that consideration to the customer. Sales taxes or value-added taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and are excluded from revenues in the consolidated statement of comprehensive income (loss).

 

  (p)

Operating Segments

An operating segment is a component of the Group that: 1) engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with other components of the group, 2) whose operating results are reviewed regularly by the Group’s chief operating decision maker (“CODM”) in order to allocate resources and assess its performance, and 3) for which discrete financial information is available. Management has determined that the CODM of the Group is the Board of Directors. The CODM does not receive and therefore does not review discrete financial information for any component of the Group. Consequently, no operating segment information is included in these consolidated financial statements. Entity wide disclosures of geographic and product revenue information are provided in Note 17 to these consolidated financial statements.

 

87


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (q)

Finance Income and Finance Costs

Finance income comprises interest income on funds invested (including debt instruments measured at FVOCI), dividend income, gains on disposal of debt instruments measured at FVOCI, changes in fair value of financial assets at FVTPL, and gains on hedging instruments that are recognized in profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest method. Dividend income is recognized in profit or loss on the date that the Group’s right to receive payment is established.

Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, gain and losses from financial assets measured at FVTPL, impairment losses recognized on financial assets, and losses on hedging instruments that are recognized in profit or loss. Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset.

 

  (r)

Income Tax

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

 

  (i)

Current tax

Current tax comprises the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the reporting date and any adjustment to tax payable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible items from the accounting profit.

 

  (ii)

Deferred tax

Deferred tax is recognized, using the liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

The Group recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, except to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. A deferred tax asset is recognized for all deductible temporary differences to the extent that it is probable that the differences relating to investments in subsidiaries, associates and joint ventures will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

 

88


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (r)

Income Tax, Continued

 

The Group offsets deferred tax assets and deferred tax liabilities if, and only if the Group has a legally enforceable right to set off current tax assets against current tax liabilities and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously.

 

  (s)

Earnings (Loss) Per Share

The Controlling Company presents basic and diluted earnings (loss) per share (“EPS”) data for its common stocks. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Controlling Company by the weighted average number of common stocks outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of common stocks outstanding, adjusted for the effects of all dilutive potential common stocks such as convertible bonds and others.

 

  (t)

New Standards and Amendments Not Yet Adopted

A number of amended standards are effective for annual periods beginning after January 1, 2020 and earlier application is permitted; however, the Group has not early adopted the amended standards in preparing these separate financial statements.

 

  (i)

Interest Rate Benchmark Reform – Phase 2 (Amendments to K-IFRS No. 1109, Financial Instruments, K-IFRS No. 1039, Financial Instruments: Recognition and Measurement, K-IFRS No. 1107, Financial Instruments: Disclosures, K-IFRS No. 1104, Insurance Contracts and K-IFRS No. 1116, Leases)

The amendments clarify the following accounting requirements according to market-wide reform of an interest rate:

 

   

application of practical expedient to account for a change in the basis;

 

   

temporary exceptions from applying specific hedge accounting requirements; and

 

   

additional disclosures related to interest rate benchmark reform.

 

  (ii)

COVID-19-Related Rent Concessions (Amendment to K-IFRS No. 1116, Leases)

The amendment provides a practical expedient that permits a lessee not to assess whether rent concessions that occur as a direct consequence of the COVID-19 pandemic are lease modification if they meet the following conditions:

 

   

any reduction in lease payments affects only payments originally due on or before 30 June 2021;

 

   

the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change; and

 

   

there is no substantive change to other terms and conditions of the lease

 

89


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (t)

New Standards and Amendments Not Yet Adopted, Continued

 

  (iii)

Property, Plant and Equipment: Proceeds before Intended Use (Amendments to K-IFRS No. 1016, Property, Plant and Equipment);

This amendments require an entity to recognize the proceeds from selling items produced in the manner intended by management (such as samples produced when testing whether the asset is functioning properly) and the cost of those items in profit or loss and prohibit an entity from deducting the proceeds from selling items produced before that asset is available for use from the cost of an items of property, plant and equipment.

 

  (iv)

Amendment of Reference to the Definition of an Asset and a Liability in the Conceptual Framework (Amendments to K-IFRS No. 1103, Business Combinations);

These amendments replace the reference to the definitions of an asset and a liability in the Conceptual Framework issued in 2007 to 2018 and added an exception to the recognition principle in K-IFRS No. 1103, Business Combinations, for liabilities and contingent liabilities that would be within the scope of K-IFRS No. 1037, Provisions, Contingent Liabilities and Contingent Assets, and K-IFRS No. 2121, Levies, to apply the recognition criteria specified in those standards.

 

  (v)

Classification of Liabilities as Current or Non-current (Amendments to K-IFRS No. 1001, Presentation of Financial Statements)

These amendments clarify that an entity has a right to defer settlement of the liability at the end of the reporting period if it complies with the conditions at that date and classification of a liability is unaffected by the likelihood that the entity will exercise its right to defer settlement of the liability for at least 12 months after the reporting period.

 

  (vi)

Onerous Contracts – Cost of Fulfilling a Contract (Amendments to K-IFRS No. 1037, Provisions, Contingent Liabilities and Contingent Assets)

These amendments specify the scope of “the unavoidable costs of meeting the obligations under the contract” is “the costs that relate directly to the contracts” (the incremental costs of fulfilling the contract and an allocation of other costs that relate directly to fulfilling contracts).

The Group is currently assessing the impacts of adoption of above amended standards on the Group’s financial position and business performance and management believes that the adoption of the amended standards are expected to have no significant impact on the consolidated financial statements of the Group, except for the amendments to K-IFRS No. 1016, Property, Plant and Equipment.

 

90


Table of Contents
4.

Cash and Cash Equivalents and Deposits in Banks

Cash and cash equivalents and deposits in banks as of December 31, 2020 and December 31, 2019 are as follows:

 

(In millions of won)              
     December 31, 2020      December 31, 2019  

Current assets

     

Cash and cash equivalents

     

Cash

   W 156        375  

Demand deposits

     4,217,943        3,335,628  
  

 

 

    

 

 

 
   W 4,218,099        3,336,003  
  

 

 

    

 

 

 

Deposits in banks

     

Time deposits

   W 1,800        1,500  

Restricted deposits (*)

     76,852        77,257  
  

 

 

    

 

 

 
   W 78,652        78,757  
  

 

 

    

 

 

 

Non-current assets

     

Deposits in banks

     

Restricted deposits (*)

   W 11        11  
  

 

 

    

 

 

 
   W 4,296,762        3,414,771  
  

 

 

    

 

 

 

 

(*)

Includes funds deposited under agreements on mutually beneficial cooperation to aid LG Group companies’ suppliers, restricted deposits pledged to enforce the Group’s investment plans upon the receipt of grants from Gumi city and Gyeongsangbuk-do, and others.

 

91


Table of Contents
5.

Trade Accounts and Notes Receivable, Other Accounts Receivable and Others

(a) Trade accounts and notes receivable as of December 31, 2020 and December 31, 2019 are as follows:

 

(In millions of won)              
     December 31, 2020      December 31, 2019  

Due from third parties

   W 3,054,471        2,576,391  

Due from related parties

     463,041        577,689  
  

 

 

    

 

 

 
   W 3,517,512        3,154,080  
  

 

 

    

 

 

 

(b) Other accounts receivable as of December 31, 2020 and December 31, 2019 are as follows:

 

(In millions of won)              
     December 31, 2020      December 31, 2019  

Current assets

     

Non-trade receivables, net

   W 140,616        463,614  

Accrued income

     3,864        10,434  
  

 

 

    

 

 

 
   W 144,480        474,048  
  

 

 

    

 

 

 

Non-current assets

     

Long-term non-trade receivables

   W —          9,072  
  

 

 

    

 

 

 
   W 144,480        483,120  
  

 

 

    

 

 

 

Due from related parties included in other accounts receivable, as of December 31, 2020 and 2019 are W21,189 million and W19,431 million, respectively.

 

92


Table of Contents
5.

Trade Accounts and Notes Receivable, Other Accounts Receivable and Others, Continued

(c) The aging of trade accounts and notes receivable, and other accounts receivable as of December 31, 2020 and December 31, 2019 are as follows:

 

(In millions of won)    December 31, 2020  
     Book value      Allowance for impairment  
     Trade accounts
and notes
receivable
     Other
accounts
receivable
     Trade accounts
and notes
receivable
    Other
accounts
receivable
 

Current

   W 3,516,891        143,674        (1,047     (1,740

1-15 days past due

     1,638        1,023        —         (8

16-30 days past due

     30        522        —         —    

31-60 days past due

     —          782        —         (8

More than 60 days past due

     —          257        —         (22
  

 

 

    

 

 

    

 

 

   

 

 

 
   W 3,518,559        146,258        (1,047     (1,778
  

 

 

    

 

 

    

 

 

   

 

 

 

 

(In millions of won)    December 31, 2019  
     Book value      Allowance for impairment  
     Trade accounts
and notes
receivable
     Other
accounts
receivable
     Trade accounts
and notes
receivable
    Other
accounts
receivable
 

Current

   W 3,119,914        208,086        (454     (3,292

1-15 days past due

     34,626        3,512        (6     (1

16-30 days past due

     —          598        —         (4

31-60 days past due

     —          61        —         —    

More than 60 days past due

     —          274,185        —         (25
  

 

 

    

 

 

    

 

 

   

 

 

 
   W 3,154,540        486,442        (460     (3,322
  

 

 

    

 

 

    

 

 

   

 

 

 

The movement in the allowance for impairment in respect of trade accounts and notes receivable and other accounts receivable for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)    2020     2019  
     Trade accounts
and notes
receivable
     Other
accounts
receivable
    Trade accounts
and notes
receivable
    Other
accounts
receivable
 

Balance at the beginning of the year

   W 460        3,322       477       1,281  

(Reversal of) bad debt expense

     587        (480     (17     2,041  

Write-off

     —          (1,064     —         —    
  

 

 

    

 

 

   

 

 

   

 

 

 

Balance at the end of the year

   W 1,047        1,778       460       3,322  
  

 

 

    

 

 

   

 

 

   

 

 

 

 

93


Table of Contents
5.

Trade Accounts and Notes Receivable, Other Accounts Receivable and Others, Continued

(d) Other assets as of December 31, 2020 and December 31, 2019 are as follows:

 

(In millions of won)              
     December 31, 2020      December 31, 2019  

Advanced payments

   W 34,808        6,203  

Prepaid expenses

     63,972        114,145  

Value added tax refundable

     693,623        826,730  

Right to recover returned goods

     11,063        22,106  
  

 

 

    

 

 

 
   W 803,466        969,184  
  

 

 

    

 

 

 

 

94


Table of Contents
6.

Other Financial Assets

Other financial assets as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)    December 31, 2020      December 31, 2019  

Current assets

     

Financial assets at fair value through profit or loss

     

Derivatives(*)

   W 9,252        34,036  

Financial assets at fair value through other comprehensive income

     

Debt instruments

     

Government bonds

   W 24        6  

Financial assets carried at amortized cost

     

Deposits

   W 8,696        9,585  

Short-term loans

     28,491        21,623  

Lease receivables

     5,940        5,695  
  

 

 

    

 

 

 
   W 43,127        36,903  
  

 

 

    

 

 

 
   W 52,403        70,945  
  

 

 

    

 

 

 

Non-current assets

     

Financial assets at fair value through profit or loss

     

Equity instruments

   W 13,223        9,879  

Convertible securities

     2,377        1,544  

Derivatives(*)

     111        15,640  
  

 

 

    

 

 

 
   W 15,711        27,063  
  

 

 

    

 

 

 

Financial assets at fair value through other comprehensive income

     

Debt instruments

     

Government bonds

   W 48        70  

Financial assets carried at amortized cost

     

Deposits

   W 22,251        21,451  

Long-term loans

     13,899        40,827  

Lease receivables

     16,322        22,099  
  

 

 

    

 

 

 
   W 52,472        84,377  
  

 

 

    

 

 

 
   W 68,231        111,510  
  

 

 

    

 

 

 

 

(*)

Represents valuation gain from cross currency interest rate swap related to foreign currency denominated borrowings and bonds. The contracts are not designated as hedging instruments.

 

95


Table of Contents
7.

Inventories

Inventories as of December 31, 2020 and December 31, 2019 are as follows:

 

(In millions of won)              
     December 31, 2020      December 31, 2019  

Finished goods

   W 785,282        730,009  

Work-in-process

     733,071        756,744  

Raw materials

     491,432        405,854  

Supplies

     160,871        158,548  
  

 

 

    

 

 

 
   W 2,170,656        2,051,155  
  

 

 

    

 

 

 

For the years ended December 31, 2020 and 2019, the amount of inventories recognized as cost of sales including inventory write-downs and usage of inventory write-downs are as follows:

 

(In millions of won)    2020     2019  

Inventories recognized as cost of sales

   W 21,587,554       21,607,240  

Inventory write-downs

     213,932       472,885  

Usage of inventory write-downs

     (472,885     (313,180

There were no significant reversals of inventory write-downs recognized during the years ended December 31, 2020 and 2019.

 

96


Table of Contents
8.

Investments in Equity Accounted Investees

(a) Associates as of December 31, 2020 and December 31, 2019 are as follows:

 

(In millions of won)                                         

Associates

  

Location

  

Fiscal year
end

  

Date of
incorporation

  

Business

   2020      2019  
   Percentage of
ownership
    Carrying
amount
     Percentage of
ownership
    Carrying
amount
 

Paju Electric Glass Co., Ltd. (*1)

  

Paju,

South Korea

   December 31   

January

2005

   Manufacture glass for display      40   W  47,262        40   W 50,697  

WooRee E&L Co., Ltd. (*2)

  

Ansan,

South Korea

   December 31   

June

2008

   Manufacture LED back light unit packages      14     10,540        14     7,310  

YAS Co., Ltd.

  

Paju,

South Korea

   December 31   

April

2002

   Develop and manufacture deposition equipment for OLEDs      15     24,493        15     19,424  

AVATEC Co., Ltd.

  

Daegu,

South Korea

   December 31   

August

2000

   Process and sell glass for display      14     20,196        14     19,929  

Arctic Sentinel, Inc.

   Los Angeles, U.S.A.    March 31   

June

2008

  

Develop and manufacture

tablet for kids

     10     —          10     —    

Cynora GmbH (*3)

  

Bruchsal,

Germany

   December 31   

March

2003

   Develop organic emitting materials for displays and lighting devices      12     2,609        12     4,714  

 

97


Table of Contents
8.

Investments in Equity Accounted Investees, Continued

 

(In millions of won)                                                    
                               2020      2019  

Associates

   Location      Fiscal year
end
     Date of
incorporation
     Business    Percentage of
ownership
    Carrying
amount
     Percentage of
ownership
    Carrying
amount
 

Material Science Co., Ltd. (*4)

    

Seoul,

South Korea

 

 

     December 31       

January

2014

 

 

   Develop, manufacture,
and sell materials for
display
     10   W 3,791        10   W 2,354  

Nanosys Inc. (*5)

    

Milpitas,

U.S.A.

 

 

     December 31       

July

2001

 

 

   Develop, manufacture,
and sell materials for
display
     3     5,660        4     5,183  
                

 

 

      

 

 

 
                 W 114,551        W 109,611  
                

 

 

      

 

 

 

 

(*1)

During 2020, the Controlling Company recognized a reversal of impairment loss of W433 million as finance income for the investments in Paju Electric Glass Co., Ltd.

(*2)

During 2020, the Controlling Company recognized a reversal of impairment loss of W2,905 million as finance income for the investments in WooRee E&L Co., Ltd.

(*3)

During 2020, the Controlling Company recognized an impairment loss of W2,105 million as finance cost for the investments in Cynora GmbH. As of December 31, 2020, the Controlling Company’s ownership percentage in Cynora GmbH decreased from 12.2% to 11.6% as the Controlling Company did not participate in the rights issue.

(*4)

During 2020, the Controlling Company recognized an impairment loss of W1,239 million as finance cost for the investments in Material Science Co., Ltd.

(*5)

During 2020, the Controlling Company recognized a reversal of impairment loss of W811 million as finance income for the investments in Nanosys Inc. As of December 31, 2020, the Controlling Company’s ownership percentage in Nanosys Inc. decreased from 4% to 3% as the Controlling Company did not participate in the rights issue.

 

98


Table of Contents
8.

Investments in Equity Accounted Investees, Continued

 

Although the Controlling Company’s respective share interests in WooRee E&L Co., Ltd., YAS Co., Ltd., AVATEC Co., Ltd., Arctic Sentinel, Inc., Cynora GmbH, Material Science Co., Ltd. and Nanosys Inc. are below 20%, the Controlling Company is able to exercise significant influence through its right to appoint a director to the board of directors of each investee. Accordingly, the investments in these investees have been accounted for using the equity method.

As of December 31, 2020, the market value of the Group’s share in WooRee E&L Co., Ltd., YAS Co., Ltd., and AVATEC Co., Ltd., all of which are listed in KOSDAQ, are W10,540 million, W26,700 million and W17,180 million, respectively.

Dividends income recognized from equity method investees for the years ended December 31, 2020 and 2019 amounted to W8,239 million and W7,502 million, respectively.

 

99


Table of Contents
8.

Investments in Equity Accounted Investees, Continued

 

  (b)

Summary of financial information as of and for the years ended December 31, 2020 and 2019 of the significant associate is as follows:

(i) Paju Electric Glass Co., Ltd.

 

(In millions of won)    December 31, 2020     December 31, 2019  

Total assets

   W 204,880       195,815  

Current assets

     143,086       126,314  

Non-current assets

     61,794       69,501  

Total liabilities

     85,224       66,017  

Current liabilities

     64,921       51,625  

Non-current liabilities

     20,303       14,392  

Revenue

     307,756       346,434  

Profit for the year

     9,615       13,672  

Other comprehensive income (loss)

     (409     9,933  

Total comprehensive income

     9,206       23,605  

 

  (c)

Reconciliation from financial information of the significant associate to its carrying value in the consolidated financial statements as of December 31, 2020 and 2019 is as follows:

(i) As of December 31, 2020

 

(In millions of won)                                               

Company

   Net asset      Ownership
interest
    Net asset
(applying
ownership
interest)
     Goodwill      Intra-group
transaction
    Impairment
loss
     Book
value
 

Paju Electric Glass Co., Ltd.

   W 119,656        40     47,862        —          (600     —          47,262  

(ii) As of December 31, 2019

 

(In millions of won)                                              

Company

   Net asset      Ownership
interest
    Net asset
(applying
ownership
interest)
     Goodwill      Intra-group
transaction
    Impairment
loss
    Book
value
 

Paju Electric Glass Co., Ltd.

   W 129,798        40     51,919        —          (789     (433     50,697  

 

100


Table of Contents
8.

Investments in Equity Accounted Investees, Continued

 

  (d)

Book value of other associates, in aggregate, as of December 31, 2020 and 2019 is as follows:

(i) As of December 31, 2020

 

                                                                                                   
(In millions of won)                           
     Book value      Net profit (loss) of associates (applying ownership interest)  
   Profit (loss) for
the year
    Other comprehensive
income (loss)
     Total comprehensive
income (loss)
 

Other associates

   W 67,289        8,510 (7)         8,503  

(ii) As of December 31, 2019

 

                                                                                                   
(In millions of won)                            
     Book value      Net profit (loss) of associates (applying ownership interest)  
   Profit (loss) for
the year
     Other comprehensive
income (loss)
     Total comprehensive
income (loss)
 

Other associates

   W 58,914        6,756        190        6,946  

 

101


Table of Contents
8.

Investments in Equity Accounted Investees, Continued

 

  (e)

Changes in investments in associates accounted for using the equity method for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)       
    

2020

 

Company

   January 1      Dividends received     Equity income
(loss) on
investments
     Other
comprehensive
income (loss)
    Other gain
(loss)
     December 31  

Associates

   Paju Electric Glass Co., Ltd.    W 50,697        (7,739     4,035        (164     433        47,262  
  

Others

     58,914        (500     8,510        (7     372        67,289  
     

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
      W 109,611        (8,239     12,545        (171     805        114,551  
     

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

(In millions of won)       
    

2019

 

Company

   January 1      Acquisition/Disposal     Dividends
received
    Equity income
(loss) on
investments
     Other
comprehensive
income (loss)
     Other gain
(loss)
    December 31  

Associates

   Paju Electric Glass Co., Ltd.    W 47,823        —         (6,057     5,391        3,973        (433     50,697  
  

Others

     66,166        (9,807     (1,445     6,756        190        (2,946     58,914  
     

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
      W 113,989        (9,807     (7,502     12,147        4,163        (3,379     109,611  
     

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

102


Table of Contents
9.

Property, Plant and Equipment

 

  (a)

Changes in property, plant and equipment for the year ended December 31, 2020 are as follows:

 

(In millions of won)                                                 
     Land     Buildings
and
structures
    Machinery
and
equipment
    Furniture
and
fixtures
    Construction-
in-progress

(*1)
    Right-of-
use asset
    Others     Total  

Acquisition cost as of January 1, 2020

   W 454,035       7,381,156       43,604,721       899,053       9,618,256       169,133       823,101       62,949,455  

Accumulated depreciation as of January 1, 2020

     —         (3,154,387     (34,810,300     (753,987     —         (51,581     (534,013     (39,304,268

Accumulated impairment loss as of January 1, 2020

     —         (120,876     (1,223,648     (8,278     (171,929     (4,302     (28,509     (1,557,542
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Book value as of January 1, 2020

   W 454,035       4,105,893       7,570,773       136,788       9,446,327       113,250       260,579       22,087,645  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Additions

     —         —         —         —         2,098,911       51,754       —         2,150,665  

Depreciation

     —         (332,058     (3,036,497     (67,391     —         (54,069     (236,986     (3,727,001

Disposals

     (11,266     (31,936     (117,538     (2,963     —         —         (38,345     (202,048

Impairment loss

     —         1,074       (30,815     8       (3,801     —         (4,960     (38,494

Others (*2)

     53       117,900       4,984,430       59,758       (5,481,494     —         319,353       —    

Government grants received

     —         (12,647     (93,825     —         (11,869     —         —         (118,341

Effect of movements in exchange rates

     —         (1,020     (1,882     (33     (2,347     (28     (65     (5,375
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Book value as of December 31, 2020

   W 442,822       3,847,206       9,274,646       126,167       6,045,727       110,907       299,576       20,147,051  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Acquisition cost as of December 31, 2020

   W 442,822       7,420,854       48,174,525       735,329       6,122,364       184,036       1,021,641       64,101,571  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated depreciation as of December 31, 2020

   W —         (3,457,052     (37,582,109     (600,912     —         (69,130     (697,134     (42,406,337
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated impairment loss as of December 31, 2020

   W —         (116,596     (1,317,770     (8,250     (76,637     (3,999     (24,931     (1,548,183
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*1)

As of December 31, 2020, construction-in-progress mainly relates to construction of manufacturing facilities.

(*2)

Others are mainly amounts transferred from construction-in-progress.

 

103


Table of Contents
9.

Property, Plant and Equipment, Continued

 

  (b)

Changes in property, plant and equipment for the year ended December 31, 2019 are as follows:

 

(In millions of won)                                                 
     Land     Buildings
and
structures
    Machinery
and
equipment
    Furniture
and
fixtures
    Construction-
in-progress

(*1)
    Right-of-
use asset
    Others     Total  

Acquisition cost as of January 1, 2019

   W 461,828       6,528,939       39,825,070       834,628       12,234,824       —         633,220       60,518,509  

Accumulated depreciation as of January 1, 2019

     —         (2,991,445     (34,817,982     (692,372     —         —         (368,983     (38,870,782

Accumulated impairment loss as of January 1, 2019

     —         (1,706     (28,001     —         (17,890     —         —         (47,597
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Book value as of January 1, 2019

   W 461,828       3,535,788       4,979,087       142,256       12,216,934       —         264,237       21,600,130  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Recognition of right-of-use assets on initial application of K-IFRS No. 1116

     —         —         —         —         —         142,040       —         142,040  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted book value as of January 1, 2019

   W 461,828       3,535,788       4,979,087       142,256       12,216,934       142,040       264,237       21,742,170  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Additions

     —         —         —         —         5,878,369       29,733       —         5,908,102  

Depreciation

     —         (302,157     (2,609,205     (66,592     —         (51,063     (239,762     (3,268,779

Disposals

     (7,861     (4,958     (559,616     (1,622     —         (3,594     (16,953     (594,604

Impairment loss (*2)

     —         (125,687     (1,212,215     (8,278     (171,439     (4,302     (28,509     (1,550,430

Others (*3)

     68       1,064,123       6,958,793       70,140       (8,373,047     —         279,923       —    

Government grants received

     —         (83,200     (17,028     —         (180,448     —         —         (280,676

Effect of movements in exchange rates

     —         21,984       30,957       884       75,958       436       1,643       131,862  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Book value as of December 31, 2019

   W 454,035       4,105,893       7,570,773       136,788       9,446,327       113,250       260,579       22,087,645  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Acquisition cost as of December 31, 2019

   W 454,035       7,381,156       43,604,721       899,053       9,618,256       169,133       823,101       62,949,455  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated depreciation as of December 31, 2019

   W —         (3,154,387     (34,810,300     (753,987     —         (51,581     (534,013     (39,304,268
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated impairment loss as of December 31, 2019

   W —         (120,876     (1,223,648     (8,278     (171,929     (4,302     (28,509     (1,557,542
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*1)

As of December 31, 2019, construction-in-progress mainly relates to construction of manufacturing facilities.

(*2)

During 2019, Display(AD PO) and Lighting CGUs were assessed for impairment, and impairment losses amounting to W1,491,292 million (W1,369,371 million and W121,921 million for Display(AD PO) and Lighting CGUs, respectively) were recognized as other non-operating expenses.

(*3)

Others are mainly amounts transferred from construction-in-progress.

 

104


Table of Contents
9.

Property, Plant and Equipment, Continued

 

  (c)

Capitalized borrowing costs and capitalization rate for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)       
     2020     2019  

Capitalized borrowing costs

   W 191,876       283,525  

Capitalization rate

     4.14     3.74

 

105


Table of Contents
10.

Intangible Assets and Non-current Asset Impairment

(a) Changes in intangible assets for the year ended December 31, 2020 are as follows:

 

(In millions of
won)
   Intellectual
property
rights
    Software     Memberships     Development
costs
    Construction-
in-progress
    Customer
relationships
    Technology     Goodwill     Others
(*2)
    Total  

Acquisition cost as of January 1, 2020

   W 959,683       1,097,290       56,612       2,580,777       15,245       59,176       11,074       105,414       13,080       4,898,351  

Accumulated amortization as of

January 1, 2020

     (739,498     (890,281     —         (2,073,881     —         (37,491     (10,705     —         (13,079     (3,764,935

Accumulated impairment loss as of January 1, 2020

     (29,151     (8,864     (10,560     (131,713     —         (21,685     —         (57,995     —         (259,968
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Book value as of January 1, 2020

   W 191,034       198,145       46,052       375,183       15,245       —         369       47,419       1       873,448  

Additions - internally developed

     —         —         —         284,487       —         —         —         —         —         284,487  

Additions - external purchases

     291,405       27,789       —         —         51,520       —         —         —         3       370,717  

Amortization (*1)

     (42,205     (86,466     —         (278,799     —         —         (369     —         (3     (407,842

Disposals

     —         —         (17,252     —         —         —         —         —         —         (17,252

Impairment loss (*3)

     —         (675     —         (78,918     —         —         —         —         —         (79,593

Reversal of impairment loss

     —         —         1,110       —         —         —         —         —         —         1,110  

Transfer from construction-in-progress

     —         54,753       —         —         (54,753     —         —         —         —         —    

Effect of movements in exchange rates

     (4,031     (887     (10     —         55       —         —         (1,888     —         (4,987
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Book value as of December 31, 2020

   W 436,203       194,433       29,900       301,953       12,067       —         —         45,531       1       1,020,088  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Acquisition cost as of December 31, 2020

   W 1,247,057       1,180,719       39,350       2,865,264       12,067       59,176       11,074       103,526       13,083       5,531,316  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated amortization as of

December 31, 2020

   W (781,703     (976,747     —         (2,352,680     —         (37,491     (11,074     —         (13,082     (4,172,777
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated impairment loss as of December 31, 2020

   W (29,151     (9,539     (9,450     (210,631     —         (21,685     —         (57,995     —         (338,451
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*1)

The Group has classified the amortization as manufacturing overhead costs, selling expenses, administrative expenses and research and development expenses.

(*2)

Others mainly consist of rights to use electricity and gas supply facilities.

(*3)

The Group recognized an impairment loss amounting to W78,918 million for development projects with low feasibility to result in revenue generation after the impairment review.

 

106


Table of Contents
10.

Intangible Assets and Non-current Asset Impairment, Continued

 

(b)

Changes in intangible assets for the year ended December 31, 2019 are as follows:

 

(In millions of
won)
   Intellectual
property
rights
    Software     Memberships     Development
costs
    Construction-
in-progress
    Customer
relationships
    Technology     Goodwill     Others
(*2)
    Total  

Acquisition cost as of January 1, 2019

   W 926,969       992,139       57,560       2,142,832       36,963       59,176       11,075       104,311       13,077       4,344,102  

Accumulated amortization as of

January 1, 2019

     (696,948     (814,540     —         (1,775,922     —         (34,854     (9,598     —         (13,077     (3,344,939

Accumulated impairment loss as of January 1, 2019

     —         —         (11,521     —         —         —         —         —         —         (11,521
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Book value as of January 1, 2019

   W 230,021       177,599       46,039       366,910       36,963       24,322       1,477       104,311       —         987,642  

Additions - internally developed

     —         —         —         437,945       —         —         —         —         —         437,945  

Additions - external purchases

     28,397       —         846       —         90,369       —         —         —         3       119,615  

Amortization (*1)

     (42,550     (82,016     —         (297,959     —         (2,637     (1,108     —         (2     (426,272

Disposals

     —         (239     (1,816     —         —         —         —         —         —         (2,055

Impairment loss (*3)(*4)

     (29,152     (8,905     —         (131,713     —         (21,685     —         (57,995     —         (249,450

Reversal of impairment loss

     —         —         960       —         —         —         —         —         —         960  

Transfer from construction-in-progress

     —         111,359       —         —         (112,159     —         —         —         —         (800

Effect of movements in exchange rates

     4,318       347       23       —         72       —         —         1,103       —         5,863  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Book value as of December 31, 2019

   W 191,034       198,145       46,052       375,183       15,245       —         369       47,419       1       873,448  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Acquisition cost as of December 31, 2019

   W 959,683       1,097,290       56,612       2,580,777       15,245       59,176       11,074       105,414       13,080       4,898,351  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated amortization as of

December 31, 2019

   W (739,498     (890,281     —         (2,073,881     —         (37,491     (10,705     —         (13,079     (3,764,935
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated impairment loss as of December 31, 2019

   W (29,151     (8,864     (10,560     (131,713     —         (21,685     —         (57,995     —         (259,968
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

107


Table of Contents
10.

Intangible Assets and Non-current Asset Impairment, Continued

 

  (*1)

The Group has classified the amortization as manufacturing overhead costs, selling expenses, administrative expenses and research and development expenses.

  (*2)

Others mainly consist of rights to use electricity and gas supply facilities.

  (*3)

During 2019, Display(AD PO) and Lighting CGUs were assessed for impairment, and the impairment losses amounting to W133,628 million (W26,284 and W105,344 million for Display(AD PO) and Lighting CGUs, respectively) were recognized as other non-operating expenses. The impairment amount is reduced in goodwill, customer relationships and others.

  (*4)

The Group recognized an impairment loss amounting to W117,822 million for development projects with low feasibility to result in revenue generation after the impairment review.

 

  (c)

Development costs as of December 31, 2020 and 2019 are as follows:

 

  (i)

As of December 31, 2020

 

(In millions of won and in years)  

Classification

   Product type    Book Value  

Development completed

   TV    W 20,803  
   IT      51,784  
   Mobile      33,097  
     

 

 

 
      W 105,684  
     

 

 

 

Development in process

   TV    W 49,773  
   IT      42,762  
   Mobile      103,734  
     

 

 

 
      W 196,269  
     

 

 

 
   W 301,953  
     

 

 

 

(ii) As of December 31, 2019

 

(In millions of won and in years)  

Classification

   Product type    Book Value  

Development completed

   TV    W 22,597  
   IT      26,834  
   Mobile      53,350  
     

 

 

 
      W 102,781  
     

 

 

 

Development in process

   TV    W 42,587  
   IT      72,332  
   Mobile      157,483  
     

 

 

 
      W 272,402  
     

 

 

 
   W 3751,183  
     

 

 

 

 

108


Table of Contents
10.

Intangible Assets and Non-current Asset Impairment, Continued

 

  (d)

Impairment assessment on CGU with allocated goodwill

As of December 31, 2020, goodwill is allocated to the Group’s Display CGU which has a large portion of the Group’s non-current financial assets. The carrying amount of goodwill allocated to Display CGU is as follows:

 

(In millions of won)              
     December 31, 2020      December 31, 2019  

Display CGU

   W 45,531        47,419  

The recoverable amount of Display CGU is estimated based on its value in use. Value in use is calculated using the estimated pre-tax cash flow based on 5-year business plan approved by management. The estimated sales of the Group’s products used in the forecast was determined considering external sources and the Group’s past experience. Management estimated the future pre-tax cash flows based on its past performance and forecasts on market growth. The key assumptions used in the estimation of value in use for Display CGU include revenue and operating expenditures for the forecast period, growth rates for subsequent years (“terminal growth rate”), and discount rate. For Display CGU, the terminal growth rate and the discount rate in the estimation of value in use as of December 31, 2020 are as follows.

 

(In millions of won)             
     Discount rate(*)     Terminal growth rate  

Display CGU

   W 7.0     1.0

 

  (*)

The discount rate was calculated using the weighted average cost of equity capital and debt and the beta of equity capital was calculated as the average of five global listed companies in the same industry and the Group. Cost of debt was calculated using the yield rate of non-guaranteed corporate bond considering the Group’s credit rating and debt ratio was determined using the average of the debt ratios of the five global listed companies in the same industry and the Group.

As a result of impairment test, the Display CGU’s recoverable amount exceeds the carrying amount by W1,663,483 million. The value in use determined for this CGU is sensitive to the discount rate and terminal growth rate used in the discounted cash flow model. An increase in the discount rate by 0.68% or a decrease in terminal growth rate by 0.66% would result in the estimated recoverable amount to be equal to the carrying amount of the CGU.

 

109


Table of Contents
11.

Financial Liabilities

 

  (a)

Financial liabilities as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)              
     December 31, 2020      December 31, 2019  

Current

     

Short-term borrowings

   W 394,906        696,793  

Current portion of long-term borrowings and bonds

     2,705,709        1,242,904  

Derivatives(*)

     58,875        —    

Lease liabilities

     35,534        37,387  
  

 

 

    

 

 

 
   W 3,195,024        1,977,084  
  

 

 

    

 

 

 

Non-current

     

Won denominated borrowings

   W 2,435,000        2,692,560  

Foreign currency denominated borrowings

     6,584,658        6,107,117  

Bonds

     1,948,541        2,741,516  

Derivatives(*)

     108,750        20,592  

Lease liabilities

     47,897        51,125  
  

 

 

    

 

 

 
   W 11,124,846        11,612,910  
  

 

 

    

 

 

 

 

(*)

Represents cross currency interest rate swap contracts and others entered into by the Group to hedge currency and interest rate risks with respect to foreign currency denominated borrowings and bonds. The contracts are not designated as hedging instruments.

 

  (b)

Short-term borrowings as of December 31, 2020 and 2019 are as follows.

 

(In millions of won, USD and CNY)                     

Lender

   Annual interest rate as of
December 31, 2020 (%)(*)
     December 31,
2020
     December 31,
2019
 

Standard Chartered Bank Korea Limited

     12ML + 0.98      W 326,400        347,340  

Standard Chartered Bank Vietnam and others

     3ML + 0.80~0.90        68,506        61,613  

Standard Chartered Bank (China) Limited and others

     —          —          287,840  

Foreign currency equivalent

        USD 363        USD 353  
        —          CNY 1,737  
     

 

 

    

 

 

 
      W 394,906        696,793  
     

 

 

    

 

 

 

 

  (*)

ML represents Month LIBOR (London Inter-Bank Offered Rates)

 

110


Table of Contents
11.

Financial Liabilities, Continued

 

  (c)

Won denominated long-term borrowings as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)                   

Lender

  

Annual interest rate

as of

December 31, 2020 (%)(*)

   December 31,
2020
     December 31,
2019
 

Woori Bank

   2.75    W 60        608  

Korea Development Bank and others

   CD rate (91days) + 1.00~1.60, 2.21~3.40      3,272,500        3,330,000  

Less current portion of long-term borrowings

        (837,560      (638,048
     

 

 

    

 

 

 
      W 2,435,000        2,692,560  
     

 

 

    

 

 

 

(*) CD represents certificate of deposit.

 

  (d)

Foreign currency denominated long-term borrowings as of December 31, 2020 and 2019 are as follows:

 

(In millions of won and USD, CNY)                   

Lender

  

Annual interest rate

as of

December 31, 2020 (%)(*)

   December 31,
2020
     December 31,
2019
 

The Export-Import Bank of Korea and others

  

3ML + 0.75~2.40

6ML + 1.25~1.35

   W 1,680,960        1,696,177  

China Construction Bank and others

  

USD: 3ML+0.65~1.43

CNY: LPR(5Y) + 0.44, LPR(1Y) -0.15~+0.50, 4.70

     5,948,472        4,606,094  
     

 

 

    

 

 

 

Foreign currency equivalent

        USD 2,742        USD 2,767  
        CNY 27,825        CNY 18,699  

Less current portion of long-term borrowings

      W (1,044,774      (195,154
     

 

 

    

 

 

 
      W 6,584,658        6,107,117  
     

 

 

    

 

 

 

 

(*)

LPR represents Loan Prime Rate of People’s Bank of China.

 

111


Table of Contents
11.

Financial Liabilities, Continued

 

  (e)

Details of bonds issued and outstanding as of December 31, 2020 and 2019 are as follows:

 

(In millions of won and USD)                            
     Maturity      Annual interest rate
as of
December 31, 2020 (%)
     December 31,
2020
     December 31,
2019
 

Won denominated bonds at amortized cost(*1)

           

Publicly issued bonds

    

February 2021 ~

February 2024

 

 

     1.95~2.95      W 1,320,000        1,730,000  

Privately issued bonds

    

May 2022 ~

May 2033


 

     3.25~4.25        160,000        110,000  

Less discount on bonds

           (1,798      (3,404

Less current portion

           (499,796      (409,702
        

 

 

    

 

 

 
         W 978,406        1,426,894  
        

 

 

    

 

 

 

Foreign currency denominated bonds at amortized cost (*2)

           

Publicly issued bonds

     November 2021        3.88      W 326,400        347,340  

Privately issued bonds

     April 2023        3ML + 1.47        108,800        115,780  

Foreign currency equivalent

           USD 400        USD 400  

Less discount on bonds

           (3,161      (6,883

Less current portion

           (323,579)        —    
         W 108,460        456,237  

Financial liabilities at fair value through profit or loss

           

Foreign currency denominated convertible bonds

     August 2024        1.50      W 861,675        858,385  

Foreign currency equivalent

           USD 792        USD 741  
        

 

 

    

 

 

 
         W 1,948,541        2,741,516  
        

 

 

    

 

 

 

 

(*1)

Principal of the won denominated bonds is to be repaid at maturity and interests are paid quarterly.

(*2)

Principal of the foreign currency denominated bonds is to be repaid at maturity and interests are paid quarterly or semi-annually.

 

112


Table of Contents
11.

Financial Liabilities, Continued

 

  (f)

Details of the convertible bonds issued and outstanding by the Controlling Company as of December 31, 2020 are as follows:

 

(In won, USD)
    

Description

Type

   Unsecured foreign currency denominated convertible bonds

Issuance amount

   USD 687,800,000

Annual interest rate (%)

   1.50

Issuance date

   August 22, 2019

Maturity date

   August 22, 2024

Interest payment

   Payable semi-annually in arrear until maturity date

Principal redemption

  

1.  Redemption at maturity:

 

       Redeemed on the maturity date, at their outstanding principal amount, which has not been early redeemed or converted.

 

2.  Early redemption:

 

       The Controlling Company has a right to redeem before maturity (call option) or the bondholders have a right to require the Controlling Company to redeem before maturity (put option). At exercise of each option, the outstanding principal amount together with accrued but unpaid interest are to be redeemed.

Conversion price

   W 19,845 per common share (subject to adjustment based on diluted effects of certain events)

Conversion period

   From August 23, 2020 to August 12, 2024

Redemption at the option of the issuer (Call option)

  

-   On or at any time after 3 years from the issuance, if the closing price of the shares for any 20 trading days out of the 30 consecutive trading days is at least 130% of the applicable conversion price

 

-   The aggregate principal amount of the convertible bonds outstanding is less than 10% of the aggregate principal amount originally issued, or

 

-   In the event of certain changes in laws and other directives resulting in additional taxes for the holders

Redemption at the option of the bondholders (Put option)

   On the third anniversary from issuance date

The Controlling Company designated the convertible bonds as financial liabilities at fair value through profit of loss and recognized the change in fair value in profit or loss. The Controlling Company measures the convertible bond at fair value using the market price of convertible bonds disclosed on Bloomberg. The number of convertible shares as of December 31, 2020 is as follows:

 

(In won and No. of shares)  
     December 31, 2020  

Aggregate outstanding amount of the convertible bonds

   W 813,426,670,000  

Conversion price

   W 19,845  

Number of common shares to be issued at conversion

     40,988,998  

 

113


Table of Contents
12.

Employee Benefits

The Controlling Company and certain subsidiaries’ defined benefit plans provide a lump-sum payment to an employee based on final salary rates and length of service at the time the employee leaves the Controlling Company and certain subsidiaries.

The defined benefit plans expose the Group to actuarial risks, such as the risk associated with expected periods of service, interest rate risk, market (investment) risk, and others.

 

  (a)

Net defined benefit liabilities (defined benefit plan assets) recognized as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)              
     December 31, 2020      December 31, 2019  

Present value of partially funded defined benefit obligations

   W 1,397,542        1,481,339  

Fair value of plan assets

     (1,621,041      (1,607,253
  

 

 

    

 

 

 
   W (223,499      (125,914
  

 

 

    

 

 

 

Defined benefit liabilities, net

   W 1,498        1,338  

Defined benefit plan assets, net

     224,997        127,252  

 

  (b)

Changes in the present value of the defined benefit obligations for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)              
     2020      2019  

Defined benefit obligations at January 1

   W 1,481,339        1,595,423  

Current service cost

     163,652        194,469  

Past service cost

     —          (32,006

Interest cost

     35,614        42,360  

Remeasurements (before tax)

     (155,700      (137,464

Benefit payments

     (124,701      (95,675

Curtailment of plans

     —          (80,470

Net transfers from (to) related parties

     (2,645      (5,349

Others

     (17      51  
  

 

 

    

 

 

 

Defined benefit obligations at December 31

   W 1,397,542        1,481,339  
  

 

 

    

 

 

 

Weighted average remaining maturity of defined benefit obligations as of December 31, 2020 and 2019 are 15.06 years and 15.12 years, respectively.

 

  (c)

Changes in fair value of plan assets for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)              
     2020      2019  

Fair value of plan assets at January 1

   W 1,607,253        1,550,063  

Expected return on plan assets

     38,597        41,826  

Remeasurements (before tax)

     (7,264      (8,824

Contributions by employer directly to plan assets

     101,462        186,641  

Benefit payments

     (119,007      (82,266

Net transfers from (to) related parties

     —          280  

Curtailment of plans

     —          (80,467
  

 

 

    

 

 

 

Fair value of plan assets at December 31

   W 1,621,041        1,607,253  
  

 

 

    

 

 

 

 

114


Table of Contents
12.

Employee Benefits, Continued

(d) Plan assets as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)              
     December 31, 2020      December 31, 2019  

Guaranteed deposits in banks

   W 1,621,041        1,607,253  

As of December 31, 2020, the Group maintains the plan assets primarily with Mirae Asset Daewoo Co., Ltd., KB Insurance Co., Ltd. and others.

 

  (e)

Expenses recognized in profit or loss for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)              
     2020      2019  

Current service cost

   W 163,652        194,469  

Past service cost

     —          (32,006

Net interest cost

     (2,983      534  
  

 

 

    

 

 

 
   W 160,669        162,997  
  

 

 

    

 

 

 

Expenses are recognized as following in the consolidated statements of comprehensive income (loss):

 

(In millions of won)              
     2020      2019  

Cost of sales

   W 122,369        119,147  

Selling expenses

     8,505        10,600  

Administrative expenses

     17,875        18,360  

Research and development expenses

     11,920        14,890  
  

 

 

    

 

 

 
   W 160,669        162,997  
  

 

 

    

 

 

 

 

  (f)

Remeasurements of net defined benefit liabilities (assets) included in other comprehensive income (loss) for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)              
     2020      2019  

Balance at January 1

   W (72,326      (165,969

Remeasurements

     

Actuarial profit or loss arising from:

     

Experience adjustment

     36,769        43,644  

Demographic assumptions

     (2,584      (19,952

Financial assumptions

     121,515        113,772  

Return on plan assets

     (7,264      (8,824

Group’s share of associates regarding remeasurements

     39        238  
  

 

 

    

 

 

 
   W 148,475        128,878  
  

 

 

    

 

 

 

Income tax

   W (38,032      (35,235
  

 

 

    

 

 

 

Balance at December 31

   W 38,117        (72,326
  

 

 

    

 

 

 

 

115


Table of Contents
12.

Employee Benefits, Continued

 

  (g)

Principal actuarial assumptions as of December 31, 2020 and 2019 (expressed as weighted averages) are as follows:

 

 

     December 31, 2020     December 31, 2019  

Expected rate of salary increase

     2.9     3.4

Discount rate for defined benefit obligations

     2.6     2.4

Assumptions regarding future mortality are based on published statistics and mortality tables. The current mortality underlying the values of the liabilities in the defined benefit plans are as follows:

 

          December 31, 2020     December 31, 2019  

Teens

   Males      0.00     0.00
   Females      0.00     0.00

Twenties

   Males      0.01     0.01
   Females      0.00     0.00

Thirties

   Males      0.01     0.01
   Females      0.00     0.00

Forties

   Males      0.02     0.02
   Females      0.01     0.01

Fifties

   Males      0.04     0.04
   Females      0.02     0.02

 

  (h)

Reasonably possible changes to respective relevant actuarial assumptions would have affected the defined benefit obligations by the following amounts as of December 31, 2020:

 

(In millions of won)    Defined benefit obligations  
     1% increase      1% decrease  

Discount rate for defined benefit obligations

   W (182,556      221,953  

Expected rate of salary increase

     218,924        (183,720

 

116


Table of Contents
13.

Provisions

 

    

Changes in provisions for the year ended December 31, 2020 are as follows:

 

(In millions of won)                     
     Warranties (*)      Others      Total  

Balance at January 1, 2020

   W 230,262        26,381        256,643  

Additions (reversal)

     309,112        (10,697      298,415  

Usage

     (267,179      (778      (267,957
  

 

 

    

 

 

    

 

 

 

Balance at December 31, 2020

   W 272,195        14,906        287,101  
  

 

 

    

 

 

    

 

 

 

Current

   W 182,562        14,906        197,468  

Non-current

   W 89,633        —          89,633  

 

(*)

Product warranties on defective products are normally applicable for warranty periods from the date of customer’s purchase. The provision is calculated by using historical and anticipated rates of warranty claims, and costs per claim to satisfy the Group’s warranty obligation.

 

117


Table of Contents
14.

Contingent Liabilities and Commitments

 

  (a)

Legal Proceedings

Anti-trust litigations

Some individual claimants filed “follow-on” damages claims against the Group and other TFT-LCD manufacturers alleging violations of EU competition law. While the Group continues its vigorous defense of the various pending proceedings described above, as of December 31, 2020, the Group cannot reliably estimate the timing and amount of outflows of resources embodying economic benefits relating to the proceedings.

Solas OLED Ltd. Litigations

In April 2019 and September 2020, Solas OLED Ltd. filed patent infringement actions against the Controlling Company and its subsidiary, LG Display America, Inc., and television manufacturers in the United States District Court for the Western District of Texas as well as the Controlling Company and its subsidiary, LG Display Germany GmbH, and television manufacturers in the Mannheim District Court in Germany in April 2019. In addition, Solas OLED Ltd. filed patent infringement actions against the Controlling Company, television manufacturers and others in the Beijing Intellectual Property Court in China in May 2019. In November 2020, the Mannheim District Court issued a decision in favor of the plaintiff and at the same month the Group appealed Mannheim District Court’s November decision. The Group reached an agreement with the plaintiff for the above lawsuits in December 2020, and they are expected to be withdrawn in early 2021 through follow-up procedures.

Others

The Group is involved in various lawsuits and disputes in addition to pending proceedings described above. The Group cannot reliably estimate the timing and amount of outflows of resources embodying economic benefits relating to the disputes.

 

  (b)

Commitments

Factoring and securitization of accounts receivable

The Controlling Company has agreements with Korea Development Bank and several other banks for accounts receivable sales negotiating facilities of up to an aggregate of USD 1,115 million (W1,213,120 million) in connection with the Controlling Company’s export sales transactions with its subsidiaries. As of December 31, 2020, there are no short-term borrowings that are outstanding but past due in connection with these agreements. In connection with all of the contracts in this paragraph, the Controlling Company has sold its accounts receivable with recourse.

 

118


Table of Contents
14.

Contingent Liabilities and Commitments, Continued

 

The Controlling Company and overseas subsidiaries have agreements with financial institutions for accounts receivables sales negotiating facilities. The respective maximum amount of accounts receivables that could be sold under the agreement and the amount of sold but not yet due accounts receivables by contract are as follows:

 

(In millions of USD and KRW)                                 

Classification

  

Financial institutions

   Credit limit      Not yet due  
          Contractual
amount
     KRW
equivalent
     Contractual
amount
     KRW
equivalent
 

Controlling Company

   Shinhan Bank     
KRW 90,000
USD 60
 
 
    
90,000
65,280
 
 
    
—  
USD 30
 
 
    
—  
32,657
 
 
   Sumitomo Mitsui Banking Corporation      USD 20        21,760        —          —    
   MUFG Bank      KRW 17,000        17,000        —          —    
     USD 160        174,080        USD 25        27,050  
   BNP Paribas      USD 125        136,000        USD 25        27,249  
   ING Bank      USD 90        97,920        —          —    
     

 

 

    

 

 

    

 

 

    

 

 

 
        USD 455           USD 80     
        KRW 107,000        602,040        —          86,956  
     

 

 

    

 

 

    

 

 

    

 

 

 

Subsidiaries

           

LG Display Singapore Pte. Ltd.

   Standard Chartered Bank      USD 300        326,400        —          —    
     

 

 

    

 

 

    

 

 

    

 

 

 

LG Display Taiwan Co., Ltd.

   BNP Paribas      USD 15        16,320        —          —    
   Australia and New Zealand Banking Group Ltd.      USD 70        76,160        —          —    
   KGI Bank Co., Ltd.      USD 30        32,640        —          —    
     

 

 

    

 

 

    

 

 

    

 

 

 

LG Display Germany GmbH

   BNP Paribas      USD 75        81,600        USD 75        81,551  
   DZ Bank AG      USD 7        8,051        USD 7        8,051  
     

 

 

    

 

 

    

 

 

    

 

 

 

LG Display America, Inc.

   Hong Kong & Shanghai Banking Corp.      USD 400        435,200        USD 300        326,399  
   Standard Chartered Bank      USD 600        652,800        USD 318        345,658  
   Sumitomo Mitsui Banking Corporation      USD 200        217,600        USD 20        21,760  
     

 

 

    

 

 

    

 

 

    

 

 

 

LG Display Japan Co., Ltd.

   Chelsea Capital Corporation Tokyo Branch      USD 120        130,560        —          —    
     

 

 

    

 

 

    

 

 

    

 

 

 
        USD 1,817        1,977,331        USD 720        783,419  
     

 

 

    

 

 

    

 

 

    

 

 

 
        USD 2,272           USD 800     
        KRW 107,000        2,579,371        —          870,375  
     

 

 

    

 

 

    

 

 

    

 

 

 

In connection with all of the contracts in the above table, the Group has sold its accounts receivable without recourse.

 

119


Table of Contents
14.

Contingent Liabilities and Commitments, Continued

 

Letters of credit

As of December 31, 2020, the Controlling Company entered into agreements with financial institutions in relation to the opening of letters of credit and the respective credit limits under the agreements are as follows:

 

(In millions of won and USD)              
     Contractual amount      KRW equivalent  

KEB Hana Bank

     USD 150      W 163,200  

Sumitomo Mitsui Banking Corporation

     USD 50        54,400  

Industrial Bank of Korea

     USD 100        108,800  

Industrial and Commercial Bank of China

     USD 200        217,600  

Shinhan Bank

     USD 200        217,600  

KB Kookmin Bank

     USD 100        108,800  

MUFG Bank

     USD 100        108,800  

The Export–Import Bank of Korea

     USD 200        217,600  
  

 

 

    

 

 

 
     USD 1,100      W 1,196,800  
  

 

 

    

 

 

 

Payment guarantees

The Controlling Company obtained payment guarantees amounting to USD 338 million (W367,200 million) from KB Kookmin Bank and others for advances received related to the long-term supply agreements. The Controlling Company also obtained payment guarantees amounting to USD 306 million (W332,724 million) from Korea Development Bank for foreign currency denominated bonds and USD 2 million (W2,176 million) from Shinhan Bank for value added tax payments in Poland.

LG Display (China) Co., Ltd. and other subsidiaries are provided with payment guarantees from the China Construction Bank and other various banks amounting to CNY 644 million (W107,522 million), JPY 900 million (W9,488 million), EUR 2.5 million (W3,346 million), VND 49,694 million (W2,341 million), and USD 0.5 million (W544 million), respectively, for their local tax payments and utility payments.

License agreements

As of December 31, 2020, the Group has technical license agreements with Hitachi Display, Ltd. and others in relation to its LCD business and patent cross license agreement with Universal Display Corporation in relation to its OLED business. Also, the Group has a trademark license agreement with LG Corp. and other intellectual property license agreements with various companies as of December 31, 2020.

Long-term supply agreement

As of December 31, 2020, in connection with long-term supply agreements with customers, the Controlling Company recognized USD 200 million (W217,600 million) in advances received. The advances received are offset against outstanding accounts receivable balances after a given period of time, as well as those arising from the supply of products thereafter. The Controlling Company received payment guarantees amounting to USD 338 million (W367,200 million) from KB Kookmin Bank and other various banks relating to advances received (see note 14(b) payment guarantees).

 

120


Table of Contents
14.

Contingent Liabilities and Commitments, Continued

 

Pledged Assets

Regarding the secured bank borrowing amounting to CNY 19,320 million (W3,225,667 million) from China Construction Bank and others, as of December 31, 2020, the Group provided its property, plant and equipment with carrying amount of W651,466 million as pledged assets.

 

15.

Capital and Reserves

 

  (a)

Share capital

The Controlling Company is authorized to issue 500,000,000 shares of capital stock (par value W5,000), and as of December 31, 2020 and December 31, 2019, the number of issued common shares is 357,815,700. There have been no changes in the capital stock from January 1, 2019 to December 31, 2020.

 

  (b)

Reserves

Reserves consist mainly of the following:

Translation reserve

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.

Other comprehensive income (loss) from associates

The other comprehensive income (loss) from associates comprises the amount related to change in equity of equity accounted investees.

Reserves as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)              
     December 31, 2020      December 31, 2019  

Foreign currency translation differences for foreign operations

   W (138,667      (178,452

Other comprehensive loss from associates

     (24,779      (24,569
  

 

 

    

 

 

 
   W (163,446      (203,021
  

 

 

    

 

 

 

 

121


Table of Contents
15.

Capital and Reserves, Continued

 

The movement in reserves for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)       
     Foreign currency
translation differences
for foreign operations
    Other comprehensive income
(loss) from associates (excluding
remeasurements)
    Total  

January 1, 2019

   W (272,474     (28,494     (300,968

Change in reserves

     94,022       3,925       97,947  
  

 

 

   

 

 

   

 

 

 

December 31, 2019

     (178,452     (24,569     (203,021
  

 

 

   

 

 

   

 

 

 

January 1, 2020

     (178,452     (24,569     (203,021

Change in reserves

     39,785       (210     39,575  
  

 

 

   

 

 

   

 

 

 

December 31, 2020

     (138,667     (24,779     (163,446
  

 

 

   

 

 

   

 

 

 

 

16.

Revenue

Details of revenue for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)              
     2020      2019  

Sales of goods

   W 24,185,599        23,434,903  

Royalties

     14,167        14,409  

Others

     30,358        26,255  
  

 

 

    

 

 

 
   W 24,230,124        23,475,567  
  

 

 

    

 

 

 

 

17.

Geographic and Other Information

The following is a summary of sales by region based on the location of customers for the years ended December 31, 2020 and 2019.

 

  (a)

Revenue by geography

 

(In millions of won)              
     2020      2019  

Domestic

   W 905,760        1,264,639  

Foreign

     

China

     16,677,420        15,432,503  

Asia (excluding China)

     2,295,727        2,404,739  

United States

     2,060,656        1,940,321  

Europe (excluding Poland)

     1,215,461        1,475,942  

Poland

     1,075,100        957,423  
  

 

 

    

 

 

 
   W 23,324,364        22,210,928  
  

 

 

    

 

 

 
   W 24,230,124        23,475,567  
  

 

 

    

 

 

 

Sales to Company A and Company B amount to W10,380,138 million and W4,229,781 million, respectively, for the year ended December 31, 2020 (2019: W8,494,720 million and W4,501,790 million, respectively). The Group’s top ten end-brand customers together accounted for 85% of sales for the year ended December 31, 2020 (2019: 80%).

 

122


Table of Contents
17.

Geographic and Other Information, Continued

 

  (b)

Non-current assets by geography

 

(In millions of won)                
     December 31, 2020      December 31, 2019  
   Property, plant
and equipment
     Intangible
assets
     Property, plant
and equipment
     Intangible
assets
 

Domestic

   W 11,736,856        874,849        12,764,240        708,047  

Foreign

           

China

     6,731,052        39,396        7,391,279        34,337  

Vietnam

     1,663,807        7,688        1,923,764        7,630  

Others

     15,336        98,155        8,362        123,434  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 8,410,195        145,239        9,323,405        165,401  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 20,147,051        1,020,088        22,087,645        873,448  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

  (c)

Revenue by product and services

 

(In millions of won)              
     2020      2019  

TV

   W 6,706,217        7,998,137  

IT (*)

     10,120,668        9,062,774  

Mobile and others

     7,403,239        6,414,656  
  

 

 

    

 

 

 
   W 24,230,124        23,475,567  
  

 

 

    

 

 

 

 

(*)

IT consists of Monitor, Notebook and Tablet products and revenue by products and services for the year ended December 2019 are reclassified according to classification for the year ended December 31, 2020.

 

123


Table of Contents
18.

The Nature of Expenses and Others

The classification of expenses by nature for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)             
     2020     2019  

Changes in inventories

   W (119,501     640,048  

Purchases of raw materials, merchandise and others

     12,597,032       12,580,796  

Depreciation and amortization

     4,134,843       3,695,051  

Outsourcing

     988,899       865,935  

Labor

     2,866,055       3,072,877  

Supplies and others

     900,019       813,262  

Utility

     885,972       896,112  

Fees and commissions

     679,475       695,245  

Shipping

     184,105       196,002  

Advertising

     113,547       193,436  

Warranty

     309,113       418,942  

Travel

     61,520       95,074  

Taxes and dues

     141,669       109,473  

Impairment loss on property, plant, and equipment

     38,494       1,550,430  

Impairment loss on intangible assets

     79,593       249,450  

Others

     666,983       625,504  
  

 

 

   

 

 

 
   W 24,527,818       26,697,637  
  

 

 

   

 

 

 

Total expenses consist of cost of sales, selling, administrative, research and development expenses and other non-operating expenses, excluding foreign exchange differences.

 

124


Table of Contents
19.

Selling and Administrative Expenses

Details of selling and administrative expenses for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)              
     2020      2019  

Salaries (*)

   W 294,055        514,736  

Expenses related to defined benefit plans

     26,449        29,018  

Other employee benefits

     68,402        77,690  

Shipping

     147,711        162,509  

Fees and commissions

     221,922        219,784  

Depreciation

     215,479        225,909  

Taxes and dues

     82,708        49,826  

Advertising

     113,547        193,436  

Warranty

     309,113        418,942  

Insurance

     12,985        11,386  

Travel

     8,296        23,594  

Training

     8,463        12,215  

Others

     63,821        66,686  
  

 

 

    

 

 

 
   W 1,572,951        2,005,731  
  

 

 

    

 

 

 

 

(*)

Expenses recognized in relation to employee termination benefits for the years ended December 31, 2020 and 2019 amount to W1,417 million and W218,826 million, respectively.

 

20.

Personnel Expenses

Details of personnel expenses for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)       
     2020      2019  

Salaries and wages

   W 2,326,792        2,553,485  

Other employee benefits

     444,090        473,916  

Contributions to National Pension plan

     67,241        73,148  

Expenses related to defined benefit plans and defined contribution plans (*)

     161,285        163,757  
  

 

 

    

 

 

 
   W 2,999,408        3,264,306  
  

 

 

    

 

 

 

 

(*)

Expenses recognized in relation to employee defined contribution plan for the years ended December 31, 2020 and 2019 amount to W616 million and W760 million, respectively.

 

125


Table of Contents
21.

Other Non-operating Income and Other Non-operating Expenses

 

  (a)

Details of other non-operating income for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)       
     2020      2019  

Foreign currency gain

   W 1,688,838        1,174,376  

Gain on disposal of property, plant and equipment

     37,835        35,788  

Gain on disposal of intangible assets

     111        552  

Reversal of impairment loss on intangible assets

     1,110        960  

Rental income

     3,629        3,098  

Gain on disposal of non-current assets held for sale

     —          8,353  

Others

     53,123        44,124  
  

 

 

    

 

 

 
   W 1,784,646        1,267,251  
  

 

 

    

 

 

 

 

  (b)

Details of other non-operating expenses for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)       
     2020      2019  

Foreign currency loss

   W 1,730,703        1,235,054  

Other bad debt expense

     —          1,379  

Loss on disposal of property, plant and equipment

     60,294        40,897  

Impairment loss on property, plant, and equipment

     38,494        1,550,430  

Loss on disposal of intangible assets

     368        139  

Impairment loss on intangible assets

     79,593        249,450  

Donations

     934        693  

Loss on liquidation of investments in subsidiaries

     72,654        —    

Others

     16,240        19,701  
  

 

 

    

 

 

 
   W 1,999,280        3,097,743  
  

 

 

    

 

 

 

 

126


Table of Contents
22.

Finance Income and Finance Costs

 

  (a)

Finance income and costs recognized in profit or loss for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)       
     2020      2019  

Finance income

     

Interest income

   W 69,651        53,378  

Foreign currency gain

     336,155        135,006  

Gain on disposal of investments

     —          4,531  

Reversal of impairment loss on investments

     4,149        1,744  

Gain on transaction of derivatives

     24,759        21,752  

Gain on valuation of derivatives

     —          59,781  

Gain on disposal of financial assets at fair value through profit or loss

     —          138  

Gain on valuation of financial assets at fair value through profit or loss

     4,072        402  
  

 

 

    

 

 

 
   W 438,786        276,732  
  

 

 

    

 

 

 

Finance costs

     

Interest expense

   W 370,479        172,750  

Foreign currency loss

     194,384        154,421  

Impairment loss on investments

     3,344        5,123  

Loss on repayment of borrowings

     794        —    

Loss on sale of trade accounts and notes receivable

     5,258        19,728  

Loss on transaction of derivatives

     291        —    

Loss on valuation of derivatives

     187,344        17,999  

Loss on valuation of financial assets at fair value through profit or loss

     2,311        4,630  

Loss on valuation of financial liabilities at fair value through profit or loss

     36,798        56,384  

Others

     1,675        12,212  
  

 

 

    

 

 

 
   W 802,678        443,247  
  

 

 

    

 

 

 

 

  (b)

Finance income and costs recognized in other comprehensive income or loss for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)       
     2020      2019  

Foreign currency translation differences for foreign operations

   W 48,181        106,690  
  

 

 

    

 

 

 

Finance income (costs) recognized in other comprehensive income or loss after tax

   W 48,181        106,690  
  

 

 

    

 

 

 

 

127


Table of Contents
23.

Income Tax Expense (Benefit)

 

  (a)

Details of income tax expense (benefit) for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)       
     2020      2019  

Current tax expense (benefit)

     

Current year

   W 117,215        193,691  

Adjustment for prior years

     (55,410      (35,787
  

 

 

    

 

 

 
   W 61,805        157,904  
  

 

 

    

 

 

 

Deferred tax expense (benefit)

     

Origination and reversal of temporary differences and others

   W (319,496      (963,385

Change in unrecognized deferred tax assets(*)

     (266,771      333,317  
  

 

 

    

 

 

 
   W (586,267      (630,068
  

 

 

    

 

 

 

Income tax benefit

   W (524,462      (472,164
  

 

 

    

 

 

 

 

(*)

The 2020 amount includes tax effect from recognizing previously unrecognized deferred tax assets in relation to tax credit carry forwards due to amendments to tax laws (extension of tax credit carryforward period from 5 years to 10 years and others) resulting in increase of probability for utilization of tax credits.

 

  (b)

Income taxes recognized directly in other comprehensive income or loss for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)    2020     2019  
     Before tax     Tax
expense
    Net of
tax
    Before
tax
     Tax
expense
    Net of
tax
 

Remeasurements of net defined benefit liabilities (assets)

   W 148,436       (38,032     110,404       128,640        (35,235     93,405  

Foreign currency translation differences for foreign operations

     48,181       —         48,181       106,690        —         106,690  

Change in equity of equity method investee

     (172     —         (172     4,163        —         4,163  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
   W 196,445       (38,032     158,413       239,493        (35,235     204,258  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

128


Table of Contents
23.

Income Taxes, Continued

 

 

  (c)

Reconciliation of the actual effective tax rate for the years ended December 31, 2020 and 2019 is as follows:

 

(In millions of won)                                 
     2020      2019  

Loss for the year

   W          (70,636        (2,872,078

Income tax benefit

          (524,462        (472,164
       

 

 

      

 

 

 

Loss before income tax

          (595,098        (3,344,242
       

 

 

      

 

 

 

Income tax benefit using the statutory tax rate of each country

        31.55     (187,754      23.94     (800,660

Non-deductible expenses

        (2.32 %)      13,789        (0.95 %)      31,649  

Tax credits

        12.61     (75,051      1.47     (49,269

Change in unrecognized deferred tax assets(*1)

        44.83     (266,771      (9.97 %)      333,318  

Adjustment for prior years (*2)

        9.31     (55,410      1.07     (35,787

Effect on change in tax rate

        (1.24 %)      7,386        (0.40 %)      13,353  

Others

        (6.61 %)      39,349        (1.05 %)      35,232  
       

 

 

      

 

 

 

Income tax benefit

   W          (524,462        (472,164
       

 

 

      

 

 

 

Effective tax rate

          (*3        (*3

 

(*1)

The 2020 amount includes tax effect from recognizing previously unrecognized deferred tax assets in relation to tax credit carry forwards due to amendments to tax laws (extension of tax credit carryforward period from 5 years to 10 years and others) resulting in increase of probability for utilization of tax credits.

(*2)

Adjustment for prior years in 2020 consist of additional use of tax credits in amended tax returns and others. Adjustment for prior years in 2019 consist of additional use of tax credits in amended tax returns and expected amount of income tax refund in relation to the transfer price investigation and others.

(*3)

Actual effective tax rate are not calculated due to loss before income tax.

 

  (d)

Tax uncertainties

In relation to transfer price investigations conducted in subsidiaries located in China, the mutual agreement procedures between tax authorities of the Republic of Korea and China are in progress since 2019. Upon completion of the above process, double taxation is expected to be eliminated. During the year ended December 31, 2019, the Group recognized current tax assets of W109,222 million in connection with the above and there is no change for the year ended December 31, 2020.

 

129


Table of Contents
24.

Deferred Tax Assets and Liabilities

 

  (a)

Unrecognized deferred tax liabilities

As of December 31, 2020, in relation to the taxable temporary differences on investments in subsidiaries amounting to W96,405 million, the Controlling Company did not recognize deferred tax liabilities since the Controlling Company is able to control the timing of the reversal of the temporary difference and it is probable that the temporary differences will not reverse in the foreseeable future.

 

  (b)

Unused tax credit carryforwards for which no deferred tax asset is recognized

Realization of deferred tax assets related to tax credit carryforwards which are primarily related to Korea is dependent on whether sufficient taxable income will be generated prior to their expiration and planned tax strategies are feasible. As of December 31, 2020, the amount of unused tax credit carryforwards for which no deferred tax asset is recognized and their expiration dates are as follows:

 

(In millions of won)                                          
     Total      December 31,
2026
     December 31,
2027
     December 31,
2028
     December 31,
2029
     December 31,
2030
 

Tax credit carryforwards

   W 230,768        10,278        48,578        48,293        82,707        40,912  

 

130


Table of Contents
24.

Deferred Tax Assets and Liabilities, Continued

 

  (c)

Deferred tax assets and liabilities are attributable to the following:

 

(In millions of won)    Assets      Liabilities     Total  
     December 31,
2020
     December 31,
2019
     December 31,
2020
    December 31,
2019
    December 31,
2020
    December 31,
2019
 

Other accounts receivable, net

   W —          —          (13     (4,364     (13     (4,364

Inventories, net

     60,539        89,522        —         —         60,539       89,522  

Defined benefit liabilities, net

     —          —          (35,617     —         (35,617     —    

Investments in subsidiaries and associates

     —          —          (79,301     (20,015     (79,301     (20,015

Accrued expenses

     123,106        131,196        —         —         123,106       131,196  

Property, plant and equipment

     669,449        691,599        (63,971     (21,690     605,478       669,909  

Intangible assets

     19,469        21,886        (8,000     (10,759     11,469       11,127  

Provisions

     63,943        59,875        —         (4,446     63,943       55,429  

Others

     173,166        137,667        (3,601     (328     169,565       137,339  

Tax loss carryforwards

     953,209        607,432        —         —         953,209       607,432  

Tax credit carryforwards

     391,769        38,337        —         —         391,769       38,337  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Deferred tax assets (liabilities)

   W 2,454,650        1,777,514        (190,503     (61,602     2,264,147       1,715,912  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

131


Table of Contents
24.

Deferred Tax Assets and Liabilities, Continued

 

  (d)

Changes in deferred tax assets and liabilities for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)    January 1,
2019
    Profit or
loss
    Other
comprehensive
loss
    December 31,
2019
    Profit or
loss
    Other
comprehensive
loss
    December 31,
2020
 

Other accounts receivable, net

   W (1,013     (3,351     —         (4,364     4,351       —         (13

Inventories, net

     60,606       28,916       —         89,522       (28,983     —         60,539  

Defined benefit liabilities, net

     —         35,235       (35,235     —         2,415       (38,032     (35,617

Subsidiaries and associates

     13,404       (33,419     —         (20,015     (59,286     —         (79,301

Accrued expenses

     126,072       5,124       —         131,196       (8,090     —         123,106  

Property, plant and equipment

     444,226       225,683       —         669,909       (64,431     —         605,478  

Intangible assets

     (11,120     22,247       —         11,127       342       —         11,469  

Provisions

     32,468       22,961       —         55,429       8,514       —         63,943  

Gain or loss on foreign currency translation, net

     13       (13     —         —         —         —         —    

Others

     13,185       124,154       —         137,339       32,226       —         169,565  

Tax loss carryforwards

     134,845       472,587       —         607,432       345,777       —         953,209  

Tax credit carryforwards

     308,393       (270,056     —         38,337       353,432       —         391,769  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Deferred tax assets (liabilities)

   W 1,121,079       630,068       (35,235     1,715,912       586,267       (38,032     2,264,147  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

132


Table of Contents
25.

Loss per Share Attributable to Owners of the Controlling Company

 

  (a)

Basic loss per share for the years ended December 31, 2020 and 2019 are as follows:

 

(In won and No. of shares)              
     2020      2019  

Loss attributable to owners of the Controlling Company for the year

   W (89,342,064,677      (2,829,705,069,665

Weighted-average number of common stocks outstanding

     357,815,700        357,815,700  
  

 

 

    

 

 

 

Basic loss per share

   W (250      (7,908
  

 

 

    

 

 

 

For the years ended December 31, 2020 and 2019, there were no events or transactions that resulted in changes in the number of common stocks used for calculating basic loss per share.

 

  (b)

Diluted loss per share is not different from basic loss per share. As of December 31, 2020, 40,988,998 shares of potential common stock to be issued from conversion were excluded from the calculation of weighted-average number of common stocks due to antidilution.

 

26.

Financial Risk Management

The Group is exposed to credit risk, liquidity risk and market risks. The Group identifies and analyzes such risks, and controls are implemented under a risk management system to monitor and manage these risks at below an acceptable level.

 

  (a)

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

 

  (i)

Currency risk

The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the functional currency of the Controlling Company, Korean won (KRW). The currencies in which these transactions primarily are denominated are USD, CNY, JPY, etc.

Interest on borrowings is accrued in the currency of the borrowing. Generally, borrowings are denominated in currencies that match the cash flows generated by the underlying operations of the Group, primarily KRW, USD and CNY.

In respect of other monetary assets and liabilities denominated in foreign currencies, the Group adopts policies to ensure that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances. Meanwhile, the Group entered into cross currency interest rate swap contracts to hedge currency risk with respect to foreign currency denominated borrowings and bonds.

 

133


Table of Contents
26.

Financial Risk Management, Continued

 

  i)

Exposure to currency risk

The Group’s exposure to foreign currency risk based on notional amounts as of December 31, 2020 and 2019 are as follows:

 

(In millions)    December 31, 2020  
     USD     JPY     CNY     TWD     EUR     PLN      VND     GBP  

Cash and cash equivalents

     1,795       164       13,382       34       7       4        33,843       —    

Trade accounts and notes receivable

     3,093       13       585       —         —         —          —         —    

Non-trade receivables

     52       93       222       3       6       —          9,773       —    

Other assets denominated in foreign currencies

     —         208       51       6       1       —          4,586       —    

Trade accounts and notes payable

     (1,948     (9,831     (2,037     —         —         —          (357,149     —    

Other accounts payable

     (268     (6,239     (2,018     (4     (8     —          (997,204     (2

Financial liabilities

     (4,294     —         (27,825     —         —         —          —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
     (1,570     (15,592     (17,640     39       6       4        (1,306,151     (2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Cross currency interest rate swap contracts

     2,225       —         —         —         —         —          —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net exposure

     655       (15,592     (17,640     39       6       4        (1,306,151     (2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

(In millions)    December 31, 2019  
     USD     JPY     CNY     TWD     EUR     PLN      VND  

Cash and cash equivalents

     1,594       68       8,360       33       5       25        28,663  

Trade accounts and notes receivable

     2,485       19       550       —         —         —          —    

Non-trade receivables

     276       455       230       3       2       —          13,131  

Other assets denominated in foreign currencies

     29       526       5,668       369       5       503        4,032  

Trade accounts and notes payable

     (628     (9,043     (2,289     —         —         —          (291,891

Other accounts payable

     (488     (12,396     (3,239     (4     (10     —          (786,356

Financial liabilities

     (4,255     —         (20,436     —         —         —          —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
     (987     (20,371     (11,156     401       2       528        (1,032,421
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cross currency interest rate swap contracts

     2,085       —         —         —         —         —          —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net exposure

     1,098       (20,371     (11,156     401       2       528        (1,032,421
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

134


Table of Contents
26.

Financial Risk Management, Continued

 

Average exchange rates applied for the years ended December 31, 2020 and 2019 and the exchange rates at December 31, 2020 and December 31, 2019 are as follows:

 

(In won)    Average rate      Reporting date spot rate  
     2020      2019      December 31, 2020      December 31, 2019  

USD

   W 1,180.46        1,165.46        1,088.00        1,157.80  

JPY

     11.05        10.70        10.54        10.63  

CNY

     170.90        168.56        166.96        165.74  

TWD

     40.07        37.74        38.67        38.48  

EUR

     1,345.71        1,304.52        1,338.24        1,297.43  

PLN

     302.95        303.62        292.02        304.87  

VND

     0.0508        0.0502        0.0471        0.0500  

GBP

     1,513.48        1,487.46        1,482.40        1,420.32  

 

  ii)

Sensitivity analysis

A weaker won, as indicated below, against the following currencies which comprise the Group’s assets or liabilities denominated in a foreign currency as of December 31, 2020 and 2019, would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Group considers to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, would remain constant. The changes in equity and profit or loss would have been as follows:

 

(In millions of won)    December 31, 2020      December 31, 2019  
     Equity      Profit or loss      Equity      Profit or loss  

USD (5 percent weakening)

   W 12,438        73,186        23,570        105,398  

JPY (5 percent weakening)

     (6,250      (5,194      (8,397      (6,418

CNY (5 percent weakening)

     (147,294      93        (92,454      11  

TWD (5 percent weakening)

     75        —          772        —    

EUR (5 percent weakening)

     250        377        221        (278

PLN (5 percent weakening)

     43        43        8,036        28  

VND (5 percent weakening)

     (2,230      (2,230      (1,871      (1,871

GBP (5 percent weakening)

     (107      (107      —          —    

A stronger won against the above currencies as of December 31, 2020 and 2019 would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

 

135


Table of Contents
26.

Financial Risk Management, Continued

 

  (ii)

Interest rate risk

Interest rate risk arises principally from the Group’s variable interest-bearing bonds and borrowings. The Group establishes and applies its policy to reduce uncertainty arising from fluctuations in the interest rate and to minimize finance cost and manages interest rate risk by monitoring of trends of fluctuations in interest rate and establishing plan for countermeasures. Meanwhile, the Group entered into cross currency interest rate swap contracts amounting to USD 1,925 million (W2,094,400 million) and interest rate swap contracts amounting to W170,000 million in notional amount to hedge interest rate risk with respect to variable interest bearing borrowings.

 

  i)

Profile

The interest rate profile of the Group’s interest-bearing financial instruments as of December 31, 2020 and 2019 is as follows:

 

(In millions of won)             
     December 31,
2020
    December 31,
2019
 

Fixed rate instruments

    

Financial assets

   W 4,296,823       3,414,838  

Financial liabilities

     (5,875,729     (6,066,554
  

 

 

   

 

 

 
   W (1,578,906     (2,651,716
  

 

 

   

 

 

 

Variable rate instruments

    

Financial liabilities

   W (8,193,085     (7,414,336

 

  ii)

Equity and profit or loss sensitivity analysis for variable rate instruments

As of December 31, 2020 and 2019, a change of 100 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below for each 12-month period following the reporting dates. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.

 

(In millions of won)    Equity      Profit or loss  
     1%p
increase
     1%p
decrease
     1%p
increase
     1%p
decrease
 

December 31, 2020

           

Variable rate instruments (*)

   W (45,352      45,352        (45,352      45,352  

December 31, 2019

           

Variable rate instruments (*)

   W (38,774      38,774        (38,774      38,774  

 

(*)

Financial instruments related to non-hedging interest rate swaps are excluded.

 

136


Table of Contents
26.

Financial Risk Management, Continued

 

  (b)

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers.

The Group’s exposure to credit risk of trade and other receivables is influenced mainly by the individual characteristics of each customer. However, management believes that the default risk of the country in which each customer operates, do not have a significant influence on credit risk since the majority of the customers are global electronic appliance manufacturers operating in global markets.

The Group establishes credit limits for each customer and each new customer is analyzed quantitatively and qualitatively before determining whether to utilize third party guarantees, insurance or factoring as appropriate.

In relation to the impairment of financial assets subsequent to initial recognition, the Group recognizes the changes in expected credit loss (“ECL”) in profit or loss at each reporting date.

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposures to credit risk as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)              
     December 31, 2020      December 31, 2019  

Financial assets carried at amortized cost

     

Cash and cash equivalents

   W 4,217,943        3,336,003  

Deposits in banks

     78,663        78,768  

Trade accounts and notes receivable, net

     3,517,512        3,154,080  

Non-trade receivables

     140,616        463,614  

Accrued income

     3,864        10,434  

Deposits

     30,947        31,036  

Short-term loans

     28,491        21,623  

Long-term loans

     13,899        40,827  

Long-term non-trade receivables

     —          9,072  

Lease receivables

     22,262        27,794  
  

 

 

    

 

 

 
   W 8,054,197        7,173,251  
  

 

 

    

 

 

 

Financial assets at fair value through profit or loss

     

Convertible securities

   W 2,377        1,544  

Derivatives

     9,363        49,676  
  

 

 

    

 

 

 
   W 11,740        51,220  
  

 

 

    

 

 

 

Financial assets at fair value through other comprehensive income

     

Debt instruments

   W 72        76  
  

 

 

    

 

 

 
   W 8,066,009        7,224,547  
  

 

 

    

 

 

 

Trade accounts and notes receivable are insured in order for the Group to manage credit risk if they do not meet the Group’s internal credit ratings. Uninsured trade accounts and notes receivables are managed by continuous monitoring of internal credit rating standards established by the Group and seeking insurance coverage, if necessary.

 

137


Table of Contents
26.

Financial Risk Management, Continued

 

  (c)

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or other financial assets. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group has historically been able to satisfy its cash requirements from cash flows from operations and debt and equity financing. To the extent that the Group does not generate sufficient cash flows from operations to meet its capital requirements, the Group may rely on other financing activities, such as external long-term borrowings and offerings of debt instruments, equity-linked and other debt instruments. In addition, the Group maintains a line of credit with various banks.

The following are the contractual maturities of financial liabilities, including estimated interest payments, as of December 31, 2020.

 

(In millions of won)           Contractual cash flows in  
     Carrying
amount
     Total      6 months
or less
     6-12
months
     1-2 years      2-5 years      More than
5 years
 

Non-derivative financial liabilities

                    

Borrowings

   W 11,296,898        12,201,452        1,672,931        942,835        2,753,807        6,375,984        455,895  

Bonds

     2,771,916        2,786,822        327,489        551,540        1,379,750        435,757        92,286  

Trade accounts and notes payable

     3,779,290        3,779,290        3,660,788        118,502        —          —          —    

Other accounts payable

     1,703,791        1,703,791        1,703,791        —          —          —          —    

Other accounts payable (enterprise procurement
cards)(*)

     1,078,150        1,078,150        473,511        604,639        —          —          —    

Long-term other accounts payable

     30        30        —          —          30        —          —    

Security deposits received

     12,539        12,539        —          1,430        10,920        189        —    

Lease liabilities

     83,431        90,132        25,150        14,284        19,779        22,181        8,738  

Derivative financial liabilities

                    

Derivatives

   W 167,625        153,487        26,332        22,861        39,277        65,017        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 20,893,670        21,805,693        7,889,992        2,256,091        4,203,563        6,899,128        556,919  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

138


Table of Contents
26.

Financial Risk Management, Continued

 

 

(*)

Represents liabilities payable to credit card companies for utility expenses and others paid using enterprise procurement cards and the outstanding payables are settled at the end of the billing cycle. The Group presented the payable to credit card companies as other accounts payable and disclosed related cash flow as operating activities since the Group is using the enterprise procurement cards through agreements with suppliers for transactions arising from purchasing of goods and services, the payment term is within a year from the purchase, as part of the normal operating cycle, and no security is provided in connection with the above agreement. Change in liabilities related to procurement cards for the year ended December 31, 2020 is as follows:

 

(In millions of won)                    
     January 1, 2020      Change
(Cash flows from
operation activities)
    December 31, 2020  

Other accounts payable (enterprise procurement cards)

   W 2,353,355        (1,275,205     1,078,150  

It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.

 

139


Table of Contents
26.

Financial Risk Management, Continued

 

  (d)

Capital Management

Management’s policy is to maintain a capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Liabilities to equity ratio, net borrowings to equity ratio and other financial ratios are used by management to achieve an optimal capital structure. Management also monitors the return on capital as well as the level of dividends to ordinary shareholders.

 

(In millions of won)             
     December 31, 2020     December 31, 2019  

Total liabilities

   W 22,334,584       23,086,282  

Total equity

     12,736,939       12,488,281  

Cash and deposits in banks (*1)

     4,296,751       3,414,760  

Borrowings (including bonds)

     14,068,814       13,480,889  

Total liabilities to equity ratio

     175     185

Net borrowings to equity ratio (*2)

     77     81

 

(*1)

Cash and deposits in banks consist of cash and cash equivalents and current deposits in banks.

(*2)

Net borrowings to equity ratio is calculated by dividing total borrowings (including bonds and excluding lease liabilities and others) less cash and current deposits in banks by total equity.

 

140


Table of Contents
26.

Financial Risk Management, Continued

 

  (e)

Determination of fair value

 

  (i)

Measurement of fair value

A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

 

  i)

Current assets and liabilities

The carrying amounts approximate their fair value because of the short maturity of these instruments.

 

  ii)

Trade receivables and other receivables

The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes. The carrying amounts of current receivables approximate their fair value.

 

  iii)

Investments in equity and debt instruments

The fair value of marketable financial assets at FVTPL and at FVOCI is determined by reference to their quoted closing bid price at the reporting date. The fair value of non-marketable instruments is determined using the results of fair value assessment performed by external valuation institution and others.

 

  iv)

Non-derivative financial liabilities

Fair value, which is determined for disclosure purposes, except for the liabilities at FVTPL, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date.

 

141


Table of Contents
26.

Financial Risk Management, Continued

 

  (ii)

Fair values versus carrying amounts

The fair values of financial assets and liabilities, together with the carrying amounts shown in the consolidated statements of financial position as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)                           
     December 31, 2020     December 31, 2019  
     Carrying
amounts
     Fair values     Carrying
amounts
     Fair values  

Financial assets carried at amortized cost

          

Cash and cash equivalents

   W 4,218,099        ( *)      3,336,003        ( *) 

Deposits in banks

     78,663        ( *)      78,768        ( *) 

Trade accounts and notes receivable

     3,517,512        ( *)      3,154,080        ( *) 

Non-trade receivables

     140,616        ( *)      463,614        ( *) 

Accrued income

     3,864        ( *)      10,434        ( *) 

Deposits

     30,947        ( *)      31,036        ( *) 

Short-term loans

     28,491        ( *)      21,623        ( *) 

Long-term loans

     13,899        ( *)      40,827        ( *) 

Long-term non-trade receivables

     —          ( *)      9,072        ( *) 

Lease receivables

     22,262        ( *)      27,794        ( *) 

Financial assets at fair value through profit or loss

          

Equity instruments

   W 13,223        13,223       9,879        9,879  

Convertible securities

     2,377        2,377       1,544        1,544  

Derivatives

     9,363        9,363       49,676        49,676  

Financial assets at fair value through other comprehensive income

          

Debt instruments

   W 72        72       76        76  

Financial liabilities at fair value through profit or loss

          

Derivatives

   W 167,625        167,625       20,592        20,592  

Convertible bonds

     861,675        861,675       858,385        858,385  

Financial liabilities carried at amortized cost

          

Borrowings

   W 11,296,898        11,328,418       10,329,671        10,394,498  

Bonds

     1,910,241        1,923,517       2,292,833        2,345,867  

Trade accounts and notes payable

     3,779,290        ( *)      2,618,261        ( *) 

Other accounts payable

     2,781,941        ( *)      4,397,121        ( *) 

Long-term other accounts payable

     30        ( *)      1,069        ( *) 

Security deposits received

     12,539        ( *)      11,000        ( *) 

Lease liabilities

     83,431        ( *)      88,512        ( *) 

 

(*)

Excluded from disclosures as the carrying amount approximates fair value.

 

142


Table of Contents
26.

Financial Risk Management, Continued

 

  (iii)

Fair values of financial assets and liabilities

 

  i)

Fair value hierarchy

Financial instruments carried at fair value are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques. The different levels have been defined as follows:

 

   

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

 

   

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

 

   

Level 3: inputs for the asset or liability that are not based on observable market data

 

  ii)

Financial instruments measured at fair value

Fair value hierarchy classifications of the financial instruments that are measured at fair value as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)    December 31, 2020  
     Level 1      Level 2      Level 3      Total  

Financial assets at fair value through profit or loss

           

Equity instruments

   W —          —          13,223        13,223  

Convertible securities

     —          —          2,377        2,377  

Derivatives

     —          —          9,363        9,363  

Financial assets at fair value through other comprehensive income

           

Debt instruments

   W 72        —          —          72  

Financial liabilities at fair value through profit or loss

           

Derivatives

   W —          —          167,625        167,625  

Convertible bonds

     861,675        —          —          861,675  
(In millions of won)    December 31, 2019  
     Level 1      Level 2      Level 3      Total  

Financial assets at fair value through profit or loss

           

Equity instruments

   W —          —          9,879        9,879  

Convertible securities

     —          —          1,544        1,544  

Derivatives

     —          —          49,676        49,676  

Financial assets at fair value through other comprehensive income

           

Debt instruments

   W 76        —          —          76  

Financial liabilities at fair value through profit or loss

           

Derivatives

   W —          —          20,592        20,592  

Convertible bonds

     858,385        —          —          858,385  

 

143


Table of Contents
26.

Financial Risk Management, Continued

 

  iii)

Financial instruments not measured at fair value but for which the fair value is disclosed

Fair value hierarchy classifications, valuation technique and inputs for fair value measurements of the financial instruments not measured at fair value but for which the fair value is disclosed as of December 31, 2020 and December 31, 2019 are as follows:

 

(In millions of won)    December 31, 2020      Valuation
technique
     Input  

Classification

   Level 1      Level 2      Level 3  

Liabilities

              

Borrowings

   W —          —          11,328,418       
Discounted cash
flow
 
 
    
Discount
rate
 
 

Bonds

     —          —          1,923,517       
Discounted cash
flow
 
 
    
Discount
rate
 
 
(In millions of won)    December 31, 2019      Valuation
technique
     Input  

Classification

   Level 1      Level 2      Level 3  

Liabilities

              

Borrowings

   W        —          10,394,498       
Discounted cash
flow
 
 
    
Discount
rate
 
 

Bonds

     —          —          2,345,867       
Discounted cash
flow
 
 
    
Discount
rate
 
 

 

  iv)

The interest rates applied for determination of the above fair value as of December 31, 2020 and 2019 are as follows:

 

     December 31, 2020     December 31, 2019  

Borrowings, bonds and others

     2.15~4.46     1.87~3.56

 

144


Table of Contents
27.

Leases

 

  (a)

Leases as lessee

The Group leases buildings, vehicles, machinery and equipment and others. Information about leases for which the Group is a lessee is presented below.

 

  (i)

Right-of-use assets

Right-of-use assets are presented as property, plant and equipment as of December 31, 2020 and December 31, 2019 (see Note 9(a)).

Changes in right-of-use assets for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)                                     
     2020  
     Buildings
and
structures
    Land     Machinery
and equipment
    Vehicles     Others     Total  

Balance at January 1, 2020

   W 53,213       49,754       2,147       7,848       288       113,250  

Additions

     44,900       607       1,197       4,459       591       51,754  

Depreciation

     (42,923     (2,947     (1,485     (6,336     (378     (54,069

Gain or loss on foreign currency translation

     (24     (3     —         (1     —         (28
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2020

   W 55,1666       47,411       1,859       5,970       501       110,907  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(In millions of won)                                     
     2019  
     Buildings
and
structures
    Land     Machinery
and equipment
    Vehicles     Others     Total  

Balance at January 1, 2019

   W 75,777       53,960       1,111       10,800       392       142,040  

Addition

     19,743       1,890       2,882       4,971       247       29,733  

Depreciation

     (39,376     (2,272     (1,305     (7,760     (350     (51,063

Derecognition of right-of-use assets

     (3,056     —         (538     —         —         (3,594

Impairment

     (248     (3,833     (20     (193     (8     (4,302

Gain or loss on foreign currency translation

     373       9       17       30       7       436  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2019

   W 53,213       49,754       2,147       7,848       288       113,250  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

145


Table of Contents
27.

Leases, Continued

 

  (ii)

Amounts recognized in profit or loss not from right-of-use assets for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)             
     2020     2019  

Interest on lease liabilities

   W (4,456     (4,085

Income from sub-leasing right-of-use assets

     896       1,079  

Expenses relating to short-term leases

     (977     (1,783

Expenses relating to leases of low-value assets

     (231     (1,188

 

  (iii)

Changes in lease liabilities for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)             
     2020     2019  

Balance at January 1

   W 88,512       115,119  

Additions and others

     52,663       33,878  

Interest expense

     4,456       4,085  

Repayment of liabilities

     (62,200     (64,570
  

 

 

   

 

 

 

Balance at December 31

   W 83,431       88,512  
  

 

 

   

 

 

 

 

  (b)

Leases as lessor

During the years ended December 31, 2020 and 2019, the Group recognized interest income on lease receivables of W896 million and W1,079 million, respectively.

The following table sets out a maturity analysis of lease receivables, showing the undiscounted lease payments to be received after the reporting date.

 

(In millions of won)             
     December 31, 2020     December 31, 2019  

6 months or less

   W 3,306       3,282  

6-12 months

     3,306       3,282  

1-2 years

     6,612       6,563  

2-5 years

     10,469       16,956  

Total undiscounted lease receivable

     23,693       30,083  

Unearned finance income

     (1,431     (2,289

Net Investment in the lease

     22,262       27,794  

 

146


Table of Contents
28.

Changes in liabilities arising from financing activities

Changes in liabilities arising from financing activities for the year ended December 31, 2020 are as follows:

 

(In millions of won)                                              
     January 1,
2020
     Cash flows
from
financing
activities
    Non-cash transactions         
    Reclassification     Gain or loss on
foreign currency
translation
    Effective interest
adjustment
     Others      December 31,
2020
 

Short-term borrowings

   W 696,793        (267,614     —         (34,273     —          —          394,906  

Current portion of long-term borrowings and bonds

     1,242,904        (1,278,199     2,763,075       (23,627     763        793        2,705,709  

Long-term borrowings

     8,799,677        2,329,013       (1,935,274     (173,758     —          —          9,019,658  

Bonds

     2,741,516        49,949       (827,801     (72,129     20,207        36,799        1,948,541  

Lease liabilities

     88,512        (62,200     —         5,362       —          51,757        83,431  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 
   W 13,569,402        770,949       —         (298,425     20,970        89,349        14,152,245  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

147


Table of Contents
29.

Related Parties and Others

 

  (a)

Related parties

Related parties as of December 31, 2020 are as follows:

 

Classification

  

Description

Associates(*)

   Paju Electric Glass Co., Ltd. and others

Entity that has significant influence over the Controlling Company

   LG Electronics Inc.

Subsidiaries of the entity that has significant influence over the Controlling Company

   Subsidiaries of LG Electronics Inc.

 

(*)

Details of associates are described in Note 8.

 

148


Table of Contents
29.

Related Parties and Others, Continued

 

  (b)

Significant transactions such as sales of goods and purchases of raw material and outsourcing service and others, which occurred in the normal course of business with related parties for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)    2020  
     Sales and
others
     Dividend
income
     Purchase and others  
     Purchase of
raw material
and others
     Acquisition of
property,
plant and
equipment
     Outsourcing
fees
     Other
costs
 

Associates

                 

AVATEC Co., Ltd.

   W 22        200        80        —          74,070        1,112  

Paju Electric Glass Co., Ltd.

     —          7,739        299,737        —          —          2,862  

WooRee E&L Co., Ltd.

     —          —          13,857        —          —          35  

YAS Co., Ltd.

     —          300        6,648        22,603        —          3,790  

Material Science Co., Ltd.

     —          —          93        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 22        8,239        320,415        22,603        74,070        7,799  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Entity that has significant influence over the Controlling Company

                 

LG Electronics Inc.

   W 647,329        —          19,810        233,504        —          141,191  

Subsidiaries of the entity that has significant influence over the Controlling Company

                 

LG Electronics India Pvt. Ltd.

   W 53,441        —          —          —          —          173  

LG Electronics Vietnam Haiphong Co., Ltd.

     332,977        —          —          —          —          1,138  

LG Electronics Nanjing New Technology Co., Ltd.

     439,674        —          —          —          —          1,333  

LG Electronics RUS, LLC

     95,465        —          —          —          —          303  

 

149


Table of Contents
29.

Related Parties and Others, Continued

 

(In millions of won)    2020  
     Sales and
others
     Dividend
income
     Purchase and others  
     Purchase of raw
material and
others
     Acquisition of
property,
plant and
equipment
     Outsourcing
fees
     Other
costs
 

LG Electronics do Brasil Ltda.

   W 111,710        —          —          —          —          230  

LG Innotek Co., Ltd.

     5,321        —          25,012        —          —          76,530  

Qingdao LG Inspur Digital Communication Co., Ltd.

     7,298        —          —          —          —          —    

LG Electronics Mexicalli, S.A. DE C.V.

     145,032        —          —          —          —          52  

LG Electronics Mlawa Sp. z o.o.

     729,135        —          —          —          —          1,188  

LG Electronics Reynosa, S.A. DE C.V.

     780,710        —          —          —          —          1,044  

LG Electronics Egypt S.A.E.

     69,853        —          —          —          —          375  

LG Electronics Japan, Inc.

     —          —          —          33        —          5,635  

P.T. LG Electronics Indonesia

     157,820        —          —          —          —          164  

Others

     5,030        —          229        —          —          7,632  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 2,933,466        —          25,241        33        —          95,797  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 3,580,817        8,239        365,466        256,140        74,070        244,787  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

150


Table of Contents
29.

Related Parties and Others, Continued

 

(In millions of won)    2019  
     Sales and
others
     Dividend
income
     Purchase and others  
     Purchase of raw
material and
others
     Acquisition of
property,
plant and
equipment
     Outsourcing
fees
     Other
costs
 

Associates

                 

INVENIA Co., Ltd.(*1)

   W —          180        1,024        45,580        —          297  

AVATEC Co., Ltd.

     2,639        265        —          —          73,323        891  

Paju Electric Glass Co., Ltd.

     —          6,057        342,958        —          —          4,416  

WooRee E&L Co., Ltd.

     —          —          6,441        —          —          5  

YAS Co., Ltd.

     —          1,000        6,764        102,316        —          3,655  

Material Science Co., Ltd.

     —          —          59        —          —          313  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 2,639        7,502        357,246        147,896        73,323        9,577  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Entity that has significant influence over the Controlling Company

                 

LG Electronics Inc.

   W 947,409        —          13,240        815,629        —          153,212  

Subsidiaries of the entity that has significant influence over the Controlling Company

                 

LG Electronics India Pvt. Ltd.

   W 87,116        —          —          —          —          194  

LG Electronics Vietnam Haiphong Co., Ltd.

     277,743        —          —          3,019        —          924  

LG Electronics Nanjing New Technology Co., Ltd.

     297,033        —          —          31        —          486  

LG Electronics RUS, LLC

     100,894        —          —          —          —          1,972  

 

151


Table of Contents
29.

Related Parties and Others, Continued

 

(In millions of won)    2019  
     Sales and
others
     Dividend
income
     Purchase and others  
     Purchase of raw
material and
others
     Acquisition of
property,
plant and
equipment
     Outsourcing
fees
     Other
costs
 

LG Electronics do Brasil Ltda.

   W 145,546        —          —          —          —          289  

LG Innotek Co., Ltd.

     7,572        —          53,886        —          —          79,162  

Qingdao LG Inspur Digital Communication Co., Ltd.

     22,563        —          —          —          —          —    

Inspur LG Digital Mobile Communications Co., Ltd.

     41,858        —          —          —          —          —    

LG Electronics Mexicalli, S.A. DE C.V.

     114,520        —          —          —          —          85  

LG Electronics Mlawa Sp. z o.o.

     618,715        —          —          —          —          1,967  

LG Hitachi Water Solutions Co., Ltd.(*2)

     —          —          —          79,986        —          —    

LG Electronics Reynosa, S.A. DE C.V.

     722,194        —          —          —          —          1,155  

LG Electronics Air-Conditioning (Shandong) Co., Ltd.

     —          —          444        14,527        —          88  

HiEntech Co., Ltd.(*2)

     47        —          —          7,264        —          21,576  

HiEntech (Tianjin) Co., Ltd.(*2)

     —          —          —          32,335        —          15,423  

LG Electronics Egypt S.A.E.

     97,359        —          —          —          —          241  

LG Electronics Alabama Inc.

     12,869        —          —          —          —          —    

LG Electronics Japan, Inc.

     —          —          —          14        —          6,236  

P.T. LG Electronics Indonesia

     11,200        —          —          —          —          176  

Others

     12,564        —          —          33        —          6,996  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 2,569,793        —          54,330        137,209        —          136,970  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 3,519,841        7,502        424,816        1,100,734        73,323        299,759  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(*1)

Represents transactions occurred prior to the Group’s disposal of the entire investments

(*2)

Represents transactions occurred prior to LG Electronics Inc.’s disposal of the entire investments.

 

152


Table of Contents
29.

Related Parties and Others, Continued

 

  (c)

Trade accounts and notes receivable and payable as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)       
     Trade accounts and notes
receivable and others
     Trade accounts and notes
payable and others
 
     December 31,
2020
     December 31,
2019
     December 31,
2020
     December 31,
2019
 

Associates

           

AVATEC Co., Ltd.

     —          —          2,714        1,029  

Paju Electric Glass Co., Ltd.

     —          —          84,095        62,853  

WooRee E&L Co., Ltd.

     —          —          3,637        1,888  

YAS Co., Ltd.

     —          —          18,126        27,489  

Material Science Co., Ltd.

     —          —          —          8  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W —          —          108,572        93,267  
  

 

 

    

 

 

    

 

 

    

 

 

 

Entity that has significant influence over the Controlling Company

           

LG Electronics Inc.

   W 94,193        209,939        88,629        157,713  

Subsidiaries of the entity that has significant influence over the Controlling Company

           

LG Electronics India Pvt. Ltd.

   W 3,697        6,113        —          —    

LG Electronics Vietnam Haiphong Co., Ltd.

     36,417        47,740        16        75  

LG Electronics Nanjing New Technology Co., Ltd.

     88,075        55,343        83        49  

LG Electronics RUS, LLC

     10,295        17,600        —          83  

LG Electronics do Brasil Ltda.

     7,481        14,805        14        26  

LG Innotek Co., Ltd.

     227        267        31,309        36,426  

LG Electronics Mexicali, S.A. DE C.V.

     20,969        11,195        15        17  

 

153


Table of Contents
29.

Related Parties and Others, Continued

 

(In millions of won)       
     Trade accounts and notes
receivable and others
     Trade accounts and notes
payable and others
 
     December 31,
2020
     December 31,
2019
     December 31,
2020
     December 31,
2019
 

LG Electronics Mlawa Sp. z o.o.

   W 89,481        124,390        10        75  

LG Electronics Reynosa, S.A. DE C.V.

     70,555        82,927        50        62  

LG Electronics Egypt S.A.E.

     13,359        9,432        —          —    

Qingdao LG Inspur Digital Communication Co., Ltd.

     —          7,221        —          —    

P.T. LG Electronics Indonesia

     48,677        7,696        —          16  

Others

     804        2,452        2,062        3,548  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 390,037        387,181        33,559        40,377  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 484,230        597,120        230,760        291,357  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

154


Table of Contents
29.

Related Parties and Others, Continued

 

 

  (d)

Details of significant financing transactions such as grant and collection of loans, which occurred in the normal course of business with related parties for the year ended December 31, 2019 are as follows:

 

(In millions of won)  
     Loans(*1)  

Associates

   January 1,
2019
     Increase      Decrease(*2)     December 31,
2019
 

INVENIA Co., Ltd.

   W 2,000        1,000        (3,000     —    

 

(*1)

Loans are presented based on nominal amounts.

(*2)

Excluded from related parties due to disposal of equity investments during the year ended December 31, 2019.

 

155


Table of Contents
29.

Related Parties and Others, Continued

 

  (e)

Conglomerate Transactions

Transactions, trade accounts and notes receivable and payable, and others between the Group and certain companies and their subsidiaries included in LG Group, a conglomerates according to the Monopoly Regulation and Fair Trade Act as of and for the years ended December 31, 2020 and 2019 are as follows. These entities are not related parties according to K-IFRS No. 1024, Related Party Disclosures.

 

(In millions of won)

 

     For the year ended
December 31, 2020
     December 31, 2020  
     Sales
and others
     Purchase
and others
     Trade accounts and
notes receivable

and others
     Trade accounts and
notes payable and
others
 

LG International Corp. and its subsidiaries

   W 376,898        260,736        81,353        28,583  

LG Uplus Corp.

     —          2,127        —          151  

LG Chem Ltd. and its subsidiaries

     1,286        861,285        115        179,944  

S&I Corp. and its subsidiaries

     324        261,710        5,864        103,896  

Silicon Works Co., Ltd.

     36        865,727        —          136,715  

LG Corp.

     —          57,200        6,799        1,417  

LG Management Development Institute

     —          8,294        3,480        351  

LG CNS Co., Ltd. and its subsidiaries

     254        202,222        253        93,477  

LG Household & Health Care Ltd. and its subsidiaries

     —          247        —          —    

LG Holdings Japan Co., Ltd.

     —          2,154        2,244        —    

G2R Inc. and its subsidiaries

     —          39,013        —          8,851  

Robostar Co., Ltd.

     —          1,769        —          1,033  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 378,798        2,562,484        100,108        554,418  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

156


Table of Contents
29.

Related Parties and Others, Continued

 

(In millions of won)

 

     For the year ended
December 31, 2019
     December 31, 2019  
     Sales
and others
     Purchase
and others
     Trade accounts and
notes receivable

and others
     Trade accounts and
notes payable and
others
 

LG International Corp. and its subsidiaries

   W 625,609        425,895        93,623        77,721  

LG Uplus Corp.

     —          2,358        —          208  

LG Chem Ltd. and its subsidiaries

     82,565        1,123,633        97        128,636  

S&I Corp. and its subsidiaries(*)

     867        739,722        21,307        159,202  

Silicon Works Co., Ltd.

     92        713,484        —          126,856  

LG Corp.

     —          55,059        8,781        —    

LG Management Development Institute

     —          8,606        3,480        231  

LG CNS Co., Ltd. and its subsidiaries

     20        253,056        2        75,850  

LG Hausys Ltd.

     3        1        —          —    

LG Household & Health Care and its subsidiaries

     1        214        —          6  

LG Holdings Japan Co., Ltd.

     —          2,056        2,264        —    

G2R Inc. and its subsidiaries

     —          74,830        —          29,540  

Robostar Co., Ltd.

     —          11,384        —          2,332  

Others(*)

     16        234,121        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 709,173        3,644,419        129,554        600,582  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(*)

Due to S&I Corp.’s disposal of partial investments in Serveone in May 2019, Serveone was reclassified from one of the S&I Corp.’s subsidiaries to associates. Accordingly, transactions with S&I Corp. after the disposal are classified as others. In addition, due to LG Electronics Inc.’s disposal of entire investments in HiEntech Co., Ltd. and its subsidiaries and LG Hitachi Water Solutions Co., Ltd. in September 2019, transactions after the disposal are presented as others.

 

157


Table of Contents
29.

Related Parties and Others, Continued

 

  (f)

Key management personnel compensation

Compensation costs of key management for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)              
     2020      2019  

Short-term benefits

   W 2,233        2,664  

Expenses related to the defined benefit plan

     346        553  
  

 

 

    

 

 

 
   W 2,579        3,217  
  

 

 

    

 

 

 

Key management refers to the registered directors who have significant control and responsibilities over the Controlling Company’s operations and business.

 

30.

Supplemental Cash Flow Information

Supplemental cash flow information for the years ended December 31, 2020 and 2019 is as follows:

 

(In millions of won)             
     2020     2019  

Non-cash investing and financing activities:

    

Changes in other accounts payable arising from the purchase of property, plant and equipment

   W (662,164     (1,333,967

Recognition of right-of-use assets and lease liabilities

     51,757       29,733  

 

158


Table of Contents

LG DISPLAY CO., LTD.

Separate Financial Statements

For the Years Ended December 31, 2020 and 2019

(With Independent Auditors’ Report Thereon)

 

159


Table of Contents

Contents

 

     Page  

Independent Auditors’ Report

     161  

Separate Statements of Financial Position

     165  

Separate Statements of Comprehensive Loss

     166  

Separate Statements of Changes in Equity

     167  

Separate Statements of Cash Flows

     168  

Notes to the Separate Financial Statements

     170  

Independent Auditors’ Report on Internal Control over Financial Reporting

  

Report on the Operation of Internal Control over Financial Reporting

  

 

160


Table of Contents

Independent Auditors’ Report

Based on a report originally issued in Korean

To the Shareholders and Board of Directors

LG Display Co., Ltd.:

Opinion

We have audited the accompanying separate financial statements of LG Display Co., Ltd. (the “Company”), which comprise the separate statements of financial position of the Company as of December 31, 2020 and 2019, the related separate statements of comprehensive loss, changes in equity and cash flows for the years then ended, and notes to the separate financial statements comprising significant accounting policies and other explanatory information.

In our opinion, the accompanying separate financial statements present fairly, in all material respects, the separate financial position of the Company as of December 31, 2020 and 2019, and its separate financial performance and its separate cash flows for the years then ended in accordance with Korean International Financial Reporting Standards (“K-IFRS”).

We also have audited, in accordance with the Standards on Auditing, the Company’s Internal Control over Financial Reporting as of December 31, 2020, based on criteria established in Conceptual Framework for Designing and Operating Internal Control over Financial Reporting issued by the Operating Committee of Internal Control over Financial Reporting in Korea, and our report dated March 3, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

We conducted our audits in accordance with Korean Standards on Auditing. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Separate Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the separate financial statements in the Republic of Korea, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the separate financial statements as of and for the year ended December 31, 2020. These matters were addressed in the context of our audit of the separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

(i)

Impairment test for Display CGU

As discussed in Notes 3(j), 9 and 10 to the separate financial statements, the goodwill of W14,593 million is allocated to the Company’s Display CGU. The Company’s non-financial assets as of December 31, 2020 amount to W12,624,104 million, and a large portion of which are related to the Display CGU. The recoverable amount used by the Company in impairment test of the Display CGU is value in use based on discounted cash flow model. As a result of impairment test for Display CGU, the Company concluded that recoverable amount exceeds the carrying amount.

We identified impairment test for Display CGU as a key audit matter. Revenue and operating expenditures for the forecast period, growth rates for subsequent years (“terminal growth rate”), and discount rate used to estimate value in use for impairment test of Display CGU involve significant judgement and minor changes would have a significant effect on the results of the Company’s impairment test of Display CGU.

 

161


Table of Contents

The primary procedures we performed to address the impairment test for Display CGU include followings:

 

   

We tested certain internal controls over the Company’s non-financial assets impairment test process, including controls related to development of the revenue and operating expenditures forecasts, terminal growth rate and discount rate assumptions for Display CGU.

 

   

We compared the Company’s historical revenue and operating expenditures forecasts to actual results to assess the Company’s ability to accurately forecast.

 

   

We evaluated the revenue and operating expenditures forecasts used to determine the value in use by comparison with the financial budgets approved by the board of directors.

 

   

We performed sensitivity analysis over the terminal growth rate and discount rate assumptions to assess their impact on the Company’s impairment test.

 

   

We involved our valuation professionals with specialized skills and knowledge who assisted us in the following:

 

   

testing discount rate by comparing them against independently developed rates using publicly available market data for comparable entities; and

 

   

testing revenue, operating expenditures forecasts and terminal growth rate by comparing them against analyst reports, and industry reports.

 

(ii)

Assessment of recognition of deferred tax assets

As discussed in Note 24 to the separate financial statements, the deferred tax assets arise primarily due to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as, unused tax losses and tax credit carryforwards. The assessment of the recognition of these deferred tax assets is dependent on the generation of future taxable income of the Company. As of December 31, 2020, the Company had W1,971,787 million of deferred tax assets in the separate statement of financial position and W230,768 million of unrecognized tax credit carryforwards as of December 31, 2020.

We identified the assessment of the recognition of the deferred tax assets as a key audit matter because it involves high degree of subjective management judgment in estimating future taxable profits over the periods in which the above mentioned differences become deductible and within the periods before the unused tax losses and tax credit forwards expire and the feasibility of planned tax strategies. The subjectivity is primarily driven by the Company’s assumptions in revenue, operating expenditures and subsidiaries’ dividend distribution, which are used to estimate the forecasted taxable income in the future.

The primary procedures we performed to address the assessment of recognition of deferred tax assets include followings:

 

   

We tested certain internal controls relating to the Company’s deferred tax assets recognition process, including controls related to the development of assumptions in determining the future taxable income and subsidiaries’ dividend distribution for each year.

 

   

We analyzed the Company’s estimates of taxable income, including analyzing the Company’s forecasted revenue and operating expense by comparing them with the financial budgets approved by the board of directors and historical performance.

 

   

We compared the forecasts of taxable income and timing of utilization of tax losses and tax credit carryforwards in prior years to actual results to assess the Company’s ability to accurately forecast.

 

   

We also evaluated the Company’s assessment on the history of realizing deferred tax assets in connection with the unused tax losses carryforwards and collecting declared subsidiaries’ dividends in connection with the development of assumptions in determining subsidiaries’ dividend distribution.

 

   

We involved tax professionals with specialized skills and knowledge who assisted in assessing the feasibility of planned tax strategies when recognizing deferred tax assets.

Other matter

The procedures and practices utilized in the Republic of Korea to audit such separate financial statements may differ from those generally accepted and applied in other countries.

 

162


Table of Contents

Responsibilities of Management and Those Charged with Governance for the Separate Financial Statements

Management is responsible for the preparation and fair presentation of these separate financial statements in accordance with K-IFRS, and for such internal control as management determines is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error.

In preparing these separate financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Separate Financial Statements

Our objectives are to obtain reasonable assurance about whether theses separate financial statements as a whole are free from material misstatements, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance’ is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Korean Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these separate financial statements.

As part of an audit in accordance with Korean Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 

   

Identify and assess the risks of material misstatement of the separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control.

 

   

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances.

 

   

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

 

   

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, then we are required to draw attention in our auditors’ report to the related disclosures in the separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.

 

   

Evaluate the overall presentation, structure and content of the separate financial statements, including the disclosures, and whether the separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

163


Table of Contents

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the separate financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditors’ report is Sang Hyun Han.

KPMG Samjong Accounting Corp.

Seoul, Korea

March 3, 2021

 

This report is effective as of March 3, 2021, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying separate financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

 

 

164


Table of Contents

LG DISPLAY CO., LTD.

Separate Statements of Financial Position

As of December 31, 2020 and 2019

 

(In millions of won)    Note    December 31,
2020
     December 31,
2019
 

Assets

        

Cash and cash equivalents

   4, 26    W 1,220,098      1,105,245

Deposits in banks

   4, 26      76,852      77,257

Trade accounts and notes receivable, net

   5, 14, 26, 29      3,797,248      3,565,860

Other accounts receivable, net

   5, 26      141,332      439,940

Other current financial assets

   6, 26      43,151      55,665

Inventories

   7      1,418,122      1,526,299

Prepaid income tax

        110,388      111,129

Other current assets

        140,863      199,833
     

 

 

    

 

 

 

Total current assets

        6,948,054      7,081,228

Deposits in banks

   4, 26      11      11

Investments

   8      4,784,828      4,958,308

Other non-current accounts receivable, net

   5, 26      5,797      19,899

Other non-current financial assets

   6, 26      29,133      74,203

Property, plant and equipment, net

   9,27      11,736,673      12,764,175

Intangible assets, net

   10      887,431      708,047

Deferred tax assets

   24      1,971,787      1,367,714

Defined benefits assets, net

   12      224,997      127,252

Other non-current assets

        116,491      281,843
     

 

 

    

 

 

 

Total non-current assets

        19,757,148      20,301,452
     

 

 

    

 

 

 

Total assets

      W 26,705,202      27,382,680
     

 

 

    

 

 

 

Liabilities

        

Trade accounts and notes payable

   26, 29    W 4,591,319      2,682,403

Current financial liabilities

   11, 26, 27      2,162,989      1,474,589

Other accounts payable

   26      2,373,730      3,329,040

Accrued expenses

        499,610      520,395

Provisions

   13      196,107      188,238

Advances received

   14      312,790      898,447

Other current liabilities

        44,115      47,371
     

 

 

    

 

 

 

Total current liabilities

        10,180,660      9,140,483

Non-current financial liabilities

   11, 26, 27      6,072,225      7,094,405

Non-current provisions

   13      89,633      67,118

Long-term advances received

   14      —        328,677

Other non-current liabilities

        99,449      85,904
     

 

 

    

 

 

 

Total non-current liabilities

        6,261,307      7,576,104
     

 

 

    

 

 

 

Total liabilities

        16,441,967      16,716,587
     

 

 

    

 

 

 

Equity

        

Share capital

   15      1,789,079      1,789,079

Share premium

        2,251,113      2,251,113

Retained earnings

   16      6,223,043      6,625,901
     

 

 

    

 

 

 

Total equity

        10,263,235      10,666,093
     

 

 

    

 

 

 

Total liabilities and equity

      W 26,705,202      27,382,680
     

 

 

    

 

 

 

See accompanying notes to the separate financial statements.

 

165


Table of Contents

LG DISPLAY CO., LTD.

Separate Statements of Comprehensive Loss

For the years ended December 31, 2020 and 2019

 

(In millions of won, except earnings per share)    Note    2020     2019  

Revenue

   17, 29    W 22,799,273     21,658,329

Cost of sales

   7, 18, 29      (21,566,984 )     (20,834,648 )
     

 

 

   

 

 

 

Gross profit

        1,232,289     823,681

Selling expenses

   19      (517,023 )     (728,695 )

Administrative expenses

   19      (447,738 )     (674,650 )

Research and development expenses

        (1,080,507 )     (1,204,581 )
     

 

 

   

 

 

 

Operating loss

        (812,979 )     (1,784,245 )
     

 

 

   

 

 

 

Finance income

   22      304,344     204,966

Finance costs

   22      (519,501 )     (371,856 )

Other non-operating income

   21      1,265,604     835,514

Other non-operating expenses

   21      (1,440,237 )     (2,229,160 )
     

 

 

   

 

 

 

Loss before income tax

        (1,202,769 )     (3,344,781 )

Income tax benefit

   23      (689,507 )     (704,888 )
     

 

 

   

 

 

 

Loss for the year

        (513,262 )     (2,639,893 )
     

 

 

   

 

 

 

Other comprehensive income(loss)

       

Items that will never be reclassified to profit or loss

       

Remeasurements of net defined benefit liabilities

   12, 23      148,436     128,640

Related income tax

   12, 23      (38,032 )     (35,235 )
     

 

 

   

 

 

 

Other comprehensive income for the period, net of income tax

        110,404     93,405
     

 

 

   

 

 

 

Total comprehensive loss for the period

      W (402,858 )     (2,546,488 )
     

 

 

   

 

 

 

Loss per share (In won)

       

Basic and diluted loss per share

   25    W (1,434 )     (7,378 )
     

 

 

   

 

 

 

See accompanying notes to the separate financial statements.

 

166


Table of Contents

LG DISPLAY CO., LTD.

Separate Statements of Changes in Equity

For the years ended December 31, 2020 and 2019

 

(In millions of won)    Share capital      Share
premium
     Retained
earnings
    Total equity  

Balances at January 1, 2019

   W 1,789,079      2,251,113      9,172,389     13,212,581
  

 

 

    

 

 

    

 

 

   

 

 

 

Total comprehensive loss for the period

          

Loss for the year

     —        —        (2,639,893 )     (2,639,893 )

Other comprehensive income(loss)

          

Remeasurements of net defined benefit liabilities, net of tax

     —        —        93,405     93,405
  

 

 

    

 

 

    

 

 

   

 

 

 

Total comprehensive loss for the period

   W —        —        (2,546,488 )     (2,546,488 )
  

 

 

    

 

 

    

 

 

   

 

 

 

Balances at December 31, 2019

   W 1,789,079      2,251,113      6,625,901     10,666,093
  

 

 

    

 

 

    

 

 

   

 

 

 

Balances at January 1, 2020

   W 1,789,079      2,251,113      6,625,901     10,666,093
  

 

 

    

 

 

    

 

 

   

 

 

 

Total comprehensive loss for the period

          

Loss for the year

     —        —        (513,262 )     (513,262 )

Other comprehensive income(loss)

          

Remeasurements of net defined benefit liabilities, net of tax

     —        —        110,404     110,404
  

 

 

    

 

 

    

 

 

   

 

 

 

Total comprehensive loss for the period

   W —        —        (402,858 )     (402,858 )
  

 

 

    

 

 

    

 

 

   

 

 

 

Balances at December 31, 2020

   W 1,789,079      2,251,113      6,223,043     10,263,235
  

 

 

    

 

 

    

 

 

   

 

 

 

See accompanying notes to the separate financial statements.

 

167


Table of Contents

LG DISPLAY CO., LTD.

Separate Statements of Cash Flows

For the years ended December 31, 2020 and 2019

 

(In millions of won)    Note      2020     2019  

Cash flows from operating activities:

       

Loss for the year

      W (513,262 )     (2,639,893 )

Adjustments for:

       

Income tax benefit

     23        (689,507 )     (704,888 )

Depreciation and amortization

     9, 10, 18        2,519,199     2,549,770

Gain on foreign currency translation

        (234,185 )     (60,963 )

Loss on foreign currency translation

        175,434     140,683

Expenses related to defined benefit plans

     12, 20        158,793     161,056

Gain on disposal of property, plant and equipment

        (43,155 )     (54,756 )

Loss on disposal of property, plant and equipment

        58,852     25,851

Impairment loss on property, plant and equipment

        11,482     1,140,760

Gain on disposal of intangible assets

        —       (552 )

Loss on disposal of intangible assets

        368     18

Impairment loss on intangible assets

        79,593     240,816

Reversal of impairment loss on intangible assets

        (1,110 )     (960 )

Expense on increase of provisions

        276,670     366,771

Finance income

        (277,087 )     (172,260 )

Finance costs

        458,358     331,475

Other income

        (11,000 )     (20,432 )

Other expenses

        —       9,078
     

 

 

   

 

 

 
        2,482,705     3,951,467

Changes in

       

Trade accounts and notes receivable

        (756,684 )     (830,210 )

Other accounts receivable

        38,701     (66,057 )

Inventories

        108,177     424,856

Other current assets

        56,883     (14,579 )

Other non-current assets

        (57,421 )     (37,761 )

Trade accounts and notes payable

        2,101,690     (447,803 )

Other accounts payable

        (1,152,368 )     2,115,555

Accrued expenses

        (12,299 )     (23,461 )

Provisions

        (246,285 )     (240,734 )

Advances received

        (410,811 )     (216,079 )

Other current liabilities

        (3,958 )     8,046

Defined benefit liabilities, net

        (108,102 )     (63,855 )

Long-term advances received

        —       63,672

Other non-current liabilities

        12,535     7,174
     

 

 

   

 

 

 
        (429,942)     678,764

Cash generated from operating activities

        1,539,501     1,990,338

Income taxes refunded

        48,143     25,342

Interests received

        9,364     13,481

Interests paid

        (285,194 )     (236,936 )
     

 

 

   

 

 

 

Net cash provided by operating activities

      W 1,311,814     1,792,225
     

 

 

   

 

 

 

See accompanying notes to the separate financial statements.

 

168


Table of Contents

LG DISPLAY CO., LTD.

Separate Statements of Cash Flows, Continued

For the years ended December 31, 2020 and 2019

 

(In millions of won)    Note      2020     2019  

Cash flows from investing activities:

       

Dividends received

      W 8,239     18,622

Increase in deposits in banks

        (76,852 )     (114,257 )

Proceeds from withdrawal of deposits in banks

        77,257     114,200

Acquisition of financial asset at fair value through profit or loss

        (200 )     —  

Acquisition of financial assets at fair value through other comprehensive income

        —       (21 )

Proceeds from disposal of financial assets at fair value through other comprehensive income

        6     107

Acquisition of investments

        (7,241 )     (1,224,836 )

Proceeds from disposal of investments

        194,553     16,738

Acquisition of property, plant and equipment

        (1,249,208 )     (2,173,535 )

Proceeds from disposal of property, plant and equipment

        450,239     384,506

Acquisition of intangible assets

        (331,423 )     (511,661 )

Proceeds from disposal of intangible assets

        16,705     2,349

Government grants received

        —       3,979

Receipt from settlement of derivatives

        24,468     21,752

Proceeds from collection of short-term loans

        13,720     19,881

Increase in short-term loans

        —       (8,725 )

Increase in long-term loans

        —       (6,465 )

Increase in deposits

        (566 )     (4,949 )

Decrease in deposits

        1,286     5,244

Proceeds from disposal of other assets

        11,000     20,416
     

 

 

   

 

 

 

Net cash used in investing activities

        (868,017 )     (3,436,655 )
     

 

 

   

 

 

 

Cash flows from financing activities:

     28       

Proceeds from short-term borrowings

        1,075,095     1,264,915

Repayments of short-term borrowings

        (1,070,356 )     (928,335 )

Proceeds from issuance of bonds

        49,949     1,323,251

Proceeds from long-term borrowings

        741,166     1,669,148

Repayments of current portion of long-term borrowings and bonds

        (1,119,579 )     (1,043,649 )

Payment guarantee fee received

        7,154     5,068

Repayments of lease liabilities

        (12,373 )     (14,006 )
     

 

 

   

 

 

 

Net cash provided by (used in) financing activities

        (328,944 )     2,276,392
     

 

 

   

 

 

 

Net increase in cash and cash equivalents

        114,853     631,962

Cash and cash equivalents at January 1

        1,105,245     473,283
     

 

 

   

 

 

 

Cash and cash equivalents at December 31

      W 1,220,098     1,105,245
     

 

 

   

 

 

 

See accompanying notes to the separate interim financial statements.

 

169


Table of Contents
1.

Organization and Description of Business

LG Display Co., Ltd. (the “Company”) was incorporated in February 1985 and the Company is a public corporation listed in the Korea Exchange since 2004. The main business of the Company is to manufacture and sell displays and its related products. As of December 31, 2020, the Company is operating Thin Film Transistor Liquid Crystal Display (“TFT-LCD”) and Organic Light Emitting Diode (“OLED”) panel manufacturing plants in Gumi, Paju and China and TFT-LCD and OLED module manufacturing plants in Gumi, Paju, China and Vietnam. The Company is domiciled in the Republic of Korea with its address at 128 Yeouidae-ro, Yeongdeungpo-gu, Seoul, the Republic of Korea. As of December 31, 2020, LG Electronics Inc., a major shareholder of the Company, owns 37.9% (135,625,000 shares) of the Company’s common stock.

The Company’s common stock is listed on the Korea Exchange under the identifying code 034220. As of December 31, 2020, there are 357,815,700 shares of common stock outstanding. The Company’s common stock is also listed on the New York Stock Exchange in the form of American Depository Shares (“ADSs”) under the symbol “LPL”. One ADS represents one-half of one share of common stock. As of December 31, 2020, there are 23,525,460 ADSs outstanding.

 

2.

Basis of Presenting Financial Statements

 

  (a)

Statement of Compliance

In accordance with the Act on External Audits of Stock Companies, Etc., these separate financial statements have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”).

These financial statements are separate financial statements prepared in accordance with K-IFRS No.1027, Separate Financial Statements, presented by a parent, an investor in an associate or a venture in a joint ventures, in which the investments are accounted for on the basis of the direct equity interest rather than on the basis of the reported results and net assets of the investees.

The separate financial statements were authorized for issuance by the Board of Directors on January 26, 2021, which will be submitted for approval to the shareholders’ meeting to be held on March 23, 2021.

 

(b)

Basis of Measurement

The separate financial statements have been prepared on the historical cost basis except for the following material items in the separate statement of financial position:

 

   

derivative financial instruments at fair value, financial assets at fair value through profit or loss(“FVTPL”), financial assets at fair value through other comprehensive income (“FVOCI”), financial liabilities at fair value through profit or loss(“FVTPL”), and

 

   

net defined benefit liabilities (defined benefit assets) recognized at the present value of defined benefit obligations less the fair value of plan assets

 

170


Table of Contents
2.

Basis of Presenting Financial Statements, Continued

 

  (c)

Functional and Presentation Currency

The separate financial statements are presented in Korean won, which is the Company’s functional currency.

 

  (d)

Use of Estimates and Judgments

The preparation of the separate financial statements in conformity with K-IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the separate financial statements is included in the following notes:

 

   

Financial instruments (Note 3(e))

 

   

Impairment assessment of non-financial assets (Note 3(j), 10)

 

   

Deferred tax assets and liabilities (Note3(q), 24)

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next 12 months is included in the following notes:

 

   

Provisions (Note 3(l), 13)

 

   

Inventories (Note 3(d), 7)

 

   

Property, plant and equipment (Note 9)

 

   

Intangible assets (Impairment assessment of non-financial assets) (Note 10)

 

   

Employee benefits (Note 12)

 

   

Deferred tax assets and liabilities (Note 24)

 

3.

Summary of Significant Accounting Policies

The accounting policies applied in these separate financial statements are the same as those applied in the Company’s separate financial statements as of and for the year ended December 31, 2019 and the significant accounting policies followed by the Company in the preparation of its separate financial statements are as follows:

 

  (a)

Interest in subsidiaries, associates and joint ventures

These separate financial statements are prepared and presented in accordance with K-IFRS No.1027, Separate Financial Statements. The Company applied the cost method to investments in subsidiaries, associates and joint ventures. Dividends from subsidiaries, associates or joint ventures are recognized in profit or loss when the right to receive the dividend is established.

 

171


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (b)

Foreign Currency Transaction and Translation

Transactions in foreign currencies are translated to the functional currency of the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency at the exchange rate on the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was originally determined. Foreign currency differences arising on retranslation are recognized in profit or loss, except for differences arising on an investment in equity instruments designated as at FVOCI and a financial asset and liability designated as a cash flow hedge, which are recognized in other comprehensive income. Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition are recognized in profit or loss in the period in which they arise. Foreign currency differences arising from assets and liabilities in relation to the investing and financing activities including borrowings, bonds and cash and cash equivalents are recognized in finance income (costs) in the separate statement of comprehensive income (loss) and foreign currency differences arising from assets and liabilities in relation to activities other than investing and financing activities are recognized in other non-operating income (expense) in the separate statement of comprehensive income (loss). Foreign currency differences are presented in gross amounts in the separate statement of comprehensive income (loss).

 

  (c)

Cash and cash equivalents

Cash and cash equivalents include all cash balances and short-term highly liquid investments with an original maturity of three months or less that are readily convertible into known amounts of cash.

 

  (d)

Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted-average method, and includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated selling expenses. In the case of manufactured inventories and work-in-process, cost includes an appropriate share of production overheads based on the actual capacity of production facilities. However, the normal capacity is used for the allocation of fixed production overheads if the actual level of production is lower than the normal capacity.

 

  (e)

Financial Instruments

 

  (i)

Non-derivative financial assets

Recognition and initial measurement

Trade receivables and debt instruments issued are initially recognized when they are originated. All other financial assets are recognized in statement of financial position when, and only when, the Company becomes a party to the contractual provisions of the instrument.

 

172


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (e)

Financial Instruments, Continued

 

A financial asset (unless it is a trade receivable without a significant financing component) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

Classification and subsequent measurement

 

  i)

Financial assets

On initial recognition, a financial asset is classified as measured at: amortized cost; FVOCI – debt investment; FVOCI – equity investments; or FVTPL. Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the subsequent reporting period following the change in the business model.

A financial asset is measured as at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:

 

   

it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

 

   

its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

 

   

it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

 

   

the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investments that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment’s fair value in OCI. This election is made on an investment-by-investment basis.

All financial assets not classified as measured at amortized cost or FVOCI as described above are measured as at FVTPL. This includes all derivative financial assets. At initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

 

173


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (e)

Financial Instruments, Continued

 

  ii)

Financial assets: business model

The Company makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes:

 

   

the stated policies and objectives for the portfolio and the operation of those policies in practice (these include whether management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realizing cash flows through the sale of the assets);

 

   

how the performance of the portfolio is evaluated and reported to the Company’s management;

 

   

the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; and

 

   

the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity.

Transfers of financial assets to third parties in transaction that do not qualify for derecognition are not considered sale for this purpose.

A financial asset that is held for trading or is managed and whose performance is evaluated on a fair value basis is measured at FVTPL.

 

  iii)

Financial assets: Assessment whether contractual cash flows are solely payments of principal and interest

For the purpose of the assessment, “principal” is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and cost (e.g. liquidity risk and administrative costs), as well as profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Company considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Company considers.

 

   

contingent events that would change the amount or timing of cash flows:

 

   

terms that may adjust the contractual coupon rate, including variable-rate features;

 

   

prepayment and extension features; and

 

   

terms that limit the Company’s claim to cash flows from specified assets (e.g. non-recourse features)

A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest or the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract.

 

174


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (e)

Financial Instruments, Continued

 

Additionally, for a financial asset acquired at a discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued but unpaid contractual interest (which may also include reasonable additional compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition.

 

  iv)

Financial assets: Subsequent measurement and gains and losses

 

Financial assets at FVTPL

   These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss.

Financial assets at amortized cost

   These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.

Debt investments at FVOCI

   These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.

Derecognition

The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, it transfers the rights to receive the contractual cash flows of the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred, or it transfers or does not retain substantially all the risks and rewards of ownership of a transferred asset, and does not retain control of the transferred asset.

If the Company has retained substantially all the risks and rewards of ownership of the transferred asset, the Company continues to recognize the transferred asset.

Offset

Financial assets and liabilities are offset and the net amount is presented in the separate statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.

 

175


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (e)

Financial Instruments, Continued

 

  (ii)

Non-derivative financial liabilities

The Company classifies financial liabilities into two categories, financial liabilities at FVTPL and other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities, and recognizes them in the separate statement of financial position when the Company becomes a party to the contractual provisions of the instrument.

Financial liabilities at FVTPL include financial liabilities held for trading or designated as such upon initial recognition at FVTPL. After initial recognition, financial liabilities at FVTPL are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the issuance of financial liabilities are recognized in profit or loss as incurred.

Non-derivative financial liabilities other than financial liabilities classified as at FVTPL are classified as other financial liabilities and measured initially at fair value minus transaction costs that are directly attributable to the issuance of financial liabilities. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method. As of December 31, 2020, non-derivative financial liabilities comprise borrowings, bonds, trade accounts and notes payable, other accounts payable and others.

The Company derecognizes a financial liability when its contractual obligations are discharged, cancelled or expired.

 

  (iii)

Share Capital

The Company issued common stocks and they are classified as equity. Incremental costs directly attributable to the issuance of common stocks are recognized as a deduction from equity, net of tax effects. Capital contributed in excess of par value upon issuance of common stocks is classified as share premium within equity.

 

  (iv)

Derivative financial instruments

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

Hedge Accounting

If necessary, the Company designates derivatives as hedging items to hedge the risk of changes in the fair value of assets, liabilities or firm commitments (a fair value hedge) and foreign currency risk of highly probable forecasted transactions or firm commitments (a cash flow hedge).

On initial designation of the hedge, the Company’s management formally designates and documents the relationship between the hedging instrument(s) and hedged item(s), including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship, both at the inception of the hedge relationship as well as on an ongoing basis.

 

176


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (e)

Financial Instruments, Continued

 

  i)

Fair value hedges

Change in the fair value of a derivative hedging instrument designated as a fair value hedge and the hedged item is recognized in profit or loss, respectively. The gain or loss from remeasuring the hedging instrument at fair value and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the statement of comprehensive income (loss). The Company discontinues fair value hedge accounting if it does not designate the derivative hedging instrument and the hedged item as the hedge relationship between them anymore; if the hedging instrument expires or is sold, terminated or exercised; or if the hedge no longer meets the criteria for hedge accounting.

 

  ii)

Cash flow hedges

When a derivative designated as a cash flow hedging instrument meets the criteria of cash flow hedge accounting, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and the ineffective portion of changes in the fair value of the derivative is recognized in profit or loss. The Company discontinues cash flow hedge accounting if it does not designate the derivative hedging instrument and the hedged item as the hedge relationship between them anymore; if the hedging instruments expires or is sold, terminated or exercised; or if the hedge no longer meets the criteria for hedge accounting. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the periods during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss.

Embedded derivative

Embedded derivatives are separated from the host contract and accounted for separately if the host contract is not a financial asset and certain criteria are met.

Other derivative financial instruments

Other derivative financial instruments are measured at fair value and changes of their fair value are recognized in profit or loss.

 

177


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (f)

Property, Plant and Equipment

 

  (i)

Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes an expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and borrowing costs on qualifying assets.

The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item and recognized in other non-operating income or other non-operating expenses.

 

  (ii)

Subsequent costs

Subsequent expenditure on an item of property, plant and equipment is recognized as part of its cost only if it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognized in profit or loss as incurred.

 

  (iii)

Depreciation

Land is not depreciated and depreciation of other items of property, plant and equipment is recognized in profit or loss on a straight-line basis, reflecting the pattern in which the asset’s future economic benefits are expected to be consumed by the Company. The residual value of property, plant and equipment is zero.

Estimated useful lives of the assets are as follows:

 

     Useful lives (years)

Buildings and structures

   20, 40

Machinery

   4, 5

Furniture and fixtures

   4

Equipment, tools and vehicles

   2, 4, 12

Right-of-use assets

   (*)

 

(*)

The Company depreciates the right-of-use assets from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.

Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate and any changes are accounted for as changes in accounting estimates.

 

178


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (g)

Borrowing Costs

The Company capitalizes borrowing costs, which includes interests and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs, directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. To the extent that the Company borrows funds specifically for the purpose of obtaining a qualifying asset, the Company determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. The Company immediately recognizes other borrowing costs as an expense.

 

  (h)

Government Grants

In case there is reasonable assurance that the Company will comply with the conditions attached to a government grant, the government grant is recognized as follows:

 

  (i)

Grants related to the purchase or construction of assets

A government grant related to the purchase or construction of assets is deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduced depreciation expense and cash related to grant received is presented in investing activities in the statement of cash flows.

 

  (ii)

Grants for compensating the Company’s expenses incurred

A government grant that compensates the Company for expenses incurred is recognized in profit or loss as a deduction from relevant expenses on a systematic basis in the periods in which the expenses are recognized.

 

  (iii)

Other government grants

A government grant that becomes receivable for the purpose of giving immediate financial support to the Company with no compensation for expenses or losses already incurred or no future related costs is recognized as income of the period in which it becomes receivable.

 

179


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

 

  (i)

Intangible Assets

Intangible assets are initially measured at cost. Subsequently, intangible assets are measured at cost less accumulated amortization and accumulated impairment losses.

 

  (i)

Goodwill

Goodwill arising from business combinations is recognized as the excess of the acquisition cost of a business over the net fair value of the identifiable assets acquired and liabilities assumed. Any deficit is a bargain purchase that is recognized in profit or loss. Goodwill is measured at cost less accumulated impairment losses.

 

  (ii)

Research and development

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss as incurred.

Development activities involve a plan or design of the production of new or substantially improved products and processes. Development expenditure is capitalized as intangible assets only if the Company can demonstrate all of the following:

 

   

the technical feasibility of completing the intangible asset so that it will be available for use or sale,

 

   

its intention to complete the intangible asset and use or sell it,

 

   

its ability to use or sell the intangible asset,

 

   

how the intangible asset will generate probable future economic benefits (among other things, the Company can demonstrate the usefulness of the intangible asset by existence of a market for the output of the intangible asset or the intangible asset itself if it is to be used internally),

 

   

the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset, and

 

   

its ability to measure reliably the expenditure attributable to the intangible asset during its development.

Development projects are divided into research activities and development activities. Expenditures on research activities are recognized in profit or loss and qualifying development expenditures on development activities are capitalized.

The expenditure capitalized includes the cost of materials, direct labor and overhead costs that are directly attributable to preparing the asset for its intended use, and borrowing costs on qualifying assets.

 

  (iii)

Other intangible assets

Other intangible assets include intellectual property rights, software, customer relationships, technology, memberships and others.

 

180


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (i)

Intangible Assets, Continued

 

 

  (iv)

Subsequent costs

Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific intangible asset to which they relate. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.

 

  (v)

Amortization

Amortization is calculated on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. The residual value of intangible assets is zero. However, as there are no foreseeable limits to the periods over which condominium and golf club memberships are expected to be available for use, these intangible assets are regarded as having indefinite useful lives and not amortized.

 

     Estimated useful
lives (years)

Intellectual property rights

   5,
10, (*1)

Rights to use electricity, water and gas supply facilities

   10

Software

   4, (*1)

Customer relationships

   7, 10

Technology

   10

Development costs

   (*2)

Condominium and golf club memberships

   Indefinite

 

(*1)

Software license and patent royalty are amortized over the useful lives considering the contract period.

(*2)

Capitalized development costs are amortized over the useful lives considering the life cycle of the developed products. Amortization of capitalized development costs are recognized in research and development expenses in the separate statement of comprehensive income (loss).

Amortization periods and the amortization methods for intangible assets with finite useful lives are reviewed at each financial year-end. The useful lives of intangible assets with indefinite useful lives are reviewed at each financial year-end to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. If appropriate, the changes are accounted for as changes in accounting estimates.

 

181


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (j)

Impairment

 

 

  (i)

Financial assets

Financial instruments and contract assets

The Company recognizes loss allowance for financial assets measured at amortized cost and debt investments at FVOCI at the ‘expected credit loss’ (ECL).

The Company recognizes a loss allowance for the life-time expected credit losses except for following, which are measured at 12-month ECLs:

 

   

debt instruments that are determined to have low credit risk at the reporting date; and

 

   

other debt instruments and bank deposits for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both qualitative and quantitative information and analysis, based on the Company’s historical experience and informed credit assessment including forward-looking information.

Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.

12-month ECLs are the portion of the ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).

The maximum period considered when estimating ECLs is the maximum contractual period over which the Company is exposed to credit risk.

Estimation of expected credit losses

Expected credit losses are a probability-weighted estimate of credit losses. Credit losses are measured using the present value of the difference between the contractual cash flows and the expected contractual cash flows. The expected credit losses are discounted using effective interest rate of the financial assets.

 

182


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (j)

Impairment, Continued

 

Credit-impaired financial assets

At each reporting period-end, the Company assesses whether financial assets carried at amortized cost and debt instruments at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable data:

 

   

significant financial difficulty of the issuer or the borrower;

 

   

the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider;

 

   

it is probable that the borrower will enter bankruptcy or other financial reorganization; or

 

   

the disappearance of an active market for a security because of financial difficulties.

Presentation of loss allowance for ECL in the statement of financial position

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt instruments at FVOCI, the loss allowance is charged to profit or loss and is recognized in OCI instead of reducing the carrying amount of financial assets in the separate statement of financial position.

Write-off

The gross carrying amount of a financial asset is written off when the Company has no reasonable expectations for recovering the financial asset in its entirety or a portion thereof. The Company assess whether there are reasonable expectations of recovering the contractual cash flows from customers and individually assess the timing and amount of write-off. The Company expects no significant recovery from the amount written-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Company’s procedures for recovery of amounts due.

 

183


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (j)

Impairment, Continued

 

  (ii)

Non-financial assets

The carrying amounts of the Company’s non-financial assets, other than assets arising from employee benefits, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, the recoverable amount is estimated each year.

Recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the Company determines the recoverable amount of the cash-generating unit to which the asset belongs. The cash-generating unit (“CGU”) is the smallest group of assets that includes the asset and generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination. The recoverable amount of an asset or cash-generating unit is determined as the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. Fair value less costs to sell is based on the best information available to reflect the amount that the Company could obtain from the disposal of the asset in an arm’s length transaction between knowledgeable, willing parties, after deducting the costs of disposal.

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of a CGU are allocated first to reduce the carrying amount of any goodwill allocated to the unit, and then to reduce the carrying amounts of the other assets in the unit on a pro rata basis.

In respect of assets other than goodwill, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of accumulated depreciation or amortization, if no impairment loss had been recognized from the acquisition cost. An impairment loss in respect of goodwill is not reversed.

 

184


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (k)

Leases

A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

 

  (i)

As a lessee

At commencement or on modification of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease and non-lease component on the basis of its relative stand-alone price. For certain leases, the Company accounts for the lease and non-lease components as a single lease component by applying the practical expedient not to separate non-lease components.

The Company recognizes a right-of-use asset and lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at of before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Company by the end of the lease term or the cost of the right-of-use asset reflects that the Company will exercise a purchase option. In that case, the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.

The Company determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.

 

185


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (k)

Lease, Continued

 

Lease payments included in the measurement of the lease liability comprise the following:

 

   

fixed payments, including in-substance fixed payments;

 

   

variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

 

   

amounts expected to be payable under a residual value guarantee; and

 

   

the exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, if the Company changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.

When the lease liability is remeasured the Company recognizes the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. However, if the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the Company recognizes any remaining amount of the remeasurement in profit or loss.

The Company presents right-of-use assets in ‘property, plant and equipment’ and lease liabilities in ‘financial liabilities’ in the separate statement of financial position.

The Company has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short-term leases. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

 

  (ii)

As a lessor

When the Company acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.

To classify each lease, the Company makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Company considers certain indicators such as whether the lease is for the major part of the economic life of the asset.

When the Company is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Company applies the exemption described above, then it classifies the sub-lease as an operating lease.

 

186


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (k)

Lease, Continued

 

If an arrangement contains lease and non-lease components, then the Company applies K-IFRS No. 1115 to allocate the consideration in the contract.

At the commencement date, the Company recognizes assets held under a finance lease in its statement of financial position and present them as a receivable at an amount equal to the net investment in the lease and recognize finance income over the lease term, based on a pattern reflecting a constant periodic rate of return on the lessor’s net investment in the lease.

The Company recognizes lease payments received under operating leases as income on a straight-line basis over the lease term as part of ‘other revenue’.

 

  (l)

Provisions

A provision is recognized, as a result of a past event, if the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

The risks and uncertainties that inevitably surround events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows. The unwinding of the discount is recognized as finance cost.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

The Company recognizes a liability for warranty obligations based on the estimated costs expected to be incurred under its basic limited warranty. This warranty covers defective products and is normally applicable for a warranty period from the date of purchase. These liabilities are accrued when product revenues are recognized. Factors that affect the Company’s warranty liability include historical and anticipated rates of warranty claims on those repairs and cost per claim to satisfy the Company’s warranty obligation. Warranty costs primarily include raw materials and labor costs. As these factors are impacted by actual experience and future expectations, management periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Accrued warranty obligations are included in the current and non-current provisions.

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources, are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated.

 

187


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (m)

Employee Benefits

 

  (i)

Short-term employee benefits

Short-term employee benefits that are due to be settled within twelve months after the end of the period in which the employees render the related service are recognized in profit or loss on an undiscounted basis. The expected cost of profit-sharing and bonus plans and others are recognized when the Company has a present legal or constructive obligation to make payments as a result of past events and a reliable estimate of the obligation can be made.

 

  (ii)

Other long-term employee benefits

The Company’s net obligation in respect of long-term employee benefits other than pension plans is the amount of future benefit that employees have earned in return for their service in the current and prior periods.

 

  (iii)

Defined contribution plan

 

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the period during which services are rendered by employees.

 

  (iv)

Defined benefit plan

A defined benefit plan is a post-employment benefit plan other than defined contribution plans. The Company’s net obligation in respect of its defined benefit plan is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The fair value of any plan assets is deducted.

The calculation is performed annually by an independent actuary using the projected unit credit method. The discount rate is the yield at the reporting date on high quality corporate bonds that have maturity dates approximating the terms of the Company’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The Company recognizes all actuarial gains and losses arising from defined benefit plans in retained earnings immediately.

The Company determines the net interest expense (income) on the net defined benefit liability (employee benefits asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (employee benefits asset), taking into account any changes in the net defined benefit liability (employee benefits asset) during the period as a result of contributions and benefit payments. Consequently, the net interest on the net defined benefit liability (defined benefit asset) now comprises: interest cost on the defined benefit obligation, interest income on plan assets, and interest on the effect on the asset ceiling.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Company recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.

 

188


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (m)

Employee Benefits, Continued

 

  (v)

Termination benefits

The Company recognizes expense for termination benefits at the earlier of the date when the entity can no longer withdraw the offer of those benefits and when the entity recognizes costs for a restructuring involving the payment of termination benefits. If the termination benefits are not expected to be settled wholly before twelve months after the end of the annual reporting period, the Company measures the termination benefit with present value of future cash payments.

 

  (n)

Revenue from contracts with customers

Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of estimated returns, trade discounts, volume rebates and other cash incentives paid to customers.

The Company recognizes revenue according to the five-stage revenue recognition model (① Identifying the contractg ② Identifying performance obligationsg ③ Determining transaction priceg ④ Allocating the transaction price to performance obligationsg ⑤ Recognizing revenue for performance obligations).

The Company generates revenue primarily from sale of display panels. Product revenue is recognized when a customer obtains control over the Company’s products, which typically occurs upon shipment or delivery depending on the terms of the contracts with the customer.

The Company includes return option in the sales contract of display panels with its customers and the consideration receivable from the customer is subject to change due to returns. The Company estimates an amount of variable consideration by using the expected value method which the Company expects to better predict the amount of consideration. The Company includes in the transaction price an amount of variable consideration estimated only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur during the return period when the uncertainty associated with the variable consideration is subsequently resolved. The Company recognizes a refund liability and an asset for its right to recover products from customers if the Company receives consideration from a customer and expects to refund some or all of that consideration to the customer. Sales taxes or value-added taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and are excluded from revenues in the separate statement of comprehensive income (loss).

 

  (o)

Operating Segments

In accordance with K-IFRS No. 1108, Operating Segments, entity wide disclosures of geographic and product revenue information are provided in the separate financial statements.

 

  (p)

Finance Income and Finance Costs

Finance income comprises interest income on funds invested (including debt instruments measured at FVOCI), dividend income, gains on disposal of debt instruments measured at FVOCI, changes in fair value of financial assets at FVTPL, and gains on hedging instruments that are recognized in profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest method. Dividend income is recognized in profit or loss on the date that the Company’s right to receive payment is established.

 

189


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (p)

Finance Income and Finance Costs, Continued

 

Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, gain and losses from financial assets measured at FVTPL, impairment losses recognized on financial assets, and losses on hedging instruments that are recognized in profit or loss. Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset.

 

  (q)

Income Tax

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

 

  (i)

Current tax

Current tax comprises the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the reporting date and any adjustment to tax payable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible items from the accounting profit.

 

  (ii)

Deferred tax

Deferred tax is recognized, using the liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

The Company recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, except to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future. A deferred tax asset is recognized for all deductible temporary differences to the extent that it is probable that the differences relating to investments in subsidiaries, associates and joint ventures will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

The Company offsets deferred tax assets and deferred tax liabilities if, and only if, the Company has a legally enforceable right to set off current tax assets against current tax liabilities and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority.

 

190


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (r)

Earnings (Loss) Per Share

 

The Company presents basic and diluted earnings (loss) per share (“EPS”) data for its common stocks. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of common stocks outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of common stocks outstanding, adjusted for the effects of all dilutive potential common stocks such as convertible bonds and others.

 

  (s)

Business Combinations

The Company accounts for business combinations using the acquisition method when control is transferred to the Company. The consideration transferred in the acquisition and the identifiable net assets acquired from business combinations are measured at fair value. If the consideration transferred exceeds the fair value of identifiable net asset, the Company recognizes goodwill; if not, then the Company recognizes gain on a bargain purchase. Any goodwill that arises is tested annually for impairment. Transaction costs are expensed as incurred, except if related to the issue of debt or equity instruments in accordance with K-IFRS No. 1032 and K-IFRS No. 1109. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss.

 

  (t)

New Standards and Amendments Not Yet Adopted

A number of amended standards are effective for annual periods beginning after January 1, 2020 and earlier application is permitted; however, the Company has not early adopted the amended standards in preparing these separate financial statements.

 

  (i)

Interest Rate Benchmark Reform – Phase 2 (Amendments to K-IFRS No. 1109, Financial Instruments, K-IFRS No. 1039, Financial Instruments: Recognition and Measurement, K-IFRS No. 1107, Financial Instruments: Disclosures, K-IFRS No. 1104, Insurance Contracts and K-IFRS No. 1116, Leases)

The amendments clarify the following accounting requirements according to market-wide reform of an interest rate:

 

   

application of practical expedient to account for a change in the basis;

 

   

temporary exceptions from applying specific hedge accounting requirements; and

 

   

additional disclosures related to interest rate benchmark reform.

 

  (ii)

COVID-19-Related Rent Concessions (Amendment to K-IFRS No. 1116, Leases)

The amendment provides a practical expedient that permits a lessee not to assess whether rent concessions that occur as a direct consequence of the COVID-19 pandemic are lease modification if they meet the following conditions:

 

   

any reduction in lease payments affects only payments originally due on or before 30 June 2021;

 

   

the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than,the consideration for the lease immediately preceding the change; and

 

   

there is no substantive change to other terms and conditions of the lease.

 

191


Table of Contents
3.

Summary of Significant Accounting Policies, Continued

 

  (t)

New Standards and Amendments Not Yet Adopted, Continued

 

  (iii)

Property, Plant and Equipment: Proceeds before Intended Use (Amendments to K-IFRS No. 1016, Property, Plant and Equipment);

This amendments require an entity to recognize the proceeds from selling items produced in the manner intended by management (such as samples produced when testing whether the asset is functioning properly) and the cost of those items in profit or loss and prohibit an entity from deducting the proceeds from selling items produced before that asset is available for use from the cost of an items of property, plant and equipment.

 

  (iv)

Amendment of Reference to the Definition of an Asset and a Liability in the Conceptual Framework (Amendments to K-IFRS No. 1103, Business Combinations);

These amendments replace the reference to the definitions of an asset and a liability in the Conceptual Framework issued in 2007 to 2018 and added an exception to the recognition principle in K-IFRS No. 1103, Business Combinations, for liabilities and contingent liabilities that would be within the scope of K-IFRS No. 1037, Provisions, Contingent Liabilities and Contingent Assets, and K-IFRS No. 2121, Levies, to apply the recognition criteria specified in those standards.

 

  (v)

Classification of Liabilities as Current or Non-current (Amendments to K-IFRS No. 1001, Presentation of Financial Statements)

These amendments clarify that an entity has a right to defer settlement of the liability at the end of the reporting period if it complies with the conditions at that date and classification of a liability is unaffected by the likelihood that the entity will exercise its right to defer settlement of the liability for at least 12 months after the reporting period.

 

  (vi)

Onerous Contracts – Cost of Fulfilling a Contract (Amendments to K-IFRS No. 1037, Provisions, Contingent Liabilities and Contingent Assets)

These amendments specify the scope of “the unavoidable costs of meeting the obligations under the contract” is “the costs that relate directly to the contracts” (the incremental costs of fulfilling the contract and an allocation of other costs that relate directly to fulfilling contracts).

The Company is currently assessing the impacts of adoption of above amended standards on the Company’s financial position and business performance and management believes that the adoption of the amended standards are expected to have no significant impact on the separate financial statements of the Company, except for the amendments to K-IFRS No. 1016, Property, Plant and Equipment.

 

192


Table of Contents
4.

Cash and Cash Equivalents and Deposits in Banks

Cash and cash equivalents and deposits in banks as of December 31, 2020 and December 31, 2019 are as follows:

 

(In millions of won)              
     December 31, 2020      December 31, 2019  

Current assets

     

Cash and cash equivalents

     

Demand deposits

   W 1,220,098        1,105,245  

Deposits in banks

     

Restricted deposits (*)

   W 76,852        77,257  
Non-current assets      

Deposits in banks

     

Restricted deposits (*)

   W 11        11  
  

 

 

    

 

 

 
   W 1,296,961        1,182,513  
  

 

 

    

 

 

 

 

(*)

Includes funds deposited under agreements on mutually beneficial cooperation to aid LG Group companies’ suppliers, restricted deposits pledged to enforce the Company’s investment plans upon the receipt of grants from Gumi city and Gyeongsangbuk-do, and others.

 

5.

Trade Accounts and Notes Receivable and Other Accounts Receivable

 

  (a)

Trade accounts and notes receivable as of December 31, 2020 and December 31, 2019 are as follows:

 

(In millions of won)              
     December 31, 2020      December 31, 2019  

Due from third parties

   W 201,640        221,243  

Due from related parties

     3,595,608        3,344,617  
  

 

 

    

 

 

 
   W 3,797,248        3,565,860  
  

 

 

    

 

 

 

 

(b)

Other accounts receivable as of December 31, 2020 and December 31, 2019 are as follows:

 

(In millions of won)              
     December 31, 2020      December 31, 2019  

Current assets

     

Non-trade receivables, net

   W 130,217        438,659  

Accrued income

     11,115        1,281  
  

 

 

    

 

 

 
   W 141,332        439,940  
  

 

 

    

 

 

 

Non-current assets

     

Long-term non-trade receivables

   W 5,797        19,899  
  

 

 

    

 

 

 
   W 147,129        459,839  
  

 

 

    

 

 

 

Due from related parties included in other accounts receivable, as of December 31, 2020 and 2019 are W59,620 million and W45,518 million, respectively.

 

193


Table of Contents
5.

Trade Accounts and Notes Receivable and Other Accounts Receivable, Continued

 

 

  (c)

The aging of trade accounts and notes receivable and other accounts receivable as of December 31, 2020 and December 31, 2019 are as follows:

 

(In millions of won)    December 31, 2020  
     Book value      Allowance for
impairment
 
     Trade
accounts

and notes
receivable
     Other
accounts
receivable
     Trade
accounts

and notes
receivable
     Other
accounts
receivable
 

Current

   W 3,796,830        146,153        (27)        (1,466

1-15 days past due

     415        919        —          (7

16-30 days past due

     30        521        —          —    

31-60 days past due

     —          782        —          (8

More than 60 days past due

     —          257        —          (22
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 3,797,275        148,632        (27      (1,503
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(In millions of won)    December 31, 2019  
     Book value      Allowance for
impairment
 
     Trade
accounts

and notes
receivable
     Other
accounts
receivable
     Trade
accounts

and notes
receivable
     Other
accounts
receivable
 

Current

   W 3,565,795        184,991        (5      (2,952

1-15 days past due

     70        3,488        —          (1

16-30 days past due

     —          94        —          —    

31-60 days past due

     —          61        —          —    

More than 60 days past due

     —          274,183        —          (25
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 3,565,865        462,817        (5      (2,978
  

 

 

    

 

 

    

 

 

    

 

 

 

The movement in the allowance for impairment in respect of trade accounts and notes receivable and other accounts receivable for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)    2020     2019  
     Trade
accounts
and notes
receivable
     Other
accounts
receivable
    Trade
accounts
and notes
receivable
     Other
accounts
receivable
 

Balance at the beginning of the year

   W 5        2,978       5        989  

(Reversal of) bad debt expense

     22        (411     —          1,989  

Write-off

     —          (1,064)       —          —    

Balance at the end of the year

   W 27        1,503       5        2,978  
  

 

 

    

 

 

   

 

 

    

 

 

 

 

194


Table of Contents
6.

Other Financial Assets

Other financial assets as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)    December 31, 2020      December 31, 2019  

Current assets

     

Financial assets at fair value through profit or loss

     

Derivatives(*)

   W 9,252        34,036  

Financial assets at fair value through

other comprehensive income

     

Debt instruments

     

Government bonds

   W 24        6  

Financial assets carried at amortized cost

     

Short-term loans

   W 28,491        21,623  

Deposits

     5,384        —    
  

 

 

    

 

 

 
   W 43,151        55,665  
  

 

 

    

 

 

 

Non-current assets

     

Financial assets at fair value through profit or loss

     

Equity instruments

   W 1,381        2,997  

Convertible bonds

     1,289        1,544  

Derivatives(*)

     111        15,640  
  

 

 

    

 

 

 
   W 2,781        20,181  
  

 

 

    

 

 

 

Financial assets at fair value through other comprehensive income

     

Debt instruments

     

Government bonds

   W 48        70  

Financial assets carried at amortized cost

     

Deposits

   W 12,405        13,125  

Long-term loans

     13,899        40,827  
  

 

 

    

 

 

 
   W 26,304        53,952  
  

 

 

    

 

 

 
   W 29,133        74,203  
  

 

 

    

 

 

 

 

(*)

Represents valuation gain from cross currency interest rate swap related to foreign currency denominated borrowings and bonds. The contracts are not designated as hedging instruments.

 

195


Table of Contents
7.

Inventories

Inventories as of December 31, 2020 and December 31, 2019 are as follows:

 

(In millions of won)              
     December 31, 2020      December 31, 2019  

Finished goods

   W 372,864        394,069  

Work-in-process

     539,747        696,993  

Raw materials

     411,165        341,004  

Supplies

     94,346        94,233  
  

 

 

    

 

 

 
   W 1,418,122        1,526,299  
  

 

 

    

 

 

 

For the years ended December 31, 2020 and 2019, the amount of inventories recognized as cost of sales including inventory write-downs and usage of inventory write-downs are as follows:

 

(In millions of won)              
     2020      2019  

Inventories recognized as cost of sales

   W 21,566,984        20,834,648  

Inventory write-downs

     178,155        408,567  

Usage of inventory write-downs

     (408,567      (280,323

There were no significant reversals of inventory write-downs recognized during the years ended December 31, 2020 and 2019.

 

196


Table of Contents
8.

Investments

 

(a)

Investments in subsidiaries consist of the following:

 

(In millions of won)              December 31, 2020      December 31, 2019  

Subsidiaries

  

Location

   Business    Percentage
of
ownership
    Book
Value
     Percentage
of
ownership
    Book
Value
 

LG Display America, Inc.

  

San Jose,

U.S.A.

   Sell display products      100   W 36,815        100   W 36,815  

LG Display Germany GmbH

   Eschborn, Germany    Sell display products      100     19,373        100     19,373  

LG Display Japan Co., Ltd.

   Tokyo, Japan    Sell display products      100     15,686        100     15,686  

LG Display Taiwan

Co., Ltd.

   Taipei, Taiwan    Sell display products      100     35,230        100     35,230  

LG Display Nanjing

Co., Ltd.

   Nanjing, China    Manufacture display
products
     100     593,726        100     593,726  

LG Display Shanghai

Co., Ltd.

   Shanghai, China    Sell display products      100     9,093        100     9,093  

LG Display Poland

Sp. z o.o.(*1)

   Wroclaw, Poland    Manufacture display
products
     —         —          100     160,361  

LG Display Guangzhou Co., Ltd.

   Guangzhou, China    Manufacture display
products
     100     293,557        100     293,557  

LG Display Shenzhen

Co., Ltd.

   Shenzhen, China    Sell display products      100     3,467        100     3,467  

LG Display Singapore

Pte. Ltd.

   Singapore    Sell display products      100     1,250        100     1,250  

L&T Display Technology

(Fujian) Limited

  

Fujian,

China

   Manufacture and
sell LCD module
and LCD monitor
sets
     51     10,123        51     10,123  

LG Display Yantai Co., Ltd.

  

Yantai,

China

   Manufacture display
products
     100     169,195        100     169,195  

Nanumnuri Co., Ltd.

   Gumi, South Korea    Provide janitorial
services
     100     800        100     800  

LG Display (China)

Co., Ltd.

   Guangzhou,China    Manufacture and
sell display products
     51     723,086        51     723,086  

Unified Innovative Technology, LLC

   Wilmington, U.S.A.    Manage intellectual
property
     100     9,489        100     9,489  

LG Display Guangzhou Trading Co., Ltd.

   Guangzhou, China    Sell display products      100     218        100     218  

Global OLED Technology LLC

  

Sterling,

U.S.A

   Manage OLED
intellectual property
     100     164,322        100     164,322  

LG Display Vietnam Haiphong Co., Ltd.

   Haiphong,
Vietnam
   Manufacture
display products
     100     672,658        100     672,658  

Suzhou Lehui Display Co., Ltd.

  

Suzhou,

China

   Manufacture and
sell LCD module
and LCD monitor
sets
     100     121,640        100     121,640  

LG DISPLAY FUND I LLC(*2)

   Wilmington, U.S.A    Invest in venture
business and acquire
technologies
     100     13,564        100     6,322  

LG Display High-Tech (China) Co., Ltd.(*3)

   Guangzhou, China    Manufacture and
sell display products
     69     1,794,547        74     1,794,547  

Money Market Trust

  

Seoul,

Korea

   Money market trust      100     11,300        100     34,700  
          

 

 

      

 

 

 
           W 4,699,139        W 4,875,658  
          

 

 

      

 

 

 

 

197


Table of Contents
8.

Investments, Continued

 

 

(*1)

In May 2020, LG Display Poland Sp. z o.o. completed the liquidation process and the Company recognized a gain on disposal of investments of W8,392 million.

(*2)

For the year ended December 31, 2020, the Company contributed W7,242 million in cash for the capital increase of LG DISPLAY FUND I LLC. There was no change in the Company’s ownership percentage in LG DISPLAY FUND I LLC as a result of this additional investment.

(*3)

For the year ended December 31, 2020, non-controlling shareholders contributed W172,966 million in cash for the stocks issued by LG Display High-Tech (China) Co., Ltd. (“LGDCO”). The Company’s ownership percentage in LGDCO decreased from 74% to 69% as a result.

 

  (b)

Investments in associates consist of the following:

 

(In millions of won)                                    
               December 31, 2020      December 31, 2019  

Associates

  

Location

   Business    Percentage of
ownership
    Book
Value
     Percentage of
ownership
    Book
Value
 

Paju Electric Glass Co., Ltd.

  

Paju,

South Korea

   Manufacture glass for
display
     40   W 45,089        40   W 45,089  

WooRee E&L Co., Ltd.(*1)

  

Ansan,

South Korea

   Manufacture LED
back light unit
packages
     14     10,540        14     7,310  

YAS Co., Ltd.

  

Paju,

South Korea

   Develop and
manufacture
deposition equipment
for OLEDs
     15     10,000        15     10,000  

AVATEC Co., Ltd.

  

Daegu,

South Korea

   Process and sell glass
for display
     14     8,000        14     8,000  

Arctic Sentinel, Inc.

   Los Angeles, U.S.A.    Develop and
manufacture tablet
for kids
     10     —          10     —    

Cynora GmbH(*2)

  

Bruchsal

Germany

   Develop organic
emitting materials for
displays and lighting
devices
     12     2,609        12     4,714  

Material Science Co., Ltd.(*3)

  

Seoul,

South Korea

   Develop,
manufacture and sell
material for display
     10     3,791        10     2,354  

Nanosys Inc.(*4)

  

Milpitas,

U.S.A.

   Develop,
manufacture and sell
material for display
     3     5,660        4     5,183  
          

 

 

      

 

 

 
           W 85,689        W 82,650  
          

 

 

      

 

 

 

 

198


Table of Contents
8.

Investments, Continued

 

(*1)

For the year ended December 31, 2020, the Company recognized a reversal of impairment loss of W3,230 million as finance income for the investments in WooRee E&L Co., Ltd.

(*2)

For the year ended December 31, 2020, the Company recognized an impairment loss of W2,105 million as finance cost for the investments in Cynora GmbH. As of December 31, 2020, the Company’s ownership percentage in Cynora GmbH decreased from 12.2% to 11.6% as the Company did not participate in the rights issue.

(*3)

For the year ended December 31, 2020, the Company recognized a reversal of impairment loss of W1,437 million as finance income for the investments in Material Science Co., Ltd.

(*4)

For the year ended December 31, 2020, the Company recognized a reversal of impairment loss of W477 million as finance income for the investments in Nanosys Inc. As of December 31, 2020, the Company’s ownership percentage in Nanosys Inc. decreased from 4% to 3% as the Company did not participate in the rights issue.

Dividends income recognized from subsidiaries and associates for the years ended December 31, 2020 and 2019 amounted to W8,239 million and W18,622 million, respectively.

 

199


Table of Contents
9.

Property, Plant and Equipment

 

  (a)

Changes in property, plant and equipment for the year ended December 31, 2020 are as follows:

 

(In millions of won)                                                 
     Land     Buildings
and
structures
    Machinery
and
equipment
    Furniture
and
fixtures
    Construction-
in-
progress (*1)
    Right-of-
use asset
    Others     Total  

Acquisition cost as of January 1, 2020

   W 454,035       4,839,806       36,694,704       668,956       4,491,455       19,078       632,773       47,800,807  

Accumulated depreciation as of January 1, 2020

     —         (2,596,845     (30,263,872     (601,071     —         (12,354     (400,341     (33,874,483

Accumulated impairment loss as of January 1, 2020

     —         (68,091     (986,297     (5,037     (75,474     (309     (26,941     (1,162,149
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Book value as of January 1, 2020

   W 454,035       2,174,870       5,444,535       62,848       4,415,981       6,415       205,491       12,764,175  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Additions

     —         —         —         —         1,319,984       11,193       —         1,331,177  

Depreciation

     —         (205,736     (1,708,850     (32,711     —         (12,176     (187,148     (2,146,621

Disposals

     (11,266     (32,519     (104,997     (3,024     —         —         (48,770     (200,576

Impairment loss

     —         1,074       (4,203     8       (3,424     —         (4,937     (11,482

Others(*2)

     53       36,079       373,823       43,658       (712,690     —         259,077       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Book value as of December 31, 2020

   W 442,822       1,973,768       4,000,308       70,779       5,019,851       5,432       223,713       11,736,673  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Acquisition cost as of December 31, 2020

   W 442,822       4,816,013       36,778,107       492,022       5,096,488       27,680       762,013       48,415,145  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated depreciation as of December 31, 2020

   W —         (2,775,252     (31,787,378     (416,215     —         (22,001     (515,671     (35,516,517
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated impairment loss as of December 31, 2020

   W —         (66,993     (990,421     (5,028     (76,637     (247     (22,629     (1,161,955
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*1)

As of December 31, 2020, construction-in-progress mainly relates to construction of manufacturing facilities.

(*2)

Others are mainly amounts transferred from construction-in-progress.

 

200


Table of Contents
9.

Property, Plant and Equipment, Continued

 

  (b)

Changes in property, plant and equipment for the year ended December 31, 2019 are as follows:

 

(In millions of won)                                     
     Land     Buildings
and
structures
    Machinery
and
equipment
    Furniture
and
fixtures
    Construction-
in-progress (*1)
    Right-of-
use asset
    Others     Total  

Acquisition cost as of January 1, 2019

   W 461,828       4,860,942       34,433,030       652,723       8,469,901       —         479,594       49,358,018  

Accumulated depreciation as of January 1, 2019

     —         (2,444,534     (31,062,229     (569,823     —         —         (250,977     (34,327,563

Accumulated impairment loss as of January 1, 2019

     —         —         (28,001     —         (17,890     —         —         (45,891
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Book value as of January 1, 2019

   W 461,828       2,416,408       3,342,800       82,900       8,452,011       —         228,617       14,984,564  

Recognition of right-of-use assets on initial application of K-IFRS No. 1116

     —         —         —         —         —         16,332       —         16,332  

Adjusted book value as of January 1,2019,

     461,828       2,416,408       3,342,800       82,900       8,452,011       16,332       228,617       15,000,896  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Additions

     —         —         —         —         1,647,209       3,874       —         1,651,083  

Depreciation

     —         (210,827     (1,700,851     (39,222     —         (13,482     (190,220     (2,154,602

Disposals

     (7,844     (4,947     (557,241     (1,519     —         —         (16,912     (588,463

Impairment loss(*2)

     —         (72,902     (960,587     (5,037     (74,984     (309     (26,941     (1,140,760

Others(*3)

     51       47,138       5,324,621       25,726       (5,608,483     —         210,947       —    

Government grants received

     —         —         (4,207     —         228       —         —         (3,979
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Book value as of December 31, 2019

   W 454,035       2,174,870       5,444,535       62,848       4,415,981       6,415       205,491       12,764,175  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Acquisition cost as of December 31, 2019

   W 454,035       4,839,806       36,694,704       668,956       4,491,455       19,078       632,773       47,800,807  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated depreciation as of December 31, 2019

   W —         (2,596,845     (30,263,872     (601,071     —         (12,354     (400,341     (33,874,483
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated impairment loss as of December 31, 2019

   W —         (68,091     (986,297     (5,037     (75,474     (309     (26,941     (1,162,149
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*1)

As of December 31, 2019, construction-in-progress mainly relates to construction of manufacturing facilities.

(*2)

During 2019, Display(AD PO) and Lighting CGUs were assessed for impairment, and impairment losses amounting to W1,108,500 million(W986,579 million and W121,921 million for Display(AD PO) and Lighting CGUs, respectively) were recognized as other non-operating expenses.

(*3)

Others are mainly amounts transferred from construction-in-progress.

 

  (c)

Capitalized borrowing costs and capitalization rate for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)       
     2020     2019  

Capitalized borrowing costs

   W 77,087       135,004  

Capitalization rate

     2.85     2.88

 

201


Table of Contents
10.

Intangible Assets and Non-current Asset Impairment

 

  (a)

Changes in intangible assets for the year ended December 31, 2020 are as follows:

 

(In millions of won)    Intellectual
property
rights
    Software     Memberships     Development
costs
    Construction-
in-progress
    Customer
relation-
ships
    Technology     Goodwill     Others(*2)     Total  

Acquisition cost as of January 1, 2020

   W 715,104       975,739       55,988       2,580,777       14,203       59,176       11,074       72,588       13,079       4,497,728  

Accumulated amortization as of January 1, 2020

     (593,155     (809,994     —         (2,073,881     —         (37,491     (10,704     —         (13,079     (3,538,304

Accumulated impairment loss as of January 1, 2020

     (21,690     (7,733     (10,561     (131,713     —         (21,685     —         (57,995     —         (251,377
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Book value as of January 1, 2020

   W 100,259       158,012       45,427       375,183       14,203       —         370       14,593       —         708,047  

Additions - internally developed

     —         —         —         284,487       —         —         —         —         —         284,487  

Additions - external purchases

     304,252       7,788       —         —         50,988       —         —         —         3       363,031  

Amortization (*1)

     (23,860     (69,546     —         (278,799     —         —         (370     —         (3     (372,578

Disposals

     —         —         (17,073     —         —         —         —         —         —         (17,073

Impairment loss (*3)

     —         (675     —         (78,918     —         —         —         —         —         (79,593

Reversal of impairment loss

     —         —         1,110       —         —         —         —         —         —         1,110  

Transfer from construction-in-progress

     —         55,074       —         —         (55,074     —         —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Book value as of December 31, 2020

   W 380,651       150,653       29,464       301,953       10,117       —         —         14,593       —         887,431  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Acquisition cost as of December 31, 2020

   W 979,514       1,041,468       38,915       2,865,264       10,117       59,176       11,074       72,588       13,082       5,091,198  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated amortization as of December 31, 2020

   W (577,290     (882,407     —         (2,352,680     —         (37,491     (11,704     —         (13,082     (3,874,024
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated impairment loss as of December 31, 2020

   W (21,573     (8,408     (9,451     (210,631     —         (21,685     —         (57,995     —         (329,743
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*1)

The Company has classified the amortization as manufacturing overhead costs, selling expenses, administrative expenses, and research and development expenses.

(*2)

Others mainly consist of rights to use electricity and gas supply facilities.

(*3)

The Company recognized an impairment loss amounting to W78,918 million for development projects with low feasibility to result in revenue generation after the impairment review.

 

202


Table of Contents
10.

Intangible Assets and Non-current Asset Impairment, Continued

 

  (b)

Changes in intangible assets for the year ended December 31, 2019 are as follows:

 

(In millions of won)    Intellectual
property
rights
    Software     Memberships     Development
costs
    Construction-
in-progress
    Customer
relation-
ships
    Technology     Goodwill     Others(*2)     Total  

Acquisition cost as of January 1, 2019

   W 686,707       895,186       56,959       2,142,832       33,867       59,176       11,074       72,588       13,077       3,971,466  

Accumulated amortization as of January 1, 2019

     (570,476     (739,211     —         (1,775,922     —         (34,854     (9,597     —         (13,077     (3,143,137

Accumulated impairment loss as of January 1, 2019

     —         —         (11,521     —         —         —         —         —         —         (11,521
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Book value as of January 1, 2019

   W 116,231       155,975       45,438       366,910       33,867       24,322       1,477       72,588       —         816,808  

Additions - internally developed

     —         —         —         437,945       —         —         —         —         —         437,945  

Additions - external purchases

     28,397       —         845       —         60,889       —         —         —         2       90,133  

Amortization (*1)

     (22,679     (70,783     —         (297,959     —         (2,637     (1,107     —         (2     (395,167

Disposals

     —         —         (1,816     —         —         —         —         —         —         (1,816

Impairment loss (*3)(*4)

     (21,690     (7,733     —         (131,713     —         (21,685     —         (57,995     —         (240,816

Reversal of impairment loss

     —         —         960       —         —         —         —         —         —         960  

Transfer from construction-in-progress

     —         80,553       —         —         (80,553     —         —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Book value as of December 31, 2019

   W 100,259       158,012       45,427       375,183       14,203       —         370       14,593       —         708,047  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Acquisition cost as of December 31, 2019

   W 715,104       975,739       55,988       2,580,777       14,203       59,176       11,074       72,588       13,079       4,497,728  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated amortization as of December 31, 2019

   W (593,155     (809,994     —         (2,073,881     —         (37,491     (10,704     —         (13,079     (3,538,304
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accumulated impairment loss as of December 31, 2019

   W (21,690     (7,733     (10,561     (131,713     —         (21,685     —         (57,995     —         (251,377
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

203


Table of Contents
10.

Intangible Assets and Non-current Asset Impairment, Continued

 

  (*1)

The Company has classified the amortization as manufacturing overhead costs, selling expenses, administrative expenses, and research and development expenses.

  (*2)

Others mainly consist of rights to use electricity and gas supply facilities.

  (*3)

During 2019, Display(AD PO) and Lighting CGUs were assessed for impairment, and the impairment losses amounting to W122,994 million(W17,650 million and W105,344 million for Display(AD PO) and Lighting CGUs, respectively) were recognized as other non-operating expenses. The impairment amount is reduced in goodwill, customer relationships and others.

  (*4)

The Company recognized an impairment loss amounting to W117,822 million for development projects with low feasibility to result in revenue generation after the impairment review.

 

  (c)

Development costs as of December 31, 2020 and 2019 are as follows:

 

  (i)

As of December 31, 2020

 

(In millions of won and in years)            

Classification

   Product type    Book Value  

Development completed

   TV    W 20,803  
   IT      51,784  
   Mobile      33,097  
     

 

 

 
      W 105,684  
     

 

 

 

Development in process

   TV    W 49,773  
   IT      42,762  
   Mobile      103,734  
     

 

 

 
      W 196,269  
     

 

 

 
      W 301,953  
     

 

 

 

 

  (ii)

As of December 31, 2019

 

(In millions of won and in years)              

Classification

   Product type      Book Value  

Development completed

     TV      W 22,597  
     IT        26,834  
     Mobile        53,350  
     

 

 

 
      W 102,781  
     

 

 

 

Development in process

     TV      W 42,587  
     IT        72,332  
     Mobile        157,483  
     

 

 

 
      W 272,402  
     

 

 

 
      W 375,183  
     

 

 

 

 

204


Table of Contents
10.

Intangible Assets and Non-current Asset Impairment, Continued

 

  (d)

Impairment assessment on CGU with allocated goodwill

As of December 31, 2020, goodwill is allocated to the Company’s Display CGU which has a large portion of the Company’s non-current financial assets. The carrying amount of goodwill allocated to Display CGU is as follows:

 

(In millions of won)              
     December 31, 2020      December 31, 2019  

Display CGU

   W 14,593        14,593  

The recoverable amount of Display CGU is estimated based on its value in use. Value in use is calculated using the estimated pre-tax cash flow based on 5-year business plan approved by management. The estimated sales of the Company’s products used in the forecast was determined considering external sources and the Company’s past experience. Management estimated the future pre-tax cash flows based on its past performance and forecasts on market growth. The key assumptions used in the estimation of value in use for Display CGU include revenue and operating expenditures for the forecast period, growth rates for subsequent years (“terminal growth rate”), and discount rate. For Display CGU, the terminal growth rate and the discount rate in the estimation of value in use as of December 31, 2020 are as follows.

 

(In millions of won)            
    

Discount rate(*)

   Terminal growth rate  

Display CGU

   W          7.0%      1.0

 

  (*)

The discount rate was calculated using the weighted average cost of equity capital and debt and the beta of equity capital was calculated as the average of five global listed companies in the same industry and the Company. Cost of debt was calculated using the yield rate of non-guaranteed corporate bond considering the Company’s credit rating and debt ratio was determined using the average of the debt ratios of the five global listed companies in the same industry and the Company.

As a result of impairment test, the Company concluded that there was no impairment to Display CGU. The value in use determined for this CGU is sensitive to the discount rate and terminal growth rate used in the discounted cash flow model.

 

205


Table of Contents
11.

Financial Liabilities

 

  (a)

Financial liabilities as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)    December 31, 2020      December 31, 2019  

Current

     

Short-term borrowings

   W 326,400        347,340  

Current portion of long-term borrowings and bonds

     1,769,735        1,117,218  

Current portion of payment guarantee

liabilities

     4,576        5,674  

Derivatives(*)

     58,875        —    

Lease liabilities

     3,403        4,357  
  

 

 

    

 

 

 
   W 2,162,989        1,474,589  
  

 

 

    

 

 

 

Non-current

     

Won denominated borrowings

   W 2,435,000        2,692,560  

Foreign currency denominated borrowings

     1,572,160        1,626,709  

Bonds

     1,948,541        2,741,516  

Payment guarantee liabilities

     5,797        10,828  

Derivatives(*)

     108,750        20,592  

Lease liabilities

     1,977        2,200  
  

 

 

    

 

 

 
   W 6,072,225        7,094,405  
  

 

 

    

 

 

 

 

(*)

Represents cross currency interest rate swap contracts and others entered into by the Company to hedge currency and interest rate risks with respect to foreign currency denominated borrowings and bonds. The contracts are not designated as hedging instruments.

 

  (b)

Short-term borrowings as of December 31, 2020 and 2019 are as follows.

 

(In millions of won and USD)                     

Lender

   Annual interest rate as of
December 31, 2020 (%)(*)
     December 31,
2020
     December 31,
2019
 

Standard Chartered Bank Korea Limited

     12ML + 0.98      W 326,400        347,340  

Foreign currency equivalent

      USD 300      USD 300  

 

(*)

ML represents Month LIBOR (London Inter-Bank Offered Rates).

 

206


Table of Contents
11.

Financial Liabilities, Continued

 

  (c)

Won denominated long-term borrowings as of December 31, 2020 and 2019 are as follows :

 

(In millions of won)                  

Lender

  

Annual interest rate

as of

December 31, 2020 (%)(*)

   December 31,
2020
    December 31,
2019
 

Woori Bank

   2.75    W 60       608  

Korea Development Bank and others

   CD rate (91days) + 1.00~1.60, 2.21~3.40      3,272,500       3,330,000  

Less current portion of long-term borrowings

        (837,560     (638,048
     

 

 

   

 

 

 
      W 2,435,000       2,692,560  
     

 

 

   

 

 

 

 

(*)

CD represents certificate of deposit.

 

  (d)

Foreign currency denominated long-term borrowings as of December 31, 2020 and 2019 are as follows :

 

(In millions of won and USD)                  

Lender

  

Annual interest rate

as of

December 31, 2020 (%)

   December 31,
2020
    December 31,
2019
 

The Export-Import Bank of Korea and others

  

3ML+0.75 ~ 2.40

6ML+1.25 ~1.35

   W 1,680,960       1,696,177  
     

 

 

   

 

 

 

Foreign currency equivalent

        USD 1,545       USD 1,465  

Less current portion of long-term borrowings

        (108,800     (69,468
     

 

 

   

 

 

 
      W 1,572,160       1,626,709  
     

 

 

   

 

 

 

 

207


Table of Contents
11.

Financial Liabilities, Continued

 

  (e)

Details of bonds issued and outstanding as of December 31, 2020 and 2019 are as follows :

 

(In millions of won and USD)                           
     Maturity      Annual interest rate
as of
December 31, 2020 (%)
     December 31,
2020
    December 31,
2019
 

Won denominated bonds at amortized cost(*1)

          

Publicly issued bonds

    

February 2021~

February 2024

 

 

     1.95~2.95      W 1,320,000       1,730,000  

Privately issued bonds

    

May 2022~

May 2033

 

 

     3.25~4.25        160,000       110,000  

Less discount on bonds

           (1,798     (3,404

Less current portion

           (499,796     (409,702
        

 

 

   

 

 

 
         W 978,406       1,426,894  
        

 

 

   

 

 

 

Foreign currency denominated bonds at amortized cost(*2)

          

Publicly issued bonds

     November 2021        3.88      W 326,400       347,340  

Privately issued bonds

     April 2023        3ML+1.47        108,800       115,780  

Foreign currency equivalent

           USD 400       USD 400  

Less discount on bonds

           (3,161     (6,883

Less current portion

           (323,579     —    
        

 

 

   

 

 

 
         W 108,460       456,237  
        

 

 

   

 

 

 

Financial liabilities at fair value through profit or loss

          

Foreign currency denominated convertible bonds

     August 2024        1.50      W 861,675       858,385  

Foreign currency equivalent

           USD 792       USD 741  
        

 

 

   

 

 

 
         W 1,948,541       2,741,516  
        

 

 

   

 

 

 

 

(*1)

Principal of the won denominated bonds is to be repaid at maturity and interests are paid quarterly.

(*2)

Principal of the foreign currency denominated bonds is to be repaid at maturity and interests are paid quarterly or semi-annually.

 

208


Table of Contents
11.

Financial Liabilities, Continued

 

  (f)

Details of the convertible bonds issued and outstanding as of December 31, 2020 are as follows:

 

(In won, USD)
    

Description

Type

   Unsecured foreign currency denominated convertible bonds

Issuance amount

   USD 687,800,000

Annual interest rate (%)

   1.50

Issuance date

   August 22, 2019

Maturity date

   August 22, 2024

Interest payment

   Payable semi-annually in arrear until maturity date

Principal redemption

  

1.  Redemption at maturity:

Redeemed on the maturity date, at their outstanding principal amount, which has not been early redeemed or converted.

2.  Early redemption:

The Company has a right to redeem before maturity (call option) or the bondholders have a right to require the Company to redeem before maturity (put option). At exercise of each option, the outstanding principal amount together with accrued but unpaid interest are to be redeemed.

Conversion price

   W 19,845 per common share (subject to adjustment based on diluted effects of certain events)

Conversion period

   From August 23, 2020 to August 12, 2024

Redemption at the option of the issuer (Call option)

  

—On or at any time after 3 years from the issuance, if the closing price of the shares for any 20 trading days out of the 30 consecutive trading days is at least 130% of the applicable conversion price

—The aggregate principal amount of the convertible bonds outstanding is less than 10% of the aggregate principal amount originally issued, or

—In the event of certain changes in laws and other directives resulting in additional taxes for the holders

Redemption at the option of the bondholders (Put option)

   On the day of third anniversary from issuance date

The Company designated the convertible bonds as financial liabilities at fair value through profit of loss and recognized the change in fair value in profit or loss. The Company measures the convertible bond at fair value using the market price of convertible bonds disclosed on Bloomberg. The number of convertible shares as of December 31, 2020 is as follows:

 

(In won and No. of shares)  
     December 31, 2020  

Aggregate outstanding amount of the convertible bonds

   W 813,426,670,000  

Conversion price

   W 19,845  

Number of common shares to be issued at conversion

     40,988,998  

 

209


Table of Contents
12.

Employee Benefits

The Company’s defined benefit plans provide a lump-sum payment to an employee based on final salary rates and length of service at the time the employee leaves the Company.

The defined benefit plans expose the Company to actuarial risks, such as the risk associated with expected periods of service, interest rate risk, market (investment) risk, and others.

 

  (a)

Net defined benefit liabilities (defined benefit plan assets) recognized as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)             
     December 31, 2020     December 31, 2019  

Present value of partially funded defined benefit obligations

   W 1,392,293       1,476,866  

Fair value of plan assets

     (1,617,290     (1,604,118
  

 

 

   

 

 

 
   W (224,997     (127,252
  

 

 

   

 

 

 

 

  (b)

Changes in the present value of the defined benefit obligations for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)             
     2020     2019  

Defined benefit obligations at January 1

   W 1,476,866       1,592,366  

Current service cost

     161,898       192,528  

Past service cost

     —         (32,006

Interest cost

     35,490       42,360  

Remeasurements (before tax)

     (155,700     (137,464

Benefit payments

     (123,616     (95,099

Curtailment of plans

     —         (80,470

Net transfers from (to) related parties

     (2,645     (5,349
  

 

 

   

 

 

 

Defined benefit obligations at December 31

   W 1,392,293       1,476,866  
  

 

 

   

 

 

 

Weighted average remaining maturity of defined benefit obligations as of December 31, 2020 and 2019 are 15.06 years and 15.12 years, respectively.

 

210


Table of Contents
12.

Employee Benefits, Continued

 

  (c)

Changes in fair value of plan assets for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)              
     2020      2019  

Fair value of plan assets at January 1

   W 1,604,118        1,548,179  

Expected return on plan assets

     38,595        41,826  

Remeasurements (before tax)

     (7,264      (8,824

Contributions by employer directly to plan assets

     100,000        185,000  

Benefit payments

     (118,159      (81,876

Net transfers from (to) related parties

     —          280  

Curtailment of plans

     —          (80,467
  

 

 

    

 

 

 

Fair value of plan assets at December 31

   W 1,617,290        1,604,118  
  

 

 

    

 

 

 

 

  (d)

Plan assets as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)              
     December 31, 2020      December 31, 2019  

Guaranteed deposits in banks

   W 1,617,290        1,604,118  

As of December 31, 2020, the Company maintains the plan assets primarily with Mirae Asset Daewoo Co., Ltd., KB Insurance Co., Ltd. and others.

 

  (e)

Expenses recognized in profit or loss for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)              
     2020      2019  

Current service cost

   W 161,898        192,528  

Past service cost

     —          (32,006

Net interest cost

     (3,105      534  
  

 

 

    

 

 

 
   W 158,793        161,056  
  

 

 

    

 

 

 

Expenses are recognized as following in the separate statements of comprehensive income (loss):

 

(In millions of won)              
     2020      2019  

Cost of sales

   W 122,245        119,147  

Selling expenses

     8,129        10,221  

Administrative expenses

     16,499        16,798  

Research and development expenses

     11,920        14,890  
  

 

 

    

 

 

 
   W 158,793        161,056  
  

 

 

    

 

 

 

 

211


Table of Contents
12.

Employee Benefits, Continued

 

  (f)

Remeasurements of net defined benefit liabilities (assets) included in other comprehensive income (loss) for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)              
     2020      2019  

Balance at January 1

   W (72,208      (165,613

Remeasurements

     

Actuarial profit or loss arising from:

     

Experience adjustment

     36,769        43,644  

Demographic assumptions

     (2,584      (19,952

Financial assumptions

     121,515        113,772  

Return on plan assets

     (7,264      (8,824
  

 

 

    

 

 

 
   W 148,436        128,640  
  

 

 

    

 

 

 

Income tax

   W (38,032      (35,235
  

 

 

    

 

 

 

Balance at December 31

   W 38,196        (72,208
  

 

 

    

 

 

 

 

  (g)

Principal actuarial assumptions as of December 31, 2020 and 2019 (expressed as weighted averages) are as follows:

 

     December 31, 2020     December 31, 2019  

Expected rate of salary increase

     2.9     3.4

Discount rate for defined benefit obligations

     2.6     2.4

Assumptions regarding future mortality are based on published statistics and mortality tables. The current mortality underlying the values of the liabilities in the defined benefit plans are as follows:

 

          December 31, 2020     December 31, 2019  

Teens

   Males      0.00     0.00
   Females      0.00     0.00

Twenties

   Males      0.01     0.01
   Females      0.00     0.00

Thirties

   Males      0.01     0.01
   Females      0.00     0.00

Forties

   Males      0.02     0.02
   Females      0.01     0.01

Fifties

   Males      0.04     0.04
   Females      0.02     0.02

 

212


Table of Contents
12.

Employee Benefits, Continued

 

  (h)

Reasonably possible changes to respective relevant actuarial assumptions would have affected the defined benefit obligations by the following amounts as of December 31, 2020:

 

(In millions of won)    Defined benefit obligations  
     1% increase      1% decrease  

Discount rate for defined benefit obligations

   W (182,556      221,953  

Expected rate of salary increase

     218,924        (183,720

 

13.

Provisions

Changes in provisions for the year ended December 31, 2020 are as follows:

 

(In millions of won)                   
     Warranties (*)     Others     Total  

Balance at January 1, 2020

   W 228,975       26,381       255,356  

Additions (reversal)

     277,448       (10,697     266,751  

Usage

     (235,589     (778     (236,367
  

 

 

   

 

 

   

 

 

 

Balance at December 31, 2020

   W 270,834       14,906       285,740  
  

 

 

   

 

 

   

 

 

 

Current

   W 181,201       14,906       196,107  

Non-current

   W 89,633       —         89,633  

 

(*)

Product warranties on defective products are normally applicable for warranty periods from the date of customer’s purchase. The provision is calculated by using historical and anticipated rates of warranty claims and costs per claim to satisfy the Company’s warranty obligation.

 

213


Table of Contents
14.

Contingent Liabilities and Commitments

 

  (a)

Legal Proceedings

Anti-trust litigations

Some individual claimants filed “follow-on” damages claims against the Company and other TFT-LCD manufacturers alleging violations of EU competition law. While the Company continues its vigorous defense of the various pending proceedings described above, as of December 31, 2020, the Company cannot reliably estimate the timing and amount of outflows of resources embodying economic benefits relating to the proceedings.

Solas OLED Ltd. Litigations

Solas OLED Ltd. filed patent infringement actions in the United States District Court for the Western District of Texas and the Mannheim District Court in Germany in April 2019, in the Beijing Intellectual Property Court in China in May 2019 and in the United States District Court for the Western District of Texas in September 2020 against the Company, television manufacturers and others. In November 2020, the Mannheim District Court issued a decision in favor of the plaintiff and at the same month the Company appealed Mannheim District Court’s November decision. The Company reached an agreement with the plaintiff for the above lawsuits in December 2020, and they are expected to be withdrawn in early 2021 through follow-up procedures.

Others

The Company is involved in various lawsuits and disputes in addition to pending proceedings described above. The Company cannot reliably estimate the timing and amount of outflows of resources embodying economic benefits relating to the disputes.

 

  (b)

Commitments

Factoring and securitization of accounts receivable

The Company has agreements with Korea Development Bank and several other banks for accounts receivable sales negotiating facilities of up to an aggregate of USD 1,115 million (W1,213,120 million) in connection with the Company’s export sales transactions with its subsidiaries. As of December 31, 2020, there are no short-term borrowings that are outstanding but past due in connection with these agreements. In connection with all of the contracts in this paragraph, the Company has sold its accounts receivable with recourse.

The Company has a credit facility agreement with Shinhan Bank and several other banks pursuant to which the Company could sell its accounts receivables up to an aggregate of W602,040 million in connection with its domestic and export sales transactions and, as of December 31, 2020, W86,956 million accounts and notes receivable sold to Shinhan Bank were outstanding in connection with the agreement. In connection with the contract above, the Company has sold its accounts receivable without recourse.

 

214


Table of Contents
14.

Contingent Liabilities and Commitments, Continued

 

Letters of credit

As of December 31, 2020, the Company entered into agreements with financial institutions in relation to the opening of letters of credit and the respective credit limits under the agreements are as follows:

 

(In millions of won and USD)              
     Contractual
amount
     KRW
equivalent
 

KEB Hana Bank

     USD 150      W 163,200  

Sumitomo Mitsui Banking Corporation

     USD 50        54,400  

Industrial Bank of Korea

     USD 100        108,800  

Industrial and Commercial Bank of China

     USD 200        217,600  

Shinhan Bank

     USD 200        217,600  

KB Kookmin Bank

     USD 100        108,800  

MUFG Bank

     USD 100        108,800  

The Export–Import Bank of Korea

     USD 200        217,600  
  

 

 

    

 

 

 
     USD 1,100      W 1,196,800  
  

 

 

    

 

 

 

Payment guarantees

The Company provides payment guarantees to LG Display Vietnam Haiphong Co., Ltd. in connection with the principal amount of term loan credit facilities amounting to USD 1,197 million (W1,302,810 million).

In addition, the Company obtained payment guarantees amounting to USD 338 million (W367,200 million) from KB Kookmin Bank and others for advances received related to the long-term supply agreements. The Company also obtained payment guarantees amounting to USD 306 million (W332,724 million) from Korea Development Bank for foreign currency denominated bonds and USD 2 million (W2,176 million) from Shinhan Bank for value added tax payments in Poland.

License agreements

As of December 31, 2020, the Company has technical license agreements with Hitachi Display, Ltd. and others in relation to its LCD business and patent cross license agreement with Universal Display Corporation in relation to its OLED business. Also, the Company has a trademark license agreement with LG Corp. and other intellectual property license agreements with various companies as of December 31, 2020.

Long-term supply agreement

As of December 31, 2020, in connection with long-term supply agreements with customers, the Company recognized USD 200 million (W217,600 million) in advances received. The advances received are offset against outstanding accounts receivable balances after a given period of time, as well as those arising from the supply of products thereafter. The Company received payment guarantees amounting to USD 338 million (W367,200 million) from KB Kookmin Bank and other various banks relating to advances received (see note 14(b) payment guarantees).

 

215


Table of Contents
15.

Share Capital

The Company is authorized to issue 500,000,000 shares of capital stock (par value W5,000), and as of December 31, 2020 and December 31, 2019, the number of issued common shares is 357,815,700. There have been no changes in the capital stock from January 1, 2019 to December 31, 2020.

 

16.

Retained earnings

 

  (a)

Retained earnings as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)  
     December 31, 2020      December 31, 2019  

Legal reserve

   W 212,158        212,158  

Other reserve

     68,251        68,251  

Defined benefit plan actuarial income (loss)

     38,196        (72,208

Unappropriated retained earnings

     5,904,438        6,417,700  
  

 

 

    

 

 

 
   W 6,223,043        6,625,901  
  

 

 

    

 

 

 

 

  (b)

For the years ended December 31, 2020 and 2019, details of the Company’s appropriations of retained earnings are as follows:

 

(In millions of won, except for cash dividend per common stock)  
     2020      2019  

Retained earnings before appropriations

     

Unappropriated retained earnings carried over from prior year

   W 6,417,700        9,057,593  

Loss for the year

     (513,262      (2,639,893
  

 

 

    

 

 

 

Unappropriated retained earnings carried forward to the following year

   W 5,904,438        6,417,700  
  

 

 

    

 

 

 

For the years ended December 31, 2020 and 2019, the date of appropriation is March 23, 2021 and March 20, 2020, respectively.

 

17.

Revenue

Details of revenue for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)  
     2020      2019  

Sales of goods

   W 22,719,575        21,593,333  

Royalties

     50,681        40,271  

Others

     29,017        24,725  
  

 

 

    

 

 

 
   W 22,799,273        21,658,329  
  

 

 

    

 

 

 

 

216


Table of Contents
18.

The Nature of Expenses and Others

The classification of expenses by nature for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)  
     2020      2019  

Changes in inventories

   W 108,177        424,856  

Purchases of raw materials, merchandise and others

     8,539,506        8,616,802  

Depreciation and amortization

     2,519,199        2,549,770  

Outsourcing

     7,612,513        6,377,774  

Labor

     2,116,004        2,398,422  

Supplies and others

     643,432        615,620  

Utility

     664,869        711,890  

Fees and commissions

     370,041        466,415  

Shipping

     55,959        65,986  

Advertising

     112,678        192,333  

Warranty

     277,448        365,993  

Travel

     57,210        85,091  

Taxes and dues

     57,199        58,899  

Impairment loss on property, plant and equipment

     11,482        1,140,760  

Impairment loss on intangible assets

     79,593        240,816  

Others

     545,996        560,225  
  

 

 

    

 

 

 
   W 23,771,306        24,871,652  
  

 

 

    

 

 

 

Total expenses consist of cost of sales, selling, administrative, research and development expenses and other non-operating expenses, excluding foreign exchange differences.

 

217


Table of Contents
19.

Selling and Administrative Expenses

Details of selling and administrative expenses for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)  
     2020      2019  

Salaries(*)

   W 191,932        410,355  

Expenses related to defined benefit plans

     24,697        27,109  

Other employee benefits

     42,475        47,976  

Shipping

     38,106        48,256  

Fees and commissions

     125,125        129,209  

Depreciation

     88,315        107,571  

Taxes and dues

     3,099        2,478  

Advertising

     112,678        192,333  

Warranty

     277,448        365,993  

Insurance

     7,806        6,026  

Travel

     6,070        17,338  

Training

     6,941        9,535  

Others

     40,069        39,166  
  

 

 

    

 

 

 
   W 964,761        1,403,345  
  

 

 

    

 

 

 

 

(*)

Expenses recognized in relation to employee termination benefits for the years ended December 31, 2020 and 2019 amount to W1,380 million and W218,826 million, respectively.

 

20.

Personnel Expenses

Details of personnel expenses for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)  
     2020      2019  

Salaries and wages

   W 1,765,366        2,062,943  

Other employee benefits

     257,427        285,794  

Contributions to National Pension plan

     67,241        73,149  

Expenses related to defined benefit plans and defined contribution plans(*)

     159,409        161,848  
  

 

 

    

 

 

 
   W 2,249,443        2,583,734  
  

 

 

    

 

 

 

 

(*)

Expenses recognized in relation to employee defined contribution plan for the years ended December 31, 2020 and 2019 amount to W616 million and W792 million, respectively.

 

218


Table of Contents
21.

Other Non-operating Income and Other Non-operating Expenses

 

  (a)

Details of other non-operating income for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)       
     2020      2019  

Foreign currency gain

   W 1,204,657        752,629  

Gain on disposal of property, plant and equipment

     43,155        54,756  

Gain on disposal of intangible assets

     —          552  

Reversal of impairment loss on intangible assets

     1,110        960  

Rental income

     1,692        1,832  

Others

     14,990        24,785  
  

 

 

    

 

 

 
   W 1,265,604        835,514  
  

 

 

    

 

 

 

 

  (b)

Details of other non-operating expenses for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)       
     2020      2019  

Foreign currency loss

   W 1,281,183        800,082  

Other bad debt expense

     —          1,349  

Loss on disposal of property, plant and equipment

     58,852        25,851  

Impairment loss on property, plant and equipment

     11,482        1,140,760  

Loss on disposal of intangible assets

     368        18  

Impairment loss on intangible assets

     79,593        240,816  

Donations

     378        592  

Others

     8,381        19,692  
  

 

 

    

 

 

 
   W 1,440,237        2,229,160  
  

 

 

    

 

 

 

 

219


Table of Contents
22.

Finance Income and Finance Costs

Finance income and costs recognized in profit or loss for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)       
     2020      2019  

Finance income

     

Interest income

   W 8,614        13,633  

Dividend income

     8,239        18,622  

Foreign currency gain

     243,071        77,502  

Gain on disposal of investments

     8,392        5,408  

Reversal of impairment loss on investments

     5,144        2,564  

Gain on transaction of derivatives

     24,759        21,752  

Gain on valuation of derivatives

     —          59,781  

Gain on valuation of financial assets at fair value through profit or loss

     58        402  

Others

   W 6,067        5,302  
  

 

 

    

 

 

 
     304,344        204,966  
  

 

 

    

 

 

 

Finance costs

     

Interest expense

   W 221,131        134,894  

Foreign currency loss

     65,404        104,153  

Loss on repayment of borrowings

     794        —    

Impairment loss on investments

     2,104        39,884  

Loss on sale of trade accounts and notes receivable

     1,870        1,769  

Loss on valuation of financial assets at fair value through profit or loss

     2,130        4,531  

Loss on valuation of financial liabilities at fair value through profit or loss

     36,798        56,384  

Loss on transaction of derivatives

     291        —    

Loss on valuation of derivatives

     187,344        17,999  

Others

     1,635        12,242  
  

 

 

    

 

 

 
   W 519,501        371,856  
  

 

 

    

 

 

 

 

220


Table of Contents
23.

Income Tax Expense (Benefit)

 

  (a)

Details of income tax expense (benefit) for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)       
     2020      2019  

Current tax expense (benefit)

     

Current year

   W 5,172        9,328  

Adjustment for prior years

     (52,574      (163,203
  

 

 

    

 

 

 
   W (47,402      (153,875

Deferred tax expense (benefit)

     

Origination and reversal of temporary differences and others

   W (361,075      (875,314

Change in unrecognized deferred tax assets(*)

     (281,030      324,301  
  

 

 

    

 

 

 
   W (642,105      (551,013
  

 

 

    

 

 

 

Income tax benefit

   W (689,507      (704,888
  

 

 

    

 

 

 

 

  (*)

The 2020 amount includes tax effect from recognizing previously unrecognized deferred tax assets in relation to tax credit carry forwards due to amendments to tax laws (extension of tax credit carry forward period from 5 years to 10 years and others) resulting in increase of probability for utilization of tax credits.

 

(b)

Income taxes recognized directly in other comprehensive income or loss for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)    2020      2019  
     Before tax      Tax expense     Net of tax      Before tax      Tax expense     Net of tax  

Remeasurements of net defined benefit liabilities (assets)

   W 148,436        (38,032     110,404        128,640        (35,235     93,405  

 

221


Table of Contents
23.

Income Taxes, Continued

 

  (c)

Reconciliation of the actual effective tax rate for the years ended December 31, 2020 and 2019 is as follows:

 

(In millions of won)                     
            2020      2019  

Loss for the year

   W          (513,262        (2,639,893

Income tax benefit

          (689,507        (704,888
       

 

 

      

 

 

 

Loss before income tax

          (1,202,769        (3,344,781
       

 

 

      

 

 

 

Income tax benefit using the Company’s statutory tax rate

        25.53     (307,067      25.67     (858,605

Non-deductible expenses (Non-taxable income)

        0.27     (3,270      (0.53 %)      17,870  

Tax credits

        6.06     (72,884      1.35     (45,237

Change in unrecognized deferred tax assets(*1)

        22.18     (266,771      (9.70 %)      324,301  

Adjustment for prior years(*2)

        3.93     (47,229      4.88     (163,203

Effect on change in tax rate

        (0.61 %)      7,386        (0.66 %)      22,201  

Others

        (0.03 %)      328        0.07     (2,215
       

 

 

      

 

 

 

Income tax benefit

   W          (689,507        (704,888
       

 

 

      

 

 

 

Effective tax rate

          (*3        (*3

 

(*1)

The 2020 amount includes tax effect from recognizing previously unrecognized deferred tax assets in relation to tax credit carry forwards due to amendments to tax laws (extension of tax credit carry forward period from 5 years to 10 years and others) resulting in increase of probability for utilization of tax credits.

(*2)

Adjustment for prior years in 2020 consist of additional use of tax credits in amended tax returns and others. Adjustment for prior years in 2019 consist of additional use of tax credits in amended tax returns and expected amount of income tax refund in relation to the transfer price investigation and others.

(*3)

Actual effective tax rate are not calculated due to loss before income tax.

 

  (d)

Tax uncertainties

In relation to transfer price investigations conducted in subsidiaries located in China, the mutual agreement procedures between tax authorities of the Republic of Korea and China are in progress since 2019. Upon completion of the above process, double taxation is expected to be eliminated. During the year ended December 31, 2019, the Company recognized current tax assets of W109,222 million in connection with the above and there is no change for the year ended December 31, 2020.

 

222


Table of Contents
24.

Deferred Tax Assets and Liabilities

 

  (a)

Unrecognized deferred tax liabilities

As of December 31, 2020, in relation to the taxable temporary differences on investments in subsidiaries amounting to W308,402 million, the Company did not recognize deferred tax liabilities since the Company is able to control the timing of the reversal of the temporary difference and it is probable that the temporary differences will not reverse in the foreseeable future.

 

  (b)

Unused tax credit carryforwards for which no deferred tax asset is recognized

Realization of deferred tax assets related to tax credit carryforwards is dependent on whether sufficient taxable income will be generated prior to their expiration and planned tax strategies are feasible. As of December 31, 2020, the amount of unused tax credit carryforwards for which no deferred tax asset is recognized and their expiration dates are as follows:

 

(In millions of won)                                          
     Total      December 31,
2026
     December 31,
2027
     December 31,
2028
     December 31,
2029
     December 31,
2030
 

Tax credit carryforwards

   W 230,768        10,278        48,578        48,293        82,707        40,912  

 

  (c)

Deferred tax assets and liabilities are attributable to the following:

 

(In millions of won)    Assets      Liabilities     Total  
     December 31,
2020
     December 31,
2019
     December 31,
2020
    December 31,
2019
    December 31,
2020
    December 31,
2019
 

Other accounts receivable, net

   W —          —          (13     (4,364     (13     (4,364

Inventories, net

     38,700        78,730        —         —         38,700       78,730  

Defined benefit liabilities

     —          —          (35,617     —         (35,617     —    

Accrued expenses

     115,762        120,854        —         —         115,762       120,854  

Property, plant and equipment

     476,162        465,883        —         —         476,162       465,883  

Intangible assets

     16,226        19,422        —         —         16,226       19,422  

Provisions

     70,125        59,875        —         —         70,125       59,875  

Other temporary differences

     81,585        52,293        (2,045     —         79,540       52,293  

Tax loss carryforwards

     819,133        536,684        —         —         819,133       536,684  

Tax credit carryforwards

     391,769        38,337        —         —         391,769       38,337  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Deferred tax assets (liabilities)

   W 2,009,462        1,372,078        (37,675     (4,364     1,971,787       1,367,714  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

223


Table of Contents
24.

Deferred Tax Assets and Liabilities, Continued

 

 

  (d)

Changes in deferred tax assets and liabilities for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)    January 1,
2019
    Profit or
loss
    Other
comprehensive
loss
    December 31,
2019
    Profit or loss     Other
comprehensive loss
    December 31,
2020
 

Other accounts

receivable, net

   W (1,013     (3,351     —         (4,364     4,351       —         (13

Inventories, net

     53,882       24,848       —         78,730       (40,030     —         38,700  

Defined benefit

liabilities, net

     —         35,235       (35,235     —         2,415       (38,032     (35,617

Accrued expenses

     121,508       (654     —         120,854       (5,092     —         115,762  

Property, plant and

equipment

     191,073       274,810       —         465,883       10,279       —         476,162  

Intangible assets

     925       18,497       —         19,422       (3,196     —         16,226  

Provisions

     32,468       27,407       —         59,875       10,250       —         70,125  

Gain or loss on foreign

currency translation, net

     13       (13     —         —         —         —         —    

Others

     17,932       34,361       —         52,293       27,247       —         79,540  

Tax loss carryforwards

     126,755       409,929       —         536,684       282,449       —         819,133  

Tax credit carryforwards

     308,393       (270,056     —         38,337       353,432       —         391,769  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Deferred tax assets (liabilities)

   W 851,936       551,013       (35,235     1,367,714       642,105       (38,032     1,971,787  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

224


Table of Contents
25.

Loss per Share

 

  (a)

Basic loss per share for the years ended December 31, 2020 and 2019 are as follows:

 

(In won and No. of shares)    2020      2019  

Loss for the year

   W (513,262,046,420      (2,639,892,599,202

Weighted-average number of common stocks outstanding

     357,815,700        357,815,700  
  

 

 

    

 

 

 

Basic loss per share

   W (1,434      (7,378
  

 

 

    

 

 

 

For the years ended December 31, 2020 and 2019, there were no events or transactions that resulted in changes in the number of common stocks used for calculating basic loss per share.

 

  (b)

Diluted loss per share is not different from basic loss per share. As of December 31, 2020, 40,988,998 shares of potential common stock to be issued from conversion were excluded from the calculation of weighted-average number of common stocks due to antidilution.

 

26.

Financial Risk Management

The Company is exposed to credit risk, liquidity risk and market risks. The Company identifies and analyzes such risks, and controls are implemented under a risk management system to monitor and manage these risks at below an acceptable level.

 

  (a)

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

 

  (i)

Currency risk

The Company is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the functional currency of the Company, Korean won (KRW). The currencies in which these transactions primarily are denominated are USD, JPY, etc.

Interest on borrowings is accrued in the currency of the borrowing. Generally, borrowings are denominated in currencies that match the cash flows generated by the underlying operations of the Company, primarily KRW and USD.

In respect of other monetary assets and liabilities denominated in foreign currencies, the Company adopts policies to ensure that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances. Meanwhile, the Company entered into cross currency interest rate swap contracts to hedge currency risk with respect to foreign currency denominated borrowings and bonds.

 

225


Table of Contents
26.

Financial Risk Management, Continued

 

  i)

Exposure to currency risk

The Company’s exposure to foreign currency risk based on notional amounts as of December 31, 2020 and 2019 are as follows:

 

(In millions)    December 31, 2020  
     USD     JPY     CNY     PLN      EUR     GBP  

Cash and cash equivalents

     1,112       7       41       2        —         —    

Trade accounts and notes

receivable

     3,425       1,782       —         —          —         —    

Non-trade receivables

     79       90       —         —          6       —    

Trade accounts and

notes payable

     (3,035     (8,853     —         —          —         —    

Other accounts payable

     (266     (4,765     (25     —          (1     (2

Financial liabilities

     (3,034     —         —         —          —         —    
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
     (1,719     (11,739     16       2        5       (2
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Cross currency interest rate swap contracts

     2,225       —         —         —          —         —    
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net exposure

     506       (11,739     16       2        5       (2
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

(In millions)    December 31, 2019  
     USD     JPY     CNY      PLN      EUR  

Cash and cash equivalents

     907       3       2        1        2  

Trade accounts and notes receivable

     2,880       3,974       —          —          —    

Non-trade receivables

     306       452       —          —          —    

Trade accounts and

notes payable

     (1,035     (7,346     —          —          —    

Other accounts payable

     (145     (3,619     —          —          (9

Financial liabilities

     (2,900     —         —          —          —    
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 
     13       (6,536     2        1        (7
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Cross currency interest rate swap contracts

     2,085       —         —          —          —    
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Net exposure

     2,098       (6,536     2        1        (7
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

226


Table of Contents
26.

Financial Risk Management, Continued

 

Average exchange rates applied for the years ended December 31, 2020 and 2019 and the exchange rates at December 31, 2020 and December 31, 2019 are as follows:

 

(In won)    Average rate      Reporting date spot rate  
     2020      2019      December 31,
2020
     December 31,
2019
 

USD

   W 1,180.46        1,165.46      W 1,088.00        1,157.80  

JPY

     11.05        10.70        10.54        10.63  

CNY

     170.90        168.56        166.96        165.74  

PLN

     302.95        303.62        292.02        304.87  

EUR

     1,345.71        1,304.52        1,338.24        1,297.43  

GBP

     1,513.48        1,487.46        1,482.40        1,420.32  

 

  ii)

Sensitivity analysis

A weaker won, as indicated below, against the following currencies which comprise the Company’s assets or liabilities denominated in a foreign currency as of December 31, 2020 and 2019, would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Company considers to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, would remain constant. The changes in equity and profit or loss would have been as follows:

 

(In millions of won)    December 31, 2020     December 31, 2019  
     Equity     Profit
or loss
    Equity     Profit
or loss
 

USD (5 percent weakening)

   W 19,957       19,957     W 88,054       88,054  

JPY (5 percent weakening)

     (4,486     (4,486     (2,520     (2,520

CNY (5 percent weakening)

     97       97       12       12  

PLN (5 percent weakening)

     21       21       11       11  

EUR (5 percent weakening)

     243       243       (329     (329

GBP (5 percent weakening)

     (107     (107     —         —    

A stronger won against the above currencies as of December 31, 2020 and 2019 would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

 

227


Table of Contents
26.

Financial Risk Management, Continued

 

  (ii)

Interest rate risk

Interest rate risk arises principally from the Company’s variable interest-bearing bonds and borrowings. The Company establishes and applies its policy to reduce uncertainty arising from fluctuations in the interest rate and to minimize finance cost and manages interest rate risk by monitoring of trends of fluctuations in interest rate and establishing plan for countermeasures. Meanwhile, the Company entered into cross currency interest rate swap contracts amounting to USD 1,925 million (W2,094,400 million) and interest rate swap contracts amounting to W170,000 million in notional amount to hedge interest rate risk with respect to variable interest bearing borrowings.

 

  i)

Profile

The interest rate profile of the Company’s interest-bearing financial instruments as of December 31, 2020 and 2019 is as follows:

 

(In millions of won)              
     December 31,
2020
     December 31,
2019
 

Fixed rate instruments

     

Financial assets

   W 1,297,022        1,182,579  

Financial liabilities

     (5,792,416      (6,066,554
  

 

 

    

 

 

 
   W (4,495,394      (4,883,975
  

 

 

    

 

 

 

Variable rate instruments

     

Financial liabilities

   W (2,259,420      (2,458,789

 

  ii)

Equity and profit or loss sensitivity analysis for variable rate instruments

As of December 31, 2020 and 2019, a change of 100 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below for each 12-month period following the reporting dates. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.

 

(In millions of won)              
     Equity      Profit or loss  
     1%p
increase
     1%p
decrease
     1%p
increase
     1%p
decrease
 

December 31, 2020

           

Variable rate instruments(*)

   W (2,333      2,333        (2,333      2,333  

December 31, 2019

           

Variable rate instruments(*)

   W (2,847      2,847        (2,847      2,847  

 

(*)

Financial instruments related to non-hedging interest rate swaps are excluded.

 

228


Table of Contents
26.

Financial Risk Management, Continued

 

  (b)

Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers.

The Company’s exposure to credit risk of trade and other receivables is influenced mainly by the individual characteristics of each customer. However, management believes that the default risk of the country in which each customer operates, do not have a significant influence on credit risk since the majority of the customers are global electronic appliance manufacturers operating in global markets.

The Company establishes credit limits for each customer and each new customer is analyzed quantitatively and qualitatively before determining whether to utilize third party guarantees, insurance or factoring as appropriate.

In relation to the impairment of financial assets subsequent to initial recognition, the Company recognizes the changes in expected credit loss (“ECL”) in profit or loss at each reporting date.

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposures to credit risk as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)              
     December 31,
2020
     December 31,
2019
 

Financial assets carried at amortized cost

     

Cash and cash equivalents

   W 1,220,098        1,105,245  

Deposits in banks

     76,863        77,268  

Trade accounts and notes receivable, net

     3,797,248        3,565,860  

Non-trade receivables

     130,217        438,659  

Accrued income

     11,115        1,281  

Deposits

     17,789        13,125  

Short-term loans

     28,491        21,623  

Long-term loans

     13,899        40,827  

Long-term non-trade receivables

     5,797        19,899  
  

 

 

    

 

 

 
   W 5,301,517        5,283,787  
  

 

 

    

 

 

 
     

Financial assets at fair value through profit or loss

     

Convertible bonds

   W 1,289        1,544  

Derivatives

     9,363        49,676  
  

 

 

    

 

 

 
   W 10,652        51,220  
  

 

 

    

 

 

 

Financial assets at fair value through other comprehensive income

     

Debt instruments

   W 72        76  
  

 

 

    

 

 

 
   W 5,312,241        5,335,083  
  

 

 

    

 

 

 

 

229


Table of Contents
26.

Financial Risk Management, Continued

 

In addition to the financial assets above, as of December 31, 2020, the Company provides payment guarantees in connection with the principal amount of credit facilities amounting to USD 1,197 million (W1,302,810 million) (see note 14).

Trade accounts and notes receivable are insured in order for the Company to manage credit risk if they do not meet the Company’s internal credit ratings. Uninsured trade accounts and notes receivables are managed by continuous monitoring of internal credit rating standards established by the Company and seeking insurance coverage, if necessary.

 

  (c)

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or other financial assets. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

The Company has historically been able to satisfy its cash requirements from cash flows from operations and debt and equity financing. To the extent that the Company does not generate sufficient cash flows from operations to meet its capital requirements, the Company may rely on other financing activities, such as external long-term borrowings and offerings of debt instruments, equity-linked and other debt instruments. In addition, the Company maintains a line of credit with various banks.

 

230


Table of Contents
26.

Financial Risk Management, Continued

 

The following are the contractual maturities of financial liabilities, including estimated interest payments, as of December 31, 2020.

 

(In millions of won)           Contractual cash flows in  
     Carrying
amount
     Total      6 months
or less
     6-12
months
     1-2
years
     2-5
years
     More
than 5
years
 

Non-derivative financial liabilities

                    

Borrowings

   W 5,279,920        5,536,931        1,130,998        256,362        1,451,352        2,698,219        —    

Bonds

     2,771,916        2,786,822        327,489        551,540        1,379,750        435,757        92,286  

Trade accounts and

notes payable

     4,591,319        4,591,319        4,472,817        118,502        —          —          —    

Other accounts

payable

     1,295,580        1,295,580        1,295,580        —          —          —          —    

Other accounts

payable (enterprise

procurement cards)(*1)

     1,078,150        1,078,150        473,511        604,639        —          —          —    

Payment guarantee(*2)

     10,373        1,338,654        112,049        165,928        402,090        658,587        —    

Security deposits received

     12,350        12,350        —          1,430        10,920        —          —    

Lease liabilities

     5,380        5,483        2,144        1,376        1,532        431        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Derivative financial liabilities

                    

Derivatives

   W 167,625        153,487        26,332        22,861        39,277        65,017        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 15,212,613        16,798,776        7,840,920        1,722,638        3,284,921        3,858,011        92,286  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(*1)

Represents liabilities payable to credit card companies for utility expenses and others paid using enterprise procurement cards and the outstanding payables are settled at the end of the billing cycle. The Company presented the payable to credit card companies as other accounts payable and disclosed related cash flow as operating activities since the Company is using the enterprise procurement cards through agreements with suppliers for transactions arising from purchasing of goods and services, the payment term is within a year from the purchase, as part of the normal operating cycle, and no security is provided in connection with the above agreement. Change in liabilities related to procurement cards for the year ended December 31, 2020 is as follows:

 

(In millions of won)                    
     January 1, 2020      Change
(Cash flows from
operation activities)
    December 31, 2020  

Other accounts payable (enterprise procurement cards)

   W 2,353,355        (1,275,205     1,078,150  

 

(*2)

Contractual cash flows of payment guarantee is identical to timing of principal and interest payment and represent the maximum amount that the Company could be required to pay the guarantee amount.

It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.

 

231


Table of Contents
26.

Financial Risk Management, Continued

 

  (d)

Capital Management

Management’s policy is to maintain a capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Liabilities to equity ratio, net borrowings to equity ratio and other financial ratios are used by management to achieve an optimal capital structure. Management also monitors the return on capital as well as the level of dividends to ordinary shareholders.

 

(In millions of won)             
     December 31,
2020
    December 31,
2019
 

Total liabilities

   W 16,441,967       16,716,587  

Total equity

     10,263,235       10,666,093  

Cash and deposits in banks (*1)

     1,296,950       1,182,502  

Borrowings (including bonds)

     8,051,836       8,525,343  

Total liabilities to equity ratio

     160     157

Net borrowings to equity ratio (*2)

     66     69

 

(*1)

Cash and deposits in banks consist of cash and cash equivalents and current deposits in banks.

(*2)

Net borrowings to equity ratio is calculated by dividing total borrowings (including bonds and excluding lease liabilities and others) less cash and current deposits in banks by total equity.

 

232


Table of Contents
26.

Financial Risk Management, Continued

 

  (e)

Determination of fair value

 

  (i)

Measurement of fair value

A number of the Company’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

 

  i)

Current assets and liabilities

The carrying amounts approximate their fair value because of the short maturity of these instruments.

 

  ii)

Trade receivables and other receivables

The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date. This fair value is determined for disclosure purposes. The carrying amounts of current receivables approximate their fair value.

 

  iii)

Investments in equity and debt instruments

The fair value of marketable financial assets at FVTPL and at FVOCI is determined by reference to their quoted closing bid price at the reporting date. The fair value of non-marketable instruments is determined using the results of fair value assessment performed by external valuation institution and others.

 

  iv)

Non-derivative financial liabilities

Fair value, which is determined for disclosure purposes, except for the liabilities at FVTPL, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date.

 

233


Table of Contents
26.

Financial Risk Management, Continued

 

  (ii)

Fair values versus carrying amounts

The fair values of financial assets and liabilities, together with the carrying amounts shown in the separate statement of financial position as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)    December 31, 2020      December 31, 2019  
     Carrying
amounts
     Fair
values
     Carrying
amounts
     Fair
values
 

Financial assets carried at amortized cost

           

Cash and cash equivalents

   W 1,220,098        (*)        1,105,245        (*)  

Deposits in banks

     76,863        (*)        77,268        (*)  

Trade accounts and notes receivable

     3,797,248        (*)        3,565,860        (*)  

Non-trade receivables

     130,217        (*)        438,659        (*)  

Accrued income

     11,115        (*)        1,281        (*)  

Deposits

     17,789        (*)        13,125        (*)  

Short-term loans

     28,491        (*)        21,623        (*)  

Long-term loans

     13,899        (*)        40,827        (*)  

Long-term non-trade receivables

     5,797        (*)        19,899        (*)  

Financial assets at fair value through profit or loss

           

Equity instruments

   W 1,381        1,381        2,997        2,997  

Convertible bonds

     1,289        1,289        1,544        1,544  

Derivatives

     9,363        9,363        49,676        49,676  

Financial assets at fair value through other comprehensive income

           

Debt instruments

   W 72        72        76        76  

Financial liabilities at fair value through profit or loss

           

Derivatives

   W 167,625        167,625        20,592        20,592  

Convertible bonds

     861,675        861,675        858,385        858,385  

Financial liabilities carried at amortized cost

           

Borrowings

   W 5,297,920        5,311,440        5,374,125        5,438,952  

Bonds

     1,910,241        1,923,517        2,292,833        2,345,867  

Trade accounts and notes payable

     4,591,319        (*)        2,682,403        (*)  

Other accounts payable

     2,373,730        (*)        3,329,040        (*)  

Long-term other accounts payable

     —          (*)        1,062        (*)  

Payment guarantee liabilities

     10,373        (*)        16,502        (*)  

Security deposits received

     12,350        (*)        11,000        (*)  

Lease liabilities

     5,380        (*)        6,557        (*)  

 

(*)

Excluded from disclosures as the carrying amount approximates fair value.

 

234


Table of Contents
26.

Financial Risk Management, Continued

 

  (iii)

Fair values of financial assets and liabilities

 

  i)

Fair value hierarchy

Financial instruments carried at fair value are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques. The different levels have been defined as follows:

 

   

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

 

   

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

 

   

Level 3: inputs for the asset or liability that are not based on observable market data

 

  ii)

Financial instruments measured at fair value

Fair value hierarchy classifications of the financial instruments that are measured at fair value as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)    December 31, 2020  
     Level 1      Level 2      Level 3      Total  

Financial assets at fair value through profit or loss

           

Equity instruments

   W —          —          1,381        1,381  

Convertible bonds

     —          —          1,289        1,289  

Derivatives

     —          —          9,363        9,363  

Financial assets at fair value through other comprehensive income

           

Debt instruments

   W 72        —          —          72  

Financial liabilities at fair value through profit or loss

           

Derivatives

   W —          —          167,625        167,625  

Convertible bonds

     861,675        —          —          861,675  
(In millions of won)    December 31, 2019  
     Level 1      Level 2      Level 3      Total  

Financial assets at fair value through profit or loss

           

Equity instruments

   W —          —          2,997        2,997  

Convertible bonds

     —          —          1,544        1,544  

Derivatives

     —          —          49,676        49,676  

Financial assets at fair value through other comprehensive income

           

Debt instruments

   W 76        —          —          76  

Financial liabilities at fair value through profit or loss

           

Derivatives

   W —          —          20,592        20,592  

Convertible bonds

     858,385        —          —          858,385  

 

235


Table of Contents
26.

Financial Risk Management, Continued

 

  iii)

Financial instruments not measured at fair value but for which the fair value is disclosed

Fair value hierarchy classifications, valuation technique and inputs for fair value measurements of the financial instruments not measured at fair value but for which the fair value is disclosed as of December 31, 2020 and December 31, 2019 are as follows:

 

(In millions of won)    December 31, 2020      Valuation
technique
   Input

Classification

   Level 1      Level 2      Level 3  

Liabilities

              

Borrowings

   W —          —          5,311,440      Discounted
cash flow
   Discount
rate

Bonds

     —          —          1,923,517      Discounted
cash flow
   Discount
rate
(In millions of won)    December 31, 2019      Valuation
technique
   Input

Classification

   Level 1      Level 2      Level 3  

Liabilities

              

Borrowings

   W —          —          5,438,952      Discounted
cash flow
   Discount
rate

Bonds

     —          —          2,345,867      Discounted
cash flow
   Discount
rate

 

  iv)

The interest rates applied for determination of the above fair value as of December 31, 2020 and 2019 are as follows:

 

     December 31,
2020
  December 31,
2019
Borrowings, bonds and others    2.15~4.46%   1.87~3.56%

 

236


Table of Contents
27.

Leases

The Company leases buildings, vehicles, machinery and equipment and others. Information about leases for which the Company is a lessee is presented below.

 

  (i)

Right-of-use assets

Right-of-use assets are presented as property, plant and equipment as of December 31, 2020 and December 2019(see Note 9(a)).

Changes in right-of-use assets for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)                                     
     2020  
     Buildings     Land     Machinery and
equipment
    Vehicles     Others     Total  

Balance at January 1

   W 922       1       1,180       4,282       30       6,415  

Additions

     7,748       39       1,163       2,241       2       11,193  

Depreciation

     (7,988     (4     (1,130     (3,022     (32     (12,176
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31

   W 682       36       1,213       3,501       —         5,432  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
(In millions of won)                                     
     2019  
     Buildings     Land     Machinery
and equipment
    Vehicles     Others     Total  

Balance at January 1

   W 9,338       —         1,021       5,922       51       16,332  

Additions

     307       2       1,271       2,253       41       3,874  

Depreciation

     (8,602     (1     (1,091     (3,726     (62     (13,482

Impairment

     (121     —         (21     (167     —         (309
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31

   W 922       1       1,180       4,282       30       6,415  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (ii)

Amounts recognized in profit or loss not from right-of-use assets for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)             
     2020     2019  

Interest on lease liabilities

   W (590     (357

Expenses relating to short-term leases

     (976     (417

Expenses relating to leases of low-value assets

     (70     (257

 

  (iii)

Changes in lease liabilities for the years ended December 31, 2020 and December 31, 2019 are as follows:

 

(In millions of won)             
     2020     2019  

Balance at January 1

   W 6,557       16,332  

Additions

     10,606       3,874  

Interest expense

     590       357  

Repayment of liabilities

     (12,373     (14,006
  

 

 

   

 

 

 

Balance at December 31

   W 5,380       6,557  
  

 

 

   

 

 

 

 

237


Table of Contents
28.

Changes in liabilities arising from financing activities

Changes in liabilities arising from financing activities for the year ended December 31, 2020 are as follows:

 

(In millions of won)                                             
     January 1,
2020
     Cash flows
from
financing
activities
    Non-cash transactions  
    Reclassification     Gain or
loss on
foreign
currency
translation
    Effective
interest
adjustment
     Others     December 31,
2020
 

Short-term borrowings

   W 347,340        4,739       —         (25,679     —          —         326,400  

Current portion of long-term borrowings and bonds

     1,117,218        (1,119,579     1,781,141       (10,602     763        794       1,769,735  

Payment guarantee

liabilities

     16,502        7,154       —         —         —          (13,283     10,373  

Long-term borrowings

     4,319,269        741,166       (953,340     (99,935     —          —         4,007,160  

Bonds

     2,741,516        49,949       (827,801     (72,129     20,207        36,799       1,948,541  

Lease liabilities

     6,557        (12,373     —         —         —          11,196       5,380  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
   W 8,548,402        (328,944     —         (208,345     20,970        35,506       8,067,589  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

238


Table of Contents
29.

Related Parties and Others

 

  (a)

Related parties

Related parties as of December 31, 2020 are as follows:

 

Classification

  

Description

Subsidiaries(*)    LG Display America, Inc. and others
Associates(*)    Paju Electric Glass Co., Ltd. and others

Entity that has significant influence over the

Company

   LG Electronics Inc.

Subsidiaries of the entity that has significant

influence over the Company

   Subsidiaries of LG Electronics Inc.
  

 

(*)

Details of subsidiaries and associates are described in Note 8.

 

239


Table of Contents
29.

Related Parties and Others, Continued

 

  (b)

Significant transactions such as sales of goods and purchases of raw material and outsourcing service and others, which occurred in the normal course of business with related parties for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)    2020  
                   Purchase and others  
     Sales and
others
     Dividend

income
     Purchase
of raw
material
and others
     Acquisition of
property,
plant and
equipment
     Outsourcing
fees
     Other
costs
 

Subsidiaries

                 

LG Display America, Inc.

   W 11,375,998        —          —          —          —          —    

LG Display Japan Co., Ltd.

     1,905,919        —          —          —          —          12  

LG Display Germany GmbH

     1,427,576        —          —          —          —          6,006  

LG Display Taiwan Co., Ltd.

     1,423,566        —          —          —          —          972  

LG Display Nanjing Co., Ltd.

     10,276        —          5,319        650        1,444,703        26,526  

LG Display Shanghai Co., Ltd.

     758,404        —          —          —          —          —    

LG Display Poland Sp. z o.o.

     8,392        —          —          —          —          —    

LG Display Guangzhou Co., Ltd.

     14,805        —          9,554        —          1,859,853        29,725  

LG Display Shenzhen Co., Ltd.

     550,715        —          —          —          —          —    

LG Display Yantai Co., Ltd.

     146        —          10,469        622        930,420        28,359  

LG Display (China) Co., Ltd.

     4,937        —          1,569,563        3,564        —          2,189  

LG Display Singapore Pte. Ltd.

     1,159,958        —          —          —          —          624  

L&T Display Technology (Fujian) Limited

     330,760        —          —          —          —          439  

Nanumnuri Co., Ltd.

     208        —          —          —          —          18,745  

Global OLED Technology, LLC

     —          —          —          —          —          5,472  

LG Display Guangzhou Trading Co., Ltd.

     1,361,805        —          —          —          —          —    

LG Display Vietnam Haiphong Co., Ltd.

     17,355        —          67,607        —          1,743,814        24,378  

Suzhou Lehui Display Co., Ltd.

     272,678        —          21,680        —          —          —    

LG Display High-Tech (China) Co., Ltd.

     39,488        —          2,627        —          1,292,870        6,251  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 20,662,986        —          1,686,819        4,836        7,271,660        149,698  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

240


Table of Contents
29.

Related Parties and Others, Continued

 

(In millions of won)    2020  
                   Purchase and others  
     Sales
and Others
     Dividend
income
     Purchase of raw
material and
others
     Acquisition of
property, plant
and equipment
     Outsourcing
fees
     Other costs  

Associates

                 

WooRee E&L Co., Ltd.

   W —          —          50        —          —          35  

AVATEC Co., Ltd.

     22        200        80        —          74,070        1,112  

Paju Electric Glass Co., Ltd.

     —          7,739        299,739        —          —          2,862  

YAS Co., Ltd.

     —          300        6,648        11,981        —          3,790  

Material Science Co., Ltd.

     —          —          93        —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 22        8,239        306,610        11,981        74,070        7,799  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Entity that has significant influence over the Company

                 

LG Electronics Inc.

   W 641,579        —          9,644        76,947        —          137,921  

 

241


Table of Contents
29.

Related Parties and Others, Continued

 

(In millions of won)    2020  
                   Purchase and others  
     Sales and
others
     Dividend
income
     Purchase of raw
material and
others
     Acquisition of
property,
plant and
equipment
     Outsourcing
fees
     Other
costs
 

Subsidiaries of the entity that has significant influence over the Company

                 

LG Electronics India Pvt. Ltd.

   W 53,441        —          —          —          —          173  

LG Electronics Vietnam Haiphong Co., Ltd.

     332,977        —          —          —          —          1,125  

LG Electronics Reynosa S.A. DE C.V.

     —          —          —          —          —          1,044  

LG Electronics Mexicali, S.A. DE C.V.

     29,565        —          —          —          —          52  

LG Electronics RUS, LLC

     —          —          —          —          —          303  

LG Electronics Egypt S.A.E.

     69,853        —          —          —          —          375  

LG Innotek Co., Ltd.

     4,599        —          664        —          —          76,530  

Qingdao LG Inspur Digital Communication Co., Ltd.

     7,065        —          —          —          —          —    

P.T. LG Electronics Indonesia

     157,820        —          —          —          —          164  

Others

     26,673        —          12        —          —          10,911  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 681,993        —          676        —          —          90,677  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 21,986,580        8,239        2,003,749        93,764        7,345,730        386,095  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

242


Table of Contents
29.

Related Parties and Others, Continued

 

(In millions of won)    2019  
                   Purchase and others  
     Sales and
others
     Dividend
income
     Purchase
of raw
material
and others
     Acquisition of
property, plant
and equipment
     Outsourcing
fees
     Other
costs
 

Subsidiaries

                 

LG Display America, Inc.

   W 9,425,243        —          —          —          —          6  

LG Display Japan Co., Ltd.

     2,229,825        —          —          —          —          5  

LG Display Germany GmbH

     1,676,418        —          —          —          —          4,452  

LG Display Taiwan Co., Ltd.

     1,433,672        —          —          —          —          595  

LG Display Nanjing Co., Ltd.

     9,791        —          3,671        —          1,423,501        28,206  

LG Display Shanghai Co., Ltd.

     978,886        —          —          —          —          —    

LG Display Poland Sp. z o.o.

     47        —          —          —          7,535        1,717  

LG Display Guangzhou Co., Ltd.

     111,242        —          11,987        —          2,105,906        33,014  

LG Display Shenzhen Co., Ltd.

     407,115        —          —          —          —          —    

LG Display Yantai Co., Ltd.

     2,156        —          14,047        —          1,250,772        11,175  

LG Display (China) Co., Ltd.

     15        11,120        1,399,183        —          —          2,550  

LG Display Singapore Pte. Ltd.

     1,133,923        —          —          —          —          1,305  

L&T Display Technology (Fujian) Limited

     355,887        —          2        —          —          1,119  

Nanumnuri Co., Ltd.

     191        —          —          —          —          22,001  

Global OLED Technology, LLC

     —          —          —          —          —          5,859  

LG Display Guangzhou Trading Co., Ltd.

     1,181,187        —          —          —          —          —    

LG Display Vietnam Haiphong Co., Ltd.

     18,797        —          122,807        —          1,114,903        26,668  

Suzhou Lehui Display Co., Ltd.

     158,065        —          239        —          —          —    

LG Display High-Tech (China) Co., Ltd.

     40,951        —          1,190        —          41,612        182  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 19,163,411        11,120        1,553,126        —          5,944,229        138,854  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

243


Table of Contents
29.

Related Parties and Others, Continued

 

(In millions of won)    2019  
                   Purchase and others  
     Sales and
Others
     Dividend
income
     Purchase of raw
material and
others
     Acquisition of
property, plant
and equipment
     Outsourcing
fees
     Other costs  

Associates

                 

WooRee E&L Co., Ltd.

   W —          —          27        —          —          5  

INVENIA Co., Ltd.(*1)

     —          180        1,024        8,700        —          297  

AVATEC Co., Ltd.

     2,639        265        —          —          73,323        891  

Paju Electric Glass Co., Ltd.

     —          6,057        342,958        —          —          4,416  

YAS Co., Ltd.

     —          1,000        6,764        13,949        —          3,655  

Material Science Co., Ltd.

     —          —          59        —          —          313  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 2,639        7,502        350,832        22,649        73,323        9,577  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Entity that has significant influence over the Company

                 

LG Electronics Inc.

   W 942,455        —          10,568        224,854        —          138,789  

 

244


Table of Contents
29.

Related Parties and Others, Continued

 

(In millions of won)    2019  
                   Purchase and others  
     Sales and
others
     Dividend
income
     Purchase of raw
material and
others
     Acquisition of
property, plant
and equipment
     Outsourcing
fees
     Other costs  

Subsidiaries of the entity that has significant influence over the Company

                 

LG Electronics India Pvt. Ltd.

   W 87,116        —          —          —          —          194  

LG Electronics Vietnam Haiphong Co., Ltd.

     277,743        —          —          —          —          924  

LG Electronics Reynosa S.A. DE C.V.

     —          —          —          —          —          1,155  

LG Electronics S.A. (Pty) Ltd.

     2,384        —          —          —          —          21  

LG Electronics Mexicalli, S.A. DE C.V.

     1,848        —          —          —          —          85  

LG Electronics RUS, LLC

     770        —          —          —          —          1,698  

LG Electronics Egypt S.A.E.

     97,359        —          —          —          —          241  

LG Electronics (Kunshan) Computer Co., Ltd.

     385        —          —          —          —          —    

LG Innotek Co., Ltd.

     6,954        —          34,194        —          —          79,155  

LG Hitachi Water Solutions Co., Ltd.(*2)

     —          —          —          68,282        —          —    

Inspur LG Digital Mobile Communications Co., Ltd.

     36,182        —          —          —          —          —    

Qingdao LG Inspur Digital Communication Co.,

Ltd.

     21,377        —          —          —          —          —    

Hi Entech Co., Ltd.(*2)

     47        —          —          —          —          21,576  

Others

     41,662        —          —          —          —          12,155  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 573,827        —          34,194        68,282        —          117,204  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   W 20,682,332        18,622        1,948,720        315,785        6,017,552        404,424  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(*1)

Represents transactions occurred prior to the Company’s disposal of the entire investments

(*2)

Represents transactions occurred prior to LG Electronics Inc.’s disposal of the entire investments

 

245


Table of Contents
29.

Related Parties and Others, Continued

 

  (c)

Trade accounts and notes receivable and payable as of December 31, 2020 and 2019 are as follows:

 

(In millions of won)       
     Trade accounts and notes receivable and
others
     Trade accounts and notes payable
and others
 
     December 31, 2020      December 31, 2019      December 31, 2020      December 31, 2019  

Subsidiaries

           

LG Display America, Inc.

   W 1,341,210        937,409        5        —    

LG Display Japan Co., Ltd.

     344,276        274,964        12        5  

LG Display Germany GmbH

     287,359        382,463        7        2,794  

LG Display Taiwan Co., Ltd.

     296,556        454,563        95        104  

LG Display Nanjing Co., Ltd.

     2,465        1,358        385,925        220,327  

LG Display Shanghai Co., Ltd.

     319,033        172,259        11        3  

LG Display Guangzhou Co., Ltd.

     1,337        12,465        341,389        313,756  

LG Display Guangzhou Trading Co., Ltd.

     498,483        351,322        —          —    

LG Display Shenzhen Co., Ltd.

     27,327        116,494        —          2  

LG Display Yantai Co., Ltd.

     —          —          140,076        149,715  

LG Display (China) Co., Ltd.

     1,394        22        314,934        112,053  

LG Display Singapore Pte. Ltd.

     218,280        298,132        10        21  

L&T Display Technology (Fujian) Limited

     41,971        46,375        149,845        199,349  

Nanumnuri Co., Ltd.

     —          —          1,773        3,866  

LG Display Vietnam Haiphong Co., Ltd.

     16,632        24,385        605,531        395,429  

Suzhou Lehui Display Co., Ltd.

     46,760        24,830        16,047        46  

LG Display High-Tech (China) Co., Ltd.

     10,821        1,722        388,053        54,662  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 3,453,904        3,098,763        2,343,713        1,452,132  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

246


Table of Contents
29.

Related Parties and Others, Continued

 

(In millions of won)       
     Trade accounts and notes receivable
and others
     Trade accounts and notes payable
and others
 
     December 31, 2020      December 31, 2019      December 31, 2020      December 31, 2019  

Associates

           

WooRee E&L Co., Ltd.

   W —          —          18        8  

AVATEC Co., Ltd.

     —          —          2,714        1,029  

Paju Electric Glass Co., Ltd.

     —          —          84,095        62,853  

YAS Co., Ltd.

     —          —          9,134        4,533  

Material Science Co., Ltd.

     —          —          —          8  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W —          —          95,961        68,431  
  

 

 

    

 

 

    

 

 

    

 

 

 

Entity that has significant influence over the Company

           

LG Electronics Inc.

   W 93,749        208,870        75,290        110,784  

 

247


Table of Contents
29.

Related Parties and Others, Continued

 

(In millions of won)       
     Trade accounts and notes receivable
and others
     Trade accounts and notes payable
and others
 
     December 31, 2020      December 31, 2019      December 31, 2020      December 31, 2019  

Subsidiaries of the entity that has significant influence over the Company

           

LG Innotek Co., Ltd.

   W 80        4        25,330        29,613  

LG Electronics Reynosa S.A. DE C.V

     —          —          50        62  

LG Electronics India Pvt. Ltd.

     3,697        6,113        —          —    

LG Electronics Vietnam Haiphong Co., Ltd.

     36,417        47,740        16        29  

LG Electronics RUS, LLC

     —          —          —          67  

LG Electronics Egypt S.A.E

     13,359        9,432        —          —    

Qingdao LG Inspur Digital Communication Co., Ltd.

     —          6,456        —          —    

P.T. LG Electronics Indonesia

     48,677        7,696        —          16  

Others

     5,345        5,061        1,197        1,752  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 107,575        82,502        26,593        31,539  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 3,655,228        3,390,135        2,541,557        1,662,886  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

248


Table of Contents
29.

Related Parties and Others, Continued

 

 

  (d)

Details of significant financing transactions such as grant and collection of loans, which occurred in the normal course of business with related parties for the year ended December 31, 2019 are as follows:

 

(In millions of won)                           
     Loans (*1)  

Associates

   January 1,
2019
     Increase      Decrease (*2)     December 31,
2019
 

INVENIA Co., Ltd.

   W 2,000        1,000        (3,000     —    

 

(*1)

Loans are presented based on nominal amounts.

(*2)

Excluded from related parties due to disposal of equity investments during the year ended December 31, 2019.

 

249


Table of Contents
29.

Related Parties and Others, Continued

 

  (e)

Conglomerate Transactions

Transactions, trade accounts and notes receivable and payable, and others between the Company and certain companies and their subsidiaries included in LG Group, a conglomerates according to the Monopoly Regulation and Fair Trade Act as of and for the years ended December 31, 2020 and 2019 are as follows. These entities are not related parties according to K-IFRS No. 1024, Related Party Disclosures.

 

(In millions of won)                            
     For the year ended December 31, 2020      December 31, 2020  
     Sales
and others
     Purchase and
others
     Trade accounts and
notes receivable

and others
     Trade accounts and
notes payable and
others
 

LG International Corp. and its subsidiaries

   W 376,848        88,437        81,353        13,104  

LG Uplus Corp.

     —          2,121        —          151  

LG Chem Ltd. and its subsidiaries

     1,071        440,577        2        81,929  

S&I Corp. and its subsidiaries

     324        180,027        5,864        56,014  

Silicon Works Co., Ltd.

     36        460,009        —          74,419  

LG Corp.

     —          57,200        6,799        1,417  

LG Management Development Institute

     —          8,294        3,480        351  

LG CNS Co., Ltd. and its subsidiaries

     228        144,408        251        79,708  

LG Household & Health Care Ltd. and its subsidiaries

     —          63        —          —    

G2R Inc. and its subsidiaries

     —          38,487        —          8,851  

Robostar Co., Ltd.

     —          1,132        —          814  
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 378,507        1,420,755        97,749        316,758  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

250


Table of Contents
29.

Related Parties and Others, Continued

 

(In millions of won)                            
     For the year ended December 31, 2019      December 31, 2019  
     Sales
and others
     Purchase and
others
     Trade accounts and
notes receivable

and others
     Trade accounts and notes
payable and others
 

LG International Corp. and its subsidiaries

   W 625,575        113,913        93,622        45,363  

LG Uplus Corp.

     —          2,352        —          208  

LG Chem Ltd. and its subsidiaries

     149        594,264        23        53,428  

S&I Corp. and its subsidiaries(*)

     867        360,023        21,307        85,312  

Silicon Works Co., Ltd.

     92        671,822        —          88,355  

LG Corp.

     —          55,059        8,781        —    

LG Management Development Institute

     —          8,606        3,480        231  

LG CNS Co., Ltd. and its subsidiaries

     —          166,820        —          58,967  

LG Hausys Ltd.

     3        1        —          —    

G2R Inc. and its subsidiaries

     —          72,639        —          29,540  

Robostar Co., Ltd.

     —          2,155        —          —    

Others(*)

     11        106,045        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 
   W 626,697        2,153,699        127,213        361,404  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(*)

Due to S&I Corp.’s disposal of partial investments in Serveone in May 2019, Serveone was reclassified from one of the S&I Corp.’s subsidiaries to associates. Accordingly, transactions with S&I Corp. after the disposal are classified as others. In addition, due to LG Electronics Inc.’s disposal of entire investments in HiEntech Co., Ltd. and its subsidiaries and LG Hitachi Water Solutions Co., Ltd. in September 2019, transactions after the disposal are presented as others.

 

251


Table of Contents
29.

Related Parties and Others, Continued

 

 

  (f)

Key management personnel compensation

Compensation costs of key management for the years ended December 31, 2020 and 2019 are as follows:

 

(In millions of won)              
     2020      2019  

Short-term benefits

   W 2,233        2,664  

Expenses related to the defined benefit plan

     346        553  
  

 

 

    

 

 

 
   W 2,579        3,217  
  

 

 

    

 

 

 

Key management refers to the registered directors who have significant control and responsibilities over the Company’s operations and business.

 

30.

Supplemental Cash Flow Information

Supplemental cash flow information for the years ended December 31, 2020 and 2019 is as follows:

 

(In millions of won)             
     2020     2019  

Non-cash investing and financing activities:

    

Changes in other accounts payable arising from the purchase of property, plant and equipment

   W (8,824     (661,330

Changes in other receivable arising from the investments of dividends received from subsidiaries

     —         (177,509

Recognition of right-of-use assets and lease liabilities

     11,193       3,874  

 

252


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    LG Display Co., Ltd.
    (Registrant)
Date: March 15, 2021     By:  

/s/ Daniel Lee

      (Signature)
    Name:  

Daniel Lee

    Title:   Head of IR / Vice President