6-K 1 d6k.htm FORM 6-K Form 6-K

 

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 August 2004

 

LG.Philips LCD Co., Ltd.

(Translation of Registrant’s name into English)

 

20 Yoido-dong, Youngdungpo-gu, Seoul 150-721, The 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 x    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 x

 



SEMIANNUAL REPORT

 

(From January 1, 2004 to June 30, 2004)

 

THIS IS A TRANSLATION OF THE INTERIM 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 FOR THE CONVENIENCE OF READERS.

 

LOGO

 

SEMIANNUAL REPORT

 

(From January 1, 2004 to June 30, 2004)

 

To: Financial Supervisory Commission and Korea Stock Exchange

 

We hereby submit the Interim Report for the first half of the 20th fiscal year in accordance with Item 3 of Article 186 of the Securities & Exchange Law.

 

Bon Joon Koo

Joint Representative Director,

Vice-Chairman and Chief Executive Officer

 

Ron H. Wirahadiraksa

Joint Representative Director,

Senior Executive Vice-President and Chief Financial Officer

 

17th Floor, West Tower, LG Twin Towers, 20 Yoido-dong, Youngdungpo-gu, Seoul, Republic of Korea 150-721. Tel) 82-2-3777-1114

 

Dong Joo Kim

Vice President

Finance & Risk Management Department

Tel) 82-2-3777-0702

 

1


Contents

 

1.

  

Overview

   
     A.  

Industry

  1
     B.  

Company

  1

2.

  

Information Regarding Shares

  2
    

A.

 

Shareholder lists

  2
    

B.

 

Voting rights

  3
    

C.

 

Dividends

  3

3.

  

Major Products and Materials

  4
    

A.

 

Major products in 1H, 2004

  4
    

B.

 

Average price trends of major products

  4
    

C.

 

Major materials in 1H, 2004

  5
    

D.

 

Price trends of major materials

  5

4.

  

Production & Equipment

  5
    

A.

 

Production capacity and calculation

  5
    

B.

 

Production performance and working ratio

  6
    

C.

 

Investment plan

  7

5.

  

Sales

  7
    

A.

 

Sales performance

  7
    

B.

 

Sales route and sales method

  7

6.

  

Employees

  8

7.

  

Financial Information

  9
    

A.

 

Financial highlights

  9
    

B.

 

R&D expense

  9
    

C.

 

Domestic credit rating

  10
    

D.

 

Remuneration for directors & executive officers in 2004

  10
    

E.

 

Long-term borrowings

  11

8.

  

Events after June 30, 2004

  12

 

Attachment:

   1. Korean Interim Non-consolidated Financial Statements
     2. U.S. GAAP Interim Consolidated Financial Statements

 

2


1. Overview

 

A. Industry

 

(1) Industry characteristics and growth potential

 

  TFT-LCD technology is one of the most widely used technologies in the manufacture of flat panel displays. Although there are high entry barriers due to its technology- and capital-intensive characteristics, as well as the significant investments required to achieve economies of scale, there is severe competition within the industry.

 

  The demand for LCD panels for notebooks & monitors is closely related to the IT industry, and LCD TV will play a key role in the digital display area as digital TV market starts to grow. Also, LCD panel markets for applications, such as medical applications and automobile navigation systems, will grow steadily.

 

(2) Cyclicality

 

  The TFT-LCD business has high cyclicality as a capital intensive business. This industry experiences periodic cyclicality caused by imbalances between demand and supply due to capacity competition within the industry.

 

(3) Competitiveness

 

  Core competitiveness includes new product design capability based on new technology application, timely investment, cost leadership and marketing capability to lead system makers.

 

  Most importantly, cost leadership and stable & long-term relationships with customers are critical to secure profit even in buyers’ market.

 

(4) Sourcing material

 

  Materials are sourced in-house as well as from domestic and international vendors. However, domestic portion is expected to grow in the future.

 

  Shortage may arise due to capacity competition within the industry as well as rapid demand increase.

 

(5) Others

 

  Most TFT-LCD makers are in Asia: (Major makers)

 

A: Korea: LG.Philips LCD, Samsung Electronics (including Joint Venture between Samsung Electronics and Sony Corporation for 7th generation TFT-LCD production), BOE-Hydis.

 

B: Taiwan: AU Optronics, Chi Mei Optoelectronics, CPT, Quanta, etc.

 

C: Japan: Sharp, Hitachi, etc.

 


B. Company

 

(1) Business Overview

 

  We entered the TFT-LCD business in 1998, and in March 2002, we were the first to commence commercial production at a 5th generation fab (P4) to meet the demand for large-size monitors and TVs. We followed P4 with P5 in May 2003, which completed a full line-up of products in response to various customer demands.

 

(2) Market Share

 

  Market share of large-size panels((³10”) based on revenue as of the end of March 2004 is 21.1% according to DisplaySearch(2Q, 2004).

 

(3) Market Characteristics

 

  TFT-LCD manufacturers are vulnerable to cyclical market conditions. Intense competition and demand growth expectations may result in panel manufacturers investing in manufacturing capacity on similar schedules, resulting in a surge in capacity when production is ramped up at new fabrication facilities.

 

(4) New Business and Forecast

 

  We currently operate five fabrication facilities, P1, P2, P3, P4 and P5, located in Gumi, Korea, and two assembly facilities located in Gumi, Korea and Nanjing, China.

 

Also, our sixth-generation fabrication facility, P6, is under construction as of the end of June 2004, and it is expected to begin operations during the third quarter of 2004.

 

  In March 2004, we broke ground on a new TFT-LCD industrial complex to be developed in Paju, Korea, and construction for P7 building is in progress.

 

  Our strategy is to maintain a leading position in high value-added TFT-LCD products, such as aviation, medical equipment and automation. In addition, we are planning to diversify markets through sales increase in rapidly growing products, such as Internet appliance, PDA and IMT 2000-related products.

 

1


(5) Organization chart

 

LOGO

 

* CEO : Chief Executive Officer

 

* CTO : Chief Technology Officer

 

* CFO : Chief Financial Officer

 

2. Information Regarding Shares

 

A. Shareholder lists

 

(1) Principal shareholders and related parties

 

[Jun. 30, 2004]

   (Unit: 1,000 shares)

 

               Number of shares (Holding ratio)

    Cause of
change


Name


   Relationship

   Type

   End of
Dec. 2003


    Increase

   Decrease

   June, 30
2004


   

1.LG Electronics Inc.

   Principal
shareholder
   Common
Stock
   72,500
(50
 
%)
  72,500    —      145,000
(50
 
%)
  Stock Split
(2:1)

2. Koninklijke Philips Electronics N.V.

   Principal
shareholder
      72,500
(50
 
%)
  72,500    —      145,000
(50
 
%)
 

Total

   Common
Stock
   145,000
(100
 
%)
  145,000    —      290,000
(100
 
%)
   
   Total    145,000
(100
 
%)
  145,000    —      290,000
(100
 
%)
   

 

* 1. Shareholding ratio as of July 23, 2004 (Listing date): LG Electronics Inc. 44.81% / Koninklijke Philips Electronics N.V. 44.81%

 

2


2. Total shares as of listing date (July 23, 2004): 323,600,000 shares

 

(2) Shareholders who have shares over 5%

 

[Jun. 30, 2004]

          (Unit : 1,000 shares)

Rank


 

Name


 

Common Stock


 

Number of Shares


 

Ratio(%)


1

  LG Electronics Inc.   Common Stock   145,000   50

2

 

Koninklijke Philips

Electronics N.V.

  Common Stock   145,000   50
    Total   Common Stock   290,000   100

 

* Shareholding ratio as of July 23, 2004 (Listing date): LG Electronics Inc. 44.81% / Koninklijke Philips Electronics N.V. 44.81%

 

B. Voting rights

 

[Jun. 30, 2004]

   (Unit: 1,000 shares)

 

Description


   Number of
shares


    Remarks

1. Stocks with voting rights [A-B]

   [290,000 ]    

A. Total stocks issued

   290,000      

B. Stocks without voting rights

   —        

2. Stocks with restricted voting rights [A+B+C+D]

   [ —   ]    

A. Restriction by the Commercial Law

   —        

B. Restriction by the Securities Exchange Act

   —        

C. Restriction by the Monopoly Regulation and Fair Trade Act

   —        

D. Restriction by other law

   —        

3. Stocks with recovered voting rights

   [       ]    

Stock with voting rights [1-2+3]

   290,000      

 

* Total shares as of listing date (July 23, 2004): 323,600,000 shares

 

C. Dividends

 

(1) Dividends during recent 5 fiscal years

 

[Par value : 5,000 Won]

   (Unit: In millions of won)

 

Description


   2003

   2002

   2001

   2000

   1999

Net income

   1,019,100    288,792    -381,603    494,768    617,176

Earnings per share (Won)

   3,514    996    -1,316    1,706    3,184

Retained earning for dividends

   1,307,892    288,792    —      281,784    263,618

 

3


Dividend Ratio

               —      —      —      76.60 %   35.95 %

D

I

V

I

D

E

N

D

S

 

C

A

S

H

 

A. Dividend per share(Won)

 

Common Stock

   —      —      —      1,307     1,165  
     

Preferred Stock

   —      —      —      —       —    
   

B. Total Dividend Amount

 

Common Stock

   —      —      —      379,000     221,860  
     

Preferred Stock

   —      —      —      —       —    
   

C. Dividend per Par Value(%)

 

Common Stock

   —      —      —      —       —    
     

Preferred Stock

   —      —      —      —       —    
 

 

S

T

O

C

K

 

 

A. Stock Dividend Ratio(%)

 

 

Common Stock

   —      —      —      —       —    
     

Preferred Stock

   —      —      —      —       —    
   

B. Stock Dividend per Share(Shares)

 

Common Stock

   —      —      —      —       —    
     

Preferred Stock

   —      —      —      —       —    

Net Capital per share (Won)

   9,980    6,435    5,444    6,760     9,431  

Ordinary income per share (Won)

   3,514    996    -1,316    1,706     3,184  

 

* Based on par value 5,000 won (Stock split from par value 10,000 won to par value 5,000 won per share)

 

* Retained earning for dividends is the amount before dividend

 

3. Major Products and Materials

 

A. Major products in 1H, 2004

 

(Unit: In billions of won)

 

Business

area


  

Sales

types


   Items

  

Specific use


  

Major

trademark


   Sales(ratio)

TFT-LCD

   Export    TFT-LCD   

Notebook, Monitor, TV

Applications Modules,etc.

   LG.Philips LCD    4,298(97.8%)
   Domestic    TFT-LCD   

Notebook, Monitor, TV

Applications Modules,etc.

   LG.Philips LCD    95(2.2%)

 

B. Average price trends of major products

 

(Unit : USD )

 

Description


  

2004 1H


  

2003


  

2002


TFT-LCD panel(avg.)    307    240    253

 

* Based on large TFT-LCD panels (“³10”)

 

4


(1) Assumptions for calculations

 

  Average price of 1H of 20th fiscal year.(Sales amount/ Sales quantity)

 

  Average price based on sales from headquarters to overseas sales subsidiaries.

 

  Based on Large TFT-LCD panels (“³10”)

 

(2) Major factors contributing to price fluctuation

 

  Price changes caused by market situation.

 

  Price rise from increased sales of larger size products and premium products.

 

C. Major materials in 1H, 2004

 

(Unit: In billions of won)

 

Business

area


  

Purchase types


  

Items


  

Specific use


  

Purchase amount

(ratio)


  

Remarks


TFT-LCD    Materials   

Color Filter

Polarizer

PCB, etc.

  

LCD Panel

Manufacturing

  

135 (6%)

285 (14%)

1,655 (80%)

    

Total

             2,075(100%)     

 

D. Price trends of major materials

 

(Unit : Won)

 

Description


  2004 1H

  2003

  2002

Color Filter

  9,077   16,475   37,502

Polarizer

  8,071   7,288   7,571

PCB

  2,710   2,090   1,949

 

(1) Assumption for calculation

 

  Average unit price of major materials

 

(2) Major factors contributing to price fluctuations

 

  Price changes caused by market situations.

 

  Continuous cost reduction efforts by material vendors.

 

4. Production and Equipment

 

A. Production capacity and calculation

 

(1) Production capacity

 

(Unit : 1,000 Glass sheet)

Business

area


  

Items


  

Business place


  

2004 1H


  

2003


  

2002


TFT-LCD

   TFT-LCD    Gumi    2,875    5,280    3,948

 

5


(2) Calculation of Capacity

 

a. Method

 

(1) Assumptions for calculation

 

  Based on optimal production capacity

 

  Based on input

 

(2) Calculation method

 

  Average monthly input capacity for recent three months(2nd quarter)×Periods (6months)

 

b. Average working hours

 

  Refer to B-(2)

 

B. Production performance and working ratio

 

(1) Production performance

 

(Unit : 1,000 Glass sheet)

 

Business

area


  

Items


  

Business place


  

2004 1H


  

2003


  

2002


TFT-LCD

   TFT-LCD    Gumi    2,831    3,674    2,764

 

(2) Working Ratio

 

(Unit : Hour)

 

Business place(area)


  

Optimal working hour of

2004 1H


  

Real working

hour of 2004 1H


  

Average

working ratio


Gumi

(TFT-LCD)

  

4,368

(24HR. X 182Days)

  

4,368

(24HR. X 182Days)

   100%

 

6


C. Investment plan

 

(1) Investment in progress

 

(Unit: In billions of won)

 

Business

area


  

Description


  

Investment

period


  

Investment

Assets


  

Investment

effect


  

Total

investment


   Already
invested


   To be
invested


   Remarks

TFT-LCD

   New / Extension, etc.    ‘02.4Q   

Building/

Machinery,

etc.

   Capacity Expansion    4,800    2,730    2,070    —  

 

(2) Investment Plan

 

(Unit: In billions of won)

 

Business area


  

Project


  

Expected total investment


   Expected yearly investment

  

Investment
effects


  

Remarks


     

Assets


   Amount

   2004

   2005

   2006

     

TFT-LCD

  

New/

Extension, etc.

  

Building/

Machinery,

etc.

   3,600    3,600    —      —      Capacity Expansion     

 

*1. Expected investment in 2004 is subject to change according to market environment and change, etc.

 

  2. Investment during ‘05-’06 can not be reasonably expected due to industry characteristics

 

5. Sales

 

A. Sales performance

 

(Unit: In billions of won)

 

Business area


   Sales types

   Items

   2004 1H

   2003

   2002

TFT-LCD

   Products, etc.    LCD    Export    4,298    5,884    3,446
         Domestic    95    147    72
         Total    4,393    6,031    3,518

 

B. Sales route and sales method

 

(1) Sales organization

 

  4 departments such as Note book sales, monitor sales, TV sales and applications including sales planning & administration team under Worldwide Sales EVP.

 

  Sales subsidiaries in America, Germany, Japan, Taiwan and China (Hong Kong, Shanghai) including Shenzhen office in China, which perform sales business in overseas countries and provide technical support.

 

* There is a production subsidiary in Nanjing China.

 

7


(2) Sales route

 

  LG. Philips LCD HQ & Nanjing subsidiary ® Overseas subsidiaries(USA/Europe/Japan /Taiwan /Hong Kong/Shanghai) ® End user

 

(3) Sales method and condition

 

  Direct sales & sales through overseas subsidiaries

 

(4) Sales strategy

 

  Secure stable sales to major PC makers and electronic home appliance makers in world market, and maintain strong leadership in growing and high value added products such as large monitor market, growing LCD TV market, car navigation market, avionics, medical and FA.

 

  Sales order from end users to overseas subsidiaries -> Information to HQ -> Scheduling the production plan -> Shipping products to subsidiaries -> Sales to end users by overseas subsidiaries.

 

6. Employees

 

[Jun. 30, 2004]

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

Sex


   Detail employees

   Total Salary in
1H 2004


   Per capita
Salary


   Average
Service Period


   Official Worker

   Line Worker

   Others

   Total

        

Male

   3,534    2,917    —      6,451    109,177    16.9    3.9

Female

   283    2,494    —      2,777    33,544    12.1    2.1

Total

   3,817    5,411    —      9,228    142,721    15.5    3.4

 

8


7. Non-consolidated Financial Information, based on Korean GAAP

 

A. Financial Highlights

 

(Unit: In millions of won)

 

Description


   2004 1H

   2003

   2002

   2001

   2000

[Current assets]

   2,030,008    1,918,329      806,156      374,198    455,304

¨ Quick assets

   1,671,719    1,644,838      463,539      189,708    183,259

¨ Inventories

   358,289    273,491      342,617      184,490    272,045

[Fixed assets]

   5,777,779    4,295,753      3,613,748      3,361,220    2,973,535

¨ Investments

   170,897    203,343      147,832      128,397    63,386

¨ Tangible assets

   5,410,902    3,874,428      3,210,884      2,937,209    2,584,643

¨ Intangible assets

   195,980    217,982      255,032      295,614    325,506

Total Assets

   7,807,787    6,214,082      4,419,904      3,735,418    3,428,839

[Current liabilities]

   1,936,437    2,044,005      1,117,066      904,952    1,204,805

[Non-current liabilities]

   1,634,716    1,276,045      1,436,775      1,251,713    263,834

Total Liabilities

   3,571,153    3,320,050      2,553,841      2,156,665    1,468,639

[Capital Stock]

   1,450,000    1,450,000      1,450,000      1,450,000    1,450,000

[Capital surplus]

   —      —        —        —      —  

¨ Capital reserve

   —      —        —        —      —  

¨ Asset revaluation reserve

   —      —        —        —      —  

[Retained earnings ]

   2,765,385    1,436,229      417,129      128,337    509,940

[Capital adjustment]

   21,249    7,803    D 1,066      416    260

Total Shareholder’s equity

   4,236,634    2,894,032      1,866,063      1,578,753    1,960,200

Sales

   4,392,882    6,031,261      3,518,289      2,386,617    2,389,712

Operating income

   1,463,398    1,113,793      273,881    D 303,646    674,158

Ordinary income

   1,426,433    1,009,731      293,249    D 420,342    496,129

Net income

   1,329,155    1,019,100      288,792    D 381,603    494,768

 

[D is minus(-).]

 

B. R&D Expense

 

(1) Summary

 

(Unit: In millions of won)

 

Account


   2004 1H

   2003

   2002

   Remarks

Direct Material Cost

   89,002    141,614    77,051     

Direct Labor Cost

   9,349    14,421    10,480     

Depreciation Expense

   3,929    6,165    8,722     

Others

   6,394    9,186    5,525     

R&D Expense Total

   108,674    171,386    101,778     

Accounting

Expense

allocation

   Selling & Admin.    19,672    29,812    24,772     
   Manufacturing Cost    89,002    141,574    77,006     

R&D Expense / Sales ratio

[Total R&D Expense÷Sales for the period×100]

   2.47%    2.84%    2.89%     

 

9


1) Design department expense was excluded in 2001 & 2002

 

2) Royalty was not included

 

(2) R&D achievements

 

: Completed more than 98 product developments as of June end, 2004

 

  Application Model: Completed LH180Q01(first small-size transflective model) and 12 other models

 

  NBPC Model: Completed LP171W02(Prism LGP applied model) and 17 other models

 

  MNT Model: Completed LM201W01(for Apple) and 28 other models

 

  TV Model: Completed LC260W01(for Matsushita) and 37 other models

 

C. Domestic Credit Rating

 

Rating Date


  

Subject


   Rating

  

Rating Agency

(Rating range)


2004.05.04

   Corporate Debenture    AA-   

National Information & Credit Evaluation, Inc.

(AAA ~ D)

2004.05.03

   Commercial Paper    A1    Korea Investors Service, Inc. (A1 ~ D)

2004.04.29

   Corporate Debenture    AA-    Korea Investors Service, Inc. (AAA ~ D)

2004.04.29

  

Commercial

Paper

   A1   

National Information & Credit Evaluation, Inc.

(A1 ~ D)

 

D. Remuneration for directors & executive officers in 2004

 

Classification


 

Approved amount in

Shareholders Meeting


 

Per capita

Average amount


CEO (Bon Joon Koo)

CFO (Ron H. Wirahadiraksa)

Worldwide Sales/EVP (Duke M. Koo)*

Manufacturing/EVP (Ki Seon Park)*

CTO (Budiman Sastra)*

Marketing/EVP (Bruce I. Berkoff)*

  2.5 billion won per annum   430 million won per annum

 

* Executive officers (Not BOD members)

 

10


E. Long-term borrowings

 

(1) Long-term borrowings

 

(Unit : In millions of won, In millions of USD)

 

Description


   Lenders

  Types

   Interest
rate


  Beginning
balance


   Increase

   Decrease

   Ending
balance


   Repayment plan

   Remarks

                      2004

   2005

   2006

   2007

   2008

   2009

  

Domestic

   KEXIM
(*)
  Won
loan
   5.88%   58,700    —      —      58,700    —      —      19,567    19,567    19,566    —       
         Won
loan
   6.08%   —      59,100    —      59,100    —      —      9,850    19,700    19,700    9,850     
     Woori
Bank
  USD
loan
   3ML+
1.1%
  U$35    —      —      U$35    —      U$17.5    U$17.5    —      —      —       

Overseas

                                                                   

Others

                                                                   
              KRW   58,700    59,100         117,800              29,417    39,267    39,266    9,850     

Total

            USD   U$35    —      —      U$35    —      U$17.5    U$17.5    —      —      —       

 

* The Export-import bank of Korea

 

(2) Debentures

 

(Unit : In millions of won, In millions of USD)

 

    

Debenture


   Issuing Date

   Issuing
Amount


  

Repaid

Amount


   Outstanding
Amount


   Interest
Rate


    Maturity
Date


  

Remarks


Domestic

   8th public offering    2001.5.14.    300,000    300,000    0    7 %   2004.5.14.     
     9th public offering    2001.7.30.    200,000    0    200,000    6 %   2006.7.30.     
     10th public offering    2002.11.6.    300,000    0    300,000    5 %   2007.11.6.     
     11th public offering    2003.10.2.    250,000    0    250,000    5 %   2008.10.2.     
     12th public offering    2004.5.13.    300,000    0    300,000    5 %   2009.5.13.     

Overseas

   # 1-3    2001.9.10    US$140    0    US$140    6ML+1.1 %   2004.9.10     
     # 2-1    2003.11.4    US$202    0    US$202    3ML+1.1 %   2006.11.4   

Installment

payment(‘05/’06)

     # 2-2    2003.11.4    US$63    0    US$63    3ML+1.1 %   2006.11.4   

Installment

payment(‘05/’06)

     # 2-3    2003.12.11    US$100    0    US$100    3ML+1.1 %   2006.12.11   

Installment

payment(‘05/’06)

Total

   KRW    1,350,000    300,000    1,050,000                
     USD    US$505    0    US$505                

 

11


8. Events after June 30, 2004

 

Company stock was listed on NYSE & KSE (Korea Stock Exchange) on July 22 & 23, 2004 respectively

 

1) 2004.7.15.: Form F-1 Registration Statement was declared effective by the Securities and Exchange Commission (SEC)

 

  Offered 24,960,000 shares of common stock in the form of American depositary shares (ADS). Each ADS represents one-half of one share of company common stock. (The initial offering price per ADS is US$15.00, 1 common stock = 2 ADSs)

 

  If greenshoe option is exercised, offering shares will be increased to 28,704,000 shares

 

2) 2004.7.16. : Filed the Securities Registration Statement to Financial Supervisory Committee

 

  Offered 8,640,000 shares of common stock (The initial offering price per common stock is 34,500 won)

 

3) 2004.7.22 : Listed on NYSE

 

4) 2004.7.23 : Listed on KSE (Korea Stock Exchange)

 

12


LG.Philips LCD Co., Ltd.

Interim Non-Consolidated Financial Statements

June 30, 2004 and 2003

 


LG.Philips LCD Co., Ltd.

Index

June 30, 2004 and 2003, and December 31, 2003

 

     Page(s)

Report of Independent Accountants

   1 - 2

Non-consolidated Financial Statements

    

Balance Sheets

   3

Statements of Income

   4

Statements of Cash Flows

   5 - 6

Notes to Financial Statements

   7 - 34

 


Report of Independent Accountants

 

To the Board of Directors and Shareholders of

LG.Philips LCD Co., Ltd.

 

We have reviewed the accompanying non-consolidated balance sheet of LG.Philips LCD Co., Ltd. (the “Company”) as of June 30, 2004 and the related non-consolidated statements of income and cash flows for the three-month periods and six-month periods ended June 30, 2004 and 2003, expressed in Korean Won. These interim financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these interim financial statements based on our reviews.

 

We conducted our reviews in accordance with the quarterly and semi-annual review standards established by the Securities and Futures Commission of the Republic of Korea. These standards require that we plan and perform our review to obtain moderate assurance as to whether the financial statements are free of material misstatement. A review is limited primarily to inquiries of company personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

 

Based on our reviews, nothing has come to our attention that causes us to believe that the non-consolidated interim financial statements referred to above are not presented fairly, in all material respects, in accordance with accounting principles generally accepted in the Republic of Korea.

 

We have audited the non-consolidated balance sheet of LG.Philips LCD Co., Ltd. as of December 31, 2003 and the related non-consolidated statements of operations, appropriations of retained earnings and cash flows for the year then ended, in accordance with auditing standards generally accepted in the Republic of Korea. We expressed an unqualified opinion on those financial statements in our audit report dated January 12, 2004. These financial statements are not included in this review report. The non-consolidated balance sheet as of December 31, 2003, presented herein for comparative purposes, is consistent, in all material respects, with the above audited balance sheet as of December 31, 2003.

 

1


As discussed in Note 22, in July 2004, pursuant to Securities Registration Statement filed on July 16, 2004 with the Korea Stock Exchange, the Company sold 8,640,000 shares of common stock for gross proceeds of (Won)298,080 million. Concurrently, pursuant to a Form F-1 registration statement filed on July 15, 2004 with the Securities and Exchange Commission, the Company sold 24,960,000 shares of common stock in the form of American Depositary Shares (“ADSs”) for gross proceeds of US$748,800 thousand. The Company intends to use the proceeds of these sales to fund the capital expenditures associated with the construction of its seventh generation (“P7”) and other LCD facility in Korea.

 

Accounting principles and review standards and their application in practice vary among countries. The accompanying financial statements are not intended to present the financial position, results of operations and cash flows in conformity with accounting principles and practices generally accepted in countries and jurisdictions other than the Republic of Korea. In addition, the procedures and practices used in the Republic of Korea to review such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying financial statements are for use by those who are knowledgeable about Korean accounting principles or review standards and their application in practice.

 

/s/ Samil PricewaterhouseCoopers

Seoul, Korea

July 16, 2004

 

This report is effective as of July 16, 2004, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying financial statements and notes thereto. Accordingly, the readers of the review report should understand that there is a possibility that the above review report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

 

2


LG. Philips LCD Co., Ltd.

Non-Consolidated Balance Sheets

June 30, 2004 and December 31, 2003

(Unaudited)

 

(in millions of Korean Won)

 

   2004

   2003

Assets

             

Current assets

             

Cash and cash equivalents (Note 3)

   (Won) 470,364    (Won) 449,218

Available-for-sale securities

     2      68

Trade accounts and notes receivable, net (Notes 4, 5 and 19)

     1,059,695      1,057,366

Inventories (Note 6)

     358,289      273,491

Other accounts receivable, net (Notes 4 and 5)

     2,808      12,016

Accrued income, net (Note 4)

     937      283

Advance payments, net (Note 4)

     7,097      3,008

Prepaid expenses

     23,715      22,431

Prepaid value added tax

     61,312      82,332

Others (Note 13)

     45,789      18,116
    

  

Total current assets

     2,030,008      1,918,329
    

  

Property, plant and equipment, net (Note 7)

     5,410,902      3,874,428

Long-term financial instruments (Note 3)

     16      16

Equity-method investments (Note 8)

     35,110      36,572

Non-current guarantee deposits

     17,861      16,564

Long-term other accounts receivable, net (Note 4)

     —        166

Long-term prepaid expenses

     35,845      35,063

Deferred income tax assets (Note 17)

     82,065      114,962

Intangible assets (Note 9)

     195,980      217,982
    

  

Total assets

   (Won) 7,807,787    (Won) 6,214,082
    

  

Liabilities and Shareholders’ Equity

             

Current liabilities

             

Short-term borrowings (Note 10)

   (Won) —      (Won) 62

Trade accounts and notes payable (Notes 5 and 19)

     378,704      380,113

Other accounts payable (Note 5 and 19)

     1,214,155      1,014,745

Advances received

     2,170      3,909

Withholdings

     5,090      3,991

Accrued expenses (Note 5)

     63,319      105,567

Income tax payable (Note 17)

     63,077      39,553

Current maturities of long-term debt (Note 10)

     161,154      465,623

Others (Note 13)

     48,768      30,442
    

  

Total current liabilities

     1,936,437      2,044,005

Debentures, net of current maturities and discounts on debentures (Note 11)

     1,437,238      1,154,586

Long-term debts, net of current maturities (Note 11)

     158,137      100,501

Accrued severance benefits, net (Note 12)

     39,341      20,958
    

  

Total liabilities

     3,571,153      3,320,050
    

  

Commitments and contingencies (Note 13)

             

Shareholders’ equity

             

Capital stock (Note 14)

             

Common stock, (Won)5,000 par value per share; 400 million shares authorized; 290 million shares issued and outstanding

     1,450,000      1,450,000

Retained earnings (Note 15)

     2,765,385      1,436,229

Capital adjustments (Note 16)

     21,249      7,803
    

  

Total shareholders’ equity

     4,236,634      2,894,032
    

  

Total liabilities and shareholders’ equity

   (Won) 7,807,787    (Won) 6,214,082
    

  

 

The accompanying notes are an integral part of these non-consolidated financial statements.

 

See Report of Independent Accountants

 

3


LG.Philips LCD Co., Ltd.

Non-Consolidated Statements of Income

Three-Month and Six-Month Periods Ended June 30, 2004 and 2003

(Unaudited)

 

    

For the three-month

periods ended June 30,


   

For the six-month

periods ended June 30,


 

(in millions of Korean Won, except per share amounts)

 

   2004

   2003

    2004

   2003

 

Sales (Notes 19 and 20)

   (Won) 2,276,564    (Won) 1,299,402     (Won) 4,392,882    (Won) 2,271,994  

Cost of sales (Note 19)

     1,444,182      1,137,271       2,813,275      2,039,860  
    

  


 

  


Gross profit

     832,382      162,131       1,579,607      232,134  
    

  


 

  


Selling and administrative expenses

     60,543      44,576       116,209      76,713  
    

  


 

  


Operating income

     771,839      117,555       1,463,398      155,421  
    

  


 

  


Non-operating income

                              

Interest income

     3,703      1,219       7,557      1,968  

Foreign exchange gains (Note 13)

     18,498      50,040       52,153      25,626  

Gain on foreign currency translation (Note 13)

     7,096      49,653       35,482      14,948  

Gain on valuation of investments using the equity method of accounting (Note 8)

     —        —         1,119      —    

Gain on disposal of property, plant and equipment

     1,331      197       2,040      1,043  

Reversal of bad debt allowance

     —        141       —        141  

Others

     2,623      5,099       5,816      5,425  
    

  


 

  


       33,251      106,349       104,167      49,151  
    

  


 

  


Non-operating expenses

                              

Interest expenses

     7,579      19,034       24,502      34,968  

Foreign exchange losses (Note 13)

     12,622      19,111       76,125      29,731  

Loss on foreign currency translation (Note 13)

     17,941      8,288       28,181      12,193  

Loss on valuation of investments using the equity method of accounting (Note 8)

     6,425      3,492       —        2,994  

Loss on disposal of property, plant and equipment

     8      31       19      50  

Loss on disposal of accounts receivable

     1,655      1,600       1,939      3,868  

Loss on disposal of available-for-sale securities

     4      —         20      307  

Donations

     10,221      97       10,346      152  

Others

     —        —         —        4  
    

  


 

  


       56,455      51,653       141,132      84,267  
    

  


 

  


Income before income taxes

     748,635      172,251       1,426,433      120,305  

Income tax expense (benefit) (Note 17)

     47,404      (10,707 )     97,278      (11,783 )
    

  


 

  


Net income

   (Won) 701,231    (Won) 182,958     (Won) 1,329,155    (Won) 132,088  
    

  


 

  


Ordinary income per share (Note 18)

   (Won) 2,418    (Won) 631     (Won) 4,583    (Won) 455  
    

  


 

  


Earnings per share (Note 18)

   (Won) 2,418    (Won) 631     (Won) 4,583    (Won) 455  
    

  


 

  


 

The accompanying notes are an integral part of these non-consolidated financial statements.

 

See Report of Independent Accountants

 

4


LG. Philips LCD Co., Ltd.

Non-Consolidated Statements of Cash Flows

Three-Month and Six-Month Periods Ended June 30, 2004 and 2003

(Unaudited)

 

    

For the three-month

periods ended June 30,


   

For the six-month

periods ended June 30,


 

(in millions of Korean Won)

 

   2004

    2003

    2004

    2003

 

Cash flows from operating activities

                                

Net income

   (Won) 701,231     (Won) 182,958     (Won)  1,329,155     (Won)  132,088  
    


 


 


 


Adjustments to reconcile net income to net cash provided by operating activities

                                

Depreciation

     268,491       233,145       534,399       422,187  

Amortization of intangible assets

     11,036       10,857       22,066       21,871  

Provision for severance benefits

     11,436       5,430       20,526       10,621  

Loss (gain) on foreign currency translation, net

     10,841       (41,261 )     (11,440 )     (2,651 )

Loss on disposal of available-for-sale securities

     4       —         20       307  

Gain on disposal of property, plant and equipment, net

     (1,323 )     (166 )     (2,021 )     (993 )

Amortization of discount on debentures

     2,926       2,512       6,010       5,185  

Gain (loss) on valuation of investments using the equity method of accounting

     6,425       3,492       (1,119 )     2,994  

Others

     6,891       2,389       13,989       6,760  
    


 


 


 


       316,727       216,398       582,430       466,281  
    


 


 


 


Changes in operating assets and liabilities

                                

Decrease (increase) in trade accounts and notes receivable

     172,171       (129,382 )     (10,565 )     (56,491 )

(Increase) decrease in inventories

     (45,033 )     84,848       (81,277 )     77,487  

Decrease (increase) in other accounts receivable

     7,820       (689 )     9,199       (1,257 )

(Increase) decrease in accrued income

     (146 )     3       (654 )     5  

(Increase) decrease in advance payments

     (3,060 )     (191 )     (4,088 )     421  

(Increase) decrease in prepaid expenses

     (4,431 )     8,484       869       7,134  

Decrease (increase) in prepaid value added tax

     2,761       (2,925 )     21,019       (5,017 )

Decrease in other current assets

     15,978       1,965       2,963       11,345  

Decrease in long-term other accounts receivable

     —         20       166       432  

Decrease (increase) in long-term prepaid expenses

     314       (6,207 )     (2,936 )     (8,240 )

Decrease (increase) in deferred income tax

     10,043       (10,707 )     32,896       (11,783 )

Increase (decrease) in trade accounts and notes payable

     18,333       8,936       (1,139 )     52,029  

Increase in other accounts payable

     25,404       106,072       34,686       74,971  

(Decrease) increase in advances received

     (2,562 )     513       (1,738 )     (24,013 )

(Decrease) increase in withholdings

     (4,667 )     523       1,098       (2,444 )

Increase (decrease) in accrued expenses

     10,358       2,756       (42,248 )     (9,953 )

Increase in income taxes payable

     15,608       —         23,525       —    

Decrease in other current liabilities

     (14,661 )     (2,769 )     (14,211 )     (6,465 )

Accrued severance benefits transferred from affiliated company, net

     149       21       808       234  

Payment of severance benefits

     (833 )     (1,296 )     (4,487 )     (6,016 )

Decrease (increase) in severance insurance deposit

     65       (2,072 )     1,492       (137 )

Decrease in contribution to the National Pension Fund

     5       41       44       127  
    


 


 


 


       203,616       57,944       (34,578 )     92,369  
    


 


 


 


Net cash provided by operating activities

   (Won)  1,221,574     (Won) 457,300     (Won)  1,877,007     (Won)  690,738  
    


 


 


 


 

The accompanying notes are an integral part of these non-consolidated financial statements.

 

See Report of Independent Accountants

 

5


LG.Philips LCD Co., Ltd.

Non-Consolidated Statements of Cash Flows

Three-Month and Six-Month Periods Ended June 30, 2004 and 2003

(Unaudited)

 

    

For the three-month

periods ended June 30,


   

For the six-month

periods ended June 30,


 

(in millions of Korean Won)

 

   2004

    2003

    2004

    2003

 

 

Cash flows from investing activities

                                

Acquisition of equity-method investments

   (Won) —       (Won) —       (Won) —         (21,308 )

Acquisition of available-for-sale securities

     (42 )     —         (110 )     (962 )

Proceeds from disposal of available-for-sale securities

     37       —         157       1,032  

Payment of non-current guarantee deposits

     —         (2,472 )     (2,005 )     (2,599 )

Proceeds from non-current guarantee deposits

     —         16       708       47  

Proceeds from disposal of property, plant and equipment

     1,367       629       3,196       2,037  

Acquisition of property, plant and equipment

     (1,191,777 )     (299,684 )     (1,910,095 )     (457,215 )

Acquisition of intangible assets

     (32 )     (2,499 )     (32 )     (2,537 )
    


 


 


 


Net cash used in investing activities

     (1,190,447 )     (304,010 )     (1,908,181 )     (481,505 )
    


 


 


 


Cash flows from financing activities

                                

Proceeds from short-term borrowings

     —         14,491       —         14,491  

Proceeds from issuance of debentures

     293,282       —         293,282       —    

Repayment on current portion long-term debt

     (300,000 )     —         (300,000 )     —    

Proceeds from issuance of long-term debts

     —         —         59,100       —    

Repayment of short-term borrowings

     —         —         (62 )     (44,467 )
    


 


 


 


Net cash used in (provided by) financing activities

     (6,718 )     14,491       52,320       (29,976 )
    


 


 


 


Net increase in cash and cash equivalents

     24,409       167,781       21,146       179,257  

Cash and cash equivalents

                                

Beginning of the period

     445,955       70,558       449,218       59,082  
    


 


 


 


End of the period (Note 21)

   (Won) 470,364     (Won) 238,339     (Won) 470,364     (Won) 238,339  
    


 


 


 


 

The accompanying notes are an integral part of these non-consolidated financial statements.

 

See Report of Independent Accountants

 

6


LG. Philips LCD Co., Ltd.

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

1. The Company

 

LG.Philips LCD Co., Ltd. (the “Company”) was incorporated in 1985 under the Commercial Code of the Republic of Korea and commenced the manufacturing and sale of Thin Film Transistor Liquid Crystal Display (“TFT LCD”) from 1999. On July 26, 1999, LG Electronics Inc., Koninklijke Philips Electronics N.V. (“Philips”) and the Company entered into a joint venture agreement. Pursuant to the agreement, the Company changed its name from LG LCD CO., Ltd. to LG.Philips LCD Co., Ltd. effective August 27, 1999 and on August 31, 1999, the Company issued new shares of common stock to Philips for the consideration of (Won)725,000 million.

 

As of June 30, 2004, the Company’s shareholders are as follows:

 

     Number of
Shares


  

Percentage of

Ownership (%)


LG Electronics Inc.

   145,000,000    50

Koninklijke Philips Electronics N. V.

   145,000,000    50
    
  
     290,000,000    100
    
  

 

2. Summary of Significant Accounting Policies

 

The significant accounting policies followed by the Company in the preparation of its interim non-consolidated financial statements are summarized below:

 

Basis of Financial Statement Presentation

 

The Company maintains its accounting records in Korean Won and prepares statutory financial statements in the Korean language in conformity with accounting principles generally accepted in the Republic of Korea. Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these financial statements are intended for use by those who are informed about Korean accounting principles and practices. The accompanying financial statements have been condensed, restructured and translated into English from the Korean language non-consolidated financial statements. Certain information attached to the Korean language financial statements, but not required for a fair presentation of the Company’s financial position, results of operations, or cash flows, is not presented in the accompanying non-consolidated financial statements.

 

Accounting Estimates

 

The preparation of the financial statements requires management to make estimates and assumptions that affect amounts reported therein. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from those estimates.

 

See Report of Independent Accountants.

 

7


LG. Philips LCD Co., Ltd.

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Application of the Statements of Korean Financial Accounting Standards

 

The Korean Accounting Standards Board (“KASB”) has published a series of Statements of Korean Financial Accounting Standards (“SKFAS”), which will gradually replace the existing financial accounting standards, established by the Korean Financial Supervisory Commission. SKFAS No. 2 through No. 9 became effective for the Company on January 1, 2003, and SKFAS No. 10 on January 1, 2004. The Company has adopted these statements in its non-consolidated financial statements for the year ended December 31, 2003 and for the six-month periods ended June 30, 2004 and 2003, except for SKFAS No. 10 which was adopted in 2004.

 

Cash and Cash Equivalents

 

The Company considers cash on hand, bank deposits and highly liquid marketable securities with original maturities of three months or less to be cash and cash equivalents.

 

Revenue Recognition

 

Sales of manufactured products are recognized when significant risks and rewards of ownership of the goods are transferred to the buyer.

 

Allowance for Doubtful Accounts

 

The Company provides an allowance for doubtful accounts and notes receivable based on the aggregate estimated collectibility of the receivables.

 

Inventories

 

The Company accounts for inventories under the provision of Statement of Korean Financial Accounting Standards No. 10, Inventories (SKFAS No. 10)

 

Inventories are stated at the lower of cost or market, with cost being determined using the weighted-average method, except for materials in-transit, which are stated at actual cost using the specific identification method. If the net realizable value of inventory is less than its cost, the carrying amount is reduced to the net realizable value.

 

Investments in Affiliates and Other Investments

 

The Company accounts for equity and debt securities under the provision of Statement of Korean Financial Accounting Standards No. 8, Investments in Securities (SKFAS No. 8). This statement requires investments in equity and debt securities to be divided into one of three categories: trading, available-for-sale and held-to-maturity.

 

Securities are initially carried at cost, including incidental expenses, with cost being determined using the gross average method. Debt securities, which the Company has the intent and ability to hold to maturity, are generally carried at cost, adjusted for the amortization of discounts or premiums. Premiums and discounts on debt securities are amortized over the term of the debt using the effective interest rate method. Trading and available-for-sale securities are carried at fair value, except for non-marketable securities classified as available-for-sale securities, which are carried at cost. Non-marketable debt securities are carried at a value using the present value of future cash flows, discounted at the reasonable interest rate determined considering the credit ratings provided by the independent credit rating agencies.

 

See Report of Independent Accountants.

 

8


LG. Philips LCD Co., Ltd.

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Unrealized valuation gains or losses on trading securities are charged to current operations, and those resulting from available-for-sale securities are recorded as a capital adjustment, the accumulated amount of which shall be charged to current operations when the related securities are sold, or when an impairment loss on the securities is recognized. Impairment losses are recognized in the income statement when the recoverable amounts are less than the acquisition cost of securities or adjusted cost of debt securities for the amortization of discounts or premiums.

 

Investments in equity securities of companies, over which the Company exercises significant control or influence (controlled investees), are recorded using the equity method of accounting. Under the equity method, the Company records changes in its proportionate ownership of the book value of the investee in current operations as capital adjustments or as adjustments to retained earnings, depending on the nature of the underlying change in the book value of the investee. The Company discontinues the equity method of accounting for investments in equity method investees when the Company’s share in the accumulated losses of the investees equals the costs of the investments, and until the subsequent cumulative changes in its proportionate net income of the investees equals its cumulative proportionate net losses not recognized during the periods when the equity method was suspended.

 

Differences between the initial purchase price and the Company’s initial proportionate ownership of the net book value of the investee are amortized over 20 years using the straight-line method.

 

Unrealized profit arising from sales by the Company to equity-method investees is fully eliminated. The Company’s proportionate unrealized profit arising from sales by the equity-method investees to the Company or sales between equity-method investees is also eliminated.

 

Foreign currency financial statements of equity method investees are translated into Korean Won using the basic exchange rates in effect as of the balance sheet date for assets and liabilities, and annual average exchange rates for income and expenses. Any resulting translation gain or loss is included in the capital adjustment account, a component of shareholders’ equity.

 

Property, Plant and Equipment

 

The cost of property, plant and equipment includes purchase costs or manufacturing costs, incidental costs directly related to preparing the premises and equipment for use, and the discounted estimated costs to remove, dismantle or restore property, plant and equipment at the end of the estimated useful lives of the related assets when those costs meet the conditions for the recognition of liabilities.

 

See Report of Independent Accountants.

 

9


LG. Philips LCD Co., Ltd.

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets as described below:

 

     Estimated useful lives

Buildings

   20 – 40 years

Structures

   20 – 40 years

Machinery and equipment

   4 years

Vehicles

   4 years

Tools, furniture and fixtures

   4 years

 

Routine maintenance and repairs are charged to current operations as incurred. Betterments and renewals, which enhance the value of the assets over their recently appraised value, are capitalized.

 

The Company assesses the potential impairment of property, plant and equipment when there is evidence that events or changes in circumstances have made the recovery of an asset’s carrying value to be unlikely. The carrying value of the assets is reduced to the estimated realizable value and an impairment loss is recorded as a reduction in the carrying value of the related asset and charged to current operations. However, the recovery of the impaired assets would be recorded in current operations up to the cost of the assets, net of accumulated depreciation before impairment, when the estimated value of the assets exceeds the carrying value after impairment.

 

Intangible Assets

 

Intangible assets, comprising industrial property rights, rights to use electricity and gas supply facilities, rights to use the industrial water facility, and software costs, are stated at cost, net of accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the assets ranging from four to ten years. Research and development costs are charged to current operations when incurred, and are included in operating expenses.

 

The Company assesses the potential impairment of intangible assets when there is evidence that events or changes in circumstances have made the recovery of an asset’s carrying value to be unlikely. The carrying value of the assets is reduced to the estimated realizable value, and an impairment loss is recorded as a reduction in the carrying value of the related asset and charged to current operations. However, the recovery of the impaired assets would be recorded in current operations up to the cost of the asset, net of accumulated amortization before impairment, when the estimated value of the assets exceeds the carrying value after impairment.

 

Discounts on Debentures

 

Discounts on debentures are amortized over the repayment period of the debentures using the effective interest rate method. Amortization is included in interest expense.

 

See Report of Independent Accountants.

 

10


LG. Philips LCD Co., Ltd.

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Foreign Currency Translation

 

Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at the basic rates in effect at the balance sheet dates ((Won)1,152.5:US$1 as of June 30, 2004; (Won)1,194.3:US$1 as of December 31, 2003), and the resulting translation gains and losses are recognized in current operations.

 

Warranty Reserve

 

The Company provides a warranty relating to product defects for a specified period of time after sale. Estimated costs of product warranties are charged to cost at the time of sale and are included in the accompanying balance sheet as a warranty reserve.

 

Accrued Severance Benefits

 

Employees and directors with one year or more of service are entitled to receive a lump-sum payment upon termination of their employment, based on their length of service and rate of pay at the time of termination. Accrued severance benefits represent the amount which would be payable assuming all eligible employees and directors were to terminate their employment as of the balance sheet date.

 

The Company has made deposits to the National Pension Fund in accordance with the National Pension Funds Law. The use of the deposit is restricted to the payment of severance benefits. Accordingly, accrued severance benefits in the accompanying balance sheet are presented net of this deposit.

 

Accrued severance benefits are funded through a group severance insurance plan and are presented as a deduction from accrued severance benefits.

 

Sales or Discount of Accounts Receivable

 

The Company sells or discounts certain accounts or notes receivable to financial institutions, and accounts for the transactions as sales of the receivables if the control over the receivables are substantially transferred to the buyers. The losses from the sales of the receivables are charged to current operations as incurred.

 

Derivatives

 

The Company enters into derivative transactions to hedge against financial risks. Derivatives are classified into: cash flow hedges, hedges for fluctuations in fair market value caused by the changes in foreign exchange rates, and those acquired for profit. In case of cash flow hedges, unrealized holding gains and losses are recorded as capital adjustments in the balance sheet. In the case of hedging for fluctuations in fair market value, unrealized holding gains and losses are recorded in the income statement. If the contract expires, the gains and losses from derivative transactions are presented in the income statement in case of hedges for fluctuations in fair market value and are offset against sales in case of cash flow hedging.

 

See Report of Independent Accountants.

 

11


LG. Philips LCD Co., Ltd.

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Income Taxes

 

The Company recognizes deferred income tax assets and liabilities, which represent temporary differences between the financial reporting and tax bases of assets and liabilities. Deferred income tax assets and liabilities are computed on such temporary differences, including available net operating loss (“NOL”) carry-forwards and tax credits, by applying enacted statutory tax rates applicable to the years when such differences are expected to reverse. Deferred income tax assets are recognized when it is almost certain that such deferred income tax assets will be realized. The total income tax provision includes the current income tax expense computed under applicable tax regulations, and the changes in the balances of deferred income tax assets and liabilities during the period.

 

Investment tax credits are accounted for by the flow-through method, whereby income taxes are reduced in the period the assets giving rise to such credits, are placed in service. To the extent such credits are not currently utilized, deferred income tax assets, subject to considerations on their recognition, are recognized for the carry-forward amount.

 

3. Cash and Cash Equivalents and Financial Instruments

 

Cash and cash equivalents and financial instruments as of June 30, 2004 and December 31, 2003 consist of the following:

 

(in millions)

 

   Annual interest
rate (%) as of
June 30, 2004


   2004

   2003

Cash and cash equivalents

                  

Cash on hand

   —      (Won) 6    (Won) 3

Checking accounts

   —        22      20

Time deposits

   3.1 – 3.8      449,652      376,423

Passbook accounts in foreign currency

   0.4 – 0.6      20,684      72,772
          US$ (18)    US$ (60)
          CNY (1)    JP¥ (63)
         

  

            470,364      449,218
         

  

Long-term financial instruments

                  

Guarantee deposit for checking accounts

   0.1 – 0.5      16      16
         

  

          (Won) 470,380    (Won) 449,234
         

  

 

As of June 30, 2004 and December 31, 2003, long-term financial instruments represent key money deposits required to maintain checking accounts and, accordingly, the withdrawal of such deposits is restricted.

 

See Report of Independent Accountants.

 

12


LG. Philips LCD Co., Ltd.

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

4. Receivables

 

The Company’s receivables, including trade accounts and notes receivable, as of June 30, 2004 and December 31, 2003, consist of the following:

 

     2004

(in millions of Korean Won)

 

  

Gross

amount


   Allowance for
doubtful
accounts


   Discounts on
present
value


   Carrying
value


Trade accounts and notes receivable

   (Won)  1,060,876    (Won)  1,181    (Won)  —      (Won)  1,059,695

Other accounts receivable

     3,118      283      27      2,808

Accrued income

     946      9      —        937

Advance payments

     7,168      71      —        7,097
    

  

  

  

     (Won)  1,072,108    (Won)  1,544    (Won) 27    (Won)  1,070,537
    

  

  

  

     2003

(in millions of Korean Won)

 

  

Gross

amount


   Allowance for
doubtful
accounts


   Discounts on
present
value


   Carrying
value


Trade accounts and notes receivable

   (Won)  1,061,336    (Won)  3,970    (Won)  —      (Won)  1,057,366

Other accounts receivable

     12,473      383      74      12,016

Accrued income

     286      3      —        283

Advance payments

     3,038      30      —        3,008

Long-term other accounts receivable

     170      2      2      166
    

  

  

  

     (Won)  1,077,303    (Won)  4,388    (Won) 76    (Won)  1,072,839
    

  

  

  

 

As of June 30, 2004 and December 31, 2003, trade bills negotiated through banks but not yet matured, amounted to approximately (Won)366,173 million and (Won)117,991 million, respectively.

 

See Report of Independent Accountants.

 

13


LG. Philips LCD Co., Ltd.

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

5. Assets and Liabilities Denominated in Foreign Currencies

 

As of June 30, 2004 and December 31, 2003, monetary assets and liabilities denominated in foreign currencies, excluding those disclosed elsewhere in the notes to financial statements, are as follows:

 

     2004

   2003

(in millions)

 

   Korean Won
Equivalent


  

Foreign

Currency


   Korean Won
Equivalent


  

Foreign

Currency


Trade accounts and notes receivable

   (Won) 1,035,396    US$
JP¥
EUR
819
1,487
54
   (Won) 1,037,591    US$
JP¥
EUR
770
5,443
39

Other accounts receivable

     661    US$
JP¥
1
28
     5,332    US$
JP¥
4
51

Trade accounts and notes payable

     147,870    US$
JP¥
49
8,654
     187,091    US$
JP¥
43
12,247

Other accounts payable

     184,570    US$
JP¥
EUR
34
13,545
1
     89,521    US$
JP¥
EUR
12
6,728
1

Accrued expenses

     21,943    US$ 19      18,521    US$ 16

 

6. Inventories

 

Inventories as of June 30, 2004 and December 31, 2003 consist of the following:

 

(in millions of Korean Won)

 

   2004

   2003

Finished products

   (Won) 161,600    (Won) 82,995

Work-in-process

     74,747      77,454

Raw materials

     85,129      82,975

Supplies

     36,813      30,067
    

  

     (Won) 358,289    (Won) 273,491
    

  

 

As of June 30, 2004 and December 31, 2003, inventories, and property, plant and equipment are insured against fire and other casualty losses up to (Won)17,549,725 million and (Won)16,194,946 million, respectively.

 

See Report of Independent Accountants.

 

14


LG. Philips LCD Co., Ltd.

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

7. Property, Plant and Equipment

 

Changes in property, plant and equipment for the six-month periods ended June 30, 2004 and 2003 are as follows:

 

     2004

 

(in millions of Korean Won)

 

   Land

   Buildings

    Structures

    Machinery and
equipment


    Tools

    Furniture and
fixtures


 

Balance as of January 1, 2004

   (Won) 88,669    (Won) 501,119     (Won) 119,013     (Won) 2,056,822     (Won) 17,751     (Won) 70,708  

Acquisition during the period

     —        2,391       112       6,723       745       17,080  

Capitalized interest

     —        10       —         475       —         —    

Depreciation

     —        (13,468 )     (2,848 )     (491,292 )     (4,969 )     (21,223 )

Disposal

     —        (44 )     —         (1,111 )     —         (19 )

Transfer

     1,444      13,027       (321 )     59,155       2,993       7,064  
    

  


 


 


 


 


Balance as of June 30, 2004

   (Won) 90,113    (Won) 503,035     (Won) 115,956     (Won) 1,630,772     (Won) 16,520     (Won) 73,610  
    

  


 


 


 


 


Accumulated depreciation

   (Won) —      (Won) 103,948     (Won) 16,793     (Won) 3,662,247     (Won) 38,463     (Won) 116,026  
    

  


 


 


 


 


 

     2004

 
     Vehicles

    Trees

   Machinery-
in-transit


    Construction-
in-progress


    Total

 

Balance as of January 1, 2004

   (Won) 2,587     (Won) 1,529    (Won) 28,521     (Won) 987,709     (Won) 3,874,428  

Acquisition during the period

     1,103       —        790,151       1,240,310       2,058,615  

Capitalized interest

     —         —        4,767       11,735       16,987  

Depreciation

     (599 )     —        —         —         (534,399 )

Disposal

     —         —        —         —         (1,174 )

Transfer

     —         —        (33,705 )     (53,212 )     (3,555 )
    


 

  


 


 


Balance as of June 30, 2004

   (Won) 3,091     (Won) 1,529    (Won) 789,734     (Won) 2,186,542     (Won) 5,410,902  
    


 

  


 


 


Accumulated depreciation

   (Won) 2,876     (Won) —      (Won) —       (Won) —       (Won) 3,940,353  
    


 

  


 


 


 

See Report of Independent Accountants.

 

15


LG. Philips LCD Co., Ltd.

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

     2003

 

(in millions of Korean Won)

 

   Land

   Buildings

    Structures

    Machinery and
equipment


    Tools

   

Furniture and

fixtures


 

Balance as of January 1, 2003

   (Won) 81,451    (Won) 484,731     (Won) 99,462     (Won) 1,539,593     (Won) 18,479     (Won) 59,260  

Acquisition during the period

     34      625       —         6,657       279       7,120  

Capitalized interest

     —        —         —         —         —         —    

Depreciation

     —        (12,306 )     (2,666 )     (385,851 )     (4,169 )     (16,788 )

Disposal

     —        —         —         (840 )     (172 )     (32 )

Transfer

     6,391      32,404       17,971       1,092,934       2,545       19,846  
    

  


 


 


 


 


Balance as of June 30, 2003

   (Won) 87,876    (Won) 505,454     (Won) 114,767     (Won) 2,252,493     (Won) 16,962     (Won) 69,406  
    

  


 


 


 


 


Accumulated depreciation

   (Won) —      (Won) 77,925     (Won) 10,625     (Won) 2,727,700     (Won) 29,503     (Won) 78,137  
    

  


 


 


 


 


 

     2003

 
     Vehicles

    Trees

  

Machinery-

in-transit


    Construction-
in-progress


    Total

 

Balance as of January 1, 2003

   (Won) 1,884     (Won) 1,505    (Won) 393,321     (Won) 531,198     (Won) 3,210,884  

Acquisition during the period

     310       —        271,760       386,745       673,530  

Capitalized interest

     —         —        3,079       3,859       6,938  

Depreciation

     (407 )     —        —         —         (422,187 )

Disposal

     —         —        —         —         (1,044 )

Transfer

     —         —        (542,626 )     (629,465 )     —    
    


 

  


 


 


Balance as of June 30, 2003

   (Won) 1,787     (Won) 1,505    (Won) 125,534     (Won) 292,337     (Won) 3,468,121  
    


 

  


 


 


Accumulated depreciation

   (Won) 2,001     (Won) —      (Won) —       (Won) —       (Won) 2,925,891  
    


 

  


 


 


 

As of June 30, 2004 and December 31, 2003, the value of the Company’s land, as determined by the local government in Korea for property tax assessment purposes, amounts to approximately (Won)91,682 million and (Won)76,476 million, respectively.

 

The Company capitalizes the loss (gain) on foreign currency rate changes and interest expense incurred on borrowings used to finance the cost of constructing the facilities and equipment. The total of both the capitalized loss (gain) on foreign currency rate changes and interest expenses for the six-month periods ended June 30, 2004 and 2003 were (Won)16,987 million and (Won)6,938 million, respectively.

 

As of June 30, 2004 and 2003, net gain on foreign currency translation arising from foreign currency borrowings, which were deducted from capitalized interest expenses, were (Won)4,135 million and (Won)374 million, respectively.

 

See Report of Independent Accountants.

 

16


LG. Philips LCD Co., Ltd.

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

For the six-month period ended June 30, 2004, the effects of capitalized interest expense on significant accounts in the balance sheet and statement of income as follows:

 

Balance sheet

 

    

If interest expense is

capitalized


  

If interest expense is

expensed as incurred


   Difference

(in millions of Korean Won)

 

   Acquisition
cost


   Accumulated
Depreciation


   Acquisition
cost


   Accumulated
Depreciation


   Acquisition
cost


  

Accumulated

Depreciation


Property, plant and equipment

   (Won) 9,351,255    (Won) 3,940,353    (Won) 9,334,268    (Won) 3,940,334    (Won) 16,987    (Won) 19

 

Statement of income

 

(in millions of Korean Won)

 

   If interest expense is
capitalized


   If interest expense is
expensed as incurred


   Difference

 

Depreciation

   (Won) 534,399    (Won) 534,380    (Won) 19  

Interest expense

     24,502      45,624      (21,122 )

Foreign currency translation gain

     35,482      39,617      4,135  

Net income

     1,329,155      1,312,187      (16,968 )

 

See Report of Independent Accountants.

 

17


LG. Philips LCD Co., Ltd.

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

8. Equity-method Investments

 

Equity-method investments as of June 30, 2004 and December 31, 2003, consist of the following:

 

     2004

(in millions of Korean Won)

 

   No. of shares
owned by the
Company


    Ownership
ratio (%) as of
June 30, 2004


   Acquisition
cost


   Market or
net asset value


  

Carrying

value


LG.Philips LCD, America

   5,000,000     100.0    (Won) 6,082    (Won) 8,494    (Won) 8,494

LG.Philips LCD, Germany

   960,000     100.0      1,252      —        —  

LG.Philips LCD, Japan

   1,900     100.0      1,088      1,523      1,523

LG.Philips LCD, Taiwan

   11,549,994     100.0      6,076      3,011      3,011

LG.Philips LCD, Nanjing

   ( *)   100.0      36,987      22,082      22,082

LG.Philips LCD, Hong Kong

   115,000     100.0      1,736      —        —  

LG.Philips LCD, Shanghai

   ( *)   100.0      596      —        —  
               

  

  

                (Won) 53,817    (Won) 35,110    (Won) 35,110
               

  

  

     2003

(in millions of Korean Won)

 

   No. of shares
owned by the
Company


    Ownership
ratio (%) as of
December 31, 2003


   Acquisition
cost


   Market or
net asset value


  

Carrying

value


LG.Philips LCD, America

   5,000,000     100.0    (Won) 6,082    (Won) 6,840    (Won) 6,840

LG.Philips LCD, Germany

   960,000     100.0      1,252      568      568

LG.Philips LCD, Japan

   1,900     100.0      1,088      1,788      1,788

LG.Philips LCD, Taiwan

   11,549,994     100.0      6,076      5,861      5,861

LG.Philips LCD, Nanjing

   ( *)   100.0      36,987      21,515      21,515

LG.Philips LCD, Hong Kong

   115,000     100.0      1,736      —        —  

LG.Philips LCD, Shanghai

   ( *)   100.0      596      —        —  
               

  

  

                (Won) 53,817    (Won) 36,572    (Won) 36,572
               

  

  


(*) No shares have been issued according to the local laws and regulation.

 

See Report of Independent Accountants.

 

18


LG. Philips LCD Co., Ltd.

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The details of the equity method valuation for the six-month periods ended June 30, 2004 and 2003 are as follows:

 

     2004

(in millions of Korean Won)

 

   Balance as of
January 1, 2004


   Acquisitions
during the
period


   Gain (loss) on
valuation of
investments using
equity method


    Retained
earnings
adjustment


   Capital
adjustment


   

Balance as of

June 30,

2004


LG.Philips LCD, America

   (Won) 6,840    (Won)  —      (Won) 1,982     (Won)  —      (Won) (328 )   (Won) 8,494

LG.Philips LCD, Germany

     568      —        (376 )     —        (192 )     —  

LG.Philips LCD, Japan

     1,788      —        (136 )     —        (129 )     1,523

LG.Philips LCD, Taiwan

     5,861      —        (2,624 )     —        (226 )     3,011

LG.Philips LCD, Nanjing

     21,515      —        2,151       —        (1,584 )     22,082

LG.Philips LCD, Hongkong

     —        —        82       —        (82 )     —  

LG.Philips LCD, Shanghai

     —        —        40       —        (40 )     —  
    

  

  


 

  


 

     (Won)  36,572    (Won)  —      (Won) 1,119     (Won)  —      (Won)  (2,581 )   (Won)  35,110
    

  

  


 

  


 

     2003

(in millions of Korean Won)

 

   Balance as of
January 1, 2003


   Acquisitions
during the
period


   Gain (loss) on
valuation of
investments using
equity method


    Retained
earnings
adjustment


   Capital
adjustment


   

Balance as of

June 30,

2003


LG.Philips LCD, America

   (Won) 8,590    (Won) —      (Won) 291     (Won)  —      (Won) 48     (Won) 8,929

LG.Philips LCD, Germany

     1,368      —        330       —        152       1,850

LG.Philips LCD, Japan

     2,188      —        (513 )     —        (7 )     1,668

LG.Philips LCD, Taiwan

     6,530      —        1,399       —        43       7,972

LG.Philips LCD, Nanjing

     17,817      18,976      (3,191 )     —        266       33,868

LG.Philips LCD, Hongkong

     —        1,736      (1,349 )     —        23       410

LG.Philips LCD, Shanghai

     —        596      39       —        —         635
    

  

  


 

  


 

     (Won)  36,493    (Won)  21,308    (Won)  (2,994 )   (Won)  —      (Won)  525     (Won)  55,332
    

  

  


 

  


 

 

See Report of Independent Accountants.

 

19


LG. Philips LCD Co., Ltd.

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

As of June 30, 2004 and 2003, elimination of unrealized gains or losses in the valuation of investments using the equity method is as follows:

 

     2004

    2003

 

(in millions of Korean Won)

 

   Inventories

    Property,
plant and
equipment


    Total

    Inventories

    Property,
plant and
equipment


   Total

 

LG.Philips LCD, America

   (Won) (618 )   (Won) —       (Won) (618 )   (Won) (105 )   (Won) —      (Won) (105 )

LG.Philips LCD, Germany

     (2,956 )     —         (2,956 )     57       —        57  

LG.Philips LCD, Japan

     (1,678 )     —         (1,678 )     (806 )     —        (806 )

LG.Philips LCD, Taiwan

     (5,627 )     —         (5,627 )     (303 )     —        (303 )

LG.Philips LCD, Nanjing

     (26,977 )     (1,881 )     (28,858 )     —         —        —    

LG.Philips LCD, Hongkong

     (2,098 )     —         (2,098 )     (1,745 )     —        (1,745 )

LG.Philips LCD, Shanghai

     (1,896 )     —         (1,896 )     (61 )     —        (61 )
    


 


 


 


 

  


     (Won)  (41,850 )   (Won)  (1,881 )   (Won)  (43,731 )   (Won)  (2,963 )   (Won) —      (Won)  (2,963 )
    


 


 


 


 

  


 

9. Intangible Assets

 

Changes in intangible assets for the six-month periods ended June 30, 2004 and 2003 are as follows:

 

     2004

 

(in millions of Korean Won)

 

   Intellectual
property
rights


    Rights for usage
of electricity and
gas supply
facilities


    Rights to
industrial
water facilities


    Software

    Total

 

Balance as of January 1, 2004

   (Won) 209,922     (Won)  127     (Won)  4,287     (Won) 3,646     (Won)  217,982  

Acquisition during the period

     —         —         —         64       64  

Amortization

     (20,546 )     (8 )     (292 )     (1,220 )     (22,066 )
    


 


 


 


 


Balance as of June 30, 2004

   (Won)  189,376     (Won)  119     (Won)  3,995     (Won) 2,490     (Won)  195,980  
    


 


 


 


 


Accumulated amortization

   (Won)  222,676     (Won) 42     (Won)  1,850     (Won) 7,223     (Won)  231,791  
    


 


 


 


 


 

See Report of Independent Accountants.

 

20


LG. Philips LCD Co., Ltd.

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

     2003

 

(in millions of Korean Won)

 

   Intellectual
property
rights


    Rights for usage
of electronicity
and gas supply
facilities


    Rights to
industrial
water
facilities


    Software

    Total

 

Balance as of January 1, 2003

   (Won)  246,054     (Won)  126     (Won)  2,775     (Won) 6,076     (Won)  255,031  

Acquisition during the period

     982       17       1,538       —         2,537  

Amortization

     (20,430 )     (8 )     (218 )     (1,215 )     (21,871 )
    


 


 


 


 


Balance as of June 30, 2003

   (Won)  226,606     (Won)  135     (Won)  4,095     (Won) 4,861     (Won)  235,697  
    


 


 


 


 


Accumulated amortization

   (Won)  181,648     (Won) 26     (Won)  1,281     (Won) 4,788     (Won)  187,743  
    


 


 


 


 


 

The Company has classified the amortization as part of manufacturing overhead costs. Amortizations for the six-month periods ended June 30, 2004 and 2003 amounted to (Won)22,066 million and (Won)21,871 million, respectively.

 

The details of intellectual property rights as of June 30, 2004 and December 31, 2003 are as follows:

 

(in millions of Korean Won)

 

   Description

   2004

   2003

  

Remaining

Period


Intellectual property rights

   Patent relating to
TFT-LCD business
   (Won)  189,376    (Won)  209,922    5 years

 

The Company expensed research and development costs of (Won)108,674 million and (Won)64,950 million for the six-month periods ended June 30, 2004 and 2003, respectively.

 

For the six-month periods ended June 30, 2004 and 2003, the significant expenses, which are expected to have probable future economic benefits but expensed in the period incurred due to the uncertainty in the realization of such benefits, are as follows:

 

(in millions of Korean Won)

 

   2004

   2003

Training expenses

   (Won) 6,129    (Won)  3,136

Advertising expenses

     3,252      736

Expenses for foreign market expansion

     2,496      2,581
    

  

     (Won)  11,877    (Won)  6,453
    

  

 

See Report of Independent Accountants.

 

21


LG. Philips LCD Co., Ltd.

Notes to Non-Consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

10. Short-Term Borrowings

 

Short-term borrowings as of June 30, 2004 and December 31, 2003 consist of the following:

 

(in millions)

Type of borrowing


   Creditor

  

Annual interest

rate (%) as of

June 30, 2004


   2004

   2003

 

Usance

   Chohung Bank    —      (Won) —      (Won)
JP¥
62
(6
 
)
              

  


               (Won) —      (Won) 62  
              

  


 

Current maturities of long-term debt as of June 30, 2004 and December 31, 2003 consist of the following:

 

(in millions)

 

   Creditor

   Annual interest
rates (%) as of
June 30, 2004


   2004

    2003

 

Long-term debt in Won currency debentures

   Chohung Bank,
and others
   —      (Won) —       (Won) 300,000  

Long-term debt in foreign currency debentures

   —      6M Libor + 1.1     
US$
161,350
(140
 
)
   
US$
167,202
(140
 
)

Less : Discounts on debentures

               (196 )     (1,579 )
              


 


               (Won) 161,154     (Won) 465,623  
              


 


 

See Report of Independent Accountants.

 

22


LG. Philips LCD Co., Ltd.

Notes to Non-consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

11. Long-Term Debts

 

Long-term debts as of June 30, 2004 and December 31, 2003 consist of the following:

 

(in millions of Korean Won)

 

   Annual interest
rates (%) as of
June 30, 2004


   2004

    2003

 

Won currency debentures :

                     

Non-guaranteed, payable through 2009

   5.0 – 6.0    (Won)  1,050,000     (Won)  1,050,000  

Less : Current maturities

          —         (300,000 )

Discounts on debentures

          (28,232 )     (24,834 )
         


 


            1,021,768       725,166  
         


 


Foreign currency debentures :

                     

Floating rate notes, payable through 2006

   3M Libor + 1.1      232,805       241,249  

Term notes, payable through 2006

   3M Libor +1.1,
6M Libor + 1.1
     349,208       361,873  

Less : Current maturities

          (161,350 )     (167,202 )

Discount on debentures

          (5,193 )     (6,500 )
         


 


            415,470       429,420  
         


 


          (Won)  1,437,238     (Won)  1,154,586  
         


 


Won currency loans :

                     

General loans

   5.9 – 6.1    (Won) 117,800     (Won) 58,700  

Foreign currency loans :

                     

General loans

   3M Libor+1.1      40,337       41,801  
         


 


          (Won) 158,137     (Won) 100,501  
         


 


 

As of June 30, 2004 and December 31, 2003, U.S. dollar debentures amounted to US$ 505 million and U.S. dollar loans amounted to US$ 35 million.

 

See Report of Independent Accountants.

 

23


LG. Philips LCD Co., Ltd.

Notes to Non-consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The aggregate annual maturities of long-term debt outstanding as of June 30, 2004, exclusive of adjustments relating to discounts, are as follows:

 

(in millions of Korean Won)

 

For the period ending June 30,


   Won currency
debentures


   Won
currency
loans


   Foreign
currency
debentures


   Foreign
currency
loans


   Total

2006

   (Won) —      (Won) 9,783    (Won)  210,331    (Won)  20,169    (Won) 240,283

2007

     200,000      39,266      210,332      20,168      469,766

2008

     300,000      39,266      —        —        339,266

2009 and thereafter

     550,000      29,485      —        —        579,485
    

  

  

  

  

     (Won)  1,050,000    (Won)  117,800    (Won)  420,663    (Won)  40,337    (Won)  1,628,800
    

  

  

  

  

 

12. Accrued Severance Benefits

 

Accrued severance benefits as of June 30, 2004 and 2003 consist of the following:

 

(in millions of Korean Won)

 

   2004

    2003

 

Balance at the beginning of the period

   (Won) 56,552     (Won) 43,525  

Actual severance payments

     (4,487 )     (6,016 )

Transferred from affiliated companies, net

     808       234  

Provision for severance benefits

     20,526       11,200  
    


 


       73,399       48,943  

Cumulative deposits to the National Pension Fund

     (770 )     (832 )

Severance insurance deposit

     (33,288 )     (26,212 )
    


 


Balance at the end of the period

   (Won) 39,341     (Won) 21,899  
    


 


 

The severance benefits are funded at approximately 45.4% and 53.6% as of June 30, 2004 and 2003, respectively, through a severance insurance deposit for the payment of severance benefits, which is deducted from accrued severance benefit liabilities. The beneficiaries of the severance insurance deposit are the Company’s employees.

 

See Report of Independent Accountants.

 

24


LG. Philips LCD Co., Ltd.

Notes to Non-consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

13. Commitments and Contingencies

 

As of June 30, 2004, the Company has bank overdraft agreements with various banks amounting to (Won)59,000 million.

 

As of June 30, 2004, the Company has a Revolving Credit Facility Agreement with Shinhan Bank and Hana Bank totaling (Won)300,000 million.

 

As of June 30, 2004, the Company has agreements with several banks for U.S. dollar denominated accounts receivable negotiating facilities up to an aggregate of US$777 million. The related amounts of negotiated foreign currency receivables outstanding as of June 30, 2004 and December 31, 2003 amounted to (Won)363,173 million and (Won)117,991 million, respectively.

 

As of June 30, 2004, in relation to its TFT-LCD business, the Company has technical license agreements with Semiconductor Energy Laboratory Co., Ltd. and others.

 

The Company is involved in several legal proceedings and claims arising in the ordinary course of business. In August 2002, the Company filed a complaint against Chunghwa Picture Tubes, Tatung Company and Tatung Co., of America, alleging patent infringement relating to liquid crystal displays and the manufacturing process for TFD-LCDs. Subsequently the Company filed a complaint against customers of Chunghwa Picture Tubes, which included ViewSonic Corp., Jeans Co, Lite-On Technology Corp., Lite-On Technology International, Inc., TpV Technology and Invision Peripheral Inc. In June 2004, Chunghwa Picture Tubes filed a counter-claim against the Company in the United States District Court for the Central District of California for alleged infringement of Chunghwa Picture Tubes’ intellectual property and violation of U.S. antitrust laws. In May 2004, the Company filed a complaint against Tatung Co., parent company of Chunghwa Picture Tubes and ViewSonic Corp., claiming patent infringement on rear mountable liquid crystal display devices in United states District of Delaware and Patent country Court in the United Kingdom. The Company’s management does not expect that the outcome in any of these legal proceedings, individually or collectively, will have any material adverse effect on the Company’s financial condition, results of operations or cash flows.

 

The Company enters into foreign currency forward contracts to manage the exposure to changes in currency exchange rates in accordance with its foreign currency risk management policy. The use of foreign currency forward contracts allows the Company to reduce its exposure to the risk that the eventual Korean Won cash outflows resulting from operating expenses, capital expenditures, purchasing of materials and debt service will be adversely affected by changes in exchange rates.

 

See Report of Independent Accountants.

 

25


LG. Philips LCD Co., Ltd.

Notes to Non-consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

A summary of these contracts follows (in millions):

 

Contracting party


   Selling position

   Buying position

   Contract foreign
exchange rate


   Maturity date

HSBC and others

   US$  1,112    (Won) 1,325,125    (Won)
(Won)
1,149.9:US$1~
1,230.6:US$1
   July 1, 2004 - 
May 11, 2005

BNP Paribas and others

   US$ 273    JP¥ 29,765    JP¥
JP¥
103.34:US$1~
114.10:US$1
   July 1, 2004 - 
December 24, 2004

 

As of June 30, 2004, the Company recorded unrealized gains and losses on outstanding foreign currency forward contracts of (Won)38,375 million and (Won)2,769 million, respectively. Total unrealized gains and losses of (Won)14,620 million and (Won)2,769 million, respectively, were charged to current operations for the six-month period ended June 30, 2004, as these contracts did not meet the requirements for a cash flow hedge. Unrealized gains amounting to (Won)23,755 million, which were incurred relating to cash flow hedges from forecasted exports, were recorded as capital adjustments.

 

The hedged forecasted transactions are expected to occur on May 11, 2005 and the aggregate amount of all deferred gains recorded in capital adjustments, which is expected to be included in the determination of net income within a year from June 30, 2004, is (Won)23,755 million.

 

For the six-month periods ended June 30, 2004 and 2003, the Company recorded realized exchange gains of (Won)17,566 million and (Won)1,930 million, respectively, on foreign currency forward contracts upon settlement, and for the six-month periods ended June 30, 2004 and 2003, realized exchange losses amounted to (Won)20,216 million and (Won)4,889 million, respectively.

 

The Company entered into cross-currency swap contracts to manage the exposure to changes in currency exchange rates in accordance with its foreign currency risk management policy and to manage the exposure to changes in interest rates related to Floating Rate Notes. These transactions do not meet the requirements for hedge accounting for financial statement purposes. Therefore, the resulting realized and unrealized gains or losses, measured by quoted market prices, are recognized in current operations as gains or losses as the exchange rates change.

 

A summary of these contracts follows (in millions):

 

Contracting party


   Buying position

   Selling position

   Contract foreign
exchange rate


    Maturity date

HSBC

   US$
 
210
—  
    
(Won)
—  
247,818
   3M Libor
3.43 – 3.60
 
%
  May 4, 2004 -
May 11, 2005

ABN-AMRO

   US$
 
300
—  
    
 
—  
368,490
   6M Libor
3.58
 
%
  July 15, 2004 -
September 10, 2004

 

See Report of Independent Accountants.

 

26


LG. Philips LCD Co., Ltd.

Notes to Non-consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

As of June 30, 2004, unrealized losses of (Won)18,500 million were charged to current operations as these contracts did not meet the requirements for hedge accounting for financial statement purposes.

 

In common with certain other Asian countries, the economic environment in the Republic of Korea continues to be volatile. In addition, the Korean government and the private sector continue to implement structural reforms to historical business practices, including corporate governance. The Company may be either directly or indirectly affected by these volatile economic conditions and the reform program described above. The accompanying financial statements reflect management’s assessment of the impact to date of the economic environment on the financial position and results of operations of the Company. Actual results may differ materially from management’s current assessment.

 

14. Capital Stock

 

On March 19, 2004, at the Annual General Meeting, stockholders approved an increase in number of authorized shares from 200 million to 400 million and a stock split on a 2:1 basis effective on May 25, 2004.

 

15. Retained Earnings

 

Retained earnings as of June 30, 2004 and December 31, 2003 are as follows:

 

(in millions of Korean Won)

 

   2004

   2003

Legal reserve

   (Won) 60,086    (Won) 60,086

Reserve for business rationalization

     68,251      68,251

Unappropriated retained earnings

     2,637,048      1,307,892
    

  

     (Won) 2,765,385    (Won) 1,436,229
    

  

 

The Commercial Code of the Republic of Korea requires the Company to appropriate, as a legal reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals 50% of its issued capital stock. The reserve is not available for the payment of cash dividends, but may be transferred to capital stock through an appropriate resolution by the Company’s Board of Directors or used to reduce accumulated deficit, if any, through an appropriate resolution by the Company’s shareholders.

 

Pursuant to the Tax Exemption and Reduction Control Law, the Company is required to appropriate, as a reserve for business rationalization, a portion of retained earnings equal to tax reductions arising from investment and other tax credits. This reserve was not available for dividends until December 11, 2002 when the related law was abolished, and this may be transferred to capital stock through an appropriate resolution by the Company’s Board of Directors or used to reduce accumulated deficit, if any, through an appropriate approval by the Company’s shareholders.

 

See Report of Independent Accountants.

 

27


LG. Philips LCD Co., Ltd.

Notes to Non-consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

16. Capital Adjustments

 

Capital adjustments as of June 30, 2004 and December 31, 2003 are as follows:

 

(in millions of Korean Won)

 

   2004

    2003

Foreign currency translation gain (loss) on the affiliates

   (Won) (2,506 )   (Won) 75

Gain on valuation of derivative instruments

     23,755       7,728
    


 

     (Won) 21,249     (Won) 7,803
    


 

 

17. Income Taxes

 

Income tax expense (benefit) for the six-month periods ended June 30, 2004 and 2003 are as follows:

 

(in millions of Korean Won)

 

   2004

   2003

 

Current income taxes

   (Won) 64,382    (Won) —    

Deferred income taxes

     32,896      (11,783 )
    

  


Income tax expense (benefit)

   (Won) 97,278    (Won) (11,783 )
    

  


 

The income tax effect of temporary differences, including available net operating loss carry-forwards and tax credits, comprising the deferred income tax assets and liabilities as of June 30, 2004 and December 31, 2003, are as follows:

 

(in millions of Korean Won)

 

   2004

    2003

 

Inventories

   (Won) 4,995     (Won) 4,538  

Investments

     (667 )     2,900  

Accounts receivable

     580       1,892  

Other current assets

     215       702  

Property, plant and equipment

     15,793       10,934  

Warranty liabilities

     4,987       2,660  

Others

     (1,638 )     (1,178 )

Tax credit carry-forward

     57,800       92,514  
    


 


     (Won) 82,065     (Won) 114,962  
    


 


 

Available tax credits as of June 30, 2004 amounted to (Won)64,222 million. Tax credits can be carried forward up to four years under the Corporate Income Tax Law in Korea.

 

See Report of Independent Accountants.

 

28


LG. Philips LCD Co., Ltd.

Notes to Non-consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

The reconciliations from income before income taxes to income for tax purposes for the six-month periods ended June 30, 2004 and 2003 are as follows:

 

(in millions of Korean Won)

 

   2004

    2003

 

Income before income taxes

   (Won) 1,426,433     (Won) 120,305  

Loss on valuation of inventories

     2,264       574  

Investment

     (21,740 )     (2,994 )

Allowance for doubtful accounts

     —         5,303  

Translation on adjustment debit or credit

     (13,232 )     9,814  

Depreciation

     25,236       8,676  

Other current assets

     —         8,162  

Cost of sales

     —         5,975  

Others

     8,520       2,723  
    


 


Taxable income

   (Won) 1,427,481     (Won) 158,538  
    


 


 

The statutory income tax rate, including resident tax surcharges, applicable to the Company was approximately 29.7% in 2004 and 2003, and was amended to 27.5% effective for fiscal years beginning January 1, 2005 in accordance with the Corporate Income Tax Law enacted in December 2003.

 

Under the Foreign Investment Promotion Act of Korea, from September 1999, the Company is entitled to an exemption from income taxes in proportion to the percentage of foreign equity for seven years following the registration of each foreign equity investment, and at one-half of that percentage for the succeeding three years.

 

The effective income tax rates applicable to the Company differs from the statutory income tax rate due to temporary differences in recognizing certain income and expenses for financial reporting and income tax purposes, and the tax exemption under the Foreign Investment Promotion Act of Korea. The effective tax rates of the Company for the six-month periods ended June 30, 2004 and 2003 are 6.82% and -9.79%, respectively.

 

18. Earnings Per Share

 

Earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Ordinary income per share is computed by dividing ordinary income allocated to common stock, which is net income allocated to common stock as adjusted by extraordinary gains or losses, net of related income taxes, by the weighted-average number of common shares outstanding during the period.

 

See Report of Independent Accountants.

 

29


LG. Philips LCD Co., Ltd.

Notes to Non-consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

Earnings per share for the three-month and six-month periods ended June 30, 2004 and 2003 is calculated as follows:

 

     For the three-month
periods ended June 30,


  

For the six-month

periods ended June 30,


(in millions of Korean Won, except for per share amount)

 

   2004

   2003

   2004

   2003

Net income as reported on the income statements

   (Won) 701,231    (Won) 182,958    (Won) 1,329,155    (Won) 132,088

Weighted-average number of common shares outstanding

     290      290      290      290
    

  

  

  

Earnings per share

   (Won) 2,418    (Won) 631    (Won) 4,583    (Won) 455
    

  

  

  

 

Earnings per share for the three-month period and six-month period ended June 30, 2003 retroactively reflected the effect of the stock split (see Note 14).

 

Additionally, earnings per share after reflecting the effect of the stock split for the three-month period ended March 31, 2004 and for the year ended December 31, 2003 are as follows :

 

     March 31, 2004

   December 31, 2003

Earnings per share

   (Won) 2,165    (Won) 3,514
    

  

 

See Report of Independent Accountants.

 

30


LG. Philips LCD Co., Ltd.

Notes to Non-consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

19. Transactions with Related Parties

 

Significant transactions which occurred in the normal course of business with related companies for the six-month periods ended June 30, 2004 and 2003, and the related account balances outstanding as of June 30, 2004 and 2003, are summarized as follows:

 

(in millions of Korean Won)

 

   Sales (*)

   Purchases (*)

   Receivables

   Payables

LG Electronics Inc.

   (Won) 308,417    (Won) 85,233    (Won) 31,331    (Won) 55,672

LG Construction

     —        401,818      —        266,733

LG Chem Ltd.

     —        208,329      —        35,890

LG Philips LCD America, Inc.

     342,202      —        53,454      —  

LG Philips LCD Germany GmbH

     547,401      —        188,712      1,546

LG Philips LCD Japan Co., Ltd.

     536,257      —        111,062      —  

LG Philips LCD Nanjing Co., Ltd.

     829,204      —        377,949      —  

LG Philips LCD Shanghai Co., Ltd.

     411,545      —        154,219      —  

LG Philips LCD Hong Kong Co., Ltd.

     368,564      —        48,716      —  

LG Philips LCD Taiwan Co., Ltd.

     801,469      13      187,169      —  

Philips

     —        21,686      8      3,850

LG International Japan Co., Ltd.

     —        881,505      —        183,433

LG International America Co., Ltd.

     —        86,537      —        38,128

LG International HK Co., Ltd.

     19,116      —        15,231      —  

LG International Singapore Co., Ltd.

     51,177      —        —        40

LG MRO Co., Ltd.

     —        27,254      —        11,856

LG Micron Ltd.

     —        35,321      —        32,469

LG CNS

     —        28,378      —        8,361

Others

     12,554      70,805      7,296      7,008
    

  

  

  

2004 Total

   (Won) 4,227,906    (Won) 1,846,879    (Won) 1,175,147    (Won) 644,986
    

  

  

  

2003 Total

   (Won) 2,114,512    (Won) 868,856    (Won) 371,573    (Won) 912,880
    

  

  

  


(*) Includes sales and purchases of property, plant and equipment.

 

See Report of Independent Accountants.

 

31


LG. Philips LCD Co., Ltd.

Notes to Non-consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

20. Segment Information

 

The Company operates only one segment, the TFT-LCD division. Export sales represented more than 80% of total sales.

 

The following is a summary of operations by country based on the location of the customers for the six-months periods ended June 30, 2004 and 2003.

 

(in millions of Korean Won)

 

Sales


   Domestic

   Taiwan

   Japan

   America

   China

   Europe

   Others

   Total

2004

   (Won) 468,565    (Won) 801,469    (Won) 538,711    (Won) 342,134    (Won) 1,616,570    (Won) 557,498    (Won) 67,935    (Won) 4,392,882

2003

   (Won) 427,725    (Won) 496,429    (Won) 361,864    (Won) 159,880    (Won) 473,050    (Won) 266,179    (Won) 86,867    (Won) 2,271,994

 

21. Supplemental Cash Flow Information

 

Significant transactions not affecting cash flows for the six-month periods ended June 30, 2004 and 2003 are as follows:

 

(in millions of Korean Won)

 

   2004

   2003

Other accounts payable arising from the purchase of property, plant and equipment

   (Won) 1,048,344    (Won) 868,004

Increase in machinery and others arising from the completion of construction-in-progress

     53,179      629,465

Increase in machinery arising from the receipt of machinery-in-transit

     33,705      542,626

Increase in current portion of long-term debt

     —        785,668

 

22. Subsequent Events

 

In July 2004, pursuant to Securities Registration Statement filed on July 16, 2004 with the Korea Stock Exchange, the Company sold 8,640,000 shares of common stock for gross proceeds of (Won)298,080 million. Concurrently, pursuant to a Form F-1 registration statement filed on July 15, 2004 with the Securities and Exchange Commission, the Company sold 24,960,000 shares of common stock in the form of American Depositary Shares(“ADSs”) for gross proceeds of US$748,800 thousand.

 

The Company intends to use the proceeds of these sales to fund the capital expenditures associated with the construction of its seventh generation (“P7”) and other LCD facility in Korea.

 

See Report of Independent Accountants.

 

32


LG. Philips LCD Co., Ltd.

Notes to Non-consolidated Financial Statements

June 30, 2004 and 2003, and December 31, 2003

(Unaudited)

 

23. Reclassification of Prior Period Financial Statement Presentation

 

Certain amounts in the financial statements as of and for the three-month and six-month periods ended June 30, 2003 have been reclassified to conform with the June 30, 2004 non-consolidated financial statement presentation. These reclassifications had no effect on previously reported net income or shareholders’ equity.

 

See Report of Independent Accountants.

 

33


LG.Philips LCD Co., Ltd.

Interim Consolidated Financial Statements

June 30, 2004 and 2003

 


LG.Philips LCD Co., Ltd.

Index

June 30, 2004 and 2003

 

     Page(s)

Report of Independent Registered Public Accounting Firm    1
Consolidated Financial Statements     
Consolidated Balance Sheets    2
Consolidated Statements of Income    3
Consolidated Statements of Changes in Stockholders’ Equity    4
Consolidated Statements of Cash Flows    5
Notes to Consolidated Financial Statements    6 - 8

 


Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders of

LG.Philips LCD Co., Ltd.

 

We have reviewed the accompanying consolidated balance sheet of LG.Philips LCD Co., Ltd. and its subsidiaries (the “Company”) as of June 30, 2004 and the related consolidated statements of income for each of the three-month and six month periods ended June 30, 2004 and 2003, changes in stockholders’ equity and cash flows for the six -month periods ended as of June 30, 2003 and 2004. These interim financial statements are the responsibility of the company’s management.

 

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

 

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

 

We previously audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2003 and the related consolidated statements of income, retained earnings, and cash flows for the year then ended (not presented herein), and in our report dated March 23, 2004, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2003, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

 

/s/ Samil PricewaterhouseCoopers

 

Seoul, Korea

July 16, 2004

 


LG.Philips LCD Co., Ltd.

Consolidated Balance Sheets

(Unaudited)

 

(in millions of Korean Won and thousands of US dollars, except for share data)

 

     December 31, 2003

   June 30, 2004

  

(Note 2)

June 30, 2004


ASSETS

                    

Current assets:

                    

Cash and cash equivalents

   (Won) 504,014    (Won) 559,936    $ 484,374

Accounts receivable, net Trade, net

     613,029      813,617      703,821

Due from affiliates

     541,754      528,132      456,862

Others, net

     4,984      5,379      4,653

Inventories

     335,921      451,383      390,470

Deferred income taxes

     11,617      20,386      17,635

Prepaid expense

     23,197      25,409      21,980

Prepaid value added tax

     90,085      63,647      55,058

Other current assets

     21,695      54,545      47,183
    

  

  

Total current assets

     2,146,296      2,522,434      2,182,036

Long-term prepaid expenses

     35,063      35,845      31,008

Property, plant and equipment, net

     3,974,315      5,565,875      4,814,771

Deferred income taxes

     130,654      86,121      74,499

Intangibles, net

     29,260      26,934      23,299

Other assets

     27,399      28,151      24,351
    

  

  

Total assets

   (Won) 6,342,987    (Won) 8,265,360    $ 7,149,964
    

  

  

LIABILITIES AND STOCKHOLDERS’ EQUITY

                    

Current liabilities:

                    

Short-term borrowings

   (Won) 159,189    (Won) 414,267    $ 358,362

Current portion of long-term debt

     466,486      161,350      139,576

Trade accounts and notes payable

                    

Trade

     305,464      347,844      300,903

Due to affiliates

     98,058      90,594      78,369

Other accounts payable

                    

Others

     323,714      686,084      593,498

Due to affiliates

     699,712      552,806      478,206

Accrued expenses

     106,608      64,956      56,190

Income taxes payables

     41,406      65,244      56,439

Other current liabilities

     51,613      72,291      62,536
    

  

  

Total current liabilities

     2,252,250      2,455,436      2,124,079

Long-term debt, net of current portion

     1,318,581      1,656,606      1,433,050

Accrued severance benefits, net

     20,965      39,347      34,037
    

  

  

Total liabilities

     3,591,796      4,151,389      3,591,166
    

  

  

Commitments and contingencies

                    

Stockholders’ equity:

                    

Capital stock

                    

Common stock : (Won)5,000 par value; authorized 400 million shares; issued and outstanding 290 million shares

     1,450,000      1,450,000      1,254,325

Retained earnings

     1,297,355      2,647,595      2,290,307

Accumulated other comprehensive income

     3,836      16,376      14,166
    

  

  

Total stockholders’ equity

     2,751,191      4,113,971      3,558,798
    

  

  

Total liabilities and stockholders’ equity

   (Won) 6,342,987    (Won) 8,265,360    $ 7,149,964
    

  

  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

2


LG.Philips LCD Co., Ltd.

Consolidated Statements of Income

(Unaudited)

 

(in millions of Korean Won and thousands of US dollars, except for per share amount)

 

     For the three month periods
ended June 30,


   

For the six month periods

ended June 30,


 
     2003

    2004

    2003

    2004

    2004

 
                             (Note 2)  

Sales

                                        

Related parties

   (Won) 588,614     (Won) 923,918     (Won) 1,123,954     (Won) 1,799,928     $ 1,557,031  

Others

     708,453       1,406,552       1,158,097       2,718,555       2,351,691  
    


 


 


 


 


       1,297,067       2,330,470       2,282,051       4,518,483       3,908,722  

Cost of sales

     1,109,227       1,468,752       1,998,302       2,880,408       2,491,702  
    


 


 


 


 


Gross profit

     187,840       861,718       283,749       1,638,075       1,417,020  
    


 


 


 


 


Selling, general and administrative expenses

     54,260       88,399       94,363       157,200       135,986  
    


 


 


 


 


Operating income

     133,580       773,319       189,386       1,480,875       1,281,034  
    


 


 


 


 


Other income (expense)

                                        

Interest income

     1,313       3,835       2,076       7,771       6,722  

Interest expense

     (21,971 )     (9,630 )     (38,855 )     (26,962 )     (23,324 )

Foreign exchange gain (loss), net

     76,736       (8,314 )     1,659       (12,045 )     (10,420 )

Others, net

     1,266       36       1,571       586       507  
    


 


 


 


 


Total other income (expense)

     57,344       (14,073 )     (33,549 )     (30,650 )     (26,515 )
    


 


 


 


 


Income before income taxes

     190,924       759,246       155,837       1,450,225       1,254,519  

Provision for income taxes

     20,085       48,673       16,394       99,985       86,492  
    


 


 


 


 


Net income

   (Won) 170,839     (Won) 710,573     (Won) 139,443     (Won) 1,350,240     $ 1,168,027  
    


 


 


 


 


Net income per common share

                                        

Basic

   (Won) 589     (Won) 2,450     (Won) 481     (Won) 4,656     $ 4.03  

Diluted

   (Won) 589     (Won) 2,450     (Won) 481     (Won) 4,656     $ 4.03  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3


LG.Philips LCD Co., Ltd.

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

 

(in millions of Korean Won)

 

     Common Stock

   Retained
Earnings


  

Accumulated

Other
Comprehensive

Income (Loss)


    Total

 
     Shares

   Amount

       

Balance as of December 31, 2002

   290,000,000    (Won) 1,450,000    (Won) 290,852    (Won) (1,068 )   (Won) 1,739,784  
    
  

  

  


 


Comprehensive income :

                                   

Net income

                 139,443              139,443  

Cumulative translation adjustment

                        539       539  
                               


Total comprehensive income

                                139,982  
    
  

  

  


 


Balance as of June 30, 2003

   290,000,000    (Won) 1,450,000    (Won) 430,295    (Won) (529 )   (Won) 1,879,766  
    
  

  

  


 


Balance as of December 31, 2003

   290,000,000    (Won) 1,450,000    (Won) 1,297,355    (Won) 3,836     (Won) 2,751,191  
    
  

  

  


 


Comprehensive income :

                                   

Net income

                 1,350,240              1,350,240  

Cumulative translation adjustment

                        (2,606 )     (2,606 )

Net unrealized gains on derivative, net of tax

                        15,146       15,146  
                               


Total comprehensive income

                                1,362,780  
    
  

  

  


 


Balance as of June 30, 2004

   290,000,000    (Won) 1,450,000    (Won) 2,647,595    (Won) 16,376     (Won) 4,113,971  
    
  

  

  


 


(in thousands of US dollars) (Note 2)                            
     Common Stock

   Retained
Earnings


  

Accumulated
Other
Comprehensive

Income (Loss)


    Total

 
     Shares

   Amount

       

Balance as of December 31, 2003

   290,000,000    $ 1,254,325    $ 1,122,280    $ 3,318     $ 2,379,923  
    
  

  

  


 


Comprehensive income :

                                   

Net income

                 1,168,027              1,168,027  

Cumulative translation adjustment

                        (2,254 )     (2,254 )

Net unrealized gains on derivative, net of tax

                        13,102       13,102  
                               


Total comprehensive income

                                1,178,875  
    
  

  

  


 


Balance as of June 30, 2004

   290,000,000    $ 1,254,325    $ 2,290,307    $ 14,166     $ 3,558,798  
    
  

  

  


 


 

The accompanying notes are an integral part of these consolidated financial statements.

 

4


LG.Philips LCD Co., Ltd.

Consolidated Statements of Cash Flows

(Unaudited)

 

(in millions of Korean Won and thousands of US dollars)

 

     For the six month periods ended June 30,

 
     2003

    2004

    2004

 
                 (Note 2)  

Cash flows from operating activities:

                        

Net income

   (Won) 139,443     (Won) 1,350,240     $ 1,168,027  

Adjustments to reconcile net income to net cash provided by operating activities:

                        

Depreciation

     423,818       537,074       464,597  

Provision for severance benefits

     10,121       20,526       17,756  

Foreign exchange loss (gain), net

     33,353       (11,964 )     (10,349 )

Amortization of intangible assets

     2,455       3,454       2,988  

Gain on disposal of property, plant and equipment, net

     (990 )     (194 )     (168 )

Amortization of debt issuance cost

     1,919       2,248       1,945  

Decrease in deferred income taxes assets, net

     14,573       35,764       30,938  

Others, net

     4,112       1,176       1,016  

Change in operating assets and liabilities:

                        

Increase in accounts receivable

     (184,977 )     (195,770 )     (169,352 )

Decrease (increase) in inventories

     74,791       (111,941 )     (96,835 )

Decrease in other current assets

     16,126       19,210       16,618  

Increase in trade accounts and notes payable

     18,538       35,185       30,437  

Increase in other accounts payable

     49,255       50,741       43,894  

Decrease in accrued expenses

     (8,938 )     (41,652 )     (36,031 )

(Decrease) increase in other current liabilities

     (29,103 )     23,824       20,609  
    


 


 


Net cash provided by operating activities

     564,496       1,717,921       1,486,090  
    


 


 


Cash flows from investing activities:

                        

Purchase of property, plant and equipment

                        

Purchase from related parties

     (323,093 )     (1,593,118 )     (1,378,129 )

Purchase from others

     (195,797 )     (376,566 )     (325,748 )

Proceeds from sales of property, plant and equipment

     2,038       3,196       2,765  

Others, net

     (12,919 )     (2,986 )     (2,584 )
    


 


 


Net cash used in investing activities

     (529,771 )     (1,969,474 )     (1,703,696 )
    


 


 


Cash flows from financing activities:

                        

Proceeds from short-term borrowings

     122,513       255,078       220,656  

Proceeds from issuance of long-term debt

     50,689       352,399       304,843  

Repayment on long-term debt

     —         (300,000 )     (259,515 )
    


 


 


Net cash provided by financing activities

     173,202       307,477       265,984  
    


 


 


Effect of exchange rate changes on cash and cash equivalents

     104       (2 )     (2 )
    


 


 


Net increase in cash and cash equivalents

     208,031       55,922       48,376  

Cash and cash equivalents:

                        

Beginning of period

     70,306       504,014       435,998  
    


 


 


End of period

   (Won) 278,337     (Won) 559,936     $ 484,374  
    


 


 


 

The accompanying notes are an integral part of these consolidated financial statements.

 

5


LG.Philips LCD Co., Ltd.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2003 and 2004

 

1. Basis of presentation

 

The accompanying unaudited interim consolidated financial statements of LG.Philips LCD Co., Ltd. (“LPL”), and its consolidated subsidiaries (hereinafter collectively referred to as the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial information and, accordingly, do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2003. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for a fair presentation of results for these interim periods. The results of operations for the six months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

 

2. United States dollar amounts

 

The Company operates primarily in Korea and its financial accounting records are maintained in Korean Won. The US dollar amounts are provided herein as supplementary information solely for the convenience of the reader. Korean Won amounts are expressed in US dollars at the rate of (Won) 1,156.0: US$1, the US Federal Reserve Bank of New York noon buying exchange rate in effect on June 30, 2004. The US dollar amounts are unaudited and are not presented in accordance with generally accepted accounting principles in either Korea or the United States of America, and should not be construed as a representation that the Korean Won amounts shown could be converted, realized or settled in US dollars at this or any other rate.

 

3. Inventories

 

Inventories at December 31, 2003 and June 30, 2004 comprise the following:

 

     December 31, 2003

   June 30, 2004

(in millions of Korean Won)          

Finished products

   (Won) 122,263    (Won) 220,415

Work in process

     88,744      76,015

Raw materials

     124,914      154,953
    

  

     (Won) 335,921    (Won) 451,383
    

  

 

6


LG.Philips LCD Co., Ltd.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2003 and 2004

 

4. Derivative Instruments and Hedging Activities

 

Derivatives for cash flow hedge

 

During the six month period ended June 30, 2003, there were no derivatives designated as cash flow hedges, and during the period from July 1, 2003 to December 31, 2003, five foreign currency forward contracts were designated as cash flow hedges. For the six month period ended June 30, 2004, two contracts of these cash flow hedges expired and realized exchange gains were recorded as an addition of sales. During the same period, the Company entered into two foreign currency forward contracts newly and designated as cash flow hedges. All cash flow hedges of the Company were fully effective and changes in the fair value of the derivatives, of (Won)17,788 million, were recorded in other comprehensive income. The deferred gains of (Won)22,140 million for derivatives designated as cash flow hedges are expected to be reclassified into earnings within the next twelve months.

 

Derivatives for trading

 

For the six month periods ended June 30, 2003 and 2004, the Company recorded realized exchange gains of (Won)1,930 million and (Won)17,566 million and realized exchange losses of (Won)4,889 million and (Won)20,216 million, respectively, on derivative contracts designated for trading upon settlement.

 

In addition, for the six month periods ended June 30, 2003 and 2004, the Company recorded unrealized gains of (Won)9,359 million and (Won)14,608 million and unrealized losses of (Won)5,518 million and (Won)18,548 million, respectively, relating to these derivative contracts designated for trading.

 

5. Commitments and Contingencies

 

The Company is subject to several legal proceedings and claims arising in the ordinary course of business. In August 2002, the Company filed a complaint against Chunghwa Picture Tubes, Tatung Company and Tatung Co. of America, alleging patent infringement relating to liquid crystal displays and the manufacturing process for TFT-LCDs. Subsequently the Company filed a complaint against customers of Chunghwa Picture Tubes, including ViewSonic Corp., Jeans Co, Lite-On Technology Corp., Lite-On Technology International, Inc., TpV Technology and Invision Peripheral Inc. In June 2004, Chunghwa Picture Tubes filed a counter-claim against the Company in the United States District Court for the central District of California for alleged infringement of Chunghwa Picture Tubes’ intellectual property and violation of U.S. antitrust laws. In May 2004, the Company filed a complaint against Tatung Co., parent company of Chunghwa Picture Tubes and ViewSonic Corp claiming patent infringement on rear mountable liquid crystal display devices in United states District of Delaware and Patent Country Court in the United Kingdom. The Company’s management does not expect that the outcome in any of these legal proceedings, individually or collectively, will have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

 

7


LG.Philips LCD Co., Ltd.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2003 and 2004

 

6. Earnings Per Share

 

Earnings per share for the six month periods ended June 30, 2003 and 2004 is calculated as follows:

 

(in millions of Korean Won, except for per share data)    2003

   2004

Net income as reported on the income statements

   (Won) 139,443    (Won) 1,350,240

Weighted-average number of common shares outstanding

     290      290
    

  

Earnings per share

   (Won) 481    (Won) 4,656
    

  

 

7. Supplemental Cash Flows Information

 

Supplemental cash flows information for the six month periods ended June 30, 2003 and 2004 is as follows:

 

(in millions of Korean Won)    2003

   2004

Non-cash investing and financing activities:

             

Other accounts payable arising from the purchase of property, plant and equipment

   (Won) 868,004    (Won) 1,048,344

 

8. Subsequent Events

 

In July 2004, pursuant to Securities Registration Statement filed on July 16, 2004 with Korean Stock Exchange, the Company sold to 8,640,000 shares of common stock for gross proceeds of (Won)298,080 million. Concurrently, pursuant to a Form F-1 registration statement filed on July 15, 2004 with the Securities and Exchange Commission, the Company sold to 24,960,000 shares of common stock in the form of American Depositary shares (“ADSs”) for gross proceeds of US$748,800 thousands.

 

The Company intends to use the proceeds of these sales to fund the capital expenditures associated with the construction of its seventh generation (“P7”) and other LCD facility in Korea.

 

8


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.Philips LCD Co., Ltd.

(Registrant)

Date: August 16, 2004

     

By:

 

/s/ Ron H. Wirahadiraksa

           

(Signature)

           

Name:

 

Ron H. Wirahadiraksa

           

Title:

 

Joint Representative Director and Chief Financial Officer